AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1997
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. 29
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 29
(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)
THOMAS J. ABOOD
90 SOUTH SEVENTH STREET, SUITE 4400, MINNEAPOLIS, MINNESOTA 55402
(Name and Address of Agent for Service)
Copy to:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing will become effective (check appropriate box):
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on February 19, 1997 pursuant to paragraph (b) of Rule 485
_____ on (specify date) pursuant to paragraph (b)(1)(v) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
_____ on 60 days after filing pursuant to paragraph (a)(1) 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 was filed by the Registrant on or about
June 25, 1996.
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
(VOYAGEUR MUTUAL FUNDS III, INC.)
Item No. of
Form N-1A Caption in Prospectus
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1 Cover Page
2 Fund Expenses
3 Financial Highlights
4 Investment Objective 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
TAX EFFICIENT EQUITY FUND
[GRAPHIC OMITTED] VOYAGEUR
VOYAGEUR TAX EFFICIENT EQUITY FUND
VOYAGEUR FUNDS (NOT PART OF PROSPECTUS); DATED FEBRUARY 19, 1997
TABLE OF CONTENTS
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3 PURCHASE INFORMATION
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4 FUND EXPENSES
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5 INVESTMENT OBJECTIVE AND POLICIES
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12 RISK FACTORS AND SPECIAL CONSIDERATIONS
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14 HOW TO PURCHASE SHARES
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20 HOW TO SELL SHARES
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22 REINSTATEMENT PRIVILEGE
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22 EXCHANGE PRIVILEGE
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23 MANAGEMENT
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26 DETERMINATION OF NET ASSET VALUE
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27 DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
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28 INVESTMENT PERFORMANCE
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29 GENERAL INFORMATION
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VOYAGEUR FUNDS (NOT PART OF PROSPECTUS); DATED FEBRUARY 19, 1997
PROSPECTUS
Dated February 19, 1997
Voyageur Tax Efficient Equity Fund (the "Fund"), is one of several series of
Voyageur Mutual Funds III, Inc. (the "Company"), an open-end management
investment company the shares of which can be offered in separate diversified
and non-diversified series. Each series represents a separate fund with its own
investment objectives. This Prospectus relates to shares of the Tax Efficient
Equity Fund (the "Fund"), a diversified series of the Company.
The investment objective of the Fund is to obtain for taxable investors
a high total return on an after-tax basis. The Fund will attempt to achieve this
objective by seeking to provide a high long-term after-tax total return through
managing its portfolio in a manner that will defer the realization of accrued
capital gains and minimize dividend income. In normal circumstances, the Fund
will invest at least 90% of its net assets in a widely diversified portfolio of
common stocks, securities convertible into common stocks and instruments whose
returns depend upon stock market prices. An emphasis will be placed on
non-dividend or lower-dividend paying common stocks of companies which Voyageur
Fund Managers, Inc., the Fund's investment adviser (the "Adviser" or "Voyageur")
believes to have superior appreciation potential.
ON JANUARY 15, 1997 VOYAGEUR'S PARENT, DOUGHERTY FINANCIAL GROUP, INC.
("DFG"), EXECUTED AN AGREEMENT AND PLAN OF MERGER ("AGREEMENT") WITH LINCOLN
NATIONAL CORPORATION ("LNC") PURSUANT TO WHICH A SUBSIDIARY OF LNC WILL BE
MERGED WITH AND INTO DFG CAUSING DFG TO BECOME A WHOLLY OWNED SUBSIDIARY OF LNC.
SUCH MERGER REQUIRES THE APPROVAL OF THE FUND'S BOARD OF DIRECTORS AND
SHAREHOLDERS.
LNC, HEADQUARTERED IN FORT WAYNE, INDIANA, OWNS AND OPERATES INSURANCE
AND INVESTMENT MANAGEMENT BUSINESSES, INCLUDING DELAWARE MANAGEMENT HOLDINGS,
INC. ("DMH"). AFFILIATES OF DMH SERVE AS ADVISER AND DISTRIBUTOR FOR THE
DELAWARE GROUP OF INVESTMENT COMPANIES, WHICH CURRENTLY INCLUDES 16 OPEN-END
FUNDS AND 2 CLOSED-END FUNDS (COMPRISING 48 SEPARATE INVESTMENT PORTFOLIOS).
DMH, THROUGH ITS SUBSIDIARIES, IS RESPONSIBLE FOR THE MANAGEMENT OF
APPROXIMATELY $32 BILLION.
CONSUMMATION OF THE MERGER WILL CAUSE A CHANGE IN CONTROL OF VOYAGEUR.
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THIS WILL RESULT IN AN
"ASSIGNMENT" AND AUTOMATIC TERMINATION OF THE FUND'S INVESTMENT ADVISORY AND
DISTRIBUTION AGREEMENTS WITH VOYAGEUR. THEREFORE, THE FUND'S BOARD OF DIRECTORS
HAS APPROVED NEW INVESTMENT ADVISORY AND DISTRIBUTION AGREEMENTS CONTAINING THE
SAME TERMS AND FEES AS THE CURRENT AGREEMENTS AND HAS CALLED A SPECIAL
SHAREHOLDER MEETING SCHEDULED FOR APRIL 11 TO VOTE ON NEW AGREEMENTS AND OTHER
MATTERS RELATED TO THE MERGER.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
AN INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS AND REQUIRES CONSIDERATION OF
SUCH RISKS. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS."
This Prospectus sets forth certain information about the Fund that a
prospective investor ought to know before investing. A combined Statement of
Additional Information (dated February 19, 1997) relating to the Fund and other
series of the Company has been filed with the Securities and Exchange Commission
(the "Commission"). The Statement of Additional Information is available free of
charge from the Fund by telephone and at the mailing address below and is
incorporated by reference into this Prospectus in accordance with the
Commission's rules.
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Voyageur Tax Efficient Equity Fund
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90 SOUTH SEVENTH STREET, SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
612.376.7000 OR 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.
PURCHASE INFORMATION
The Fund offers 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. There is no assurance that the Fund
will achieve its investment objective.
CLASS A SHARES
Except as provided in the next paragraph describing the Fund's special
introductory sales charges, 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.
DURING THE INTRODUCTORY OFFERING PERIOD (THE "INITIAL OFFERING") OF THE
FUND, CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE. SUCH CLASS A
SHARES PURCHASED IN THE INITIAL OFFERING WILL BE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 3% IF REDEEMED WITHIN TWO YEARS OF PURCHASE. THE
INITIAL OFFERING PERIOD SHALL COMMENCE ON THE DATE OF THIS PROSPECTUS AND
CONTINUE UNTIL THE EARLIER OF DECEMBER 31, 1997 OR TOTAL ASSETS OF THE FUND
REACH $100 MILLION. 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% of the 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 sales charge but are subject to a
contingent deferred sales charge of 1% if redeemed within one year of purchase.
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 will be paid at an annual rate of 1% 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 such orders will be declined. Sales personnel
may receive different compensation depending on which class of shares they sell.
FUND EXPENSES
<TABLE>
<CAPTION>
TAX EFFICIENT EQUITY FUND CLASS A CLASS B CLASS C
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.75% N/A(2) N/A(2)
Deferred Sales Load
(as a percentage of original purchase price
or redemption proceeds, as applicable) 1.00(1) 4.00% 1.00%(4)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee (after voluntary fee waiver)(3) .75 .75 .75
Rule 12b-1 Fee .25 1.00 1.00
Other Expenses .50 .50 .50
----- ---- ----
Total Fund Operating Expenses
(after voluntary fee waiver) 1.50% 2.25% 2.25%
===== ==== ====
EXAMPLE
An investor in the Fund would pay the following expenses on a $1,000 investment
assuming a 5% annual return and:
Redemption at the end of each period
1 Year $62 $63 $33
3 Years 93 100 70
No redemption
1 Year $62 $23 $23
3 Years 93 70 70
</TABLE>
1 During the Initial Offering, no initial sales charge is imposed on sales of
Class A shares, but a contingent deferred sales charge of 3% is imposed on
redemptions within two years of purchase in the Initial Offering. In
addition, after the Initial Offering a contingent deferred sales charge of
up to 1% 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."
2 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.
3 The Fund's management fee without waivers would be 1%.
4 A contingent deferred sales load of 1% is imposed on redemptions of Class C
shares within one year of purchase.
The purpose of the above Fund Expenses table is to assist the investor in
understanding the various costs and expenses the investors in the Fund will bear
directly or indirectly. 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. Such information reflects voluntary fee
waivers during fiscal 1997. After April 30, 1997, such fee waivers may be
discontinued or modified by Voyageur in its sole discretion. The percentages set
forth for the Fund which are included within the category "Other Expenses" are
estimates. Absent voluntary fee waivers, Total Fund Operating Expenses as a
percentage of average daily net assets would be 1.75% for Class A shares and
2.50% for Class B and Class C shares.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to obtain for taxable investors a high
total return on an after-tax basis. The Fund will attempt to achieve this
objective by seeking to provide a high long-term after-tax total return through
managing its portfolio in a manner that will defer the realization of accrued
capital gains and minimize dividend income.
INVESTMENT POLICIES
In normal circumstances, the Fund will invest at least 90% of its net assets in
a widely diversified portfolio of common stocks, securities convertible into
common stocks and instruments whose returns depend on stock market prices.
Investments in securities convertible into common stocks will be made on the
basis of the common stocks into which such securities are convertible, and not
on the basis of the debt ratings of such securities. At least 65% of the Fund's
total assets will be invested in equity securities (defined as common stocks and
securities convertible into common stocks) in normal circumstances. An emphasis
will be placed on non-dividend or lower-dividend paying common stocks of
companies which the Adviser believes to have superior appreciation potential.
The Fund may invest up to 10% of its total assets in foreign securities. See
"Risk Factors and Special Considerations" below.
Over time, common stock mutual funds generally accumulate capital gains
as the securities in their portfolios appreciate. In most cases, the active
management of these funds will involve a significant amount of portfolio
security trading, leading to the realization of capital gains which will be
taxable when distributed to fund shareholders. Primarily as result of these
taxable capital gains distributions, the after-tax return to a taxable investor
in the fund with even moderate portfolio turnover can be substantially lower
than the pre-tax return. The Adviser believes that, in order to achieve the best
possible after-tax return for taxable investors, investment strategies must be
employed which will minimize portfolio turnover and postpone the realization of
accrued capital gains.
The Adviser intends to employ a trading strategy which will involve the
use of options, futures contracts and other derivative products to hedge against
anticipated market movements, rather than a more traditional strategy that would
involve the purchase and sale of portfolio securities in anticipation of such
movements. For example, using a more traditional trading strategy, if an
investment adviser anticipated a market decline with respect to a particular
group of portfolio stocks with significant unrealized gains, the adviser would
sell the stocks, realize any gains and make a taxable distribution of such gains
to shareholders. If market prices fall as anticipated, the fund will have
avoided capital losses as a result of the fall in prices, but the fund will have
incurred trading costs and investors will be taxed on the realized capital
gains. In the event market prices rise, trading costs and tax consequences will
be the same; however, the fund will have lost the opportunity to participate in
the rising prices. Using the tax-sensitive trading strategy which the Adviser
intends to employ, rather than sell the Fund's portfolio securities, the Adviser
might, for example, buy a put option on the group of securities. If prices fall
as anticipated, the decline in the value of the Fund's portfolio would be offset
by the gain on the put options. Although this gain will be taxable, presumably
the gain, and therefore the tax liability, will be significantly less than the
gain that would have been realized had the Fund sold the underlying portfolio
securities. The Fund will not incur trading costs, but will pay a premium for
purchase of the put option. In the event prices rise, the Fund will be in a
significantly better position than had the underlying securities been sold.
Although the Fund will have lost the premium it paid for the option, the Fund
will participate fully in the rising stock prices and will have deferred the
realization of capital gains (and the resulting tax liability of shareholders).
Some realization of capital gains will, of course, be inevitable. For
example, portfolio securities must be sold as they mature in order to avoid
negative growth. In addition, merger and acquisition activities in the
marketplace will result in unavoidable sales of portfolio securities. The
Adviser will attempt to minimize such capital gains to the extent possible by,
for example, realizing accrued losses in the portfolio to offset such gains. The
effect of the required sale of any particular holding will also be minimized by
maintaining a widely diversified portfolio.
In employing the investment strategy described above, the Fund may
invest in various derivative instruments whose return depends on the prices of
common stocks. These may include debt securities whose prices or interest rates
are indexed to the return of a particular stock index, including a foreign stock
index ("indexed securities"), swap agreements linked to a stock index or group
of common stocks, option and futures contracts. The Fund may also lend its
portfolio securities and sell its portfolio securities short. See "Investment
Techniques" for a description of these investment practices.
In normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks, securities convertible into
common stocks and instruments whose returns depend on stock market prices.
However, the Fund may invest temporarily in certain short-term fixed-income
securities. Such securities may be used to invest uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions. These securities include
obligations of the U.S. Government and its agencies or instrumentalities,
commercial paper, bank certificates of deposit and bankers' acceptances, and
repurchase agreements. The Fund may invest in these securities without
limitation if the Adviser believes that market conditions warrant a temporary
defensive posture.
As a mutual fund investing primarily in common stocks, the Fund is
subject to market risk--i.e., the possibility that common stock prices will
decline over short or even extended periods. The U.S. stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when prices
generally decline. The fund is not designed as a short-term investment vehicle.
Total return to shareholders is expected to be derived primarily from accrued
capital gains and dividend income from the Fund is expected to be minimal. In
addition, because the Fund is designed to maximize after-tax total return, the
Fund may not be a suitable investment for tax-exempt investors. On an informal
basis, the Adviser may compare the total return of the Fund to the total return
of a broad based securities index, currently expected to be the "S&P 500", with
a view toward achieving after-tax total returns of the Fund in excess of the
pre-tax total returns of such securities index. However, no assurance of
achieving such total returns can be given. Securities indices are unmanaged and
hence do not incur expenses while the Fund is subject to investment management
and other expenses as set forth herein.
INVESTMENT TECHNIQUES
ILLIQUID SECURITIES
The 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. The 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. The Fund's investments in restricted securities will be considered
liquid only if the Adviser determines that they are liquid under guidelines
established by the Company's Board of Directors.
INDEXED SECURITIES
Indexed securities include commercial paper, certificates of deposit and other
fixed-income securities whose values at maturity or coupon interest rates are
determined by reference to the return of a particular stock index or group of
stocks. Indexed securities can be affected by changes in interest rates and the
creditworthiness of their issuers as well as stock prices and may not track
market returns as accurately as direct investments in common stocks.
Indexed securities in which the Fund may invest include Foreign Index
Linked Instruments. Foreign Index Linked Instruments are fixed-income securities
which are issued by U.S. issuers (including U.S. subsidiaries of foreign
issuers) and are denominated in U.S. dollars but return principal and/or pay
interest to investors in amounts which are linked to the level of a particular
foreign index. A foreign index may be based upon the exchange rate of a
particular currency or currencies or the differential between two currencies, or
the level of interest rates in a particular country or countries, or the
differential in interest rates between particular countries. In the case of
Foreign Index Linked Instruments linking the principal amount to a foreign
index, the amount of principal payable by the issuer at maturity will increase
or decrease in response to changes in the level of the foreign index during the
term of the Foreign Index Linked Instrument. In the case of Foreign Index Linked
Instruments linking the interest component to a foreign index, the amount of
interest payable will adjust periodically in response to changes in the level of
the foreign index during the term of the Foreign Index Linked Instrument.
Foreign Index Linked Instruments may be issued by a U.S. governmental agency or
instrumentality or by a private issuer.
SWAP AGREEMENTS
Swap agreements typically involve a commitment by the Fund to pay specified
amounts (such as fixed or floating interest rates) at regular intervals in
return for all or a portion of the investment return of a particular stock index
or group of stocks. As with stock index options and futures (discussed below),
swap agreements provide exposure to the stock market, but may not track market
returns as accurately as direct investments in common stocks. In addition, the
Fund typically depends on the credit of a single counterparty when investing in
a swap agreement, and may suffer a loss irrespective of the value of the
underlying index if the counterparty's credit declines. The Fund will usually
enter into swap agreements on a net basis, i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each swap agreement will be
accrued on a daily basis, and an amount of cash, U.S. Government securities or
other liquid high-grade debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
the Fund's custodian. If the Fund enters into a swap agreement on other than a
net basis, the Fund will maintain a segregated account in the full amount,
accrued on a daily basis, of the Fund's obligations with respect to the swap.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
As a means of regulating the 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"),
the 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
the Fund's total assets may be invested in the securities of any one investment
company, and the Fund may not own more than 3% of the outstanding securities of
any investment company.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with respect to
instruments in which the Fund is authorized to invest. Although the amount of
the 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. The Fund will 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.
The Fund will only engage in repurchase agreements with banks and dealers
determined to present minimal credit risk by Voyageur under the direction and
supervision of the Board of Directors. In addition, Voyageur will monitor such
creditworthiness on an ongoing basis. Under the terms of a typical repurchase
agreement, the 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 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, the 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 Fund 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 Fund 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. The 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.
HEDGING TRANSACTIONS
The Fund may write covered call options and secured put options and purchase
call and put options on securities and security indices. The Fund may also
engage in transactions in financial futures contracts and related options for
hedging purposes. 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.
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. 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 segregating or pledging to
a broker as collateral for the option 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.
The 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.
Over-the-counter options are purchased or written by the Fund in
privately negotiated transactions. Such OTC options may include options on
indices of securities representing various market segments. Such options are
generally considered illiquid and it may not be possible for the Fund to dispose
of an option it has purchased or terminate its obligations under an option it
has written at a time when Voyageur believes it would be advantageous to do so.
PURCHASING CALL AND PUT OPTIONS, WARRANTS AND STOCK RIGHTS
The Fund may invest in call and put options on securities and securities
indices. 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. The Fund may invest in call and put options whenever, in the opinion
of Voyageur, a hedging transaction is consistent with its investment objective.
The 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.
FINANCIAL FUTURES AND RELATED OPTIONS
The 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
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.
The 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 Fund 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 the 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.
INVESTMENT RESTRICTIONS
Unless otherwise stated, the investment policies, techniques and strategies
discussed above represent "non-fundamental" policies of the Fund and may be
changed by action of the Board of Directors. The Fund has also adopted certain
fundamental investment restrictions. These fundamental restrictions and the
Fund's investment objective may be changed only with the approval of a majority
of the respective Fund's outstanding voting securities, as defined in the 1940
Act. Included among the 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 not invest 25% or more 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.
Certain other fundamental and non-fundamental investment restrictions
adopted by the Fund is described in the Statement of Additional Information.
The 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as
described below:
GENERAL
An investment in shares of the Fund should not be considered to be a complete
investment program. The value of the Fund's investments, and as a result the net
asset value of the 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. Because of the risks associated with the
Fund's investments, the 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. While the Fund may compare its total returns
for benchmarking purposes to the total returns of broad based securities indices
such as the "S&P 500", the Fund is not managed to replicate the securities
contained in such indices and therefore may achieve returns which are less than
or greater than such indices.
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 the 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.
The 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 the Fund's net
assets could be adversely affected.
RULE 144A SECURITIES
Certain Rule 144A Securities may be considered illiquid and, therefore, subject
to the Fund's limitation on the purchase of illiquid securities, unless
Voyageur, 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. The 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 the Fund invests in other investment companies, the 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. The 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, the 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 the
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.
OPTIONS
Participation in the options market involves investment risks and transaction
costs to which the Fund 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 the Fund may leave the Fund
in a worse position than if such strategy was not used. Risks inherent in the
use of options include (a) dependence on the ability of Voyageur as the case may
be, to predict correctly movements in the direction of interest rates and
securities prices; (b) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (c) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (d) the possible absence of a liquid secondary market for
any particular instrument at any time; and (e) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences. See
"Investment Policies and Restrictions--Investment Techniques and Strategies" and
"Distributions to Shareholders and Taxes" in the Statement of Additional
Information for further discussion. 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.
FUTURES
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 Voyageur 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 SECURITIES
The Fund 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.
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 the Fund in some foreign
countries. The Fund is 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 the Fund's shareholders.
Foreign Index Linked Instruments may offer higher yields than
comparable securities linked to purely domestic indices but also may be more
volatile. Foreign Index Linked Instruments are relatively recent innovations for
which the market has not yet been fully developed and, accordingly, they
typically are less liquid than comparable securities linked to purely domestic
indices. In addition, the value of Foreign Index Linked Instruments will be
affected by fluctuations in foreign exchange rates or in foreign interest rates.
If the Adviser is incorrect in its prediction as to the movements in the
direction of particular foreign currencies or foreign interest rates, the return
realized by the Fund on a Foreign Index Linked Instrument may be lower than if
the Fund had invested in a similarly rated domestic security. The skills needed
to predict foreign currency and foreign interest rates are different from those
needed to select domestic portfolio securities. Foreign currency gains and
losses with respect to Foreign Index Linked Instruments may affect the amount
and timing of income recognized by the Fund. The Fund will invest no more than
5% of its total assets in Foreign Index Linked Instruments.
HOW TO PURCHASE SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers 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 Fund's 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 merchandise to its investment executives and other
broker-dealers and financial institutions in consideration of their sales of
Fund shares. In some instances, the Underwriter pays other incentives not to
exceed 1.25% of the Fund's net assets (such as payments related to retention of
shares sold by a particular broker-dealer or financial institution for a
specified period of time), will be made available only to selected
broker-dealers and financial institutions, who meet certain objective standards
developed by the Underwriter, to the exclusion of other broker-dealers and
financial institutions who do not meet such criteria.
GENERAL PURCHASE INFORMATION
The minimum initial investment in the Fund is $1,000, and the minimum additional
investment is $100. The 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 the 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. The Fund reserves the right, in its
absolute discretion, to reject any order for the purchase of its shares.
Shares of the Fund may be purchased by opening an account either by
mail or by phone. An order will be deemed to have been placed at the time that
payment is received. If payment is made by check, payment is considered received
on the day the check is received if the check is drawn upon a member bank of the
Federal Reserve System within the Ninth Federal Reserve District (Michigan's
Upper Peninsula, Minnesota, Montana, North Dakota, South Dakota and northwestern
Wisconsin). In the case of other checks, payment is considered received when the
check is converted into "Federal Funds," i.e., monies of member banks within the
Federal Reserve System that are on deposit at a Federal Reserve Bank, normally
within two days after receipt.
An investor who may be interested in having shares redeemed shortly
after purchase should consider making unconditional payment by certified check,
by transmitting Federal Funds by wire or other means approved in advance by the
Underwriter. Payment of redemption proceeds may be delayed for up to 15 days
from the payment date to verify by expeditious means that the purchase payment
has been or will be collected.
AUTOMATIC INVESTMENT PLAN
Investors may make systematic investments in fixed amounts automatically on a
monthly basis through the 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, designate an investment dealer or other financial institution
on the form, and mail it, along with a check payable to the Fund, to:
NW 9369
P.O. BOX 1450
MINNEAPOLIS, MN 55485-9369
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: VOYAGEUR TAX EFFICIENT EQUITY FUND
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
During the introductory offering period (the "Initial Offering") of the Fund,
Class A shares may be purchased without a sales charge. Such Class A shares
purchased in the Initial Offering will be subject to a contingent deferred sales
charge of 3% if redeemed within two years of purchase. The Initial Offering
period shall commence on the date of this prospectus and continue until the
earlier of December 31, 1997 or total assets of the Fund reach $100 million. A
broker may receive a concession of 2.5% on sales of Class A shares during the
Initial Offering. The .25% Rule 12b-1 fee applicable to Class A shares will be
assessed and paid to the Underwriter during the Initial Offering. After the
Initial Offering, the public offering price of Class A shares of the 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% 4.25%
$50,000 but less than $100,000 4.71 4.50 4.00
$100,000 but less than $250,000 3.90 3.50 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 1.75 1.75
$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 1% of the offering price of sales of $1,000,000 or more, other than on
sales not subject to a contingent deferred sales charge.
3 Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "--Contingent Deferred Sales
Charge."
In connection with the distribution of the Fund's 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
Fund for details about the 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. These
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 the Fund attributable to Class A shares. All
or a portion of such fees are paid quarterly to financial institutions and
service providers with respect to average daily net assets of the Fund
attributable to shares sold or serviced by such institutions and service
providers. For additional information about this fee, see "Management--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 1% of the offering price of such shares. If these shares are
redeemed within two years after purchase, the redemption proceeds will be
reduced by a contingent deferred sales charge ("CDSC") of 1%. For additional
information, see "How to Sell Shares--Contingent Deferred Sales Charge."
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 charge at the time of purchase
and no contingent deferred sales charge at redemption. The investors qualifying
to purchase such shares are: (a) officers and directors of the Fund; (b)
officers, directors and full-time employees of Dougherty Financial Group, Inc.
("DFG") and Pohlad Companies, and officers, directors and full-time employees of
parents and subsidiaries of the foregoing companies; (c) 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; (d) spouses and lineal ancestors and descendants of the
officers, directors/trustees and employees referenced in clauses (a), (b) and
(c), and lineal ancestors and descendants of their spouses; (e) 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; (f) trust companies and bank
trust departments for funds held in a fiduciary, agency, advisory, custodial or
similar capacity; (g) any state or any political subdivision thereof or any
instrumentality, department, authority or agency of any state or political
subdivision thereof; (h) partners and full-time employees of the Fund's counsel;
(i) managed account clients of Voyageur, clients of investment advisers
affiliated with Voyageur and other registered investment advisers and their
clients (the Fund may be available through a broker-dealer which charges a
transaction fee for purchases and sales) and (j) "wrap accounts" for the benefit
of clients of financial planners adhering to certain standards established by
Voyageur.
Class A shares will also be issued at net asset value, without a
front-end or deferred 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. 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
The public offering price of Class B shares of the Fund is the net asset value
of the Fund's shares. 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 CDSC will depend on the number of years since
the purchase was made, according to the following table:
CDSC AS A % OF
CDSC PERIOD AMOUNT REDEEMED(1)
- ------------------------------------------------------
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
- ------------------------------------------------------
1 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 the net asset value at
the time of redemption.
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 Fund 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 Fund 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 to broker-dealers who sell Class B shares a sales commission
equal to 4% of the amount invested and an ongoing annual servicing fee of .25%
(paid quarterly) calculated on the net assets attributable to sales made by such
broker-dealers.
RULE 12b-1 FEES
Class B shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of the 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 "Fund Expenses" and "Management--Plan of Distribution."
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 the Fund is the net asset value
of such shares. Class C 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
1% will be imposed if shares are redeemed within one year of purchase. For
additional information, see "How to Sell Shares--Contingent Deferred Sales
Charge." In addition, Class C shares are subject to higher annual Rule 12b-1
fees as described below.
RULE 12b-1 FEES
Class C shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of the Fund attributable to Class C shares. 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 "Fund Expenses" and "Management--Plan of Distribution."
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 Fund in connection with the sale of Class C shares, such as the
payment of compensation to selected broker-dealers and for selling Class C
shares. The combination of the CDSC and the Rule 12b-1 fee enables the Fund to
sell the Class C shares without deduction of a sales charge at the time of
purchase. Although Class C shares are sold without an initial sales charge, the
Underwriter pays to broker-dealers who sell Class C shares a sales commission
equal to 1% of the amount invested and an ongoing annual fee of .75% (paid
quarterly commencing in the thirteenth month after the sale of such shares)
calculated on the net assets attributable to sales made by such broker-dealers.
HOW TO SELL SHARES
The Fund will redeem its shares in cash at the net asset value next determined
after receipt by the Fund 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. The 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
the 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.
The 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, as a result
of a redemption or exchange request. 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 the 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. No charge will be imposed on increases in net asset value above
the initial purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
In determining whether a CDSC is payable with respect to any
redemption, the Fund 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. If a shareholder owns Class A and either
Class B or Class C, then absent a shareholder choice to the contrary, Class B or
Class C shares not subject to a CDSC will be redeemed in full prior to any
redemption of Class A shares not subject to a CDSC.
The CDSC does not apply to: (a) redemptions of Class B shares in
connection with the automatic conversion to Class A shares (b) redemptions of
shares when the Fund exercises its right to liquidate accounts which are less
than the minimum account size and (c) 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, Class B or Class C shares subject
to a CDSC for Class A, Class B or Class C 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.
Fund shares are exchangeable for shares of any money market fund available
through Voyageur. No CDSC will be imposed at the time of any such exchange;
however, the shares acquired in any such exchange will remain subject to the
CDSC and the period during which such shares represent shares of the money
market fund will not be included in determining how long the shares have been
held. Any CDSC due upon a redemption of Fund shares will be reduced by the
amount of any Rule 12b-1 payments made by such money market fund with respect to
such shares.
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, Class B or Class C shares of the Fund (by crediting such refunded CDSC
to such shareholder's account) if, within 90 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 90 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 amount of the CDSC will be calculated from the original
investment date.
EXPEDITED REDEMPTIONS
The 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, the Fund will redeem its
shares at their net asset value next determined following the Fund's receipt of
the redemption request. The 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 Fund's 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, by wire to the bank designated on
the general authorization form. The Fund will employ reasonable procedures to
confirm that telephone instructions are genuine, including requiring that
payment be made only to the shareholder's address of record or to the bank
account designated on the authorization form and requiring certain means of
telephonic identification. The Adviser and Underwriter will not be liable for
following instructions which are reasonably believed to be genuine.
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 the 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. Payment will be made
to 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. Stock certificates will
not be issued 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. Voyageur 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 Voyageur to subject the Fund to an unusual degree of risk.
MONTHLY CASH WITHDRAWAL PLAN
An investor who owns or buys shares of the 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 Statement of Additional Information.
REINSTATEMENT PRIVILEGE
An investor in the Fund whose shares have been redeemed and who has not
previously exercised the Reinstatement Privilege as to the Fund may reinvest the
proceeds of such redemption in shares of the same class of any Voyageur Fund
eligible for sale in the shareholder's state of residence. Reinvestment will be
at the net asset value of Fund shares next determined after the Underwriter
receives a check along with a letter requesting reinstatement. 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 Fund shares, but to the
extent that any shares are sold at a loss and the proceeds are reinvested within
30 days in shares of the 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, Class B shareholders may exchange their shares for Class B
shares of other Voyageur Funds and Class C shareholders may exchange their
shares for Class C shares of other Voyageur Funds. Shares of each class may also
be exchanged for shares of any money market fund available through Voyageur.
The minimum amount which may be exchanged is $1,000. The exchange will
be made on the basis of the relative net asset values next determined after
receipt of the exchange request, plus the amount, if any, by which the
applicable sales charge exceeds the sum of all sales charges previously paid in
connection with the prior investment. For a discussion of issues relating to the
contingent deferred sales charge upon such exchanges, see "How to Sell
Shares--Contingent Deferred Sales Charge." There is no specific limit on
exchange frequency; however, the Fund is intended for long term investment and
not as a trading vehicle. Voyageur reserves the right to prohibit excessive
exchanges (more than four per quarter). Voyageur also 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. Exchange requests may be placed 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 fund to be acquired and should read such prospectus carefully. Contact
the Fund, Voyageur or any of such other broker-dealers for further information
about the exchange privilege.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Board of Directors is responsible for managing the business and affairs of
the Company. 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; PORTFOLIO MANAGEMENT
Voyageur has been retained under an investment advisory agreement (the "Advisory
Agreement") with the Company to act as the 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 August 1, 1996,
Voyageur served as the manager to six closed-end and ten open-end investment
companies (comprising 33 separate investment portfolios), administered numerous
private accounts and together with its affiliates managed approximately $11.5
billion in assets. Voyageur's principal business address is 90 South Seventh
Street, Suite 4400, Minneapolis, Minnesota 55402.
The Fund pays Voyageur a monthly investment advisory and management fee
equivalent on an annual basis to 1% of its average daily net assets. Voyageur
has agreed to voluntarily limit such fee to .75% of the Fund's average daily net
assets through April 30, 1997.
Tony Elavia has day-to-day portfolio management responsibility for the
Fund. Mr. Elavia has been Senior Equity Portfolio Manager of Voyageur since
March 1995. Prior to March 1995, Mr. Elavia had been a Senior Vice President of
Piper Capital Management Incorporated, Minneapolis, Minnesota since 1991. Mr.
Elavia currently has over 9 years of investment experience.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type the
Fund may make also may be made by those other accounts as well. When the Fund
and one or more other accounts managed by the 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 the 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.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution under the 1940 Act (the "Plan") and
has entered into a Distribution Agreement with the Underwriter. Pursuant to the
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% 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 or be less than
expenses actually incurred by the Underwriter.
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 Fund 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 the 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 ACCOUNT
SERVICES AGENT
Norwest Bank Minnesota, N.A. ("Norwest") serves as the custodian of the 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. The 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 the 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
the Fund.
Voyageur acts as the Fund's dividend disbursing, transfer,
administrative and account services agent to perform dividend-paying functions,
to calculate the Fund's daily share price, to maintain shareholder records and
to perform certain regulatory and compliance related services for the Fund. The
fees paid for these services are based on the Fund's assets and include
reimbursement of out-of-pocket expenses. Voyageur receives a monthly fee from
the Fund equal to the sum of (a) $1.25 per shareholder account per month, (b) a
monthly fee ranging from $1,000 to $1,500 based on the average daily net assets
of the Fund, and (c) a percentage of average daily net assets which ranges from
.035% to .11% based on the average daily net assets of the Fund. See "The
Underwriter; Advisory, Sub-Advisory and Administrative Services Agreements;
Expenses; Distribution Expenses; and Brokerage" in the Statement of Additional
Information.
Certain institutions may act as sub-administrators for the Fund
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 FUND
The 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 the
Fund's expenses. Voyageur has agreed to reimburse a portion of its investment
advisory fee for the fiscal year ending April 30, 1997, in such a manner as will
result in the Fund being charged fees and expenses that are no greater than
those set forth in the section "Fund Expenses." After April 30, 1997, such
voluntary fee waiver may be discontinued or modified by Voyageur in its sole
discretion.
PORTFOLIO TRANSACTIONS
The Fund will not 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 the 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.
Net asset value per share of each class of Fund shares is determined by
dividing the value of the securities, cash and other assets of the Fund
attributable to such class less all liabilities attributable to such class by
the total number of shares of such class outstanding. For purposes of
determining the net assets of the Fund, 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 the Fund's officers, under the supervision of the Board of
Directors, to more accurately reflect the fair market value of such securities.
Short-term investments in debt securities with maturities of less than 60 days
when acquired, or which subsequently are within 60 days of maturity, are valued
at amortized cost. While this method provides certainty in valuation, it may
result in periods during which the value, due to changes in interest rates or
other factors, of such short term investments is higher or lower than the value
the Fund would receive if it sold the security. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollars as last quoted by any recognized dealer.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
DISTRIBUTIONS
The Fund's present policy is to make annual dividend distributions from net
investment income, if and when available, and annual distributions of any net
realized capital gains. 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 the 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 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. The Fund sends its shareholders no less than quarterly
statements with details of any reinvested dividends.
TAXES
The Fund intends to qualify during its current taxable year 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 the 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 to the extent they are paid from dividends paid to the Fund by
domestic 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 the Fund.
Generally, gain or loss on the sale or exchange of a share of the 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 the 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 has 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.
The 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.
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 Fund 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 Fund. 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 the Fund 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 Fund may compare its performance with (a) 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, (b) 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 (c) other appropriate indexes of investment securities or with
data derived from those indices. The Fund may also include in communications to
Fund shareholders evaluations of the 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 the Fund's performance
for any future period.
For Fund performance information and daily net asset value quotations,
investors may call (612) 376-7014 or (800) 545-3863. 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
The Fund sends its shareholders six-month unaudited and annual audited financial
statements.
The shares of the Fund constitute a separate series of Voyageur Mutual
Funds III, Inc. (the "Company"), a Minnesota corporation which issues shares of
common stock with a $.01 par value per share. All shares of the Company are
non-assessable and fully transferable when issued and paid for in accordance
with the terms thereof and posses no cumulative voting, pre-emptive or
conversion rights. The Board of Directors is empowered to issue other series of
common stock without shareholder approval.
The 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, and, in liquidation, are entitled to receive the net
assets, if any, of the Fund. The Fund does not generally hold annual meetings of
shareholders and will do so only when required by law.
Each share of each class of a series has one vote irrespective of the
relative net asset values of the shares. On some issues, such as the election of
Directors, all series and classes vote together as one. 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.
PART B
VOYAGEUR TAX EFFICIENT EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 19, 1996
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus of the Fund dated February 19,
1996. 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 OF CONTENTS
Page
----
Investment Policies and Restrictions...................................... B-2
Directors and Executive Officers of the Company........................... B-11
The Investment Adviser and Underwriter.................................... B-13
Distributions to Shareholders and Taxes................................... B-18
Net Asset Value and Public Offering Price................................. B-20
Special Purchase Plans.................................................... B-20
Monthly Cash Withdrawal Plan.............................................. B-22
Additional Information.................................................... B-23
Appendix A -- Stock Index Futures Contracts and Related Options........... A-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated February 19, 1996, 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 the Fund since the date hereof.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective and policies of Voyageur Tax Efficient Equity
Fund (the "Fund") is set forth in the Prospectus relating to the Fund. The Fund
is a series of Voyageur Mutual Funds III, Inc. (the "Company"), an open-end
investment company which currently offers its shares in five series.
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 adviser, Voyageur Fund
Managers, Inc., ("Voyageur" or the "Adviser"), determines that the
instrumentality's credit risk does not make its securities unsuitable for
investment by the Fund.
REPURCHASE AGREEMENTS
The Fund 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 respective Fund would attempt to dispose of the underlying security
in the market or would hold the underlying security until maturity. However, in
the case of a repurchase agreement construed by the courts as a collateralized
loan or an executory contract, the respective Fund may be subject to various
delays and risks of loss in attempting to dispose of the underlying security,
including (a) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible
reduced levels of income and lack of access to income during this period, and
(c) expenses involved in the enforcement of the Fund's rights.
The Fund's custodian will hold the securities underlying any repurchase
agreement or such securities may be part of the Federal Reserve Book Entry
System. The market value of the collateral underlying the repurchase agreement
will be determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the respective Fund will promptly receive
additional collateral (so the total collateral is an amount at least equal to
the repurchase price plus accrued interest).
The use of repurchase agreements also involves certain risks. For
example, if the seller of the agreement defaults on its obligation to repurchase
the underlying securities at a time when the value of those securities has
declined, the respective Fund may incur a loss upon their disposition. In
addition, if the seller of the agreement becomes insolvent and subject to
liquidation or reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are collateral not
within the control of the respective Fund and therefore subject to sale by the
trustee in bankruptcy.
Investments in repurchase agreements by the 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
The Fund is permitted to invest up to 15% of its net assets in illiquid
investments. An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the Securities and Exchange Commission (the "SEC"),
since such securities may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. However, the SEC has acknowledged
that a market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act, certain forms of interest-only and principal-only,
mortgage-backed U.S. Government securities and commercial paper issued pursuant
to the private placement exemption of Section 4(2) of the 1933 Act). The Fund
may invest without limitation in these forms of restricted securities if such
securities are deemed by the Adviser to be liquid in accordance with standards
established by the Fund's Board of Directors. Under these guidelines, the
Adviser must consider (a) the frequency of trades and quotes for the security,
(b) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (c) dealer undertakings to make a market
in the security, and (d) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer).
At the present time, it is not possible to predict with accuracy how
the markets for certain restricted securities will develop. Investing in
restricted securities could have the effect of increasing the level of the
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
The 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, the Fund may engage in the purchase and
sale of stock index future contracts, interest rate futures contracts, and
options on such futures, and International Equity Fund may engage in the
purchase and sale of foreign currency futures contracts, all 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. They 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
they receive any necessary regulatory approvals permitting them to engage in
such transactions.
Options on Securities. To hedge against adverse market shifts, the Fund
may purchase put and call options on securities held in its portfolio. In
addition, the 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" put and 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 the Fund will not exceed 25% of the Fund's total assets. The 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.
The 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. The Fund receives a premium
when it writes put options, which increases such Fund's return on the underlying
security in the event the option expires unexercised or is closed out at a
profit. By writing a put, 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, the Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, the 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. The Fund 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
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, the
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 the 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 covered 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.
The 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 the Fund's 15%
limitation on illiquid securities. However, the staff has eased its position
somewhat in certain limited circumstances. The 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.
The 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, the 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, U.S. Government Securities or other liquid high
grade debt obligations in an amount equal to the market value of the option, and
will maintain the account while the option is open.
Securities index options are subject to position and exercise limits
and other regulations imposed by the exchange on which they are traded. If the
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 the
Fund to engage in closing purchase transactions with respect to securities index
options depends on the existence of a liquid secondary market. Although the 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 the 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 ability of Voyageur 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 the 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 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, the Fund would 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 the 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. The 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 the Fund is to hedge against fluctuations in
the value of its portfolio without actually buying or selling securities. The
futures contracts in which the 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
do not use leverage when they enter 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 intend 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 do 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.
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. 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 the 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, Voyageur 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
they believe 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 Voyageur 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
would 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 intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISKS 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
Voyageur 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 Voyageur, 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
such 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. See "Distributions to Shareholders
and Taxes." For more information on stock index futures contracts and related
options, see Appendix A.
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.
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 deems creditworthy and only on such terms the
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.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions. Certain of these
restrictions are fundamental policies of the Fund. Under the Investment Company
Act of 1940, as amended (the "1940 Act"), the 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
Fund 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 issue any senior securities, as defined
in the 1940 Act, other than as set forth in investment restriction #1
above and except to the extent that using options and futures contracts
or purchasing or selling securities on a when-issued or delayed
delivery basis may be deemed to constitute issuing a senior security.
3. The Fund will not lend money to other persons, except
through purchasing debt obligations, lending portfolio securities and
entering into repurchase agreements.
4. 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.
5. 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.
6. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other
similar contracts.
7. 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.
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
The 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), 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 the 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 the 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. The 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. Frequent portfolio trades
may result in higher transaction and other costs for the Fund. The Fund's
portfolio turnover rate generally is not expected to exceed 100%.
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. Unless indicated
otherwise, all positions have been held more than five years. 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>
Clarence G. Frame, 78 Director Of counsel, Briggs & Morgan law firm. Mr. Frame
First National Bank Building, currently serves on the board of directors of Tosco
W-875 Corporation (an oil refining and marketing company),
332 Minnesota Street Milwaukee Land Company, and Independence One
St. Paul, Minnesota 55101 Mutual Funds.
Richard F. McNamara, 63 Director Chief Executive Officer of Activar, Inc., a
7808 Creekridge Circle #200 Minneapolis-based holding company consisting of
Minneapolis, Minnesota 55439 seventeen companies in industrial plastics, sheet
metal, automotive aftermarket, construction supply,
electronics and financial services, since 1966. Mr.
McNamara currently serves on the board of directors
of Rimage (electronics manufacturing) and Interbank.
Thomas F. Madison, 60 Director President and CEO of MLM Partners, Inc. since
200 South Fifth Street January 1993; Chairman of the Board,
Suite 2100 Communications Holdings, Inc., since 1996;previously,
Minneapolis, Minnesota 55402 Vice Chairman--Office of the CEO, The Minnesota
Mutual Life Insurance Company from February to
September 1994; President of U.S. WEST
Communications--Markets from 1988 to 1993. Mr.
Madison currently serves on the board of directors of
Valmont Industries, Inc. (irrigation systems and steel
manufacturing), Eltrax Systems, Inc. (data
communications integration), Minnegasco, Span Link
Communications (software) and various civic and
educational organizations.
James W. Nelson, 55 Director Chairman and Chief Executive Officer of Eberhardt
81 South Ninth Street Holding Company and its subsidiaries.
Suite 400
Minneapolis, Minnesota 55440
Robert J. Odegard, 75 Director Special Assistant to the President of the University
University of Minnesota of Minnesota.
Foundation
1300 South Second Street
Minneapolis, Minnesota 55454
John G. Taft, 42 President President (since 1991) and Director (since 1993) of
90 South Seventh Street the Adviser; Director (since 1993) and Executive
Suite 4400 Vice President (since 1995) of the Underwriter;
Minneapolis, Minnesota 55402 President of the Underwriter from 1991 to 1995;
Management committee member of the Adviser from
1991 to 1993.
Jane M. Wyatt, 42 Executive Chief Investment Officer and Director since 1993
South Seventh Street Vice of the Adviser; Director and Executive Vice President
Suite 4400 President of the Underwriter since 1993; Executive Vice
Minneapolis, Minnesota 55402 President and Portfolio Manager of the Adviser from
1992 to 1993.
Andrew M. McCullagh, Jr., 48 Executive Senior Tax Exempt Portfolio Manager of the Adviser;
717 Seventeenth Street Vice previously, Director of the Adviser and the
Denver, Colorado 80202 President Underwriter from 1993 to 1995.
Elizabeth H. Howell, 35 Vice Senior Tax Exempt Portfolio Manager of the Adviser.
90 South Seventh Street President
Suite 4400
Minneapolis, Minnesota 55402
James C. King, 56 Vice Senior Equity Portfolio Manager of the Adviser since
90 South Seventh Street President 1993; previously, Director of the Adviser and the
Suite 4400 Underwriter from 1993 to 1995.
Minneapolis, Minnesota 55402
Steven P. Eldredge, 40 Vice Senior Tax Exempt Portfolio Manager of the Adviser
90 South Seventh Street President since 1995; previously, portfolio manager for ABT
Suite 4400 ABT Mutual Funds, Palm Beach, Florida, from 1989
Minneapolis, Minnesota 55402 to 1995.
Kenneth R. Larsen, 33 Treasurer Treasurer of the Adviser and the Underwriter;
90 South Seventh Street previously, Director, Secretary and Treasurer of the
Suite 4400 Adviser and the Underwriter from 1993 to 1995.
Minneapolis, Minnesota 55402
Thomas J. Abood, 33 Secretary Senior Vice President and General Counsel of
90 South Seventh Street Dougherty Financial Group, Inc. (since 1995) the
Suite 4400 indirect parent of the Adviser; Senior Vice President
Minneapolis, Minnesota 55402 of the Adviser, the Underwriter and Voyageur
Companies, Inc. since 1995; previously, Vice President
of the Adviser and Voyageur Companies, Inc. from
1994 to 1995; associated with the law firm of
Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois from 1988 to 1994.
</TABLE>
The Company does not compensate its officers. During the current fiscal
year, each director (who is not an employee of Voyageur or any of its
affiliates) will receive a total annual fee of $26,000 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 33 series and six
closed-end investment companies. In addition, each director who is not an
employee of Voyageur or any of its affiliates is reimbursed for expenses
incurred in connection with attending meetings.
The following table sets forth the aggregate compensation received by
each director from the Company during the fiscal year ended April 30, 1996, as
well as the total compensation received by each director from the Company and
all other registered investment companies managed by the Adviser, or its
affiliates during the calendar year ended December 31, 1996. Directors who are
officers or employees of the Adviser or any of their affiliates did not receive
any such compensation and are not included in the table.
Aggregate
Compensation Total Compensation
Director from the Company from Fund Complex
- -------- ---------------- -----------------
Clarence G. Frame $376 $25,500
Richard F. McNamara $376 $25,500
Thomas F. Madison $376 $25,500
James W. Nelson $376 $25,500
Robert J. Odegard $376 $25,500
THE INVESTMENT ADVISER AND UNDERWRITER
UNDERWRITER
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Fund's shares. With regard to the Underwriter, Mr. Frank
Tonnemaker is the President and a director and Mr. Taft and Ms. Wyatt are each
executive vice presidents and directors. Mr. Abood is senior vice president and
general counsel and Mr. Larsen is treasurer.
INVESTMENT ADVISORY AGREEMENT
Pursuant to the Advisory Agreement, the Fund has engaged Voyageur to
act as investment adviser. As compensation for Voyageur's services, the Fund is
obligated to pay to Voyageur a monthly investment advisory fee equivalent on an
annual basis to 1% of its average daily net assets. Voyageur has agreed to waive
a portion of this fee through April 30, 1997 to the extent set forth in the
Prospectus. 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 requires Voyageur to 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 with respect to the
Fund only if approved annually (a) by the Company's Board of Directors or by a
vote of a majority of the outstanding voting securities of the Fund and (b) by
vote of a majority of Directors of the Company 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 Company
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated with respect to any Fund 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 Company (including a majority of the
Directors who are not interested persons of Voyageur or the Company), unless the
1940 Act requires that any such amendment must be submitted for approval by the
Fund's shareholders and that all proposed assignments of such agreement are
subject to approval by the Company's Board of Directors (unless the Act
otherwise requires shareholder approval thereof).
ADMINISTRATIVE SERVICES AGREEMENT
Voyageur also acts as the Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement (the "Administrative Services Agreement") between Voyageur
and the Company. 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 Fund 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. For purposes of calculating average daily net assets, as
such term is used in the Administrative Services Agreement, the Fund's net
assets equal its total assets minus its total liabilities. 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 Agreements.
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 Company or Voyageur can terminate
the Administrative Services Agreement with respect to any Fund on 60 days'
notice to the other party. The Administrative Services Agreement also provides
that amendments to the Agreement may be effected if approved by the Board of
Directors (including a majority of the Directors who are not interested persons
of Voyageur or the Company), 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 FUND
Voyageur reserves the right to voluntarily waive its fees in whole or
part and to voluntarily absorb certain other of the Fund's expenses. The Adviser
intends to reimburse expenses to the extent set forth in the Prospectus and
reserves the right to discontinue expense reimbursements.
All costs and expenses (other than those expressly assumed by Voyageur
or the Underwriter) incurred in the operation of the 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 the Fund's custodian, and bookkeeping,
auditing and legal expenses. The 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.
PLAN OF DISTRIBUTION AND DISTRIBUTION AGREEMENT
The Company has adopted a Plan of Distribution on behalf of the 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 the 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 the 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 Agreement, the
Underwriter is entitled to receive a total fee each quarter at an annual rate of
.25% of the average daily net assets attributable to the Fund's Class A shares,
1.00% of the average daily net assets attributable to the Fund's Class B shares
and 1.00% of the average daily net assets attributable to the Fund's Class C
shares to pay distribution expenses. As determined from time to time by the
Board, 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 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 B shares and Class C shares, that portion of the fee equal to
.25% of average daily net assets attributable to the Fund's Class B shares or
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 B
shares or 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. In addition to being paid
shareholder servicing and distribution fees, the Underwriter also receives for
its services the sales charge on sales of Fund shares set forth in each
Prospectus.
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.
PORTFOLIO TRANSACTION AND ALLOCATION OF BROKERAGE
Pursuant to conditions set forth in the rules of the Securities and
Exchange Commission, the Fund may effect brokerage transactions in its portfolio
securities with a broker or dealer affiliated directly or indirectly with the
Adviser. In determining the commissions to be paid to an affiliated
broker-dealer acting as an agent on behalf of the Fund, it is the policy of the
Fund that such commissions will, in the judgment of the 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 do not deem it practicable and in their
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 the Fund's portfolio
transactions are made by the Adviser. In selecting brokers to execute portfolio
transactions, the Adviser 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
Adviser; provided, however, that the provision of research and brokerage
services may not be considered in selecting dealers to execute futures contracts
and related options. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. This allows the Adviser to supplement its own
investment research activities by obtaining the views and information of
individuals and research staffs of many different securities research firms
prior to making investment decisions for the Fund. To the extent portfolio
transactions are effected with broker-dealers who furnish research services,the
Adviser receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Fund from these transactions. The
Adviser have not entered into any formal or informal agreements with any
broker-dealers, and do 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 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 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
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of either that particular transaction or their
overall responsibilities with respect to the accounts as to which the Adviser
exercises investment discretion.
It is expected the 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 Fund may invest are
generally traded in over-the-counter markets.
Voyageur believes that most research services obtained by Voyageur 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 Fund and accounts investing in
debt securities would primarily benefit such Fund and accounts; similarly,
services obtained from transactions in common stocks would be of greater benefit
to the managed Fund 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 Fund's directors may determine, Voyageur 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, the 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 are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Adviser to be equitable to each
client. In some cases, this system could have a detrimental effect on the price
or volume of the security as far as each client is concerned. In other cases,
however, the ability of the clients to participate in volume transactions will
produce better executions for each client.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
It is the Fund's policy to distribute annually all net investment
income. The 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 financial
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") the
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, the 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 the 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 generally 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 $114,700 and for married couples filing joint
returns with adjusted gross income in excess of $172,500, and a partial
disallowance of itemized deductions for individuals with adjusted gross income
in excess of $114,700). For corporations, both ordinary income and capital gains
are currently subject to a maximum rate of 35%.
Ordinarily, distributions and redemption proceeds earned by the 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 the Fund
shareholder to supply the Fund or its agent with such shareholder's taxpayer
identification number. Withholding may also occur if the 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 the Fund for shares in another fund
managed by Voyageur pursuant to the exchange privilege (see "Exchange Privilege"
in the Prospectus), 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" in the
Prospectus), 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.
The 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 the Fund may
purchase futures contracts and options. To the extent the Fund engages in
short-term trading and enters 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 the 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 the 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."
Code Section 988 may 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, the 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.
Pursuant to the Code, distributions of net investment income by the
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 the 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. The Fund will report
annually to its shareholders the amount of any withholding.
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. The public offering price of Class B and
Class C shares is the net asset value of Fund shares. The portfolio securities
in which the Fund invests fluctuate in value, and, therefore, the net asset
value per share of the 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 Fund which
bears a FESC (and, in certain circumstances purchases of FESC shares of certain
other open-end investment companies) if the combined purchase of all such Fund
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
age 21, 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
Class A shares may qualify for a Cumulative Quantity Discount. The applicable
FESC will then be based on the total of:
(i) the amount of the current purchase; and
(ii) the amount previously invested (valued at the time of
investment) in shares of any class of one or more Voyageur Funds which
has a FESC owned by the investor; and
(iii) the amount previously invested (valued at the time of
investment) in shares of any class of one or more Voyageur Funds which
has a FESC 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 with
sufficient information to verify that the purchase qualifies for the privilege
or discount.
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 (including certain "credits," as described below) within a period of 13
months in any one or more of the Voyageur Fund which has a FESC. 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 age 21 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.
Shares of other open-end investment companies bearing a FESC will be
included with Voyageur fund shares bearing a FESC in a Combined Purchase
Privilege, Cumulative Quantity Discount or Letter of Intention only if such
shares are owned by customers of dealers that Voyageur or the Underwriter has
engaged to provide administration or accounting services to Fund omnibus
accounts in connection with the offering of the Fund as part of such other
investment companies' family of Fund. Additionally, the maximum reduction of the
Fund's FESC that may result from the inclusion of shares of such other
investment companies 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 Fund's
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 not 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 proceeds
are 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 Board.
Bank Purchases. Banks, acting as agents for their customers and not for
the Fund 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
Glass-Steagall Act, management will take whatever action, if any, is appropriate
in order to provide efficient services for the Fund. Management does not believe
that a termination in the relationship with a bank would result in any material
adverse consequences to the Fund. 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.
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 or
Class C shares (or to redemptions of Class A shares in connection with initial
purchases of $1,000,000 or more which were not subject to a FESC). 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 Class A shares of the
Fund 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 the 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 the Fund as an expense of all shareholders. The
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 Fund 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 the Fund's assets and
portfolio securities.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, serves as 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 Company owes certain
fiduciary duties to the Fund and to their 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 Company may demand a regular meeting of
shareholders by written notice of demand given to the chief executive officer or
the chief financial officer of the Company. Within ninety days after receipt of
the demand, a regular meeting of shareholders must be held at the expense of the
Company. Additionally, the 1940 Act requires shareholder votes for all
amendments to fundamental investment policies and restrictions and for all
amendments to investment advisory contracts and Rule 12b-1 distribution plans.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund is a series of Voyageur Mutual Fund III, Inc. which was
incorporated under the laws of the State of Minnesota in January 1985.
The Fund's fiscal year ends on April 30 of each year.
APPENDIX A
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
Stock Index Futures Contracts
To the extent described in the Prospectus and Statement of Additional
Information, the 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 the Fund upon entering into stock index futures contracts.
Upon entering into a contract, the 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 the 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.
The 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, the
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.
The Fund may enter into contracts with respect to any stock index or
sub-index. To hedge the 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 the Fund may purchase and sell put and call options on stock index
futures contracts which are traded on a recognized 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. The
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, the 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. The Fund will purchase
put options on futures contracts if the Fund's investment 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 the Fund's investment 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. The 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. The Fund will purchase a call option on a
stock index futures contract to hedge against a market advance when the Fund is
holding cash. The 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. The 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. The 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 the 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 the 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 the 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 and Statement of Additional Information. 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.
Voyageur Tax Efficient Equity Fund
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements -- Not applicable.
(b) Exhibits:
1.1 Amended and Restated Articles of Incorporation of Voyageur
Mutual Funds III, Inc. (the "Fund"), dated November 22, 1993,
filed as an Exhibit to Post-Effective Amendment No. 25 to Form
N-1A on September 1, 1995, File Nos. 2-95928 and 811-5457, and
incorporated herein by reference.
1.2 Certification of Designation of Series B and Series C of
Voyageur International Equity Fund and Voyageur Aggressive
Growth Fund dated April 28, 1994, filed as an Exhibit to
Post-Effective Amendment No. 25 to Form N-1A on September 1,
1995, File Nos. 2-95928 and 811-5457, and incorporated herein
by reference.
1.3 Certification of Designation of Series D, Voyageur Growth and
Income Fund dated August 24, 1995, filed as an Exhibit to
Post-Effective Amendment No. 25 to Form N-1A on September 1,
1995, File Nos. 2-95928 and 811-5457, and incorporated herein
by reference.
1.4 Certification of Designation of Class B and Class C of Series
A, Series B and Series C of Voyageur Growth Stock Fund,
Voyageur International Equity Fund and Voyageur Aggressive
Growth Fund dated August 25, 1995, filed as an Exhibit to
Post-Effective Amendment No. 25 to Form N-1A on September 1,
1995, File Nos. 2-95928 and 811-5457, and incorporated herein
by reference.
1.5 Articles of Correction dated July 27, 1994, filed as an
Exhibit to Post-Effective Amendment No. 25 to Form N-1A on
September 1, 1995, File Nos. 2-95928 and 811-5457, and
incorporated herein by reference.
1.6 Certificate of Designation of Series E, Classes A, B, and C of
Voyageur Tax-Efficient Equity Fund, filed as an Exhibit
hereto.
2 Bylaws of the Fund, as amended October 30, 1996, filed as an
Exhibit hereto.
3 Voting Trust Agreement. Not applicable.
4 Specimen copy of share certificate, filed as an Exhibit to
Post-Effective Amendment No. 26 to Form N-1A on August 29,
1996, File Nos. 2-95928 and 811-5457, and incorporated herein
by reference.
5.1 Investment Advisory Agreement with Voyageur Fund Managers,
Inc., dated November 1, 1993, with Appendix updated February
19, 1997, filed as an Exhibit hereto.
5.2 Supplement dated as of September 1, 1995, to Investment
Advisory Agreement with Voyageur Fund Managers, Inc., filed as
an Exhibit hereto.
5.3 Sub-Advisory Agreement with Segall Bryant & Hamill with
respect to Voyageur Growth and Income Fund dated September 1,
1995, filed as an Exhibit to Post-Effective Amendment No. 25
to Form N-1A on September 1, 1995, File Nos. 2-95928 and
811-5457, and incorporated herein by reference.
5.3 Investment Sub-Advisory Agreement with Voyageur International
Asset Managers, Ltd. with respect to Voyageur International
Equity Fund dated August 15, 1996, filed as an Exhibit to
Post-Effective Amendment No. 26 on August 29, 1996, File Nos.
2-95928 and 811-5457, and incorporated herein by reference.
6.1 Distribution Agreement dated February 19, 1997, filed as an
Exhibit hereto.
6.3 Form of Dealer Sales Agreement, filed as an Exhibit to
Post-Effective Amendment No. 25 to Form N-1A on September 1,
1995, File Nos. 2-95928 and 811-5457, and incorporated herein
by reference.
6.4 Form of Bank Agreement, filed as an Exhibit to Post-Effective
Amendment No. 25 to Form N-1A on September 1, 1995, File Nos.
2-95928 and 811-5457, and incorporated herein by reference.
7 Bonus, Profit Sharing, or Pension Plans. None.
8 Custodian Contract with Norwest Bank Minnesota N.A., dated May
16, 1994, filed as an Exhibit to Post-Effective Amendment No.
25 to Form N-1A on September 1, 1995, File Nos. 2-95928 and
811-5457, and incorporated herein by reference.
9 Administrative Services Agreement with Voyageur Fund Managers,
Inc. dated October 24, 1994, with Appendix A updated February
19, 1997, filed as an Exhibit hereto.
10.1 Opinion and Consent of Dorsey & Whitney LLP, with respect to
Class A, Class B and Class C shares of Series A, Series B,
Series C and Series D of the Fund dated August 31, 1995, filed
as an Exhibit to Post-Effective Amendment No. 25 to Form N-1A
on September 1, 1995, File Nos. 2-95928 and 811-5457, and
incorporated herein by reference.
10.2 Opinion and Consent of Dorsey & Whitney LLP, with respect to
Class A, Class B and Classs C shares of Series E, filed as an
Exhibit hereto.
11 Consent of Independent Auditors, KPMG Peat Marwick LLP. Not
applicable.
12 Not applicable.
13 Letter of Investment Intent, filed as an Exhibit to
Registrant's Pre-Effective Amendment No. 1 to Form N-1A, File
Nos. 2-95928 and 811-5457, and incorporated herein by
reference.
14 Copy of prototype defined contribution plan. Not applicable.
15 Plan pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as adopted and amendedon February 19, 1997, filed as
an Exhibit hereto.
16.1 Schedule for Computation of Fund Performance, Voyageur Growth
Stock Fund, Voyageur International Equity Fund, Voyageur
Aggressive Growth Fund and Voyageur Growth and Income Fund,
filed as an Exhibit to Post-Effective Amendment No. 26 on
August 29, 1996, File Nos. 2-95928 and 811-5457, and
incorporated herein by reference.
16.2 Schedule for Computation of Fund Performance, Voyageur Tax
Efficient Equity Fund. Not Applicable.
17.1 Power of Attorney dated January 24, 1995, filed as an Exhibit
to Post-Effective Amendment No. 8 of Voyaguer Mutual Funds,
Inc. on Form N-1A, filed April 30, 1996, File Nos. 33-63238
and 811-7742, and incorporated herein by reference.
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 Financial Institutions Short Duration Portfolio
Voyageur Financial Institutions Intermediate Duration
Portfolio
Voyageur Financial Institutions Core Portfolio
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 Minnesota High Yield Municipal Bond 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
Voyageur Growth and Income Fund
Voyageur Tax Efficient Equity Fund
VAM Institutional Funds, Inc.
VAM Global Fixed Income Fund
VAM Short Duration Government Agency Fund
VAM Intermediate Duration Government Agency Fund
VAM Government Mortgage Fund
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Intermediate Duration Municipal 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 January 22, 1997.
Class A Class B Class C
Common Common Common
Name of Fund Shares Shares Shares
------------ ------ ------ ------
Voyageur Growth and Income Fund 291 9 0
Voyageur Growth Stock Fund 2,080 62 45
Voyageur International Equity Fund 109 5 9
Voyageur Aggressive Growth Fund 213 7 26
Voyageur Tax Efficient Equity Fund ** ** **
** Not in existence as of January 22, 1997.
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 officers of the Adviser are set forth below.
The business address of each is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH ADVISER PRINCIPAL OCCUPATION(S)
- ---------------- --------------------- -----------------------
<S> <C> <C>
Michael E. Dougherty Chairman Chairman of the Board, President and Chief
Executive Officer of Dougherty Financial
Group, Inc. ("DFG") and Chairman of
Voyageur, the Underwriter and Dougherty
Dawkins, Incorporated ("DDI").
John G. Taft Director and President See biographical information in Part B of the
Registration Statement.
Jane M. Wyatt Director and Chief See biographical information in Part B of the
Investment Officer Registration Statement.
Edward J. Kohler Director and Executive Director and Executive Vice President of the
Vice President Adviser and Director of the Underwriter since
1995; previously, President and Director of
Piper Capital Management Incorporated from
1985 to 1995.
Frank C. Tonnemaker Director and Executive Director of Voyageur and the Underwriter
Vice President since 1993; Executive Vice President of
Voyageur since 1994; Vice President of
Voyageur from 1990 to 1994.
Thomas J. Abood General Counsel See biographical information in Part B of the
Registration Statement.
Kenneth R. Larsen Treasurer Seebiographical information in Part B of the
Registration Statement.
Steven B. Johansen Secretary and Chief Secretary of DFG, the Underwriter and DDI;
Financial Officer Chief Financial Officer of DFG, the Under-
writer and DDI since 1995; previously,
Treasurer of DFG and DDI from 1990 to 1995.
</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, Sub-Adviser,
Administrative Services, Expenses and Brokerage" filed as part of this
Registration Statement.
Item 29. Principal Underwriters
(a) Voyageur Investments, Inc., the underwriter of the Registrant's
shares, is principal underwriter for the shares of Voyageur Funds, Inc.,
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. Executive officers of the Underwriter
(who are not also directors of the Underwriter) and the positions of these
individuals with respect to the Registrant are:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- --------------------- ---------------------
<S> <C> <C>
Michael E. Dougherty Chairman None
Frank C. Tonnemaker President and Director None
John G. Taft Executive Vice President President
and Director
Edward J. Kohler Executive Vice President None
and Director
Jane M. Wyatt Executive Vice President Executive Vice President
and Director
Steven B. Johansen Secretary and Chief Financial None
Officer
Kenneth R. Larsen Treasurer Treasurer
Thomas J. Abood Senior Vice President and Secretary
General Counsel
</TABLE>
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 Voyageur Tax Efficient Equity 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.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report of such series and such Annual Report will be
furnished without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis and State of Minnesota on the 14th
day of February 1997.
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
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John G. Taft President (principal February 14, 1997
- ------------------------------- executive officer)
John G. Taft
/s/ Kenneth R. Larsen Treasurer (principal February 14, 1997
- ------------------------------- financial and
Kenneth R. Larsen accounting officer)
Clarence G. Frame * Director
Thomas F. Madison * Director
Richard F. McNamara * Director
Robert J. Odegard * Director
James W. Nelson * Director
* By /s/ Thomas J. Abood February 14, 1997
--------------------------
Thomas J. Abood
Attorney-in-
CERTIFICATE OF DESIGNATION
OF
SERIES E COMMON SHARES
OF
VOYAGEUR MUTUAL FUNDS III, INC.
The undersigned duly elected Secretary of Voyageur Mutual Funds III,
Inc., a Minnesota corporation (the "Corporation"), hereby certifies that the
following is a true, complete and correct copy of resolutions duly adopted by a
majority of the directors of the Board of Directors of the Corporation on
October 30, 1996:
WHEREAS, the total authorized number of shares of the
Corporation is ten trillion, all of which shares are common shares, par
value $.01 per share, as set forth in the Corporation's Amended and
Restated Articles of Incorporation (the "Articles");
WHEREAS, pursuant to Section 5(a) of such Articles, ten
billion each of such shares have been designated as Series A, Series B,
Series C and Series D Common Shares; and
WHEREAS, the Articles set forth that the balance of nine
trillion, nine hundred sixty billion shares may be issued in such
series and classes and with such designations, preferences and
relative, participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, as shall be stated
or expressed in a resolution or resolutions providing for the issue of
any series or class of common shares as may be adopted from time to
time by the Board of Directors of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that of the remaining
authorized common shares of the Corporation, ten billion are hereby
designated as Series E Common Shares, one billion of which are hereby
designated as Series E, Class A Common Shares, one billion of which are
hereby designated as Series E, Class B Common Shares and one billion of
which are hereby designated as Series E, Class C Common shares and
seven billion of which shall remain undesignated as to class.
FURTHER RESOLVED, that the Common Shares designated by these
resolutions shall have the preferences and relative, participating,
optional or other special rights, and qualifications, limitations and
restrictions thereof, set forth in the Articles. The Series designated
by these resolutions shall represent a separate and distinct portion of
the Corporation's assets which shall take the form of a separate
portfolio of investment securities, cash and other assets. Any Class of
a Series of Common Shares designated by these resolutions may be
subject to such charges and expenses (including, by way of example but
not by way of limitation, such front-end and deferred sales charges as
may be permitted under the 1940 Act and the rules of the National
Association of Securities Dealers, Inc., and expenses under Rule 12b-1
plans, administrative plans, service plans or other plans or
arrangements, however designated) adopted from time to time by the
Board of Directors of the Corporation in accordance, to the extent
applicable, with the 1940 Act, which charges and expenses may differ
from those applicable to another Class within such Series, and all of
the charges and expenses to which a Class is subject shall be borne by
such Class and shall be appropriately reflected in determining the net
asset value and the amounts payable with respect to dividends and
distributions on, and redemptions or liquidation of, such Class.
FURTHER RESOLVED, that the officers of the Corporation are
hereby authorized and directed to file with the office of the Secretary
of State of the State of Minnesota a Certificate of Designation setting
forth the relative rights and preferences of the Series E, Class A,
Class B and Class C Common Shares, as required by Section 302A.401,
Subd. 3(b) of the Minnesota Statutes.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of the Corporation this 23rd day of January 1997.
/s/ Thomas J. Abood
---------------------------------
Thomas J. Abood, Secretary
BYLAWS
OF
VOYAGEUR MUTUAL FUNDS III, INC.
(AS AMENDED BY THE BOARD OF DIRECTORS ON OCTOBER 30, 1996)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. Name. The name of the corporation is "Voyageur Mutual
Funds III, Inc." The name of the series represented by the corporation's Series
A Common Shares is "Voyageur Growth Stock Fund." The name of the series
represented by the corporation's Series B Common Shares is "Voyageur Aggressive
Growth Fund." The name of the series represented by the corporation's Series C
Common Shares is "Voyageur International Equity Fund." The name of the series
represented by the corporation's Series D Common Shares is "Voyageur Growth and
Income Fund." The name of the series represented by the corporation's Series E
Common Shares is "Voyageur Tax Efficient Equity Fund."
Section 1.02. Registered Office. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
Section 1.03. Other Offices. The corporation may have such other
offices, within or without the State of Minnesota, as the directors shall, from
time to time, determine.
Section 1.04. No Corporate Seal. The corporation shall have no
corporate seal.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meeting. Except as provided otherwise
by Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at
any place, within or without the State of Minnesota, designated by the directors
and, in the absence of such designation, shall be held at the registered office
of the corporation in the State of Minnesota. The directors shall designate the
time of day for each meeting and, in the absence of such designation, every
meeting of shareholders shall be held at ten o'clock a.m.
Section 2.02. Regular Meetings. The corporation shall not be required
to hold annual meetings of shareholders. Regular meetings shall be held only
with such frequency and at such times and places as provided in and required by
Minnesota Statutes Section 302A.431.
Section 2.03. Special Meetings. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the Chairman of
the Board, the President, any two directors, or by one or more shareholders
holding ten percent (10%) or more of the shares entitled to vote on the matters
to be presented to the meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of ten percent
(10%) of the shares outstanding and entitled to vote shall constitute a quorum
for the transaction of business at any regular or special meeting. In case a
quorum shall not be present at a meeting, those present in person or by proxy
shall adjourn the meeting to such day as they shall, by majority vote, agree
upon without further notice other than by announcement at the meeting at which
such adjournment is taken. If a quorum is present, a meeting may be adjourned
from time to time without notice other than announcement at the meeting. At
adjourned meetings at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed. If a
quorum is present, the shareholders may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 2.05. Voting. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the Articles of Incorporation provide
otherwise, shall have one vote for each share having voting power registered in
such shareholder's name on the books of the corporation. Except as otherwise
specifically provided by these Bylaws or as required by provisions of the
Investment Company Act of 1940 or other applicable laws, all questions shall be
decided by a majority vote of the number of shares entitled to vote and
represented at the meeting at the time of the vote. If the matter(s) to be
presented at a regular or special meeting relates only to particular classes or
series of the corporation, then only the shareholders of such classes or series
are entitled to vote on such matter(s).
Section 2.06. Voting - Proxies. The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder or by such shareholder's attorney thereunto duly
authorized in writing. No proxy shall be voted after eleven months from its date
unless it provides for a longer period.
Section 2.07. Closing of Books. The Board of Directors may fix a time,
not exceeding sixty (60) days preceding the date of any meeting of shareholders,
as a record date for the determination of the shareholders entitled to notice
of, and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. The Board of Directors
may close the books of the corporation against the transfer of shares during the
whole or any part of such period. If the Board of Directors fails to fix a
record date for determination of the shareholders entitled to notice of, and to
vote at, any meeting of shareholders, the record date shall be the thirtieth
(30th) day preceding the date of such meeting.
Section 2.08. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at such shareholder's address as shown by the books of the
corporation, a notice setting out the date, time and place of each regular
meeting and each special meeting, except where the meeting is an adjourned
meeting and the date, time and place of the meeting were announced at the time
of adjournment, which notice shall be mailed within the period required by law.
Every notice of any special meeting shall state the purpose or purposes for
which the meeting has been called, pursuant to Section 2.03, and the business
transacted at all special meetings shall be confined to the purpose stated in
such notice.
Section 2.09. Waiver of Notice. Notice of any regular or special
meeting may be waived either before, at or after such meeting orally or in a
writing signed by each shareholder or representative thereof entitled to vote
the shares so represented. A shareholder by his or her attendance at any meeting
of shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.
Section 2.10. Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action. If the
action to be taken relates to particular classes or series of the corporation,
then only shareholders of such classes or series are entitled to vote on such
action.
ARTICLE III
DIRECTORS
Section 3.01. Number, Qualification and Term of Office. The number of
directors shall be established by resolution of the shareholders (subject to the
authority of the Board of Directors to increase or decrease the number of
directors as permitted by law). In the absence of such shareholder resolution,
the number of directors shall be the number last fixed by the shareholders, the
Board of Directors or the Articles of Incorporation. Directors need not be
shareholders. Each of the directors shall hold office until the regular meeting
of shareholders next held after his or her election and until his or her
successor shall have been elected and shall qualify, or until the earlier death,
resignation, removal or disqualification of such director.
Section 3.02. Election of Directors. Except as otherwise provided in
Sections 3.11 and 3.12 hereof, the directors shall be elected at the regular
shareholders' meeting. In the event that directors are not elected at a regular
shareholders' meeting, then directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. Each holder of shares of each class or series of stock of the
corporation shall be entitled to vote for directors and shall have equal voting
power for each share of each class or series of the corporation.
Section 3.03. General Powers.
(a) Except as otherwise permitted by statute, the property, affairs and
business of the corporation shall be managed by the Board of Directors, which
may exercise all the powers of the corporation except those powers vested solely
in the shareholders of the corporation by statute, the Articles of Incorporation
or these Bylaws, as amended.
(b) All acts done by any meeting of the Directors or by any person
acting as a director, so long as his or her successor shall not have been duly
elected or appointed, shall, notwithstanding that it be afterwards discovered
that there was some defect in the election of the directors or such person
acting as aforesaid or that they or any of them were disqualified, be as valid
as if the directors or such other person, as the case may be, had been duly
elected and were or was qualified to be directors or a director of the
corporation.
Section 3.04. Power to Declare Dividends.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders of
each class or series of stock of the corporation according to their respective
rights and interests in the investment portfolio of the corporation issuing such
class or series of stock.
(b) Notwithstanding the above provisions of this Section 3.04, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders of each class or series of stock a "stock dividend" out of the
authorized but unissued shares of stock of each class or series, including any
shares previously purchased by a class or series of the corporation.
Section 3.05. Board Meetings. Meetings of the Board of Directors may be
held from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
Section 3.06. Calling Meetings, Notice. A director may call a board
meeting by giving ten (10) days notice to all directors of the date, time and
place of the meeting; provided that if the day or date, time and place of a
board meeting have been announced at a previous meeting of the board, no notice
is required.
Section 3.07. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at or after such meeting
orally or in a writing signed by such director. A director, by his or her
attendance and participation in the action taken at any meeting of the Board of
Directors, shall be deemed to have waived notice of such meeting, except where
the director objects at the beginning of the meeting to the transaction of
business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.
Section 3.08. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting; provided however,
notwithstanding the above, if the Board of Directors is taking action pursuant
to the Investment Company Act of 1940, as now enacted or hereafter amended, a
majority of directors who are not "interested persons" (as defined by the
Investment Company Act of 1940, as now enacted or hereafter amended) of the
corporation shall constitute a quorum for taking such action.
Section 3.09. Advance Consent or Opposition. A director may give
advance written consent or opposition to a proposal to be acted on at a meeting
of the Board of Directors. If such director is not present at the meeting,
consent or opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected. This procedure
shall not be used to act on any investment advisory agreement or plan of
distribution adopted under Rule 12b-1 of the Investment Company Act of 1940, as
amended.
Section 3.10. Conference Communications. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.10 shall be deemed present in person at
the meeting, and the place of the meeting shall be the place of origination of
the conference communication. This procedure shall not be used to act on any
investment advisory agreement or plan of distribution adopted under Rule 12b-1
of the Investment Company Act of 1940, as amended.
Section 3.11. Vacancies; Newly Created Directorships. Vacancies in the
Board of Directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as permitted by Section
3.01 may be filled by a two-thirds (2/3) vote of the directors serving at the
time of such increase; and each person so elected shall be a director until his
or her successor is elected by the shareholders at their next regular or special
meeting; provided, however, that no vacancy can be filled as provided above if
prohibited by the provisions of the Investment Company Act of 1940.
Section 3.12. Removal. The entire Board of Directors or an individual
director may be removed from office, with or without cause, by a vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors. In the event that the entire Board or any one or more directors be so
removed, new directors shall be elected at the same meeting, or the remaining
directors may, to the extent vacancies are not filled at such meeting, fill any
vacancy or vacancies created by such removal. A director named by the Board of
Directors to fill a vacancy may be removed from office at any time, with or
without cause, by the affirmative vote of the remaining directors if the
shareholders have not elected directors in the interim between the time of the
appointment to fill such vacancy and the time of the removal.
Section 3.13. Committees. A resolution approved by the affirmative vote
of a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.14. Written Action. Except as provided in the Investment
Company Act of 1940, as amended, any action which might be taken at a meeting of
the Board of Directors, or any duly constituted committee thereof, may be taken
without a meeting if done in writing and signed by that number of directors or
committee members that would be required to take the same action at a meeting of
the board or committee thereof at which all directors or committee members were
present; provided, however, that any action which also requires shareholder
approval may be taken by written action only if such writing is signed by all of
the directors or committee members entitled to vote on such matter.
Section 3.15. Compensation. Directors who are not salaried officers of
this corporation or affiliated with its investment adviser shall receive such
fixed sum per meeting attended and/or such fixed annual sum as shall be
determined, from time to time, by resolution of the Board of Directors. All
directors shall receive their expenses, if any, of attendance at meetings of the
Board of Directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
Section 3.16. Resignation. A director may resign by giving written
notice to the corporation, and the resignation is effective without acceptance
when given, unless a later effective time is specified in the notice.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of
a Chairman of the Board (if one is elected by the Board), the President, one or
more Vice Presidents (if desired by the Board), a Secretary, a Treasurer and
such other officers and agents as may, from time to time, be elected by the
Board of Directors. Any number of offices may be held by the same person.
Section 4.02. Election, Term of Office and Qualifications. The Board of
Directors shall elect, from within or without their number, the officers
referred to in Section 4.01 of these Bylaws, each of whom shall have the powers,
rights, duties, responsibilities and terms in office provided for in these
Bylaws or a resolution of the Board not inconsistent therewith. The President
and all other officers who may be directors shall continue to hold office until
the election and qualification of their successors, notwithstanding an earlier
termination of their directorship.
Section 4.03. Resignation. Any officer may resign his or her office at
any time by delivering a written resignation to the corporation. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 4.04. Removal and Vacancies. Any officer may be removed from
office by a majority of the Board of Directors with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.05. Chairman of the Board. The Chairman of the Board, if one
is elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.06. President. The President shall have general active
management of the business of the corporation. In the absence of the Chairman of
the Board, the President shall preside at all meetings of the shareholders and
directors. The President shall be the chief executive officer of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall be ex officio a member of all standing
committees. The President may execute and deliver, in the name of the
corporation, any deeds, mortgages, bonds, contracts or other instruments
pertaining to the business of the corporation and, in general, shall perform all
duties usually incident to the office of the President. The President shall have
such other duties as may, from time to time, be prescribed by the Board of
Directors.
Section 4.07. Vice President. Each Vice President shall have such
powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to the
President's power and duties in the order designated by the Board of Directors.
Section 4.08. Secretary. The Secretary shall be secretary of, and shall
attend, all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. The
Secretary shall give proper notice of meetings of shareholders and directors.
The Secretary shall perform such other duties as may, from time to time, be
prescribed by the Board of Directors or by the President.
Section 4.09. Treasurer. The Treasurer shall be the chief financial
officer and shall keep accurate accounts of all money of the corporation
received or disbursed. The Treasurer shall deposit all moneys, drafts and checks
in the name of, and to the credit of, the corporation in such banks and
depositories as a majority of the Board of Directors shall, from time to time,
designate. The Treasurer shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. The Treasurer shall disburse the
funds of the corporation, as ordered by the Board of Directors, making proper
vouchers therefor. The Treasurer shall render to the President and the
directors, whenever required, an account of all his or her transactions as
Treasurer and of the financial condition of the corporation, and shall perform
such other duties as may, from time to time, be prescribed by the Board of
Directors or by the President.
Section 4.10. Assistant Secretaries. At the request of the Secretary,
or in the Secretary's absence or disability, any Assistant Secretary shall have
power to perform all the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
The Assistant Secretaries shall perform such other duties as from time to time
may be assigned to them by the Board of Directors or the President.
Section 4.11. Assistant Treasurers. At the request of the Treasurer, or
in the Treasurer's absence or disability, any Assistant Treasurer shall have
power to perform all the duties of the Treasurer, and when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the Treasurer.
The Assistant Treasurers shall perform such other duties as from time to time
may be assigned to them by the Board of Directors or the President.
Section 4.12. Compensation. The officers of this corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
Section 4.13. Surety Bonds. The Board of Directors may require any
officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or her
duties to the corporation, including responsibility for negligence and for the
accounting of any of the corporation's property, funds or securities that may
come into his or her hands. In any such case, a new bond of like character shall
be given at least every six years, so that the dates of the new bond shall not
be more than six years subsequent to the date of the bond immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. Certificates for Shares.
(a) The corporation may have certificated or uncertificated
shares, or both, as designated by resolution of the Board of Directors.
Every owner of certificated shares of the corporation shall be entitled
to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation
owned by him or her. Within a reasonable time after the issuance or
transfer of uncertificated shares, the corporation shall send to the
new shareholder the information required to be stated on certificates.
Certificated shares shall be numbered in the order in which they shall
be issued and shall be signed, in the name of the corporation, by the
President or a Vice President and by the Treasurer or Secretary or by
such officers as the Board of Directors may designate. Such signatures
may be by facsimile if authorized by the Board of Directors. Every
certificate surrendered to the corporation for exchange or transfer
shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing
certificate shall have been so cancelled, except in cases provided for
in Section 5.08.
(b) In case any officer, transfer agent or registrar who shall
have signed any such certificate, or whose facsimile signature has been
placed thereon, shall cease to be such an officer (because of death,
resignation or otherwise) before such certificate is issued, such
certificate may be issued and delivered by the corporation with the
same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
Section 5.02. Issuance of Shares. The Board of Directors is authorized
to cause to be issued shares of the corporation up to the full amount authorized
by the Articles of Incorporation in such classes or series and in such amounts
as may be determined by the Board of Directors and as may be permitted by law.
No shares shall be allotted except in consideration of cash or other property,
tangible or intangible, received or to be received by the corporation under a
written agreement, of services rendered or to be rendered to the corporation
under a written agreement, or of an amount transferred from surplus to stated
capital upon a share dividend. At the time of such allotment of shares, the
Board of Directors making such allotments shall state, by resolution, their
determination of the fair value to the corporation in monetary terms of any
consideration other than cash for which shares are allotted. No shares of stock
issued by the corporation shall be issued, sold or exchanged by or on behalf of
the corporation for any amount less than the net asset value per share of the
shares outstanding as determined pursuant to Article X hereunder.
Section 5.03. Redemption of Shares. Upon the demand of any shareholder,
this corporation shall redeem any share of stock issued by it held and owned by
such shareholder at the net asset value thereof as determined pursuant to
Article X hereunder. The Board of Directors may suspend the right of redemption
or postpone the date of payment during any period as may be permitted by law.
If following a redemption request by any shareholder of this
corporation, the value of such shareholder's interest in the corporation falls
below the required minimum investment, as may be set from time to time by the
Board of Directors, the corporation's officers are authorized, in their
discretion and on behalf of the corporation, to redeem such shareholder's entire
interest and remit such amount, provided that such a redemption will only be
effected by the corporation following: (a) a redemption by a shareholder, which
causes the value of such shareholder's interest in the corporation to fall below
the required minimum investment; (b) the mailing by the corporation to such
shareholder of a "notice of intention to redeem"; and (c) the passage of at
least sixty (60) days from the date of such mailing, during which time the
shareholder will have the opportunity to make an additional investment in the
corporation to increase the value of such shareholder's account to at least the
required minimum investment.
Section 5.04. Transfer of Shares. Transfer of shares on the books of
the corporation may be authorized only by the shareholder, or the shareholder's
legal representative, or the shareholder's duly authorized attorney-in-fact, and
upon the surrender of the certificate or the certificates for such shares or a
duly executed assignment covering shares held in unissued form. The corporation
may treat, as the absolute owner of shares of the corporation, the person or
persons in whose name shares are registered on the books of the corporation.
Section 5.05. Registered Shareholders. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.
Section 5.06. Transfer of Agents and Registrars. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. Transfer Regulations. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to time adopt rules and regulations with reference to the method of transfer of
shares of stock of the corporation.
Section 5.08. Lost, Stolen, Destroyed and Mutilated Certificates. The
holder of any stock of the corporation shall immediately notify the corporation
of any loss, theft, destruction or mutilation of any certificate therefor, and
the Board of Directors may, in its discretion, cause to be issued to such holder
a new certificate or certificates of stock, upon the surrender of the mutilated
certificate or in case of loss, theft or destruction of the certificate upon
satisfactory proof of such loss, theft, or destruction. A new certificate or
certificates of stock will be issued to the owner of the lost, stolen or
destroyed certificate only after such owner, or his or her legal
representatives, gives to the corporation and to such registrar or transfer
agent as may be authorized or required to countersign such new certificate or
certificates a bond, in such sum as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be made
against them or any of them on account of or in connection with the alleged
loss, theft, or destruction of any such certificate.
ARTICLE VI
DIVIDENDS
Section 6.01. The net investment income of each class or series of the
corporation will be determined, and its dividends shall be declared and made
payable at such time(s) as the Board of Directors shall determine. Dividends
shall be payable to shareholders of record as of the date of declaration.
It shall be the policy of each series of the corporation to qualify for
and elect the tax treatment applicable to regulated investment companies under
the Internal Revenue Code, so that such series will not be subjected to federal
income tax on such part of its income or capital gains as it distributes to
shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. Share Register. The Board of Directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
(1) a share register not more than one year old,
containing the names and addresses of the
shareholders and the number and classes or series of
shares held by each shareholder; and
(2) a record of the dates on which transaction statements
representing shares were issued.
Section 7.02. Other Books and Records. The Board of Directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its registered
office within ten days after receipt by an officer of the corporation of a
written demand for them made by a shareholder or other person authorized by
Minnesota Statutes Section 302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the
last three years;
(2) records of all proceedings of the Board of Directors
for the last three years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes
Section 302A.463 and the financial statement for the
most recent interim period prepared in the course of
the operation of the corporation for distribution to
the shareholders or to a governmental agency as a
matter of public record;
(6) reports made to shareholders generally within the
last three years;
(7) a statement of the names and usual business addresses
of its directors and principal officers;
(8) any shareholder voting or control agreements of which
the corporation is aware; and
(9) such other records and books of account as shall be
necessary and appropriate to the conduct of the
corporate business.
Section 7.03. Audit; Accountant.
(a) The Board of Directors shall cause the records and books of account
of the corporation to be audited at least once in each fiscal year and at such
other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent public accountant or
firm of independent public accountants to examine the accounts of the
corporation and to sign and certify financial statements filed by the
corporation.
Section 7.04. Fiscal Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
ARTICLE VIII
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation 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.
ARTICLE IX
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such other corporation or association, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on behalf
of the corporation, such written proxies, consents, waivers or other instruments
as it may deem necessary or proper; or any of such officers may themselves
attend any meeting of the holders of stock or other securities of any such
corporation or association and thereat vote or exercise any or all other rights
of the corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.
ARTICLE X
VALUATION OF NET ASSET VALUE
10.01. The net asset value per share of each class or series of stock
of the corporation shall be determined in good faith by or under supervision of
the officers of the corporation as authorized by the Board of Directors as often
and on such days and at such time(s) as the Board of Directors shall determine,
or as otherwise may be required by law, rule, regulation or order of the
Securities and Exchange Commission.
ARTICLE XI
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this corporation shall,
as hereinafter provided, be held by or deposited with a bank or trust company
having (according to its last published report) not less than Two Million
Dollars ($2,000,000) aggregate capital, surplus and undivided profits (the
"Custodian").
This corporation shall enter into a written contract with the custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of this corporation held by the Custodian. Said contract
and all amendments thereto shall be approved by the Board of Directors of this
corporation. In the event of the Custodian's resignation or termination, the
corporation shall use its best efforts promptly to obtain a successor Custodian
and shall require that the cash and securities owned by this corporation held by
the Custodian be delivered directly to such successor Custodian.
ARTICLE XII
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a vote of the
majority of the Board of Directors at any meeting provided that notice of such
proposed amendment shall have been given in the notice given to the directors of
such meeting. Such authority in the Board of Directors is subject to the power
of the shareholders to change or repeal such bylaws by a majority vote of the
shareholders present or represented at any regular or special meeting of
shareholders called for such purpose, and the Board of Directors shall not make
or alter any Bylaws fixing a quorum for meetings of shareholders, prescribing
procedures for removing directors or filling vacancies in the Board of
Directors, or fixing the number of directors or their classifications,
qualifications or terms of office, except that the Board of Directors may adopt
or amend any Bylaw to increase or decrease their number.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Interpretation. When the context in which words are used
in these Bylaws indicates that such is the intent, singular words will include
the plural and vice versa, and masculine words will include the feminine and
neuter genders and vice versa.
Section 13.02. Article and Section Titles. The titles of Sections and
Articles in these Bylaws are for descriptive purposes only and will not control
or alter the meaning of any of these Bylaws as set forth in the text.
INVESTMENT ADVISORY AGREEMENT
This Agreement, made this 1st day of November, l993, by and between
Voyageur Mutual Funds III, Inc., a Minnesota corporation (the "Company"), on
behalf of each Fund represented by a series of shares of common stock of the
Fund that adopts this Agreement (each a "Fund" and, collectively, the "Funds")
(the Funds, together with the date each Fund adopts this Agreement, are set
forth in Exhibit A hereto, which shall be updated from time to time to reflect
additions, deletions or other changes thereto), and Voyageur Fund Managers,
Inc., a Minnesota corporation ("Voyageur"),
WITNESSETH:
1. INVESTMENT ADVISORY SERVICES.
(a) The Company hereby engages Voyageur on behalf of the Funds, and
Voyageur hereby agrees to act, as investment adviser for, and to manage the
investment of the assets of, the Funds.
(b) The investment of the assets of each Fund shall at all times be
subject to the applicable provisions of the Articles of Incorporation, the
Bylaws, the Registration Statement, and the current Prospectus and the Statement
of Additional Information, if any, of the Company and each Fund and shall
conform to the policies and purposes of each Fund as set forth in such documents
and as interpreted from time to time by the Board of Directors of the Company.
Within the framework of the investment policies of each Fund, and except as
otherwise permitted by this Agreement, Voyageur shall have the sole and
exclusive responsibility for the management of each Fund's investment portfolio
and for making and executing all investment decisions for each Fund. Voyageur
shall report to the Board of Directors regularly at such times and in such
detail as the Board may from time to time determine appropriate, in order to
permit the Board to determine the adherence of Voyageur to the investment
policies of the Funds.
(c) Voyageur shall, at its own expense, furnish all office facilities,
equipment and personnel necessary to discharge its responsibilities and duties
hereunder. Voyageur shall arrange, if requested by the Company, for officers or
employees of Voyageur to serve without compensation from any Fund as directors,
officers, or employees of the Company if duly elected to such positions by the
shareholders or directors of the Company (as required by law).
(d) Voyageur hereby acknowledges that all records pertaining to each
Fund's investments are the property of the Company, and in the event that a
transfer of investment advisory services to someone other than Voyageur should
ever occur, Voyageur will promptly, and at its own cost, take all steps
necessary to segregate such records and deliver them to the Company.
2. COMPENSATION FOR SERVICES.
In payment for the investment advisory and management services to be
rendered by Voyageur hereunder, each Fund shall pay to Voyageur a monthly fee,
which fee shall be paid to Voyageur not later than the fifth business day of the
month following the month in which said services were rendered. The monthly fee
payable by each Fund shall be as set forth in Exhibit A hereto, which may be
updated from time to time to reflect amendments, if any, to Exhibit A. The
monthly fee payable by each Fund shall be based on the average of the net asset
values of all of the issued and outstanding shares of the Fund as determined as
of the close of each business day of the month pursuant to the Articles of
Incorporation, Bylaws, and currently effective Prospectus and Statement of
Additional Information of the Company and the Fund. For purposes of calculating
each Fund's average daily net assets, as such term is used in this Agreement,
each Fund's net assets shall equal its total assets minus (a) its total
liabilities and (b) its net orders receivable from dealers.
3. ALLOCATION OF EXPENSES.
(a) In addition to the fee described in Section 2 hereof, each Fund
shall pay all its costs and expenses which are not assumed by Voyageur. These
Fund expenses include, by way of example, but not by way of limitation, all
expenses incurred in the operation of the Fund and any public offering of its
shares, including, among others, Rule 12b-1 plan of distribution fees (if any),
interest, taxes, brokerage fees and commissions, fees of the directors who are
not employees of Voyageur or the principal underwriter of the Fund's shares (the
"Underwriter"), or any of their affiliates, expenses of directors' and
shareholders' meetings, including the cost of printing and mailing proxies,
expenses of insurance premiums for fidelity and other coverage, expenses of
redemption of shares, expenses of issue and sale of shares (to the extent not
borne by the Underwriter under its agreement with the Fund), expenses of
printing and mailing stock certificates representing shares of the Fund,
association membership dues, charges of custodians, transfer agents, dividend
disbursing agents, accounting services agents, investor servicing agents, and
bookkeeping, auditing, and legal expenses. Each Fund will also pay the fees and
bear the expense of registering and maintaining the registration of the Fund and
its shares with the Securities and Exchange Commission and registering or
qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders.
(b) The Underwriter shall bear all advertising and promotional expenses
in connection with the distribution of each Fund's shares, including paying for
prospectuses for new shareholders, except as provided in the following sentence.
No Fund shall use any of its assets to finance costs incurred in connection with
the distribution of its shares except pursuant to a Plan of Distribution, if
any, adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as
amended, the "Act").
4. LIMIT ON EXPENSES.
It is understood that the laws of certain states in which Fund shares
are offered for sale may require that a Fund be reimbursed for excess Fund
expenses, and Voyageur agrees to make such reimbursement; provided, however,
that at no time shall Voyageur be required to make reimbursements for any fiscal
period in excess of fees received pursuant to Section 2 hereof for that same
period.
5. FREEDOM TO DEAL WITH THIRD PARTIES.
Voyageur shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
6. REPORTS TO DIRECTORS OF THE FUND.
Appropriate officers of Voyageur shall provide the directors of the
Company with such information as is required by any plan of distribution adopted
by the Company on behalf of any Fund pursuant to Rule 12b-1 under the Act.
7. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
(a) The effective date of this Agreement with respect to each Fund
shall be the date set forth on Exhibit A hereto.
(b) Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect with respect to each Fund for a period more than two
years from the date of its execution but only as long as such continuance is
specifically approved at least annually by (i) the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
applicable Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons", as
defined in the Act, of Voyageur or of the Company cast in person at a meeting
called for the purpose of voting on such approval.
(c) This Agreement may be terminated with respect to any Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of
such Fund, or by Voyageur, upon 60 days' written notice to the other party.
(d) This agreement shall terminate automatically in the event of its
"assignment" (as defined in the Act).
(e) No amendment to this Agreement shall be effective with respect to
any Fund until approved by the vote of: (i) a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of Voyageur or of the Company cast in person at a meeting
called for the purpose of voting on such approval; and (ii) a majority of the
outstanding voting securities of the applicable Fund.
(f) Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities or shares of a Fund
shall mean the lesser of (i) the vote of 67% or more of the voting securities of
such Fund present at a regular or special meeting of shareholders duly called,
if more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (ii) the vote of more than 50% of the outstanding
voting securities of such Fund.
8. NOTICES.
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and Voyageur have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
VOYAGEUR MUTUAL FUNDS III, INC.
By /s/ John G. Taft
---------------------------------
Its President
VOYAGEUR FUND MANAGERS, INC.
By /s/ Theodore E. Jessen
---------------------------------
Its Vice President
Exhibit A
to
Investment Advisory Agreement
between
Voyageur Fund Managers, Inc.
and
Voyageur Mutual Funds III, Inc.
<TABLE>
<CAPTION>
MONTHLY
ADVISORY FEE
(as % of average
FUND EFFECTIVE DATE daily net assets)
---- -------------- -----------------
<S> <C> <C>
Series A -- Voyageur Growth Stock Fund September 1, 1995 .083333%
Series B -- Voyageur International Equity Fund May 16, 1994 .083333%
Series C -- Voyageur Aggressive Growth Fund May 16, 1994 .083333%
Series D -- Voyageur Growth and Income Fund September 7, 1995 .062500%
Series E -- Voyageur Tax Efficient Equity Fund February 19, 1997 .083333%
</TABLE>
VOYAGEUR MUTUAL FUNDS III, INC.
SUPPLEMENT DATED AS OF SEPTEMBER 1, 1995
TO INVESTMENT ADVISORY AGREEMENT
WHEREAS, Voyageur Mutual Funds III, Inc., a Minnesota corporation (the
"Company"), and Voyageur Fund Managers, Inc., a Minnesota corporation
("Voyageur"), previously entered into that Investment Advisory Agreement dated
November 1, 1993 (the "Advisory Agreement");
WHEREAS, the Company is creating one new Fund (as such term is defined
in the Advisory Agreement) known as Voyageur Growth and Income Fund (Series D of
the Company); and
WHEREAS, the Company and Voyageur contemplate that Voyageur will retain
a sub-adviser with respect to such Fund and wish to make provision therefor and
to establish the compensation payable under the Advisory Agreement by such Fund.
NOW, THEREFORE, the Company and Voyageur agree as follows:
1. In performing its services under the Advisory Agreement, Voyageur
may, at its option and expense, with respect to Voyageur Growth and Income Fund,
appoint a sub-adviser, which shall assume such responsibilities and obligations
of Voyageur pursuant to the Advisory Agreement as shall be delegated to the
sub-adviser; provided, however, that any discretionary investment decisions made
by a sub-adviser on behalf of such Fund shall be subject to approval or
ratification by Voyageur. Any appointment of a sub-adviser and assumption of
responsibilities and obligations of Voyageur by such sub-adviser shall be
subject to approval by the Board of Directors of the Company and, to the extent
(if any) required by law, by the shareholders of Voyageur Growth and Income
Fund. Any appointment of a sub-adviser for Voyageur Growth and Income Fund
pursuant hereto shall in no way limit or diminish Voyageur's obligations and
responsibilities under the Advisory Agreement.
2. Exhibit A to the Advisory Agreement is hereby amended, as set forth
in the attachment hereto, to reflect the compensation payable to Voyageur by
Voyageur Growth and Income Fund.
3. The Advisory Agreement, as supplemented hereby, is hereby adopted by
the Company on behalf of Voyageur Growth and Income Fund and is otherwise
ratified and confirmed in all respects.
IN WITNESS WHEREOF, the Company and Voyageur have caused this
Supplement to be executed by their duly authorized officers as of the day and
year first above written.
VOYAGEUR FUND MANAGERS, INC. VOYAGEUR MUTUAL FUNDS III, INC.
By /s/John G. Taft By /s/ John G. Taft
------------------------------ -------------------------------
Its President Its President
VOYAGEUR MUTUAL FUNDS III, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 19th day of February
1997, by and between Voyageur Mutual Funds III, Inc., a Minnesota corporation
(the "Company"), for and on behalf of each series of the Company (each series is
referred to hereinafter as a "Fund"), and Voyageur Fund Distributors, Inc., a
Minnesota corporation (the "Underwriter"). This Agreement shall apply to each
class of shares offered by the following Funds:
Voyageur Growth and Income Fund (currently offering Classes A, B and C
shares)
Voyageur Growth Stock Fund (currently offering Classes A, B and C
shares)
Voyageur Aggressive Growth Fund (currently offering Classes A, B and C
shares)
Voyageur International Equity Fund (currently offering Classes A, B and
C shares)
Voyageur Tax Efficient Equity Fund (currently offering Classes A, B and
C shares)
WITNESSETH:
1. UNDERWRITING SERVICES
The Company, on behalf of each Fund, hereby engages the Underwriter,
and the Underwriter hereby agrees to act, as principal underwriter for each Fund
in the sale and distribution of the shares of each class of such Fund to the
public, either through dealers or otherwise. The Underwriter agrees to offer
such shares for sale at all times when such shares are available for sale and
may lawfully be offered for sale and sold.
2. SALE OF SHARES
The shares of each Fund are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to
acceptance or rejection by the Company. Any offer for or sale
of shares shall be conclusively presumed to have been accepted
by the Company if the Company shall fail to notify the
Underwriter of the rejection of such offer or sale prior to
the computation of the net asset value of such shares next
following receipt by the Company of notice of such offer or
sale.
(b) No share of a Fund shall be sold by the Underwriter (i) for
any consideration other than cash or, pursuant to any exchange
privilege provided for by the applicable currently effective
Prospectus or Statement of Additional Information (hereinafter
referred to collectively as the "Prospectus"), shares of any
other investment company for which the Underwriter acts as an
underwriter, or (ii) except in instances otherwise provided
for by the applicable currently effective Prospectus, for any
amount less than the public offering price per share, which
shall be determined in accordance with the applicable
currently effective Prospectus.
(c) In connection with certain sales of shares, a contingent
deferred sales charge will be imposed in the event of a
redemption transaction occurring within a certain period of
time following such a purchase, as described in the applicable
currently effective Prospectus and Statement of Additional
Information.
(d) The front-end sales charge, if any, for any class of shares of
a Fund may, at the discretion of the Company and the
Underwriter, be reduced or eliminated as permitted by the
Investment Company Act of 1940, and the rules and regulations
thereunder, as they may be amended from time to time (the
"1940 Act"), provided that such reduction or elimination shall
be set forth in the Prospectus for such class, and provided
that the Company shall in no event receive for any shares sold
an amount less than the net asset value thereof. In addition,
any contingent deferred sales charge for any class of shares
of a Fund may, at the discretion of the Company and the
Underwriter, be reduced or eliminated in accordance with the
terms of an exemptive order received from, or any applicable
rule or rules promulgated by, the Securities and Exchange
Commission, provided that such reduction or elimination shall
be set forth in the Prospectus for such class of shares.
(e) The Underwriter shall require any securities dealer entering
into a selected dealer agreement with the Underwriter to
disclose to prospective investors the existence of all
available classes of shares of a Fund and to determine the
suitability of each available class as an investment for each
such prospective investor.
3. REGISTRATION OF SHARES
The Company agrees to make prompt and reasonable efforts to effect and
keep in effect, at its expense, the registration or qualification of each Fund's
shares for sale in such jurisdictions as the Company may designate.
4. INFORMATION TO BE FURNISHED TO THE UNDERWRITER
The Company agrees that it will furnish the Underwriter with such
information with respect to the affairs and accounts of the Company (and each
Fund or class thereof) as the Underwriter may from time to time reasonably
require, and further agrees that the Underwriter, at all reasonable times, shall
be permitted to inspect the books and records of the Company.
5. ALLOCATION OF EXPENSES
During the period of this Agreement, the Company shall pay or cause to
be paid all expenses, costs and fees incurred by the Company which are not
assumed by the Underwriter. The Underwriter agrees to provide, and shall pay
costs which it incurs in connection with providing, administrative or accounting
services to shareholders of each Fund (such costs are referred to as
"Shareholder Servicing Costs"). Shareholder Servicing Costs include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of each 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 applicable
Fund's investment adviser or transfer agent. The Underwriter shall also pay all
costs of distributing the shares of each Fund ("Distribution Expenses").
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.
6. COMPENSATION TO THE UNDERWRITER
As compensation for all of its services provided and its costs assumed
under this Agreement, the Underwriter shall receive the following forms and
amounts of compensation:
(a) The Underwriter shall be entitled to receive or retain any
front-end sales charge imposed in connection with sales of
shares of each Fund, as set forth in the applicable current
Prospectus. Up to the entire amount of such front-end sales
charge may be reallowed by the Underwriter to broker-dealers
and participating financial institutions in connection with
their sale of Fund shares. The amount of the front-end sales
charge (if any) may be retained or deducted by the Underwriter
from any sums received by it in payment for shares so sold. If
such amount is not deducted by the Underwriter from such
payments, such amount shall be paid to the Underwriter by the
Company not later than five business days after the close of
any calendar quarter during which any such sales were made by
the Underwriter and payment received by the Company.
(b) The Underwriter shall be entitled to receive or retain any
contingent deferred sales charge imposed in connection with
any redemption of shares of each Fund, as set forth in the
applicable current Prospectus.
(c) Pursuant to the Company's Plan of Distribution adopted in
accordance with Rule 12b-1 under the 1940 Act (the "Plan"):
(i) Class A of each Fund is obligated to pay the Underwriter a
total fee in connection with the servicing of shareholder
accounts of such class and in connection with
distribution-related services provided in respect of such
class, calculated and payable quarterly, at the annual rate of
.25% of the value of the average daily net assets of such
class. All or any portion of such total fee may be payable as
a Shareholder Servicing Fee, and all or any portion of such
total fee may be payable as a Distribution Fee, as determined
from time to time by the Company's Board of Directors. Until
further action by the Board of Directors, all of such fee
shall be designated and payable as a Shareholder Servicing
Fee.
(ii) Class B of each Fund offering shares of such class is
obligated to pay the Underwriter a total fee in connection
with the servicing of shareholder accounts of such class and
in connection with distribution-related services provided in
respect of such class, calculated and payable quarterly, at
the annual rate of 1.00% of the value of the average daily net
assets of such class. All or any portion of such total fee may
be payable as a Shareholder Servicing Fee, and all or any
portion of such total fee may be payable as a Distribution
Fee, as determined from time to time by the Company's Board of
Directors. Until further action by the Board of Directors, a
portion of such total fee equal to .25% per annum of the
average net assets of such class shall be designated and
payable as a Shareholder Servicing Fee and the remainder of
such fee shall be designated as a Distribution Fee.
(iii) Class C of each Fund offering shares of such class is
obligated to pay the Underwriter a total fee in connection
with the servicing of shareholder accounts of such class and
in connection with distribution-related services provided in
respect of such class, calculated and payable quarterly, at
the annual rate of 1.00% of the value of the average daily net
assets of such class. All or any portion of such total fee may
be payable as a Shareholder Servicing Fee, and all or any
portion of such total fee may be payable as a Distribution
Fee, as determined from time to time by the Company's Board of
Directors. Until further action by the Board of Directors, a
portion of such total fee equal to .25% per annum of the
average daily net assets of such class shall be designated and
payable as a Shareholder Servicing Fee and the remainder of
such fee shall be designated as a Distribution Fee.
Average daily net assets shall be computed in accordance with the
applicable currently effective Prospectus. Amounts payable to the Underwriter
under the Plan may exceed or be less than the Underwriter's actual Distribution
Expenses and Shareholder Servicing Costs. In the event such Distribution
Expenses and Shareholder Servicing Costs exceed amounts payable to the
Underwriter under the Plan, the Underwriter shall not be entitled to
reimbursement by the Company.
(d) In each year during which this Agreement remains in effect,
the Underwriter will prepare and furnish to the Board of
Directors of the Company, and the Board will review, on a
quarterly basis, written reports complying with the
requirements of Rule 12b-1 under the 1940 Act that set forth
the amounts expended under this Agreement and the Plan, on a
class by class basis as applicable, and the purposes for which
those expenditures were made.
7. LIMITATION OF THE UNDERWRITER'S AUTHORITY
The Underwriter shall be deemed to be an independent contractor and,
except as specifically provided or authorized herein, shall have no authority to
act for or represent any Fund or the Company.
8. SUBSCRIPTION FOR SHARES--REFUND FOR CANCELLED ORDERS
The Underwriter shall subscribe for the shares of a Fund only for the
purpose of covering purchase orders already received by it or for the purpose of
investment for its own account. In the event that an order for the purchase of
shares of a Fund is placed with the Underwriter by a customer or dealer and
subsequently cancelled, the Underwriter shall forthwith cancel the subscription
for such shares entered on the books of the Fund, and, if the Underwriter has
paid the Fund for such shares, shall be entitled to receive from the Fund in
refund of such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of cancellation
by the Underwriter.
9. INDEMNIFICATION OF THE COMPANY
The Underwriter agrees to indemnify each Fund and the Company against
any and all litigation and other legal proceedings of any kind or nature and
against any liability, judgment, cost, or penalty imposed as a result of such
litigation or proceedings in any way arising out of or in connection with the
sale or distribution of the shares of such Fund by the Underwriter. In the event
of the threat or institution of any such litigation or legal proceedings against
any Fund, the Underwriter shall defend such action on behalf of the Fund or the
Company at the Underwriter's own expense, and shall pay any such liability,
judgment, cost, or penalty resulting therefrom, whether imposed by legal
authority or agreed upon by way of compromise and settlement; provided, however,
the Underwriter shall not be required to pay or reimburse a Fund for any
liability, judgment, cost, or penalty incurred as a result of information
supplied by, or as the result of the omission to supply information by, the
Company to the Underwriter, or to the Underwriter by a director, officer, or
employee of the Company who is not an "interested person," as defined in the
provisions of the 1940 Act, of the Underwriter, unless the information so
supplied or omitted was available to the Underwriter or the Fund's investment
adviser without recourse to the Fund or the Company or any such person referred
to above.
10. FREEDOM TO DEAL WITH THIRD PARTIES
The Underwriter shall be free to render to others services of a nature
either similar to or different from those rendered under this contract, except
such as may impair its performance of the services and duties to be rendered by
it hereunder.
11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
(a) The effective date of this Agreement is set forth in the first
paragraph of this Agreement. Unless sooner terminated as
hereinafter provided, this Agreement shall continue in effect
for a period of one year after the date of its execution, and
from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by a
vote of the Board of Directors of the Company, and of the
directors who are not "interested persons" (as defined in the
provisions of the 1940 Act) of the Company and have no direct
or indirect financial interest in the operation of the Plan or
in any agreement related to the Plan (including, without
limitation, this Agreement), cast in person at a meeting
called for the purpose of voting on this Agreement.
(b) This Agreement may be terminated at any time with respect to
any Fund or class thereof without the payment of any penalty,
by the vote of a majority of the members of the Board of
Directors of the Company who are not "interested persons" (as
defined in the provisions of the 1940 Act) of the Company and
have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan
(including, without limitation, this Agreement), or by the
vote of a majority of the outstanding voting securities of
such Fund (or class thereof), or by the Underwriter, upon 60
days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of
its "assignment" (as defined by the provisions of the 1940
Act).
(d) Wherever referred to in this Agreement, the vote or approval
of the holders of a majority of the outstanding voting
securities of a Fund (or class thereof) shall mean the lesser
of (i) the vote of 67% or more of the voting securities of
such Fund (or class thereof) present at a regular or special
meeting of shareholders duly called, if more than 50% of the
Fund's (or class's, as applicable) outstanding voting
securities are present or represented by proxy, or (ii) the
vote of more than 50% of the outstanding voting securities of
such Fund (or class thereof).
12. AMENDMENTS TO AGREEMENT
No material amendment to this Agreement shall be effective until
approved by the Underwriter and by vote of a majority of the Board of Directors
of the Company who are not interested persons of the Underwriter.
13. NOTICES
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and the Underwriter have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
VOYAGEUR MUTUAL FUNDS III, INC.
By /s/ John G. Taft
-----------------------------------
Its President and CEO
VOYAGEUR FUND DISTRIBUTORS, INC.
By /s/ Frank C. Tonnemaker
-----------------------------------
Its President
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made and entered into this 27th day of October 1994,
by and between Voyageur Mutual Funds III, Inc., a Minnesota corporation (the
"Company"), on behalf of each Fund of the Company represented by a series of
shares of common stock of the Company that adopts this Agreement (each, a "Fund"
and, collectively, the "Funds") (the Funds, together with the date each Fund
adopts this Agreement, are set forth in Exhibit A hereto, which shall be updated
from time to time to reflect additions, deletions or other changes thereto), and
Voyageur Fund Managers, Inc., a Minnesota corporation ("Voyageur").
1. DIVIDEND DISBURSING, ADMINISTRATIVE, ACCOUNTING AND TRANSFER AGENCY
SERVICES; COMPLIANCE SERVICES.
(a) The Company on behalf of each Fund hereby engages Voyageur, and
Voyageur hereby agrees, to provide to each Fund all dividend disbursing,
administrative and accounting services required by each Fund, including, without
limitation, the following:
(i) The calculation of net asset value per share at such times
and in such manner as specified in each Fund's current Prospectus and
Statement of Additional Information and at such other times as the
parties hereto may from time to time agree upon;
(ii) Upon the receipt of funds for the purchase of Fund shares
or the receipt of redemption requests with respect to Fund shares
outstanding, the calculation of the number of shares to be purchased or
redeemed, respectively;
(iii) Upon the Fund's distribution of dividends, (A) the
calculation of the amount of such dividends to be received per Fund
share, (B) the calculation of the number of additional Fund shares to
be received by each Fund shareholder, other than any shareholder who
has elected to receive such dividends in cash and (C) the mailing of
payments with respect to such dividends to shareholders who have
elected to receive such dividends in cash;
(iv) The provision of transfer agency services as described
below:
(1) Voyageur shall make original issues of shares of
each Fund in accordance with each Fund's current Prospectus
and Statement of Additional Information and with instructions
from the Company.
(2) Prior to the daily determination of net asset
value of each Fund in accordance with the each Fund's current
Prospectus and Statement of Additional Information, Voyageur
shall process all purchase orders received since the last
determination of each Fund's net asset value.
(3) Transfers of shares shall be registered and new
Fund share certificates shall be issued by Voyageur upon
surrender of properly endorsed outstanding Fund share
certificates with all necessary signature guarantees and
satisfactory evidence of compliance with all applicable laws
relating to the payment or collection of taxes.
(4) Voyageur may issue new Fund share certificates in
place of Fund share certificates represented to have been
lost, destroyed or stolen, upon receiving indemnity
satisfactory to Voyageur and may issue new Fund share
certificates in exchange for, and upon surrender of, mutilated
Fund share certificates.
(5) Voyageur will maintain stock registry records in
the usual form in which it will note the issuance, transfer
and redemption of Fund shares and the issuance and transfer of
Fund share certificates, and is also authorized to maintain an
account in which it will record the Fund shares and fractions
issued and outstanding from time to time for which issuance of
Fund share certificates is deferred.
(6) Voyageur will, in addition to the duties and
functions above-mentioned, perform the usual duties and
functions of a stock transfer agent for a registered
investment company.
(v) The creation and maintenance of such records relating to
the business of each Fund as each Fund may from time to time reasonably
request;
(vi) The preparation of tax forms, reports, notices, proxy
statements, proxies and other Fund shareholder communications, and the
mailing thereof to Fund shareholders; and
(vii) The provision of such other dividend disbursing,
administrative and accounting services as the parties hereto may from
time to time agree upon.
(b) The Company also hereby engages Voyageur to perform, and Voyageur
hereby agrees to perform, such regulatory reporting and compliance related
services and tasks for the Company or any Fund as the Company may reasonably
request. Without limiting the generality of the foregoing, Voyageur shall:
(i) Prepare or assist in the preparation of prospectuses,
statements of additional information and registration statements for
the Funds, and assure the timely filing of all required amendments
thereto.
(ii) Prepare such reports, applications and documents as may
be necessary to register the Funds' shares with state securities
authorities; monitor sales of Fund shares for compliance with state
securities laws; and file with the appropriate state securities
authorities the registration statement for each Fund and all amendments
thereto, required reports regarding sales and redemptions of Fund
shares and such other reports as may be necessary to register each Fund
and its shares with state securities authorities and keep such
registrations effective.
(iii) Develop and prepare communications to shareholders,
including each Fund's annual and semi-annual report to shareholders.
(iv) Obtain and keep in effect fidelity bonds and directors
and officers/errors and omissions insurance policies for the Funds in
accordance with the requirements of Rules 17g-1 and 17d-1(7) under the
Investment Company Act of 1940 as such bonds and policies are approved
by the Funds' Board of Directors.
(v) Prepare and file with the Securities and Exchange
Commission each Fund's semi-annual reports on Form N-SAR and all
required notices pursuant to Rule 24f-2 under the Investment Company
Act of 1940.
(vi) Prepare materials (including, but not limited to,
agendas, proposed resolutions and supporting materials) in connection
with meetings of the Company's Board of Directors;
(vii) Prepare or assist in the preparation of proxy and other
materials in connection with meetings of the shareholders of the
Company or any Fund;
(viii) Prepare and file tax returns for the Funds;
(ix) Concur with Fund counsel in connection with the
development and preparation of any of the foregoing; and
(x) Perform such other compliance related services and tasks
upon which the parties hereto may from time to time agree.
(c) Voyageur hereby acknowledges that all records necessary in the
operation of the Fund are the property of the Company, and in the event that a
transfer of any of the responsibilities set forth herein to someone other than
Voyageur should ever occur, Voyageur will promptly, and at its own cost, take
all steps necessary to segregate such records and deliver them to the Company.
2. COMPENSATION
(a) As compensation for the dividend disbursing, administrative,
accounting and compliance services to be provided by Voyageur hereunder, each
Fund shall pay to Voyageur a monthly fee as set forth in Exhibit A hereto, which
fee shall be paid to Voyageur not later than the fifth business day following
the end of each month in which said services were rendered. For purposes of
calculating each Fund's average daily net assets, as such term is used in this
Agreement, the Fund's net assets shall equal its total assets minus (i) its
total liabilities and (ii) its net orders receivable from dealers.
(b) In addition to the compensation provided for in Section 2(a) hereof
and as set forth in Exhibit A hereto, each Fund shall reimburse Voyageur for all
out-of-pocket expenses incurred by Voyageur in connection with its provision of
services hereunder, including, without limitation, postage, stationery and
mailing expenses. Said reimbursement shall be paid to Voyageur not later than
the fifth business day following the end of each month in which said expenses
were incurred.
(c) For purposes of calculating the compensation to be paid to Voyageur
pursuant to Section 2(a) above, "house accounts" with brokerage firms which hold
shares in a Fund will be treated as separate accounts for fee calculation
purposes (based upon the number of shareholder accounts within the "house
account"), where Voyageur's work in connection with servicing such house
accounts is substantially the same as if such accounts did not exist, and
Voyageur had to directly service the shareholder accounts underlying such house
accounts.
3. FREEDOM TO DEAL WITH THIRD PARTIES.
Voyageur shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
4. EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF AGREEMENT.
(a) The effective date of this Agreement with respect to each Fund
shall be the date set forth on Exhibit A hereto.
(b) Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect with respect to each Fund for a period more than two
years from the date of its execution but only as long as such continuance is
specifically approved at least annually by (i) the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
applicable Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons", as
defined in the Investment Company Act of 1940 (as amended, the "Act"), of the
Adviser or of the Company cast in person at a meeting called for the purpose of
voting on such approval.
(c) This Agreement may be terminated with respect to any Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of
such Fund, or by Voyageur, upon 60 days' written notice to the other party.
(d) This agreement shall terminate automatically in the event of its
"assignment" (as defined in the Act) unless such assignment is approved in
advance by the Board of Directors, including a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of the Adviser or of the Company, and, if and to the extent
required by the Act, the approval of the shareholders of each Fund.
(e) No amendment to this Agreement shall be effective with respect to
any Fund until approved by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of the Adviser or of the Company cast in person at a meeting
called for the purpose of voting on such approval and, if and to the extent
required by the Act, a majority of the outstanding voting securities of the
applicable Fund.
5. NOTICES.
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
6. INTERPRETATION; GOVERNING LAW.
This Agreement shall be subject to and interpreted in accordance with
all applicable provisions of law including, but not limited to, the Act and the
rules and regulations promulgated thereunder. To the extent that the provisions
herein contained conflict with any such applicable provisions of law, the latter
shall control. The laws of the State of Minnesota shall otherwise govern the
construction, validity and effect of this Agreement.
IN WITNESS WHEREOF, the Company and Voyageur have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
VOYAGEUR MUTUAL FUNDS III, INC.
By /s/ John G. Taft
--------------------------------
Its President
VOYAGEUR FUND MANAGERS, INC.
By /s/ John G. Taft
--------------------------------
Its President
EXHIBIT A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
VOYAGEUR FUND MANAGERS, INC.
AND
VOYAGEUR MUTUAL FUNDS III, INC.
FUND EFFECTIVE DATE
---- --------------
Series A-- Voyageur Growth Stock Fund October 27, 1994
Series B-- Voyageur International Equity Fund October 27, 1994
Series C-- Voyageur Aggressive Growth Fund October 27, 1994
Series D-- Voyageur Growth and Income Fund September 7, 1995
Series E-- Voyageur Tax Efficient Equity Fund February 19, 1997
COMPENSATION
Series B
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
are greater than $100 million; and (iii) 0.11% per annum of the first
$50 million of the Fund's average daily net assets, .06% per annum of the next
$100 million of the Fund's average daily net assets, .035% per annum of the next
$250 million of the Fund's average daily net assets, .03% per annum of the next
$300 million of the Fund's average daily net assets, and .02% per annum of the
Fund's average daily net assets in excess of $700 million.
Series A, C, D and E
The sum of (i) $1.25 per shareholder account per month; (ii) $1,000 per month if
the Fund's average daily net assets do not exceed $50 million, $1,250 per month
if the Fund"s average daily net assets are greater than $50 million but do not
exceed $100 million, and $1,500 per month if the Fund's average daily net assets
are greater than $100 million; and (iii) 0.11% per annum of the first $20
million of the Fund's average daily net assets, .06% per annum of the next $80
million of the Fund's average daily net assets and .035% per annum of the Fund
average daily net assets in excess of $100 million.
Voyageur Mutual Funds III, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
We have acted as counsel to Voyageur Mutual Funds III, Inc., a
Minnesota corporation (the "Fund"), in connection with a Registration Statement
on Form N-1A (File No. 2-95928) (the "Registration Statement") relating to the
sale by the Fund of an indefinite number of Class A, Class B and Class C shares
of the Fund's Series E common stock, each with a par value of $.01 per share
(collectively, the "Shares").
We have examined such documents and have reviewed such questions of law
as we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Fund, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefore as described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Counsel" on the back cover of the Prospectus constituting part of the
Registration Statement.
Dated: February 15, 1997
Very truly yours,
/s/ Kathleen L. Prudhomme
KLP
VOYAGEUR MUTUAL FUNDS III, INC.
PLAN OF DISTRIBUTION
This Plan of Distribution (the "Plan") is adopted pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940 (as amended, the
"1940 Act") by Voyageur Mutual Funds III, Inc., a Minnesota corporation (the
"Company"), for and on behalf of each class (each class is referred to
hereinafter as a "Class") of each series (each series is referred to hereinafter
as a "Fund") thereof. The Classes of each Fund that currently have adopted this
Plan, and the effective dates of such adoptions, are as follow:
Voyageur Growth and Income Fund, Class A September 1, 1995
Voyageur Growth and Income Fund, Class B September 1, 1995
Voyageur Growth and Income Fund, Class C September 1, 1995
Voyageur Growth Stock Fund, Class A September 1, 1995
Voyageur Growth Stock Fund, Class B September 1, 1995
Voyageur Growth Stock Fund, Class C September 1, 1995
Voyageur Aggressive Growth Fund, Class A May 16, 1994
Voyageur Aggressive Growth Fund, Class B September 1, 1995
Voyageur Aggressive Growth Fund, Class C May 16, 1994
Voyageur International Equity Fund, Class A May 16, 1994
Voyageur International Equity Fund, Class B September 1, 1995
Voyageur International Equity Fund, Class C May 16, 1994
Voyageur Tax Efficient Equity Fund, Class A February 19, 1997
Voyageur Tax Efficient Equity Fund, Class B February 19, 1997
Voyageur Tax Efficient Equity Fund, Class C February 19, 1997
1. COMPENSATION
Class A of each Fund is obligated to pay the principal underwriter of
the Fund's shares (the "Underwriter") a total fee in connection with the
servicing of shareholder accounts of such Class and in connection with
distribution-related services provided in respect of such Class, calculated and
payable quarterly, at the annual rate of .25% of the value of the average daily
net assets of such Class. All or any portion of such total fee may be payable as
a Shareholder Servicing Fee, and all or any portion of such total fee may be
payable as a Distribution Fee, as determined from time to time by the Company's
Board of Directors. Until further action by the Board of Directors, all of such
fee shall be designated and payable as a Shareholder Servicing Fee.
Class B of each Fund offering shares of such Class is obligated to pay
the Underwriter a total fee in connection with the servicing of shareholder
accounts of such Class and in connection with distribution-related services
provided in respect of such Class, calculated and payable quarterly, at the
annual rate of 1.00% of the value of the average daily net assets of such Class.
All or any portion of such total fee may be payable as a Shareholder Servicing
Fee, and all or any portion of such total fee may be payable as a Distribution
Fee, as determined from time to time by the Company's Board of Directors. Until
further action by the Board of Directors, a portion of such total fee equal to
.25% per annum of Class B's average net assets shall be designated and payable
as a Shareholder Servicing Fee and the remainder of such fee shall be designated
as a Distribution Fee.
Class C of each Fund offering shares of such Class is obligated to pay
the Underwriter a total fee in connection with the servicing of shareholder
accounts of such Class and in connection with distribution-related services
provided in respect of such Class, calculated and payable quarterly, at the
annual rate of 1.00% of the value of the average daily net assets of such Class.
All or any portion of such total fee may be payable as a Shareholder Servicing
Fee, and all or any portion of such total fee may be payable as a Distribution
Fee, as determined from time to time by the Company's Board of Directors. Until
further action by the Board of Directors, a portion of such total fee equal to
.25% per annum of Class C's average net assets shall be designated and payable
as a Shareholder Servicing Fee and the remainder of such fee shall be designated
as a Distribution Fee.
2. EXPENSES COVERED BY THE PLAN
(a) The Shareholder Servicing Fee may be used by the Underwriter to
provide compensation for ongoing servicing and/or maintenance of shareholder
accounts. Compensation may be paid by the Underwriter to persons, including
employees of the Underwriter, and institutions who respond to inquiries of Fund
shareholders regarding their ownership of shares or their accounts with the
Company or who provide other administrative or accounting services not otherwise
required to be provided by the Company's investment adviser, transfer agent or
other agent of the Company.
(b) The Distribution Fee may be used by the Underwriter to provide
initial and ongoing sales compensation to its investment executives and to other
broker-dealers in respect of sales of Fund shares and to pay for other
advertising and promotional expenses in connection with the distribution of Fund
shares. These advertising and promotional expenses include, by way of example
but not by way of limitation, costs of printing and mailing prospectuses,
statements of additional information and shareholder reports to prospective
investors; preparation and distribution of sales literature; advertising of any
type; an allocation of overhead and other expenses of the Underwriter related to
the distribution of Fund shares; and payments to, and expenses of, officers,
employees or representatives of the Underwriter, of other broker-dealers, banks
or other financial institutions, and of any other persons who provide support
services in connection with the distribution of Fund shares, including travel,
entertainment, and telephone expenses.
(c) Payments under the Plan are not tied exclusively to the expenses
for shareholder servicing and distribution related activities actually incurred
by the Underwriter, so that such payments may exceed expenses actually incurred
by the Underwriter. The Company's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so will consider all relevant factors, including expenses borne by the
Underwriter and amounts it receives under the Plan.
3. ADDITIONAL PAYMENTS BY ADVISER AND THE UNDERWRITER
The Company's investment adviser and the Underwriter may, at their
option and in their sole discretion, make payments from their own resources to
cover the costs of additional distribution and shareholder servicing activities.
4. APPROVAL BY SHAREHOLDERS
The Plan will not take effect with respect to any Class of a Fund
offering multiple classes of shares or, if a Fund offers only one class of
shares, with respect to such Fund, and no fee will be payable in accordance with
Section 1 of the Plan, until the Plan has been approved by a vote of at least a
majority of the outstanding voting securities of such Class or Fund.
5. APPROVAL BY DIRECTORS
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the full Board of Directors of the
Company and (b) those Directors who are not interested persons of the Company
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to it (the "Independent Directors"), cast in
person at a meeting called for the purpose of voting on the Plan and the related
agreements.
6. CONTINUANCE OF THE PLAN
The Plan will continue in effect from year to year so long as its
continuance is specifically approved annually by vote of the Company's Board of
Directors in the manner described in Section 5 above.
7. TERMINATION
The Plan may be terminated at any time with respect to any Class,
without penalty, by vote of a majority of the Independent Directors or by a vote
of a majority of the outstanding voting securities of such Fund or Class.
8. AMENDMENTS
The Plan may not be amended with respect to any Class to increase
materially the amount of the fees payable pursuant to the Plan, as described in
Section 1 above, unless the amendment is approved by a vote of at least a
majority of the outstanding voting securities of that Class (and, if applicable,
of any other affected Class or Classes), and all material amendments to the Plan
must also be approved by the Company's Board of Directors in the manner
described in Section 5 above.
9. SELECTION OF CERTAIN DIRECTORS
While the Plan is in effect, the selection and nomination of the
Company's Directors who are not interested persons of the Company will be
committed to the discretion of the Directors then in office who are not
interested persons of the Company.
10. WRITTEN REPORTS
In each year during which the Plan remains in effect, the Underwriter
and any person authorized to direct the disposition of monies paid or payable by
the Company pursuant to the Plan or any related agreement will prepare and
furnish to the Company's Board of Directors, and the Board will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan, on a Class by Class basis if
applicable, and the purposes for which those expenditures were made.
11. PRESERVATION OF MATERIALS
The Company will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 10 above, for a period of not
less than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
12. MEANING OF CERTAIN TERMS
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Company under the 1940
Act by the Securities and Exchange Commission.
