As filed with the Securities and Exchange Commission on June 16, 1995
File Nos. 2-95928
811-4547
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. 24
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 24
(Check appropriate box or boxes.)
VOYAGEUR MUTUAL FUNDS III, 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:
Michael J. Radmer, Esq.
Dorsey & Whitney
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing will become effective (check appropriate box):
___ immediately upon filing pursuant to paragraph (b) of Rule 485 on
___ (date) pursuant to paragraph (b) of Rule 485 75 days after filing
___ pursuant to paragraph (a) of Rule 485
_X_ on September 1, 1995 pursuant to paragraph (a) 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. A Rule 24f-2 Notice will be filed by the Registrant on or
before June 30, 1995.
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
(VOYAGEUR MUTUAL FUNDS III, INC.)
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Item No. of
Form N-1A Caption in Prospectus
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1 Cover Page
2 Fees and Fund Expenses
3 Financial Highlights
4 Investment Objectives and Policies; Risk Factors and Special Considerations; General
Information
5 Management; General Information
6 Distributions to Shareholders and Taxes; General Information
7 How to Purchase Shares; Management; Determination of Net Asset Value
8 How to Sell Shares; Reinstatement Privilege; Exchange Privilege
9 Not Applicable
Caption in Statement of Additional Information
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Restrictions
14 Directors and Executive Officers of the Company
15 Directors and Executive Officers of the Company; Additional Information
16 Directors and Executive Officers of the Company; The Investment Adviser, Sub-Adviser
and Underwriter
17 The Investment Adviser, Sub-Adviser and Underwriter
18 Not Applicable
19 Special Purchase Plans; Monthly Cash Withdrawal Plan; Net Asset Value and
Public Offering Price
20 Distributions to Shareholders and Taxes
21 The Investment Adviser, Sub-Adviser and Underwriter
22 Calculation of Performance Data
23 Additional Information
</TABLE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 16, 1995
Voyageur Growth and Income Fund ("Growth and Income Fund"), Voyageur
Growth Stock Fund ("Growth Stock Fund"), Voyageur International Equity Fund
("International Equity Fund") and Voyageur Aggressive Growth Fund ("Aggressive
Growth Fund") (together the foregoing are referred to herein as the "Funds") are
each a series of Voyageur Mutual Funds III, Inc. (the "Company"), an open-end
management investment company commonly referred to as a mutual fund. Each Fund
currently offers its shares in three classes: Class A, Class B and Class C. Each
class is sold pursuant to different sales arrangements and bears different
expenses.
The Growth and Income Fund's investment objective is growth of capital
with income as a secondary objective. It invests primarily in a broadly
diversified portfolio of common stocks and other equity-type securities (such as
preferred stocks, securities convertible into or exchangeable for common stocks,
and warrants or rights to purchase common stocks). The Growth Stock Fund's
investment objective is long-term capital appreciation through investment in
equity securities diversified among individual companies and industries. The
International Equity Fund's investment objective is to achieve a high total
return consistent with reasonable risk, by investing primarily in a diversified
portfolio of equity securities of companies located in countries outside the
United States and Canada. The Aggressive Growth Fund's investment objective is
long-term capital appreciation, which the Fund attempts to achieve by investing
primarily in equity securities of companies which Voyageur believes have the
potential for high earnings growth. There is no assurance that any Fund's
investment objective will be achieved. Voyageur Fund Managers, Inc. ("Voyageur"
or the "Adviser") serves as investment adviser for the Funds. Voyageur employs
Segall Bryant & Hamill (the "Sub-Adviser"), a Chicago-based investment manager
and an affiliate of Voyageur as Growth and Income Fund's Sub-Adviser and Murray
Johnstone International Ltd. (the "Sub-Adviser") as International Equity Fund's
Sub-Adviser.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
AN INVESTMENT IN ANY OF THE FUNDS INVOLVES CERTAIN RISKS AND REQUIRES
CONSIDERATION OF SUCH RISKS. IN ADDITION, AN INVESTMENT IN THE INTERNATIONAL
EQUITY FUND INVOLVES CERTAIN RISKS AND REQUIRES CONSIDERATION OF FACTORS NOT
TYPICALLY ASSOCIATED WITH INVESTMENT IN SECURITIES OF UNITED STATES ISSUERS. SEE
"RISK FACTORS AND SPECIAL CONSIDERATIONS." This Prospectus sets forth certain
information about the Funds that a prospective investor ought to know before
investing. The Funds have filed a combined Statement of Additional Information
(dated September 1, 1995) with the Securities and Exchange Commission. The
Statement of Additional Information is available free of charge from the Funds
by telephone and at the mailing address below, and is incorporated by reference
into this Prospectus in accordance with the Commission's rules.
VOYAGEUR GROWTH AND INCOME FUND
VOYAGEUR GROWTH STOCK FUND
VOYAGEUR INTERNATIONAL EQUITY FUND
VOYAGEUR AGGRESSIVE GROWTH FUND
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
612.376.7000
800.553.2143
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 September 1, 1995
PURCHASE INFORMATION
The Funds offer investors the choice among three classes of shares
which have different sales charges and bear different expenses. These
alternatives permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances.
CLASS A SHARES. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject to
any charges when they are redeemed (except for sales at net asset value in
excess of $1 million which are subject to a contingent deferred sales charge).
The initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to a Rule 12b-1 fee payable at an annual rate of .25% of the
Fund's average daily net assets attributable to Class A shares. See "How to
Purchase Shares--Class A Shares."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of up to 4% if
redeemed within six years of purchase. Class B shares are also subject to a
higher Rule 12b-1 fee than Class A shares. The Rule 12b-1 fee for Class B shares
will be paid at an annual rate of 1.00% of a Fund's average daily net assets
attributable to Class B shares. Class B shares will automatically convert to
Class A shares at net asset value approximately eight years after purchase.
Class B shares provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made but until conversion will
have a higher expense ratio and pay lower dividends than Class A shares due to
the higher Rule 12b-1 fee. See "How to Purchase Shares--Class B Shares."
CLASS C SHARES. Class C shares are sold without an initial or
contingent deferred sales charge. Class C shares are also subject to a higher
Rule 12b-1 fee than Class A shares. The Rule 12b-1 fee for Class C shares of
each Fund will be paid at an annual rate of 1.00% of the Fund's average daily
net assets attributable to Class C shares. Class C shares provide an investor
the benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower dividends
than Class A shares due to the higher Rule 12b-1 fee. See "How to Purchase
Shares--Class C Shares." Class C shares do not convert to any other class of
shares.
The decision as to which class of shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
and intended length of the investment. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Other investors might
consider Class B or Class C shares because all of the purchase price is invested
immediately. Voyageur will treat orders for Class B shares for $250,000 or more
as orders for Class A shares or declined. Sales personnel may receive different
compensation depending on which class of shares they sell.
SHARES OF THE FUND COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN ALL
STATES. SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING
OFFERED AND SOLD IN SUCH STATES.
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TABLE OF CONTENTS PAGE PAGE
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Purchase Information...................... 2 How to Sell Shares.............................. 25
Summary................................... 3 Reinstatement Privilege......................... 27
Fees and Fund Expenses.................... 3 Exchange Privilege.............................. 28
Financial Highlights...................... 4 Management...................................... 28
Investment Objectives and Policies........ 5 Determination of Net Asset Value................ 32
Risk Factors and Special.................. Distributions to Shareholders and Taxes......... 33
Considerations........................ 17 Investment Performance.......................... 35
How to Purchase Shares.................... 19 General Information............................. 36
Retirement Plans.......................... 25
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FEES AND FUND EXPENSES
The purpose of the table below is to assist an investor in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly in connection with an investment in a Fund.
<TABLE>
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Shareholder
Transaction Expenses Annual Fund Operating Expenses
(as a percentage of average
Maximum daily net assets)
CDSC After Fee Waivers and Total Example of Expenses
Maximum Imposed on Reimbursement Arrangements Fund An investor would pay
Front End Redemptions** Operating the following dollar amount
Sales as a % of Expenses of expenses on
Load original Without a $1,000 investment assuming
Imposed purchase Voluntary a 5% annual return and
on price or Waiver redemption at the end of each
Purchases* redemption Reimburse- period
as a % of proceeds, Total Fund ment and
offering as Management Rule Other Operating expense 1 3 5 10
Voyageur Funds price applicable Fee 12b-1 Fees Expenses Expenses reductions*** Year Years Years Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME FUND
Class A 4.75% 1.00% 1.00% 0.25% 0.50% 1.75% 2.97% $ 64 $100 $-- $--
Class B 0.00 4.00 1.00 1.00 0.50 2.50 3.50 65+ 108+ -- --
Class C 0.00 0.00 1.00 1.00 0.50 2.50 3.50 25 78 -- --
GROWTH STOCK FUND 4.75 1.00 0.50 1.00 0.40 1.90 1.99 66 104 145 259
INTERNATIONAL EQUITY FUND
Class A 4.75 1.00 1.00 0.25 0.75 2.00 2.97 67 107 150 269
Class B 0.00 4.00 1.00 1.00 0.75 2.75 3.50 68+ 115+ 165+ 290
Class C 0.00 0.00 1.00 1.00 0.75 2.75 3.50 28 85 145 308
AGGRESSIVE GROWTH FUND
Class A 4.75 1.00 1.00 0.25 0.50 1.75 2.97 64 100 138 244
Class B 0.00 4.00 1.00 1.00 0.50 2.50 3.50 65+ 108+ 153+ 265
Class C 0.00 0.00 1.00 1.00 0.50 2.50 3.50 25 78 133 284
</TABLE>
* Class B and Class C shares are sold without a front end sales charge, but
their Rule 12b-1 fees may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front end sales charges.
** A contingent deferred sales charge of up to 1.00% is imposed on certain
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "How to Purchase
Shares--Class A Shares--Front End Sales Charge Alternative."
*** Up to the most restrictive state limitation in effect.
+ Class B share expenses would be lower assuming no redemption at the end of
the period.
THE EXAMPLES CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR 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. Such information has
been restated to reflect anticipated voluntary Rule 12b-1 waivers and expense
reimbursements during fiscal 1996. After April 30, 1996, such expense waivers
and reimbursements may be discontinued or modified by Voyageur and the
Underwriter in their sole discretion. For the fiscal period ended April 30,
1995, Voyageur and the Underwriter voluntarily waived certain fees and absorbed
certain expenses of each Fund then in existence. Absent such fee and expense
waivers, Total Fund Operating Expenses for such period would be equivalent to
the corresponding percentages disclosed under the column "Ratio of Expenses to
Average Net Assets Assuming No Voluntary Waivers" in the section "Financial
Highlights."
FINANCIAL HIGHLIGHTS
The following table shows certain per share data and selected
information for a share of capital stock outstanding during the indicated
periods for each Fund. This information has been audited by KPMG Peat Marwick
LLP, independent auditors, and should be read in conjunction with the Financial
Statements of each Fund contained in its annual report. An annual report of each
Fund is available without charge by contacting the Funds at 800-553-2143. Per
share data is not presented for all classes since not all classes of shares were
outstanding during the periods presented below. No information is presented for
Growth and Income Fund since it had not commenced operations.
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Ratios/Supplemental Data
-----------------------------------------------------------------
Ratio of
Expenses
to Average
Income from Less Net Assets
Investment Distri- Assuming No
Operations butions Voluntary
------------ ------- Ratio Waivers,
of Net Reimbursements
Div- Invest- and expense
Net dends ment reductions,
Realized from Distrib- Net Total Net Ratio of Income up to
Net Asset Net and Unreal- Net utions Asset Invest- Assets Expenses to the most
Value Invest- ized Gains Invest- from Value ment End of to Average Portfolio restrictive
Beginning ment (Loss) on ment Capital End of Return Period Average Net Turnover state limit-
Voyageur Fund of Period Income Securities Income Gains Period (e) (000s) Net Assets Assets Rate ation in effect
GROWTH STOCK FUND
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/30/95 $7.51 $.15 $2.77 $(.13) $(.39) $19.91 17.04% $23,651 1.90% .75% 21.8% 1.99%
4/30/94 17.81 .07 (.16) (.06) (.15) 17.51 (.47) 28,518 1.90 .40 34.15 2.02
4/30/93 23.81 .05 .22 -- (6.27) 17.81 1.51 26,784 1.90 .26 16.51 2.70
4/30/92 19.36 (.18) 4.81 -- (.18) 23.81 23.86 19,351 2.25 (.76) 142.63 2.86
4/30/91 (d) 18.85 (.11) 3.40 -- (2.78) 19.36 20.65 11,400 2.36 (.67) 128.17 2.86
4/30/90 19.39 (.08) 1.29 -- (1.75) 18.85 6.09 10,331 2.31 (.66) 115.12 2.86
4/30/89 16.10 (.15) 3.51 -- (.07) 19.39 20.92 9,183 2.42 (.69) 31.73 3.00
4/30/88 17.46 (.13) (.84) -- (.39) 16.10 (5.33) 9,706 2.52 (.76) 57.07 3.00
4/30/87 13.36 (.07) 4.24 (.05) (.02) 17.46 31.37 10,083 3.00 (.84) 64.23 3.00
4/30/86 (b) 10.23 .18 3.11 (.16) -- 13.36 32.91 1,903 .02(c) 3.45(c) 12.95 3.00
10/31/85 (a) 10.13 .35 .05 (.30) -- 10.23 2.34 488 -- 6.93(c) -- 3.00
INTERNATIONAL EQUITY FUND(f)
Class A - 4/30/95(a) 10.00 (.05) (.52) -- -- 9.42 (5.80) 2,009 1.99(c) (.55)(c) 92.1 2.97(c)
Class C - 4/30/95(a) 9.99 (.11) (.52) -- -- 9.36 (6.31) 20 2.74(c) (1.36)(c) 92.1 3.50(c)
AGGRESSIVE GROWTH FUND(f)
Class A - 4/30/95(a) 10.00 (.09) .49 -- -- 10.40 4.00 2,189 1.74(c) (1.21)(c) 88.3 2.97(c)
Class C - 4/30/95(a) 10.00 (.16) .49 -- -- 10.33 3.30 128 2.40(c) (1.80)(c) 88.3 3.50(c)
</TABLE>
Notes to Financial Highlights
(a) The information is for the period from each Fund's commencement of
operations to the Fund's year end. The classes of each fund commended
operations on the following dates:
Growth Stock Fund May 16, 1985
International Equity Fund
Class A May 16, 1994
Class C May 20, 1994
Aggressive Growth Fund
Class A May 16, 1994
Class C May 20, 1994
(b) On March 31, 1986 Growth Stock Fund changed its fiscal year end to
April 30.
(c) Adjusted to an annual basis.
(d) Effective September 1, 1990, Voyageur replaced Investment Advisers, Inc. as
the investment adviser and Wilke/Thompson Capital Management began acting
as the Growth Stock Fund's sub-investment adviser until January 1, 1992
when Voyageur became the sole investment adviser to the Fund.
(e) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(f) Per share amounts are presented based upon average fund shares outstanding.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
GROWTH AND INCOME FUND. The Growth and Income Fund's investment
objective is growth of capital with income as a secondary objective by investing
primarily in common stocks, convertible securities and other equity type
investments.
GROWTH STOCK FUND. The Growth Stock Fund has an objective of long-term
capital appreciation. The Growth Stock Fund seeks to achieve its objective by
investing in equity securities diversified among individual companies and
industries.
INTERNATIONAL EQUITY FUND. The International Equity Fund's investment
objective is to provide a high total return consistent with reasonable risk by
investing primarily in a diversified portfolio of equity securities of companies
located in countries located outside the United States and Canada.
AGGRESSIVE GROWTH FUND. The Aggressive Growth Fund's investment
objective is long-term capital appreciation, which the Fund attempts to achieve
by investing primarily in equity securities of companies which Voyageur believes
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
No assurance can be given that any Fund will be able to achieve its
investment objective.
INVESTMENT POLICIES
GROWTH AND INCOME FUND. Segall Bryant & Hamill, Growth and Income
Fund's Sub-Adviser, will attempt to achieve the Fund's investment objective by
investing primarily in common stocks and other securities convertible to common
stocks (including preferred stocks and debentures). The Fund may also invest up
to 35% of total assets in debt securities. The Fund's portfolio includes
securities that offer income potential in addition to growth of capital and it
is designed to provide more dividend income than a portfolio focused exclusively
on growth.
Growth and Income Fund invests primarily in well-established companies.
Although Growth and Income Fund may invest in a broad range of securities,
normally it seeks to limit volatility by investing at least 65% of its total
assets in the equity securities of companies having market capitalizations in
excess of $1 billion. The securities of such companies are believed by the
Sub-Adviser to be generally less volatile than those of companies with smaller
capitalizations because companies with larger capitalizations tend to be more
established, with a reputation for quality management, and tend to have broader,
more highly diversified product lines, broader and deeper resources and easier
access to credit.
GROWTH STOCK FUND. In seeking to achieve its investment objective,
Growth Stock Fund's policy is to invest under normal market conditions not less
than 80% of its total assets in common stocks which Voyageur believes offer the
potential for long-term capital appreciation. Some of the factors Voyageur 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. Growth Stock Fund anticipates that, in normal market conditions,
at least 75% of the Fund's investments in common stocks will have received one
of the two highest earnings and dividend ratings (A+ or A) assigned by Standard
& Poor's Corporation ("Standard & Poor's"). Growth Stock Fund also may invest up
to 20% of its total assets in preferred stocks and corporate bonds if they are
accompanied by warrants or are convertible into common stocks.
INTERNATIONAL EQUITY FUND. International Equity Fund will invest
primarily (under normal circumstances, at least 65% of its total assets) in
common stocks of established foreign companies believed by Murray Johnstone
Ltd., the Fund's Sub-Adviser, to have potential for capital growth, income or
both. International Equity Fund may invest up to 35% of its total assets in any
other type of security including, but not limited to, convertible securities,
preferred stock, bonds, notes and other debt securities of companies (including
Euro-currency instruments and securities) or of any international agency (such
as the World Bank, Asian Development Bank or Inter-American Development Bank) or
obligations of domestic or foreign governments and their political subdivisions,
and in foreign currency transactions. International Equity Fund may also engage
in certain options transactions, and enter into futures contracts and related
options for hedging purposes. See "--Investment Techniques."
International Equity Fund will make investments in various countries.
Under normal circumstances, at least 65% of International Equity Fund's total
assets will be invested in the securities of issuers in no less than three
countries. International Equity Fund may, from time to time, have more than 25%
of its assets invested in any major industrial or developed country which in the
view of the Sub-Adviser poses no unique investment risk. The Sub-Adviser
considers an investment in a given foreign country to have "no unique investment
risk" if International Equity Fund's investment in that country is not
disproportionate to the relative size of the country's market versus the Morgan
Stanley Capital International Europe Index, Australia and Far East Index (EAFE)
or World Index or other comparable index, and if the capital markets in that
country are mature, and of sufficient liquidity and depth. Under exceptional
economic or market conditions, International Equity Fund may invest
substantially all of its assets in only one or two countries. In determining the
appropriate distribution of investments among various countries and geographic
regions, the Sub-Adviser ordinarily will consider the following factors:
prospects of relative economic growth among foreign countries; expected levels
of inflation; relative price levels of the various capital markets; government
policies influencing business conditions; the outlook for currency
relationships; and the range of individual investment opportunities available to
the global investor. International Equity Fund may make investments in
developing countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems which may be less stable. A country is considered by the Sub-Adviser to
be a developing country if it is not included in the Morgan Stanley Capital
International World Index. Examples of developing countries would currently
include countries such as Argentina, Brazil, Chile, India, Indonesia, Korea,
Mexico, Malaysia, Taiwan and Turkey. Investing in developing countries often
involves risk of high inflation, high sensitivity to commodity prices, and
government ownership of the biggest industries in that country. Investing in
developing countries also involves a higher probability of occurrence of the
risks of investing in foreign securities in general, including but not limited
to, less financial information available, relatively illiquid markets, and the
possibility of adverse government action (see "Risk Factors and Special
Considerations" below).
No more than 30% of International Equity Fund's net assets may be
invested in the securities of issuers located in developing countries. In the
past, markets of developing countries have been more volatile than the markets
of developed countries; however, such markets often have provided higher
long-term rates of return to investors. The Sub-Adviser believes that these
characteristics may be expected to continue in the future. Although
International Equity Fund invests primarily in equity securities, it may invest
up to 35% of its net assets in debt securities, excluding money market
instruments.
The Sub-Adviser may from time to time invest in the debt instruments of
foreign sovereign governments. These may include short-term treasury bills,
notes and long-term bonds, and will only be considered for investment by the
International Equity Fund if they have the full guarantee of the government in
question. The Sub-Adviser will not invest in foreign government securities with
a rating by Moody's lower than AA3.
AGGRESSIVE GROWTH FUND. Aggressive Growth Fund seeks to achieve its
investment objective by investing primarily in equity securities of companies
which Voyageur believes have the potential for high earnings growth and which
are U.S. companies with stock market capitalizations of at least $300 million.
Aggressive Growth 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.
Aggressive Growth Fund will invest in equity securities of companies
Voyageur believes to be undervalued and to have the potential for high earnings
growth. Companies in which Aggressive Growth Fund invests generally will meet
one or more of the following criteria: high historical earnings-per-share
("EPS") growth; high projected future EPS growth; an increase in research
analyst earnings estimates; attractive relative price to earnings ratios; and
high relative discounted cash flows. In selecting the Aggressive Growth Fund's
investments, Voyageur 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.
In pursuing its objective, Aggressive Growth Fund anticipates that it
will invest substantially all, and under normal conditions not less than 65%, of
its assets in common stocks, preferred stocks, convertible bonds, convertible
debentures, convertible notes, convertible preferred stocks and warrants or
rights. To the extent that the Aggressive Growth 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.
Up to 10% of the Aggressive Growth Fund's assets may be invested in
foreign securities. The Aggressive Growth Fund may also invest in securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"), which are
U.S. dollar-denominated receipts, typically issued by domestic banks or trust
companies, that represent the deposit with those entities of securities of a
foreign issuer, and Global Depositary Receipts ("GDRs"), which generally are
issued by foreign banks and evidence ownership of either foreign or domestic
securities. 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 Aggressive Growth Fund may invest in ADRs through
both sponsored and unsponsored arrangements.
At no time will the investments of the Aggressive Growth Fund in bank
obligations, including time deposits, exceed 25% of the value of the Aggressive
Growth Fund's assets.
Although the Aggressive Growth Fund has no current intention of doing
so in the foreseeable future, the Aggressive Growth Fund may engage in
transactions involving stock options, stock index options, lending portfolio
securities, short sales of securities "against the box," and futures contracts
and options on futures contracts. The foregoing investment techniques are
described in the Statement of Additional Information.
INVESTMENT TECHNIQUES AND STRATEGIES
Except as provided below and in the Statemenbt of Additional
Information, each Fund may engage in a number of investment techniques and
strategies. A Fund is under no obligation to use any of the techniques or
strategies at any given time or under any particular economic condition. In
addition, no assurance can be given that the use of any practice will have its
intended result or that the use of any practice is, or will be, available to a
Fund.
DEBT SECURITIES. In pursuing its investment objective, each Fund may
invest up to 35% of its total assets (20% for Growth Stock Fund) in debt
securities of corporate and governmental issuers. 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.
Investments in debt securities by Growth and Income Fund, Growth Stock
Fund and Aggressive Growth Fund are limited to those that are within the four
highest grades (generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization or, if unrated, are deemed
to be of comparable quality by the Adviser. International Equity Fund may invest
up to 5% of its net assets in debt securities rated lower than AAA or Aaa, but
in no event lower than BBB or Baa, or, if unrated, then determined by the
Sub-Adviser to be of equivalent credit quality. [If a change in credit quality
after acquisition by a Fund causes a bond to no longer be investment grade, the
Fund will dispose of the bond, if necessary, to keep its holdings of such bonds
to 5% or less of the Fund's net assets.] See "Investment Policies and
Restrictions--Credit Quality" in the Statement of Additional Information. Debt
securities rated Baa by Moody's Investors Services or BBB by Standard & Poors
Ratings Group, although considered investment grade, may have speculative
characteristics and changes in economic circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. The Sub-Adviser does not intend to purchase any bonds
for International Equity Fund rated lower than AAA unless the instrument
provides an opportunity to invest in an attractive company in which an equity
investment is not currently available or desirable.
When a Fund's Adviser or Sub-Adviser determines that adverse market or
economic conditions exist and considers a temporary defensive position
advisable, the Fund may invest without limitation in high-quality fixed income
securities or hold assets in cash or cash equivalents.
ILLIQUID SECURITIES. Each Fund is authorized to invest up to 15% of its
net assets in illiquid securities, which are securities that cannot be disposed
of by the Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Each Fund
may invest in non-publicly traded securities (commonly referred to as
"restricted securities"), which are securities that are subject to contractual
or legal restrictions on transfer. Restricted securities include securities that
are not registered under the Securities Act of 1933, as amended (the "1933
Act"), but that can be sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act (Rule 144A Securities"). Thus, restricted
securities are not necessarily illiquid. A Fund's investments in restricted
securities will be considered liquid only if the Adviser or Sub-Adviser
determines that they are liquid under guidelines established by the Company's
Board of Directors..
INVESTMENTS IN OTHER INVESTMENT COMPANIES. As a means of regulating a
Fund's exposure to the equity markets, the Fund 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 Fund is authorized to invest. Currently under the
Investment Company Act of 1940, as amended (the "1940 Act"), a Fund may invest a
maximum of 10% of its total assets in the securities of other investment
companies. In addition, under the 1940 Act, not more than 5% of a Fund's total
assets may be invested in the securities of any one investment company, and a
Fund may not own more than 3% of the securities of any investment company.
REPURCHASE AGREEMENTS. Each Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of a Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, will not exceed 15% of the Fund's net assets. Each Fund may
engage in repurchase agreement transactions, which are in the nature of secured
loans by the Fund, with certain member banks of the Federal Reserve System and
with certain recognized securities dealers. Each Fund will only engage in
repurchase agreements with banks and dealers determined to present minimal
credit risk by Voyageur or the Sub-Adviser under the direction and supervision
of the Board of Directors. In addition, Voyageur or the Sub-Adviser will monitor
such creditworthiness on an ongoing basis. Under the terms of a typical
repurchase agreement, a Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than seven days) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the securities underlying a repurchase agreement of the Fund is
monitored on an ongoing basis by Voyageur or the Sub-Adviser to ensure that the
value is at least equal at all times to the total amount of the repurchase
obligation, including interest.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, each Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Funds will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Funds may
include securities purchased on a "when, as and if issued" basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. Each
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, government securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
TEMPORARY INVESTMENTS. Each Fund's reserves may be invested in domestic
and, with respect to International Equity Fund, foreign short-term money market
instruments including, but not limited to, U.S. and foreign government and
agency obligations, and obligations of supranational entities, certificates of
deposit, bankers' acceptances, time deposits, commercial paper, short-term
corporate debt securities and repurchase agreements. During temporary defensive
periods as determined by Voyagaeur or the Sub-Adviser, each Fund may hold up to
100% of its total assets in short-term obligations of the types described above.
HEDGING TRANSACTIONS. Each Fund may write covered call options and
secured put options and purchase call and put options on securities and security
indices [and, with respect to International Equity Fund, foreign currencies].
Such Funds may also engage in transactions in financial futures contracts and
related options for hedging purposes. In addition, International Equity Fund may
conduct foreign currency exchange transactions. These investment techniques and
the related risks are summarized below and are described in more detail in the
Statement of Additional Information.
Writing (Selling) Call and Put Options. A call option on a security,
security index or a foreign currency gives the purchaser of the option, in
return for the premium paid to the writer (seller), the right to buy the
underlying security, index or foreign currency at the exercise price at any time
during the option period. Upon exercise by the purchaser, the writer of a call
option on an individual security or foreign currency has the obligation to sell
the underlying security or currency at the exercise price. A call option on a
securities index is similar to a call option on an individual security, except
that the value of the option depends on the weighted value of the group of
securities comprising the index and all settlements are made in cash. A call
option may be terminated by the writer (seller) by entering into a closing
purchase transaction in which it purchases an option of the same series as the
option previously written.
A put option on a security, security index, or foreign currency gives
the purchaser of the option, in return for the premium paid to the writer
(seller), the right to sell the underlying security, index, or foreign currency
at the exercise price at any time during the option period. Each Fund may
purchase or write call and put options, but Growth Stock Fund may only purchase
or write covered put and call options.
Upon exercise by the purchaser, the writer of a put option has the
obligation to purchase the underlying security or foreign currency at the
exercise price. A put option on a securities index is similar to a put option on
an individual security, except that the value of the option depends on the
weighted value of the group of securities comprising the index and all
settlements are made in cash.
Call options may be written on portfolio securities, securities
indices, or foreign currencies. With respect to securities and foreign
currencies, the Funds may write call and put options on an exchange or
over-the-counter. Call options on portfolio securities will be covered since the
Fund will own the underlying securities. Call options on securities indices will
be written only to hedge, in an economically appropriate way, portfolio
securities which are not otherwise hedged with options or financial futures
contracts and will be "covered" by identifying the specific portfolio securities
being hedged. Options on foreign currencies will be covered by securities
denominated in that currency. Options on securities indices will be covered by
securities that substantially replicate the movement of the index. A Fund may
not put write options on more than 50% of its total assets. Each Fund presently
intends to cease writing options if and as long as 25% of a Fund's total assets
are subject to outstanding options contracts or if required under regulations of
state securities administrators.
A Fund may write call and put options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. The risk involved in writing a put option is
that there could be a decrease in the market value of the underlying security
caused by rising interest rates or other factors. If this occurred, the option
could be exercised and the underlying security would then be sold to the Fund at
a higher price than its current market value. The risk involved in writing a
call option is that there could be an increase in the market value of the
underlying security. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction. A Fund retains the premium received from writing a put or call
option whether or not the option is exercised.
Over-the-counter options are purchased or written by a Fund in
privately negotiated transactions. International Equity, Aggressive Growth and
Growth and Income Funds may purchase or write OTC options. Such options are
generally considered illiquid and it may not be possible for a Fund to dispose
of an option it has purchased or terminate its obligations under an option it
has written at a time when Voyageur or the Sub-Adviser believes it would be
advantageous to do so.
Participation in the options market involves investment risks and
transaction costs to which the Funds would not be subject absent the use of this
strategy. If predictions of movements in the direction of the securities and
interest rate markets are inaccurate, the adverse consequences to a Fund may
leave such Fund in a worse position than if such strategy was not used. Risks
inherent in the use of options include (i) dependence on the ability of Voyageur
or the Sub-Adviser, as the case may be, to predict correctly movements in the
direction of interest rates and securities prices; (ii) imperfect correlation
between the price of options and movements in the prices of the securities being
hedged; (iii) the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; (iv) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (v) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. See "Investment Policies and Restrictions--Options and
Futures Contracts" and "Taxes" in the Statement of Additional Information for
further discussion and see Appendix B of the Statement of Additional Information
for a discussion of closing transactions and other risks.
Purchasing Call and Put Options, Warrants and Stock Rights. Each Fund
may invest [up to an aggregate of 5% of its total assets] in exchange-traded or
over-the-counter call and put options on securities and securities indices and,
with respect to International Equity Fund foreign currencies. Purchases of such
options may be made for the purpose of hedging against changes in the market
value of the underlying securities or foreign currencies. Each Fund may invest
in call and put options whenever, in the opinion of Voyageur or the Sub-Adviser,
as the case may be, a hedging transaction is consistent with its investment
objective. A Fund may sell a call option or a put option which it has previously
purchased prior to the purchase (in the case of a call) or the sale (in the case
of a put) of the underlying security or foreign currency. Any such sale would
result in a net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
call or put which is sold. Purchasing a call or put option involves the risk
that the Fund may lose the premium it paid plus transaction costs.
Warrants and stock rights are almost identical to call options in their
nature, use and effect except that they are issued by the issuer of the
underlying security rather than an option writer, and they generally have longer
expiration dates than call options. Each Fund may invest up to 5% of its net
assets in warrants and stock rights, but no more than 2% of its net assets in
warrants and stock rights not listed on the New York Stock Exchange or the
American Stock Exchange.
Financial Futures and Related Options. Each Fund may enter into
financial futures contracts and related options as a hedge against anticipated
changes in the market value of its portfolio securities or securities which it
intends to purchase or in the exchange rate of foreign currencies. Hedging is
the initiation of an off-setting position in the futures market which is
intended to minimize the risk associated with a position's underlying securities
in the cash market.
Financial futures contracts consist of interest rate futures contracts,
foreign currency futures contracts and securities index futures contracts. An
interest rate futures contract obligates the seller of the contract to deliver,
and the purchaser to take delivery of, the interest rate securities called for
in the contract at a specified future time and at a specified price. A foreign
currency futures contract obligates the seller of the contract to deliver, and
the purchaser to take delivery of, the foreign currency called for in the
contract at a specified future time and at a specified price. See "--Foreign
Currency Transactions" below. A securities index assigns relative values to the
securities included in the index, and the index fluctuates with changes in the
market values of the securities so included. A securities index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. An
option on a financial futures contract gives the purchaser the right to assume a
position in the contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at any time
during the period of the option.
Each Fund may purchase and sell financial futures contracts which are
traded on a recognized exchange or board of trade and may purchase exchange or
board-traded put and call options on financial futures contracts. The Funds will
engage in transactions in financial futures contracts and related options only
for hedging purposes and not for speculation, and will do so in accordance with
the rules and regulations of the Commodity Futures Trading Commission. At the
time of purchase of a futures contract or a call option on a futures contract,
an amount of cash, U.S. Government securities or other appropriate high-grade
debt obligations equal to the market value of the futures contract, minus the
Fund's initial margin deposit with respect thereto, will be deposited in a
segregated account with the Fund's custodian bank to collateralize fully the
position. The extent to which a Fund may enter into financial futures contracts
and related options may also be limited by requirements of the Internal Revenue
Code of 1986 for qualification as a regulated investment company. See
"Distributions to Shareholders and Taxes" in the Statement of Additional
Information.
Engaging in transactions in financial futures contracts involves
certain risks, such as the possibility of an imperfect correlation between
futures market prices and cash market prices and the possibility that the
Sub-Adviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Fund's return might have been greater had hedging not taken place.
There is also the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Fund will lose
the premium it paid. Also, there may be circumstances when the purchase of an
option on a financial futures contract would result in a loss to the Fund while
the purchase or sale of the contract would not have resulted in a loss.
Foreign Currency Transactions. The value of International Equity Fund's
assets as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and International Equity Fund may incur costs in connection with
conversions between various currencies. International Equity Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded directly between currency traders (usually
large commercial banks) and their customers.
When International Equity Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may want to
establish the United States dollar cost or proceeds, as the case may be. By
entering into a forward contract in United States dollars for the purchase or
sale of the amount of foreign currency involved in the underlying security
transaction, International Equity Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the United States dollar and such foreign
currency. However, this tends to limit potential gains which might result from a
positive change in such currency relationships. International Equity Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
When the Sub-Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the United States dollar, it
may enter into a forward contract to sell an amount of foreign currency
approximating the value of some or all of International Equity Fund's portfolio
securities denominated in such foreign currency. The forecasting of short-term
currency market movement is extremely difficult and whether such a short-term
hedging strategy will be successful is highly uncertain.
It is impossible to forecast with precision the market values of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for International Equity Fund to purchase additional currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver when a decision is made to sell the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency International Equity Fund is obligated to deliver.
If International Equity Fund retains the portfolio security and engages
in an offsetting transaction, it will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Fund engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between International Equity Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, it would realize
gains to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Fund would suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
Although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase. International
Equity Fund may have to convert its holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
INVESTMENT RESTRICTIONS
Unless otherwise stated, the investment policies, techniques and
strategies discussed above represent "non-fundamental" policies of each Fund and
may be changed by action of the Board of Directors. Each Fund has also adopted
certain fundamental investment restrictions. These fundamental restrictions and
each Fund's investment objective may be changed only with the approval of a
majority of the respective Fund's outstanding voting securities, defined in the
1940 Act as the lesser of (a) 67% or more of the shares present at a Fund
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund. Included among each of the Aggressive Growth, International
Equity and Growth and Income Fund's fundamental restrictions are the following:
1. The Fund will not borrow money, except that the Fund may
borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests and cash
payments of dividends and distributions that might otherwise require
the untimely disposition of securities, in an amount not to exceed 20%
of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made. Whenever borrowings
exceed 5% of the value of the total assets of the Fund, the Fund will
not make any additional investments.
2. The Fund will invest no more than 25% of the value of its
total assets in securities of issuers in any one industry. For
purposes of this restriction, the term industry will be deemed to
include the government of any country other than the United States,
but not the U.S. Government.
Included among Growth Stock Fund's fundamental restrictions are the
following: the Fund may not (a) purchase more than 10% of any class of
securities of any one issuer or acquire more than 10% of the outstanding voting
securities of an issuer; (b) mortgage, pledge or hypothecate its assets except
in an amount not exceeding 10% of the value of its total assets to secure
temporary or emergency borrowing; and (c) invest more than 15% of its net assets
in "illiquid investments" (as described above). Growth Stock Fund may (a) invest
up to 5% of its total assets (at the time of investment) in securities of
issuers which, with their predecessors, have a record of less than three years'
continuous operation. (Securities of such issuers will not be deemed to fall
within this limitation if they are guaranteed by an entity in continuous
operation for more than three years.); (b) borrow money from banks for temporary
or emergency purposes in an amount not exceeding 5% of the value of the Fund's
total assets; and (c) mortgage, pledge or hypothecate its assets in an amount
not exceeding 10% of the value of its total assets to secure such borrowing.
Certain other fundamental and non-fundamental investment restrictions
adopted by the Funds are described in the Statement of Additional Information.
Each Fund intends to operate as a "diversified" management investment
company, as defined in the 1940 Act, which means that at least 75% of its total
assets must be represented by cash and cash items (including receivables),
government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of total assets of
the Fund and to not more than 10% of the outstanding voting securities of such
issuer.
Any investment restriction or limitation which involves a maximum
percentage of securities or assets 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Funds involves risks and special considerations, such
as those described below:
GENERAL. An investment in shares of the Funds should not be considered
to be a complete investment program. The value of a Fund's investments, and as a
result the net asset value of a Fund's shares, will fluctuate in response to
changes in the market and economic conditions as well as the financial condition
and prospects of issuers in which the Fund invests. Companies in which
Aggressive Growth Fund will invest typically are subject to a greater degree of
change in earnings and business prospects than are companies with more
established earnings patterns. In light of these factors, Aggressive Growth Fund
may be subject to greater investment risk than that assumed by other investment
companies. Because of the risks associated with a Fund's investments, each Fund
is intended to be a long term investment vehicle and is not designed to provide
investors with a means of speculating on short-term stock market movements.
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.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Non-publicly traded
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by a Fund. In
addition, companies whose securities are not publicly traded are not subject to
the disclosure and other investor protection requirements that may be applicable
if their securities were publicly traded. A Fund's investments in illiquid
securities are subject to the risk that should the Fund desire to sell any of
these securities when a ready buyer is not available at a price representative
of their value, the value of a Fund's net assets could be adversely affected.
RULE 144A SECURITIES. Certain Rule 144A Securities may be considered
illiquid and, therefore, subject to a Fund's limitation on the purchase of
illiquid securities, unless Voyageur or a Sub-Adviser, as the case may be,
subject to the supervision of the Board of Directors, determines on an ongoing
basis that an adequate trading market exists for the Rule 144A Securities. 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. The Board of Directors will establish standards and procedures for
determining the liquidity of a Rule 144A Security and will monitor
implementation of the standards and procedures.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent a Fund invests
in other investment companies, a Fund's shareholders will incur certain
duplicative 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. Each Fund will purchase exchange traded investment company
securities only in the secondary market and not in an initial offering.
REPURCHASE AGREEMENTS. 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 underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, 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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose a Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the return available in the market when the delivery takes
place may be higher than that applicable at the time of the purchase. This
characteristic of when-issued and delayed-delivery securities could result in
exaggerated movements in the Fund's net asset value.
ADDITIONAL FOREIGN SECURITIES AND INTERNATIONAL EQUITY FUND RISKS.
International Equity Fund invests exclusively in foreign securities. Each of the
other Funds may invest up to 10% of its total assets in foreign securities.
There are substantial and different risks involved in investing in foreign
securities. An investor should consider these risks carefully. For example,
there is generally less publicly available information about foreign companies
than is available about companies in the U.S. Foreign companies are not subject
to uniform audit and financial reporting standards, practices and requirements
comparable to those in the U.S.
Foreign securities involve currency risks. 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 stock markets are generally not as developed or efficient as
those in the U.S. In most foreign markets volume and liquidity are less than in
the U.S. and, at times, volatility of price can be greater than that in the U.S.
Fixed commissions on foreign stock exchanges are generally higher than the
negotiated commissions on U.S. exchanges. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and companies
than in the U.S.
There is also the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, political or social
instability, or diplomatic developments which could adversely affect
investments, assets or securities transactions of a Fund in some foreign
countries. The Funds are not aware of any investment or exchange control
regulations which might substantially impair their operations as described,
although this could change at any time.
The dividends and interest payable on certain foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount available for
distribution to a Fund's shareholders. An investor should understand that the
expense ratio of International Equity Fund can be expected to be higher than
that of investment companies investing primarily in domestic securities since
the costs of operations are higher.
HOW TO PURCHASE SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS
The Funds offer investors the choice among three classes of shares
which offer different sales charges and bear different expenses. These
alternatives permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances. Page two of the
Prospectus contains a summary of these alternative purchase arrangements.
A broker-dealer may receive different levels of compensation depending
on which class of shares is sold. In addition, Voyageur Fund Distributors, Inc.,
the Funds' principal underwriter (the "Underwriter"), from time to time pays
certain additional cash incentives of up to $100 and/or non cash incentives such
as vacations or other prizes to its investment executives and other
broker-dealers and financial institutions in consideration of their sales of
Fund shares. In some instances, other incentives may be made available only to
selected broker-dealers and financial institutions, based on objective standards
developed by the Underwriter, to the exclusion of other broker-dealers and
financial institutions. The Underwriter in its discretion may from time to time,
pursuant to objective criteria established by it, pay fees to qualifying
brokers, dealers or financial intermediaries for certain services or activities
which are primarily intended to result in sales of shares of a Fund.
GENERAL PURCHASE INFORMATION
The minimum initial investment in each Fund is $1,000, and the minimum
additional investment is $100. Each Fund's shares may be purchased at the public
offering price from the Underwriter, from other broker-dealers who are members
of the National Association of Securities Dealers, Inc. and who have selling
agreements with the Underwriter, and from certain financial institutions that
have selling agreements with the Underwriter. When orders are placed for shares
of a Fund, the public offering price used for the purchase will be the net asset
value per share next determined, plus the applicable sales charge, if any. If an
order is placed with the Underwriter or other broker-dealer, the broker-dealer
is responsible for promptly transmitting the order to the Fund.
Shares of the Funds may be purchased by opening an account either by
mail or by phone. Shares are deemed to be purchased as of the opening of the New
York Stock Exchange (the "Exchange") on the day the purchase order for such
shares is settled. Each Fund reserves the right, in its absolute discretion, to
reject any order for the purchase of its shares. An investor who may be
interested in having shares redeemed shortly after purchase should consider
making unconditional payment by certified check 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.
AUTOMATIC INVESTMENT PLAN. Investors may make systematic investments in
fixed amounts automatically on a monthly basis through each Fund's Automatic
Investment Plan. Additional information is available from the Underwriter by
calling 800-545-3863.
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 Fund, to:
NW 9369
P.O. Box 1450
Minneapolis, MN 55485-9369
The order normally will become effective when 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). Otherwise, in order to
reduce losses to the Funds from float, the order will become effective 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.
PURCHASES BY TELEPHONE. To open an account by telephone, call
612-376-7014 or 800-545-3863 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:
Norwest Bank Minnesota, N.A., ABA #091000019
For Credit of: (insert applicable Fund name)
Checking Account No.: 872-458
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 Fund after making the initial telephone purchase.
CLASS A SHARES--FRONT END SALES CHARGE ALTERNATIVE
The public offering price of Class A shares of each Fund is the net
asset value of the Fund's shares plus the applicable front end sales charge
("FESC"), which will vary with the size of the purchase. The Fund receives the
net asset value. The FESC varies depending on the size of the purchase and is
allocated between the Underwriter and other broker-dealers. The current sales
charges are:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Discount
as % of as % of as % of
Amount of Purchase Net Asset Value Offering Price Offering Price(1)
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.00%
$50,000 but less than $100,000 4.71 4.50 4.00
$100,000 but less than $250,000 3.90 3.75 3.25
$250,000 but less than $500,000 2.83 2.75 2.50
$500,000 but less than $1,000,000 2.30 2.25 2.00
$1,000,000 or more(2) NAV(3) NAV(3) 1.00(2)
</TABLE>
1 Brokers and dealers who receive 90% or more of the sales charge may be
considered to be underwriters under the Securities Act of 1933, as amended.
2 The Underwriter intends to pay its investment executives and other
broker-dealers and banks that sell Fund shares, out of its own assets, a
fee of up to 1% of the offering price of sales of $1,000,000 or more.
3 Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "How to Sell Shares--Contingent
Deferred Sales Charge."
In connection with the distribution of the Funds' Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS--REDUCED SALES CHARGES. Certain investors (or
groups of investors) may qualify for reductions in the sales charges shown
above. Investors should contact their broker-dealer or the Funds for details
about the Funds' Combined Purchase Privilege, Cumulative Quantity Discount and
Letter of Intention plans. Descriptions are also included with the general
authorization form and in the Statement of Additional Information. Any of the
above special purchase plans may be amended or eliminated at any time by the
Underwriter without notice to existing Fund shareholders.
RULE 12B-1 FEES. Class A shares are subject to a Rule 12b-1 fee payable
at an annual rate of .25% of the average daily net assets of a Fund attributable
to Class A shares. For additional information about this fee, see
"Management--The Underwriter; Plan of Distribution," below.
CONTINGENT DEFERRED SALES CHARGES. Although there is no initial sales
charge on purchases of Class A shares of $1,000,000 or more, the Underwriter
pays investment dealers out of its own assets, a fee of up to 1% of the offering
price of such shares. If these shares are redeemed within a certain period of
time after purchase (the "CDSC Period"), the redemption proceeds will be reduced
by a contingent deferred sales charge ("CDSC"). For additional information, see
"How to Sell Shares--Contingent Deferred Sales Charge." The amount of the CDSC
will depend on the number of years since the purchase was made and the dollar
amount being redeemed according to the following table:
Portion of Investment of $1,000,000 or More
CDSC Period CDSC
First year 1%
Second year 0.5
After second year 0
WAIVER OF SALES CHARGES. A limited group of institutional and other
investors may qualify to purchase Class A shares at net asset value, with no
sales charges at the time of purchase. The investors qualifying to purchase such
shares are: (1) officers and directors of the Funds; (2) officers, directors and
full-time employees of Voyageur, Voyageur Asset Management Group, Inc.,
("VAMG"), the Underwriter and Pohlad Companies, and officers, directors and
full-time employees of parents and subsidiaries of the foregoing companies; (3)
officers, directors and full-time employees of investment advisers of other
mutual funds subject to a sales charge and included in any other family of
mutual funds that includes any Voyageur Fund as a member ("Other Load Funds"),
and officers, directors and full-time employees of parents, subsidiaries and
corporate affiliates of such investment advisers; (4) spouses and lineal
ancestors and descendants of the officers, directors/trustees and employees
referenced in clauses (1), (2) and (3), and lineal ancestors and descendants of
their spouses; (5) investment executives and other employees of banks and
dealers that have selling agreements with the Underwriter and parents, spouses
and children under the age of 21 of such investment executives and other
employees; (6) trust companies and bank trust departments for funds held in a
fiduciary, agency, advisory, custodial or similar capacity; (7) any state or any
political subdivision thereof or any instrumentality, department, authority or
agency of any state or political subdivision thereof; (8) partners and full-time
employees of the Funds' general counsel; (9) managed account clients of
Voyageur, clients of investment advisers affiliated with Voyageur and other
registered investment advisers and their clients; (10) "wrap accounts" for the
benefit of clients of financial planners adhering to certain standards
established by Voyageur; (11) tax-qualified employee benefit plans for employees
of Voyageur, VAMG and the Underwriter and (12) employee benefit plans qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") (which does not include Individual Retirement Plans) and custodial
accounts under Section 403(b)(7) of the Code (also known as tax-sheltered
annuities).
Class A shares will also be issued at net asset value, without a sales
charge, if the purchase of such shares is funded by the proceeds from the
redemption of shares of any unrelated open-end investment company that charges
an FESC, and, in certain circumstances, a CDSC. The Funds will waive the CDSC
normally applicable to purchases of $1,000,000 or more in these circumstances.
In order to exercise this privilege, the purchase order must be received by the
Fund within 60 days after the redemption of shares of the unrelated investment
company.
CLASS B SHARES--CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE
Class B shares are sold without an initial sales charge so that the
Fund receives the full amount of the investor's purchase. However, a CDSC of up
to 4% will be imposed if shares are redeemed within six years of purchase. For
additional information, see "How to Sell Shares--Contingent Deferred Sales
Charge." In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below. The amount of the CDSC will depend on the number of years since
the purchase was made and the dollar amount being redeemed, according to the
following table:
CDSC REDEMPTION
CDSC as a % of
CDSC Period Amount Redeemed
1st year after purchase 4%
2nd year after purchase 4
3rd year after purchase 3
4th year after purchase 3
5th year after purchase 2
6th year after purchase 1
Thereafter 0
Proceeds from the CDSC are paid to the Underwriter and are used to
defray expenses of the Underwriter related to providing distribution related
services to the Funds in connection with the sale of Class B shares, such as the
payment of compensation to selected broker dealers, and for selling Class B
shares. The combination of the CDSC and the Rule 12b-1 fee enables the Funds to
sell the Class B shares without deduction of a sales charge at the time of
purchase. Although Class B shares are sold without an initial sales charge, the
Underwriter pays a sales commission equal to 3% of the amount invested and an
ongoing annual servicing fee of .15% of the net asset value of amount invested
to broker dealers who sell Class B shares.
RULE 12B-1 FEES. Class B shares are subject to a Rule 12b-1 fee payable
at an annual rate of 1.00% of the average daily net assets of a Fund
attributable to Class B shares. The higher 12b-1 fee will cause Class B shares
to have a higher expense ratio and to pay lower dividends than Class A shares.
For additional information about this fee, see "Fees and Expenses" above and
"Management--The Underwriter; Plan of Distribution" below.
CONVERSION FEATURES. On the first business day of the month eight years
after the purchase date, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion
will be on the basis of the relative net asset values of the two classes. Class
A shares issued upon such conversion will not be subject to any FESC or CDSC.
Class B shares acquired by exchange from Class B shares of another Voyageur Fund
will convert into Class A shares based on the time of the initial purchase.
Similarly, Class B shares acquired by exercise of the Reinstatement Privilege
will convert into Class A shares based on the time of the original purchase of
Class B shares. See "Reinstatement Privilege." Class B shares acquired through
reinvestment of distributions will convert into Class A shares based on the date
of issuance of such shares.
CLASS C SHARES--LEVEL LOAD ALTERNATIVE
The public offering price of Class C shares of each Fund is the net
asset value of the Fund's shares. Class C shares are sold without a front end or
contingent deferred sales charge so that the Fund receives the full amount of
the investor's purchase. Class C shares are subject to higher annual Rule 12b-1
fees as described below. Although Class C shares are sold without a front end or
contingent deferred sales charge, the Underwriter pays an annual fee of 0.75%,
on a quarterly basis, of the amount invested to broker dealers who sell Class C
shares. For additional information, see "How to Sell Shares--Contingent Deferred
Sales Charge."
RULE 12B-1 FEES. Class C shares are subject to a Rule 12b-1 fee payable
at an annual rate of 1.00% of the average daily net assets of a Fund
attributable to Class C shares. The Rule 12b-1 fee enables the Funds to sell
Class C shares without deduction of a sales charge at the time of purchase. The
higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio
and to pay lower dividends than Class A shares. For additional information about
this fee, see "Fees and Fund Expenses" above and "Management--The Underwriter;
Plan of Distribution," below.
RETIREMENT PLANS
Share of the Funds may be an appropriate investment medium for
retirement plans, including: (a) Keogh (HR-10) plans (for self-employed
individuals); (b) qualified corporate pension and profit sharing plans (for
employees); (c) Individual Retirement Accounts (IRAs) (for employees and their
spouses); and (d) Tax-deferred investment plans (for employees of public school
systems and certain types of charitable organizations).
Persons desiring information about such plans, including their
availability, should contact the Funds. All retirement plans summarized above
involve a long-term commitment of assets and are subject to various legal
requirements and restrictions. The legal and tax implications may vary according
to the circumstances of the individual investor. Therefore, the investor is
urged to consult with an attorney or tax adviser prior to the establishment of
such a plan.
HOW TO SELL SHARES
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 (see below). If shares for which payment has been collected are
redeemed, payment must be made within seven days. Shareholders will not earn any
income on redeemed shares on the redemption date. 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 $250.
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.
CONTINGENT DEFERRED SALES CHARGES
The CDSC will be calculated on an amount equal to the lesser of the net
asset value of the shares at the time of purchase or their net asset value at
the time of redemption. The Funds will not impose a charge on increases in net
asset value above the initial purchase price. In addition, the Funds will not
assess a charge on shares derived from reinvestment of dividends or capital
gains distributions or on shares held for longer than the applicable CDSC
Period.
In determining whether a CDSC is payable with respect to any
redemption, the Funds will calculate such CDSC in the manner that results in the
lowest rate being charged. Therefore, it will be assumed that shares that are
not subject to the CDSC are redeemed first, shares subject to the lowest level
of CDSC are redeemed next and so forth.
The CDSC does not apply to: (1) a redemption of shares when a Fund
exercises its right to liquidate accounts which are less than the minimum
account size and (2) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
If a shareholder exchanges Class A or Class B shares subject to a CDSC
for Class A or Class B shares, respectively, of a different Voyageur Fund, the
transaction will not be subject to a CDSC. However, when shares acquired through
the exchange are redeemed, the shareholder will be treated as if no exchange
took place for the purpose of determining the CDSC Period and applying the CDSC.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A or Class B shares of any Fund (by crediting such refunded CDSC to such
shareholder's account) if, within [365] days of redemption, all or any portion
of the redemption proceeds are reinvested in shares of the same class in any of
the Voyageur Funds. Any reinvestment within [365] days of a redemption to which
the CDSC was paid will be made without the imposition of a FESC but will be
subject to the same CDSC to which such amount was subject prior to the
redemption. The CDSC Period will run from the original investment date.
EXPEDITED REDEMPTIONS
Each Fund offers several expedited redemption procedures, described
below, which allow a shareholder to redeem Fund shares at net asset value
determined on the same day that the shareholder places the request for
redemption of those shares. Pursuant to these expedited redemption procedures,
each Fund will redeem its shares at their net asset value next determined
following the Fund's receipt of the redemption request. Each Fund reserves the
right at any time to suspend or terminate the expedited redemption procedures or
to impose a fee for this service. There is currently no additional charge to the
shareholder for use of the Funds' expedited redemption procedures.
EXPEDITED TELEPHONE REDEMPTION. Shareholders redeeming at least $1,000
and no more than $50,000 of shares (for which certificates have not been issued)
may redeem by telephoning the Fund directly at 612-376-7014 or 800-545-3863. The
applicable section of the general authorization form must have been completed by
the shareholder and filed with the Fund before the telephone request is
received. 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, with
a signature guarantee, by wire to the bank designated on the general
authorization form. A Fund employing such procedures will not be liable for
following instructions communicated by telephone that they reasonably believe to
be genuine. If a Fund does not employ such procedures, it may be liable for any
losses due to unauthorized or fraudulent telephone instructions.
EXPEDITED REDEMPTIONS THROUGH CERTAIN BROKER DEALERS. Certain
broker-dealers who have sales agreements with the Underwriter may allow their
customers to effect a redemption of shares of a Fund purchased through such
broker-dealer by notifying the broker-dealer of the amount of shares to be
redeemed. The broker-dealer is then responsible for promptly placing the
redemption request with the Fund on the customer's behalf. The Fund will pay the
shareholder by check or wire sent to the broker-dealer. Broker-dealers offering
this service may impose a fee or additional requirements for such redemptions.
GOOD ORDER
"Good order" means that stock certificates, if issued, must accompany
the written request for redemption and must be duly endorsed for transfer, or
must be accompanied by a duly executed stock power. If no stock certificates
have been issued, a written request to redeem must be made. The Funds will not
issue stock certificates for Class B or Class C shares. In any case, the
shareholder must execute the redemption request 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 guarantee
is required in certain other circumstances, for example, to redeem more than
$50,000 or to have a check mailed other than to the shareholder's address of
record. See "Other Information" in the Statement of Additional Information. 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 the Fund to an unusual
degree of risk.
MONTHLY CASH WITHDRAWAL PLAN
An investor who owns or buys shares of any Fund valued at $10,000 or
more at the current offering price may open a Withdrawal Plan and have a
designated sum of money paid monthly to the investor or another person. Deferred
sales charges may apply to monthly redemptions of Class B or Class C shares. See
"Monthly Cash Withdrawal Plan" in the Funds' Statement of Additional
Information.
REINSTATEMENT PRIVILEGE
An investor in a Fund whose shares have been redeemed and who has not
previously exercised the Reinstatement Privilege as to such Fund may reinvest
the proceeds of such redemption in Fund shares of the same class by exercise of
the Reinstatement Privilege. Reinvestment will be at the net asset value of Fund
shares next determined after the Underwriter receives a letter requesting
reinstatement and payment therefore. The Underwriter must receive the letter
requesting reinstatement within [365] days following the redemption. Investors
who desire to exercise the Privilege should contact their broker-dealer or the
Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of shares of a Fund, but to
the extent that any shares are sold at a loss and the proceeds are reinvested
within 30 days in shares of the same Fund, some or all of the loss may not be
allowed as a deduction, depending upon the number of shares reacquired.
EXCHANGE PRIVILEGE
Except as described below, shareholders may exchange some or all of
their Fund shares for shares of another Voyageur Fund, provided that the shares
to be acquired in the exchange are eligible for sale in the shareholder's state
of residence. Class A shareholders may exchange their shares for Class A shares
of other Voyageur Funds or, if the other fund has only one class outstanding,
then for shares of that class. Class B shareholders may exchange their shares
for the Class B shares of other Voyageur Funds. Class C shareholders may
exchange their shares for the Class C shares of other Voyageur Funds offering
Class C shares.
The minimum amount which may be exchanged is $1,000. The Funds will
execute the exchange on the basis of the relative net asset values next
determined after receipt by the Fund in which the investor owns shares. For a
discussion of issues relating to the contingent deferred sales charge upon such
exchanges, see "How to Sell Shares--Contingent Deferred Sales Charge." A
shareholder may not make more than one exchange each calendar quarter. 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 a sale of shares on which the investor may
realize a capital gain or loss for income tax purposes. A shareholder may place
exchange requests directly with the Fund in which the investor owns shares,
through the Underwriter or through other broker-dealers. An investor considering
an exchange should obtain a prospectus of the acquired Fund and should read such
prospectus carefully. Contact the Fund, the Underwriter or any of such other
broker-dealers for further information about the exchange privilege.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
Under the laws of the State of Minnesota, the Board of Directors of the
Company is responsible for managing the business and affairs of the Fund. The
names, addresses, principal occupations and other affiliations of the Directors
and executive officers of the Company are set forth in the Statement of
Additional Information.
INVESTMENT ADVISER
Voyageur Fund Managers, Inc. ("Voyageur" or the "Adviser") has been
retained under an investment advisory agreement (the "Advisory Agreement") to
act as each Fund's investment adviser, subject to the authority of the Board of
Directors. Voyageur and the Underwriter are each indirect wholly-owned
subsidiaries of Dougherty Financial Group, Inc. ("DFG"), which is owned
approximately 49% by Michael E. Dougherty, 49% by Pohlad Companies and less than
1% by certain retirement plans for the benefit of DFG employees. Mr. Dougherty
co-founded the predecessor of DFG in 1977 and has served as DFG's Chairman of
the Board and Chief Executive Officer since inception. Pohlad Companies is a
holding company owned in equal parts by each of James O. Pohlad, Robert C.
Pohlad and William M. Pohlad. As of July __, 1995, Voyageur served as the
manager to six closed-end and ten open-end investment companies (comprising ___
separate investment portfolios), administered numerous private accounts and
managed approximately $___ billion in assets. Voyageur's principal business
address is 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
Growth and Income Fund and Growth Stock Fund each pay Voyageur a
monthly investment advisory fee equivalent on an annual basis to .50% of their
average daily net assets. Aggressive Growth Fund and International Equity Fund
each pay Voyageur a monthly investment advisory fee equivalent on an annual
basis to 1.00% of their average daily net assets.
James King currently has day-to-day portfolio management responsibility
for the Growth Stock Fund. Mr. King has been a Director of Voyageur and the
Underwriter since 1993 and a Senior Equity Portfolio Manager of Voyageur since
1990. Mr. King currently has over 29 years of investment experience. Tony Elavia
acts as the primary portfolio manager of the Aggressive Growth Fund. Mr. Elavia
is a Senior Equity Portfolio Manager of Voyageur. Prior to March 1995, Mr.
Elavia had been a Senior Vice President of Piper Capital Management,
Minneapolis, Minnesota since 1991 and a Vice President since 1989.
SUB-ADVISERS; PORTFOLIO MANAGEMENT
Segall Bryant & Hamill ("Segall Bryant") is the Sub-Adviser to the
Growth and Income Fund. Its business office is located at 10 South Wacker Drive,
Suite 2150, Chicago, IL 60606. Segall Bryant is a Minnesota partnership which is
50% owned by Voyageur Advisory Services, Inc., an affiliate of Voyageur. Murray
Johnstone International, Ltd. ("Murray Johnstone") is the Sub-Adviser to the
International Equity Fund. Its business office in the U.S. is 875 N. Michigan
Avenue, Suite 3415, Chicago, Illinois 60611. Murray Johnstone is a wholly-owned
subsidiary of United Asset Management Corporation. Each Sub-Adviser manages the
investment and reinvestment of the assets of the relevant Fund, although
Voyageur monitors and evaluates the performance and investment style of each
Sub-Adviser.
Each Sub-Advisory Agreement between Voyageur and the Sub-Advisers
provides that the Sub-Adviser is entitled to a sub-advisory fee of .50% of the
respective Fund's average daily net assets managed by the Sub-Adviser. The
Sub-Adviser's fee is paid by the Adviser, not the Fund.
Investment selections for the Funds are made by the respective
Sub-Adviser. Ralph Segall, Managing Director of Segall Bryant & Hamill, will be
primarily responsible for the day-to-day management of the Growth and Income
Fund's portfolio. Mr. Segall became a founding member of Segall Bryant in
October 1994. Prior to October 1994, Mr. Segall had been a senior portfolio
manager with Stein Roe & Farnham Incorporated where he had over [18] years
experience. Rodger Scullion, Chief Investment Officer for Murray Johnstone, is
primarily responsible for the day-to-day management of the International Equity
Fund's portfolio. Mr. Scullion is also the Managing Director of Murray Johnstone
and has 22 years of investment experience, the last of which have been at Murray
Johnstone. His tenure at Murray Johnstone has included portfolio management
responsibilities for investments in the U.S., Europe, Japan and the Far East and
his primary role now is country allocation.
Although investment decisions for the Growth and Income and
International Equity Funds are made independently from those of the other
accounts managed by each Sub-Adviser, investments of the type the Funds may make
also may be made by those other accounts. When the Funds and one or more other
accounts managed by a Sub-Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
are allocated in a manner believed by a Sub-Adviser to be equitable to the Fund.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund.
THE UNDERWRITER; PLAN OF DISTRIBUTION
Each Fund has adopted a Plan of Distribution under the 1940 Act (the
"Plan") and has entered into a Distribution Agreement with Voyageur Fund
Distributors, Inc. (the "Underwriter"). Pursuant to each Fund's Plan, the Fund
pays the Underwriter a Rule 12b-1 fee, at an annual rate of .25% of the Fund's
average daily net assets attributable to Class A shares and 1.00% of the Fund's
average daily net assets attributable to each of Class B and Class C shares for
servicing of shareholder accounts and distribution related services. Payments
made under the Plan are not tied exclusively to expenses actually incurred by
the Underwriter and may exceed such expenses. Please see the "Fees and Expenses"
table at the beginning of this Prospectus for information with respect to fee
waivers, if any.
All of the Rule 12b-1 fee attributable to Class A shares, and a portion
of the fee equal to .25% of the average daily net assets of the Fund
attributable to each of Class B shares and Class C shares constitutes a
shareholder servicing fee designed to compensate the Underwriter for the
provision of certain services to the shareholders. The services provided may
include personal services provided to shareholders, such as answering
shareholder inquiries regarding the Funds and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Underwriter may use such Rule 12b-1 fee or portion thereof to make payments
to qualifying broker-dealers and financial institutions that provide such
services.
That portion of the Rule 12b-1 fee equal to .75% of the average daily
net assets of the Fund attributable to Class B shares and Class C shares,
respectively, constitutes a distribution fee designed to compensate the
Underwriter for advertising, marketing and distributing the Class B shares and
Class C shares of each Fund. In connection therewith, the Underwriter may
provide initial and ongoing sales compensation to its investment executives and
other broker-dealers for sales of Class B shares and Class C shares and may pay
for other advertising and promotional expenses in connection with the
distribution of Class B shares and Class C shares. The distribution fee
attributable to Class B shares and Class C shares is designed to permit an
investor to purchase such shares through investment executives of the
Underwriter and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit the Underwriter to compensate its
investment executives and other broker-dealers in connection with the sale of
such shares.
CUSTODIAN; DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVE AND ACCOUNTING SERVICES
AGENT
Norwest Bank Minnesota, N.A. ("Norwest") serves as the custodian of
each Fund's portfolio securities and cash.
Norwest has entered into a Sub-Custodian Agreement with Morgan Stanley
Trust Company with respect to the Company's foreign portfolio securities and
related cash. Rule 17f-5 adopted under the 1940 Act permits the Company to
maintain such securities and cash in the custody of certain eligible foreign
banks and foreign securities depositories. A Fund's foreign securities are held
by such entities who are approved by the Board of Directors in accordance with
such rules. Determinations are made pursuant to such rules following
consideration of a number of factors including, but not limited to, the
reliability and financial stability of the institutions; the ability of the
institutions to perform custodial services for a Fund; the reputation of the
institutions in national markets; the countries in which the institutions are
located and the risks of potential nationalization or expropriation of assets of
a Fund.
Voyageur acts as each Fund's dividend disbursing, transfer,
administrative and accounting services agent to perform dividend-paying
functions, to calculate the Fund's daily share price and to maintain shareholder
records. The fees paid for these services are based on each Fund's assets and
include reimbursement of out-of-pocket expenses. Voyageur receives a monthly fee
from each Fund equal to the sum of (1) $1.25 per shareholder account per month
($1.33 for International Equity Fund), (2) monthly fee ranging from $1,000 to
$1,500 based on the average daily net assets of the Fund ($3,000 to $5,000 for
International Equity Fund) and (3) a percentage of average daily net assets
which ranges from 0.11% to 0.035% based on the average daily net assets of the
Fund (0.11% to 0.02% for International Equity Fund). See "The Investment
Adviser, Sub-Adviser and Underwriter--Expenses of the Fund" in the Statement of
Additional Information.
Certain institutions may act as sub-administrators for the Funds
pursuant to contracts with Voyageur, whereby the institutions will provide
shareholder services to their customers. Voyageur will pay the
sub-administrators' fees out of its own assets. The fee paid by Voyageur to any
sub-administrator will be a matter of negotiation between the institution and
Voyageur based on the extent and quality of the services provided.
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 stock
certificates and shareholder statements, association membership dues, charges of
the Fund's custodian, bookkeeping, auditing 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.
Voyageur and the Underwriter reserve the right to voluntarily waive
their fees in whole or part and to voluntarily absorb certain other of each
Fund's expenses. Voyageur and the Underwriter have agreed to reimburse certain
expenses with respect to the Funds for the fiscal year ending April 30, 1996 in
such a manner as will result in each Fund being charged fees and expenses that
approximate those set forth in the section "Fees and Fund Expenses." After April
30, 1996, such voluntary expense reimbursements may be discontinued or modified
by Voyageur and the Underwriter in their sole discretion.
PORTFOLIO TRANSACTIONS
No Fund will effect brokerage transactions in its portfolio securities
with any broker-dealer affiliated directly or indirectly with Voyageur 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 the Fund. It is not anticipated that any Fund will effect any
brokerage transactions with any affiliated broker-dealer, including the
Underwriter, unless it would be to the Fund's advantage. Voyageur may consider
sales of shares of the Fund or other Voyageur Funds as a factor in the selection
of broker-dealers to execute the Fund's 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 primary 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).
A security listed or traded on an exchange is valued at its last sale
price (prior to the time 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. Other securities
and assets also 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 a 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.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
DISTRIBUTIONS
Each Fund's policy is to make annual dividend distributions from net
investment income, if and when available, and annual distributions of any net
realized capital gains during the quarter following the end of its fiscal year
(April 30). However, provisions of the Internal Revenue Code of 1986, as amended
(the "Code") may result in additional capital gains distributions. Net
investment income includes dividends and interest accrued less accrued expenses.
Distributions paid by a Fund, if any, with respect to Class A, Class B and Class
C shares will be calculated in the same manner, at the same time, on the same
day and will be in the same amount, except that the higher Rule 12b-1 fees
applicable to Class B and Class C shares will be borne exclusively by such
shares. Shareholders will receive distributions from investment income and
capital gains distributions in additional shares of the class owned by such
shareholders at net asset value, without any sales charge, unless they elect
otherwise. If cash payment is requested, a check will be mailed within [three]
business days after the payment date.
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code in order to be relieved of payment of federal income
taxes to the extent it distributes its taxable income to shareholders.
Distributions by a Fund are generally taxable to the shareholders,
whether received in cash or additional shares. Dividends paid from the net
investment income of the Fund will be taxable to shareholders as ordinary
income. Individual shareholders may not exclude from gross income any
distributions by the Fund which are attributable to dividends. Such dividend
distributions generally are eligible for the 70% dividends-received deduction
for corporations.
Dividends paid from the net capital gains of the Fund and designated as
capital gain dividends will be taxable to shareholders as long-term capital
dividends, regardless of the length of time for which they have held their
shares in a Fund.
Generally, gain or loss on the sale or exchange of a share of a Fund
will be capital gain or loss, which will be long-term if the share is held for
more than one year. A loss realized on a sale or exchange will be disallowed if
the shares disposed of are replaced within a 61-day period beginning 30 days
before and ending 30 days after the shares are disposed of. If a shareholder
realizes a loss on the sale or exchange of a share held for six months or less
and such shareholder had previously received a capital gain distribution with
respect to the share, the loss must be treated as a long-term capital loss to
the extent of the amount of such prior capital gain distribution.
Each Fund sends its shareholders an annual statement detailing federal
tax information, including information about distributions paid during the
preceding year. Distributions by the Fund, including the amount of any
redemptions, are reported to Fund shareholders and to the Internal Revenue
Service to the extent required by the Code.
International Equity Fund 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 investment income. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If at the
end of International Equity Fund's fiscal year more than 50% of its total assets
consist of securities of foreign corporations, the Fund will be eligible to file
an election with the Internal Revenue Service pursuant to which the Fund may
"pass through" to the shareholders the amount of foreign income taxes paid by
the Fund with respect to its direct holdings of stock or securities in foreign
corporations. If this election is made, shareholders of International Equity
Fund will be required to include their respective pro rata portions of such
withholding taxes as gross income, treat such amounts as foreign taxes paid by
them, and deduct such amounts in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their federal income
taxes. International Equity Fund will make such an election only if it deems
such election to be in the best interests of its shareholders.
Interest income from direct investment by noncorporate taxpayers in
Government Securities is generally not subject to state tax (although income
from repurchase agreements pertaining to such securities generally is subject to
state tax). Most states now exempt such interest income from tax when received
by noncorporate taxpayers in the form of dividends from regulated investment
companies. Some states, however, impose threshold investment requirements and
information reporting requirements for the exemption of such income from
taxation. Shareholders are encouraged to consult their tax advisers concerning
this matter.
This is a general summary of the federal tax law in effect as of the
date of this Prospectus. See the Statement of Additional Information for further
details. Before investing in the Fund, you should check the consequences of your
local and state tax laws.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for the Funds may refer to
average annual total return and cumulative total return and may compare such
performance quotations with published indices and comparable quotations of other
funds. Performance quotations are computed separately for Class A, Class B and
Class C shares of the Funds. When a Fund advertises any performance information,
it also will advertise its average annual total return as required by the rules
of the Securities and Exchange Commission and will include performance data for
Class A, Class B and Class C shares. 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 of the Funds will fluctuate, so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total return is the average annual compounded rate of
return on 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 the 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 load is deducted.
In reports or other communications to Fund shareholders and in
advertising material, the Funds may compare their performance with (1) the
performance of other mutual funds (or classes thereof) as listed in rankings
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or similar investment services that monitor the performance of mutual funds or
as set out in the nationally recognized publications listed below, (2) the Dow
Jones Industrial Average, the Standard & Poor's 500 Composite Stock Price Index,
the Russell 2000 and the Russell 5000, each of which is an unmanaged index of
common stocks or (3) other appropriate indexes of investment securities or with
data derived from those indexes. The Funds may also include in communications to
Fund shareholders evaluations of a Fund published by nationally recognized
ranking services and by financial publications that are nationally recognized,
such as Barron's, Business Week, Forbes, Institutional Investor, Investor's
Daily, Money, Kiplinger's Personal Finance Magazine, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. Performance
comparisons should not be considered as representative of a Fund's performance
for any future period.
For Fund performance information and daily net asset value quotations,
investors may call (612) 376-7010 or (800) 525-6584. For additional information
regarding the calculation of the Fund's average annual total return and
cumulative total return, see "Calculation of Performance Data" in the Statement
of Additional Information.
GENERAL INFORMATION
Each Fund which has commenced investment operations sends its
shareholders six-month unaudited and annual audited financial statements which
include a list of investment securities held by the Fund.
The Growth and Income Fund was organized as Series D of Voyageur Mutual
Funds III, Inc. (the "Company") in April 1995. Growth Stock Fund was oranized in
January 1985 and was converted to Series A of the Company in October 1993.
Aggressive Growth and International Equity Funds were established in 1994 as
Series B and C of the Company. The Company was organized in January 1985 as
Voyageur Growth Stock Fund, Inc. and converted to a series fund and the name
changed in October 1993. The Company's Amended and Restated Articles of
Incorporation permit the Directors, without shareholder approval, to create
additional series of shares and to subdivide any series into various classes of
shares with such dividend preferences and other rights as the Directors may
designate.
Each Fund currently offers its shares in three classes, each with
different sales arrangements and bearing different expenses. Class A, Class B
and Class C shares each represent interests in the assets of the Fund and have
identical voting, dividend, liquidation and other rights on the same terms and
conditions except that expenses related to the distribution of each class are
borne solely by such class and each class of shares has exclusive voting rights
with respect to provisions of the Fund's Rule 12b-1 distribution plan which
pertain to a particular class and other matters for which separate class voting
is appropriate under applicable law.
Fund shares are freely transferable, are entitled to dividends as
declared by the Board of 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.
Shareholders may remove Directors from office by votes cast in person or by
proxy at a meeting of shareholders or by written consent and, in accordance with
Section 16(c) of the 1940 Act, the Directors shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Director when requested to do so by the record holders of not less than 10% of
the outstanding shares.
Each share of a series has one vote irrespective of the relative net
asset value of the 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 or class, the shares of the affected series or class
vote as a separate series or class. 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 or class thereof, and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are allocated to such series,
and in the case of a class, allocated to such class, and constitute the
underlying assets of such series or class. The underlying assets of each series
or class thereof are required to be segregated on the books of account, and are
to be charged with the expenses in respect to such series or class, 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 or class
shall be allocated among the series or classes thereof, based upon the relative
net assets of the series or class at the time such expenses were accrued.
The Company's Amended and Restated Articles of Incorporation limit
liability of the Company's Directors to the fullest extent permitted by law. For
a further discussion of the above matters, see "Additional Information" in the
Statement of Additional Information.
NO DEALER, SALES REPRESENTATIVE OR OTHER 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 VOYAGEUR FUND DISTRIBUTORS, INC. 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.
PART B
VOYAGEUR GROWTH AND INCOME FUND
VOYAGEUR GROWTH STOCK FUND
VOYAGEUR INTERNATIONAL EQUITY FUND
VOYAGEUR AGGRESSIVE GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 1, 1995
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus of the Funds dated September
1, 1995. A copy of the Prospectus or this Statement of Additional Information
may be obtained free of charge by contacting the Fund at 90 South Seventh
Street, Suite 4400, Minneapolis, Minnesota 55402. Telephone: (612) 376-7000 or
Toll Free (800) 553-2143.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Investment Policies and Restrictions...........................................................................B- 2
Directors and Executive Officers of the Company................................................................B-16
The Investment Adviser, Sub-Adviser and Underwriter............................................................B-18
Distributions to Shareholders and Taxes........................................................................B-23
Net Asset Value and Public Offering Price......................................................................B-25
Special Purchase Plans.........................................................................................B-25
Calculation of Performance Data................................................................................B-28
Monthly Cash Withdrawal Plan...................................................................................B-29
Additional Information.........................................................................................B-30
Appendix A - - Common Stock, Corporate Bond, Preferred Stock and Commercial
Paper Ratings.........................................................................................A- 1
Appendix B - - Stock Index Futures Contracts and Related Options...............................................B- 1
</TABLE>
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 September 1, 1995, and, if
given or made, such information or representations may not be relied upon
as having been authorized by the Fund. 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 a Fund since
the date hereof.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives and policies of Voyageur Growth and Income
Fund ("Growth and Income Fund"), Voyageur Growth Stock Fund ("Growth
Stock Fund"), Voyageur International Equity Fund ("International Equity
Fund") and Voyageur Aggressive Growth Fund (the "Aggressive Growth
Fund"), (collectively, the "Funds") are set forth in the combined
Prospectus relating to the Funds. Each Fund is a series of Voyageur
Mutual Funds III, Inc. (the "Company"), an open-end investment company
which currently offers its shares in four series.
The Prospectus discusses the investment objective of the Fund and the
policies employed in achieving that objective. Supplemental information
is set out below concerning certain of the securities and other
instruments in which the Fund may invest, the investment techniques and
strategies that the Fund may utilize and certain risks involved with
those investments, techniques and strategies.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("Government Securities") in which the Fund 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, the Fund invests in obligations
issued by an instrumentality of the U.S. Government only if the Fund's
investment sub-adviser ("the Sub-Adviser") (in the case of Growth and
Income Fund and International Equity Fund), or Voyageur Fund Managers,
the Fund's investment adviser ("Voyageur": or the "Adviser"), determines
that the instrumentality's credit risk does not make its securities
unsuitable for investment by a Fund.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements. When investing in a
repurchase agreement, the 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 Fund 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 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 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 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 Fund
and therefore subject to sale by the trustee in bankruptcy.
Investments in repurchase agreements by the Fund will be only for
defensive or temporary purposes. The 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 "Investment Policies and
Limitations--Illiquid Investments," below.
ILLIQUID INVESTMENTS
As a fundamental 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 recently
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 and
certain forms of interest-only and principal-only, mortgaged-backed U.S.
Government securities). Additionally, Voyageur and the Fund believe that
a similar market exists for commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act. As a
fundamental policy, the Fund may invest without limitation in these forms
of restricted securities if such securities are deemed by Voyageur Fund
Managers, Inc. ("Voyageur"), the Fund's investment adviser, to be liquid
in accordance with standards established by the Fund's Board of
Directors. Under these guidelines, Voyageur 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.
INVESTMENT TECHNIQUES AND STRATEGIES
Each Fund may purchase put and call options and engage in the writing
of covered call options and secured put options, and employ a variety of
other investment techniques. Specifically, each Fund may engage in the
purchase and sale of stock index future contracts, foreign currency
futures contracts, interest rate futures contracts, and options on such
futures, as described more fully below. Such investment policies and
techniques may involve a greater degree of risk than those inherent in
more conservative investment approaches.
The Fund will engage in such transactions only to hedge existing
positions. It will not engage in such transactions for the purposes of
speculation or leverage.
The Fund will not engage in such options or futures transactions unless
it receives any necessary regulatory approvals permitting it to engage in
such transactions. The Fund may write "covered options" on securities in
standard contracts traded on national or foreign securities exchanges, or
in individually negotiated contracts traded over-the-counter. It may
write such options in order to receive the premiums from options that
expire and to seek net gains from closing purchase transactions with
respect to such options.
Options on Securities. Writing Options. To hedge against adverse market
shifts, a Fund may purchase put and call options on securities held in
its portfolio. In addition, a Fund may seek to increase its income in an
amount designed to meet operating expenses or may hedge a portion of its
portfolio investments through writing (that is, selling) "covered" call
options. A put option provides its purchaser with the right to compel the
writer of the option to purchase from the option holder an underlying
security at a specified price at any time during or at the end of the
option period. In contrast, a call option gives the purchaser the right
to buy the underlying security covered by the option from the writer of
the option at the stated exercise price. A covered call option
contemplates that, for so long as the Fund is obligated as the writer of
the option, it will own (1) the underlying securities subject to the
option or (2) securities convertible into, or exchangeable without the
payment of any consideration for, the securities subject to the option.
The value of the underlying securities on which covered call options will
be written at any one time by a Fund will not exceed [25%] of the Fund's
total assets.
Growth Stock Fund writes only "covered" options. This means that so
long as such 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).
Growth Stock 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 high-grade debt obligations having
a value equal to or greater than the exercise price of the option.
Purchasing Options. Each Fund may purchase options on securities that
are listed on securities exchanges or that are traded over-the-counter.
As the holder of a put option, the Fund has the right to sell the
securities underlying the option and as the holder of a call option, the
Fund has the right to purchase the securities underlying the option, in
each case at the option's exercise price at any time prior to, or on, the
option's expiration date. The Fund may choose to exercise the options it
holds, permit them to expire or terminate them prior to their expiration
by entering into closing sale transactions. In entering into a closing
sale transaction, the Fund would sell an option of the same series as the
one it has purchased.
The Fund receives a premium when it writes call options, which
increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a
call, the Fund limits its opportunity to profit from an increase in the
market value of the underlying security above the exercise price of the
option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, the Fund will receive less total return
and in other periods greater total return from its hedged positions than
it would have received from its underlying securities if unhedged.
In purchasing a put option, a Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, a Fund seeks to benefit from an increase in the market price of
the underlying security. If an option purchased is not sold or exercised
when it has remaining value, or if the market price of the underlying
security remains equal to or greater than the exercise price, in the case
of a put, or remains equal to or below the exercise price, in the case of
a call, during the life of the option, the Fund will lose its investment
in the option. For the purchase of an option to be profitable, the market
price of the underlying security must decline sufficiently below the
exercise price, in the case of a put, and must increase sufficiently
above the exercise price, in the case of a call, to cover the premium and
transaction costs. Because option premiums paid by the Fund are small in
relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage
offered by trading in options could cause the Fund's net asset value to
be subject to more frequent and wider fluctuations than would be the case
if the Fund did not invest in options.
Over-the-Counter ("OTC") Options. Each of Growth and Income,
International Equity and Aggressive Growth Funds may purchase OTC
options. OTC options differ from exchange-traded options in several
respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the
dealer. However, the premium is paid in advance by the dealer. OTC
options are available for a greater variety of securities and foreign
currencies, and in a wider range of expiration dates and exercise prices
than exchange-traded options. Since there is no exchange, pricing is
normally done by reference to information from a market maker, which
information is carefully monitored or caused to be monitored by Voyageur
or the Sub-Adviser, as the case may be, and verified in appropriate
cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the case of
OTC options, there can be no assurance that a continuous liquid secondary
market will exist for any particular option at any specific time.
Consequently, a Fund may be able to realize the value of an OTC option it
has purchased only by exercising it or entering into a closing sale
transaction with the dealer that issued it. Similarly, when a Fund writes
an OTC option, it generally can close out that option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which it originally wrote the option. If a covered call option
writer cannot effect a closing transaction, it cannot sell the underlying
security or foreign currency until the option expires or the option is
exercised. Therefore, the writer of a covered OTC call option may not be
able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, the writer of a secured OTC put option
may be unable to sell the securities pledged to secure the put for other
investment purposes while it is obligated as a put writer. Similarly, a
purchaser of an OTC put or call option might also find it difficult to
terminate its position on a timely basis in the absence of a secondary
market.
A Fund may purchase and write over-the-counter ("OTC") put and call
options in negotiated transactions. The staff of the Securities and
Exchange Commission has previously taken the position that the value of
purchased OTC options and the assets used as "cover" for written OTC
options are illiquid securities and, as such, are to be included in the
calculation of a Fund's 15% limitation on illiquid securities. However,
the staff has eased its position somewhat in certain limited
circumstances. A Fund will attempt to enter into contracts with certain
dealers with which it writes OTC options. Each such contract will provide
that the Fund has the absolute right to repurchase the options it writes
at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but
which in no event will exceed a price determined pursuant to a formula
contained in the contract. Although the specific details of such formula
may vary among contracts, the formula will generally be based upon a
multiple of the premium received by the Fund for writing the option, plus
the amount, if any, of the option's intrinsic value. The formula will
also include a factor to account for the difference between the price of
the security and the strike price of the option. If such a contract is
entered into, the Fund will count as illiquid only the initial formula
price minus the option's intrinsic value.
A Fund will enter into such contracts only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Moreover, such primary dealers will be subject to the same standards as
are imposed upon dealers with which the Fund enters into repurchase
agreements.
Securities Index Options. In seeking to hedge all or a portion of its
investment, a Fund may purchase and write put and call options on
securities indexes listed on securities exchanges, which indexes include
securities held in the Fund's portfolio.
A securities index measures the movement of a certain group of stocks
or debt securities by assigning relative values to the securities
included in the index. Options on securities indexes are generally
similar to options on specific securities. Unlike options on specific
securities, however, options on securities indexes do not involve the
delivery of an underlying security; the option in the case of an option
on a stock index represents the holder's right to obtain from the writer
in cash a fixed multiple of the amount by which the exercise price
exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying stock index on the exercise date.
When the Fund writes an option on a securities index, it will establish
a segregated account with its custodian, or a designated sub-custodian,
in which the Fund will deposit cash, money market instruments or a
combination of both in an amount equal to the market value of the option,
and will maintain the account while the option is open. If the Fund has
written a securities index option, it may terminate its obligation by
effecting a closing purchase transaction, which is accomplished by
purchasing an option of the same series as the option previously written.
Securities index options are subject to position and exercise limits
and other regulations imposed by the exchange on which they are traded.
If a Fund writes a securities index option, it may terminate its
obligation by effecting a closing purchase transaction, which is
accomplished by purchasing an option of the same series as the option
previously written. The ability of a Fund to engage in closing purchase
transactions with respect to securities index options depends on the
existence of a liquid secondary market. Although a Fund generally
purchases or writes securities index options only if a liquid secondary
market for the options purchased or sold appears to exist, no such
secondary market may exist, or the market may cease to exist at some
future date, for some options. No assurance can be given that a
closing purchase transaction can be effected when the Fund desires to
engage in such a transaction.
Risks Relating to Purchase and Sale of Options on Stock Indexes.
Purchase and sale of options on stock indexes by a Fund are subject to
certain risks that are not present with options on securities. Because
the effectiveness of purchasing or writing stock index options as a
hedging technique depends upon the extent to which price movements in the
Fund's portfolio correlate with price movements in the level of the index
rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or writing of an option on an
index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on indexes will be
subject to the adviser's ability to correctly predict movements in the
direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the
price of individual stocks. In the event a Fund's adviser is unsuccessful
in predicting the movements of an index, such Fund could be in a worse
position than had no hedge been attempted.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading in the index options also may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of stocks included in the index. If this occurred, a
Fund will not be able to close out options which it had purchased or
written and, if restrictions on exercise were imposed, might be unable to
exercise an option it holds, which could result in substantial losses to
such Fund. However, it will be each Fund's policy to purchase or write
options only on indexes which include a sufficient number of stocks so
that the likelihood of a trading halt in the index is minimized.
Short Sales Against the Box. Each Fund may sell securities "short
against the box." Whereas a short sale is the sale of a security the Fund
does not own, a short sale is "against the box" if at all times during
which the short position is open, the Fund owns at least an equal amount
of the securities or securities convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities
sold short. Short sales against the box are typically used by
sophisticated investors to defer recognition of capital gains or losses.
Futures Contracts and Options on Futures Contracts. The Fund may
purchase and sell stock index futures contracts. The purpose of the
acquisition or sale of a futures contract by a Fund is to hedge against
fluctuations in the value of its portfolio without actually buying or
selling securities. The futures contracts in which a Fund may invest have
been developed by and are traded on national commodity exchanges. Stock
index futures contracts may be based upon broad-based stock indexes such
as the S&P 500 or upon narrow-based stock indexes. A buyer entering into
a stock index futures contract will, on a specified future date, pay or
receive a final cash payment equal to the difference between the actual
value of the stock index on the last day of the contract and the value of
the stock index established by the contract. The Fund may assume both
"long" and "short" positions with respect to futures contracts. A long
position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to
sell a commodity.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily
buying or selling the securities. Because the value of the Fund's
investment securities will exceed the value of the futures contracts sold
by the Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's
assets. No consideration is paid or received by the Fund upon trading a
futures contract. Upon trading a futures contract, the Fund will be
required to deposit in a segregated account with its custodian, or
designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money
market instruments equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange on which the
contract is traded and brokers may charge a higher amount). This amount
is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract that is returned to the Fund upon
termination of the futures contract, assuming that all contractual
obligations have been satisfied; the broker will have access to amounts
in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the currency or
securities underlying the futures contract fluctuates, making the long
and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to
the expiration of a futures contract, the Fund may elect to close a
position by taking an opposite position, which will operate to terminate
the Fund's existing position in the contract.
Each short position in a futures or options contract entered into by
the Fund is secured by the Fund's ownership of underlying securities. The
Fund does not use leverage when it enters into long futures or options
contracts; the Fund places in a segregated account with its custodian, or
designated, sub-custodian, with respect to each of its long positions,
cash or money market instruments having a value equal to the underlying
commodity value of the contract.
The Fund may trade stock index futures contracts to the extent
permitted under rules and interpretations adopted by the Commodity
Futures Trading Commission (the "CFTC"). U.S. futures contracts have been
designed by exchanges that have been designated as "contract markets" by
the CFTC, and must be executed through a futures commission merchant, or
brokerage firm, that is a member of the relevant contract market. Futures
contracts trade on a number of contract markets, and, through their
clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
The Fund intends to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that the Fund use
futures and options positions (a) for "bona fide hedging purposes" (as
defined in the regulations) or (b) for other purposes so long as
aggregate initial margins and premiums required in connection with
non-hedging positions do not exceed 5% of the liquidation value of the
Fund's portfolio. The Fund currently does not intend to engage in
transactions in futures contracts or options thereon for speculation, but
will engage in such transactions only for bona fide hedging purposes.
In entering into transactions involving futures contracts and options
on those contracts, the Fund is subject to a number of risks and special
considerations. The successful use of futures contracts and options on
those contracts draws upon Voyageur's or the Sub-Adviser's, as the case
may be, special skills and experience with respect to those instruments
and usually depends on the ability to forecast stock market movements
correctly. Should stock markets move in an unexpected manner, a Fund may
not achieve the anticipated benefits of futures contracts or options on
those contracts or may realize losses and thus be in a less advantageous
position than if those strategies had not been used. Certain futures
contracts and options on futures contracts are subject to no daily price
fluctuation limits so that adverse market movements could continue with
respect to those instruments to an unlimited extent over a period of
time. In addition, the correlation between movements in the prices of
those instruments and movements in the price of the securities hedged or
used for cover are not perfect.
Each Fund's ability to dispose of its positions in futures contracts
and options on those contracts depends on the availability of active
markets in those instruments. Markets in options and futures with respect
to a number of securities are relatively new and still developing. the
Sub-Adviser cannot now predict the amount of trading interest that may
exist in the future in various types of futures contracts and options.
Futures and options may be closed out only on the exchange on which the
contract was entered (or a linked exchange) so that no assurance can be
given that a Fund will be able to utilize these instruments effectively
for the purposes described above.
No secondary market for futures contracts currently exists, and
although each Fund intends to trade futures contracts only if an active
market for them exists, no assurance can be given that an active market
will exist for the contracts at any particular time. Most futures
exchanges limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached
in a particular contract, no trades may be made on that day at a price
beyond that limit. Prices for futures contracts may move to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting
the Fund to substantial losses. In that case, and in the event of adverse
price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of such Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract.
In addition, although each Fund anticipates that its options and
futures transactions will not prevent such Fund from qualifying as a
regulated investment company for federal income tax purposes, the Fund's
ability to engage in options and futures transactions may be limited by
this tax consideration. See "Distributions to Shareholders and Taxes," in
the Prospectus. In writing options, each Fund is subject to the risk of
loss resulting from the difference between the premium received for the
option and the price of the futures contract underlying the option that
the Fund must purchase or deliver upon exercise of the option.
Risks of Transactions in Futures Contracts and Options on Futures
Contracts. Holding Risks in Futures Contracts Transactions. There are
several risks in using stock index futures contracts as hedging devices.
One risk arises because the prices of futures contracts may not correlate
perfectly with movements in the underlying stock index 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 or 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 stock index futures
contracts, the risk of imperfect correlation increases as the composition
of the Fund's portfolio diverges from the securities included in the
applicable stock index. It is possible that a Fund might sell stock index
futures contracts to hedge its portfolio against a decline in the market,
only to have the market advance and the value of securities held in the
Fund's portfolio decline. If this occurred, the Fund would lose money on
the contracts and also experience a decline in the value of its portfolio
securities. While this could occur, the Fund's adviser believes that over
time the value of the Fund's portfolio will tend to move in the same
direction as the market indexes and will attempt to reduce this risk, to
the extent possible, by entering into futures contracts on indexes whose
movements it believes will have a significant correlation with movements
in the value of the Fund's portfolio securities sought to be hedged.
Successful use of futures contracts by the Fund is subject to the
ability of the Fund's adviser to predict correctly movements in the
direction of interest rates or the market. If the Fund has hedged against
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. The 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. The
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 Fund intends 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 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 and Special Considerations of Options on Futures Contracts. The
use of options 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 on futures contracts
involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transactions costs). The
writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of the Fund's portfolio
assets. By writing a call option, the Fund becomes obligated to sell a
futures contract, which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract generates a
premium, but the Fund becomes obligated to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss
incurred by the Fund in writing options on futures contracts may exceed
the amount of the premium received.
The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time
when the Fund's adviser deems it desirable to do so. Although the Fund
will enter into an option position only if Voyageur 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
particular time or at an acceptable price. The Fund's transactions
involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options on futures contracts
will be based upon predictions as to anticipated interest rates or market
trends by the Fund's 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.
Investments in futures contracts and related options by their nature
tend to be more short-term than other equity investments made by the
Fund. The Fund's ability to make such investments, therefore, may result
in an increase in the Fund's portfolio activity and thereby may result in
the payment of additional transaction costs.
The Internal Revenue Code of 1986, as amended (the "Code"), forbids the
Fund from earning more than 30% of its gross income from the sale or
other disposition of certain investments, including futures contracts and
options thereon, which are owned for less than three months. The
likelihood of violating this 30% test is increased by the amount of
investing the Fund does in futures contracts and related options.
Additionally, the Code requires the Fund to diversify its investment
holdings. The Internal Revenue Service position regarding the treatment
of futures contracts and related options for diversification purposes is
not clear, and the extent to which the Fund may engage in these
transactions may be limited by this requirement. The Code also provides
that, with respect to certain futures contracts and options held by the
Fund at the end of its taxable year, unrealized gain or loss on such
contracts may have to be recognized for tax purposes under a special
system within the Code. The actual gain or loss recognized by the Fund in
an eventual disposition of such contract, however, will be adjusted by
the amount of the gain or loss recognized earlier under the Code's
system.
FOREIGN CURRENCY TRANSACTIONS
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large commercial banks)
and their customers.
International Equity Fund will not enter into such forward contracts or
maintain a net exposure in such contracts where it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities and other assets denominated in that currency. The
Sub-Adviser believes that it is important to have the flexibility to
enter into such forward contracts when it determines that to do so is in
the Fund's best interests.
A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price at
a specified date or during the option period. A call option gives its
owner the right, but not the obligation, to buy the currency, while a put
option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of
the option sold if it is exercised. However, either seller or buyer may
close its position during the option period for such options any time
prior to expiration.
LENDING PORTFOLIO SECURITIES.
Although International Equity Fund has no current intention to do so,
the Fund may lend its portfolio securities to member firms of the New
York Stock Exchange and commercial banks with assets of one billion
dollars or more, provided the value of the securities loaned from the
Fund will not exceed 10% of the Fund's assets. Any such loans must be
secured continuously in the form of cash or cash equivalents such as U.S.
Treasury bills, the amount of the collateral must on a current basis
equal or exceed the market value of the loaned securities, and the Fund
must be able to terminate such loans upon notice at any time. The Fund
will exercise its right to terminate a securities loan in order to
preserve its right to vote upon matters of importance affecting holders
of the securities.
The advantage of such loans is that the Fund continues to receive the
equivalent of the interest earned or dividends paid by the issuers on the
loaned securities while at the same time earning interest on the cash
equivalent collateral which may be invested in accordance with the Fund's
investment objective, policies and restrictions.
Securities loans are usually made to broker-dealers and other financial
institutions to facilitate their delivery of such securities. As with any
extension of credit, there may be risks of delay in recovery and possibly
loss of rights in the loaned securities should the borrower of the loaned
securities fail financially. However, the Fund will make loans of its
portfolio securities only to those firms the Adviser or Sub-Adviser deems
creditworthy and only on such terms the Adviser or Sub-Adviser believes
should compensate for such risk. On termination of the loan the borrower
is obligated to return the securities to the Fund. The Fund will realize
any gain or loss in the market value of the securities during the loan
period. The Fund may pay reasonable custodial fees in connection with the
loan.
INVESTMENTS FOR TEMPORARY DEFENSIVE PURPOSES
For temporary defensive purposes, each Fund may invest in the following
obligations of, or guaranteed by, the U. S. Government, its agencies or
instrumentalities: (a) direct obligations of the U.S. Government such as
bills, notes, bonds and other debt obligations issued by the U. S.
Treasury; (b) obligations of U. S. Government agencies and
instrumentalities which are secured by the full faith and credit of the
U. S. Treasury such as securities of the Government National Mortgage
Association or the Export-Import Bank; (c) obligations which are secured
by the right of the issuer to borrow from the Treasury, such as
securities issued by the Federal Financing Bank or the Student Loan
Marketing Association; and (d) obligations which are supported by the
credit of the government agency or instrumentality itself, such as
securities of the Federal Home Loan Bank or the Federal National Mortgage
Association.
FOREIGN SECURITIES
International Equity Fund invests primarily in foreign securities.
Additional costs may be incurred which are related to any international
investment, since foreign brokerage commissions and the custodial costs
associated with maintaining foreign portfolio securities are generally
higher than in the United States. Fee expense may also be incurred on
currency exchanges when the Fund changes investments from one country to
another or converts foreign securities holdings into U.S. dollars.
Foreign companies and foreign investment practices are not subject to
uniform accounting, auditing and financial reporting standards and
practices or regulatory requirements comparable to those applicable to
United States companies. There may be less public information available
about foreign companies.
United States Government policies have at times in the past, through
imposition of interest equalization taxes and other restrictions,
discouraged United States investors from making certain investments
abroad. While such taxes or restrictions are not presently in effect they
may be reinstituted from time to time as a means of fostering a favorable
United States balance of payments. In addition, foreign countries may
impose withholding and taxes on dividends and interest. See "Risk
Factors" in the Prospectus.
[CREDIT QUALITY
Any bond in which the Fund invests will be rated investment grade. As
has been the industry practice, this determination of credit quality is
made at the time the Fund acquires the bond. However, because it is
possible that subsequent downgrades could occur, if a bond held by the
Fund is later downgraded, the Fund's Sub-Adviser, under the supervision
of the Fund's Board of Directors, will consider whether it is in the best
interest of the Fund's shareholders to hold or to dispose of the bond.
Among the criteria that may be considered by the Sub-Adviser and the
Board are the probability that the bonds will be able to make scheduled
interest and principal payments in the future, the extent to which any
devaluation of the bond has already been reflected in the Fund's net
asset value, and the total percentage, if any, of bonds currently rated
below investment grade held by the Fund.
Non-investment grade securities have moderate to poor protection of
principal and interest payments and have speculative characteristics.
They involve greater risk of default or price declines due to changes in
the issuer's creditworthiness than investment-grade debt securities.
Because the market for lower-rated securities may be thinner and less
active than for higher-rated securities, there may be market price
volatility for these securities and limited liquidity in the resale
market. Market prices for these securities may decline significantly in
periods of general economic difficulty or rising interest rates.]
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions. Certain of these
restrictions are fundamental policies of a Fund. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), a fundamental policy
may not be changed without the vote of a majority of the outstanding
voting securities of the Fund, as defined in the 1940 Act.
The following investment restrictions have been adopted by each of the
Aggressive Growth and Growth and Income Funds as fundamental policies:
1. The Fund will not borrow money, except that the Fund may
borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests and cash
payments of dividends and distributions that might otherwise require
the untimely disposition of securities, in an amount not to exceed 20%
of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made. Whenever borrowings
exceed 5% of the value of the total assets of the Fund, the Fund will
not make any additional investments.
2. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities and entering
into repurchase agreements.
3. The Fund will invest no more than 25% of the value of its
total assets in securities of issuers in any one industry. For
purposes of this restriction, the term industry will be deemed to
include the government of any country other than the United States,
but not the U.S. Government.
4. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and
sell securities of companies that deal in real estate or interests in
real estate.
5. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other
similar contracts.
6. The Fund will not act as an underwriter of securities, except
that the Fund may acquire securities under circumstances in which, if
the securities were sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act of 1933, as amended.
Aggressive Growth and Growth and Income Funds have adopted the
following operating (i.e. non-fundamental) investment policies and
restrictions which may be changed by the Board of Directors without
shareholder approval. In each case:
1. The Fund will not invest in oil, gas or other mineral leases
or exploration or development programs.
2. The Fund will not purchase any investment company security,
other than a security acquired pursuant to a plan of reorganization or
an offer of exchange, if as a result of the purchase (a) the Fund
would own more than 3% of the total outstanding voting securities of
any investment company, (b) more than 5% of the value of the Fund's
total assets would be invested in securities of any one investment
company or (c) more than 10% or the Fund's total assets would be
invested in securities issued by investment companies.
3. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.
4. The Fund will not make investments for the purpose of
exercising control of management.
5. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets
invested in securities of companies (including predecessors) that have
been in continuous operation for fewer than three years.
6. The Fund will not purchase or retain securities of any company
if, to the knowledge of the Fund, any of the Company's Directors,
Trustees or officers or any officer or director of the Adviser
individually owns more than 5% of the outstanding securities of the
company and together they own beneficially more than 5% of the
securities.
7. The Fund will not invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities at
the time of purchase) if, as a result, the investments (valued at the
lower of cost or market) would exceed 5% of the value of the Fund's
net assets of which not more than 2% of the Fund's net assets may be
invested in warrants not listed on a recognized foreign or domestic
stock exchange.
8. The Fund will not purchase securities on margin, except that
the Fund may obtain any short-term credits necessary for the clearance
of purchases and sales of securities. For purposes of this
restriction, the deposit or payment of initial or variation margin in
connection with futures contracts or options on futures contracts will
not be deemed to be a purchase of securities on margin.
9. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the
Fund owns an equal amount of the securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount
to, the securities sold short.
The Growth Stock Fund has adopted the following investment restrictions
as fundamental policies. The Growth Stock Fund may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than securities of the U. S.
Government or its agencies or instrumentalities).
2. Purchase more than 10% of any class of securities of any one
issuer (taking all preferred stock issues of an issuer as a single
class and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer.
3. Concentrate its investments in any particular industry;
however, it may invest up to 25% of the value of its total assets in
the securities of issuers conducting their principal business
activities in any one industry.
4. Invest more than 5% of the value of its total assets in the
securities of any issuers which, with their predecessors, have a
record of less than three years' continuous operation. (Securities of
such issuers will not be deemed to fall within this limitation if they
are guaranteed by an entity in continuous operation for more than
three years.)
5. Issue any senior securities (as defined in the 1940 Act),
except to the extent that using options and futures contracts may be
deemed to constitute issuing a senior security.
6. Borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 5% of the value of the Fund's
total assets.
7. Mortgage, pledge or hypothecate its assets except in an amount
not exceeding 10% of the value of its total assets, to secure
temporary or emergency borrowing. For purposes of this policy,
collateral arrangements for margin deposits on futures contracts or
with respect to the writing of options are not deemed to be a pledge
of assets.
8. Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
9. Purchase or sell real estate or real estate mortgage loans,
except the Fund may purchase or sell securities issued by companies
owning real estate or interests therein.
10. Purchase or sell oil, gas or other mineral leases, rights or
royalty contracts, except the Fund may purchase or sell securities of
companies investing in the foregoing.
11. Purchase or sell commodities or commodities futures
contracts, except that it may enter into financial futures contracts
and engage in related options transactions.
12. Purchase or retain the securities of any issuer, if, to the
Fund's knowledge, those officers or directors of the Fund or its
affiliates or of its investment adviser or sub-adviser who
individually own beneficially more than 0.5% of the outstanding
securities of such issuer, together own beneficially more than 5% of
such outstanding securities.
13. Make loans to other persons, except to the extent that
repurchase agreements are deemed to be loans under the 1940 Act, and
except that it may purchase debt securities as described in the
Prospectus under "Investment Objectives and Policies." The purchase of
a portion of an issue of bonds, debentures or other debt securities
distributed to the public or to financial institutions will not be
considered the making of a loan.
14. Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of purchases
or sales of securities and except that it may make margin deposits in
connection with futures contracts.
15. Participate on a joint or a joint and several basis in any
securities trading account.
16. Write, purchase or sell puts, calls or combinations thereof,
except that it may (a) purchase or write put and call options on stock
indexes listed on national securities exchanges, (b) write and
purchase put and call options with respect to the securities in which
it may invest and (c) engage in financial futures contracts and
related options transactions.
17. Make short sales except where, by virtue of ownership of
other securities, it has the right to obtain without payment of
further consideration, securities equivalent in kind and amount to
those sold.
18. Invest for the purpose of exercising control or management.
19. Invest more than 5% of the value of its total assets in the
securities of any single investment company or more than 10% of the
value of its total assets in the securities of two or more investment
companies except as part of a merger, consolidation or acquisition of
assets.
20. Invest more than 15% of its net assets in illiquid
investments.
As a non-fundamental policy, Growth Stock Fund may not invest more than
15% of its assets, collectively, in illiquid investments and securities
of foreign issuers which are not listed on a recognized domestic or
foreign securities exchange.
International Equity Fund has adopted the following restrictions as
fundamental policies. International Equity Fund may not:
1. Concentrate 25% or more of the value of its assets in any one
industry; provided, however that there is no limitation with respect to
investments in obligations issued or guaranteed by the United States
Government or its agencies and instrumentalities, and repurchase
agreements secured thereby.
2. Make loans, except through loaned portfolio securities, the
purchase of debt obligations in which the Fund may invest in accordance
with its investment objective and policies or repurchase agreements.
3. 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. Borrow money, except from banks for temporary or emergency
purposes and then only in an amount up to 20% of the value of the
Fund's total assets. In order to secure any permitted borrowings under
this section, the Fund may pledge, mortgage or hypothecate its assets.
5. Issue any senior securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), other than as set
forth in restriction #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. Invest in commodities, commodities futures contracts, or real
estate, although it may invest in securities which are secured by real
estate or real estate mortgages and securities of issuers which invest
or deal in commodities, commodity futures, real estate or real estate
mortgages and provided that it may purchase or sell stock index
futures, foreign currency futures, interest rate futures and options
thereon.
The Fund has adopted the following operating (i.e.,
non-fundamental) investment policies and restrictions which may be
changed by the Board of Directors without shareholder approval. The
Fund may not:
1. Purchase the securities of any issuer with less than three
years' continuous operation if, as a result, more than 5% of the value
of its total assets would be invested in securities of such issuers.
2. Purchase illiquid securities if more than 15% of the value of
the Fund's net assets would be invested in such securities. The Fund
may buy and sell securities outside the U.S. that are not registered
with the SEC or marketable in the U.S.
3. Purchase or retain securities of any issuer if the officers,
directors of the Fund or its Advisers, owning beneficially more than
1/2 of 1% of the securities of such issuer, together own beneficially
more than 5% of such issuer's securities.
4. Invest in warrants if more than 5% of the value of the Fund's
net assets would be invested in such securities.
5. Invest in interests in oil, gas, or other mineral exploration
or development programs or leases although it may invest in securities
of issuers which invest in or sponsor such program.
6. Invest more than 5% of its total assets in securities of any
single investment company, or more than 10% of its total assets in
securities of two or more investment companies, except as part of a
merger, consolidation or acquisition of assets.
7. Purchase any securities on margin except that the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities. The deposit or payment by the Fund
of initial or maintenance margin in connection with financial futures
contracts or related transactions is not considered the purchase of a
security or margin.
8. Invest for the purpose of exercising control or management of
another issuer.
9. Make short sales of securities or maintain a short position for
the account of the Fund unless at all times when a short position is
open it owns an equal amount of such securities or owns securities
which, without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and equal in
amount to, the securities sold short.
Each Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of the Fund's shares in certain
states. Should a Fund determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Fund will revoke the
commitment by terminating the sale of the Fund's shares in the state
involved.
For purposes of a Fund's concentration policy, each Fund intends 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.
Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an
excess over the applicable percentage occurs immediately after an
acquisition of securities or utilization of assets and such excess
results therefrom.
DIVERSIFICATION
Each Fund intends to operate as a "diversified" management investment
company, as defined in the Investment Company Act of 1940 (the "1940
Act"), which means that at least 75% of its total assets must be
represented by cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies, and
other securities for the purposes of this calculation limited in respect
of any one issuer to an amount not greater in value than 5% of the value
of total assets of such Fund and to not more than 10% of the outstanding
voting securities of such issuer.
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 such 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 such 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
Fund's investment adviser or sub-adviser, as the case may be. Frequent
portfolio trades may result in higher transaction and other costs for a
Fund.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and officers of the Company and their principal
occupations during the past five years are set forth below. In addition
to the occupations set forth below, the Directors and officers also serve
as directors or officers of various closed-end and open-end investment
companies managed by Voyageur.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS, AND AGE POSITION PAST FIVE YEARS AND OTHER AFFILIATIONS
<S> <C> <C>
John G. Taft, 40 President President of Voyageur and Executive Vice President of Voyageur Fund
90 South Seventh Street Distributors, Inc. ("the Underwriter ") since 1991; Director of
Suite 4400 Voyageur and the Underwriter since 1993; Management Committee member of
Minneapolis, Minnesota 55402 Voyageur from 1991 to 1993; previously, Managing Director at Piper,
Jaffray & Hopwood Incorporated from 1986 to 1991.
Andrew M. McCullagh, Jr., 46 Executive Director of Voyageur and the Underwriter since 1993;
717 Seventeenth Street Vice Executive Vice President of Voyageur since 1990;
Denver, Colorado 80202 President Executive Vice President of Colorado Funds Management
Group, Inc. from 1987 to 1990.
Kenneth R. Larsen, 32 Treasurer Chief Financial Officer of Voyageur since 1990; Director of Voyageur
90 South Seventh Street and the Underwriter since 1993; Secretary and Treasurer of Voyageur and
Suite 4400 the Underwriter from 1990 to 1993.
Minneapolis, Minnesota 55402
Thomas J. Abood, 31 Secretary Vice President and General Counsel of Voyageur and Voyageur Companies,
90 South Seventh Street Inc. since October 1994; associated with the law firm of Skadden, Arps,
Suite 4400 Slate, Meagher & Flom, Chicago, Illinois from September 1988 to October
Minneapolis, Minnesota 55402 1994.
Clarence G. Frame, 76 Board member Of counsel, Briggs & Morgan law firm.
W-875
First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
Richard F. McNamara, 61 Board member Chief Executive Officer of Activar, Inc., a Minneapolis-based holding
7808 Creekridge Circle company consisting of seventeen companies in industrial plastics, sheet
Minneapolis, Minnesota 55439 metal, automotive aftermarket, construction supply, electronics and
financial services, since 1966.
Thomas F. Madison*, 58 Board member Vice Chairman-Office of the CEO, Minnesota Mutual Life Insurance
200 South Fifth Street Company since February 1994; President and CEO of MLM Partners, Inc.
Suite 2100 since January 1993; previously, President of U.S. WEST
Minneapolis, Minnesota 55402 Communications-Markets from 1988 to 1993; Mr. Madison currently serves
on the board of directors of Minnesota Mutual Life Insurance Company,
Valmont Industries, Inc., Eltrax Systems, Inc. and various civic and
educational organizations.
James W. Nelson, 52 Board member Chairman and Chief Executive Officer of Eberhardt Holding Company
81 South Ninth Street and its subsidiaries since 1990; prior to which he had been President
Suite 400 since 1976.
Minneapolis, Minnesota 55440
Robert J. Odegard, 73 Board member Special Assistant to the President of the University of Minnesota from
University of Minnesota August 1984 to April 1989 and from May 1990 to present; Associate Vice
Foundation President for Alumni Relations and Development of the University of
1300 South Second Street Minnesota from 1970 to August 1984 and from April 1989 to May 1990.
Minneapolis, Minnesota 55454
Jane M. Wyatt, 40 Executive Director and Chief Investment Officer of Voyageur since 1993; Director
90 South Seventh Street Vice of the Underwriter since 1993; Executive Vice President and Portfolio
Suite 4400 President Manager of Voyageur from 1992 to 1993; Vice President and Portfolio
Minneapolis, Minnesota 55402 Manager from 1989 to 1992.
Elizabeth H. Howell, 32 Vice Vice President of Voyageur and Senior Tax Exempt Portfolio Manager;
90 South Seventh Street President previously, portfolio manager for Windsor Financial Group,
Suite 4400 Minneapolis, from 1988 to 1991.
Minneapolis, Minnesota 55402
James C. King, 54 Vice Director of Voyageur and the Underwriter since 1993;
90 South Seventh Street President Executive Vice President and Senior Equity Portfolio
Suite 4400 Manager of Voyageur since 1990.
Minneapolis, Minnesota 55402
Richard Vandenberg, 45 Vice Executive Vice President of Voyageur since 1994; Portfolio Manager of
90 South Seventh Street President Voyageur since October 1992; previously, Proprietary Trader with
Suite 4400 Norwest Bank from March 1992 to October 1992; President of Ravan
Minneapolis, Minnesota 55402 Corporation, a commodity trading adviser in Excelsior, Minnesota, from
1990 to March 1992.
</TABLE>
* "Interested person" of the Funds as such term is defined in the 1940 Act.
The Funds do not compensate their officers. Each director or
trustee (who is not an employee of Voyageur or any of its affiliates)
received a total annual fee of $24,000 for serving as a director or
trustee for each of the open-end and closed-end investment companies
(the "Fund Complex") for which Voyageur acts as investment adviser,
plus a $500 fee for each special in-person meeting attended by such
director. These fees are allocated among each series or fund in the
Fund Complex based on the relative average net asset value of each
series or fund. Currently the Fund Complex consists of ten open-end
investment companies comprising [38] series or funds and six closed-end
investment companies. In addition, each director or trustee who is not
an employee of Voyageur or any of its affiliates is reimbursed for
expenses incurred in connection with attending meetings. For the fiscal
year ended April __, 1995, the Fund Complex paid total compensation of
$______ to each of Messrs. Frame, McNamara, Nelson and Odegard and
$_____ to Mr. Madison. Mr. Harley Danforth received $______ for service
as a director/trustee through the fiscal year ended April __, 1995. Mr.
Danforth has resigned as a member of the Board of the Funds, but has
been retained as a consultant by the Funds for the period ending
January 1996. He will receive $20,000 from the Fund Complex for his
services as a consultant.
THE INVESTMENT ADVISER, SUB-ADVISER AND UNDERWRITER
GENERAL
Voyageur Fund Managers, Inc. ("Voyageur" or the "Adviser")
has been retained under an investment advisory agreement (the "Advisory
Agreement") to act as each Fund's investment adviser, subject to the
authority of the Board of Directors. Voyageur and the Underwriter are
each indirect wholly-owned subsidiaries of Dougherty Financial Group,
Inc. ("DFG"), which is owned approximately 49% by Michael E. Dougherty,
49% by Pohlad Companies and less than 1% by certain retirement plans
for the benefit of DFG employees. Mr. Dougherty co-founded the
predecessor of DFG in 1977 and has served as DFG's Chairman of the
Board and Chief Executive Officer since inception. Pohlad Companies is
a holding company owned in equal parts by each of James O. Pohlad,
Robert C. Pohlad and William M. Pohlad. As of July __, 1995, Voyageur
served as the manager to six closed-end and ten open-end investment
companies (comprising ___ separate investment portfolios), administered
numerous private accounts and managed approximately $___ billion in
assets. Voyageur's principal business address is 90 South Seventh
Street, Suite 4400, Minneapolis, Minnesota 55402.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the
principal distributor of the Fund's shares. With regard to the
Underwriter, Mr. Taft is the Executive Vice President and a director
and Messrs. McCullagh, Jessen, King and Larsen and Ms. Wyatt are each
directors.
INVESTMENT ADVISORY AGREEMENT
Pursuant to the Advisory Agreement, each Fund has engaged
Voyageur to act as investment adviser for such Fund. As compensation
for Voyageur's services, each Fund is obligated to pay to Voyageur a
monthly investment advisory fee equivalent on an annual basis to (i) 1%
of its average daily net assets with respect to Aggressive Growth and
International Equity Funds and (ii) 0.50% of its average daily net
assets with respect to Growth Stock and Growth and Income Funds. The
percentage fee is based on the average daily value of the 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 Advisory
Agreement, the Fund's net assets equal its total assets minus its total
liabilities. The Advisory Agreement required Voyageur to also furnish,
at its own expense, office facilities, equipment and personnel for
servicing the investments of the Fund. Voyageur has agreed to arrange
for officers and employees of Voyageur to serve without compensation
from the Fund as Directors, officers or employees of the Fund if duly
elected to such positions by the shareholders or Directors of the Fund.
The Advisory Agreement continues from year to year only if
approved annually (a) by the Fund's Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund and (b) by
vote of a majority of Directors of the Fund who are not parties to such
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 of the Fund called for the purpose of voting on such
approval. The Advisory Agreement may be terminated by either party on
60 days' notice to the other party and terminates automatically upon
its assignment. The Advisory Agreement also provides that amendments to
the Agreement may be effected if approved by the Board of Directors of
the Fund (including a majority of the Directors who are not interested
persons of Voyageur 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 Fund's Board of Directors (unless the Act
otherwise requires shareholder approval thereof).
SUB-ADVISORY AGREEMENT
Segall Bryant & Hamill ("Segall Bryant") is the Sub-Adviser
to the Growth and Income Fund. Its business office is located at 10
South Wacker Drive, Suite 2150, Chicago, IL 60606. Segall Bryant is a
Minnesota partnership which is 50% owned by Voyageur Advisory Services,
Inc. an affiliate of Voyageur. Murray Johnstone International, Ltd.
("Murray Johnstone") is the Sub-Adviser to the International Equity
Fund. Its business office in the U.S. is 875 N. Michigan Avenue, Suite
3415, Chicago, Illinois 60611. Murray Johnstone is a wholly-owned
subsidiary of United Asset Management Corporation. Each Sub-Adviser
manages the investment and reinvestment of the assets of the relevant
Fund, although Voyageur monitors and evaluates the performance and
investment style of each Sub-Adviser.
Each Sub-Advisory Agreement between Voyageur and the
Sub-Advisers provides that the Sub-Adviser is entitled to a
sub-advisory fee of .50% of the respective Fund's average daily net
assets managed by the Sub-Adviser. The Sub-Adviser's fee is paid by the
Adviser, not the Fund. Pursuant to an Investment Sub-Advisory Agreement
with the Adviser, the Sub-Adviser determines investment selections for
the Fund and is responsible for the placement of brokerage transactions
in connection therewith. Under each Sub-Advisory Agreement, the
Sub-Adviser is required, among other things, to report to the Adviser
or the Board of Directors regularly at such times and in such detail as
the Adviser or the Board of Directors may from time to time request in
order to permit the Adviser and the Board of Directors to determine the
adherence of the Fund to its investment objective, policies and
restrictions. The Sub-Advisory Agreement also requires the Sub-Adviser
to provide all office space, personnel and facilities necessary and
incident to the Sub-Adviser's performance of its services under the
Sub-Advisory Agreement.
Since December 31, 1991, Voyageur has served as the Growth
Stock Fund's investment adviser. From September 1, 1990 to December 31,
1991, Wilke/Thompson Capital Management ("Wilke/Thompson") served as
the Growth Stock Fund's sub-adviser and, prior to September 1, 1990,
Investment Advisers, Inc. ("IAI") served as the Growth Stock Fund's
investment adviser.
ADMINISTRATIVE SERVICES AGREEMENT
Voyageur 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 Voyageur and the Fund. Pursuant to the
Administrative Services Agreement, Voyageur provides to the Fund all
dividend disbursing, transfer agency, administrative and accounting
services required by the Fund including, without limitation, the
following: (i) the calculation of net asset value per share (including
the pricing of the 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 the Fund's shares or the receipt of redemption requests
with respect to the Fund's shares outstanding, the calculation of the
number of shares to be purchased or redeemed, respectively, (iii) upon
the 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 the Fund to be received by each shareholder of
the 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 the Fund as
the 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
the Fund, and (vii) the provision of such other dividend disbursing,
transfer agency, administrative and accounting services as the Fund and
Voyageur may from time to time agree upon.
As compensation for these services, the Fund pays Voyageur a
monthly fee based upon the Fund's average daily net assets and the
number of shareholder accounts then existing. With respect to Growth
and Income, Growth Stock and Aggressive Growth Funds, this fee is equal
to 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 exceed $100 million and
(iii) 0.1% per annum of the first $20 million of the Fund's average
daily net assets, 0.05% per annum of the next $80 million of the Fund's
average daily net assets, and 0.025% per annum of average daily net
assets in excess of $100 million. With respect to International Equity
Fund, this fee is equal to the sum of (i) $1.33 per shareholder account
per month, (ii) $3,000 per month if the Fund's average daily net assets
do not exceed $50 million, $4,000 per month if the Fund's average daily
net assets are greater than $50 million but do not exceed $100 million,
and $5,000 per month if the Fund's average daily net assets exceed $100
million and (iii) 0.1% per annum of the first $50 million of the Fund's
average daily net assets, 0.05% per annum of the next $100 million of
the Fund's average daily net assets, 0.025% per annum of the next $250
million of the Fund's average daily net assets, 0.02% per annum of the
next $300 million of the Fund's average daily net assets and 0.01% per
annum of average daily net assets in excess of $700 million. For
purposes of calculating average daily net assets, as such term is used
in the Administrative Services Agreements, the Fund's net assets equal
its total assets minus (i) its total liabilities and (ii) its net
orders receivable from dealers. The Fund also reimburses Voyageur for
its out-of-pocket expenses in connection with Voyageur's provision of
services under the Fund's Administrative Services Agreement.
The Fund's Administrative Services Agreement is renewable
from year to year if the Directors (including a majority of the
disinterested Directors) approve the continuance of the Agreement. The
Fund or Voyageur can terminate the Fund's Administrative Services
Agreement on 60 days' notice to the other party. The Administrative
Services Agreement of the Fund also provides that amendments to the
Agreement may be effected if approved by the Board of Directors
(including a majority of the Directors who are not interested persons
of Voyageur 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 Board of Directors (unless the Act otherwise requires
shareholder approval thereof).
EXPENSES OF THE FUNDS
Voyageur reserves the right to voluntarily waive its fees in
whole or part and to voluntarily absorb certain other of a Fund's
expenses. [The Adviser intends to waive its advisory fee and reimburse
expenses of the Fund to the extent that such expenses exceed 1.75% of
the Fund's average daily net assets with respect to Class A shares, and
2.50% of average daily net assets with respect to Class C shares, on an
annual basis from the date of this Statement of Additional Information
through April 30, 1996.] After such date, the Adviser reserves the
right to terminate its waiver and to discontinue expense reimbursement
at any time in its sole discretion.
All costs and expenses (other than those expressly assumed by
Voyageur or the Underwriter) incurred in the operation of a Fund are
borne by such Fund. These expenses include, among others, fees of the
Directors who are not employees of Voyageur or any of its 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 the 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 such Fund,
association membership dues, charges of a 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.
[HISTORICAL, ADVISORY, ADVISER EXPENSE TABLE TO COME]
PLAN OF DISTRIBUTION AND DISTRIBUTION AGREEMENT
The Company has adopted a Plan of Distribution on behalf of
each Fund relating to the payment of certain expenses pursuant to Rule
12b-1 under the 1940 Act. Rule 12b-1(b) provides that any payments made
by a Fund in connection with the distribution of its shares may only be
made pursuant to a written plan describing all material aspects of the
proposed financing of distribution and also requires that all
agreements with any person relating to implementation of the plan must
be in writing. In addition, Rule 12b-1(b)(1) requires that such plan be
approved by a vote of at least a majority of the Fund's outstanding
shares, and Rule 12b-1(b)(2) requires that such plan, together with any
related agreements, be approved by a vote of the Board of Directors and
the Directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the plan or
in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such plan or agreements. Rule
12b-1(b)(3) requires that the plan or agreement provide, in substance:
(1) that it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by a
Fund pursuant to its plan or any related agreement shall provide to the
Board of Directors, and the Directors shall review, at least quarterly,
a written report of the amount so expended and the purposes for which
such expenditures were made; and (3) in the case of a plan, that it may
be terminated at any time by vote of a majority of the members of the
Board of Directors who are not interested persons of the Company and
have no direct or indirect financial interest in the operation of the
plan or in any agreements related to the plan or by vote of a majority
of the outstanding voting securities of the Fund.
Rule 12b-1(b)(4) requires that such plans may not be amended
to increase materially the amount to be spent for distribution without
shareholder approval and that all material amendments of the plan must
be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Company may rely upon Rule 12b-1(b)
only if selection and nomination of the Company's disinterested
Directors are committed to the discretion of such disinterested
Directors. Rule 12b-1(e) provides that the Fund may implement or
continue a plan pursuant to Rule 12b-1(b) only if the Directors who
vote to approve such implementation or continuation conclude, in the
exercise of reasonable business judgment and in light of their
fiduciary duties under state law, and under Section 36(a) and (b) of
the 1940 Act, that there is a reasonable likelihood that the plan will
benefit the Fund and its shareholders.
The Company has entered into a Distribution Agreement (on
behalf of the Fund) with the Underwriter, pursuant to which the
Underwriter acts as the principal underwriter of the Fund's shares. The
Distribution Agreement and Plan provide that the Underwriter agrees to
provide, and shall pay costs which it incurs in connection with
providing, administrative or accounting services to shareholders of the
Fund (such costs are referred to as "Shareholder Servicing Expenses")
and that the Underwriter shall also pay all costs of distributing the
shares of the Fund ("Distribution Expenses"). Shareholder Servicing
Expenses include all expenses of the Underwriter incurred in connection
with providing administrative or accounting services to shareholders of
the Fund, including, but not limited to, an allocation of the
Underwriter's overhead and payments made to persons, including
employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other
administrative or accounting services not otherwise required to be
provided by the Fund's investment adviser or transfer agent.
Distribution Expenses include, but are not limited to, initial and
ongoing sales compensation (in addition to sales loads) paid to
investment executives of the Underwriter and to other broker-dealers
and participating financial institutions; expenses incurred in the
printing of prospectuses, statements of additional information and
reports used for sales purposes; expenses of preparation and
distribution of sales literature; expenses of advertising of any type;
an allocation of the Underwriter's overhead; payments to and expenses
of persons who provide support services in connection with the
distribution of Fund shares; and other distribution-related expenses.
[Pursuant to the provisions of the Distribution Agreements,
the Underwriter is entitled to receive a total fee each month at an
annual rate of .25% of the average daily net assets attributable to the
Fund's Class A shares and 1.00% of the average daily net assets
attributable to the Fund's Class C shares to pay distribution and
shareholder servicing expenses. As determined from time to time by the
Board of Directors, a portion of such fees shall be designated as a
"shareholder servicing fee" and a portion shall be designated as a
"distribution fee." The Board of Directors has determined that all of
the fee payable with respect to Class A shares shall be designated a
shareholder servicing fee. With respect to fees payable with respect to
Class C shares, that portion of the fee equal to .25% of average daily
net assets attributable to the Fund's Class C shares is designated a
shareholder servicing fee and that portion of the fee equal to .75% of
average daily net assets attributable to the Fund's Class C shares is
designated a distribution fee. Amounts payable to the Underwriter under
the Distribution Agreement may exceed or be less than the Underwriter's
actual distribution expenses and shareholder servicing expenses. In the
event such distribution expenses and shareholder servicing expenses
exceed amounts payable to the Underwriter under the Plan, the
Underwriter shall not be entitled to reimbursement by the Fund.]
The Distribution Agreement is renewable from year to year if
the Company's Directors approve such Plan and Distribution Agreement.
The Company or the Underwriter can terminate the Distribution Agreement
on 60 days' notice to the other party, and the Distribution Agreement
terminates automatically upon its assignment. In the Distribution
Agreement, the Underwriter agrees to indemnify the Fund against all
costs of litigation and other legal proceedings and against any
liability incurred by or imposed on the Fund in any way arising out of
or in connection with the sale or distribution of the Fund's shares,
except to the extent that such liability is the result of information
which was obtainable by the Underwriter only from persons affiliated
with the Fund but not the Underwriter.
Pursuant to the Distribution Agreement, the Underwriter has
agreed to act as the principal underwriter for the Fund in the sale and
distribution to the public of shares of a Fund, either through dealers
or otherwise. The Underwriter has agreed 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. As compensation for its services, in
addition to being paid the shareholder servicing fee and the
distribution fee, pursuant to the Plan discussed above, the Underwriter
receives the sales charge set forth in the Prospectus on sales of Fund
shares.
[HISTORICAL 12B-1 EXPENSE TABLES TO COME]
PORTFOLIO TRANSACTIONS, ALLOCATION OF BROKERAGE, AND TURNOVER RATE
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 or the Sub-Adviser,
as the case may be. In determining the commissions to be paid to an
affiliated broker-dealer acting as an agent on behalf of a Fund, it is
the policy of each Fund that such commissions will, in the judgment of
the Adviser or Sub-Adviser, subject to review by the Board of
Directors, be both (i) 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 a
securities exchange during a comparable period of time, and (ii) at
least as favorable as commissions contemporaneously charged by such
affiliated broker-dealers on comparable transactions for their most
favored comparable unaffiliated customers. While the Fund does not deem
it practicable and in its best interest to solicit competitive bids for
commission rates on each transaction, consideration will regularly be
given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions
by other qualified brokers.
Decisions with respect to placement of a Fund's portfolio
transactions are made by the Adviser or Sub-Adviser, as the case may
be. In selecting brokers to execute portfolio transactions, the Adviser
and the Sub-Adviser each seeks to obtain the best price and execution
of orders. Commission rates, being a component of price, are considered
together with other relevant factors. When consistent with these
criteria, business may be placed with broker-dealers who furnish
investment research services to the Sub-Adviser or 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 each of the Adviser and the
Sub-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. To the extent portfolio transactions are effected
with broker-dealers who furnish research services, each of the Adviser
and Sub-Adviser receives a benefit, not capable of evaluation in dollar
amounts, without providing any direct monetary benefit to the Fund from
these transactions. The Adviser and Sub-Adviser have not entered into
any formal or informal agreements with any broker-dealers, and does not
maintain any "formula" which must be followed in connection with the
placement of Fund portfolio transactions in exchange for research
services, except as noted below. However, the Adviser and Sub-Adviser
may, from time to time, maintain an informal list of broker-dealers
which may be used as a general guide in the placement of Fund business
in order to encourage certain broker-dealers to provide research
services. Because the list is merely a general guide which is to be
used only after the primary criteria for the selection of
broker-dealers (discussed above) have been met, substantial deviations
from the list are permissible and may be expected to occur. The Adviser
and Sub-Adviser will authorize the Fund to pay to a broker-dealer 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 and Sub-Adviser determine 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 their overall
responsibilities with respect to the accounts as to which the Adviser
and Sub-Adviser exercise investment discretion.
It is expected each Fund will purchase most foreign equity
securities in the over-the-counter markets or stock exchanges located
in the countries in which the respective principal offices of the
issuers of the various securities are located if that is the best
available market. The fixed commissions paid in connection with most
such foreign stock transactions generally are higher than negotiated
commission on United States transactions. There generally is less
governmental supervision and regulation of foreign stock exchanges than
in the United States. Foreign securities settlements may in some
instances be subject to delays and related administrative
uncertainties.
Foreign equity securities may be held in the form of American
Depositary Receipts, or ADRs, Global Depositary Receipts, or GDRs, or
securities convertible into foreign equity securities. ADRs and GDRs
may be listed on stock exchanges or traded in the over-the-counter
markets in the United States or overseas, as the case may be. ADRs,
like other securities traded in the United States, will be subject to
negotiated commission rates. The foreign and domestic debt securities
and money market instruments in which the Funds may invest are
generally traded in over-the-counter markets.
Voyageur believes that most research services obtained by
Voyageur or the Sub-Advisers will generally benefit one or more of the
investment companies which they manage 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.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to the policies set
forth above and such other policies as the Funds' directors may
determine, Voyageur or the Sub-Advisers may consider sales of shares of
the Fund as a factor in the selection of broker-dealers to execute the
Fund's securities transactions.
Pursuant to conditions set forth in rules of the Securities
and Exchange Commission, each Fund 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,
particularly those Directors who are not interested persons of the
Company.
When two or more clients of the Adviser or Sub-Advisers 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 or Sub-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.
[HISTORICAL BROKERAGE EXPENSE TABLE TO COME]
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
It is each Fund's policy to distribute annually all net
investment income. Each Fund distributes annually all net realized
capital gains, if any, after offsetting any capital loss carryovers.
Distributions are payable in full and fractional shares of the Fund
based upon the next determined net asset value on the payment date for
each distribution. A shareholder may, however, elect by written
application received by the Underwriter or such shareholder's
Participating Institution on or prior to the record date to receive net
investment income distributions or both net investment income and net
capital gains distributions in cash.
Under the Internal Revenue Code of 1986, as amended (the
"Code") each Fund will be subject to a non-deductible excise tax equal
to 4% of the excess, if any, of the amount required to be distributed
for each calendar year over the amount actually distributed. In order
to avoid the imposition of this excise tax, each Fund generally must
declare dividends by the end of a calendar year representing 98% of the
Fund's ordinary income for the calendar year and 98% of its capital
gain net income (both long-term and short-term capital gains) for the
12-month period ending October 31 of the calendar year. The 4% excise
tax does not apply to amounts with respect to which each Fund has paid
a corporate-level income tax.
For individuals, long-term capital gains are subject to a
maximum tax rate of 28% while ordinary income is subject to a maximum
effective rate in excess of 39.6% (resulting from a combination of a
nominal 39.6% rate, a phase-out of personal exemptions for individuals
filing single returns with adjusted gross income in excess of $111,800
and for married couples filing joint returns with adjusted gross income
in excess of $167,700, and a partial disallowance of itemized
deductions for individuals with adjusted gross income in excess of
$111,800). For corporations, both ordinary income and capital gains are
currently subject to a maximum rate of 35%.
Ordinarily, distributions and redemption proceeds earned by a
Fund shareholder are not subject to withholding of federal income tax.
However, 31% of Fund distributions and redemption proceeds may be
withheld upon the occurrence of certain events specified in Section
3406 of the Code and regulations promulgated thereunder. These events
include the failure of a Fund shareholder to supply the Fund or its
agent with such shareholder's taxpayer identification number.
Withholding may also occur if a Fund shareholder who is otherwise
exempt from withholding fails to properly document such shareholder's
status as an exempt recipient.
If a taxpayer exchanges shares in a Fund for shares in another
fund managed by Voyageur pursuant to the exchange privilege (see
"Exchange Privilege," below), the exchange is a taxable event that may
give rise to capital gain or loss. Furthermore, if a shareholder uses
the exchange privilege within 90 days of investing shares in the Fund,
the shareholder may not take the sales charge paid on purchase of the
Fund shares into account in determining gain or loss on the exchange
(to the extent that the sales charge on the latter purchase was
reduced). Similarly, if a taxpayer redeems shares in the Fund within 90
days of purchasing them and then repurchases shares in the Fund
pursuant to the reinstatement privilege (see "Reinstatement Privilege,"
below), the shareholder may not take the sales charge paid on the
initial purchase of Fund shares into account in determining gain or
loss on the sale of the first acquired shares. However, in both cases
the amount of the disallowed sales charge may be taken into account in
determining gain or loss on the eventual disposition of the later
acquired shares.
Each Fund intends to qualify each year as a "regulated
investment company" under Subchapter M of the Code. To qualify as a
regulated investment company the Fund must, among other things, receive
at least 90% of its gross income each year from dividends, interest,
gains from the sale or other disposition of securities and certain
other types of income, including income from options and futures
contracts.
The Code forbids a regulated investment company from earning
30% or more of its gross income from the sale or other disposition of
stock, securities, options, futures, and certain foreign currencies
held less than three months. This restriction may limit the extent to
which a Fund may purchase futures contracts and options. To the extent
a Fund engages in short-term trading and enter into futures and options
transactions, the likelihood of violating this 30% requirement is
increased.
The Code also requires a regulated investment company to
diversify its holdings. The Internal Revenue Service has not made its
position clear regarding the treatment of futures contracts and options
for purposes of the diversification test, and the extent to which a
Fund could buy or sell futures contracts and options may be limited by
this requirement.
Gain or loss on futures contracts and options is taken into
account when realized by entering into a closing transaction or by
exercise. In addition, with respect to many types of futures contracts
and options held at the end of the Fund's 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 futures 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
each Fund in a subsequent sale or other disposition of such futures
contracts will be adjusted to reflect any capital gain or loss taken
into account by such 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 futures
contracts, each Fund may make an election that will have the effect of
exempting all or a part of those identified futures contracts from
being treated for federal income tax purposes as sold on the last
business day of such Fund's taxable year. All or part of any loss
realized by a Fund on any closing of a futures contract may be deferred
until all of such Fund's offsetting positions with respect to the
futures contract are closed. As a result of trading in futures
contracts, a Fund may realize net capital gains which, when distributed
to shareholders, would be taxable in the hands of the shareholders.
Pursuant to the Code, distributions of net investment income
by a Fund to a shareholder who, as to the U.S., is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will
generally be subject to U.S. withholding tax (at a rate of 30% or lower
treaty rate). Withholding will not apply if a dividend paid by a Fund
to a foreign shareholder is "effectively connected" with a U.S. trade
or business of such shareholder, in which case the reporting and
withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long-term capital gains
are not subject to tax withholding but, in the case of a foreign
shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days
during the taxable year. Each Fund will report annually to its
shareholders the amount of any withholding. [It is expected that
dividends paid by International Equity Fund will not be eligible for
the 70% deduction for dividends received by corporations because such
Fund's income will not consist of dividends paid by U.S. corporations.]
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 any income, gain or
loss. The Fund will attempt to monitor Section 988 transactions to
avoid an adverse tax impact.
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.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the net asset value of Fund shares
is summarized in the Fund's prospectus in "Determination of Net Asset
Value." The public offering price of Class A shares is the net asset
value of Fund shares plus the applicable front end sales charge, if
any. The maximum front end sales charge is 4.99% of the net asset
value. [Class B Shares] The public offering price of Class C shares is
the net asset value of Fund shares. The portfolio securities in which a
Fund invests fluctuate in value, and, therefore, the net asset value
per share of a Fund also fluctuates.
SPECIAL PURCHASE PLANS
Automatic Investment Plan. As a convenience to investors,
shares may be purchased through a preauthorized automatic investment
plan. Such preauthorized investments (at least $100) may be used to
purchase shares of the Fund at the public offering price next
determined after the Fund receives the investment (normally the 20th of
each month, or the next business day thereafter). Further information
is available from the Underwriter.
Combined Purchase Privilege. The following persons (or groups
of persons) may qualify for reductions from the front end sales charge
("FESC") schedule for Class A shares set forth in the Fund's Prospectus
by combining purchases of any class of shares of any one or more of the
Voyageur Load Funds and Other Load Funds if the combined purchase of
all such funds totals at least $50,000:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the 1940 Act;
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a pension,
profit-sharing or other employee benefit trust) created pursuant
to a plan qualified under Section 401 of the Code;
(iv) tax-exempt organizations enumerated in Section
501(c)(3) of the Code;
(v) employee benefit plans of a single employer or of
affiliated employers;
(vi) any organized group which has been in existence for
more than six months, provided that it is not organized for the
purpose of buying redeemable securities of a registered
investment company, and provided that the purchase is made
through a central administration, or through a single dealer, or
by other means which result in economy of sales effort or
expense. An organized group does not include a group of
individuals whose sole organizational connection is participation
as credit cardholders of a company, policyholders of an insurance
company, customers of either a bank or broker-dealer, or clients
of an investment adviser.
Cumulative Quantity Discount (Right of Accumulation). A
purchase of shares of any class may qualify for a Cumulative Quantity
Discount. The applicable FESC will then be based on the total of:
(i) the investor's current purchase; and
(ii) the net asset value (at the close of business on the
previous day) of shares of any class of Voyageur Load Funds and
shares of Other Load Funds held by the investor; and
(iii) the net asset value of shares of any class of Voyageur
Load Funds and shares of Other Load Funds owned by another
shareholder eligible to participate with the investor in a
"Combined Purchase Privilege" (see above).
For example, if an investor owned shares worth $25,000 at the
then current net asset value and purchased an additional $40,000 of
shares, the sales charge for the $40,000 purchase would be at the rate
applicable to a single $65,000 purchase.
To qualify for the Combined Purchase Privilege or to obtain
the Cumulative Quantity Discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must provide
the Fund whose shares are being purchased with sufficient information
to verify that the purchase qualifies for the privilege or discount at
the time of each such purchase.
Letter of Intention. Investors may also obtain the reduced
front end sales charges for Class A shares shown in the Prospectus by
means of a written Letter of Intention, which expresses the investor's
intention to invest at least $50,000 with respect to the Fund
(including certain "credits," as described below) within a period of 13
months in shares of any class of Voyageur Load Funds and shares of
Other Load Funds. Each purchase of shares under a Letter of Intention
will be made at the public offering price applicable at the time of
such purchase to a single transaction of the dollar amount indicated in
the Letter. A Letter of Intention may include purchases of shares made
not more than 90 days prior to the date that an investor signs a
Letter; however, the 13-month period during which the Letter is in
effect will begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares under a single Letter of Intention.
If, for example, on the date an investor signs a Letter of
Intention to invest at least $50,000 as set forth above and the
investor and the investor's spouse and children under twenty-one have
previously invested $30,000 in shares which are still held by such
persons, it will only be necessary to invest a total of $20,000 during
the 13 months following the first date of purchase of such shares in
order to qualify for the sales charges, on the $20,000 purchase,
applicable to investments of $50,000.
The Letter of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Letter of Intention is 5% of such amount. Shares
purchased with the first 5% of such amount will be held in escrow to
secure payment of the higher sales charge applicable to the shares
actually purchased if the full amount indicated is not purchased. When
the full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the dollar
amount indicated on the Letter of Intention and qualifies for further
reduced sales charges, the sales charges will be adjusted for the
entire amount purchased at the end of the 13-month period. The
difference in sales charges will be used to purchase additional shares
at the then current offering price applicable to the actual amount of
the aggregate purchases.
Investors electing to take advantage of the Letter of
Intention should carefully review the appropriate provisions on the
authorization form attached to the Prospectus.
Other Load Funds. Shares of Other Load Funds will be included
with any class of Voyageur Load Fund shares in a Combined Purchase
Privilege, Cumulative Quantity Discount or Letter of Intention only if
such Other Load Fund shares are owned by customers of dealers that
Voyageur or the Underwriter has engaged to provide administration or
accounting services to Voyageur Load Fund omnibus accounts in
connection with the offering of the Voyageur Load Funds as part of the
Other Load Funds' family of funds. Additionally, the maximum reduction
of the applicable Voyageur Load Fund's FESC that may result from the
inclusion of shares of Other Load Funds in a Combined Purchase
Privilege, Cumulative Quantity Discount or Letter of Intention shall be
a reduction to the front-end sales charge applicable to purchases of
$500,000 but less than $1,000,000 (as set forth in the sales charge
table in the Prospectus).
OTHER INFORMATION
Conversion of Class B Shares. In addition to information
regarding conversion set forth in the prospectus, the conversion of
Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the
classes of shares does not result in the Funds' dividends or
distributions constituting "preferential dividends" under the Code and
that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will
not occur if such ruling or opinion will be available. In such event,
Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
Signature Guaranty. In addition to information regarding
redemption of shares and signature guaranty set forth in the
prospectus, a signature guaranty will be required when redemption
proceeds: (1) exceed $50,000 (unless it is being wired to a
pre-authorized bank account, in which case a guarantee is not
required), (2) are to be paid to someone other than the registered
shareholder or (3) are 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 of the type
previously listed, each signature must be guaranteed. A signature
guarantee may not be provided by a notary public. Please contact your
investment executive for instructions as to what institutions
constitute eligible signature guarantors.
Valuation of Portfolio Securities. Generally, trading in
certain securities such as tax exempt securities, 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 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 Voyageur in accordance with
procedures adopted by the Boards.
Bank Purchases. Banks, acting as agents for their customers
and not for the Funds or the Underwriter, from time to time may
purchase Fund shares for the accounts of such customers. Generally, the
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Should the activities
of any bank, acting as agent for its customers in connection with the
purchase of any Fund's shares, be deemed to violate the GlassSteagall
Act, management will take whatever action, if any, is appropriate in
order to provide efficient services for the Funds. Management does not
believe that a termination in the relationship with a bank would result
in any material adverse consequences to the Funds. In addition, state
securities laws on this issue may differ and banks and financial
institutions may be required to register as dealers pursuant to state
law. Fund 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.
CALCULATION OF PERFORMANCE DATA
Average Annual Total Return. Advertisements and other sales
literature for a Fund may refer to "average annual total return."
Average annual total return figures are 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:
n
P(1+T) = 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 gains 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 to all shareholder accounts.
Average Annual Total Return
Absent Voluntary
Actual Fee Waivers
Since Since
1 Year 5 Year Inception 1 Year 5 Year Inception
Growth and Income Fund
Class A
Class B
Class C
Growth Stock Fund
Class A
Class B
Class C
International Equity Fund
Class A
Class B
Class C
Aggressive Growth Fund
Class A
Class B
Class C
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:
(ERV-P)
CTR = (_____) 100
( 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.
Cumulative Total Return Since Inception
Absent Voluntary
Actual Fee Waivers
Growth and Income Fund
Class A
Class B
Class C
Growth Stock Fund
Class A
Class B
Class C
International Equity Fund
Class A
Class B
Class C
Aggressive Growth Fund
Class A
Class B
Class C
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 to all shareholder accounts.
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of any Fund valued at
$10,000 or more at the current offering price may open a Withdrawal
Plan and have a designated sum of money paid monthly to the investor or
another person. Shares are deposited in a Withdrawal Plan account and
all distributions are reinvested in additional shares of such Fund at
net asset value. Shares in a Withdrawal Plan account are then redeemed
at net asset value to make each withdrawal payment. Deferred sales
charges may apply to monthly redemptions of Class B shares. Redemptions
for the purpose of withdrawal are made on the 25th of the month (or on
the preceding business day if the 25th falls on a weekend or is a
holiday) at that day's closing net asset value and checks are mailed on
the next business day. Payments will be made to the registered
shareholder. As withdrawal payments may include a return on principal,
they cannot be considered a guaranteed annuity or actual yield of
income to the investor. The redemption of shares in connection with a
Withdrawal Plan may result in a gain or loss for tax purposes.
Continued withdrawals in excess of income will reduce and possibly
exhaust invested principal, especially in the event of a market
decline. The maintenance of a Withdrawal Plan concurrently with
purchases of additional shares of a class of Fund shares which imposes
a FESC would normally be disadvantageous to the investor because of the
FESC payable on such purchases. For this reason, an investor may not
maintain a plan for the accumulation of Class A shares of a Fund (other
than through reinvestment of distributions) and a Withdrawal Plan at
the same time. The cost of administering the Withdrawal Plan is borne
by each Fund as an expense of all shareholders. Each Fund or the
Underwriter may terminate or change the terms of the Withdrawal Plan at
any time. The Withdrawal Plan is fully voluntary and may be terminated
by the shareholder at any time without the imposition of any penalty.
Since the Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial advisers
whether the Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in their circumstances. The Funds make no
recommendations or representations in this regard.
ADDITIONAL INFORMATION
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
Norwest Bank Minnesota, N.A., Sixth Street & Marquette Avenue,
Minneapolis, Minnesota 55479, acts as custodian of each Fund's assets
and portfolio securities.
Dorsey & Whitney P.L.L.P., 220 South Sixth Street,
Minneapolis, Minnesota 55402, serves as General Counsel for the
Company.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis,
Minnesota 55402, serves as the Company's independent auditors.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of the Fund owes certain
fiduciary duties to the 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 a director (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 violation of certain
provisions of Minnesota securities law, or (iv) for any transaction
from which the director derived an improper personal benefit. The
Company's Articles of Incorporation limit the liability of it'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 prohibits any provisions which purport to limit the
liability of directors arising from such directors' willful
misfeasance, bad 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 (including the
liability of directors who serve as officers 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
Securities Act of 1933 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.
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 corporation 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 the Fund may demand a regular meeting of shareholders of the
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.
ORGANIZATION AND CAPITALIZATION OF THE FUNDS
Each Fund is a series of Voyageur Mutual Funds III, Inc. which
was incorporated under the laws of the State of Minnesota in January
1985.
Each Fund's fiscal year ends on April 30 of each year.
APPENDIX A
COMMON STOCK, CORPORATE BOND, PREFERRED STOCK AND
COMMERCIAL PAPER RATINGS
EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Standard & Poors Corporation. The investment process involves
assessment of various factors -- such as product and industry position,
corporate resources and financial policy -- with results that make some
common stocks more highly esteemed than others. In this assessment,
Standard & Poor's believes that earnings and dividend performance is
the end result of the interplay of these factors and that, over the
long run, the record of this performance has a considerable bearing on
relative quality. The rankings, however, do not pretend to reflect all
of the factors, tangible or intangible, that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of
protection for principal and interest, called creditworthiness, cannot
be applied to common stocks, and therefore rankings are not to be
confused with bond quality ratings which are arrived at by a
necessarily different approach.
Growth and stability of earnings and dividends are deemed key
elements in establishing Standard & Poor's earnings and dividend
rankings for common stocks, which are designed to capsulize the nature
of this record in a single symbol. It should be noted, however, that
the process also takes into consideration certain adjustments and
modifications deemed desirable in establishing such rankings.
The point of departure in arriving at these rankings is a
computerized scoring system based on per-share earnings and dividend
records of the most recent ten years -- a period deemed long enough to
measure significant time segments of secular growth, to capture
indications of basic change in trend as they develop, and to encompass
the full peak-to-peak range of the business cycle. Basic scores are
computed for earnings and dividends, then adjusted as indicated by a
set of predetermined modifiers for growth, stability within long-term
trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that,
in general, corporate size imparts certain recognized advantages from
an investment standpoint. Conversely, minimum size limits (in terms of
corporate sales volume) are set for the various rankings, but the
system provides for making exceptions where the score reflects an
outstanding earnings-dividend record.
The final score for each stock is measured against a scoring
matrix determined by analysis of the scores of a large and
representative sample of stocks. The range of scores in the array of
this sample has been aligned with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
NR signifies no ranking because of insufficient data or
because the stock is not amenable to the ranking process.
The positions as determined above may be modified in some
instances by special considerations, such as natural disasters, massive
strikes, and non-recurring accounting adjustments.
A ranking is not a forecast of future market price
performance, but is basically an appraisal of past performance of
earnings and dividends, and relative current standing. These rankings
must not be used as market recommendations; a high-score stock may at
times be so overpriced as to justify its sale, while a low-score stock
may be attractively priced for purchase. Rankings based upon earnings
and dividend records are no substitute for complete analysis. They
cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and
dividend record, public relations standing, recent competitive shifts,
and a host of other factors that may be relevant to investment status
and decision.
COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation. Commercial paper ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues assigned the A rating are
regarded as having the greatest capacity for timely payment. Issues in
this category are further refined with designation 1, 2, and 3 to
indicate the relative degree of safety. The "A-1" designation indicates
that the degree of safety regarding timely payment is very strong.
Moody's Investors Service, Inc. Moody's commercial paper
ratings are opinions of the ability of the issuers to repay punctually
promissory obligations not having an original maturity in excess of
nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. Moody's employs
the following three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term
promissory obligations.
Prime-2 Strong capacity for repayment of short-term promissory
obligations.
Prime-3 Acceptable capacity for repayment of short-term
promissory obligations.
CORPORATE BOND RATINGS
Standard & Poor's Corporation. Its ratings for corporate bonds
have the following definitions:
Investment grade:
Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a
small degree.
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.
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.
Speculative Grade:
Debt rated "BB," "B," "CCC" and "CC" and "C" is regarded, as
having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. "BB" indicates the least
degree of speculation and "C" the highest. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
Bond Investment Quality Standards: Under present commercial
bank regulations issued by the Comptroller of the Currency, bonds rated
in the top four categories (AAA, AA, A, BBB, commonly known as
"Investment Grade" ratings) generally are regarded as eligible for bank
investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
Moody's Investors Service, Inc. Its ratings for corporate
bonds include the following:
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.
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 risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
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.
Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
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.
Bonds which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
PREFERRED STOCK RATING
Standard& Poor's Corporation. Its ratings for preferred stock
have the following definitions:
An issue rated "AAA" has the highest rating that may be
assigned by Standard& Poor's to a preferred stock issue and indicates
an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues
rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to make payments for a preferred stock in this category than for issues
in the "A" category.
Preferred stock rate "BB," "B," and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. "BB" indicates the lowest
degree of speculation and "CCC" the highest degree of speculation.
While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is currently
paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
"NR" indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
Moody's Investors Service, Inc. Its ratings for preferred
stock include the following:
An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within the
universe of preferred stocks.
An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is reasonable
assurance that earnings and asset protection will remain relatively
well maintained in the foreseeable future.
An issue which is rate "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the "aaa" and "aa" classifications, earnings and asset
protection are, nevertheless, expected to be maintained at adequate
levels.
An issue which is rated "baa" is considered to be
medium-grade, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable
over any great length of time.
An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks
in this class.
An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of dividend
payments and maintenance of other terms of the issue over any long
period of time may be small.
An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.
An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little likelihood of
eventual payment.
An issue rated "c" is the lowest rated class of preferred or
preference stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
APPENDIX B
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
Stock Index Futures Contracts
To the extent described in the Prospectus and Statement of
Additional Information, each Fund may purchase and sell stock index
futures contracts, options thereon and options on stock indexes. Stock
index futures contracts are commodity contracts listed on commodity
exchanges. They presently include contracts on the Standard & Poor's
500 Stock Index (the "S&P 500 Index") and such other broad stock market
indexes as the New York Stock Exchange Composite Stock Index and the
Value Line Composite Stock Index, as well as narrower "sub-indexes"
such as the S&P 100 Energy Stock Index and the New York Stock Exchange
Utilities Stock Index. A stock index assigns relative values to common
stocks included in the index and the index fluctuates with the value of
the common stocks so included. A futures contract is a legal agreement
between a buyer or seller and the clearing house of a futures exchange
in which the parties agree to make a cash settlement on a specified
future date in an amount determined by the stock index on the last
trading day of the contract. The amount is a specified dollar amount
(usually $100 or $500) times the difference between the index value on
the last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
S&P 500 Index assigns relative weightings to the common stocks included
in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of S&P 500 Index futures
contracts, the specified multiple is $500. Thus, if the value of the
S&P 500 Index were 150, the value of one contract would be $75,000 (150
x $500). Unlike other futures contracts, a stock index futures contract
specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the
termination of the contract with the settlement amount being the
difference between the contract price and the actual level of the stock
index at the expiration of the contract. For example (excluding any
transaction costs), if the Fund enters into one futures contract to buy
the S&P 500 Index at a specified future date at a contract value of 150
and the S&P 500 Index is at 154 on that future date, the Fund will gain
$500 x (154-150) or $2,000. If the Fund enters into one futures
contract to sell the S&P 500 Index at a specified future date at a
contract value of 150 and the S&P 500 Index is at 152 on that future
date, the Fund will lose $500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price
would be paid or received by a Fund upon entering into stock index
futures contracts. Upon entering into a contract, a Fund would be
required to deposit with its custodian in a segregated account in the
name of the futures broker an amount of cash or U.S. Treasury bills
equal to a portion of the contract value. This amount is known as
"initial margin." The nature of initial margin in futures transactions
is different from that of margin in security transactions in that
futures contract margin does not involve borrowing funds by the Fund to
finance the transactions. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied.
Subsequent payments, called "variation margin," to and from
the broker would be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short positions
in the contract more or less valuable, a process known as "marking to
the market." For example, when a Fund enters into a contract in which
it benefits from a rise in the value of an index and the price of the
underlying stock index has risen, such Fund will receive from the
broker a variation margin payment equal to that increase in value.
Conversely, if the price of the underlying stock index declines, such
Fund would be required to make a variation margin payment to the broker
equal to the decline in value.
Each Fund intends to use stock index futures contracts and
related options for hedging and not for speculation. Hedging permits
the Fund to gain rapid exposure to or protect itself from changes in
the market. For example, a Fund may find itself with a high cash
position at the beginning of a market rally. Conventional procedures of
purchasing a number of individual issues entail the lapse of time and
the possibility of missing a significant market movement. By using
futures contracts, the Fund can obtain immediate exposure to the market
and benefit from the beginning stages of a rally. The buying program
can then proceed, and once it is completed (or as it proceeds), the
contracts can be closed. Conversely, in the early stages of a market
decline, market exposure can be promptly offset by entering into stock
index futures contracts to sell units of an index and individual stocks
can be sold over a longer period under cover of the resulting short
contract position.
Each Fund may enter into contracts with respect to any stock
index or sub-index. To hedge a Fund's portfolio successfully, however,
such Fund must enter into contracts with respect to indexes or
sub-indexes whose movements will have a significant correlation with
movements in the prices of such Fund's portfolio securities.
Options on Stock Index Futures Contracts
To the extent described in the Prospectus and Statement of
Additional Information each Fund may purchase and sell put and call
options on stock index futures contracts which are traded on a United
States exchange or board of trade as a hedge against changes in the
market, and will enter into closing transactions with respect to such
options to terminate existing positions. An option on a stock index
futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a stock index futures contract at
a specified exercise price at any time prior to the expiration date of
the option. A call option gives the purchaser of such option the right
to buy, and it obliges its writer to sell, a specified underlying
futures contract at a specified exercise price at any time prior to the
expiration date of the option. A purchaser of a put option has the
right to sell, and the writer has the obligation to buy, such contract
at the exercise price during the option period. Upon exercise of an
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by delivery of
the accumulated balance in the writer's future margin account, which
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option
is exercised on the last trading day prior to the expiration date of
the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing
price of the stock index futures contract on the expiration date. Each
Fund will pay a premium for purchasing options on stock index futures
contracts. Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value
of a Fund. In connection with the writing of options on stock index
futures contracts, a Fund will make initial margin deposits and make or
receive maintenance margin payments that reflect changes in the market
value of such options. Premiums received from the writing of an option
are included in initial margin deposits.
Purchase of Put Options on Futures Contracts. Each Fund will
purchase put options on futures contracts if the Fund's investment
adviser or sub-adviser anticipates a market decline. A put option on a
stock index futures contract becomes more valuable as the market
declines. By purchasing put options on stock index futures contracts at
a time when a Fund's investment adviser or sub-adviser expects the
market to decline, such Fund will seek to realize a profit to offset
the loss in value of its portfolio securities.
Purchase of Call Options on Futures Contracts. A Fund will
purchase call options on stock index futures contracts if the Fund's
investment adviser anticipates a market rally. The purchase of a call
option on a stock index futures contract represents a means of
obtaining temporary exposure to market appreciation at limited risk. A
call option on such a contract becomes more valuable as the market
appreciates. A Fund will purchase a call option on a stock index
futures contract to hedge against a market advance when the Fund is
holding cash. A Fund can take advantage of the anticipated rise in the
value of equity securities without actually buying them until the
market is stabilized. At that time, the options can be liquidated and
the Fund's cash can be used to buy portfolio securities.
Writing Call Options on Futures Contracts. A Fund will write
call options on stock index futures contracts if the Fund's investment
adviser anticipates a market decline. As the market declines, a call
option on such a contract becomes less valuable. If the futures
contract price at expiration of the option is below the exercise price,
the option will not be exercised and the Fund will retain the full
amount of the option premium. Such amount provides a partial hedge
against any decline that may have occurred in the Fund's portfolio
securities.
Writing Put Options on Futures Contracts. A Fund will write
put options on stock index futures contracts if the Fund's investment
adviser anticipates a market rally. As the market appreciates, a put
option on a stock index futures contract becomes less valuable. If the
futures contract price at expiration of the option has risen due to
market appreciation and is above the exercise price, the option will
not be exercised and the Fund will retain the full amount of the option
premium. Such amount can then be used by a Fund to buy portfolio
securities when the market has stabilized.
Risks Relating to Options on Stock Index Futures Contracts.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk
to a Fund because the maximum amount at risk is the premium paid for
the options (plus transaction costs). However, there may be
circumstances when a purchase of a call or put option on a futures
contract would result in a loss to a Fund when the purchase or sale of
a futures contract would not result in a loss, such as when there is no
movement in the underlying index.
The writing of a put or call option on a futures contract
involves risks similar to those relating to transactions in futures
contracts as described in the Prospectus. By writing a call option, the
Fund, in exchange for the receipt of a premium, becomes obligated to
sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures
contract generates a premium, but the Fund becomes obligated to
purchase a futures contract, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on
futures contracts may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting option of
the same series. There is no guarantee that such closing transactions
can be effected. The Fund's ability to establish and close out
positions on such options will be subject to the development and
maintenance of a liquid market.
Finally, the Fund's purchase or sale of put or call options on
stock index futures contracts will be based upon predictions as to
anticipated market trends by the Fund's investment adviser, which could
prove to be inaccurate. Even if the expectations of the Fund's
investment 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.
PART C
VOYAGEUR MUTUAL FUNDS III, INC.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements
(b) Exhibits
1 Articles of Incorporation *
2 Bylaws *
3 Not applicable.
4 Specimen copy of share certificate *
5 Investment Advisory Agreement *
6.1 Distribution Agreement *
6.2 Form of Dealer Sales Agreement *
6.3 Form of Bank Agreement *
7 Not applicable.
8.1 Custodian Agreement *
8.2 Administrative Services Agreement *
10 Opinion and Consent of Dorsey & Whitney *
11 Consent of KPMG Peat Marwick *
12 Not applicable.
13 Letter of Investment Intent *
14 Not applicable.
15 Plan of Distribution *
16 Calculations of Yield *
17 Master Power of Attorney *
________________
* To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant
Voyageur serves as investment manager to the following closed-end and
open-end management investment companies:
CLOSED-END INVESTMENT COMPANIES
Voyageur Arizona Municipal Income Fund, Inc.
Voyageur Colorado Insured Municipal Income Fund, Inc.
Voyageur Florida Insured Municipal Income Fund
Voyageur Minnesota Municipal Income Fund, Inc.
Voyageur Minnesota Municipal Income Fund II, Inc.
Voyageur Minnesota Municipal Income Fund III, Inc.
OPEN-END INVESTMENT COMPANIES AND SERIES THEREOF
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund
Voyageur Insured Funds, Inc.
Voyageur Minnesota Insured Fund
Voyageur Arizona Insured Tax Free Fund
Voyageur National Insured Tax Free Fund
Voyageur Colorado Insured Tax Free Fund
Voyageur Intermediate Tax Free Funds, Inc.
Voyageur Minnesota Limited Term Tax Free Fund
Voyageur National Limited Term Tax Free Fund
Voyageur Arizona Limited Term Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund
Voyageur California Limited Term Tax Free Fund
Voyageur Investment Trust
Voyageur California Insured Tax Free Fund Voyageur Florida
Insured Tax Free Fund Voyageur Kansas Tax Free Fund Voyageur
Missouri Insured Tax Free Fund Voyageur New Mexico Tax Free
Fund Voyageur Oregon Insured Tax Free Fund Voyageur Utah Tax
Free Fund Voyageur Washington Insured Tax Free Fund Voyageur
Florida Tax Free Fund
Voyageur Investment Trust II
Voyageur Florida Limited Term Tax Free Fund
Voyageur Tax Free Funds, Inc.
Voyageur Minnesota Tax Free Fund
Voyageur North Dakota Tax Free Fund
Voyageur Mutual Funds, Inc.
Voyageur Iowa Tax Free Fund
Voyageur Wisconsin Tax Free Fund
Voyageur Idaho Tax Free Fund
Voyageur Arizona Tax Free Fund
Voyageur California Tax Free Fund
Voyageur National Tax Free Fund
Voyageur Mutual Funds II, Inc.
Voyageur Colorado Tax Free Fund
Voyageur Mutual Funds III , Inc.
Voyageur Growth Stock Fund
Voyageur International Equity Fund
Voyageur Aggressive Growth Fund
VAM Institutional Funds, Inc.
VAM Short Government Agency Fund
VAM Intermediate Government Agency Fund
VAM Government Mortgage Fund
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Intermediate Municipal Fund
VAM Global Fixed Income Fund
Item 26. Number of Holders of Securities
The following table sets forth the number of holders of common shares,
each with a par value of $.01, of the Registrant as of August 15, 1995.
<TABLE>
<CAPTION>
Class A Class B Class C
Common Common Common
Name of Fund Shares Shares Shares
<S> <C> <C> <C>
Voyageur Growth and Income Fund ** ** **
Voyageur Growth Stock Fund **
Voyageur International Equity Fund **
Voyageur Aggressive Growth Fund **
</TABLE>
** Not in existence as of August 15, 1995
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
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
The name and principal occupations(s) during the past two fiscal years
of each director and the executive officer of the Adviser are set forth below.
The business address of each is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402, except that the principal business address of Mr.
McCullagh is 717 Seventeenth Street, Denver, Colorado 80202.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH ADVISER PRINCIPAL OCCUPATION(S)
<S> <C> <C>
Michael E. Dougherty Chairman Chairman of the Board, President and Chief
Executive Officer of Dougherty Financial Group,
Inc. and Chairman of Voyageur, the Underwriter
and Dougherty, Dawkins, Strand & Bigelow, Inc.
John G. Taft President and Director See biographical information
in Part B of the Registration
Statement.
Jane M. Wyatt Director and Chief See biographical information
Investment Officer in Part B of the Registration Statement.
James C. King Director and Executive See biographical information
Vice President in Part B of the Registration
Statement.
Andrew M. McCullagh Director and Executive See biographical information
Vice President in Part B of the Registration
Statement.
Frank C. Tonnemaker Director and Executive Director of Voyageur and the Underwriter since 1993;
Vice President Executive Vice President of
the Voyageur since 1994; Vice President
of Voyageur from 1990 to 1994.
Theodore E. Jessen Director and Vice Director of Voyageur and
President the Underwriter since 1993; Chief
Administrative Officer of Voyageur since 1992;
Vice President of Voyageur since 1990.
Dale L. Kurtz Director Director and Vice President of Voyageur since
1993; Director of the Underwriter since 1993;
director of research and product development for
Voyageur since 1993; director of marketing for
Voyageur from 1990 to 1993.
Kenneth R. Larsen Director and Chief See biographical information
Financial Officer in Part B of the Registration
Statement.
Richard L. Vandenberg Executive Vice President See biographical information
in Part B of the Registration
Statement.
Thomas J. Abood Vice President See biographical
information in Part B of the
Registration Statement.
William C. Anderson Vice President Vice President of Voyageur since 1994;
prior thereto, Marketing Manager for
Voyageur from August 1991.
Patrick M. Coleman Vice President Vice President of Voyageur since 1994;
prior thereto, Senior Credit Analyst for
Voyageur from December 1992; previously,
Vice President of Washington Square
Capital, Inc. from 1980 to June 1992.
Elizabeth H. Howell Vice President See biographical
information in Part B of the
Registration Statement.
Steven B. Johansen Secretary and Treasurer Secretary and Treasurer of Dougherty
Financial Group, Inc. since July 1990 and
Secretary of the Underwriter since 1993;
Vice President, Secretary and Treasurer of
Dougherty, Dawkins, Strand & Bigelow,
Inc. since July 1990.
</TABLE>
Information on the business of Registrant's Adviser is contained in the
section of the Prospectus entitled "Management" and in the section of the
Statement of Additional Information entitled "The Investment Adviser and
Underwriter" filed as part of this Registration Statement.
Item 29. Principal Underwriters
(a) Voyageur Fund Distributors, Inc., the underwriter of the
Registrant's shares, is principal underwriter for the shares of Voyageur Tax
Free Funds, Inc., Voyageur Insured Funds, Inc., Voyageur Intermediate Tax Free
Funds, Inc., Voyageur Investment Trust, Voyageur Investment Trust II, Voyageur
Mutual Funds, Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual Funds III,
Inc. and VAM Institutional Funds, Inc., affiliated open-end management
investment companies.
(b) The directors of the Underwriter are the same as the directors of
the Adviser as set forth above in Item 28. The executive officers of the
Underwriter and the positions of these individuals with respect to the
Registrant are:
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANTS
Michael E. Dougherty Chairman None
John G. Taft President & Director & CEO President & Director
Steven B. Johansen Secretary None
Kenneth R. Larsen Treasurer & CFO Treasurer
Thomas J. Abood Vice President 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 the Registrant is Norwest Bank Minnesota, N.A., Sixth
Street & Marquette Avenue, Minneapolis, Minnesota 55402. The dividend
disbursing, administrative and accounting services agent of the Registrant is
Voyageur Fund Managers, Inc. The address of Voyageur Fund Managers, Inc. 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, on behalf of Voyager Growth and Income Fund,
undertakes to file a Post-Effective Amendment, using financial statements which
need not be certified, within four to six months after the commencement of
operations of such series.
(b) 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 without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Amendment to the Registration Statement on Form-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Minneapolis, and State
of Minnesota, on the 15th day of June, 1995.
VOYAGEUR MUTUAL FUNDS III, 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 June 15, 1995
John G. Taft Executive Officer)
/s/ Kenneth R. Larsen Treasurer (Principal June 15, 1995
Kenneth R. Larsen Financial and Accounting
Officer)
James W. Nelson* Director
Clarence G. Frame* Director
Robert J. Odegard* Director
Richard F. McNamara* Director
Thomas F. Madison * Director
* /s/John G. Taft Attorney-in-Fact June 15, 1995
John G. Taft
(Pursuant to Powers of Attorney dated January 24, 1995)
