Registration No. 333-___________
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON August___, 1996
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ______ / /
Post-Effective Amendment No. ______ / /
(Check appropriate box or boxes)
Exact name of Registrant as Specified inCharter:
VOYAGEUR MUTUAL FUNDS, INC.
Area Code and Telephone Number:
(612) 376-7000
Address of Principal Executive Offices:
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
Name and Address of Agent for Service:
Thomas J. Abood, Secretary
Voyageur Mutual Funds, Inc.
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
COPY TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Approximate Date of Proposed Public Offering:
As soon as possible following the effective date of this Registration Statement.
It is proposed that this filing become effective
on September __, 1996 (30 days after filing) pursuant to Rule 488.
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant is filing as an exhibit to this Registration Statement a copy of its
earlier declaration under Rule 24f-2. Registrant filed its Rule 24f-2 Notice on
February 28, 1996 for its most recent fiscal year ended December 31, 1995.
THEREFORE NO FEE IS DUE WITH THIS FILING BECAUSE OF RELIANCE ON RULE 24f-2.
VOYAGEUR MUTUAL FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
[AS REQUIRED BY RULE 481(a)]
<TABLE>
<CAPTION>
PART A OF FORM N-14
PROSPECTUS/PROXY STATEMENT CAPTION
<S> <C>
1 Beginning of Registration Statement
and Outside Front Cover Page of Prospectus............ Cross Reference Sheet and Cover Page
2. Beginning and Outside Back Cover Page
of Prospectus......................................... Table of Contents
3. Synopsis Information and Risk Factors
Summary; Principal Risk Factors
4. Information about the Transaction..................... Summary; Information About the
Reorganization; Voting Information
5. Information about the Registrant....................... Inside Front Cover; Summary; Comparison of Investment
Objectives, Policies and Restrictions; Other Information
About Fortis Fund and Voyageur Fund; Appendix B--Voyageur
Fund Investments, Investment Techniques and Risks; Appendix
C--Voyageur Fund Management and General Information;
Appendix D--Voyageur Fund Shareholder Guide to Investing
6. Information about the Company being
Acquired............................................. Incorporation by Reference; Summary; Comparison of
Investment Objectives, Policies and Restrictions; Other
Information About Fortis Fund and Voyageur Fund
7. Voting Information................................... Summary; Information About the Reorganization; Voting
Information
8. Interest of Certain Persons and Experts.............. Voting Information
9. Additional Information............................... Not Applicable
STATEMENT OF ADDITIONAL
PART B OF FORM N-14 INFORMATION CAPTION
10. Cover Page........................................... Cover Page
11. Table of Contents.................................... Table of Contents
12. Additional Information about the
Registrant........................................... Investment Policies and Restrictions; Special Factors
Affecting Voyageur Fund; Board Members and Executive
Officers of Voyageur Mutual Funds, Inc.; The Investment
Adviser and Underwriter; Taxes; Special Purchase Plans; Net
Asset Value and Public Offering Price; Calculation of
Performance Data; Monthly Cash Withdrawal Plan; Additional
Information; Appendix A--Descriptions of Bond Ratings;
Appendix B--General Characteristics and Risks of Options and
Futures
13. Additional Information about the Company
Being Acquired...................................... Cover Page (Incorporation by
Reference)
14. Financial Statements................................ Financial Statements
</TABLE>
PART C OF FORM N-14
Information required to be included in Part C is set forth under the appropriate
item in Part C of this Registration Statement.
VOYAGEUR MUTUAL FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
PART A
PRESIDENT'S LETTER
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
PROSPECTUS/PROXY STATEMENT,WITH APPENDICIES
PROSPECTUS DATED FEBRUARY 1, 1996, OF
FORTIS TAX-FREE PORTFOLIOS, INC.
CONTAINING INFORMATION ABOUT
NEW YORK PORTFOLIO
[INCORPORATED BY REFERENCE INTO PROSPECTUS/PROXY STATEMENT]
[FORTIS FINANCIAL GROUP LETTERHEAD]
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
Dear Shareholder:
Enclosed with this letter is a proxy voting ballot, a Prospectus/Proxy
Statement, and related information concerning a Special Meeting of Shareholders
of the New York Portfolio ("Fortis Fund"), a series of Fortis Tax-Free
Portfolios, Inc. ("Fortis Tax-Free"). The meeting will be held on October __,
1996 at 10:00 a.m., Central Time, at the offices of Fortis Advisers, Inc., 500
Bielenberg Drive, Woodbury, Minnesota. The purpose of this special meeting is to
submit to shareholders of Fortis Fund a proposal to combine the Fortis Fund with
the Voyageur New York Tax Free Fund ("Voyageur Fund") by means of the
reorganization described in the Prospectus/Proxy Statement.
If the proposed Agreement and Plan of Reorganization (the "Plan") is
approved, you will receive shares of Voyageur Fund for your shares of Fortis
Fund. In particular, you will receive Class A shares of Voyageur Fund for your
Class A or Class E Fortis Fund shares, Class B shares of Voyageur Fund for your
Class B or Class H Fortis Fund shares, or Class C shares of Voyageur Fund for
your Class C Fortis Fund shares. The Voyageur Fund shares you receive will have
an aggregate net asset value equal to the aggregate net asset value of your
Fortis Fund shares on the date of the Plan takes effect.
Voyageur Fund is a newly formed series of Voyageur Mutual Funds, Inc., an
open-end diversified management investment company located in Minneapolis,
Minnesota. Voyageur Fund Managers, Inc. ("VFM") acts as the investment adviser
to Voyageur Fund. It is anticipated that the primary benefits to shareholders
from the proposed Plan will be reduced fund expenses and management by an
investment adviser that specializes in single state, tax-free mutual funds.
We ask that before you vote you carefully review the Prospectus/Proxy
Statement and consider the similarities and differences between the Fortis Fund
and the Voyageur Fund, as well as the reasons for the proposed transaction. THE
BOARD OF DIRECTORS OF FORTIS TAX-FREE HAS DETERMINED THAT THE TRANSACTION IS IN
THE BEST INTERESTS OF THE SHAREHOLDERS AND IT IS ON THAT BASIS THAT THE BOARD
UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN. Approval of the Plan will require
the affirmative vote of the holders of a majority of the outstanding shares of
each class of Fortis Fund, voting as separate classes. We urge you to take the
time to consider this important matter and vote now. Whether or not you expect
to attend the meeting, please sign and promptly return the enclosed proxy in the
enclosed postage-prepaid envelope. Your prompt response will insure that your
shares are counted at the meeting.
We thank you for your patronage and loyalty to the Fortis Fund. Should you
have any questions concerning the proposed transaction please do not hesitate to
contact your registered representative, or the Fortis Fund directly at
1-800-800-2638, Ext. 3012.
Sincerely,
Dean C. Kopperud
President of Fortis Tax-Free
Portfolios, Inc.
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER __, 1996
------------------------
September __, 1996
To the Shareholders of the New York Portfolio of Fortis Tax-Free Portfolios,
Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of the New
York Portfolio ("Fortis Fund"), a separately managed series of Fortis Tax-Free
Portfolios, Inc. ("Fortis Tax-Free"), will be held at 10:00 a.m., Central time,
on October__, 1996, at the offices of Fortis Advisers, Inc., 500 Bielenberg
Drive, Woodbury, Minnesota. The purposes of the special meeting are as follows:
1. To consider and vote on a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a) the acquisition of all
or substantially all of the assets and the assumption of certain
stated and identified liabilities of Fortis Fund by Voyageur New York
Tax Free Fund, ("Voyageur Fund"), a newly formed, separately managed
series of Voyageur Mutual Funds, Inc. ("Voyageur Mutual Funds"), in
exchange for common shares of Voyageur Fund having an aggregate net
asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of Fortis Fund and (b) the liquidation of Fortis
Fund and the pro rata distribution of Voyageur Fund shares to Fortis
Fund shareholders. Under the Plan, Fortis Fund Class A, Class B, and
Class C shareholders will receive the same class of shares of Voyageur
Fund that they held in Fortis Fund, having a net asset value equal as
of the effective time of the Plan to the net asset value of their
Fortis Fund shares. Fortis Fund Class E shareholders and Fortis Fund
Class H shareholders will receive Voyageur Fund Class A shares and
Voyageur Fund Class B shares, respectively, having a net asset value
equal as of the effective time of the Plan to the net asset value of
their Fortis Fund shares. In the reorganization, holders of Fortis
Fund Class E shares, which are not subject to a Rule 12b-1 fee, will
receive Voyageur Fund Class A shares, which are subject to a Rule
12b-1 fee of .25% of average daily net assets. A vote in favor of the
Plan will be considered a vote in favor of an amendment to the
articles of incorporation of Fortis Tax-Free required to effect the
reorganization contemplated by the Plan.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Even if Fortis Fund shareholders vote to approve the Plan, consummation of
the Plan is subject to certain other conditions. See "Information About the
Reorganization--Plan of Reorganization" in the attached Prospectus/Proxy
Statement.
THE BOARD OF DIRECTORS OF FORTIS TAX-FREE UNANIMOUSLY RECOMMENDS APPROVAL
OF THE PLAN.
The close of business on August __, 1996 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE RESPECTFULLY ASK FOR
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY. If you are present at the
meeting, you may then revoke your proxy and vote in person, as explained in the
Prospectus/Proxy Statement in the section entitled "Voting Information."
By Order of the Board of Directors,
Michael J. Radmer
SECRETARY
PROSPECTUS/PROXY STATEMENT
DATED SEPTEMBER __, 1996
ACQUISITION OF THE ASSETS OF
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR NEW YORK TAX FREE FUND
A NEWLY FORMED, SEPARATELY MANAGED SERIES OF
VOYAGEUR MUTUAL FUNDS, INC.
90 SOUTH SEVENTH STREET, SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
(800-553-2143)
This Prospectus/Proxy Statement is being furnished to the shareholders of
the New York Portfolio ("Fortis Fund"), a separately managed series of Fortis
Tax-Free Portfolios, Inc. ("Fortis Tax-Free"), in connection with a special
meeting (the "Meeting") of the shareholders of Fortis Fund to be held at the
offices of Fortis Advisers, Inc. ("FAI"), the investment adviser and manager of
Fortis Funds, at 500 Bielenberg Drive, Woodbury, Minnesota, on October__, 1996,
for the purposes set forth in the accompanying Notice of Special Meeting of
Shareholders. This Prospectus/Proxy Statement is first being mailed to
shareholders of Fortis Fund on or about September__, 1996. Information
concerning the voting rights of each Fortis Fund shareholder is set forth under
"Voting Information" below. Representatives of FAI, or of its affiliates, may,
without cost to Fortis Fund, solicit proxies for management of Fortis Fund by
means of mail, telephone, or personal calls. All costs of the solicitation will
be borne by Voyageur Fund Managers, Inc. ("VFM") as described under "Information
About the Reorganization--Plan of Reorganization" below. In addition, the
services of a third-party proxy solicitation firm may be utilized, with such
firm's expenses borne by VFM. Persons holding shares as nominees will, upon
request, be reimbursed for their reasonable expenses incurred in sending proxy
soliciting materials on behalf of the Board of Directors to their principals.
As set forth in the Notice of Special Meeting of Shareholders, this
Prospectus/Proxy Statement relates to a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a) the acquisition of all or
substantially all of the assets and the assumption of certain stated and
identified liabilities of Fortis Fund by Voyageur New York Tax Free Fund
("Voyageur Fund"), a series of Voyageur Mutual Funds, Inc. ("Voyageur Mutual
Funds"), in exchange for common shares of Voyageur Fund having an aggregate net
asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of Fortis Fund, and (b) the liquidation of Fortis Fund and
the pro rata distribution of its holdings of Voyageur Fund shares to Fortis Fund
shareholders. Fortis Fund and Voyageur Fund are sometimes referred to herein,
individually, as a "Fund," or together, as the "Funds." A vote in favor of the
Plan will be considered a vote in favor of an amendment to the articles of
incorporation of Fortis Tax-Free required to effect the reorganization
contemplated by the Plan.
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.
As a result of the transactions contemplated by the Plan (collectively, the
"Reorganization"), each shareholder of Class A, Class B, or Class C shares of
Fortis Fund will receive Voyageur Fund shares of the same class that such
shareholder held in Fortis Fund, with an aggregate net asset value equal as of
the effective time of the Plan to the aggregate net asset value of their Fortis
Fund shares. Fortis Fund Class E shareholders and Fortis Fund Class H
shareholders will receive Voyageur Fund Class A shares and Voyageur Fund Class B
shares, respectively, having a net asset value equal as of the effective time of
the Plan to the net asset value of their Fortis Fund shares. In the
reorganization, holders of Fortis Fund Class E shares, which are not subject to
a Rule 12b-1 fee, will receive Voyageur Fund Class A shares, which are subject
to a Rule 12b-1 fee of .25% of average daily net assets. The Reorganization is
being structured as a tax-free reorganization so that no income, gain or loss
will be recognized by Fortis Fund or its shareholders as a result thereof
(except that Fortis Fund contemplates that it will make a distribution
immediately prior to the Reorganization of all of its current year net
tax-exempt income, ordinary taxable income and net realized capital gains, if
any, not previously distributed, and any portion of this distribution which does
not constitute an exempt-interest dividend will be taxable to Fortis Fund
shareholders subject to taxation). The shareholders of Fortis Fund are being
asked to vote on the proposed Plan and Reorganization at the Meeting.
In addition to the approval of the Plan and Reorganization by Fortis Fund
shareholders, the consummation of the Reorganization is subject to certain other
conditions. See "Information About the Reorganization--Plan of Reorganization."
Voyageur Fund is a newly formed series of the Voyageur Mutual Funds, an
open-end management investment company which offers its shares in multiple
series. The investment objective of Voyageur Fund is to seek as high a level of
income exempt from federal income tax and from the personal income tax of the
State of New York and the City of New York as is consistent with preservation of
capital. It is a fundamental policy of Voyageur Fund that 80% of its income
distributions be exempt from federal income tax and New York State and New York
City personal income tax. Up to 20% of the securities owned by Voyageur Fund may
generate interest that is an item of tax preference for purposes of federal and
New York State and New York City alternative minimum tax. The investment
objectives, policies and restrictions of both Funds are described and compared
below under "Comparison of Investment Objectives, Policies and Restrictions."
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the proposed Plan and
Reorganization and about Voyageur Fund and its affiliates that each Fortis Fund
shareholder should know prior to voting on the proposed Plan and Reorganization.
INCORPORATION BY REFERENCE
The document listed in item 1 below, which has been filed with the
Securities and Exchange Commission (the "Commission"), is incorporated in this
Prospectus/Proxy Statement by reference to the extent noted below. A Statement
of Additional Information dated September__, 1996 relating to this
Prospectus/Proxy Statement (the "Statement of Additional Information") has been
filed with the Commission and is also incorporated by reference into this
Prospectus/Proxy Statement. A copy of the Statement of Additional Information,
and of each of the documents listed in items 2, 3 and 4 below, is available upon
request and without charge by writing to Voyageur Fund at 90 South Seventh
Street, Suite 4400, Minneapolis, Minnesota 55402, or by calling (800) 553-2143.
The documents listed in items 2, 3 and 4 below are incorporated by reference
into the Statement of Additional Information and such items will be provided
with any copy of the Statement of Additional Information which is requested. Any
documents requested will be sent within one business day of receipt of the
request by first class mail or other means designed to ensure equally prompt
delivery.
1. The Prospectus dated February 1, 1996 of Fortis Tax-Free is
incorporated herein in its entirety by reference.
2. The Statement of Additional Information dated February 1, 1996 of
Fortis Tax-Free is incorporated by reference in its entirety in the
Statement of Additional Information relating to this Prospectus/Proxy
Statement.
3. The Annual Report of Fortis Tax-Free for the fiscal year ended
September 30, 1995 is incorporated by reference in its entirety in the
Statement of Additional Information relating to this Prospectus/Proxy
Statement.
4. The unaudited Semi-Annual Report of Fortis Tax-Free for the six-month
period ended March 31, 1996 is incorporated by reference in its
entirety in the Statement of Additional Information relating to this
Prospectus/Proxy Statement.
Also accompanying and attached to this Prospectus/Proxy Statement as
Appendix A is a copy of the Plan for the proposed Reorganization.
SUMMARY THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT
AND THE APPENDICES THERETO AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, AND BY REFERENCE TO THE PLAN, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS APPENDIX A. FORTIS FUND SHAREHOLDERS SHOULD REVIEW
THE ACCOMPANYING DOCUMENTS CAREFULLY IN CONNECTION WITH THEIR REVIEW OF THIS
PROSPECTUS/PROXY STATEMENT. PROPOSED REORGANIZATION
The Plan provides for (a) the acquisition of substantially all of the
assets and the assumption of certain stated and identified liabilities of Fortis
Fund by Voyageur Fund in exchange for common shares of Voyageur Fund having an
aggregate net asset value equal to the aggregate value of the assets acquired
(less liabilities assumed) of Fortis Fund and (b) the liquidation of Fortis Fund
and the pro rata distribution of its holdings of Voyageur Fund shares to Fortis
Fund shareholders as of the effective time of the Reorganization (the close of
normal trading on the New York Stock Exchange, currently 4:00 p.m. Eastern Time,
on October__, 1996, or such later date as provided for in the Plan) (such time
and date, the "Effective Time"). As a result of the Reorganization, each
shareholder of Class A, Class B and Class C shares of Fortis Fund will receive
Voyageur Fund shares of the same class that he or she held in Fortis Fund with
an aggregate net asset value equal to the aggregate net asset value of the
shareholder's Fortis Fund shares as of the Effective Time. Fortis Fund Class E
shareholders and Fortis Fund Class H shareholders will receive Voyageur Fund
Class A shares and Voyageur Fund Class B shares, respectively, having a net
asset value equal as of the Effective Time of the Plan to the net asset value of
their Fortis Fund shares. In the Reorganization, holders of Fortis Fund Class E
shares, which are not subject to a Rule 12b-1 fee, will receive Voyageur Fund
Class A shares of Voyageur Fund, which are subject to a Rule 12b-1 fee of .25%
of average daily net assets. See "Information About the Reorganization."
For the reasons set forth below under "Information About the
Reorganization--Reasons for the Reorganization," the Board of Directors of
Fortis Tax-Free (the "Fortis Board"), including all of the "non-interested"
directors, as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), has approved the Reorganization and has submitted the
Plan for approval by Fortis Fund shareholders.
The Board of Directors of Voyageur Mutual Funds (the "Voyageur Board") has
also approved the Reorganization on behalf of Voyageur Fund.
Approval of the Plan and Reorganization will require the affirmative vote
of a majority of the outstanding shares of each class of Fortis Fund, voting as
separate classes.
TAX CONSEQUENCES
Prior to completion of the Reorganization, Fortis Fund will have received
from Dorsey & Whitney LLP, counsel to Voyageur Fund and Fortis Fund, an opinion
that, upon the Reorganization, no gain or loss will be recognized by Fortis Fund
or its shareholders for federal income tax purposes. The holding period and
aggregate tax basis of Voyageur Fund shares that are received by each Fortis
Fund shareholder will be the same as the holding period and aggregate tax basis
of Fortis Fund shares previously held by such shareholders. In addition, the
holding period and tax basis of the assets of Fortis Fund in the hands of
Voyageur Fund as a result of the Reorganization will be the same as in the hands
of Fortis Fund immediately prior to the Reorganization. See "Information About
the Reorganization--Federal Income Tax Consequences."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Fortis Fund and Voyageur Fund are both non-diversified, open-end investment
company series with investment objectives which are substantially the same.
* The primary investment objective of Fortis Fund is to seek as high a
level of current income exempt from federal, New York State, and New
York City income tax as is believed to be consistent with the
preservation of capital.
* The investment objective of Voyageur Fund is to seek as high a level
of current income exempt from federal, New York State, and New York
City income taxes as is consistent with the preservation of capital.
The investment policies of Fortis Fund and Voyageur Fund are similar but
not identical.
* As a fundamental policy, at least 90% of the tax-exempt obligations
purchased by Fortis Fund must be of "investment grade" quality. This
means that they will be rated, at the time of purchase, within the
four highest grades assigned by either Moody's (Aaa, Aa, A or Baa) or
S&P (AAA, AA, A or BBB) or will be unrated securities which at the
time of purchase are judged by FAI to be of comparable quality to
securities rated within such four highest grades. Bonds rated below
BBB or Baa have a greater vulnerability to default than higher grade
bonds. At least 80% of the tax-exempt obligations purchased by
Voyageur Fund will be rated "investment grade" at the time of
investment by Moody's or S&P or, if unrated, judged by VFM to be of
comparable quality.
* Up to 10% of the tax-exempt obligations purchased by Fortis Fund may
be rated lower than investment grade. Up to 20% of the tax-exempt
obligations purchased by Voyageur Fund may be rated lower than
investment grade; however all bonds purchased by Voyageur Fund must by
rated "B" or better by Moody's or S&P (or, if unrated, judged by the
Fund's investment adviser to be of comparable quality). Bonds rated
lower than investment grade are often referred to as "junk" bonds or
"high yield" bonds. Both Funds may retain securities which are
downgraded after investment; however, in no event will more than 5% of
Voyageur Fund's total assets consist of securities that have been
downgraded to a rating lower than B. See "Principal Risk Factors" for
a discussion of the risks of investing in lower grade tax-exempt
obligations.
* Voyageur Fund may enter into reverse repurchase agreements, may write
(i.e., sell) covered put and call options and purchase put and call
options on the securities in which it may invest and on indices of
securities in which it may invest, may enter into futures contracts,
may purchase and sell options on futures transactions and purchase and
sell Derivative Municipal Obligations. Fortis Fund may not enter into
such transactions.
* Fortis Fund attempts to achieve its objective by investing primarily
in debt obligations generating interest income that, in the opinion of
bond counsel, is not includable in gross income for Federal income tax
purposes or in taxable net income of individuals, estates and trusts
for New York income tax purposes. As a fundamental policy, except for
defensive purposes, Fortis Fund will invest at least 80% of its net
assets in securities that generate interest that is not includable in
federal gross income or State of New York or City of New York taxable
net income (except for State of New York and City of New York
franchise tax on corporations and financial institutions, which is
measured by income) and is not an item of tax preference for purposes
of the federal, State of New York, or City of New York alternative
minimum tax. Fortis Fund may invest without limitation in taxable
obligations on a temporary, defensive basis due to market conditions.
In normal market conditions, Voyageur Fund seeks to achieve its
investment objective by investing primarily in debt obligations issued
by or on behalf of the State of New York or a U.S. state or territory
or their agencies, instrumentalities, municipalities and political
subdivisions, the interest payable on which is, in the opinion of bond
counsel, excludable from gross income for purposes of federal income
tax and New York State or New York City personal income tax. It is a
fundamental policy of Voyageur Fund that 80% of its income
distributions be exempt from federal income tax and from the personal
income tax of New York State and New York City. During times of
adverse market conditions when a defensive investment posture is
warranted, Voyageur Fund may temporarily select investments without
regard to the foregoing policy.
However, Voyageur Fund anticipates that, in normal market conditions,
substantially all of its assets will be invested in securities the
interest on which is exempt from federal income tax and New York State
and New York City personal income tax.
* Under normal market conditions, Fortis Fund will invest no more than
20% of its net assets in obligations the interest from which gives
rise to a preference item for the purpose of the federal, New York
State, and New York City alternative minimum tax. Similarly, up to 20%
of the securities owned by Voyageur Fund may generate interest that is
an item of tax preference for purposes of the federal, New York State
or New York City alternative minimum tax.
* While Fortis Fund is free to invest in securities of any maturity, it
is expected that the average maturity of Fortis Fund will generally
range from seven to 20 years. Voyageur Fund expects the weighted
average maturity of its investment portfolio to be approximately 15 to
25 years.
* Both Funds may invest in repurchase agreements and purchase securities
on a "when-issued" basis.
* Fortis Fund may borrow money from banks for temporary purposes to
facilitate redemptions in an amount equal to 10% of total assets.
Voyageur Fund may borrow money from banks for temporary or emergency
purposes in an amount equal to 20% of its total assets.
The Funds' investment objectives, policies and restrictions are described
and compared in further detail herein under "Comparison of Investment
Objectives, Policies and Restrictions." The Annual Report of Fortis Tax-Free for
the fiscal year ended September 30, 1995 and the unaudited Semi-Annual Report of
Fortis Tax-Free for the six-month period ended March 31, 1996 referred to on the
cover page hereof under "Incorporation by Reference," provide information
concerning the composition of Fortis Fund's assets at such dates.
FEES AND EXPENSES
FORTIS FUND EXPENSES. FAI provides business management and investment
advisory services to Fortis Fund pursuant to an Investment Advisory and
Management Agreement (the "Fortis Advisory Agreement"). Fortis Investors, Inc.
("Fortis Investors"), a subsidiary of FAI, is Fortis Fund's principal
underwriter. For FAI's services under the Fortis Advisory Agreement, Fortis Fund
is obligated to pay FAI a monthly fee at an annual rate of .80% of the Fund's
average daily net assets. FAI has undertaken to limit total annual expenses for
Fortis Fund (exclusive of Rule 12b-1 fees, interest, taxes, brokerage
commissions and nonrecurring or extraordinary charges and expenses) until
September 30, 1996, to not more than 1.09% of average net assets. The Fortis
Advisory Agreement requires Fortis Fund to pay all its expenses which are not
assumed by FAI and/or Fortis Investors. These Fortis Fund expenses include, by
way of example, but not by way of limitation, the fees and expenses of directors
and officers who are not "affiliated persons" of FAI, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
Fortis Fund and its shares for distribution under Federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the expense
of reports to shareholders, shareholders' meetings, and proxy solicitations.
FAI bears the costs of acting as Fortis Fund's transfer agent, registrar,
and dividend agent. Fortis Investors or FAI pays all promotional expenses in
connection with the distribution of Fortis Fund's shares, including paying for
printing and distributing prospectuses and shareholder reports to new
shareholders, and the costs of sales literature.
Fortis Investors acts as the principal underwriter of Fortis Fund's shares
pursuant to an Underwriting Agreement with Fortis Fund. Under the Underwriting
Agreement, Fortis Investors retains the sales charges, if any, paid by Fortis
Fund Class A shareholders in connection with their purchases of Fund shares and
is entitled to receive any contingent deferred sales charge on the redemption of
Class B, Class C and Class H shares (and on the redemption of certain Class A
and Class E shares initially sold without a sales charge). In addition, Fortis
Fund has adopted a Plan of Distribution ("Distribution Plan") under Rule 12b-1
under the 1940 Act. Pursuant to this Distribution Plan, Fortis Fund pays Fortis
Investors 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 1.0% of the Fund's average daily
net assets attributable to each of Class B, Class C, and Class H shares. While
all of Class A's Rule 12b-1 fee constitutes a "distribution fee," only 75% of
Class B, Class C, and Class H's fees constitute distribution fees. A portion of
the Rule 12b-1 fee equal to .25% of the average net assets of Fortis Fund
attributable to Class B, Class C and Class H shares constitutes a shareholder
servicing fee.
VOYAGEUR FUND EXPENSES. VFM has been retained under an Investment Advisory
Agreement ("Voyager Advisory Agreement") to act as Voyageur Fund's investment
adviser. Voyageur Fund will pay VFM a monthly investment advisory and management
fee equivalent on an annual basis to .50% of the Fund's average daily net
assets.
VFM also acts as Voyageur Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement. Under the Agreement, Voyageur Fund pays VFM a monthly fee
based upon the Fund's average daily net assets and the number of shareholder
accounts then existing. This fee is equal to the sum of (a) $1.33 per
shareholder account per month, (b) $1,000 to $1,500 per month based on the
average daily net assets of the Fund and (c) a percentage of average daily net
assets which ranges from 0.11% to 0.02% based on the average daily net assets of
the Fund. This fee is in addition to investment advisory fees payable under the
Voyageur Advisory Agreement.
Voyageur Fund Distributors, Inc. ("VFD"), an affiliate of VFM, acts as the
principal underwriter of Voyageur Fund's shares pursuant to a Distribution
Agreement with Voyageur Fund. Under the Distribution Agreement, VFD retains the
sales charges, if any, paid by Voyageur Fund Class A shareholders in connection
with their purchases of Fund shares and is entitled to deduct a contingent
deferred sales charge on the redemption of Class B shares (and on the redemption
of certain Class A shares initially sold without a sales charge). In addition,
Voyageur Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the 1940 Act. Pursuant to this Distribution Plan, Voyageur Fund pays VFD 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. The Voyageur Board has determined
that all of the fee payable with respect to Class A shares shall be designated a
shareholder servicing fee. 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.
For the fiscal years ending December 31, 1996 and December 31, 1997, VFM
has undertaken to limit total Voyageur Fund expenses, including Rule 12b-1 fees,
to 1.00% of average daily net assets for Class A shares and 1.75% of average
daily net assets for Class B and Class C shares. These expense limitations may
be terminated or revised at any time after December 31, 1997. In addition, VFM
is contractually obligated to pay the operating expenses of Voyageur Fund
(excluding interest expense, taxes, brokerage fees, commissions, and Rule 12b-1
fees) which exceed 1% of the Fund's average daily net assets on an annual basis
up to the amount of VFM's investment advisory and management fee and the
dividend disbursing, administrative and accounting services fee.
For additional information on the management of Voyageur Fund, including
information on VFM and VFD, portfolio management, the Fund's Plan of
Distribution, Fund expenses and portfolio transactions, see "Management of
Voyageur Mutual Funds, Inc." in Appendix C hereto.
COMPARISON OF FEES AND EXPENSES
The following tables are intended to assist Fortis Fund shareholders of
each class in understanding the various costs and expenses (expressed as a
percentage of average net assets) (a) that such shareholders currently bear as
Fortis Fund shareholders (under the "Fortis Fund" column); and (b) that such
shareholders can expect to bear as Voyageur Fund shareholders after the
Reorganization is consummated (under the "Voyageur Fund") column. The examples
set forth below should not be considered representations of past or future
expenses or performance, and actual expenses may be greater or less than those
shown. The following tables are based on Fortis Fund expenses for the fiscal
year ended September 30, 1995 and estimated Voyageur Fund annualized expenses to
be incurred during fiscal year ended December 31, 1996.
CLASS A AND CLASS E SHARES FEES AND EXPENSES
<TABLE>
<CAPTION>
VOYAGEUR
FORTIS FUND FORTIS FUND FUND
CLASS A CLASS E CLASS A
------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).............................. 4.5% 4.5% 3.75%
Maximum Deferred Sales Charge (1)................................ None None None
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management Fees.................................................. 0.80% 0.80% 0.50%
Rule 12b-1 Fees.................................................. 0.25% -- 0.25%
Other Expenses (After Expense Reimbursement) (2)................. 0.29% 0.29% 0.25%
----- ----- -----
Total Fund Operating Expenses.................................... 1.34% 1.09% 1.00%
TOTAL FUND OPERATING EXPENSES WITHOUT
VOLUNTARY WAIVER AND REIMBURSEMENT(3)....................... 1.85% 1.60% 1.25%
</TABLE>
EXAMPLE (4)
You would pay the following expenses on a $1,000 investment over
various time periods assuming: (1) 5% annual return; and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 year........................................................... $58 $56 $47
3 years.......................................................... $86 $78 $68
5 years.......................................................... $115 $102
10 years......................................................... $199 $172
</TABLE>
(1) A contingent deferred sales charge of up to 1.00% is imposed on certain
redemptions of Class A shares of each Fund and Class E shares of Fortis
Fund that are purchased without an initial sales charge. See "Purchase,
Exchange and Redemption Procedures" below.
(2) Total Fund Operating Expenses for each Fund reflect expense limitations
discussed above. The expenses after expense reimbursements in the table for
Fortis Fund are based on the Fund's expenses for the fiscal year ended
September 30, 1995. FAI estimates that for the fiscal year ending September
30, 1996, Total Fund Operating Expenses for Fortis Fund Class A and Class E
will be approximately 1.34% and 1.09%, respectively, of average net assets
after expense reimbursements.
(3) The expenses without expense reimbursement in the table for Fortis Fund are
based on the Fund's expenses for the fiscal year ended September 30, 1995.
FAI estimates that without expense reimbursements, Total Fund Operating
Expenses for the fiscal year ending September 30, 1996 for Fortis Fund
Class A and Class E will be approximately 1.53% and 1.28%, respectively.
Without expense reimbursement, Voyageur Fund estimates Other Expenses would
be 0.50% for the fiscal year ending Decembe 31, 1996.
(4) Assumes deduction of the maximum initial sales charge at the time of
purchase (4.5% for Fortis Fund and 3.75% for Voyageur Fund) and no
deduction of a contingent deferred sales charge at the time of redemption.
<TABLE>
<CAPTION>
CLASS B AND H SHARES FEES AND EXPENSES
VOYAGEUR
FORTIS FUND FUND
CLASS B AND H CLASS B
------------- -------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).............................. None None
Maximum Deferred Sales Charge(1) ................................ 4.00% 5.00%
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management Fees.................................................. 0.80% 0.50%
Rule 12b-1 Fees.................................................. 1.00% 1.00%
Other Expenses (After Expense Reimbursement)(2).................. 0.29% 0.25%
----- -----
Total Fund Operating Expenses.................................... 2.09% 1.75%
TOTAL FUND OPERATING EXPENSES WITHOUT
VOLUNTARY WAIVER AND REIMBURSEMENT(3)....................... 2.60% 2.25%
</TABLE>
EXAMPLE (4)
You would pay the following expenses on a $1,000 investment over
various time periods assuming: (1) 5% annual return; and:
WITH REDEMPTION AT THE END OF EACH PERIOD
<TABLE>
<CAPTION>
<S> <C> <C>
1 year........................................................... $61 $68
3 years.......................................................... $95 $95
5 years.......................................................... $132 $115
10 years......................................................... $223 $186
</TABLE>
WITHOUT REDEMPTION AT THE END OF EACH PERIOD
<TABLE>
<CAPTION>
<S> <C> <C>
1 year........................................................... $21 $18
3 years.......................................................... $65 $55
5 years.......................................................... $112 $95
10 years......................................................... $223 $186
</TABLE>
(1) Fortis Fund Class B and H shares and Voyageur Fund Class B 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 charge.
(2) Total Fund Operating Expenses for each Fund reflect expense
limitations discussed above. The expenses after expense reimbursements
in the table for the Fortis Fund are based on the expenses for the
fiscal year ended September 30, 1995. FAI estimates that for the
fiscal year ending September 30, 1996, Total Fund Operating Expenses
for each of Fortis Fund Class B and Class H will be approximately
2.09% of average net assets after expense reimbursements.
(3) FAI estimates that without expense reimbursements, Total Fund Operating
Expenses for the fiscal year ending September 30, 1996, for each of
Fortis Fund Class B and Class H will be approximately 2.28%. VFM
estimates that without expense reimbursements, "Other Expenses" would
be 0.50% for the fiscal year ended December 31, 1996 and Total
Operating Expenses would be 2.25%.
(4) Assumes a waiver of contingent deferred sales charges on Fortis Fund
Class B and Fortis Fund Class H shares of 10% of the amount invested, a
deduction for Voyageur Class B shares of a contingent deferred sales
charge upon redemption at the end of the one, three and five year
periods, and conversion of Class B shares of each Fund and Class H
shares of Fortis Fund to Class A shares after eight years.
<TABLE>
<CAPTION>
CLASS C SHARES FEES AND EXPENSES
VOYAGEUR
FORTIS FUND FUND
CLASS C CLASS C
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)(1)............................ None None
Maximum Deferred Sales Charge (2)................................. 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management Fees................................................... 0.80% 0.50%
Rule 12b-1 Fees................................................... 1.00% 1.00%
Other Expenses (After Expense Reimbursement) (2).................. 0.29% 0.25%
----- -----
Total Fund Operating Expenses..................................... 2.09% 1.75%
TOTAL FUND OPERATING EXPENSES WITHOUT
VOLUNTARY WAIVER AND REIMBURSEMENT(4)........................ 2.60% 2.25%
</TABLE>
EXAMPLE (5)
You would pay the following expenses on a $1,000 investment over
various time periods assuming: (1) 5% annual return; and:
<TABLE>
<CAPTION>
WITH REDEMPTION AT THE END OF EACH PERIOD
<S> <C> <C>
1 year............................................................ $31 $28
3 years........................................................... $65 $55
5 years........................................................... $112 $95
10 years.......................................................... $242 $206
</TABLE>
<TABLE>
<CAPTION>
WITHOUT REDEMPTION AT THE END OF EACH PERIOD
<S> <C> <C>
1 year............................................................ $21 $18
3 years........................................................... $65 $55
5 years........................................................... $112 $95
10 years.......................................................... $242 $206
</TABLE>
(1) Class C shares of each Fund are sold without a font-end sales charge,
but their Rule 12b-1 fees may cause long term shareholders to pay more
than the economic equivalent of the maximum front-end sales charge.
(2) Class C shares of each Fund are subject to a contingent deferred sales
charge if redeemed within one year of purchase.
(3) Total Fund Operating Expenses for each Fund reflect expense
limitations discussed above. The expenses after expense reimbursements
in the table for Fortis Fund are based on the Fund's expenses for the
fiscal year ended September 30, 1995. FAI estimates that for the
fiscal year ending September 30, 1996, Total Fund Operating Expenses
for Fortis Fund Class C will be approximately 2.09% of average net
assets after expense reimbursements.
(4) FAI estimates that without expense reimbursements, Total Fund
Operating Expenses for the fiscal year ending September 30, 1996, for
Fortis Fund Class C will be approximately 2.28%. VFM estimates that
without expense reimbursements, "Other Expenses" would be 0.50% for
the fiscal year ended December 31, 1996 and Total Operating Expenses
would be 2.25%.
(5) Assumes a deduction of a contingent deferred sales charge at the time
of redemption.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
PURCHASES OF SHARES. Class A shares of both Fortis Fund and Voyageur Fund
may be purchased at a public offering price equal to their net asset value per
share plus a sales charge. The maximum sales charge for Fortis Fund is 4.50% of
the public offering price for investments of less than $100,000. For Voyageur
Fund, the maximum sales charge is 3.75% of the public offering price for
investments of less than $50,000. For each Fund, the sales charge is reduced on
a graduated scale for larger purchases. Purchases of $1,000,000 or more for both
Voyageur Fund and Fortis Fund are not subject to an initial sales charge. In
connection with such purchases, however, Class A shares of each Fund redeemed
during the first two years after purchase are subject to a contingent deferred
sales charge of 1.0%. Class A shares of each Fund 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.
Class B shares of both Funds are offered to investors at net asset value,
without a sales charge. Fortis Fund and Voyageur Fund impose a contingent
deferred sales charge ("CDSC") of up to 4.0% and 5.0%, respectively, on share
redemptions. For Fortis Fund, the maximum CDSC applies to redemptions during the
first two years after purchase and declines to 3.0% during the third year. For
Voyageur Fund, the maximum CDSC of 5.0% applies to redemptions during the first
year and declines to 4.0% during the second and third year. For both Fortis Fund
and Voyageur Fund, the CDSC is 3.0% during the fourth year; 2.0% during the
fifth year; 1.0% during the sixth year; and 0% thereafter. Class B shares of
each Fund are subject to a Rule 12b-1 fee payable at an annual rate of 1.0% of
the Fund's average daily net assets attributable to Class B shares. Class B
shares of Fortis Fund automatically convert to Class A shares at net asset value
eight years after purchase, and Class B shares of Voyageur Fund automatically
convert to Class A shares at net asset value on the first business day of the
month eight years after the purchase date.
Both Funds also offer Class C shares. The Class C shares of each Fund are
sold without a sales charge but have a CDSC of 1.0% if redeemed within one year
of purchase. The Rule 12b-1 fee for Class C shares of each Fund is paid at an
annual rate of 1.0% of the Fund's average daily net assets attributable to Class
C shares. Class C shares of both Funds do not convert to any other class of
shares.
Fortis Fund also offers Class E shares and Class H shares, which are not
offered by Voyageur Fund. Fortis Fund Class E shares are similar to Fortis Fund
Class A shares in that they both are subject to the same initial sales charges
and impose a CDSC in the same circumstances. The only difference between Fortis
Fund Class E shares and Fortis Fund Class A shares is that Class E shares are
not subject to a Rule 12b-1 fee. Consequently, Fortis Fund Class E shares have
the lowest expenses and pay the highest dividends of the Fortis Fund classes.
Fortis Fund Class E shares are only available to investors who were shareholders
of Fortis Fund on November 13, 1994. Fortis Fund Class H shares have the same
charges as the Fortis Fund Class B shares. The only difference between Class B
and Class H shares is the percentage of dealer concession paid to dealers. This
difference does not in any way affect the charges on an investor's shares. In
the Reorganization, holders of Fortis Fund Class E shares will receive Voyageur
Fund Class A shares, which bear a 0.25% Rule 12b-1 fee, and holders of Fortis
Fund Class H shares will receive Voyageur Fund Class B shares which also bear a
Rule 12b-1 fee as set forth above.
For additional information on the purchase of Voyageur Fund and Fortis Fund
shares, see Appendix D to this Prospectus/Proxy Statement, and pages 14 through
20 of the Fortis Fund prospectus incorporated herein by reference.
PURCHASES AT REDUCED OR NO SALES CHARGE. For the Class A shares of each
Fund, various persons, entities and groups may qualify for reduced sales
charges, or for purchases at net asset value without a sales charge. Following
the Reorganization, current Fortis Fund shareholders (as holders of Voyageur
Fund shares) will be entitled to such Special Purchase Plans and other purchase
privileges as are set forth in Appendix D to this Prospectus/Proxy Statement.
These purchase plans and privileges differ in certain respects from those
currently offered by Fortis Fund. See "How to Purchase Shares--Class A
Shares--Front End Sales Charge Alternative" in Appendix D to this
Prospectus/Proxy Statement and "How to Buy Fund Shares" beginning on page 14 of
the Fortis Fund prospectus incorporated herein by reference.
REDEMPTION. Shareholders of each Fund may redeem their shares, in whole or
in part, on any business day. All redemptions are made at the net asset value
next determined after a redemption request has been received in good order. As
discussed above, a contingent deferred sales charge may apply to redemptions of
certain Class A shares of each Fund and Class E shares of Fortis Fund initially
purchased without a sales charge, to Class B shares of each Fund and Class H
shares of Fortis Fund redeemed prior to conversion and to Class C shares of each
Fund redeemed within one year of purchase. For additional information on
redemption of shares, see "How to Sell Shares," in Appendix D to this
Prospectus/Proxy Statement and "Redemption," beginning on page 18 of the Fortis
Fund prospectus incorporated herein by reference.
EXCHANGE PRIVILEGES. Shares of Fortis Fund may be exchanged for shares of
the same class of other Fortis funds and shares of Voyageur Fund may be
exchanged for shares of the same class of other Voyageur funds. These exchange
privileges are further explained under the caption "Exchange Privilege" in
Appendix D to this Prospectus/Proxy Statement and "Special Purchase Plans for
all Classes--Exchange Privilege" on page 17 of the Fortis Fund prospectus
incorporated herein by reference.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares dividends from net investment income on each day the New
York Stock Exchange (the "Exchange") is open and pays such dividends monthly.
Net realized long-term capital gains, if any, are distributed annually.
Distributions paid by each Fund with respect to all classes of shares issued by
the Fund are calculated in the same manner, at the same time, on the same day
and are or will be in the same amount, except that the higher Rule 12b-1 fees
applicable to Class B and Class C shares of each Fund and Class H shares of
Fortis Fund will be borne exclusively by such shares. Consequently, the per
share dividends on Class B and Class C shares of each Fund and on Fortis Class H
shares will be lower than those on Class A shares of the respective Fund (which
have lower Rule 12b-1 fees) and Fortis Fund Class E shares (which do not have
Rule 12b-1 fees and therefore have the highest dividends of the Fortis Fund
classes).
For each Fund, dividends and capital gains distributions are reinvested in
additional shares of the same class unless a shareholder elects otherwise.
CAPITAL SHARES; SHAREHOLDER VOTING RIGHTS
Fortis Fund currently offers Class A, Class B, Class C, Class E and Class H
shares. Voyageur Fund will offer Class A, Class B and Class C shares. Each class
of shares of a Fund represents an interest in the same portfolio of investments
of such Fund and has identical voting, dividend, liquidation, and other rights
on the same terms and conditions except that expenses related to the
distribution of a class of shares are borne solely by such class and that each
class of a Fund's shares has exclusive voting rights with respect the provisions
of such Fund's Rule 12b-1 plan which pertain to that particular class or when a
class vote is required by the 1940 Act. In addition, each class of shares of
Fortis Fund has a different dividend and distribution policy.
Voyageur Fund intends to apply for a ruling from the Internal Revenue
Service ("IRS") to the effect that distributions paid with respect to the
different classes of shares of Voyageur Fund will not constitute "preferential
dividends" within the meaning of Section 562(c) of the Internal Revenue Code of
1986, as amended (the "Code"), and that all such distributions will therefore
qualify for the "dividends paid deduction" under Sections 561 and 852(b)(2)(D)
of the Code. In 1994, the IRS issued the same rulings to several other funds
managed by VFM that included classes with terms identical to those of the
classes of Voyageur Fund. Voyageur Fund expects to receive the requested
rulings.
PRINCIPAL RISK FACTORS
SHARED INVESTMENT RISKS
Because the investment objectives, policies and restrictions of Fortis Fund
and Voyageur Fund are substantially the same (see "Information About Fortis Fund
and Voyageur Fund--Comparison of Investment Objectives, Policies and
Restrictions" below), an investment in either Fund involves many of the same
risks. Certain of these risks are discussed below.
DEBT SECURITIES. Investment in debt securities, including municipal
securities, involves both interest rate and credit risk. Generally, the value of
debt instruments rises and falls inversely with interest rates. As interest
rates decline, the value of debt securities generally increases. Conversely,
rising interest rates tend to cause the value of debt securities to decrease.
Bonds with longer maturities generally are more volatile than bonds with shorter
maturities. The market value of debt securities also varies according to the
relative financial condition of the issuer. In general, lower-quality bonds
offer higher yields due to the increased risk that the issuer will be unable to
meet its obligations on interest or principal payments at the time called for by
the debt instrument. Each Fund's investments are also subject to "call" risk.
Certain obligations held by a Fund may permit the issuer at its option to call
or redeem its securities.
If an issuer were to redeem securities held by a Fund during a time of
declining interest rates, the Fund might not be able to reinvest the proceeds of
such redemption in securities providing the same investment return as the
securities redeemed.
TAX-EXEMPT OBLIGATIONS. The value of tax-exempt obligations owned by the
Fund may be adversely affected by local political and economic conditions and
developments within the state of New York. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandatory additional services).
Financial considerations relating to the risks associated with investing in New
York are described in Appendix B of this Prospectus/Proxy Statement under "Risks
and Special Investment Considerations--State Considerations," in the prospectus
of Fortis Fund incorporated herein by reference under "Risk Factors," and in the
statement of additional information of Fortis Fund, incorporated by reference
into the Statement of Additional Information relating to this Prospectus/Proxy
Statement.
NON-DIVERSIFIED STATUS. As non-diversified funds, each Fund is able to
invest, subject to certain federal tax requirements, a relatively higher
percentage of its assets in the securities of a limited number of issuers. This
may result in a Fund's securities being more susceptible to any single economic,
political or regulatory occurrence than the securities of a diversified fund.
See "Investment Policies and Restrictions-- Diversification" in the Statement of
Additional Information.
OTHER. Both Funds may invest in repurchase agreements, purchase securities
on a "when-issued" basis and borrow money from banks for temporary or emergency
purposes (in an amount equal to 20% of total assets for Voyageur Fund and 10% of
total assets for Fortis Fund). Each of these transactions involves certain risks
as set forth in Appendix B under "Investment Objectives and
Policies--Miscellaneous Investment Practices" and in the Fortis Fund prospectus
incorporated herein by reference under "Investment Objectives and
Policies--Miscellaneous Investment Practices."
DIFFERENCES IN INVESTMENT RISKS
As discussed below, there are certain differences in the investment risks
associated with investments in Voyageur Fund and Fortis Fund that should be
considered carefully by Fortis Fund shareholders.
HIGHER PROPORTION OF TOTAL ASSETS IN LOWER QUALITY DEBT OBLIGATIONS. A
higher proportion of the total assets of Voyageur Fund may be subject to a
greater degree of credit risk than Fortis Fund. In normal circumstances,
Voyageur Fund may invest up to 20% of its total assets in tax-exempt obligations
rated below investment grade (but not rated lower than B by S&P or Moody's) or
in unrated tax-exempt obligations considered by VFM to be of comparable quality
to such securities. Up to 10% of the total assets of Fortis Fund may be invested
in securities rated below investment grade quality. However, there is no lower
limit on the ratings of such securities. Securities rated Baa or BBB are medium
grade, involve some speculative elements and are the lowest investment grade
available. Securities rated BBB may have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade securities. Securities rated below BBB (non-investment grade
securities) are regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. Participation in lower rated securities transactions generally
involves greater returns in the form of higher average yields. However, lower
grade tax-exempt obligations generally involve greater credit risk than higher
grade tax-exempt obligations and are more sensitive to adverse economic changes,
significant increases in interest rates and individual issuer developments. The
market for lower grade tax-exempt obligations is considered to be less liquid
than the market for investment grade tax-exempt obligations, which may adversely
affect the ability of the Funds to dispose of such securities in a timely manner
at a price which reflects the value of such securities in the judgment of the
applicable investment adviser. The market price for less liquid securities tends
to be more volatile than the market price for more liquid securities. The lower
liquidity of and the absence of readily available market quotations for lower
grade tax-exempt obligations may make valuation of such securities more
difficult, and the judgment of the investment adviser may play a greater role in
the valuation of the Fund's lower grade tax-exempt obligations. Periods of
economic uncertainty and changes may have a greater impact on the market price
of such bonds and, therefore, the net asset value of the Funds. Fortis Fund may
retain a portfolio security whose rating has changed if the security otherwise
meets the Fund's investment objectives and investment criteria. Voyageur Fund
may, if deemed appropriate by VFM, retain a security whose rating has been
downgraded below B by S&P or Moody's, or whose rating has been withdrawn. In no
event, however, will more than 5% of Voyageur Fund's total assets consist of
securities that have been downgraded to a rating lower than B or, in the case of
unrated securities, that have been determined by VFM to be of a quality lower
than B. During the six months ended March 31, 1996, Fortis Fund did not invest
in any securities rated lower than BBB or Baa or in unrated tax-exempt
obligations considered by FAI to be of comparable quality to such securities.
Additional information concerning the risks associated with investments in lower
grade tax-exempt obligations can be found in Appendix B to this Prospectus/Proxy
Statement under "Risks and Special Investment Considerations--General," in the
Statement of Additional Information relating to this Prospectus/Proxy Statement
and in Fortis Fund's Statement of Additional Information incorporated by
reference therein.
DERIVATIVE TAX-EXEMPT OBLIGATIONS. Voyageur Fund may acquire derivative
tax-exempt obligations, which are custodial receipts or trust certificates
("custodial receipts") underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments or both on certain
tax-exempt obligations. Certain of these derivative tax-exempt obligations
involve special risks. The principal and interest payments on the custodial
receipts underlying derivative tax-exempt obligations may be allocated in a
number of ways. For example, payments may be allocated such that certain
custodial receipts may have variable or floating interest rates and others may
be stripped securities which pay only the principal or interest due on the
underlying tax-exempt obligations. Voyageur Fund may also invest in custodial
receipts which are "inverse floating obligations" (also sometimes referred to as
"residual interest bonds"). These securities pay interest rates that vary
inversely to changes in the interest rates of specified short-term tax-exempt
obligations or an index of short-term tax-exempt obligations. Thus, as market
interest rates increase, the interest rates on inverse floating obligations
decrease. Conversely, as market rates decline, the interest rates on inverse
floating obligations increase. Such securities have the effect of providing a
degree of investment leverage, since the interest rates on such securities will
generally change at a rate which is a multiple of the change in the interest
rates of the specified tax-exempt obligations or index. As a result, the market
values of inverse floating obligations will generally be more volatile than the
market values of other tax-exempt obligations and investments in these types of
obligations will increase the volatility of the net asset value of shares of
Voyageur Fund. Voyageur Fund's investments in derivative tax-exempt obligations,
when combined with investments in below investment grade rated securities, will
not exceed 20% of the Fund's total assets. Fortis Fund may not invest in such
securities.
CONCENTRATION. As a fundamental policy, Fortis Fund will not invest more
than 25% of its total assets in limited obligation bonds payable only from
revenues derived from facilities or projects within a single industry. As to
utility companies, gas, electric, water and telephone companies are considered
as separate industries. For this purpose, municipal bonds refunded with U.S.
Government securities are treated as investments in U. S. Government securities
and are not subject to this requirement. As a fundamental policy, Voyageur Fund
may not invest 25% or more of its total assets in the securities of any industry
although for purposes of this limitation, tax-exempt securities and U.S.
Government securities are not considered to be part of any industry. Voyageur
Fund may invest 25% or more of its total assets in industrial development bonds.
In addition, it is possible that Voyageur Fund from time to time will invest 25%
or more of its total assets in a particular segment of the municipal bond
market, such as housing, health care, utility, transportation, education and/or
industrial obligations. In such circumstances, economic, business, political and
other changes affecting one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of needed materials; or a
declining market or need for the project) might also affect other bonds in the
same segment, thereby potentially increasing market or credit risk. A discussion
of these segments of the municipal bond market is set forth in the Statement of
Additional Information relating to this Prospectus/Proxy Statement, under
"Investment Policies and Restrictions--Concentration Policy."
OPTIONS, FUTURES CONTRACTS AND REVERSE REPURCHASE AGREEMENTS. Voyageur Fund
may write (i.e., sell) covered put and call options and purchase put and call
options on the securities in which it may invest and on indices of securities in
which it may invest. Voyageur Fund also may enter into contracts for the
purchase or sale for future delivery of fixed income securities or contracts
based on financial indices including any index of securities in which the Fund
may invest ("futures contracts") and may purchase and write put and call options
on futures contracts. Fortis Fund may not engage in options or futures
transactions. In addition, Voyageur Fund may enter into reverse repurchase
agreements with banks and securities dealers with respect to not more than 10%
of its total assets. Fortis Fund may not enter into such agreements. The use of
options, futures contracts and reverse repurchase agreements entails special
risks as set forth in Appendix B to this Prospectus/Proxy Statement under
"Investment Objectives and Policies--Miscellaneous Investment Practices."
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
Fortis Fund and Voyageur Fund are both non-diversified, open-end funds with
investment objectives which are substantially the same.
* The primary investment objective of Fortis Fund is to seek as high a
level of current income exempt from federal, New York State, and New
York City income tax as is believed to be consistent with the
preservation of capital.
* The investment objective of Voyageur Fund is to seek as high a level
of current income exempt from federal, New York State and New York
City income taxes as is consistent with the preservation of capital.
INVESTMENT POLICIES
The investment policies and restrictions of Fortis Fund and Voyageur Fund
are similar but not identical, as discussed in further detail below.
GENERAL. Fortis Fund invests primarily in debt obligations which generate
interest income that is exempt from federal income tax, State of New York income
tax and City of New York income tax. These debt obligations include securities
issued by the State of New York, its agencies, instrumentalities, and political
subdivisions. As a policy which may not be changed without shareholder approval,
except for defensive purposes, the Fortis Fund will invest at least 80% of its
net assets in securities that generate interest that is not includable in
federal gross income or State of New York or City of New York taxable net income
(except for State of New York and City of New York franchise tax on corporations
and financial institutions, which is measured by income) and is not an item of
tax preference for purposes of the federal, State of New York, or City of New
York alternative minimum tax. Fortis Fund may invest without limitation in
taxable obligations on a temporary, defensive basis due to market conditions.
Such taxable obligations, whether purchased for temporary or liquidity purposes
or on a defensive basis, may include: obligations of the U.S. government, its
agencies or instrumentalities; other debt securities rated within the four
highest grades by either Moody's or S&P; commercial paper rated in the highest
grade by either of such rating services (Prime-1 or A-1, respectively);
certificates of deposit and bankers' acceptances of domestic banks which have
assets of over $1 billion; variable amount master demand notes; and repurchase
agreements with respect to any of the foregoing investments. Fortis Fund may
also hold its assets in cash.
In normal market conditions, Voyageur Fund seeks to achieve its investment
objective by investing primarily in debt obligations issued by or on behalf of
the State of New York or a U.S. territory or their agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income tax and from the personal income tax of New York State and New
York City. It is a fundamental policy of Voyageur Fund that 80% of its income
distributions be exempt from federal income tax and from the personal income tax
of New York State and New York City. During times of adverse market conditions
when a defensive investment posture is warranted, Voyageur Fund may temporarily
select investments without regard to the foregoing policy. However, Voyageur
Fund anticipates that, in normal market conditions, it will invest substantially
all of its assets in securities, the interest on which is exempt from federal
income tax and from the personal income tax of New York State and New York City.
Up to 20% of the securities owned by Voyageur Fund may generate interest that is
an item of tax preference for purposes of the federal, New York State and New
York City alternative minimum tax. Voyageur Fund may invest without limitation
in short term Tax-Exempt Obligations or in taxable obligations on a temporary,
defensive basis due to market conditions or, with respect to taxable
obligations, for liquidity purposes. Such taxable obligations, whether purchased
for liquidity purposes or on a temporary, defensive basis, may include:
obligations of the U.S. Government, its agencies or instrumentalities; other
debt securities rated within the three highest grades by either Moody's or S&P;
commercial paper rated in the highest grade by either of such rating services
(Prime-1 or A-1, respectively); certificates of deposit and bankers' acceptances
of domestic banks which have capital, surplus and undivided profits of over $100
million; high-grade taxable municipal bonds; and repurchase agreements with
respect to any of the foregoing investments. The Fund also may hold its assets
in cash and in securities of tax-exempt money market mutual funds.
AVERAGE PORTFOLIO MATURITY. While Fortis Fund is free to invest in
securities of any maturity, it is expected that the average maturity of the Fund
will generally range from seven to 20 years. The weighted average maturity of
Voyageur Fund is expected to be approximately 15 to 25 years.
SECURITIES RATINGS. As a fundamental policy, at least 90% of the tax exempt
bonds purchased by Fortis Fund must be of "investment grade" quality. This means
that they will be rated, at the time of purchase, within the four highest grades
assigned by either Moody's (Aaa, Aa, A or Baa) or S&P (AAA, AA, A or BBB) or
will be unrated securities which at the time of purchase are judged by FAI to be
of comparable quality to securities rated within such four highest grades. Up to
10% of the tax exempt bonds purchased by Fortis Fund may be of non-investment
grade quality. Such bonds are often referred to as "junk" bonds or "high yield"
bonds.
Voyageur Fund may invest without limitation in securities rated "investment
grade," i.e., within the four highest investment grades, at the time or
investment by Moody's or S&P or, if unrated, judged by VFM to be of comparable
quality. Up to 20% of the tax-exempt obligations purchased by Voyageur Fund may
be rated lower than investment grade; however all bonds must by rated "B" or
better by Moody's or S&P at the time of purchase (or, if unrated, judged by VFM
to be of comparable quality). See "Principal Risk Factors" for a discussion of
the risks of investing in lower-grade tax-exempt obligations.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
illiquid securities. The sale of illiquid securities often requires more time
and results in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets. A Fund may be
restricted in its ability to sell such securities at a time when its investment
adviser deems it advisable to do so. In addition, in order to meet redemption
requests, a Fund may have to sell other assets, rather than such illiquid
securities, at a time which is not advantageous.
REPURCHASE AGREEMENTS. Both Funds may invest in repurchase agreements.
Repurchase agreements are short-term instruments under which securities are
purchased from a bank or a securities dealer with an agreement by the seller to
repurchase the securities at a mutually agreeable date, interest rate, and
price. For a further discussion of repurchase agreements, including the risks
thereof, see Appendix B to this Prospectus/Proxy Statement under "Investment
Objectives and Policies--Miscellaneous Investment Practices--Repurchase
Agreements."
REVERSE REPURCHASE AGREEMENTS. Voyageur Fund may engage in reverse
repurchase agreements with banks and securities dealers with respect to not more
than 10% of its total assets. Fortis Fund may not enter into such agreements.
Reverse repurchase agreements are ordinary repurchase agreements in which
Voyageur Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed upon time and price. For a further
discussion of reverse repurchase agreements, including the risks thereof, see
the accompanying Voyageur Fund prospectus under "Investment Objectives and
Policies-- Miscellaneous Investment Practices--Reverse Repurchase Agreements."
FORWARD COMMITMENTS. Each Fund may purchase securities on a "when issued"
or forward commitment basis, with delivery and payment for the securities
normally taking place 15 to 45 days after the date of the transaction. The
payment obligation and the interest rate that will be received on the securities
are each fixed at the time the buyer enters into the commitment. The purchase of
securities on such a basis involves certain risks. See "Investment Objectives
and Policies-- Miscellaneous Investment Practices--Forward Commitments" in
Appendix B to this Prospectus/Proxy Statement and "Investment Objectives and
Policies--Miscellaneous Investment Practices--Forward Commitments" in the
Prospectus of Fortis Fund incorporated by reference in this Prospectus/Proxy
Statement.
TAXABLE INVESTMENTS. Each Fund may invest up to 20% of its net assets in
taxable fixed income obligations under normal market conditions, although
Voyageur Fund anticipates that, in normal market conditions, it will invest
substantially all of its assets in tax-exempt obligations. In addition, each
Fund may invest without limit in taxable fixed income securities for temporary
defensive purposes or, with respect to Voyageur Fund, for liquidity purposes.
The taxable obligations in which Fortis Fund and Voyageur Fund may invest are
described under "Investment Objectives and Policies" in the Fortis Fund
Prospectus incorporated by reference in this Prospectus/Proxy Statement and in
Appendix B to this Prospectus/Proxy Statement under "Investment Objectives and
Policies." Each Fund may invest up to 20% of its assets in securities the
interest on which is an item of tax preference for purposes of the federal,
State of New York, or City of New York alternative minimum tax.
BORROWING. As a fundamental policy, Fortis Fund may borrow from banks up to
a limit of 10% of its total assets as a temporary measure to facilitate
redemptions. Voyageur Fund, as a fundamental policy, may borrow money from banks
for temporary or emergency purposes in an amount not exceeding 20% of the value
of its total assets. As discussed above, Voyageur Fund may also borrow money in
the form of reverse repurchase agreements in an amount up to 10% of its total
assets.
OPTIONS. Voyageur Fund may write (i.e., sell) covered put and call options
and purchase put and call options on the securities in which it may invest and
on indices of securities in which it may invest. Fortis Fund may not engage in
options transactions. Participation in the options market involves investment
risks and transaction costs to which Voyageur Fund would not be subject absent
the use of this strategy. See "Investment Objectives and Policies--Miscellaneous
Investment Practices--Options on Securities" in Appendix B to this
Prospectus/Proxy Statement.
FUTURES CONTRACTS AND OPTIONS THEREON. Voyageur Fund may enter into
contracts for the purchase or sale for future delivery of fixed income
securities or contracts based on financial indices including any index of
securities in which the Fund may invest ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts ("options on
futures contracts"). Fortis Fund may not enter into futures contracts or options
on futures contracts. The successful use of such instruments draws upon VFM's
experience with respect to such instruments and generally depends upon VFM's
ability to forecast interest rate movements correctly. See "Investment
Objectives and Policies--Miscellaneous Investment Practices--Futures Contracts
and Options on Futures Contracts" in Appendix B to this Prospectus/Proxy
Statement.
The foregoing comparison does not purport to be a complete summary of the
investment policies, restrictions and risk factors of Fortis Fund or Voyageur
Fund. For complete discussions of the investment policies, restrictions and risk
factors of the respective Funds, see Appendix B to this Prospectus/Proxy
Statement, Fortis Fund's Prospectus referred to under "Incorporation by
Reference," the Statement of Additional Information relating to this
Prospectus/Proxy Statement, and the Statement of Additional Information of
Fortis Fund referred to under "Incorporation by Reference." The Annual Report of
Fortis Fund for the fiscal year ended September 30, 1995 referred to on the
cover page hereof under "Incorporation by Reference," provides information
concerning the composition of the Fortis Fund's assets at such date.
CAPITALIZATION
The following table shows the capitalization of Fortis Fund as of March 31,
1996 and of Voyageur Fund on a pro forma basis as of that date giving effect to
the proposed acquisition of the assets of Fortis Fund at net asset value in the
Reorganization. Voyageur Fund will not have commenced operations prior to the
Reorganization.
<TABLE>
<CAPTION>
FORTIS VOYAGEUR FUND
FUND PRO FORMA
---- ---------
CLASS A SHARES
<S> <C> <C>
Net assets........................................... $58,207 $11,294,378
Net asset value per share............................ $10.76 $10.76
Shares outstanding................................... 5,409 1,049,428
CLASS B SHARES
Net assets........................................... $204,815 $293,328
Net asset value per share............................ $10.73 $10.73
Shares outstanding................................... 19,083 27,342
CLASS C SHARES
Net assets........................................... $51,584 $51,584
Net asset value per share............................ $10.74 $10.74
Shares outstanding................................... 4,803 4,803
CLASS E SHARES*
Net assets...........................................$11,236,171 --
Net asset value per share............................ $10.76 --
Shares outstanding................................... 1,044,019 --
CLASS H SHARES*
Net assets........................................... $88,513 --
Net asset value per share............................ $10.72 --
Shares outstanding................................... 8,259 --
</TABLE>
______________________
* Voyageur Fund will not offer Class E or Class H shares. In the
Reorganization, Fortis Fund Class E shareholders and Fortis Fund Class H
shareholders will receive Voyageur Fund Class A shares and Voyageur Class B
shares, respectively.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
Fortis Tax-Free was incorporated under Minnesota law in 1982. Effective
with the close of business on May 31, 1991, Fortis Fund, a series of Fortis
Tax-Free, acquired the assets and assumed all identified liabilities of the
Pathfinder Heritage New York Tax-Free Income Fund ("Pathfinder") in a tax-free
exchange by issuing new shares. Fortis Fund had no assets or liabilities prior
to the acquisition. Consequently, Fortis Fund has retained the financial history
of Pathfinder for financial reporting and income tax purposes. Since Fortis Fund
commenced operations, FAI has limited total Fund expenses. FAI has voluntarily
undertaken to limit annual expenses for Fortis Fund (exclusive of Rule 12b-1
fees, interest, taxes, brokerage commissions and non-recurring or extraordinary
charges and expenses) until September 30, 1996, to not more than 1.09% of
average net assets. FAI is not obligated to limit Fortis Fund expenses, and has
determined that it is economically unfeasible to continue to limit expenses to
the current level of 1.09%. FAI therefore proposed the Reorganization to the
Board of Directors of Fortis Tax-Free. The Board of Directors of Fortis Tax-Free
has determined that the Reorganization is in the best interests of and is
expected to provide certain benefits to Fortis Fund and its shareholders. The
Board considered, among other things, the following factors in making such
determinations:
(a) PORTFOLIO MANAGEMENT. As of June 30, 1996, VFM served as the
manager to six closed-end and 10 open-end funds (comprising 33 separate
investment portfolios), administered numerous private accounts and managed
along with its affiliates approximately $11.5 billion in assets. Of the
closed-end and open-end funds under management, 32 are "single state"
funds. Thus, Fortis Fund fits well within VFM's area of expertise.
(b) EXPENSE RATIOS. VFM has undertaken to limit Voyageur Fund expenses
for the fiscal years ending December 31, 1996 and December 31, 1997, to
1.00% of average daily net assets for Class A shares and 1.75% of average
daily net assets for Class B and Class C shares. Assuming VFM continues to
limit expenses to such levels (VFM is not obligated to do so after December
31, 1997), Fortis Fund shareholders will experience a lower expense ratio
as shareholders of Voyageur Fund (1.00% of average daily net assets for
Voyager Fund Class A shares as compared to 1.23% and 1.09% for Fortis Fund
Class A and E shares, respectively, and 1.75% of average daily net assets
for Voyageur Fund Class B and C shares as compared to 2.09% for Fortis Fund
Class B, C and H shares after expense limitations). Assuming no expense
limitations for either Fund, VFM believes that at least Fortis Fund Class
A, B, C and H would benefit from lower expense ratios as Voyageur Fund
shareholders. Without expense reimbursements, total Fortis Fund operating
expenses for the fiscal year ended September 30, 1995 were 1.85%, 2.60%,
2.60%, 1.60%, and 2.60% of average net assets of Class A, B, C, E and H
shares, respectively. FAI estimates that for the fiscal year ending
September 30, 1996, total Fortis Fund operating expenses without expense
reimbursements will be 1.53%, 2.28%, 2.28%, 1.28% and 2.28% of average net
assets for Class A, B, C, E and H shares, respectively. VFM estimates that
without expense reimbursements total fund operating expenses for Voyageur
Class A, B and C shares will be approximately 1.25%, 2.25% and 2.25%,
respectively, of average daily net assets for the fiscal year ending
December 31, 1997.
(c) TAX CONSEQUENCES OF THE REORGANIZATION. It is intended that the
proposed reorganization will be tax-free to Fortis Fund and Fortis Fund
shareholders. See "Federal Income Tax Consequences" below.
(d) TERMS OF THE PLAN. The Board considered the terms and conditions
of the Plan, including that (i) the exchange of Fortis Fund shares for
Voyageur Fund shares will take place on a net asset value basis; and (ii)
no sales charge will be incurred by Fortis Fund shareholders in connection
with their acquisition of Voyageur Fund shares in the Reorganization.
(e) EXPENSES OF THE REORGANIZATION. VFM will pay the costs incurred by
the Voyageur Fund and the Fortis Fund in connection with the
Reorganization, including the fees and expenses associated with the
preparation and filing of a registration statement for purposes of
registering the Voyageur Fund shares to be issued in the Reorganization,
and the expenses of printing and mailing this Prospectus/Proxy Statement
and holding the Fortis Fund shareholder meeting required to approve the
Reorganization.
The Board of Directors of Fortis Tax-Free concluded that the factors noted
in (a) through (e) above render the proposed Reorganization fair to and in the
best interests of shareholders of Fortis Fund.
PLAN OF REORGANIZATION
The following summary of the proposed Plan and the Reorganization is
qualified in its entirety by reference to the Plan attached to this
Prospectus/Proxy Statement as Exhibit A. The Plan provides that, as of the
Effective Time, Voyageur Fund will acquire all or substantially all of the
assets and assume certain identified and stated liabilities of Fortis Fund in
exchange for Voyageur Fund shares having an aggregate net asset value equal to
the aggregate value of the assets acquired (less liabilities assumed) from
Fortis Fund. The value of Fortis Fund assets and liabilities to be acquired by
Voyageur Fund, and the value of Voyageur Fund shares to be received in exchange
therefor, will be computed as of the Effective Time. Voyageur Fund will not
assume any liabilities or obligations of Fortis Fund, whether absolute or
contingent, other than those identified and stated in an unaudited statement of
assets and liabilities of Fortis Fund as of the Effective Time. Because Fortis
Fund is a separate series of Fortis Tax-Free, for corporate law purposes the
transaction is structured as a sale of the assets and assumption of the
liabilities allocated to Fortis Fund in exchange for the issuance of Voyageur
Fund shares to Fortis Fund, followed immediately by the distribution of such
Voyageur Fund shares to Fortis Fund shareholders and the cancellation and
retirement of outstanding Fortis Fund shares.
Pursuant to the Plan, each Class A Fortis Fund shareholder will receive,
immediately after the Effective Time, Class A Voyageur Fund shares with an
aggregate net asset value equal to the aggregate net asset value of the Class A
Fortis Fund shares owned by such Fortis Fund shareholder immediately prior to
the Effective Time; each Class B Fortis Fund shareholder will receive
immediately after the Effective Time, Class B Voyageur Fund shares with an
aggregate net asset value equal to the aggregate net asset value of the Class B
Fortis Fund shares owned by such Fortis Fund shareholder immediately prior to
the Effective Time; each Class C Fortis Fund shareholder will receive,
immediately after the Effective Time, Class C Voyageur Fund shares with an
aggregate net asset value equal to the aggregate net asset value of the Class C
Fortis Fund shares owned by such Fortis Fund shareholder immediately prior to
the Effective Time; each Class E Fortis Fund shareholder will receive,
immediately after the Effective Time, Class A Voyageur Fund shares with an
aggregate net asset value equal to the aggregate net asset value of the Class E
Fortis Fund shares owned by such Fortis Fund shareholder immediately prior to
the Effective Time; and each Class H Fortis Fund shareholder will receive,
immediately after the Effective Time, Class B Voyageur Fund shares with an
aggregate net asset value equal to the aggregate net asset value of the Class H
Fortis Fund shares owned by such Fortis Fund shareholder immediately prior to
the Effective Time. Under the Plan, the net asset value per share of Fortis
Fund's Class A, Class B, Class C, Class E and Class H shares will be computed as
of the Effective Time using the valuation procedures set forth in Fortis
Tax-Free's Articles of Incorporation and Bylaws and the then-current prospectus
and statement of additional information of Fortis Fund and as may be required by
the 1940 Act. At the Effective Time, Voyageur Fund will issue to Fortis Fund,
and Fortis Fund will distribute to Fortis Fund's shareholders of record,
determined as of the Effective Time, Voyageur Fund shares issued in exchange for
Fortis Fund assets as described above. All outstanding shares of Fortis Fund
thereupon will be canceled and retired and no additional shares representing
interests in Fortis Fund will be issued thereafter, and Fortis Fund will be
deemed to be liquidated. The distribution of Voyageur Fund shares to former
Fortis Fund shareholders will be accomplished by the establishment of accounts
on the share records of Voyageur Fund in the names of Fortis Fund shareholders,
each representing the numbers of full and fractional Voyageur Fund Class A,
Class B and Class C shares due such shareholders.
The Plan provides that no sales charges will be incurred by Fortis Fund
shareholders in connection with the acquisition by them of Voyageur Fund shares
pursuant thereto. The Plan also provides that former holders of Fortis Fund
Class B and Class H shares who receive Voyageur Fund Class B shares in the
Reorganization will receive credit for the period they held Fortis Fund Class B
and Class H shares in applying the six-year step-down of the contingent deferred
sales charge on Voyageur Fund Class B shares and in determining the date upon
which such shares convert to Voyageur Fund Class A shares. Holders of Fortis
Fund Class C shares who receive Voyageur Fund Class C shares in the
Reorganization will receive credit for the period they held their Fortis Fund
Class C shares in applying the contingent deferred sales charge on shares held
for less than one year. In addition, the Plan provides that in applying the
two-year contingent deferred sales charge of 1.0% on purchases of Class A shares
with respect to which the front-end sales charge was waived, credit will be
given for the period a former Fortis Fund shareholder who is subject to such a
contingent deferred sales charge held his or her shares.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others: (i) approval of the Plan, which
includes the related amendment of Fortis Tax-Free's articles of incorporation
attached to the Plan, by the shareholders of Fortis Fund; (ii) the delivery of
the opinion of counsel described below under "Federal Income Tax Consequences";
(iii) the accuracy as of the Effective Time of the representations and
warranties made by Fortis Fund and Voyageur Fund in the Plan; and (iv) the
delivery of customary closing certificates. See the Plan attached hereto as
Appendix A for a complete listing of the conditions to the consummation of the
Reorganization. The Plan may be terminated and the Reorganization abandoned at
any time prior to the Effective Time, before or after approval by shareholders
of Fortis Fund, by resolution of the Board of Directors of either Fortis
Tax-Free or Voyageur Mutual Funds, if circumstances should develop that, in the
opinion of such Board, make proceeding with the consummation of the Plan and
Reorganization not in the best interests of the respective Fund's shareholders.
The Plan provides that VFM will pay the costs incurred by Voyageur Fund and
Fortis Fund in connection with the Reorganization, including the fees and
expenses associated with the preparation and filing of a registration statement
for purposes of registering the Voyageur Fund shares to be issued in the
Reorganization, and the expenses of printing and mailing this Prospectus/Proxy
Statement and holding the Fortis Fund shareholder meeting required to approve
the Reorganization. The Plan also provides that at or prior to the Effective
Time, FAI, or an affiliate of FAI, shall have reimbursed Fortis Fund by the
amount, if any, that the expenses incurred by Fortis Fund (or accrued up to the
Effective Time) exceed any applicable contractual or state-imposed expense
limitations.
Under the Plan, Fortis Fund has agreed to operate its business in the
ordinary course between the date of the Plan and the Effective Time, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed).
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of each class of Fortis Fund, voting as separate classes.
Approval of the Plan by Fortis Fund shareholders will be deemed approval of the
amendment to the articles of incorporation of Fortis Tax-Free attached to the
Plan. If the Plan is not approved, the Boards of Directors of the respective
Funds will consider other possible courses of action.
DESCRIPTION OF VOYAGEUR FUND SHARES
For information concerning the common shares of Voyageur Fund, including
voting rights, see "Summary--Capital Shares; Shareholder Voting Rights" above
and "General Information About Voyageur Fund" in Appendix C hereto. All Voyageur
Fund shares issued in the Reorganization will be fully paid and non-assessable
and will not be entitled to preemptive or cumulative voting rights.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Voyageur Fund shares for Fortis Fund's
net assets and the distribution of such shares to Fortis Fund's shareholders
upon liquidation of Fortis Fund will be treated as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code"), and that, for
federal income tax purposes, no income, gain or loss will be recognized by
Fortis Fund's shareholders. Fortis Fund has not asked, nor does it plan to ask,
the Internal Revenue Service to rule on the tax consequences of the
Reorganization.
As a condition to the closing of the Reorganization, the two Funds will
receive an opinion from Dorsey & Whitney LLP, counsel to Voyageur Fund and
Fortis Fund, based in part on certain representations to be furnished by each
Fund, substantially to the effect that the federal income tax consequences of
the Reorganization will be as follows:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code, and Voyageur Fund and Fortis Fund
each will qualify as a party to the Reorganization under Section
368(b) of the Code;
(ii) The holders of Fortis Fund shares will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of Voyageur Fund
shares. Fortis Fund shareholders subject to taxation will recognize
income upon receipt of any net investment income or net capital gains
of Fortis Fund distributed by Fortis Fund prior to the effective time
of the Reorganization.
(iii)the tax basis of Voyageur Fund shares received by each holder of
Fortis Fund shares pursuant to the Reorganization will be equal to the
tax basis of Fortis Fund shares exchanged therefor;
(iv) the holding period of Voyageur Fund shares received by each Fortis
Fund shareholder pursuant to the Reorganization will include the
period during which the Fortis Fund shareholder held Fortis Fund
shares exchanged therefor, provided that the Fortis Fund shares were
held as a capital asset at the Effective Time;
(v) Fortis Fund will recognize no income, gain or loss by reason of the
Reorganization;
(vi) Voyageur Fund will recognize no income, gain or loss by reason of the
Reorganization;
(vii)the tax basis of the assets received by Voyageur Fund pursuant to the
Reorganization will be the same as the basis of those assets in the
hands of Fortis Fund as of the Effective Time;
(viii) the holding period of the assets received by Voyageur Fund pursuant
to the Reorganization will include the period during which such assets
were held by Fortis Fund; and
(ix) Voyageur Fund will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of Fortis Fund as of the
Effective Time.
The foregoing opinion will be based upon certain representations, of which
a principal one is that there are no shareholders owning 5% or more of the
outstanding shares of Fortis Fund and that, to the best of the knowledge of the
management of Fortis Fund, there is no plan or intention on the part of the
remaining shareholders of Fortis Fund to sell, exchange, or otherwise dispose of
any of the shares of Voyageur Fund received in the Reorganization.
Shareholders of Fortis Fund should consult their tax advisors regarding the
effect, if any, of the proposed Reorganization in light of their individual
circumstances. Since the foregoing discussion only relates to the federal income
tax consequences of the Reorganization, shareholders of Fortis Fund should
consult their tax advisors as to state and local tax consequences, if any, of
the Reorganization.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of Fortis Tax-Free, including the "non-interested"
directors, unanimously recommends that shareholders of Fortis Fund approve the
Plan. Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares of each class of Fortis Fund, voting as separate classes.
Approval of the Plan by Fortis Fund shareholders will be deemed approval of the
amendment to the articles of incorporation of Fortis Tax-Free attached to the
Plan.
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of Fortis Tax-Free to be used
at the Special Meeting of Fortis Fund shareholders to be held at 10:00 a.m.,
Central time, on October ___, 1996, at the offices of Voyageur Fund and at any
adjournments thereof. This Prospectus/Proxy Statement, along with a Notice of
Special Meeting and a proxy card, is first being mailed to shareholders of
Fortis Fund on or about September___ , 1996. --- Only shareholders of record as
of the close of business on August __, 1996 (the "Record Date") will be entitled
to notice of, and to vote at, the Meeting or any adjournment thereof. If the
enclosed form of proxy is properly executed and returned on time to be voted at
the Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with the instructions marked thereon. Unmarked proxies will
be voted "for" the proposed Plan and Reorganization. A proxy may be revoked by
giving written notice, in person or by mail, of revocation before the Meeting to
the Secretary of Fortis Tax-Free at its principal executive offices, 500
Bielenberg Drive, Woodbury, Minnesota 55125 (mailing address: P.O. Box 64284,
St. Paul, Minnesota 55164), or by properly executing and submitting a
later-dated proxy, or by voting in person at the Meeting.
If a shareholder executes and returns a proxy but abstains from voting, the
shares held by such shareholder will be deemed present at the Meeting for
purposes of determining a quorum and will be included in determining the total
number of votes cast. If a proxy is received from a broker or nominee indicating
that such person has not received instructions from the beneficial owner or
other person entitled to vote Fortis Fund shares (i.e., a broker "non-vote"),
the shares represented by such proxy will not be considered present at the
Meeting for purposes of determining a quorum and will not be included in
determining the number of votes cast. Brokers and nominees will not have
discretionary authority to vote shares for which instructions are not received
from the beneficial owner.
Approval of the Plan and Reorganization will require the affirmative vote
described above under "Information About the Reorganization--Recommendation and
Vote Required."
As of [the record date], 1996 (a) Fortis Fund had _______ Class A shares,
_______ Class B shares, _______ Class C shares, _______ Class E shares and
______ Class H shares outstanding and entitled to vote at the Meeting; and (b)
the directors and officers of Fortis Fund as a group owned less than one percent
of the outstanding shares of the Fund or any class thereof. No shares of
Voyageur Fund have been issued to the public. The following table sets forth
information concerning those persons known by Fortis Fund to own of record or
beneficially more than 5% of the outstanding shares of the Fund, or more than 5%
of the outstanding shares of any class of the Fund, as indicated, as of such
date, including persons and entities who beneficially own more than 25% of the
Fund or any class thereof. Unless otherwise indicated, the persons named below
have both record and beneficial ownership:
NAME AND ADDRESS
OF RECORD HOLDER PERCENTAGE OWNERSHIP
---------------- --------------------
CLASS A
CLASS B
CLASS C
CLASS E
CLASS H
- ---------------
* Record ownership only.
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of FAI and its affiliates
without cost to the Fund. In addition, the services of a third-party proxy
solicitation firm may be utilized, with such firm's fees and expenses borne by
VFM as described under "Information About the Reorganization--Plan of
Reorganization" above.
In the event that sufficient votes to approve the Plan and Reorganization
are not received by the date set for the Meeting, the persons named as proxies
may propose one or more adjournments of the Meeting for up to 120 days to permit
further solicitation of proxies. In determining whether to adjourn the Meeting,
the following factors may be considered: the percentage of votes actually cast,
the percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any such adjournment will require the
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote at the Meeting. The persons named as proxies will vote upon
such adjournment after consideration of the best interests of all shareholders.
INTERESTS OF CERTAIN PERSONS
The following persons affiliated with Voyageur Fund will receive payments
from the Fund for services rendered pursuant to contractual arrangements with
the Fund: VFM will receive payments from Voyageur Fund for investment advisory
services it will render pursuant to an Investment Advisory Agreement, and for
dividend disbursing, transfer agency, administrative and accounting services it
will render pursuant to an Administrative Services Agreement. VFD will receive
payments from Voyageur Fund for servicing of shareholder accounts and
distribution-related services pursuant to a Distribution Agreement and the
Fund's Plan of Distribution. See "Summary--Fees and Expenses--Voyageur Fund
Expenses" above.
FINANCIAL STATEMENTS AND EXPERTS
The audited statement of assets and liabilities, including the schedule of
investments in securities, of Fortis Fund as of September 30, 1995 and the
related statements of operations for the year then ended, the statements of
changes in net assets for the period indicated therein, and the financial
highlights for the period indicated therein, as included in the Annual Report of
Fortis Fund for the fiscal year ended September 30, 1995, have been incorporated
by reference into this Prospectus/Proxy Statement in reliance on the reports of
KPMG Peat Marwick LLP, independent auditors for Fortis Fund, given on the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of the shares of Voyageur
Fund to be issued in the Reorganization will be passed on by Dorsey & Whitney
LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402.
OTHER INFORMATION ABOUT FORTIS FUND AND VOYAGEUR FUND
Fortis Tax-Free is a Minnesota corporation organized in 1982 and is
registered with the Securities and Exchange Commission under the 1940 Act as an
"open-end management investment company." Fortis Tax-Free currently offers its
shares in three series. As of June 30, 1996, the three series of Fortis Tax-Free
that are currently offered had aggregate net assets of approximately $140
million. Information concerning Fortis Fund is incorporated herein by reference
from its current Prospectus dated February 1, 1996. The Prospectus of Fortis
Fund may be obtained in the manner described under "Incorporation by Reference"
and forms part of the Registration Statement of Fortis Fund on Form N-1A which
has been filed with the Commission.
Voyageur Mutual Funds is a Minnesota corporation organized in 1993 and is
registered with the Securities and Exchange Commission under the 1940 Act as an
"open-end management investment company." Voyageur Mutual Funds currently offers
its shares in eight series.
Voyageur Mutual Funds and Fortis Tax-Free are subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith file reports and other information including proxy
materials, reports and charter documents with the Commission. These proxy
materials, reports and other information filed by Voyageur Mutual Funds and
Fortis Tax-Free can be inspected and copies obtained at the Public Reference
Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the New York Regional Office of the Commission at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20549 at prescribed rates.
PROSPECTUS /PROXY STATEMENT
SEPTEMBER ___, 1996
ACQUISITION OF THE ASSETS OF
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL,
MINNESOTA 55164
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR NEW YORK TAX FREE FUND
A NEWLY FORMED, SEPARATELY MANAGED SERIES OF
VOYAGEUR MUTUAL FUNDS, INC.
90 SOUTH SEVENTH STREET, SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
(800-553-2143)
=================
TABLE OF CONTENTS
=================
PAGE
INCORPORATION BY REFERENCE........................... 2
SUMMARY.............................................. 4
PRINCIPAL RISK FACTORS............................... 14
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS....................... 16
CAPITALIZATION....................................... 20
INFORMATION ABOUT THE REORGANIZATION
VOTING INFORMATION................................... 25
FINANCIAL STATEMENTS AND EXPERTS..................... 26
LEGAL MATTERS........................................ 27
OTHER INFORMATION ABOUT FORTIS
FUND AND VOYAGEUR FUND.......................... 27
APPENDIX A -- AGREEMENT AND PLAN OF
REORGANIZATION.................................. A-1
APPENDIX B--VOYAGEUR FUND INVESTMENTS,
INVESTMENT TECHNIQUES AND RISKS................. B-1
APPENDIX C--VOYAGEUR FUND MANAGEMENT
AND GENERAL INFORMATION......................... C-1
APPENDIX D--VOYAGEUR FUND SHAREHOLDER
GUIDE TO INVESTING............................. D-1
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made as of
this _____ day of ___________, 1996, by and between Voyageur Mutual Funds, Inc.
("VOYAGEUR"), a Minnesota corporation, on behalf of its New York Tax Free Fund
(the "ACQUIRING FUND"), a series of Voyageur which has been or will be formed,
and Fortis Tax-Free Portfolios, Inc. ("FORTIS"), a Minnesota corporation, on
behalf of its New York Portfolio (the "ACQUIRED FUND"), a series of Fortis.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation pursuant to Section 368(a)(1)(F) of the United States Internal
Revenue Code of 1986, as amended (the "CODE"). The reorganization (the
"REORGANIZATION") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund to the Acquiring Fund and the assumption by the
Acquiring Fund of all of the identified and stated liabilities of the Acquired
Fund in exchange solely for full and fractional shares of common stock, par
value $.01 per share, of the Acquiring Fund (the "ACQUIRING FUND SHARES"),
having an aggregate net asset value equal to the aggregate value of the assets
acquired (less liabilities assumed) of the Acquired Fund, and the distribution
of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement. The distribution of
Acquiring Fund Shares to Acquired Fund shareholders and the retirement and
cancellation of the Acquired Fund's shares will be effected pursuant to an
amendment to the articles of incorporation of Fortis in the form attached hereto
as Exhibit 1 (the "AMENDMENT") to be adopted by Fortis in accordance with the
Minnesota Business Corporation Act.
Subsequent references herein to the Acquired Fund and the Acquiring Fund,
with respect to covenants, undertakings and conditions of or involving corporate
officers or the board of directors (as applicable) and with respect to other
matters of a corporate nature, are intended to be, and are to be construed as,
references to Fortis or Voyageur, as applicable. With respect to covenants,
undertakings and conditions of or involving the shareholders of the Acquired
Fund or the Acquiring Fund, however, such references (except as hereafter
specifically indicated to the contrary) are intended, and are to be construed
as, references only to shareholders of that series of Fortis or Voyageur (as
applicable).
WITNESSETH:
WHEREAS, each of Voyageur and Fortis is a registered, open-end management
investment company that offers its shares of common stock in multiple series
(each of which series represents a separate and distinct portfolio of assets and
liabilities);
WHEREAS, each of Voyageur and Fortis offers Class A shares, Class B shares
and Class C shares of each of its series and, in addition, Fortis offers Class E
shares and Class H shares;
WHEREAS, the Acquired Fund owns securities which generally are assets of
the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Board of Directors of Voyageur has determined that the
transfer of all or substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of all of the identified and stated
liabilities of the Acquired Fund by the Acquiring Fund is in the best interests
of the Acquiring Fund shareholders;
WHEREAS, the Board of Directors of Fortis has determined that the exchange
of all or substantially all of the assets of the Acquired Fund for Acquiring
Fund Shares and the assumption of all of the identified and stated liabilities
of the Acquired Fund by the Acquiring Fund is in the best interests of the
Acquired Fund shareholders;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto covenant and agree as follows:
1. TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE ACQUIRED
FUND TO THE ACQUIRING FUND SOLELY IN EXCHANGE FOR ACQUIRING FUND
SHARES, THE ASSUMPTION OF ALL IDENTIFIED AND STATED ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval by the Acquired Fund shareholders and
to the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all or substantially all of the Acquired Fund's assets as set forth in
Section 1.2 to the Acquiring Fund, and the Acquiring Fund agrees in exchange
therefor: (i) to deliver to the Acquired Fund that number of full and fractional
Acquiring Fund Shares determined in accordance with Article 2; and (ii) to
assume all of the identified and stated liabilities of the Acquired Fund, as set
forth in Section 1.3. Such transactions shall take place as of the effective
time provided for in Section 3.1 (the "EFFECTIVE TIME").
1.2(a) The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all or substantially all of Acquired Fund's property,
including, but not limited to, all cash, securities, commodities, futures and
interests and dividends or interest receivable which are owned by the Acquired
Fund as of the Effective Time. All of said assets shall be set forth in detail
in an unaudited statement of assets and liabilities of the Acquired Fund as of
the Effective Time (the "EFFECTIVE TIME STATEMENT"). The Effective Time
Statement shall, with respect to the listing of the Acquired Fund's portfolio
securities, detail the adjusted tax basis of such securities by lot, the
respective holding periods of such securities and the current and accumulated
earnings and profits of the Acquired Fund. The Effective Time Statement shall be
prepared in accordance with generally accepted accounting principles (except for
footnotes) consistently applied from the prior audited period and shall be
certified by the Acquired Fund's treasurer.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all of
the Acquired Fund's assets as of the date of execution of this Agreement. The
Acquired Fund reserves the right to sell any of these securities and to acquire
additional securities in the ordinary course of its business.
1.3 The Acquiring Fund shall assume all of the identified and stated
liabilities, expenses, costs, charges and reserves (including, but not limited
to, expenses incurred in the ordinary course of the Acquired Fund's operations,
such as accounts payable relating to custodian and transfer agency fees,
investment management and administrative fees, legal and audit fees, and
expenses of state securities registration of the Acquired Fund's shares)
reflected in the Effective Time Statement. The Acquiring Fund shall assume only
those liabilities of the Acquired Fund in the amounts reflected on the Effective
Time Statement and shall not assume any other liabilities, whether absolute or
contingent, known or unknown, accrued or unaccrued.
1.4 Immediately after the transfer of assets provided for in Section 1.1
and the assumption of liabilities provided for in Section 1.3, and pursuant to
the plan of reorganization adopted herein, the Acquired Fund will distribute pro
rata (as provided in Article 2) to the Acquired Fund's shareholders of record,
determined as of the Effective Time (the "ACQUIRED FUND SHAREHOLDERS"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to Section 1.1, and
all other assets of the Acquired Fund, if any. Thereafter, no additional shares
representing interests in the Acquired Fund shall be issued. Such distribution
will be accomplished by the transfer of the Acquiring Fund Shares then credited
to the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders representing the number of Acquiring Fund Shares due each such
shareholder. All issued and outstanding shares of the Acquired Fund will
simultaneously be cancelled on the books of the Acquired Fund, although share
certificates representing interests in the Acquired Fund will represent a number
of Acquiring Fund Shares after the Effective Time as determined in accordance
with Article 2. Unless requested by Acquired Fund Shareholders, the Acquiring
Fund will not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's Prospectus and Statement of Additional
Information (in effect as of the Effective Time), except that no front-end sales
charges will be incurred by the Acquired Fund Shareholders in connection with
the acquisition by the Acquired Fund Shareholders of the Acquiring Fund Shares
pursuant to this Agreement.
1.6 The Acquiring Fund agrees that in determining contingent deferred sales
charges applicable to Class B and Class H shares distributed by it in the
Reorganization and the date upon which such shares convert to Class A shares, it
shall give credit for the period during which the holders thereof held the Class
B and Class H shares of the Acquired Fund in exchange for which such Acquiring
Fund shares were issued. The Acquiring Fund agrees that in determining
contingent deferred sales charges applicable to Class C shares distributed by it
in the Reorganization, it shall give credit for the period during which the
holders thereof held the Class C shares of the Acquired Fund in exchange for
which such Acquiring Fund shares were issued. In the event that Class A shares
of the Acquiring Fund are distributed in the Reorganization to former holders of
Class A shares of the Acquired Fund with respect to which the front-end sales
charge was waived due to a purchase of $1 million or more, the Acquiring Fund
agrees that in determining whether a deferred sales charge is payable upon the
sale of such Class A shares of the Acquiring Fund it shall give credit for the
period during which the holder thereof held such Acquired Fund shares.
1.7 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "COMMISSION"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION; ISSUANCE OF ACQUIRING FUND SHARES
2.1 The net asset value per share of the Acquired Fund's Class A shares,
Class B shares, Class C shares, Class E shares, and Class H shares shall be
computed as of the Effective Time, using the valuation procedures set forth in
the Acquired Fund's Articles of Incorporation and Bylaws and then-current
Prospectus and Statement of Additional Information and as may be required by the
Investment Company Act of 1940, as amended (the "1940 ACT").
2.2(a) The total number of the Acquiring Fund's Class A shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable collectively to the Acquired Fund's
Class A shares and Acquired Fund's Class E shares shall have an aggregate net
asset value equal to the sum of the aggregate net asset value of the Acquired
Fund's Class A shares and the aggregate net asset value of the Acquired Fund's
Class E shares immediately prior to the Effective Time, as determined pursuant
to Section 2.1.
(b) The total number of the Acquiring Fund's Class B shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable collectively to the Acquired Fund's
Class B shares and Acquired Fund's Class H shares shall have an aggregate net
asset value equal to the sum of the aggregate net asset value of the Acquired
Fund's Class B shares and the aggregate net asset value of the Acquired Fund's
Class H shares immediately prior to the Effective Time, as determined pursuant
to Section 2.1.
(c) The total number of the Acquiring Fund's Class C shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class C shares
shall have an aggregate net asset value equal to the aggregate net asset value
of the Acquired Fund's Class C shares, immediately prior to the Effective Time,
as determined pursuant to Section 2.1.
2.3 Immediately after the Effective Time, the Acquired Fund shall
distribute to the Acquired Fund shareholders of the respective classes in
liquidation of the Acquired Fund pro rata (based upon the ratio that the number
of Acquired Fund shares of the respective classes owned by each Acquired Fund
shareholder immediately prior to the Effective Time bears to the total number of
issued and outstanding Acquired Fund shares of such class immediately prior to
the Effective Time) the full and fractional Acquiring Fund Shares of the
respective classes received by the Acquired Fund pursuant to Section 2.2.
Accordingly, each Class A Acquired Fund shareholder shall receive, immediately
after the Effective Time, Class A Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class A Acquired Fund
shares owned by such Acquired Fund Shareholder immediately prior to the
Effective Time; each Class B Acquired Fund shareholder shall receive immediately
after the Effective Time, Class B Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class B Acquired Fund
shares owned by such Acquired Fund Shareholder immediately prior to the
Effective Time; each Class C Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class C Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class C
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time; each Class E Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class A Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class E
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time; and each Class H Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class B Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class H
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time.
3. EFFECTIVE TIME OF CLOSING
3.1 The closing of the transactions contemplated in this Agreement (the
"CLOSING") shall occur as of the close of normal trading on the New York Stock
Exchange (the "EXCHANGE") (currently, 4:00 p.m. Eastern time) on the first day
upon which the conditions to closing shall have been satisfied, or at such time
on such later date as provided herein or as the parties otherwise may agree in
writing (such time and date being referred to herein as the "EFFECTIVE TIME").
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the Effective Time unless otherwise agreed to by the
parties. The Closing shall be held at the offices of Dorsey & Whitney LLP, 220
South Sixth Street, Minneapolis, Minnesota 55402, or at such other place as the
parties may agree.
3.2 The custodian for the Acquiring Fund (the "CUSTODIAN") shall deliver at
the Closing a certificate of an authorized officer stating that: (a) the
Acquired Fund's portfolio securities, cash, and any other assets acquired by
Acquiring Fund pursuant to this Agreement have been received in proper form; and
(b) all necessary taxes including all applicable federal and state stock
transfer stamps, if any, shall have been paid, or provision for payment shall
have been made, in conjunction with the delivery of portfolio securities.
3.3 In the event that the Effective Time occurs on a day on which (a) the
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, or (b) trading or the reporting of trading on the
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is impracticable,
the Effective Time shall be postponed until the close of normal trading on the
Exchange on the first business day when trading shall have been fully resumed
and reporting shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing a certificate of its
transfer agent stating that its records (which either preceded or accompany the
certificate) contain the names and addresses of the Acquired Fund Shareholders
and the number of outstanding Acquired Fund shares owned by each such
shareholder as of the Effective Time. The Acquiring Fund shall issue and deliver
a confirmation evidencing the Acquiring Fund Shares to be credited as of the
Effective Time to the Acquired Fund or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, liability assumption agreements,
checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 The Acquired Fund represents, warrants and covenants to the Acquiring
Fund as follows:
(a) Fortis is a corporation duly organized, validly existing and in good
standing under the laws of the state of Minnesota with power under its articles
of incorporation to own all of its properties and assets and to carry on its
business as it is now conducted;
(b) Fortis is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
Fortis (including the Acquired Fund shares) under the Securities Act of 1933, as
amended (the "1933 ACT"), is in full force and effect;
(c) Shares of the Acquired Fund are registered in all jurisdictions in
which they are required to be registered under the state securities laws and any
other applicable laws, and said registrations, including any periodic reports or
supplemental filings, are complete and current, and all fees required to be paid
have been paid, and the Acquired Fund is in good standing, is not subject to any
stop orders, and is fully qualified to sell its shares in any state in which its
shares have been registered;
(d) The Acquired Fund is not in violation, and the execution, delivery and
performance of this Agreement will not result in a violation, of Fortis'
Articles of Incorporation, as amended, or Bylaws, as amended, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the
Acquired Fund's knowledge, threatened against the Acquired Fund or any of its
properties or assets. The Acquired Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Financial Statements of the Acquired Fund as of the end of Fortis'
most recently concluded fiscal year have been audited by KPMG Peat Marwick LLP,
independent accountants, and is in accordance with generally accepted accounting
principles consistently applied, and such statement (a copy of which has been
furnished to the Acquiring Fund) presents fairly, in all material respects, the
financial position of the Acquired Fund as of such date, and there are no known
material contingent liabilities of the Acquired Fund as of such date not
disclosed therein;
(g) Since the end of Fortis' most recently concluded fiscal year, there has
not been any material adverse change in the Acquired Fund's financial condition,
assets, liabilities or business other than changes occurring in the ordinary
course of business, except as otherwise disclosed to the Acquiring Fund. For the
purposes of this paragraph (g), a decline in net asset value per share of the
Acquired Fund, the discharge or incurrence of Acquired Fund liabilities in the
ordinary course of business, or the redemption of Acquired Fund shares by
Acquired Fund Shareholders, shall not constitute such a material adverse change;
(h) All material federal and other tax returns and reports of the Acquired
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the best of the
Acquired Fund's knowledge, no such return is currently under audit and no
assessment shall have been asserted with respect to such returns;
(i) For each taxable year of its operation, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and the Acquired Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company for its final, partial taxable year;
(j) All issued and outstanding shares of the Acquired Fund are, and at the
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the Effective Time, be held by the persons and in the amounts set forth
in the records of the Acquired Fund, as provided in Section 3.4. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, and there is not
outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Effective Time, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to Section 1.2 and full right, power, and authority to sell, assign,
transfer and deliver such assets hereunder, and upon delivery and payment for
such assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act other than as disclosed to the
Acquiring Fund in the Effective Time Statement;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of the Fortis' Board of Directors, and, subject to the approval of the
Acquired Fund Shareholders, this Agreement will constitute a valid and binding
obligation of the Acquired Fund, enforceable in accordance with its terms,
subject, as to enforcement, bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other laws relating to or affecting creditors' rights
and to the application of equitable principles in any proceeding, whether at law
or in equity;
(m) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(n) All information pertaining to the Acquired Fund, Fortis and its agents
and affiliates and included in the Registration Statement referred to in Section
5.5 (or supplied by Fortis, its agents or affiliates for inclusion in said
Registration Statement), on the effective date of said Registration Statement
and up to and including the Effective Time, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading;
(o) Since the end of Fortis' most recently concluded fiscal year, there
have been no material changes by the Acquired Fund in accounting methods,
principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to the Acquiring Fund; and
(p) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately the assets and liabilities of the Acquired
Fund as of the Effective Time, and the values of the Acquired Fund's assets and
liabilities to be set forth in the Effective Time Statement will be computed as
of the Effective Time using the valuation procedures set forth in Fortis' and
Articles of Incorporation and then-current Prospectus and Statement of
Additional Information and as may be required by the 1940 Act.
4.2 The Acquiring Fund represents, warrants and covenants to the Acquired
Fund as follows:
(a) Voyageur is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota with power under its articles
of incorporation to own all of its properties and assets and to carry on its
business as it is now conducted;
(b) Voyageur is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
Voyageur (including the Acquiring Fund Shares) under the 1933 Act, is in full
force and effect;
(c) At or before the Effective Time, shares of the Acquiring Fund
(including, but not limited to, the Acquiring Fund Shares) will be registered in
all jurisdictions in which they will be required to be registered under the
state securities laws (including, but not limited to, all jurisdictions
necessary to effect the Reorganization) and any other applicable laws, and said
registrations, including any periodic reports or supplemental filings will be
complete and current, and all fees required to be paid will have been paid, and
the Acquiring Fund will be in good standing, and will not be subject to any stop
orders, and will be fully qualified to sell its shares in any state in which its
shares will have been registered;
(d) The Prospectus and Statement of Additional Information of the Acquiring
Fund, as of the effective time of the registration statement on Form N-1A in
which such Prospectus and Statement of Additional Information are included and
up to and including the Effective Time, will conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and, on the date of this Agreement, do
not include and, on the effective date of such registration statement and at all
times thereafter to and including the Effective Time, will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not materially misleading;
(e) The Acquiring Fund is not in violation, and the execution, delivery and
performance of this Agreement will not result in a violation, of its Articles of
Incorporation or Bylaws or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound;
(f) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the
Acquiring Fund's knowledge, threatened against the Acquiring Fund or any of its
properties or assets. The Acquiring Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(g) The Acquiring Fund intends to meet the requirements of Subchapter M of
the Code for qualification and treatment as a regulated investment company in
the current and future years;
(h) All issued and outstanding shares of the Acquiring Fund, if any, are,
and at Effective Time will be, duly and validly issued and outstanding, fully
paid and non-assessable;
(i) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the terms
of this Agreement, at the Effective Time will have been duly authorized and,
when so issued and delivered, will be duly and validly issued Acquiring Fund
Shares, and will be fully paid and non-assessable by the Acquiring Fund;
(j) The Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of the Acquiring Fund Shares, and
there is not outstanding any security convertible into any of the Acquiring Fund
Shares;
(k) At the Effective Time, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action, if
any, on the part of the Board of Directors of Voyageur, as issuer of the
Acquiring Fund Shares, and this Agreement will constitute a valid and binding
obligation of the Acquiring Fund enforceable in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws relating to or affecting
creditors' rights and to the application of equitable principles in any
proceeding, whether at law or in equity. Consummation of the transactions
contemplated in this Agreement does not require the approval of the Acquiring
Fund's shareholders;
(m) The information to be furnished by the Acquiring Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(n) Following the Reorganization, the Acquiring Fund shall determine its
net asset value per share in accordance with the valuation procedures set forth
in Voyageur's Articles of Incorporation, Bylaws and Prospectus and Statement of
Additional Information (as the same may be amended from time to time) and as may
be required by the 1940 Act; and
(o) The Registration Statement referred to in Section 5.5, on its effective
date and up to and including the Effective Time, will (i) conform in all
material respects to the applicable requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the
rules and regulations of the Commission thereunder, and (ii) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading;
provided, however, that the representations and warranties in clause (ii) of
this paragraph shall not apply to statements in (or omissions from) the
Registration Statement concerning the Acquired Fund, Fortis and its agents and
affiliates (or supplied by Fortis, its agents or affiliates for inclusion in
said Registration Statement).
5. FURTHER COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquired Fund will operate its business in the ordinary course
between the date hereof and the Effective Time, it being understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions, and any other distributions that may be
advisable (which may include distributions prior to the Effective Time of net
income and/or net realized capital gains not previously distributed).
5.2 The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary with respect to the Acquired Fund and its agents and
affiliates for the preparation of the Registration Statement on Form N-14 of the
Acquiring Fund (the "REGISTRATION STATEMENT"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to conduct
its operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by the Acquired Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time; and
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Acquired Fund and dated as of the date of the Closing, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct at the Effective Time, except as they may be affected by the
transactions contemplated by this Agreement and as to such other matters as the
Acquired Fund shall reasonably request.
6.3 The Acquired Fund shall have received at the Closing the opinion of
Dorsey & Whitney LLP, counsel to the Acquiring Fund, in a form reasonably
satisfactory to the Acquired Fund and its counsel, and dated as of the date of
the Closing, covering the following points:
That (a) Voyageur is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota, with
the corporate power to own all properties and assets to be acquired
pursuant to this Agreement and to conduct its business as described in
the Registration Statement following the Effective Time; (b) the
Agreement has been duly authorized by all requisite corporate action,
executed and delivered by Voyageur on behalf of the Acquiring Fund
and, assuming due authorization, execution and delivery of the
Agreement by the Acquired Fund, constitutes the valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring
Fund in accordance with its terms, subject as to enforcement, to the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar law of general application affecting
creditors' rights, including (without limitation) applicable
fraudulent transfer laws and court decisions relating thereto and
subject to the effect of general principles of equity, including
(without limitation) concepts of materiality, reasonableness, good
faith and fair dealing, and other similar doctrines affecting the
enforcement of agreements generally (regardless of whether considered
in a proceeding in equity or at law); (c) the Acquiring Fund Shares to
be issued to the Acquired Fund Shareholders as provided by this
Agreement have been duly authorized and reserved for issuance and upon
issuance, delivery and payment therefor as described in the Agreement
will be validly issued, fully paid and nonassessable, and no
shareholder of the Acquiring Fund will have any preemptive rights to
subscription or purchase in respect thereof; (d) the execution and
delivery of the Agreement and the Reorganization will not violate or
conflict with Voyageur's Articles of Incorporation or Bylaws or any
material agreement (known to such counsel) to which Voyageur on behalf
of the Acquiring Fund or the Acquiring Fund is a party or by which
Voyageur on behalf of the Acquiring Fund or the Acquiring Fund is
bound; (e) no consent, approval, authorization or order of and no
notice to or filing with, any court or governmental agency or body of
the United States is required to be obtained for the Reorganization,
except such as have been obtained or made under the 1933 Act, the 1934
Act and the 1940 Act, and such as may be required under state
securities laws; (f) such counsel does not know of any pending or
overtly threatened lawsuits or claims against Voyageur or the
Acquiring Fund with respect to the Reorganization or which is required
to be described in the Registration Statement or the Prospectus/Proxy
Statement that is not described as required; (g) to such counsel's
knowledge, Voyageur is registered as an investment company under the
1940 Act and such registration is in full force and effect and (h) the
Registration Statement on N-14 as of its effective date complied as to
form in all material respects with the 1933 Act, 1934 Act and 1940
Act. Such counsel also shall state that they have reviewed with
certain officers of Voyageur and representatives of Voyageur and the
Acquiring Fund the contents of the Registration Statement and related
matters, and, although they are not verifying and are not passing upon
and do not assume any responsibility for the accuracy and completeness
of the statements contained in the Prospectus/Proxy Statement or the
Registration Statement, on the basis of the foregoing (relying
substantially as to materiality upon the opinions of officers of
Voyageur and representatives of Voyageur and the Acquiring Fund), no
facts have come to their attention that lead them to believe that the
Registration Statement as of its effective date, as of the date of the
Acquired Fund Shareholders' meeting and as of the Effective Time,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding Voyageur or the
Acquiring Fund or necessary to make the statements therein regarding
Voyageur or the Acquiring Fund, in light of the circumstances under
which they were made, not misleading. Such counsel may state that such
counsel expresses no view with respect to the financial statements,
the notes thereto and the related schedules and other financial or
statistical data included in the Registration Statement or the
Prospectus/Proxy Statement. Such opinion may state that such opinion
is solely for the benefit of Fortis on behalf of the Acquired Fund,
the Acquired Fund, and Fortis' directors and officers on behalf of the
Acquired Fund. Such opinion may (i) rely upon the opinion of other
counsel, provided such counsel is reasonably acceptable to the
Acquired Fund, to the extent set forth in the opinion, (ii) provide
that references to the knowledge or best of knowledge of such counsel
shall mean the information the attorneys who have represented Fortis
and the Acquired Fund in connection with the Reorganization and all
attorneys currently employed by counsel to Fortis who have worked on
matters for Fortis within the past 12 months actually receive from
officers of Voyageur or authorized representatives of Voyageur or the
Acquiring Fund, without independent inquiry by counsel, and (iii)
include other customary qualifications and exceptions reasonably
acceptable to the Acquired Fund.
In this Section 6.3, references to the Prospectus/Proxy Statement include
and relate only to the text of such Prospectus/Proxy Statement and not to any
exhibits or attachments thereto or to any documents incorporated by reference
therein.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all of the obligations to be performed by it hereunder at or before the
Effective Time and, in addition thereto, the following conditions (any of which
may be waived by the Acquiring Fund, in its sole and absolute discretion):
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
7.2 The Acquired Fund shall have delivered to the Acquiring Fund the
Effective Time Statement;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Acquiring Fund and dated as of the date of the Closing, to the effect that the
representations and warranties of the Acquired Fund made in this Agreement are
true and correct at and as of the Effective Time, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request;
7.4 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have paid the Acquired Fund an amount in
cash equal to the unamortized organizational expenses, if any, on the books of
the Acquired Fund, and such unamortized organizational expenses shall not be
reflected in the Effective Time Statement; and
7.5 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have reimbursed the Acquired Fund by the
amount, if any, that the expenses incurred by the Acquired Fund (or accrued up
to the Effective Time) exceed any applicable contractual or state-imposed
expense limitations.
7.6 The Acquiring Fund shall have received at the Closing the opinion of
Scott R. Plummer, counsel to the Acquired Fund, in a form reasonably
satisfactory to the Acquiring Fund and its counsel, and dated as of the date of
the Closing, covering the following points:
That (a) Fortis is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota, with
the corporate power to own all properties and assets to be acquired
pursuant to this Agreement and to conduct its business as described in
the Registration Statement; (b) the Agreement has been duly authorized
by all requisite corporate action, executed and delivered by Fortis on
behalf of the Acquired Fund and, assuming due authorization, execution
and delivery of the Agreement by the Acquiring Fund, constitutes the
valid and binding obligation of the Acquired Fund enforceable against
the Acquired Fund in accordance with its terms, subject as to
enforcement, to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar law of general application
affecting creditors' rights, including (without limitation) applicable
fraudulent transfer laws and court decisions relating thereto and
subject to the effect of general principles of equity, including
(without limitation) concepts of materiality, reasonableness, good
faith and fair dealing, and other similar doctrines affecting the
enforcement of agreements generally (regardless of whether considered
in a proceeding in equity or at law); (c) the execution and delivery
of the Agreement and the Reorganization will not violate or conflict
with the Articles of Incorporation or Bylaws of Fortis or any material
agreement (known to such counsel) to which Fortis on behalf of the
Acquired Fund or the Acquired Fund is a party or by which Fortis on
behalf of the Acquired Fund or the Acquired Fund is bound; (d) no
consent, approval, authorization or order of and no notice to or
filing with, any court or governmental agency or body of the United
States is required to be obtained or made by the Acquired Fund for the
Reorganization pursuant to the Agreement, except such as have been
obtained or made under the 1933 Act, the 1934 Act and the 1940 Act,
and such as may be required under state securities laws; (e) such
counsel does not know of any pending or overtly threatened lawsuits or
claims against Fortis or the Acquired Fund with respect to the
Reorganization or which is required to be described in the
Registration Statement or the Prospectus/Proxy Statement that is not
described as required; (f) to such counsel's knowledge, Fortis is
registered as an investment company under the 1940 Act and such
registration is in full force and effect and (g) the Registration
Statement on N-14 as of its effective date complied as to form in all
material respects with the 1933 Act, 1934 Act and 1940 Act. Such
counsel also shall state that they have reviewed with certain officers
of Fortis and representatives of Fortis and the Acquired Fund the
contents of the Registration Statement and related matters, and,
although they are not verifying and are not passing upon and do not
assume any responsibility for the accuracy and completeness of the
statements contained in the Prospectus/Proxy Statement or the
Registration Statement, on the basis of the foregoing (relying
substantially as to materiality upon the opinions of officers of
Fortis and representatives of Fortis and the Acquired Fund), no facts
have come to their attention that lead them to believe that the
Registration Statement as of its effective date, as of the date of the
Acquired Fund Shareholders' meeting and as of the Effective Time,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding Fortis or the
Acquired Fund or necessary to make the statements therein regarding
Fortis or the Acquired Fund, in light of the circumstances under which
they were made, not misleading. Such counsel may state that such
counsel expresses no view with respect to the financial statements,
the notes thereto and the related schedules and other financial or
statistical data included in the Registration Statement or the
Prospectus/Proxy Statement. Such opinion may state that such opinion
is solely for the benefit of Voyageur on behalf of the Acquiring Fund,
the Acquiring Fund, and Voyageur's directors and officers on behalf of
the Acquiring Fund. Such opinion may (i) rely upon the opinion of
other counsel, provided such counsel is reasonably acceptable to the
Acquired Fund, to the extent set forth in the opinion, (ii) provide
that references to the knowledge or best of knowledge of such counsel
shall mean the information the attorneys who have represented Voyageur
and the Acquiring Fund in connection with the Reorganization and all
attorneys currently employed by counsel to Voyageur who have worked on
matters for Voyageur within the past 12 months actually receive from
officers of Fortis or authorized representatives of Fortis or the
Acquired Fund, without independent inquiry by counsel, and (iii)
include other customary qualifications and exceptions reasonably
acceptable to the Acquired Fund.
In this Section 7.6, references to the Prospectus/Proxy Statement include
and relate only to the text of such Prospectus/Proxy Statement and not to any
exhibits or attachments thereto or to any documents incorporated by reference
therein.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of Fortis' Articles of
Incorporation and Bylaws and applicable law, and certified copies of the
resolutions evidencing such approval shall have been delivered to the Acquiring
Fund. Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the conditions set forth in this Section
8.1;
8.2 The Acquiring Fund's investment adviser shall have paid or agreed to
pay the costs incurred by Voyageur and Fortis in connection with the
Reorganization and the Registration Statement referred to in Section 5.5 above,
and the expenses of printing and mailing the prospectus/proxy statement,
soliciting proxies and holding the shareholders meeting required to approve the
transactions contemplated by this Agreement.
8.3 As of the Effective Time, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.4 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.5 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.6 The parties shall have received the opinion of Dorsey & Whitney LLP
addressed to the Acquired Fund and the Acquiring Fund, dated as of the date of
the Closing, and based in part on certain representations to be furnished by the
Acquired Fund, the Acquiring Fund, and their respective investment advisers,
substantially to the effect that:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code, and the Acquiring Fund and the
Acquired Fund each will qualify as a party to the Reorganization under
Section 368(b) of the Code;
(ii) The holders of Fortis Fund shares will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of Voyageur Fund
shares. Fortis Fund shareholders subject to taxation will recognize
income upon receipt of any net investment income or net capital gains
of Fortis Fund distributed by Fortis Fund prior to the Effective Time
of the Reorganization.
(iii) the tax basis of the Acquiring Fund Shares received by each Acquired
Fund Shareholder pursuant to the Reorganization will be equal to the
tax basis of the Acquired Fund shares exchanged therefor;
(iv) the holding period of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will include
the period during which the Acquired Fund Shareholder held the
Acquired Fund shares exchanged therefor, provided that the Acquired
Fund shares were held as a capital asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vii)the tax basis of the assets received by the Acquiring Fund pursuant
to the Reorganization will be the same as the basis of those assets in
the hands of the Acquired Fund as of the Effective Time;
(viii) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which
such assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of the Acquired Fund
as of the Effective Time.
8.7 The Amendment shall have been filed in accordance with the applicable
provisions of Minnesota law.
9. INDEMNIFICATION
9.1 Notwithstanding any contrary agreement among the parties hereto or any
other party, the Acquiring Fund agrees to indemnify and hold harmless the
Acquired Fund and each of Fortis' directors and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Acquired Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties or covenants set forth in this Agreement.
9.2 Notwithstanding any contrary agreement among the parties hereto or any
other party, the Acquired Fund agrees to indemnify and hold harmless the
Acquiring Fund and each of Voyageur's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Acquiring Fund or any of its
directors or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties or covenants set forth in this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall survive
the consummation of the transactions contemplated hereunder.
11. TERMINATION
This Agreement and the transaction contemplated hereby may be terminated
and abandoned by either party by resolution of the party's Board of Directors at
any time prior to the Effective Time, if circumstances should develop that, in
the good faith opinion of such Board, make proceeding with the Agreement not in
the best interest of the applicable party's shareholders.
12. AMENDMENTS
This agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Fortis and
Voyageur; provided, however, that following the meeting of the Acquired Fund
Shareholders called by Fortis pursuant to Section 5.2 of this Agreement, no such
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to the
Acquiring Fund, 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota
55402, Attention: President (with a copy to Dorsey & Whitney LLP, 220 South
Sixth Street, Minneapolis, Minnesota 55402, Attention: Kathleen L. Prudhomme) or
the Acquired Fund, 500 Bielenberg Drive, Woodbury, Minnesota 55125 (if by
personal delivery) or P.O. Box 64284, St. Paul, Minnesota 55164 (if by mail),
Attention: President (with a copy to Dorsey & Whitney LLP, 220 South Sixth
Street, Minneapolis, Minnesota 55402, Attention: Michael J. Radmer).
14. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY;
MISCELLANEOUS
14.1 The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement.
14.3 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.4 It is expressly agreed that the obligations of Voyageur hereunder
shall not be binding upon any of the directors, shareholders, nominees,
officers, agents, or employees of Voyageur personally, but bind only the
property of the Acquiring Fund, as provided in the Articles of Incorporation and
Bylaws of Voyageur. The execution and delivery of this Agreement have been
authorized by the directors of Voyageur and signed by authorized officers of
Voyageur acting as such, and neither such authorization by such directors nor
such execution and delivery by such officers shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, but shall bind only the property of the Acquiring Fund as provided
in the Articles of Incorporation and Bylaws of Voyageur.
14.5 It is expressly agreed that the obligations of Fortis hereunder shall
not be binding upon any of the directors, shareholders, nominees, officers,
agents, or employees of Fortis personally, but bind only the property of the
Acquired Fund, as provided in the Articles of Incorporation and Bylaws of
Fortis. The execution and delivery of this Agreement have been authorized by the
directors of Fortis and signed by authorized officers of Fortis acting as such,
and neither such authorization by such directors nor such execution and delivery
by such officers shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, but shall bind only the
property of the Acquired Fund as provided in the Articles of Incorporation and
Bylaws of Fortis.
14 .6 The validity, interpretation and effect of this Agreement shall be
governed exclusively by the laws of the State of Minnesota, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President.
VOYAGEUR MUTUAL FUNDS, INC.
on behalf of its
NEW YORK TAX FREE FUND
By_____________________________
Title________________________
FORTIS TAX-FREE PORTFOLIOS,INC.
on behalf of its
NEW YORK PORTFOLIO
By_____________________________
Title________________________
EXHIBIT 1 TO APPENDIX A
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FORTIS TAX-FREE PORTFOLIOS, INC.
The undersigned officer of Fortis Tax-Free Portfolios, Inc. (the
"Corporation"), a corporation subject to the provisions of Chapter 302A of the
Minnesota Statutes, hereby certifies that the Corporation's Board of Directors
and shareholders, at meetings held ___________, 1996, and ___________, 1996,
respectively, adopted the resolutions hereinafter set forth; and such officer
further certifies that the amendments to the Corporation's Amended and Restated
Articles of Incorporation set forth in such resolutions were adopted pursuant to
said Chapter 302A.
WHEREAS, the Corporation is registered as an open end management investment
company (i.e., a mutual fund) under the Investment Company Act of 1940 and
offers its shares to the public in several series, each of which represents
a separate and distinct portfolio of assets; and
WHEREAS, it is desirable and in the best interests of the holders of the
Series C shares of the Corporation (also known as the "New York Portfolio")
that the assets belonging to such series be sold to Voyageur Mutual Funds,
Inc. ("Voyageur"), a Minnesota corporation and an open end management
investment company registered under the Investment Company Act of 1940, in
exchange for the Series J shares of Voyageur (also known as the "Voyageur
New York Tax Free Fund"); and
WHEREAS, the Corporation wishes to provide for the pro rata distribution of
such shares of Voyageur received by it to holders of shares of the
Corporation's New York Portfolio and the simultaneous cancellation and
retirement of the outstanding shares of the Corporation's New York
Portfolio; and
WHEREAS, the Corporation and Voyageur have entered into an Agreement and
Plan of Reorganization providing for the foregoing transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in order
to bind all holders of shares of the Corporation's New York Portfolio to
the foregoing transactions, and in particular to bind such holders to the
cancellation and retirement of the outstanding shares of the Corporation's
New York Portfolio, it is necessary to adopt an amendment to the
Corporation's Amended and Restated Articles of Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Amended and Restated
Articles of Incorporation be, and the same hereby are, amended to add the
following Article 5A immediately following Article 5 thereof:
5A. (a) For purposes of this Article 5A, the following terms shall
have the following meanings:
"CORPORATION" means this corporation.
"VOYAGEUR" means Voyageur Mutual Funds, Inc., a Minnesota corporation.
"ACQUIRED FUND" means the Corporation's New York Portfolio, which is
represented by the Corporation's Series C shares.
"ACQUIRED FUND SHARES" means the Corporation's Series C shares.
"CLASS A ACQUIRED FUND SHARES" means the Acquired Fund's Class A
shares.
"CLASS B ACQUIRED FUND SHARES" means the Acquired Fund's Class B
shares.
"CLASS C ACQUIRED FUND SHARES" means the Acquired Fund's Class C
shares.
"CLASS E ACQUIRED FUND SHARES" means the Acquired Fund's Class E
shares.
"CLASS H ACQUIRED FUND SHARES" means the Acquired Fund's Class H
shares.
"ACQUIRING FUND" means Voyageur's New York Tax Free Fund, which is
represented by Voyageur's Series J shares.
"ACQUIRING FUND SHARES" means Voyageur's Series I shares.
"CLASS A ACQUIRING FUND SHARES" means the Acquiring Fund's Class A
shares.
"CLASS B ACQUIRING FUND SHARES" means the Acquiring Fund's Class B
shares.
"CLASS C ACQUIRING FUND SHARES" means the Acquiring Fund's Class C
shares.
"EFFECTIVE TIME" means 4:00 p.m. Eastern time on the date upon which
these Articles of Amendment are filed with the Minnesota Secretary of
State.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the Special Liabilities associated with such assets, and the specific
General Assets and General Liabilities allocated to the Acquired Fund,
shall be sold to and assumed by the Acquiring Fund in return for Class A
Acquiring Fund Shares, Class B Acquiring Fund Shares, and Class C Acquiring
Fund Shares, all pursuant to the Agreement and Plan of Reorganization
between the Corporation and Voyageur relating thereto. For purposes of the
foregoing, the terms "assets belonging to," "Special Liabilities," "General
Assets" and "General Liabilities" have the meanings assigned to them in
Article 7(b), (c) and (d) of the Corporation's Amended and Restated
Articles of Incorporation.
(c) The number of Class A Acquiring Fund Shares, Class B Acquiring
Fund Shares, and Class C Acquiring Fund Shares to be received by the
Acquired Fund and distributed by it to the respective Acquired Fund
shareholders shall be determined as follows:
(i) The net asset value per share of the Class A Acquired Fund
shares, Class B Acquired Fund Shares, Class C Acquired Fund Shares,
Class E Acquired Fund Shares and Class H Acquired Fund Shares shall be
computed as of the Effective Time using the valuation procedures set
forth in its articles of incorporation and bylaws, its then-current
Prospectus and Statement of Additional Information, and as may be
required by the Investment Company Act of 1940, as amended.
(ii) The total number of all classes of Acquiring Fund Shares to
be issued (including fractional shares, if any) in exchange for the
assets and liabilities of the Acquired Fund shall have an aggregate
net asset value equal to the aggregate net asset value of all classes
of the Acquired Fund Shares immediately prior to the Effective Time,
as determined pursuant to (i) above. The total number of Class A
Acquiring Fund Shares to be issued (including fractional shares, if
any) in exchange for the assets and liabilities of the Acquired Fund
which are allocable collectively to the Class A Acquired Fund Shares
and Class E Acquired Fund Shares shall have an aggregate net asset
value equal to the sum of the aggregate net asset value of the Class A
Acquired Fund Shares and the aggregate net asset value of the Class E
Acquired Fund Shares immediately prior to the Effective Time, as
determined pursuant to (i) above; the total number of the Class B
Acquiring Fund Shares to be issued (including fractional shares, if
any) in exchange for the assets and liabilities of the Acquired Fund
which are allocable collectively to the Class B Acquired Fund Shares
and Class H Acquired Fund Shares shall have an aggregate net asset
value equal to the sum of the aggregate net asset value of the Class B
Acquired Fund Shares and the aggregate net asset value of the Class H
Acquired Fund Shares immediately prior to the Effective Time, as
determined pursuant to (i) above; and the total number of Class C
Acquiring Fund Shares to be issued (including fractional shares, if
any) in exchange for the assets and liabilities of the Acquired Fund
which are allocable to Class C Acquired Fund Shares shall have an
aggregate net asset value equal to the aggregate net asset value of
Class C Acquired Fund Shares, immediately prior to the Effective Time,
as determined pursuant to (i) above.
(iii) Immediately after the Effective Time, the Acquired Fund
shall distribute to the Acquired Fund shareholders of the respective
classes in liquidation of the Acquired Fund pro rata (based upon the
ratio that the number of Acquired Fund Shares of the respective
classes owned by each Acquired Fund shareholder immediately prior to
the Effective Time bears to the total number of issued and outstanding
Acquired Fund Shares of such class immediately prior to the Effective
Time) the full and fractional Acquiring Fund Shares of the respective
classes received by the Acquired Fund pursuant to (i) and (ii) above.
Accordingly, each holder of Class A Acquired Fund Shares shall
receive, immediately after the Effective Time, Class A Acquiring Fund
Shares with an aggregate net asset value equal to the aggregate net
asset value of the Class A Acquired Fund Shares owned by such Acquired
Fund shareholder immediately prior to the Effective Time; each holder
of Class B Acquired Fund Shares shall receive, immediately after the
Effective Time, Class B Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class B
Acquired Fund Shares owned by such Acquired Fund shareholder
immediately prior to the Effective Time; each holder of Class C
Acquired Fund Shares shall receive, immediately after the Effective
Time, Class C Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class C Acquired Fund
Shares owned by such Acquired Fund shareholder immediately prior to
the Effective Time; each holder of Class E Acquired Fund Shares shall
receive, immediately after the Effective Time, Class A Acquiring Fund
Shares with an aggregate net asset value equal to the aggregate net
asset value of the Class E Acquired Fund Shares owned by such Acquired
Fund shareholder immediately prior to the Effective Time; and each
holder of Class H Acquired Fund Shares shall receive, immediately
after the Effective Time, Class B Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of
the Class H Acquired Fund Shares owned by such Acquired Fund
shareholder immediately prior to the Effective Time.
(d) The distribution of Class A Acquiring Fund Shares, Class B
Acquiring Fund Shares and Class C Acquiring Fund Shares to Acquired Fund
shareholders provided for in paragraph (c) above shall be accomplished by
the issuance of such Class A Acquiring Fund Shares, Class B Acquiring Fund
Shares and Class C Acquiring Fund Shares to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund
shareholders representing the numbers of Class A Acquiring Fund Shares,
Class B Acquiring Fund Shares and Class C Acquiring Fund Shares due each
such shareholder pursuant to the foregoing provisions. All issued and
outstanding Acquired Fund Shares shall simultaneously be canceled on the
books of the Acquired Fund and retired. From and after the Effective Time,
share certificates formerly representing Acquired Fund Shares shall
represent the numbers of Class A Acquiring Fund Shares, Class B Acquiring
Fund Shares and Class C Acquiring Fund Shares determined in accordance with
the foregoing provisions.
(e) From and after the Effective Time, the Acquired Fund Shares
canceled and retired pursuant to paragraph (d) above shall have the status
of authorized and unissued Series C shares of the Corporation.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed
these Articles of Amendment on behalf of the Corporation on_____________ , 1996.
FORTIS TAX-FREE PORTFOLIOS, INC.
By______________________________
Its____________________________
APPENDIX B
VOYAGEUR FUND
INVESTMENTS, INVESTMENT TECHNIQUES AND RISKS
INVESTMENT OBJECTIVES AND POLICIES OF VOYAGEUR FUND
The investment objective of Voyageur Fund is to seek as high a level of
current income exempt from federal, New York State, and New York City income
taxes as is consistent with preservation of capital. Voyageur Fund anticipates
that, in normal market conditions, it will invest substantially all of its
assets in Tax-Exempt Obligations (as defined below), the interest on which is
exempt from federal income, New York State and New York City personal income tax
(except for New York State and New York City franchise tax on corporations and
financial institutions, which is measured by income). As a matter of fundamental
policy, the Fund will invest at least 80% of the value of its net assets in such
obligations under normal market conditions. Up to 20% of the securities owned by
Voyageur Fund may generate interest that is an item of tax preference for
purposes of federal, New York State and New York City alternative minimum tax
("AMT"). In normal circumstances the weighted average maturity of the investment
portfolio of Voyageur Fund is expected to be approximately 15 to 25 years.
However, if the Adviser determines that market conditions warrant a shorter
average maturity, Voyageur Fund's investments will be adjusted accordingly.
During times of adverse market conditions when a defensive investment posture is
warranted, Voyageur Fund may temporarily select investments without regard to
the foregoing policies.
There are risks in any investment program, and there is no assurance that
Voyageur Fund's investment objective will be achieved. The value of Voyageur
Fund's shares will fluctuate with changes in the market value of its
investments. Voyageur Fund's investment objective and certain other investment
policies explicitly designated herein as such are fundamental, which means that
they cannot be changed without the vote of its respective shareholders as
provided in the 1940 Act.
Voyageur Fund may invest, without limitation, in securities rated
"investment grade," i.e. within the four highest investment grades, at the time
of investment by Moody's Investors Service, Inc. ("Moody's") or Standard and
Poor's Rating Services ("S&P") or, if unrated, judged by VFM to be of comparable
quality. Bonds included in the lowest investment grade rating category involve
certain speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated bonds. Up to 20% of the
Tax-Exempt Obligations purchased by Voyageur Fund may be rated lower than
investment grade; however, all bonds must be rated "B" or better by Moody's S&P
(Or, if unrated, judged by VFM to be of comparable quality). Such bonds are
often referred to as "junk" bonds or "high yield" bonds. Bonds rated below "BBB"
have a greater vulnerability to default than higher grade bonds. See "Risks and
Special Investment Considerations--General" for a discussion of the risks of
investing in lower grade Tax-Exempt Obligations. A description of the ratings
assigned by Moody's and S&P is set forth in Appendix A to the Statement of
Additional Information relating to the Prospectus/Proxy Statement (the
"Statement of Additional Information").
The foregoing policies as to credit quality of portfolio investments will
apply only at the time of the purchase of a security and Voyageur Fund is not
required to dispose of securities in the event that Moody's or S&P downgrades
its assessment of the credit characteristics of a particular issuer or, in the
cases of unrated securities, in the event VFM reassesses its view with respect
to the credit quality of the issuer thereof. In no event, however, will more
than 5% of Voyageur Fund's total assets consist of securities that have been
downgraded to a rating lower than B or, in the case of unrated securities, that
VFM has determined to have a quality lower than securities rated B.
Voyageur Fund may invest without limitation in short-term Tax-Exempt
Obligations or in taxable obligations on a temporary, defensive basis due to
market conditions or, with respect to taxable obligations, for liquidity
purposes. Such taxable obligations, whether purchased for liquidity purposes or
on a temporary, defensive basis, may include: obligations of the U.S.
Government, its agencies or instrumentalities; other debt securities rated
within the three highest grades by either Moody's or S&P; commercial paper rated
in the highest grade by either of such rating services (Prime-1 or A-1,
respectively); certificates of deposit and bankers' acceptances of domestic
banks which have capital, surplus and undivided profits of over $100 million;
high-grade taxable municipal bonds; and repurchase agreements with respect to
any of the foregoing investments. Voyageur Fund also may hold its assets in cash
and in securities of tax-exempt money market mutual funds.
TAX-EXEMPT OBLIGATIONS
As used in this Appendix to the Prospectus/Proxy Statement, the term
"Tax-Exempt Obligations" refers to debt obligations issued by or on behalf of a
state or territory or its agencies, instrumentalities, municipalities and
political subdivisions. The term "Tax-Exempt Obligations" also includes
Derivative Tax-Exempt Obligations as defined below. In certain instances the
interest on Tax-Exempt Obligations may be an item of tax preference includable
in alternative minimum taxable income depending upon the shareholder's tax
status. See "Distributions to Shareholders and Taxes--Taxes."
Tax-Exempt Obligations are primarily debt obligations issued to obtain
funds for various public purposes such as constructing public facilities and
making loans to public institutions. The two principal classifications of
Tax-Exempt Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Tax-Exempt
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Tax-Exempt Obligations, there is
a variety of types of municipal securities. Certain Tax-Exempt Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indices, such as a
bank prime rate or a tax-exempt money market index. Accordingly, the yield on
such obligations can be expected to fluctuate with changes in prevailing
interest rates. Other Tax-Exempt Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.
Tax-Exempt Obligations also include state or municipal leases and
participation interests therein. Voyageur Fund may invest in these types of
obligations without limit. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. Municipal lease obligations,
except in certain circumstances, are considered illiquid by the staff of the
Securities and Exchange Commission. Municipal lease obligations held by the Fund
will be treated as illiquid unless they are determined to be liquid pursuant to
guidelines established by Voyageur Mutual Fund's Board of Directors (the
"Voyageur Board"). Under these guidelines, VFM will consider factors including,
but not limited to (1) whether the lease can be canceled, (2) what assurance
there is that the assets represented by the lease can be sold, (3) the
municipality's general credit strength (e.g., its debt, administrative, economic
and financial characteristics), (4) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operations of the municipality (e.g., the
potential for an "event of non-appropriation"), and (5) the legal recourse in
the event of failure to appropriate. Additionally, the lack of an established
trading market for municipal lease obligations may make the determination of
fair market value more difficult. See "Investment Policies and
Restrictions--Tax-Exempt Obligations" in the Statement of Additional
Information.
Voyageur Fund may also acquire Derivative Tax-Exempt Obligations, which are
custodial receipts or trust certificates underwritten by securities dealers or
banks that evidence ownership of future interest payments, principal payments or
both on certain Tax-Exempt Obligations. The underwriter of these certificates or
receipts typically purchases and deposits the securities in an irrevocable trust
or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of
a custodial receipt, Voyageur Fund typically would be authorized to assert its
rights directly against the issuer of the underlying obligation, the Fund could
be required to assert through the custodian bank those rights as may exist
against the underlying issuer. Thus, in the event the underlying issuer fails to
pay principal and/or interest when due, the Fund may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Fund had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which the
underlying security had been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, it would be subject
to state income tax (but not federal income tax) on the income it earned on the
underlying security, and the yield on the security paid to the Fund and its
shareholders would be reduced by the amount of taxes paid. Furthermore, amounts
paid by the trust or custodial account to Voyageur Fund would lose their
tax-exempt character and become taxable, for federal and state purposes, in the
hands of the Fund and its shareholders. However, the Fund will only invest in
custodial receipts which are accompanied by a tax opinion stating that interest
payable on the receipts is tax-exempt. If the Fund invests in custodial
receipts, it is possible that a portion of the discount at which the Fund
purchases the receipts might have to be accrued as taxable income during the
period that the Fund holds the receipts.
Investments in Derivative Tax-Exempt Obligations, when combined with
investments in below investment grade rated securities, will not exceed 20% of
Voyageur Fund's total assets. For a discussion of certain risks involved in
investments in Derivative Tax-Exempt Obligations, see "Risks and Special
Investment Considerations--General."
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS
New issues of Tax-Exempt Obligations and other securities are often
purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the buyer enters into the
commitment. Voyageur Fund may enter into such "forward commitments" if it holds,
and maintains until the settlement date in a segregated account, cash or
high-grade liquid debt obligations in an amount sufficient to meet the purchase
price. There is no percentage limitation on Voyageur Fund's total assets which
may be invested in forward commitments. Tax-Exempt Obligations purchased on a
when-issued basis and the securities held in Voyageur Fund's portfolio are
subject to changes in value (both generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Tax-Exempt
Obligations purchased on a when-issued basis may expose the Fund to risk because
they may experience such fluctuations prior to their actual delivery. Purchasing
Tax-Exempt Obligations on a when-issued basis can involve the additional risk
that the yield available in the market when the delivery takes place actually
may be higher than that obtained in the transaction itself. Any significant
commitment by Voyageur Fund to the purchase of securities on a when-issued basis
may increase the volatility of the Fund's net asset value. Although Voyageur
Fund will generally enter into forward commitments with the intention of
acquiring securities for its portfolio, it may dispose of a commitment prior to
settlement if the Fund's investment manager deems it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments.
REPURCHASE AGREEMENTS
Voyageur Fund may enter into repurchase agreements with respect to not more
than 10% of its total assets (taken at current value), except when investing for
defensive purposes during times of adverse market conditions. The Fund may enter
into repurchase agreements with respect to any securities which it may acquire
consistent with its investment policies and restrictions.
A repurchase agreement involves the purchase by Voyageur Fund of securities
with the condition that, after a stated period of time, the original seller (a
member bank of the Federal Reserve System or a recognized securities dealer)
will buy back the same securities ("collateral") at a predetermined price or
yield. Repurchase agreements involve certain risks not associated with direct
investments in securities. In the event the original seller defaults on its
obligation to repurchase, as a result of its bankruptcy or otherwise, Voyageur
Fund will seek to sell the collateral, which action could involve costs or
delays. In such case, the Fund's ability to dispose of the collateral to recover
such investment may be restricted or delayed. While collateral will at all times
be maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, the Fund could suffer a
loss. See "Investment Policies and Restrictions--Taxable Obligations" in the
Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS
Voyageur Fund may engage in "reverse repurchase agreements" with banks and
securities dealers with respect to not more than 10% of its total assets. See
"Investment Restrictions" in the Statement of Additional Information. Reverse
repurchase agreements are ordinary repurchase agreements in which the Fund is
the seller of, rather than the investor in, securities and agrees to repurchase
them at an agreed upon time and price. Use of a reverse repurchase agreement may
be preferable to a regular sale and later repurchase of the securities because
it avoids certain market risks and transaction costs. Because certain of the
incidents of ownership of the security are retained by Voyageur Fund, reverse
repurchase agreements are considered a form of borrowing by the Fund from the
buyer, collateralized by the security. At the time the Fund enters into a
reverse repurchase agreement, cash, U. S. Government securities or other liquid
high grade debt obligations having a value sufficient to make payments for the
securities to be repurchased will be segregated, and will be marked to market
daily and maintained throughout the period of the obligation. Reverse repurchase
agreements may be used as a means of borrowing for investment purposes subject
to the 10% limitation set forth above. This speculative technique is referred to
as leveraging. Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs which may or may not be
recovered by income from or appreciation of the securities purchased. Because
Voyageur Fund does not currently intend to utilize reverse repurchase agreements
in excess of 10% of total assets, the Fund believes the risks of leveraging due
to use of reverse repurchase agreements to principal are reduced. VFM believes
that the limited use of leverage may facilitate the Fund's ability to provide
current income without adversely affecting the Fund's ability to preserve
capital.
OPTIONS AND FUTURES
Voyageur Fund may utilize put and call transactions and may utilize futures
transactions to hedge against market risk and facilitate portfolio management.
See "Investment Policies and Restrictions--Options and Futures Transactions" in
the Statement of Additional Information. Options and futures may be used to
attempt to protect against possible declines in the market value of Voyageur
Fund's portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), to protect the Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of the Fund's portfolio or to establish a position in the securities markets as
a temporary substitute for purchasing particular securities. The use of options
and futures is a function of market conditions. Other transactions may be used
by Voyageur Fund in the future for hedging purposes as they are developed to the
extent deemed appropriate by the Board.
OPTIONS ON SECURITIES
Voyageur Fund may write (i.e., sell) covered put and call options and
purchase put and call options on the securities in which it may invest and on
indices of securities in which it may invest, to the extent such put and call
options are available.
A put option gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option on
or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date, at
a predetermined price.
In purchasing a call option, Voyageur Fund would be in a position to
realize a gain if, during the option period, the price of the security increased
by an amount in excess of the premium paid. It would realize a loss if the price
of the security declined or remained the same or did not increase during the
period by more than the amount of the premium. In purchasing a put option, the
Fund would be in a position to realize a gain if, during the option period, the
price of the security declined by an amount in excess of the premium paid. It
would realize a loss if the price of the security increased or remained the same
or did not decrease during that period by more than the amount of the premium.
If a put or call option purchased by the Fund were permitted to expire without
being sold or exercised, its premium would be lost by the Fund.
If a put option written by Voyageur Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by Voyageur Fund were exercised, the Fund would be obligated to
sell the underlying security at the exercise price. 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 Voyageur 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 caused by declining interest rates or
other factors. 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 as described in Appendix B to the Statement of Additional
Information. Voyageur Fund retains the premium received from writing a put or
call option whether or not the option is exercised.
Over-the-counter options are purchased or written by Voyageur Fund in
privately negotiated transactions. Such options are illiquid, and it may not be
possible for Voyageur Fund to dispose of an option it has purchased or terminate
its obligations under an option it has written at a time when VFM believes it
would be advantageous to do so. Over-the-counter options are subject to the
Fund's 15% illiquid investment limitation. See Appendix B to the Statement of
Additional Information for a further discussion of the general characteristics
and risks of options.
Participation in the options market involves investment risks and
transaction costs to which Voyageur Fund would not be subject absent the use of
this strategy. If VFM's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
Voyageur Fund may leave the Fund in a worse position than if such strategy was
not used. Risks inherent in the use of options include (1) dependence on VFM's
ability to predict correctly movements in the direction of interest rates and
securities prices; (2) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (3) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences. See
"Investment Policies and Restrictions--Risks of Transactions in Futures
Contracts and Options" in the Statement of Additional Information for further
discussion and see Appendix B for a discussion of closing transactions and other
risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Voyageur Fund may enter into contracts for the purchase or sale for future
delivery of fixed income securities or contracts based on financial indices
including any index of securities in which the Fund may invest ("futures
contracts") and may purchase and write put and call options to buy or sell
futures contracts ("options on futures contracts"). A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price on a specified date.
The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified dollar multiple
of the value of the index on the expiration date of the contract ("current
contract value") and the price at which the contract was originally struck.
Options on futures contracts to be written or purchased by Voyageur Fund will be
traded on exchanges or over the counter. The successful use of such instruments
draws upon VFM's experience with respect to such instruments and usually depends
upon VFM's ability to forecast interest rate movements correctly. Should
interest rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of futures contracts or options on futures contracts or may
realize losses and would thus be in a worse position than if such strategies had
not been used. In addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements in the prices of
the securities hedged or used for cover will not be perfect.
Voyageur Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements. To the extent
required to comply with applicable Securities and Exchange Commission releases
and staff positions, when purchasing a futures contract or writing a put option,
Voyageur Fund will maintain in a segregated account cash, U. S. Government
securities or other liquid high grade debt securities equal to the value of such
contracts, less any margin on deposit. In addition, the rules and regulations of
the Commodity Futures Trading Commission currently require that, in order to
avoid "commodity pool operator" status, the Fund must 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 Voyageur Fund's portfolio. There are no other numerical
limits on Voyageur Fund's use of futures contracts and options on futures
contracts. For a discussion of the tax treatment of futures contracts and
options on futures contracts, see "Taxes" in the Statement of Additional
Information. For a further discussion of the general characteristics and risks
of futures, see Appendix B to the Statement of Additional Information.
CONCENTRATION POLICY
As a fundamental policy, the Fund may not invest 25% or more of its total
assets in the securities of any industry, although, for purposes of this
limitation, tax-exempt securities and U.S. Government obligations are not
considered to be part of any industry. Voyageur Fund may invest 25% or more of
its total assets in industrial development revenue bonds. In addition, it is
possible that Voyageur Fund from time to time will invest 25% or more of its
total assets in a particular segment of the municipal bond market, such as
housing, health care, utility, transportation, education or industrial
obligations. In such circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation affecting the financing
of a project; shortages or price increases of needed materials; or a declining
market or need for the project) might also affect other bonds in the same
segment, thereby potentially increasing market or credit risk. For a discussion
of these segments of the municipal bond market, see "Investment Policies and
Restrictions--Concentration Policy" in the Statement of Additional Information.
The Voyageur Board may change any of the foregoing policies that are not
specifically designated fundamental.
RISKS AND SPECIAL INVESTMENT CONSIDERATIONS
GENERAL
The yields on Tax-Exempt Obligations are dependent on a variety of factors,
including the financial condition of the issuer or other obligor thereon or the
revenue source from which debt service is payable, general economic and monetary
conditions, conditions in the relevant market, the size of a particular issue,
maturity of the obligation and the rating of the issue. Generally, the value of
Tax-Exempt Obligations will tend to fall as interest rates rise and will tend to
increase as interest rates decrease. In addition, Tax-Exempt Obligations of
longer maturity produce higher current yields than Tax-Exempt Obligations with
shorter maturities but are subject to greater price fluctuation due to changes
in interest rates, tax laws and other general market factors. Lower-rated
Tax-Exempt Obligations generally produce a higher yield than higher-rated
Tax-Exempt Obligations due to the perception of a greater degree of risk as to
the payment of principal and interest. Certain Tax-Exempt Obligations held by
Voyageur Fund may permit the issuer at its option to "call," or redeem, its
securities. If an issuer were to redeem securities held by Voyageur Fund during
a time of declining interest rates, the Fund may not be able to reinvest the
proceeds in securities providing the same investment return as the securities
redeemed.
In normal circumstances, Voyageur Fund may invest up to 20% of its total
assets in Tax-Exempt Obligations rated below investment grade (but not rated
lower than B by S*&P or Moody's) or in unrated Tax-Exempt Obligations considered
by VFM to be of comparable quality to such securities. Investment in such
lower-grade Tax-Exempt Obligations involves special risks as compared with
investment in higher-grade Tax-Exempt Obligations. The market for lower-grade
Tax-Exempt Obligations is considered to be less liquid than the market for
investment grade Tax-Exempt Obligations, which may adversely affect the ability
of the Fund to dispose of such securities in a timely manner at a price which
reflects the value of such securities in VFM's judgment. The market price for
less liquid securities tends to be more volatile than the market price for more
liquid securities. The lower liquidity of and the absence of readily available
market quotations for lower-grade Tax-Exempt Obligations may make VFM's
valuation of such securities more difficult, and VFM's judgment may play a
greater role in the valuation of the Fund's lower grade Tax-Exempt Obligations.
Periods of economic uncertainty and changes may have a greater impact on the
market price of such bonds and, therefore, the net asset value of the Fund
investing in such obligations.
Lower-grade Tax-Exempt Obligations generally involve greater credit risk
than higher-grade Tax-Exempt Obligations and are more sensitive to adverse
economic changes, significant increases in interest rates and individual issuer
developments. Because issuers of lower-grade Tax-Exempt Obligations frequently
choose not to seek a rating of such securities, the Fund will rely more heavily
on VFM's ability to determine the relative investment quality of such securities
than if the Fund invested exclusively in the higher-grade Tax-Exempt
Obligations. The Fund may, if deemed appropriate by VFM, retain a security whose
rating has been downgraded below B by S&P or Moody's, or whose rating has been
withdrawn. In no event, however, will more than 5% of the Fund's total assets
consist of securities that have been downgraded to a rating lower than the
minimum rating in which the Fund is permitted to invest or, in the case of
unrated securities, that have been determined by VFM to be of a quality lower
than such minimum rating. Additional information concerning the risks associated
with instruments in lower-grade Tax-Exempt Obligations is included in the
Statement of Additional Information.
The principal and interest payments on the Derivative Tax-Exempt
Obligations underlying custodial receipts or trust certificates may be allocated
in a number of ways. For example, payments may be allocated such that certain
custodial receipts or trust certificates may have variable or floating interest
rates and others may be stripped securities which pay only the principal or
interest due on the underlying Tax-Exempt Obligations. Voyageur Fund may also
invest in custodial receipts which are "inverse floating obligations" (also
sometimes referred to as "residual interest bonds"). These securities pay
interest rates that vary inversely to changes in the interest rates of specified
short term Tax-Exempt Obligations or an index of short term Tax-Exempt
Obligations. Thus, as market interest rates increase, the interest rates on
inverse floating obligations decrease. Conversely, as market rates decline, the
interest rates on inverse floating obligations increase. Such securities have
the effect of providing a degree of investment leverage, since the interest
rates on such securities will generally change at a rate which is a multiple of
the change in the interest rates of the specified Tax-Exempt Obligations or
index. As a result, the market values of inverse floating obligations will
generally be more volatile than the market values of other Tax-Exempt
Obligations and investments in these types of obligations will increase the
volatility of the net asset value of shares of Voyageur Fund.
STATE SPECIFIC CONSIDERATIONS
The value of Tax-Exempt Obligations owned by Voyageur Fund may be adversely
affected by local political and economic conditions and developments within New
York State and New York City. Because Voyageur Fund concentrates its investments
in New York Municipal Securities, a default or financial crisis relating to any
of such issuers could adversely affect the market value and marketability of
such Tax-Exempt Securities and the interest income and repayment of principal to
the Fund from them. Investors should consider these matters and the financial
difficulties experienced in past years by New York State and certain of its
agencies and subdivisions (particularly New York City), as well as economic
trends in New York.
Adverse conditions in an industry significant to a local economy could have
a correspondingly adverse effect on the financial condition of local issuers.
Other facts that could affect Tax-Exempt Obligations include a change in the
local, state or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). In addition, Voyageur Fund's
portfolio securities are affected by general changes in interest rates, which
result in changes in the value of portfolio securities held by the Fund, which
can be expected to vary inversely to changes in prevailing interest rates. See
"Special Factors Affecting Voyageur Fund" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
Voyageur Fund has adopted certain investment restrictions in addition to
those set forth above, which are set forth in their entirety in the Statement of
Additional Information. Certain of these restrictions are fundamental and cannot
be changed without shareholder approval, including the restriction providing
that Voyageur Fund may not borrow money, except from banks for temporary or
emergency purposes in an amount not exceeding 20% of the value of its total
assets (the Fund may also borrow money in the form of reverse repurchase
agreements up to 10% of total assets). See "Investment Policies and
Restrictions--Investment Restrictions" in the Statement of Additional
Information.
Voyageur Fund also has a number of non-fundamental investment restrictions
which may be changed by the Fund's Board without shareholder approval. These
include restrictions providing that Voyageur Fund may not (i) invest more than
5% of its total assets in securities of any single investment company, (ii)
invest more than 10% of its total assets in securities of two or more investment
companies, (iii) invest more than 15% of its net assets in illiquid securities
or (iv) pledge, hypothecate, mortgage or otherwise encumber its assets in excess
of 10% of net assets. If Voyageur Fund invests in the securities of other
investment companies, the return on any such investments will be reduced by the
operating expenses, including investment advisory and administrative fees, of
such investment companies.
Except for Voyageur Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
APPENDIX C
VOYAGEUR FUND
MANAGEMENT AND GENERAL INFORMATION
MANAGEMENT OF VOYAGEUR MUTUAL FUNDS, INC.
DIRECTORS AND EXECUTIVE OFFICERS OF VOYAGEUR MUTUAL FUNDS
The Board of Directors of Voyageur Mutual Funds (the "Voyageur Board") is
responsible for managing the business and affairs of Voyageur Fund. The names,
addresses, principal occupations and other affiliations of directors and
executive officers of Voyageur Mutual Funds are set forth in the Statement of
Additional Information relating to the Prospectus/Proxy Statement (the
"Statement of Additional Information").
INVESTMENT ADVISER; PORTFOLIO MANAGEMENT
VFM has been retained under an investment advisory agreement (the "Advisory
Agreement") to act as Voyageur Fund's investment adviser, subject to the
authority of the Board of Directors. VFM and VFM are each indirect wholly-owned
subsidiaries of Dougherty Financial Group, Inc. ("DFG," formerly Dougherty
Dawkins, Inc.), 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 June30, 1996, VFM
served as the manager to six closed-end and ten open-end investment companies
(comprising 33 separate investment portfolios), administered numerous private
accounts and along with its affiliates managed approximately $11.5 billion in
assets. VFM's principal business address is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
Voyageur Fund will pay VFM a monthly investment advisory and management fee
equivalent on an annual basis to .50% of its average daily net assets.
Steven P. Eldredge will have day-to-day portfolio management responsibility
for Voyageur Fund. Since July 1995, Mr. Eldredge has managed Voyageur Florida
Insured Tax Free Fund, Voyageur Florida Limited Term Tax Free Fund, Voyageur
National Tax Free Fund, Voyageur National Limited Term Tax Free Fund, Voyageur
Iowa Tax Free Fund, and Voyageur Wisconsin Tax Free Fund. Mr. Eldredge is a
Senior Tax Exempt Portfolio Manager for VFM where he has been employed since
1995. Prior to joining VFM, Mr. Eldredge was a portfolio manager for ABT Mutual
Funds from 1989 through 1995. Mr. Eldredge has over 18 years experience in
portfolio management.
THE UNDERWRITER; PLAN OF DISTRIBUTION
Voyageur Fund has adopted a Plan of Distribution under the 1940 Act (the
"Plan") and has entered into a Distribution Agreement with Voyageur Fund
Distributors, Inc. ("VFD"). Pursuant to the Fund's Plan, the Fund will pay VFD 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 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 VFD and may exceed or be less than
expenses actually incurred by VFD.
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 Class B shares and Class C shares constitutes a shareholder servicing fee
designed to compensate VFD 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. VFD 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 VFD for
advertising, marketing and distributing the Class B shares and Class C shares of
the Fund. In connection therewith, VFD 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 VFD and other broker-dealers without the assessment of
an initial sales charge and at the same time to permit VFD to compensate its
investment executives and other broker-dealers in connection with the sale of
such shares.
CUSTODIAN; DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVEAND ACCOUNT SERVICES
AGENT
Norwest Bank Minnesota, N.A. serves as the custodian of Voyageur Fund's
portfolio securities and cash.
VFM acts as the Fund's dividend disbursing, transfer, administrative and
accounting 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. VFM will receive a monthly fee from the Fund equal to
the sum of (1) $1.33 per shareholder account per month, (2)a monthly fee ranging
from $1,000 to $1,500 based on the average daily net assets of the Fund and (3)
a percentage of average daily net assets which ranges from 0.02% to 0.11% based
on the average daily net assets of the Fund. See "The Investment Adviser and
Underwriter--Expenses of the Fund" in the Statement of Additional information.
Certain institutions may act as sub-administrators for the Fund pursuant to
contracts with VFM, whereby the institutions will provide shareholder services
to their customers. VFM will pay the sub-administrators' fees out of its own
assets. The fee paid by VFM to any sub-administrator will be a matter of
negotiation between the institution and VFM based on the extent and quality of
the services provided.
EXPENSES OF VOYAGEUR FUND
VFM is contractually obligated to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees) of
Voyageur Fund which exceed 1% of the Fund's average daily net assets on an
annual basis up to certain limits as set forth on page 8 of the Prospectus/Proxy
Statement. In addition, VFM and VFD reserve the right to voluntarily waive their
fees in whole or in part and to voluntarily absorb certain other of the Fund's
expenses. VFM has agreed to expenses for the fiscal years ending December 31,
1996 and December 31, 1997 in such a manner as will result in the Fund being
charged fees and expenses that approximate those set forth in the section "Fees
and Expenses" in the Prospectus/Proxy Statement. After December 31, 1997, such
voluntary expense waivers may be discontinued or modified by VFM and VFD in
their sole discretion.
Voyageur 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.
PORTFOLIO TRANSACTIONS
Voyageur Fund will not effect any brokerage transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with VFM
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 VFD, unless
such use would be to the Fund's advantage. VFM may consider sales of shares of
the Fund as a factor in the selection of broker-dealers to execute the Fund's
securities transactions.
GENERAL INFORMATION ABOUT VOYAGEUR FUND
Voyageur Fund sends to its shareholders six-month unaudited and annual
audited financial statements.
The shares of the Fund constitute separate series of the Voyageur Mutual
Funds, which was organized as a Minnesota corporation on April 14, 1993.
The shares of the series thereof are transferable common stock, $.01 par
value per share. All shares of Voyageur Mutual Funds are nonassessable and fully
transferable when issued and paid for in accordance with the terms thereof and
possess no cumulative voting, preemptive or conversion rights. The Voyageur
Board is empowered to issue other series of common stock without shareholder
approval.
Voyageur Fund will offer its shares in multiple 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, subject to applicable securities laws,
are entitled to dividends as declared by the Board and, in liquidation of the
Fund, 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. Shareholders may remove Board members from office by votes cast
in person or by proxy at a meeting of shareholders or by written consent and, in
accordance with Section 16 of the 1940 Act, the Voyageur Board shall promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Board member when requested to do so by the record holders of not
less than 10% of the outstanding shares.
Each share of a series has one vote irrespective of the relative net asset
value of the shares. On some issues, such as the election of Board members, the
shares of 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 Voyageur Mutual Funds 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 thereof, and
with a share of the general expenses of such corporation or trust. Any general
expenses of Voyageur Mutual Funds not readily identifiable as belonging to a
particular series or class shall be allocated among the series or classes
thereof, based on the relative net assets of the series or class at the time
such expenses were accrued.
Voyageur Mutual Funds' Articles of Incorporation limit the liability of its
Board members to the fullest extent permitted by law. For a further discussion
of the above matters, see "Additional Information" in the Statement of
Additional Information related to the Prospectus/Proxy Statement.
APPENDIX D
VOYAGEUR FUND
SHAREHOLDER GUIDE TO INVESTING
HOW TO PURCHASE SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS
Voyageur Fund offers investors the choice among three classes of shares
which offer different sales charges and bear different expenses. These
alternatives permit at 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. A summary of these
alternative purchase arrangements is located in the Prospectus/Proxy Statement
under "Summary--Fees and Expenses."
A broker-dealer may receive different levels of compensation depending on
which class of shares is sold. In addition, VFD from time to time pays certain
additional cash incentives of up to $100 and/or non-cash incentives such as
vacations or other prizes to its investment executives and other broker-dealers
and financial institutions in consideration of their sales of Fund shares. In
some instances, other incentives not to exceed 1.25% of the Fund's net assets
(such as payments related to retention of shares sold by particular
broker-dealer financial institutions for a specified period of time) may be made
available only to broker-dealers and financial institutions, who meet certain
objective standards developed by VFD.
GENERAL PURCHASE INFORMATION
The minimum initial investment in Voyageur 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 VFD, and from certain financial institutions that have selling
agreements with VFD. 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 after receipt of the order, plus the applicable sales charge, if any.
If an order is placed with VFD 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
shares.
Shares of the Fund may be purchased by opening an account either by mail or
by phone. Dividend income begins to accrue as of the opening of the New York
Stock Exchange (the "Exchange") on the day 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 or
other means approved in advance by VFD. Payment of redemption proceeds will be
delayed as long as necessary to verify by expeditious means that the purchase
payment has been or will be collected. Such period of time typically will not
exceed 15 days.
AUTOMATIC INVESTMENT PLAN
Investors may make systematic investments in fixed amounts automatically on
a monthly basis through Voyageur Fund's Automatic Investment Plan. Additional
information is available from VFD by calling 800-545-3863.
PURCHASES BY MAIL
To open an account by mail, call 800-545-3863 to obtain the required form
and instructions. A general authorization form must be completed, with an
investment dealer or other financial institution designated on the form, and the
form mailed, 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 New York Tax Free 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 a general authorization and mail it to the Fund after making the
initial telephone purchase.
CLASS A SHARES--FRONT END SALES CHARGE ALTERNATIVE
The public offering price of Class A shares of Voyageur 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 3.90% 3.75% 3.25%
$50,000 but less than $100,000 3.63% 3.50% 3.00%
$100,000 but less than $250,000 2.83% 2.75% 2.50%
$250,000 but less than $500,000 2.04% 2.00% 1.75%
$500,000 but less than $1,000,000 1.78% 1.75% 1.75%
$1,000,000 or more 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 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 "How to Sell Shares--Contingent
Deferred Sales Charge."
In connection with the distribution of the Fund's Class A shares, VFD is
deemed to receive all applicable sales charges. VFD, 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, VFD 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 Fund's 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 VFD 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 the average daily net assets attributable to
shares sold or serviced by such institutions and service providers. For
additional information about this fee, see "Management--Plan of Distribution" in
Appendix C to the Prospectus/Proxy Statement.
CONTINGENT DEFERRED SALES CHARGE
Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, VFD pays investment dealers, out of its own assets, a fee of
up to 1% of the offering price of such shares. If these shares are redeemed
within 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 front end or deferred sales
charges. The investors qualifying to purchase such shares are: (1) officers and
directors of Voyageur Fund; (2) officers, directors and full-time employees of
Dougherty Financial Group, Inc. and Pohlad Companies, and officers, directors
and full-time employees of parents and subsidiaries of the foregoing companies;
(3) officers, directors and full-time employees of investment advisers of other
mutual funds subject to a sales charge and included in any other family of
mutual funds that includes Voyageur Complex funds as a member, and officers,
directors and full-time employees of parents, subsidiaries and corporate
affiliates of such investment advisers; (4) spouses and lineal ancestors and
descendants of the officers, directors/trustees and employees referenced in
clauses (1), (2) and (3), and lineal ancestors and descendants of their spouses;
(5) investment executives and other employees of banks and dealers that have
selling agreements with VFD and parents, spouses and children under the age of
21 of such investment executives and other employees; (6) trust companies and
bank trust departments for funds held in a fiduciary, agency, advisory,
custodial or similar capacity; (7) any state or any political subdivision
thereof or any instrumentality, department, authority or agency of any state or
political subdivision thereof; (8) partners and full-time employees of the
Fund's counsel; (9) managed account clients of VFM, clients of investment
advisers affiliated with VFM 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 (10) "wrap accounts" for the
benefit of clients of financial planners adhering to certain standards
established by VFM.
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 a front end sales charge and, in certain circumstances, a
contingent deferred sales charge. 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 Voyageur Fund is the net
asset value of the Fund's shares. Class B shares are sold without an initial
sales charge so that Voyageur Fund receives the full amount of the investor's
purchase. However, a CDSC of up to 5% will be imposed if shares are redeemed
within six years of purchase. For additional information, see "Redemption of
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*
----------- ----------------
1st year after purchase 5%
2nd year after purchase 4%
3rd year after purchase 4%
4th year after purchase 3%
5th year after purchase 2%
6th year after purchase 1%
Thereafter 0%
- ---------------------
* 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 VFD and are used to defray expenses of
VFD 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 VFD pays to brokers who sell Class B shares a
sales commission equal to 3% of the amount invested and an ongoing annual
servicing fee (paid quarterly) of .15% of the net assets attributable to sales
made by such broker-dealers. 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.
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.
For additional information about this fee, see "Fees and Expenses" in the
Prospectus/Proxy Statement and "Management--The Underwriter; Plan of
Distribution" in Appendix C to the Prospectus/Proxy Statement.
CONVERSION FEATURE
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 Complex 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" in this Appendix D. 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 ALTERNATIVES
The public offering price of Class C shares of Voyageur Fund is the net
asset value of the Fund's 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. Class C shares are subject to higher annual Rule 12b-1
fees as described below. For additional information, see "How to Sell
Shares--Deferred Sales Charge."
RULE 12B-1 FEES
Class C shares are subject to a Rule 12b-1 fee payable at an annual rate of
1.00% of the average daily net assets of a Fund attributable to Class C shares.
The higher Rule 12b-1 fee will cause Class C shares to have a higher expense
ratio and to pay lower dividends than Class A shares. For additional information
about this fee, see "Fees and Expenses" in the Prospectus/Proxy Statement and
"Management--Plan of Distribution" in Appendix C to the Prospectus/Proxy
Statement.
Proceeds from the CDSC are paid to VFD and are used to defray expenses of
VFD 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 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, VFD pays brokers who sell Class C shares a sales
commission equal to 1% of the amount invested and ongoing annual fee of 0.90%
(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
Voyageur Fund will redeem its shares in cash at the net asset value next
determined after receipt of a shareholder's written request for redemption in
good order (see below). If shares for which payment has been collected are
redeemed, payment must be made within seven days. Shareholders will not earn any
income on redeemed shares on the redemption date. 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. 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 CHARGE
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 calculation will be determined 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 shares 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 (1) redemptions of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemptions of shares when
the Fund exercises its right to liquidate amounts which are less than the
minimum account size; and (3) 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 Complex 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.
VFD, 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 any of the Voyageur Complex funds (by crediting such
refunded CDSC to such shareholder's account) if, within 90 days of such
redemption, all or any portion of the redemption proceeds are reinvested in
shares of the same class in any of the Voyageur Complex 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
Voyageur 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 of Voyageur Fund redeeming at least $1,000 and no more than
$50,000 (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. VFM and VFD 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 VFD may allow their
customers to effect a redemption of shares of a Fund purchased through such
broker-dealer by notifying the broker-dealer of the amount of shares to be
redeemed. The broker-dealer is then responsible for promptly placing the
redemption request with the Fund on the customer's behalf. 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 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 the Statement of
Additional Information relating to the Prospectus/Proxy Statement (the
"Statement of Additional Information") under "Other Information." VFM 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 VFM to subject the Fund to an unusual degree of risk.
MONTHLY CASH WITHDRAWAL PLAN
An investor who owns or buys shares of Voyageur 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 Voyageur 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
Complex 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
VFD receives a check along with a letter requesting reinstatement. VFD must
receive the letter requesting reinstatement within 365 days following the
redemption. Investors who desire to exercise the Privilege should contact their
broker-dealer or the Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of shares of the Fund, but to
the extent that any shares are sold at a loss and the proceeds are reinvested
within 30 days in shares of the 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
Voyageur Fund shares for shares of another Voyageur Complex 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 Complex funds. Class B shareholders may
exchange their shares for the Class B shares of other Voyageur Complex funds and
Class C shareholders may exchange their shares for the Class C shares of other
Voyageur Complex funds. Shares of each class may also be exchanged for shares of
any money market fund available through VFM.
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 limitation on exchange frequency;
however, the Voyageur Complex funds are intended for long term investment and
not as a trading vehicle. VFD reserves the right to prohibit excessive exchanges
(more than four per quarter). VFM 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 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 own shares,
through VFM or through other broker-dealers. An investor considering an exchange
should obtain a copy of the prospectus of the acquired fund and should read such
prospectus carefully. Contact Voyageur Fund, VFM or any of such other
broker-dealers for further information about the exchange privilege.
DETERMINATION OF NET ASSET VALUE
The net asset value of Voyageur 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.
The net asset value per share of each class 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
Voyageur Fund, tax-exempt securities are stated on the basis of valuations
provided by a pricing service, approved by the Voyageur Board, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. Market quotations are used when available.
Non-tax-exempt securities for which market quotations are readily available are
stated at market value which is currently determined using the last reported
sale price, or, if no sales are reported, as in the case of most securities
traded over-the-counter, the last reported bid price, except that U.S.
Government securities are stated at the mean between the last reported bid and
asked prices. Short-term notes having remaining maturities of 60 days or less
are stated at amortized cost which approximates market. All other securities and
other assets are valued in good faith at fair value by VFM in accordance with
procedures adopted by the Voyageur Board.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
DISTRIBUTIONS
The present policy of Voyageur Fund is to declare a distribution from net
investment income on each day that the Fund is open for business. Net investment
income consists of interest accrued on portfolio investments of the Fund, less
accrued expenses. Distributions of net investment income are paid monthly.
Short-term capital gains distributions are taxable to shareholders as ordinary
income. Net realized long-term capital gains, if any, are distributed annually,
after utilization of any available capital loss carryovers. 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. The per-share
distributions on Class B and Class C shares will be lower than the per-share
distributions on Class A shares as a result of the higher Rule 12b-1 fees
applicable to Class B and Class C shares.
Shareholders of Voyageur Fund receive distributions from investment income
and capital gains in additional shares of the class owned by such shareholders
at net asset value, without any sales charge, unless they elect otherwise. The
Fund sends to its shareholders no less than quarterly statements with details of
any reinvested dividends.
TAXES
FEDERAL INCOME TAXATION
Voyageur Fund is treated as a separate entity for federal income tax
purposes. Voyageur Fund intends to qualify during its current taxable year as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). The Fund also intends to take all other action required to ensure
that no federal income taxes will be payable by the Fund and that the Fund can
pay exempt-interest dividends.
Distributions of net interest income from tax-exempt obligations that are
designated by the Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. Distributions paid from other interest
income and from any net realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Distributions paid from long-term capital gains (and designated as such)
are taxable as long-term capital gains for federal income tax purposes, whether
received in cash or shares, regardless of how long a shareholder has held shares
in a Fund.
Exempt-interest dividends attributable to interest income on certain tax
exempt obligations issued after August 7, 1986 to finance private activities are
treated as an item of tax preference for purposes of computing the alternative
minimum tax for individuals, estates and trusts. Voyageur Fund may invest up to
20% of its total assets in securities which generate interest which is treated
as an item of tax preference and subject to federal, New York State and New York
City alternative minimum tax.
NEW YORK STATE AND CITY INCOME TAXATION
The portion of exempt-interest dividends that is derived from interest
income on Tax-Exempt Obligations of New York State and New York City is excluded
from the New York State and New York City gross income of individuals, estates
and trusts, the remaining portion of such dividends and dividends that are not
exempt-interest dividends are included in the New York State and New York City
gross income of individuals, estates and trusts. Exempt-interest dividends are
not excluded from the New York State and New York City gross income of
corporations and banks, and dividends from the Fund will not qualify for the New
York State or New York City dividends-received deduction for corporations and
banks.
The foregoing discussion relates to federal and state taxation as of the
date of this Prospectus/Proxy Statement. See "Taxes" in the Statement of
Additional Information. Distributions from the Fund, including exempt-interest
dividends, may be subject to tax in other states. This discussion is not
intended as a substitute for careful tax planning. You are urged to consult your
tax adviser with specific reference to your own tax situation.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for Voyageur Fund may refer to
"yield," "taxable equivalent yield," "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.
The advertised yield of Voyageur Fund will be based on a 30-day period
stated in the advertisement. Yield is calculated by dividing the net investment
income per share deemed earned during that period by the maximum offering price
per share on the last day of the period. The result is then annualized using a
formula that provides for semiannual compounding of income.
Taxable equivalent yield is calculated by applying the stated income tax
rate only to that portion of the yield that is exempt from taxation. The
tax-exempt portion of the yield is divided by the number 1 minus the stated
income tax rate (e.g., 1-28% = 72%). The result is then added to that portion of
the yield, if any, that is not tax exempt.
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 addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Fund's shares,
including data from Lipper Analytical Services, Inc. and Morningstar.
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 yield, taxable equivalent yield, average
annual total return and cumulative total return, see "Calculation of Performance
Data" in the Statement of Additional Information.
DATED FEBRUARY 1, 1996
MAILING ADDRESS:
P.O. BOX 64284
ST. PAUL
MINNESOTA 55164
STREET ADDRESS:
500 BIELENBERG DRIVE
WOODBURY
MINNESOTA 55125
TELEPHONE: (612) 738-4000
TOLL FREE: (800) 800-2638, EXT. 3012
FORTIS TAX-FREE
PORTFOLIOS, INC.
PROSPECTUS
(AN INCOME FUND WITH THREE SEPARATE INVESTMENT PORTFOLIOS INVESTING PRIMARILY IN
SECURITIES GENERATING TAX-EXEMPT INTEREST)
- --------------------------------------------------------------------------------
NATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
MINNESOTA PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK PORTFOLIO
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THIS PROSPECTUS CONCISELY SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE FUND BEFORE INVESTING. INVESTORS SHOULD RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE. THE FUND HAS FILED A STATEMENT OF ADDITIONAL
INFORMATION (ALSO DATED FEBRUARY 1, 1996) WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE FREE OF CHARGE
FROM FORTIS INVESTORS, INC. ("INVESTORS") AT THE ABOVE MAILING ADDRESS OF THE
FUND, AND IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS IN ACCORDANCE WITH
THE COMMISSION'S RULES.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; AND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FORTIS
SOLID ANSWERS FOR A CHANGING WORLD(R)
FORTIS-REGISTERED TRADEMARK- and Fortis(R) are registered
servicemarks of Fortis AMEV and Fortis AG.
RISK FACTORS
An investment in any of the Portfolios involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Portfolios invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Portfolios bear the risk that increases in market interest rates will cause
the value of their Portfolio's investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Portfolio
which invests in securities with longer weighted average maturities should be
expected to have greater volatility in periods of changing market interest rates
than that of a Portfolio which invests in securities with shorter weighted
average maturities.
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Portfolios invest in
debt securities, they are subject to credit risk.
The ratings and certain other requirements which apply to the Portfolios'
permitted investments, as described elsewhere in this Prospectus, are intended
to limit the amount of credit risk undertaken by the Portfolios. Nevertheless,
shareholders in the Portfolios bear the risk that payment defaults could cause
the value of their Portfolio's investments to decline.
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for an issuer to call its bonds if they can be refinanced
through the issuance of new bonds which bear a lower interest rate than that of
the called bonds. Call risk is the risk that bonds will be called during a
period of declining market interest rates so that such refinancings may take
place.
If a bond held by a Portfolio is called during a period of declining interest
rates, the Portfolio probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Portfolio's income. To the extent that the Portfolios invest in
callable bonds, Portfolio shareholders bear the risk that reductions in income
will result from the call of bonds.
STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political and
economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services).
OTHER. Investors also should review "Investment Objectives and Policies" for
information concerning risks associated with certain investment techniques which
may be utilized by the Funds. In addition, investors in the Minnesota Portfolio
should note that the 1995 Minnesota Legislature enacted a statement of intent
specifying certain circumstances under which interest on the Minnesota municipal
obligations held by the Fund might become taxable for Minnesota state income tax
purposes. See "Taxation-Minnesota Income Taxation."
SUMMARY OF INVESTMENT OBJECTIVES
Fortis Tax-Free Portfolios, Inc. (the "Fund") is a mutual fund comprised of
three separate investment portfolios (the "Portfolios"), each of which invests
primarily in securities yielding interest that is exempt from Federal income
taxes, and each of which is, for investment purposes, in effect a separate fund
with its own investment policies. A separate series of capital stock is issued
for each Portfolio.
The "National Portfolio" will invest primarily in debt obligations which
generate interest income that is exempt from Federal income tax. These debt
obligations will include securities of states, territories, and possessions of
the United States and the District of Columbia, and their political
subdivisions, agencies, and instrumentalities.
The "Minnesota Portfolio" will invest primarily in debt obligations which
generate interest income that is exempt from both Federal income tax and State
of Minnesota income tax and which are issued by the State of Minnesota, its
agencies, instrumentalities, and political subdivisions.
The "New York Portfolio" will invest primarily in debt obligations which
generate interest income that is exempt from Federal income tax, State of New
York income tax, and City of New York income tax. These debt obligations include
securities issued by the State of New York, its agencies, instrumentalities, and
political subdivisions.
The Fund's shares are of five classes (A, B, H, C, and E), each with different
sales arrangements and expenses.
TABLE OF CONTENTS
PAGE
Risk Factors................................................................. 2
Summary of Investment Objectives............................................. 2
Class Shares................................................................. 3
Summary of Fund Expenses..................................................... 4
Financial Highlights......................................................... 5
Organization and Classification.............................................. 8
Investment Objectives and Policies........................................... 8
* Tax Exempt Bonds..................................................... 9
* Miscellaneous Investment Practices................................... 10
Management................................................................... 11
* Board of Directors................................................... 11
* The Investment Adviser/Transfer Agent/Dividend Agent................. 11
* The Underwriter and Distribution Expenses............................ 11
* Fund Expenses........................................................ 12
* Brokerage Allocation................................................. 12
Valuation of Securities...................................................... 12
Capital Stock................................................................ 13
Dividends and Capital Gains Distributions.................................... 13
Taxation..................................................................... 13
* Federal Income Taxation.............................................. 13
* Minnesota Income Taxation............................................ 14
* New York Income Taxation............................................. 14
How To Buy Fund Shares....................................................... 14
* General Purchase Information......................................... 14
* Alternative Purchase Arrangements.................................... 15
* Class A and E Shares-Initial Sales Charge Alternative................ 15
* Class B and H Shares-Contingent Deferred Sales Charge Alternatives... 17
* Class C Shares-Level Sales Charge Alternative........................ 17
Redemption................................................................... 18
* Contingent Deferred Sales Charge..................................... 19
Shareholder Inquiries........................................................ 20
Appendix..................................................................... 20
Account Application.......................................................... 23
ACH Authorization Agreement.................................................. 26
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus, and if given or made, such information or representations
must not be relied upon as having been authorized by the Fund or Investors. This
Prospectus does not constitute an offer or solicitation by anyone in any state
in which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation.
CLASS SHARES
The Fund offers investors the choice of five classes of shares with different
sales charges and expenses. These alternatives permit choosing the most
beneficial method of purchasing shares given the amount of the purchase, the
length of time the investor expects to hold the shares, and other circumstances.
CLASS A AND E SHARES. Generally, an investor who purchases Class A and E shares
pays a sales charge at the time of purchase. As a result, Class A and E shares
are not subject to any charges when they are redeemed (except for sales at net
asset value in excess of $1 million which may be subject to a contingent
deferred sales charge). The initial sales charge may be reduced or waived for
certain purchases. Class A shares are also subject to an annual Rule 12b-1 fee
of .25% of average daily net assets attributable to Class A shares. This fee is
lower than the other classes having Rule 12b-1 fees (all but Class E) and
therefore Class A shares have lower expenses and pay higher dividends. See "How
to Buy Fund Shares-Class A Shares." Class E shares are not subject to a Rule
12b-1 fee and therefore have the lowest expenses and pay the highest dividends,
but are only available to investors who were shareholders on November 13, 1994.
CLASS B AND H SHARES. The only difference between Class B and H shares is the
percentage of dealer concession paid to dealers. This difference does not in any
way affect the charges on an investor's shares. Class B and H shares both are
sold without an initial sales charge, but are subject to a contingent deferred
sales charge of 4% if redeemed within two years of purchase, with declining
charges for redemptions thereafter up to six years after purchase. Class B and H
shares are also subject to a higher annual Rule 12b-1 fee than Class A or E
shares-1.00% of the Fund's average daily net assets attributable to Class B or H
shares, as applicable. However, after eight years, Class B and H shares
automatically will be converted to Class A shares at no charge to the investor,
resulting in a lower Rule 12b-1 fee thereafter. Class B and H shares provide the
benefit of putting all dollars to work from the time of investment, but will
have a higher expense ratio and pay lower dividends than Class A and E shares
due to the higher Rule 12b-1 fee and other class specific expenses. See "How to
Buy Fund Shares-Class B and H Shares."
CLASS C SHARES. As with Class B and H shares, Class C shares: 1) 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; 2) are subject to the
higher annual Rule 12b-1 fee of 1.00% of the Fund's average daily net assets
attributable to Class C shares; and 3) provide the benefit of putting all
dollars to work from the time of investment, but will have a higher expense
ratio and pay lower dividends than Class A or E shares due to the higher Rule
12b-1 fee and other class specific expenses. While Class C shares, unlike
Classes B and H, do not convert to Class A shares, they are subject to a lower
contingent deferred sales charge than Class B or H shares and do not have to be
held for as long a time to avoid paying the contingent deferred sales charge.
See "How to Buy Fund Shares-Class C Shares."
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and Rule 12b-1 fees, as noted above, (3) whether you qualify for any reduction
or waiver of any applicable sales charge-if you are exempt from the sales
charge, you must invest in Class A shares, (4) the various exchange privileges
among the different classes of shares and (5) the fact that Class B and H shares
automatically convert to Class A shares eight years after purchase.
SUMMARY OF FUND EXPENSES
The Portfolios' front-end and asset-based sales charges are within the
limitations imposed by the NASD. Such charges are shown below:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A NATIONAL MINNESOTA NEW YORK
PERCENTAGE OF OFFERING PRICE) PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Class A Shares....................................................................... 4.5%* 4.5%* 4.5%*
Class B and H Shares................................................................. 0.00%** 0.00%** 0.00%**
Class C Shares....................................................................... 0.00%** 0.00%** 0.00%**
Class E Shares....................................................................... 4.5% 4.5% 4.5%
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE (AS A PERCENTAGE OF ORIGINAL NATIONAL MINNESOTA NEW YORK
PURCHASE PRICE OR REDEMPTION PROCEEDS, AS APPLICABLE) PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Class A Shares....................................................................... *** *** ***
Class B and H Shares................................................................. 4.0% 4.0% 4.0%
Class C Shares....................................................................... 1.0% 1.0% 1.0%
Class E Shares....................................................................... *** *** ***
</TABLE>
* SINCE THE PORTFOLIOS ALSO PAY AN ASSET BASED SALES CHARGE, LONG-TERM
SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGE PERMITTED BY NASD RULES.
** CLASS B, H AND C SHARES ARE SOLD WITHOUT A FRONT END SALES CHARGE, BUT
THEIR CONTINGENT DEFERRED SALES CHARGE AND RULE 12B-1 FEES MAY CAUSE
LONG-TERM SHAREHOLDERS TO PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM PERMITTED FRONT END SALES CHARGES.
*** A CONTINGENT DEFERRED SALES CHARGE OF 1.00% IS IMPOSED ON CERTAIN
REDEMPTIONS OF CLASS A AND E SHARES THAT WERE PURCHASED WITHOUT AN INITIAL
SALES CHARGE AS PART OF AN INVESTMENT OF $1 MILLION OR MORE. SEE "HOW TO
BUY PORTFOLIO SHARES-CLASS A AND E SHARES."
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
------------------
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Management Fees............................................................... .77% .77% .77% .77%
12b-1 Fees.................................................................... .25% 1.00% 1.00% -
Other Expenses................................................................ .26% .26% .26% .26%
--- --- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES......................................... 1.28% 2.03% 2.03% 1.03%
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-------------------
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Management Fees............................................................... .72% .72% .72% .72%
12b-1 Fees.................................................................... .25% 1.00% 1.00% -
Other Expenses................................................................ .26% .26% .26% .26%
--- --- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES......................................... 1.23% 1.98% 1.98% .98%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
------------------
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Management Fees............................................................... .80% .80% .80% .80%
12b-1 Fees.................................................................... .25% 1.00% 1.00% -
Other Expenses................................................................ .29% .29% .29% .29%
--- --- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENT*............ 1.34% 2.09% 2.09% 1.09%
</TABLE>
* SEE "MANAGEMENT - FUND EXPENSES" FOR A DISCUSSION OF VOLUNTARY LIMITATIONS
UPON TOTAL OPERATING EXPENSES FOR THE NEW YORK PORTFOLIO. IF THE VOLUNTARY
EXPENSE LIMITATION OF 1.09% OF AVERAGE NET ASSETS HAD NOT BEEN IN PLACE FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, THE PORTFOLIO'S EXPENSES FOR
CLASS A, B, H, C AND E SHARES WOULD HAVE BEEN 1.85%, 2.60%, 2.60%, 2.60%
AND 1.60% OF AVERAGE NET ASSETS RESPECTIVELY.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Portfolio will bear, whether
directly or indirectly. For a more complete description of the various costs and
expenses, see "Management" and "How to Buy Portfolio Shares."
EXAMPLE
You would pay the following expenses on a $1,000 investment over various time
periods assuming: (1) 5% annual return; and (2) redemption at the end of each
time period. This example includes conversion of Class B and H shares to Class A
shares after eight years and a waiver of deferred sales charges on Class B and H
shares of 10% of the amount invested. See "Contingent Deferred Sales
Charge-Class B, H, and C Shares."
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares..................................................................... $57 $84 $112 $193
Class B and H Shares............................................................... $57 $91 $127 $217
Class C Shares..................................................................... $31 $64 $109 $236
Class E Shares..................................................................... $55 $76 $ 99 $165
</TABLE>
<TABLE>
MINNESOTA PORTFOLIO
-------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares..................................................................... $57 $82 $110 $187
Class B and H Shares............................................................... $56 $89 $125 $211
Class C Shares..................................................................... $30 $62 $107 $231
Class E Shares..................................................................... $55 $75 $ 97 $160
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares..................................................................... $58 $86 $115 $199
Class B and H Shares............................................................... $57 $92 $130 $223
Class C Shares..................................................................... $31 $65 $112 $242
Class E Shares..................................................................... $56 $78 $102 $172
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares............................................................ $21 $64 $109 $217
Class C Shares.................................................................. $21 $64 $109 $236
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares............................................................ $20 $62 $107 $211
Class C Shares.................................................................. $20 $62 $107 $231
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares............................................................ $21 $65 $112 $223
Class C Shares.................................................................. $21 $65 $112 $242
</TABLE>
The above example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The information below has been derived from audited financial statements (except
for the period from January 1, 1986 to March 16, 1986), and should be read in
conjunction with the financial statements of the Fund and independent auditors'
report of KPMG Peat Marwick LLP found in the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge.
- --------------------------------------------------------------------------------
NATIONAL PORTFOLIO - CLASS E SHARES
- -----------------------------------
<TABLE>
<CAPTION>
Three-month Six Month
Period Period
Year Ended Ended Year Ended Ended
Sept.30, Sept.30, June 30, June 30,
-------- -------- -------- --------
1994 1994*** 1994 1993 1992 1991***
---- ------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............................. $10.38 $10.46 $11.13 $10.54 $9.99 $9.82
Operations:
Investment income - net.................................. .58 .15 .60 .63 .66 .32
Net realized and unrealized gains (losses) on investments .36 (.09) (.64) .59 .55 .17
Total from operations........................... .94 .06 (.04) 1.22 1.21 0.49
Distribution to shareholders:
From investment income - net............................. (.59) (.14) (.59) (.62) (.66) (.32)
From realized gains...................................... (.01) -- (.04) -- -- --
Excess distribution of net investment income............. -- -- -- (.01) -- --
Total distributions to shareholders............................... (.60) (.14) (.63) (.63) (.66) (.32)
Net asset value, end of period.................................... $10.72 $10.38 $10.46 $11.13 $10.54 $9.99
Total Return**.................................................... 9.30% .59% (0.49)% 11.99% 12.46% 5.09%
Net assets at end of period (000's omitted)...................... $70,531 $74,877 $76,746 $70,754 $54,189 $43,707
Ratio of expenses to average daily net assets..................... 1.03% .87%* .87% .94% .92% .95%*
Ratio of net investment income to average daily net assets....... 5.54% 5.74%* 5.38% 5.80% 6.40% 6.58%*
Portfolio turnover rate........................................... 35% 17% 25% 29% 38% 25%
</TABLE>
<TABLE>
<CAPTION>
For Period For Period
from from
March 17, January 1,
Year Ended 1986 to 1986 to
December 31, December 31, March 16,
------------ ----------------------
1990 1989 1988 1987 1986+ 1986
---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............................. $9.98 $9.85 $9.64 $10.31 $10.00 $1.00
Operations:
Investment income - net.................................. .66 .72 .72 .69 .46 .03
Net realized and unrealized gains (losses) on investments (.15) .13 .21 (.58) .27 --
Total from operations........................... 0.51 0.85 0.93 .11 .73 .03
Distribution to shareholders:
From investment income - net............................. (.67) (.72) (.72) (.74) (.42) (.03)
From realized gains...................................... -- -- -- (.04) -- --
Excess distribution of net investment income............. -- -- -- -- -- --
Total distributions to shareholders............................... (.67) (.72) (.72) (.78) (.42) (.03)
Net asset value, end of period.................................... $9.82 $9.98 $9.85 $9.64 $10.31 $1.00
Total Return**.................................................... 5.33% 8.94% 9.98% 1.20% 9.43% 5.83%*
Net assets at end of period (000's omitted)......................$41,041 $36,874 $28,985 $18,895 $8,018 $156
Ratio of expenses to average daily net assets..................... .95% .94% 1.09% 1.16% 1.00%* 1.39
Ratio of net investment income to average daily net assets....... 6.71% 6.99% 7.17% 7.29% 7.01%* 5.67%*
Portfolio turnover rate........................................... 90% 86% 120% 98% 87% N/A
</TABLE>
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
Ten and one-half month period from
November 14, 1994 through September 30, 1995
--------------------------------------------
Class A Class B Class H Class C
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................................... $9.79 $9.79 $9.79 $9.79
Operations:
Investment income - net.............................. .49 .42 .43 .43
Net realized and unrealized
gains (losses) on
investments....................................... .94 .93 .93 .92
Total from operations................................... 1.43 1.35 1.36 1.35
Distributions to shareholders:
From investment income - net......................... (.50) (.43) (.43) (.43)
From net realized gains.............................. (.01) (.01) (.01) (.01)
Total distributions to
shareholders......................................... (.51) (.44) (.44) (.44)
Net asset value, end of period.......................... $10.71 $10.70 $10.71 $10.70
Total Return**.......................................... 14.80% 13.96% 14.06% 13.95%
Net assets at end of period
(000's omitted)...................................... $1,807 $668 $1,757 $106
Ratio of expenses to average
daily net assets..................................... 1.28%* 2.03%* 2.03%* 2.03%*
Ratio of net investment income
to average daily net assets.......................... 5.03%* 4.04%* 4.24%* 4.14%*
Portfolio turnover rate................................. 35%**** 35%**** 35%**** 35%****
</TABLE>
* Annualized
** These are the Portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
*** Effective September 30, 1994, the Portfolio changed its fiscal accounting
year end to September 30. Previously, the fiscal year end was June 30 and
prior to June, 1991, it was December 31.
+ Prior to March 17, 1986, the Portfolio was a money market fund, and because
the money market fund was changed into a two-portfolio series on that date,
both the then-existing National and Minnesota Portfolios reflect the money
market fund's historical results and should not be aggregated.
**** For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO - CLASS E SHARES
Three-Month Six Month
Year Ended Period Ended Year Ended Period Ended
September 30, September 30, June 30, June 30,
------------- ------------- ------------------------------ --------
1995 1994* 1994 1993 1992 1991***
---- ----- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $10.08 $10.15 $10.65 $10.16 $9.78 $9.68
Operations:
Investment income - net........................ .57 .15 .59 .61 .64.31
Net realized and unrealized gains
(losses) on investments........................ .24 (.08) (.51) .49 .38 .11
Total from operations ................ .81 .07 .08 1.10 1.02.42
Distribution to shareholders:
From investment income - net................... (.57) (.14) (.58) (.61) (.64) (.32)
From realized gains ................ - - - - - -
Total distributions to shareholders................. (.57) (.14) (.58) (.61) (.64) (.32)
Net asset value, end of period...................... $10.32 $10.08 $10.15 $10.65 $10.16 $9.78
Total Return**...................................... 8.35% .72% .64% 11.17% 10.71% 4.36%
Net assets end of period
(000s omitted)................................. $52,603 $54,560 $54,854 52,271 38,586 29,449
Ratio of expenses to average
daily net assets............................... .98% .85%* .85% .89% .90% .97%*
Ratio of net investment income to
average daily net assets........................... 5.60% 5.69%* 5.51% 5.82% 6.37% 6.47%*
Portfolio turnover rate............................. 27% 8% 11% 17% 10% 8%
</TABLE>
MINNESOTA PORTFOLIO - CLASS E SHARES
<TABLE>
<CAPTION>
For For
Period Period
from from
March 17, January 1,
Year Ended Year Ended Year Ended Year Ended 1986 to 1986 to
December December December December December 31, March 16,
1990 1989 1988 1987 1986+ 1986
---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................................. $9.73 $9.65 $9.46 $10.23 $10.00 $1.00
Operations:
Investment income - net............................... .63 .68 .68 .66 .47 .03
Net realized and unrealized gains
(losses) on investments............................. (.05) .08 .20 (.73) .18 -
Total from operations .58 .76 .88 (.07) .65 .03
Distribution to shareholders:
From investment income - net........................ (.63) (.68) (.69) (.70) (.42) (.03)
From realized gains................................. - - - - - -
Total distributions to shareholders................... (.63) (.68) (.69) (.70) (.42) (.03)
Net asset value, end of period........................ $9.68 $9.73 $9.65 $9.46 $10.23 $1.00
Total Return** 6.20% 8.19% 9.60% (.57)% 8.38%* 5.83%*
Net assets end of period
(000s omitted)...................................... 26,481 24,720 15,909 9,007 3,405 157
Ratio of expenses to average
daily net assets.................................... 98% .98% 1.00% 1.00% 1.00%* 1.39%*
Ratio of net investment income to
average daily net assets............................. 6.56% 6.70% 6.63% 7.13% 6.83%* 5.67%*
Portfolio turnover rate............................... 63% 36% 61% 78% 47% N/A
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
Ten and one-half month period from
November 14, 1994 through September 30, 1995
--------------------------------------------
Class A Class B Class H Class C
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................... $9.55 $9.55 $9.55 $9.55
Operations:
Investment income - net.............................. .48 .41 .41 .42
Net realized and unrealized gains (losses) on investments .76 .73 .76 .75
Total from operations................................... 1.24 1.14 1.17 1.17
Distributions to shareholders:
From investment income - net......................... (.49) (.42) (.42) (.42)
From net realized gains.............................. - - - -
Total distributions to shareholders..................... (.49) (.42) (.42) (.42)
Net asset value, end of period.......................... $10.30 $10.27 $10.30 $10.30
Total Return**.......................................... 13.15% 12.10% 12.42% 12.31%
Net assets at end of period (000's omitted)............. $884 $180 $638 $143
Ratio of expenses to average daily net assets........... 1.23%* 1.98%* 1.98%* 1.98%*
Ratio of net investment income to average daily net assets 5.10%* 4.37%* 4.29%* 4.28%*
Portfolio turnover rate................................. 27%**** 27%**** 27%**** 27%****
</TABLE>
* Annualized.
** These are the Portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
*** Effective September 30, 1994, the Portfolio changed its fiscal accounting
year end to September 30. Previously, the fiscal year end was June 30 and
prior to June, 1991, it was December 31.
+ Prior to March 17, 1986, the Portfolio was a money market fund, and because
the money market fund was changed into a two-portfolio series on that date,
both the then-existing National and Minnesota Portfolios reflect the money
market fund's historical results and should not be aggregated.
**** For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
NEW YORK PORTFOLIO - CLASS E SHARES
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO - CLASS E SHARES
Three-Month
Year Ended Period Ended Year Ended Year Ended Year Ended
September 30, September 30, June 30, June 30, June 30,
1995 1994*** 1994 1993 1992
---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................................... $10.74 $10.81 $11.51 $11.03 $10.57
Operations:
Investment income - net.............................. .61 .15 .62 .65 .66
Net realized and unrealized gains
(losses) on investments.............................. .15 (.06) (.54) .65 .62
Total from operations..................................... .76 .09 .08 1.30 1.28
Distribution to shareholders:
From investment income - net......................... (.61) (.16) (.62) (.65) (.66)
Excess distribution of net
investment income.................................. -- -- -- (.01) --
From realized gains.................................. (.02) -- (.16) (.16) (.16)
Total distributions to shareholders....................... (.63) (.16) (.78) (.82) (.82)
Net asset value, end of period............................ $10.87 $10.74 $10.81 $11.51 $11.03
Total Return@ ............................... 7.31% .79% .63% 12.19% 12.53%
Net assets end of period
(000s omitted) ............................... $11,882 $12,797 $12,851 $13,915 $14,943
Ratio of expenses to average
daily net assets (a)................................. 1.09% 1.09%** .99% .99% 1.00%
Ratio of net investment income to
average daily net assets (a)............................. 5.69% 5.74%** 5.55% 5.74% 6.15%
Portfolio turnover rate................................... 10% 0% 4% 17% 19%
</TABLE>
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended Year Ended
June 30, September 30, September 30, September 30,
1991 1990 1989 1988*
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.................................. $10.27 $10.50 $10.30 $10.00
Operations:
Investment income - net............................. .48 .67 .72 .64
Net realized and unrealized gains
(losses) on investments............................. .30 (.22) .20 .30
Total from operations .78 .45 .92 .94
Distribution to shareholders:
From investment income - net........................ (.48) (.67) (.72) (.64)
Excess distribution of net
investment income.................................. -- -- -- --
From realized gains.................................. -- (.01) -- --
Total distributions to shareholders................... (.48) (.68) (.72) (.64)
Net asset value, end of period........................ $10.57 $10.27 $10.50 $10.30
Total Return@ 5.49% 4.44% 9.21% 10.09%**
Net assets end of period
(000s omitted)...................................... 15,952 27,065 23,069 9,260
Ratio of expenses to average
daily net assets (a)................................ 1.23%** 1.09% .60% .45%**
Ratio of net investment income to
average daily net assets (a)......................... 6.08%** 6.35% 6.75% 6.87%**
Portfolio turnover rate............................... 18% 31% 11% 18%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
Class A Class B Class H Class C
Shares+ Shares+ Shares+++ Shares++
------- ------- --------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................... $10.34 $10.34 $10.89 $10.79
Operations:
Investment income - net.............................. .50 .43 .16 .21
Net realized and unrealized gains (losses) on investments .57 .54 (.05) .06
Total from operations................................... 1.07 .97 .11 .27
Distributions to shareholders:
From investment income - net......................... (.52) (.45) (.17) (.21)
From net realized gains.............................. (.02) (.02) - -
Total distributions to shareholders..................... (.54) (.47) (.17) (.21)
Net asset value, end of period.......................... $10.87 $10.84 $10.83 $10.85
Total Return@........................................... 10.51% 9.46% 1.00% 2.54%
Net assets at end of period (000's omitted)............. $49 $194 $72 $51
Ratio of expenses to average daily net assets (a)....... 1.34%** 2.09%** 2.09%** 2.09%**
Ratio of net investment income to average daily net assets 5.41%** 4.68%** 4.36%** 4.44%**
Portfolio turnover rate................................. 10%**** 10%**** 10%**** 10%****
</TABLE>
(a) Fortis Advisers, Inc., the Fund's investment adviser, has voluntarily
undertaken to limit annual expenses for New York Portfolio (exclusive of
interest, taxes, brokerage commissions, 12b-1 fees and non-recurring
extraordinary charges and expenses) to 1.09% of average net assets. From
June 1, 1993 to June 30, 1994, Advisers agreed to limit expenses to .99% of
average net assets. Prior to June 1, 1993, Advisers agreed to limit
expenses to 1.00% of average net assets. Prior to June 1, 1991 Empire of
American Advisory Services, Inc., the previous advisor of the Portfolio,
and Empire National Securities, Incorporated, the previous distributor of
the Portfolio, each agreed to waive a portion of its fees or reimburse the
Portfolio for certain operating expenses. For each of the periods
presented, had the waivers and reimbursement of expenses not been in
effect, the ratios of expenses and net investment income to average daily
net assets would have been 1.60% and 5.18% for class E, 1.85% and 4.90% for
class A, 2.60% and 4.17% for class B, 2.60% and 3.93% for class C, 2.60%
and 3.85% for class H, for the year ending September 30, 1995; 1.09% and
5.45% for the year ended June 30, 1994; 1.05% and 5.68% for the year ended
June 30, 1993; 1.26% and 5.89% for the year ended June 30, 1992; and 1.48%
and 5.83% for the nine-month period ended June 30, 1991; 1.49% and 5.95%
for the year ended September 30, 1990; 1.70% and 5.65% for the year ended
September 30, 1989; and 2.04% and 5.28%, for the period from November 6,
1987 (Commencement of Operations) to September 30, 1988.
* For the period November 6, 1987 (commencement of operations) to September
30, 1988.
** Annualized.
*** Effective September 30, 1994, the Portfolio changed its fiscal accounting
year end to September 30. Previously, the fiscal year end was June 30 and
prior to June, 1991, it was September 30.
@ These are the Portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charges.
**** For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
++ For the period from April 26, 1995 (date of first investment) to September
30, 1995.
+++ For the period from May 31, 1995 (date of first investment) to September
30, 1995.
The Portfolios may advertise their "cumulative total return," "average annual
total return," "systematic investment plan cumulative total return," and
"systematic investment plan average annual total return," and may compare such
figures to recognized indices. Performance figures are calculated separately for
each class of shares, and figures for each class will be presented. The
Portfolios may advertise their "yield." When they advertise yield, they will
also advertise "average annual total return" for the most recent one, five, and
ten year periods, along with other performance data. The Portfolios also may
advertise their "tax equivalent yield" where yield and total return are
advertised. The Portfolios may advertise relative performance as compiled by
outside organizations such as Lipper Analytical or Wiesenberger, or refer to
publications which have mentioned the Fund, Advisers, or their personnel, and
also may advertise other performance items as set forth in the Statement of
Additional Information. The performance discussion required by the Securities
and Exchange Commission is found in the Fund's Annual Report to Shareholders and
will be made available without charge upon request.
ORGANIZATION AND CLASSIFICATION
The Fund was incorporated under Minnesota law in 1982, and is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
(the "1940 Act") as an "open-end management investment company".
The Fund is comprised of three separate investment portfolios (the
"Portfolios")-the National Portfolio, the Minnesota Portfolio, and the New York
Portfolio. While the Minnesota and National Portfolios are classified as
diversified investment companies under the 1940 Act, the New York Portfolio is
classified as a non-diversified investment company. Each Portfolio is, for
investment purposes, in effect a separate investment fund. A separate series of
capital stock is issued for each Portfolio. Each share of capital stock issued
with respect to a Portfolio has a pro-rata interest in the assets of that
Portfolio and has no interest in the assets of any other Portfolio. Each
Portfolio bears its own liabilities and also its proportionate share of the
general liabilities of the Fund. In other respects, however, the Fund is treated
as one entity.
Effective with the close of business on May 31, 1991, the New York Portfolio,
acquired the assets and assumed all identified liabilities of the Pathfinder
Heritage New York Tax-Free Income Fund (Pathfinder) in a tax-free exchange by
issuing new shares. Since New York Portfolio had no assets or liabilities prior
to the acquisition, the Portfolio has retained the financial history of
Pathfinder for financial reporting and income tax purposes.
INVESTMENT OBJECTIVES AND POLICIES
The Fund currently is comprised of three separate investment portfolios, each
with its own investment goals, policies, and investment restrictions. The
investment objective of the National Portfolio is to seek as high a level of
current income exempt from federal income tax as is believed to be consistent
with the preservation of capital. The National Portfolio will invest primarily
in securities of states, territories, and possessions of the United States and
the District of Columbia, and their political subdivisions, agencies, and
instrumentalities. The investment objective of the Minnesota Portfolio is to
seek as high a level of current income exempt from both federal and Minnesota
income tax as is believed to be consistent with the preservation of capital. The
Minnesota Portfolio will invest primarily in securities which are issued by the
State of Minnesota, its agencies, instrumentalities, and political subdivisions.
The investment objective of the New York Portfolio is to seek as high a level of
current income exempt from federal, New York State, and New York City income tax
as is believed to be consistent with the preservation of capital. The New York
Portfolio will invest primarily in securities which are issued by the State of
New York, its agencies, instrumentalities, and political subdivisions. There is
no assurance that the investment objectives of any Portfolio will be achieved.
The investment objectives of the Portfolios and, except as otherwise noted,
their investment policies, could be changed without shareholder approval. Any
change in a Portfolio's investment objective may result in the Portfolio having
an investment objective which is different from that which an investor deemed
appropriate to his or her objectives at the time of investment.
The Portfolios will seek to achieve their investment objectives by investing
primarily in Tax Exempt Bonds. For purposes of the National Portfolio, "Tax
Exempt Bonds" means any debt obligation generating interest income that is
exempt, in the opinion of bond counsel, from federal income tax. For purposes of
the Minnesota Portfolio, "Tax Exempt Bonds" means any debt obligation generating
interest income that, in the opinion of bond counsel, is not includable in gross
income for Federal income tax purposes or in taxable net income of individuals,
estates, and trusts for Minnesota income tax purposes. For purposes of the New
York Portfolio, "Tax Exempt Bonds" means any debt obligation generating interest
income that, in the opinion of bond counsel, is not includable in gross income
for Federal income tax purposes or in taxable net income of individuals,
estates, and trusts for New York income tax purposes.
As policies which may not be changed without shareholder approval, except for
defensive purposes: the National Portfolio will invest at least 80% of its net
assets in securities that generate interest that is not includable in gross
income for federal income tax purposes and is not an item of tax preference for
purposes of the federal alternative minimum tax; the Minnesota Portfolio will
invest at least 80% of its net assets in securities that generate interest that
is not includable in federal gross income or in taxable net income of
individuals, estates, and trusts for Minnesota Income Tax purposes and is not an
item of tax preference for purposes of the Federal or State of Minnesota
alternative minimum tax. (Ninety-five percent or more of the exempt-interest
dividends paid by the Minnesota Portfolio will be derived from interest income
on obligations of the State of Minnesota or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities.); the
New York Portfolio will invest at least 80% of its net assets in securities that
generate interest that is not includable in federal gross income or State of New
York or City of New York taxable net income (except for State of New York and
City of New York franchise tax on corporations and financial institutions, which
is measured by income) and is not an item of tax preference for purposes of the
federal, State of New York, or City of New York alternative minimum tax.
A policy which may not be changed without shareholder approval is that at least
90% of the Tax Exempt Bonds purchased by each Portfolio will be of "investment
grade" quality. This means that they will be rated, at the time of purchase,
within the four highest grades assigned by either Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or BBB) or
will be unrated securities which at the time of purchase are judged by Fortis
Advisers, Inc. ("Advisers") to be of comparable quality to securities rated
within such four highest grades. Securities rated Baa or BBB are medium grade,
involve some speculative elements and are the lowest investment grade available.
Securities rated BBB may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade securities. Securities rated below BBB (non-investment grade securities)
are regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. Participation in lower-rated securities transactions generally
involves greater returns in the form of higher average yields. However,
participation in such transactions involves greater risks, often related to
sensitivity to interest rates, economic changes, solvency, and relative
liquidity in the secondary market. For a more detailed discussion of the risks
connected with such investments, see "Investment Objectives and Policies-Risks
of Transactions in High-Yielding Securities" in the Statement of Additional
Information. The Portfolios may retain a portfolio security whose rating has
changed if the security otherwise meets the Portfolios' respective investment
objectives and investment criteria.
A description of the ratings of tax exempt securities of Moody's and of Standard
& Poor's is set forth in the Appendix.
Rated, as well as unrated, Tax Exempt Bonds will be analyzed by Advisers on the
basis of available information as to creditworthiness and with a view to various
qualitative factors and trends affecting Tax Exempt Bonds generally. It should
be noted, however, that the amount of information about the financial condition
of an issuer of Tax Exempt Bonds may not be as extensive as that which is made
available by many corporations whose securities are more actively traded. While
the Portfolios are free to invest in securities of any maturity, it is expected
that the average maturity of the Portfolios will generally range from seven to
20 years.
The Portfolios may invest without limitation in taxable obligations on a
temporary, defensive basis due to market conditions. Such taxable obligations,
whether purchased for temporary or liquidity purposes or on a defensive basis,
may include: obligations of the U.S. government, its agencies or
instrumentalities; other debt securities rated within the four highest grades by
either Moody's or Standard & Poor's; commercial paper rated in the highest grade
by either of such rating services (Prime-1 or A-1, respectively); certificates
of deposit and bankers' acceptances of domestic banks which have assets of over
$1 billion; variable amount master demand notes; and repurchase agreements with
respect to any of the foregoing investments. The Portfolios may also hold their
respective assets in cash.
TAX EXEMPT BONDS
Tax Exempt Bonds include primarily debt obligations of the states, their
agencies, universities, boards, authorities and political subdivisions (for
example, cities, towns, counties, school districts, authorities and commissions)
issued to obtain funds for various public purposes, including the construction
or improvement of a wide range of public facilities such as airports, bridges,
highways, hospitals, housing, jails, mass transportation, nursing homes, parks,
public buildings, recreational facilities, school facilities, streets and water
and sewer works. Other public purposes for which Tax Exempt Bonds may be issued
include the refunding of outstanding obligations, the anticipation of taxes or
state aids, the payment of judgments, the funding of student loans, community
redevelopment, district heating, the purchase of street maintenance and
firefighting equipment, or any authorized corporate purpose of the issuer except
for the payment of current expenses. In addition, certain types of industrial
development bonds may be issued by or on behalf of public corporations to
finance privately operated housing facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such obligations are included within the term
Tax Exempt Bonds if the interest payable thereon is, in the opinion of bond
counsel, exempt from federal income taxation and, for the Minnesota Portfolio
and the New York Portfolio, State of Minnesota income taxation and State of New
York and City of New York income taxation, respectively (excluding excise taxes
imposed on corporations and banks and measured by income). Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial,
commercial or office facilities constitute Tax Exempt Bonds, although current
federal income tax laws place substantial limitations on the size of such
issues.
The two principal classifications of Tax Exempt Bonds are general obligation
bonds and limited obligation (or revenue) bonds. General obligation bonds are
obligations involving credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. The characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
the particular issuer. Limited obligation bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a specific revenue source, such as the user of the
facility. Industrial development bonds are in most cases limited obligation
bonds payable solely from specific revenues of the project to be financed,
pledged to their payment. The credit quality of industrial development bonds is
usually directly related to the credit standing of the user of the facilities
(or the credit standing of a third-party guarantor or other credit enhancement
participant, if any). There are, of course, variations in the quality of Tax
Exempt Bonds, both within a particular classification and between
classifications, depending on various factors. (See Appendix). The Fund does not
currently intend to invest in so-called "moral obligation" bonds, where
repayment is backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the "moral
obligation," meets the investment criteria established for investments by the
Fund.
The yields on Tax Exempt Bonds are dependent on a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the Tax Exempt Bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
and Standard & Poor's represent their opinions as to the quality of the Tax
Exempt Bonds which they undertake to rate. It should be emphasized, however,
that ratings are general, not absolute, standards of quality. Consequently, Tax
Exempt Bonds of the same maturity, interest rate and rating may have different
yields, while Tax Exempt Bonds of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to their purchase by the
Portfolios, particular Tax Exempt Bonds or other investments may cease to be
rated or their ratings may be reduced below the minimum rating required for
purchase by the Portfolios. Neither event will require the elimination of an
investment from the Portfolio, but Advisers will consider such an event in its
determination of whether the Portfolio should continue to hold such an
investment.
As a fundamental policy, each Portfolio will not invest more than 25% of its
total assets in limited obligation bonds payable only from revenues derived from
facilities or projects within a single industry. As to utility companies, gas,
electric, water and telephone companies will be considered as separate
industries. For this purpose, municipal bonds refunded with U.S. Government
securities will be treated as investments in U.S. Government securities, and are
not subject to this requirement or the 5% diversification requirement under the
1940 Act.
Securities in which the Fund may invest, including Tax Exempt Bonds, are subject
to the provisions of bankruptcy, insolvency, reorganization and other laws
affecting the rights and remedies of creditors, such as the federal Bankruptcy
Code and laws, if any, which may be enacted by Congress or the Minnesota or New
York legislature extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other conditions the
power or ability of issuers to meet their obligations for the payment of
interest on and principal of their Tax Exempt Bonds may be materially affected.
Current economic conditions in each respective state affect both the total
amount of taxes each state collects and the personal income growth within each
state. Budgetary shortfalls may result in reductions in credit ratings for
securities issued by the states. This may cause an increase in the yield and a
decrease in the price of a security issued by a particular state. Furthermore,
because local finances are dependent upon the fiscal integrity of the state and
upon the same financial factors that influence state government, the credit
ratings of state agencies, authorities and municipalities may be similarly
affected. See the Statement of Additional Information for more information
concerning each state.
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS. New issues of Tax Exempt Bonds and other securities are
often purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. Such an agreement to purchase securities is termed a "forward
commitment." The payment obligation and the interest rate that will be received
on the securities are each fixed at the time the buyer enters into the
commitment. The Portfolios may enter into such forward commitments if the
Portfolios hold, and maintain until the settlement date in a segregated account,
cash or high-grade, liquid debt obligations in an amount sufficient to meet the
purchase price. There is no percentage limitation on the Portfolios' total
assets which may be invested in forward commitments. The purchase of securities
on a when-issued, delayed delivery or forward commitment basis exposes a
Portfolio to risk because the securities may decrease in value prior to their
delivery. Purchasing securities on a when-issued, delayed delivery or forward
commitment basis involves the additional risk that the return available in the
market when the delivery takes place will be higher than that obtained in the
transaction itself. These risks could result in increased volatility of a
Portfolio's net asset value to the extent that such Portfolio purchases
securities on a when-issued, delayed delivery or forward commitment basis while
remaining substantially fully invested. There is also a risk that the securities
may not be delivered or that a Portfolio may incur a loss or will have lost the
opportunity to invest the amount set aside for such transaction in the
segregated asset account. Although the Portfolios will generally enter into
forward commitments with the intention of acquiring Tax Exempt Bonds or other
securities, the Fund may dispose of a commitment prior to settlement if Advisers
deems it appropriate to do so. The Portfolios may realize short-term profits or
losses upon the sale of forward commitments.
PORTFOLIO TURNOVER. Portfolio transactions will be undertaken principally to
accomplish the Portfolios' objectives in relation to anticipated movements in
the general level of interest rates. Securities may be sold in anticipation of a
market decline (a rise in interest rates) or purchased in anticipation of a
market rise (a decline in interest rates) and later sold. In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what Advisers believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, due to such factors as changes
in the overall demand for or supply of various types of Tax Exempt Bonds or
changes in the investment objectives of investors.
The Fund's investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by the Portfolios is known as "portfolio turnover" and may
involve the payment by the Portfolios of dealer mark-ups or underwriting
commissions, and other transaction costs, on the sale of securities as well as
on the reinvestment of the proceeds in other securities. The portfolio turnover
rate for a fiscal year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of portfolio
securities-excluding securities whose maturities at acquisition were one year or
less.
FLOATING AND VARIABLE RATE SECURITIES. The Fund also may purchase floating and
variable rate Tax Exempt Bonds. These notes normally have a stated maturity in
excess of one year, but permit the holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Use of letters of credit or other credit support
arrangements will generally not adversely affect the tax exempt status of these
obligations. Advisers will rely upon the opinion of the issuer's bond counsel to
determine whether such notes are exempt from federal income taxes and, for the
Minnesota Portfolio and the New York Portfolio, Minnesota income tax and New
York State and New York City income tax. The issuer of floating and variable
rate demand notes normally has a corresponding right, after a given period, to
prepay at its discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the noteholders. The
interest rate on a floating rate demand note is based on a known lending rate,
such as a bank's prime rate, and is adjusted automatically each time such rate
is adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based on a known lending rate, generally the rate on 90-day
U.S. Treasury bills. Advisers will monitor the creditworthiness of the issuers
of floating and variable rate demand notes. Such obligations are not as liquid
as many other types of Tax Exempt Bonds.
Although the New York Portfolio is classified as a "nondiversified" investment
company under the 1940 Act, it is still required to meet certain diversification
requirements in order to qualify as a "regulated investment company" for Federal
income tax purposes under the Internal Revenue Code of 1986 as amended (the
"Code"). To so qualify, the New York Portfolio must diversify its holdings so
that, at the close of each quarter of its taxable year, (a) at least 50% of the
value of its total assets is represented by cash, cash items, securities issued
by the U.S. Government, its agencies and instrumentalities, the securities of
other regulated investment companies, and other securities limited generally
with respect to any one issuer to an amount not more than 5% of the total assets
of the Portfolio and not more than 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any issuer (other than securities issued by the
U.S. Government, its agencies or instrumentalities or the securities of other
regulated investment companies), or in two or more issuers that the Portfolio
controls and that are engaged in the same or similar trades or businesses.
For the purpose of diversification under the 1940 Act, the identification of the
issuer of Tax Exempt Bonds depends on the terms and conditions of the security.
If a state or a political subdivision of such state pledges its full faith and
credit to payment of a security, the state or the political subdivision,
respectively, will be deemed the sole issuer of the security. If the assets and
revenues of an agency, authority or instrumentality of the state or a political
subdivision are separate from those of the state or political subdivision and
the security is backed only by the assets and revenues of the agency, authority
or instrumentality, such agency, authority or instrumentality will be deemed to
be the sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the state, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or projects will be deemed the sole issuer. Similarly, in the case of
an industrial development bond, if that bond is backed only by certain revenues
to be received from the non-governmental user of the project financed by the
bond, then such non-governmental user will be deemed to be the sole issuer. If,
however, in any of the above cases, the state, the political subdivision or some
other entity guarantees a security, and the value of all securities issued or
guaranteed by the guarantor and owned by a Portfolio exceeds 10% of the value of
the Portfolio's total assets, the guarantee will be considered a separate
security and will be treated as an issue of the guarantor.
BORROWING. Each Portfolio may borrow money from banks as a temporary measure to
facilitate redemptions. As a fundamental policy, however, borrowings may not
exceed 10% of the value of such Portfolio's total assets and no additional
investment securities may be purchased by a Portfolio while outstanding bank
borrowings exceed 5% of the value of such Portfolio's total assets. Interest
paid on borrowings will not be available for investment.
ILLIQUID SECURITIES. Each Portfolio may invest up to 15% of the value of its net
assets in illiquid securities. For this purpose illiquid securities include,
among others, (i) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (ii)
options purchased over-the-counter and the cover for options written
over-the-counter, and (iii) repurchase agreements not terminable within seven
days. Securities that have been determined to be liquid by the Board of
Directors of the Fund, or by Advisers subject to the oversight of such Board of
Directors, will not be subject to this limitation. Commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act and
securities that are eligible for resale under Rule 144A under the 1933 Act that
have legal or contractual restrictions on resale but have a readily available
market are not deemed illiquid securities for this purpose.
MANAGEMENT
BOARD OF DIRECTORS
Under Minnesota law, the Board of Directors of the Fund (the "Board of
Directors") has overall responsibility for managing the Fund in good faith, in a
manner reasonably believed to be in the best interests of the Fund, and with the
care an ordinarily prudent person would exercise in similar circumstances.
However, this management may be delegated.
The Articles of Incorporation of the Fund limit the liability of directors to
the fullest extent permitted by law.
THE INVESTMENT ADVISER/TRANSFER AGENT/DIVIDEND AGENT
Fortis Advisers, Inc. ("Advisers") is the investment adviser, transfer agent,
and dividend agent for the Fund. Advisers has been managing investment company
portfolios since 1949, and is indirectly owned 50% by Fortis AMEV and 50% by
Fortis AG, diversified financial services companies. In addition to providing
investment advice, Advisers is responsible for management of the Fund's business
affairs, subject to the overall authority of the Board of Directors. Howard G.
Hudson (Executive Vice President), Robert C. Lindberg (Vice President), Maroun
M. Hayek (Vice President) and David C. Greenzang (Money Market Portfolio
Officer) manage the Portfolios. Mr. Lindberg has managed the Portfolios since
1993. Prior to 1993, Mr. Lindberg managed bank portfolios for COMERICA, Inc.,
Detroit, Michigan. The other individuals have been managing the Portfolios since
August of 1995. Messrs. Hudson and Hayek have managed debt securities for
Fortis, Inc. since 1991 and 1987, respectively. Mr. Greenzang has been involved
in management of debt securities for Fortis, Inc. since 1992. Prior to 1992, Mr.
Greenzang was an Associate with Dean Witter Reynolds, Inc. in New York, NY.
Messrs. Hudson, Lindberg, Hayek and Greenzang are located at One Chase Manhattan
Plaza, New York, NY.
THE UNDERWRITER AND DISTRIBUTION EXPENSES
Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is the Fund's
underwriter. Investors' address is that of the Fund. Investors reserves the
right to reject any purchase order. The following persons are affiliated with
both Investors and the Fund: Dean C. Kopperud is a director and officer of both;
Stephen M. Poling and Jon H. Nicholson are directors of Investors and officers
of both; and Dennis M. Ott, James S. Byrd, Robert C. Lindberg, Keith R. Thomson,
Larry A. Medin, Anthony J. Rotondi, Rhonda J. Schwartz, Robert W. Beltz, Jr.,
Thomas D. Gualdoni, Richard P. Roche, Tamara L. Fagely, John E. Hite, Carol M.
Houghtby and Scott R. Plummer are officers of both.
Pursuant to a Plan of Distribution adopted by the Fund under Rule 12b-1 under
the 1940 Act, the Fund is obligated to pay Investors an annual fee of .25% of
average net assets attributable to the Fund's Class A shares and 1.00% of
average net assets attributable to Class B, H, and C shares. While all of Class
A's Rule 12b-1 fee constitutes a "distribution fee", only 75% of Class B, H, and
C's fees constitute distribution fees.
The higher distribution fee attributable to Class B, H, and C shares is designed
to permit an investor to purchase such shares through registered representatives
of Investors and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit Investors to compensate its registered
representatives and other broker-dealers in connection with the sale of such
shares. The distribution fee for all classes may be used by Investors for the
purpose of financing any activity which is primarily intended to result in the
sale of shares of the Fund. For example, such distribution fee may be used by
Investors: (a) to compensate broker-dealers, including Investors and its
registered representatives, for their sale of Fund shares, including the
implementation of various incentive programs with respect to broker-dealers,
banks, and other financial institutions, and (b) to pay 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 prospectuses for other than current shareholders;
preparation and distribution of sales literature; advertising of any type;
expenses of branch offices provided jointly by Investors and affiliated
insurance companies; and compensation paid to and expenses incurred by officers,
employees or representatives of Investors or of other broker-dealers, banks, or
other financial institutions, including travel, entertainment, and telephone
expenses.
A portion of the Rule 12b-1 fee equal to .25% of the average net assets of the
Fund attributable to the Class B, H, and C shares, constitutes a shareholder
servicing fee designed to compensate Investors for the provision of certain
services to shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Funds and providing reports and other information, and services related to the
maintenance of shareholder accounts. Investors may use the Rule 12b-1 fee to
make payments to qualifying broker-dealers and financial institutions that
provide such services.
Investors may also enter into sales or servicing agreements with certain
institutions such as banks ("Service Organizations") which have purchased shares
of the Fund for the accounts of their clients, or which have made Fund shares
available for purchase by their clients, and/or which provide continuing service
to such clients. The Glass-Steagall Act and other applicable laws prohibit
certain banks from engaging in the business of underwriting securities. In such
circumstances, Investors, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers. (If a
bank were later prohibited from acting as a Service Organization, its
shareholder clients would be permitted to remain Fund shareholders and
alternative means for continuing servicing of such shareholders would be
sought.) In such event, changes in the operation of the Fund might occur and a
shareholder serviced by such bank might no longer be able to avail itself of any
automatic investment or other services then being provided by the Bank. (State
securities laws on this issue may differ from the interpretations of Federal law
expressed above and banks and other financial institutions may be required to
register as dealers pursuant to state law.)
FUND EXPENSES
For the most recent fiscal year, the ratio of the Funds' total operating
expenses (including the distribution fees and shareholding servicing fees
referred to under "Distribution Expenses"), and their advisory fees (which are
included in operating expenses) both as a percentage of average daily net assets
were as follows:
<TABLE>
<CAPTION>
Total Operating Expenses
------------------------
Classes B, Advisory
Class A H, & C Class E Fee
------- ------ ------- ---
<S> <C> <C> <C> <C>
National Portfolio.......................... 1.28% 2.03% 1.03% .77%
Minnesota Portfolio......................... 1.23% 1.99% .98% .72%
New York Portfolio.......................... 1.34% 2.09% 1.09% .80%
</TABLE>
Advisers has undertaken to limit annual expenses for the New York Portfolio
(exclusive of Rule 12b-1 fees, interest, taxes, brokerage commissions and
non-recurring or extraordinary charges and expenses) until September 30, 1996,
to not more than 1.09% of average net assets. Such expense limit is maintained
by Advisers by reimbursement to the New York Portfolio for expenses in excess of
such percentage, but not in amounts in excess of the investment advisory fees
received by Advisers from the New York Portfolio. If the expense limitation had
not been in place for the fiscal year ended September 30, 1995, the Portfolio's
expenses would have been 1.60% of average net assets.
BROKERAGE ALLOCATION
Advisers may consider sales of shares of the Fund, and of other funds advised by
Advisers, as a factor in the selection of broker-dealers to execute Fund
securities transactions when it is believed that this can be done without
causing the Fund to pay more in brokerage commissions than it would otherwise.
VALUATION OF SECURITIES
The Portfolios' net asset values per share are determined by dividing the value
of the securities owned by each Portfolio, plus any cash or other assets, less
all liabilities, by the number of the Portfolio shares outstanding. The
portfolio securities in which the Portfolio invests fluctuate in value, and
hence the net asset values per share of the Portfolios also fluctuate. The net
asset value of the Portfolios' shares is determined as of the primary closing
time for business on the Exchange on each day on which the Exchange is open. If
shares are purchased through another broker-dealer who receives the order prior
to the close of the Exchange, then Investors will apply that day's price to the
order as long as the broker-dealer places the order with Investors by the end of
the day.
Securities are generally valued at market value. Securities for which
over-the-counter market quotations are readily available are valued on the basis
of the last current bid price. When market quotations are not readily available,
or when restricted securities or other assets are being valued, such securities
or other assets are valued at fair value as determined in good faith by
management under supervision of 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 for
normal institutional-size trading units of debt securities when such valuations
are believed 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. Purchases and sales by the Fund after
2:00 P.M. Central Time normally are not recorded until the following day.
CAPITAL STOCK
Each Portfolio's shares constitute separate series of common shares. Each
Portfolio currently offers its shares in five classes, each with different sales
arrangements and bearing differing expenses. Class A, B, H, C, and E shares each
represent interests in the assets of the respective Portfolios 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 that particular class and other matters for which separate class
voting is appropriate under applicable law. Each Portfolio may offer additional
classes of shares.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Portfolio currently declares dividends from net investment income on each
day the New York Stock Exchange (the "Exchange") is open (to shareholders of
record as of 3:00 p.m., Central Time, the preceding business day) and pays
dividends monthly. A shareholder will not be credited with a dividend until
payment is received for the shares. Distributions of net realized capital gains
are made annually. Distributions paid by a Portfolio with respect to all classes
of 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 per share dividends on
Class B, H, and C shares will be lower than those on Class A shares (which have
lower Rule 12b-1 fees) and Class E shares (which do not have Rule 12b-1 fees and
will therefore have the highest dividends).
Such dividends and capital gains distributions will be made in the form of
additional shares of the same class of the same Portfolio (at net asset value)
unless the shareholder sends the Fund a written request that either or both be
sent to the shareholder or reinvested (at net asset value) in shares of the same
class of another Portfolio or Fortis fund.
Dividends will be reinvested monthly, on the last business day of each month, at
the net asset value on that date. If they are to be reinvested in other Fortis
funds, processing normally takes up to three business days.
TAXATION
FEDERAL INCOME TAXATION
Each Portfolio intends to pay at least 90% of its dividends as "exempt-interest
dividends." Distributions by a mutual fund meeting applicable Code requirements
are subject to the following Federal tax treatment:
Distributions of net interest income from tax-exempt obligations that are
designated by the Fund as exempt-interest dividends are excludable from
shareholders' gross income.
The Fund's present policy is to designate exempt-interest dividends annually.
Shareholders are required for information purposes to report exempt-interest
dividends and other tax-exempt interest on their tax returns.
Distributions of net long-term capital gains, designated in the shareholder's
Annual Account Summary as long-term capital gain distributions, are taxable to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held his or her shares or whether such gains were realized by
the Fund before the shareholder acquired such shares and were reflected in the
price paid for the shares.
Since none of the Fund's income will consist of corporate dividends, the 70%
dividends received deduction for corporations will not be applicable to taxable
distributions by the Fund.
Exempt-interest dividends attributable to interest income on certain tax-exempt
obligations issued after August 7, 1986, to finance certain private activities
will be treated as an item of tax preference that is included in alternative
minimum taxable income for purposes of computing the Federal alternative minimum
tax for all taxpayers and the Federal environmental tax on corporations. No
Portfolio will invest more than 20% of its net assets in obligations the
interest on which is treated as an item of tax preference. However, all other
tax-exempt interest received by a corporation will be included in earnings and
profits and adjusted current earnings for purposes of determining the Federal
corporate alternative minimum tax and the environmental tax imposed on
corporations by Section 59A of the Code.
Tax-exempt interest, including exempt-interest dividends paid by the Fund, is
taken into account in computing the "modified adjusted gross income" of
individuals for purposes of determining the portion of social security and
railroad retirement benefits that are subject to Federal income tax. In certain
limited circumstances, the portion of such benefits that may be subject to tax
is 85%.
Any loss on the sale or exchange of shares held for 6 months or less (although
regulations may reduce this time to 31 days) will be disallowed for Federal
income tax purposes to the extent of the amount of any exempt-interest dividend
received with respect to such shares.
The Tax Reform Act of 1986 imposed new requirements on certain Tax Exempt Bonds
which, if not satisfied, could result in loss of tax exemption for interest on
such bonds, even retroactively to the date of issuance of the bonds. Proposals
may be introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the Federal income tax exemption for Tax Exempt
Bonds. The Fund cannot predict what additional legislation may be enacted that
may affect shareholders. The Fund will avoid investment in bonds which, in the
opinion of Advisers, pose a material risk of the loss of tax exemption. Further,
if a bond in one of the Portfolios lost its exempt status, Advisers would make
every effort to dispose of it on terms that are not detrimental to the
Portfolio.
MINNESOTA INCOME TAXATION
The portion of exempt-interest dividends that is derived from interest income on
Minnesota Tax Exempt Bonds by the Minnesota Portfolio is excluded from the
Minnesota gross income of individuals, estates, and trusts, provided that the
portion of the exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends paid
by such Portfolio. All remaining dividends (except for dividends, if any,
derived from interest on obligations of the United States or certain of its
territories or possessions), including capital gain dividends, are included in
the Minnesota gross income of individuals, estates, and trusts. Exempt-interest
dividends are not excluded from the Minnesota gross income of corporations and
financial institutions. Dividends paid from long-term capital gains (and
designated as such) are to be treated by shareholders as long-term capital gains
under Minnesota law. However, Minnesota currently taxes long-term capital gains
at the same rates as ordinary income, while retaining restrictions on the
deductibility of capital losses.
Exempt-interest dividends attributable to interest on certain private activity
bonds issued after August 7, 1986, will be included in Minnesota alternative
minimum taxable income of individuals, estates, and trusts for purposes of
computing Minnesota's alternative minimum tax. Dividends generally will not
qualify for the dividends-received deduction for corporations and financial
institutions.
The 1995 Minnesota Legislature enacted a statement of intent that interest on
obligations of Minnesota governmental units and Indian tribes be included in net
income of individuals, estates and trusts for Minnesota income tax purposes if a
court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. The Fund is not aware of any decision in which a court
has held that a state's exemption of interest on its own bonds or those of its
political subdivisions or Indian tribes, but not of interest on the bonds of
other states or their political subdivisions or Indian tribes, unlawfully
discriminates against interstate commerce or otherwise contravenes the United
States Constitution. Nevertheless, the Fund cannot predict the likelihood that
interest on the Minnesota bonds held by the Fund would become taxable under this
Minnesota statutory provision.
NEW YORK INCOME TAXATION
The portion of exempt-interest dividends that is derived from interest income on
New York Tax Exempt Bonds is excluded from the New York State and New York City
gross income of individuals, estates and trusts. The remaining portion of such
dividends, and dividends that are not exempt-interest dividends, are included in
the New York State and New York City gross income of individuals, estates and
trusts. Exempt-interest dividends are not excluded from the New York State and
New York City gross income of corporations and banks, and dividends from the
Fund will not qualify for the New York State or New York City dividends-received
deduction for corporations and banks.
HOW TO BUY FUND SHARES
GENERAL PURCHASE INFORMATION
MINIMUM AND MAXIMUM INVESTMENTS
A minimum initial investment of $500 normally is required. An exception to this
minimum (except on telephone or wire orders) is the "Systematic Investment Plan"
($25 per month by "Pre-authorized Check Plan" or $50 per month on any other
basis). The minimum subsequent investment normally is $50, again subject to the
above exceptions.
While Class A and E shares have no maximum order, Class B and H shares have a
$500,000 maximum and Class C shares have a $1,000,000 maximum. Orders greater
than these limits will be treated as orders for Class A shares.
INVESTING BY TELEPHONE
Your registered representative may make your purchase ($500 minimum) by
telephoning the number on the cover page of this Prospectus. In addition, your
check and the Account Application which accompanies this Prospectus must be
promptly forwarded, so that Investors receives your check within three business
days. Please make your check payable to Fortis Investors, Inc. and mail it with
your Application "CM-9651, St. Paul, MN 55170-9651." If you have a bank account
authorization form on file, you may purchase $100-$10,000 worth of Fund shares
via telephone through the automated Fortis Information Line.
INVESTING BY WIRE
A shareholder having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares ($500 minimum) by requesting their
banks to transmit immediately available funds (Federal Funds) by wire to:
First Bank National Association
ABA #091000022, credit account no: 1-702-2514-1341
Fortis Funds Purchase Account
For further credit to___________________
(name of client)
Fortis Account NBR______________________
Before making an initial investment by wire, your broker-dealer must first
telephone Investors at the number on the cover page of this Prospectus to open
your account and obtain your account number. In addition, the Account
Application which accompanies this Prospectus must be promptly forwarded to
Investors at the mailing address in the "Investing by Mail" section of this
Prospectus. Additional investments may be made at any time by having your bank
wire Federal Funds to the above address for credit to your account. Such
investments may be made by wire even if the initial investment was by mail.
INVESTING BY MAIL (ADDRESS: CM-9614, ST. PAUL, MN 55170-9614)
The Account Application which accompanies this Prospectus must be completed,
signed, and sent with a check or other negotiable bank draft, payable to "Fortis
Funds." Additional purchases may be made at any time by mailing a check or other
negotiable bank draft along with your confirmation stub. The account to which
the subsequent purchase is to be credited should be identified as to the name(s)
of the registered owner(s) and by account number.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Portfolios each offer investors the choice between five classes of shares
which offer differing sales charges and bear different expenses. These
alternatives permit an investor to choose the more beneficial method of
purchasing shares given the amount of the purchase, the length of time the
investor expects to hold the shares, and other circumstances. The inside front
cover 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. Investors may also provide
additional financial assistance not to exceed .5% of estimated sales for a
particular period to dealers in connection with seminars for the public,
advertising, sales campaigns and/or shareholder services and programs regarding
one or more of the Fortis Funds, and other dealer-sponsored programs or events.
Non-cash compensation will be provided to dealers and includes payment or
reimbursement for conferences, sales or training programs for their employees,
and travel expenses incurred in connection with trips taken by registered
representatives to locations within or outside of the United States for meetings
or seminars of a business nature. None of the aforementioned additional
compensation is paid for by the Fund or its shareholders.
CLASS A AND E SHARES-INITIAL SALES CHARGE ALTERNATIVE
(Note: Class E shares are only available to investors who were shareholders on
November 13, 1994.)
The public offering price of Class A and E Portfolio shares is determined once
daily, by adding a sales charge to the net asset value per share of the shares
next calculated after receipt of the purchase order. The sales charges and
broker-dealer concessions, which vary with the size of the purchase, are shown
in the following table. Additional compensation (as a percentage of sales
charge) will be paid to a broker-dealer when its annual sales of Fortis funds
having a sales charge exceed $10,000,000 (2%), $25,000,000 (4%), and $50,000,000
(5%).
<TABLE>
<CAPTION>
Sales Sales
Charge as Charge as
Percentage Percentage
of the of the Net
Offering Amount Broker-Dealer
Amount of Sale Price Invested Concession
- -------------- ----- -------- ----------
<S> <C> <C> <C>
Less than $100,000............................................................. 4.500% 4.712% 4.00%
$100,000 but less than $250,000................................................ 3.500% 3.627% 3.00%
$250,000 but less than $500,000................................................ 2.500% 2.564% 2.25%
$500,000 but less than $1,000,000.............................................. 2.000% 2.041% 1.75%
$1,000,000 or more*............................................................ -0- -0- 1.00%
</TABLE>
- -----------
* The Fund imposes a contingent deferred sales charge in connection with
certain purchases of Class A and E shares of $1,000,000 or more. See
"Redemption-Contingent Deferred Sales Charge."
The above scale applies to purchases of Class A and E shares by the following:
(1)Any individual, his or her spouse, and their children under the age of
21, and any of such persons' tax-qualified plans (provided there is only
one participant);
(2)A trustee or fiduciary of a single trust estate or single fiduciary
account; and
(3)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 by means which result in economy of sales effort or
expense, whether the purchase is made through a central administration,
through a single broker-dealer, or by other means. 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.
SPECIAL PURCHASE PLANS FOR CLASS A AND E SHARES
For information on any of the following special purchase or exchange plans
applicable to Class A and E shares, see the Statement of Additional Information
or contact your broker-dealer or sales representative. It is the purchaser's
obligation to notify his or her broker-dealer or sales representative about the
purchaser's eligibility for any of the following special purchase or exchange
plans. Any plan involving systematic purchases may, at Advisers' option, result
in transactions under such plan being confirmed to the investor quarterly,
rather than as a separate notice following the transaction.
RIGHT OF ACCUMULATION The preceding table's sales charge discount applies to the
current purchase plus the cost of shares already owned (excluding shares
purchased by reinvesting dividends or capital gains distributions) of any Fortis
fund having a sales charge.
STATEMENT OF INTENTION The preceding table's sales charge discount applies to an
initial purchase of at least $1,000, with an intention to purchase the balance
needed to qualify within 13 months-excluding shares purchased by reinvesting
dividends or capital gains;
REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN THE FORTIS FUNDS
Shareholders of any Portfolio or fund may reinvest their dividend and/or capital
gains distributions in any of such Portfolios or funds at net asset value.
CONVERSION FROM CLASS B OR H SHARES Class B and H shares will automatically be
converted to Class A shares (at net asset value) at the end of the month in
which the ninth anniversary of their purchase occurs.
EXEMPTIONS FROM SALES CHARGE
* Fortis, Inc. or its subsidiaries, and the following persons associated with
such companies, if all account owners fit this description: (1) officers
and directors; (2) employees or sales representatives (including agencies
and their employees); (3) spouses of any such persons; or (4) any of such
persons' children, grandchildren, parents, grandparents, or siblings-or
spouses of any of these persons. (All such persons may continue to add to
their account even after their company relationships have ended);
* Fund directors, officers, or their spouses (or such persons' children,
grandchildren, parents, or grandparents-or spouses of any such persons), if
all account owners fit this description;
* Representatives or employees (or their spouses) of Investors (including
agencies) or of other broker-dealers having a sales agreement with
Investors (or such persons' children, grandchildren, parents, or
grandparents-or spouses of any such persons), if all account owners fit
this description;
* Registered investment companies;
* Shareholders of unrelated mutual funds with front-end and/or deferred sales
loads, to the extent that the purchase price of such Portfolio shares is
funded by the proceeds from the redemption of shares of any such unrelated
mutual fund (within 60 days of the purchase of Portfolio shares), provided
that the shareholder's application so specifies and is accompanied either
by the redemption check of such unrelated mutual fund (or a copy of the
check) or a copy of the confirmation statement showing the redemption.
Similarly, anyone who is or has been the owner of a fixed annuity contract
not deemed a security under the securities laws who wishes to surrender
such contract and invest the proceeds in a Portfolio, to the extent that
the purchase price of such Portfolio shares is funded by the proceeds from
the surrender of the contract (within 60 days of the purchase of Portfolio
shares), provided that such owner's application so specifies and is
accompanied either by the insurance company's check (or a copy of the
check) or a copy of the insurance company surrender form. From time to
time, Investors may pay commissions to broker-dealers and registered
representatives on transfers from mutual funds or annuities as described
above;
* Purchases by employees (including their spouses and dependent children) of
banks and other financial institutions that provide referral and
administrative services related to order placement and payment to
facilitate transactions in shares of the Portfolios for their clients
pursuant to a sales or servicing agreement with Investors; provided,
however, that only those employees of such banks and other firms who as a
part of their usual duties provide such services related to such
transactions in Portfolio shares shall qualify.
* Registered investment advisers, trust companies, and bank trust departments
exercising discretionary investment authority or using a money
management/mutual fund "wrap" program with respect to the money to be
invested in a Portfolio, provided that the investment adviser, trust
company or trust department provides Advisers with evidence of such
authority or the existence of such a wrap program with respect to the money
invested.
PURCHASES BY CERTAIN FORMER PATHFINDER FUND ACCOUNTS Additionally, no sales
charge will be incurred on purchases of shares of the New York Portfolio for
accounts which were in existence and entitled to purchase shares of Pathfinder
without a sales charge at the time of the effectiveness of the 1991 acquisition
of its assets by the New York Portfolio.
RULE 12B-1 FEES (FOR CLASS A SHARES ONLY)
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 Portfolio attributable to such shares.
The Rule 12b-1 fee will cause Class A shares to have a higher expense ratio and
to pay lower dividends than Class E shares. For additional information, see
"Management-The Underwriter and Distribution Expenses."
DEFERRED SALES CHARGES Although there is no initial sales charge on purchases of
Class A and E shares of $1,000,000 or more, Investors pays broker-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, the redemption proceeds will be reduced by
1%. For additional information, see "Redemption-Contingent Deferred Sales
Charge."
CLASS B AND H SHARES-CONTINGENT DEFERRED SALES CHARGE ALTERNATIVES
The public offering price of Class B and H shares is the net asset value of the
Portfolio's shares. Such shares are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. However, a
contingent deferred sales charge ("CDSC") of 4% will be imposed if shares are
redeemed within two years of purchase, with lower CDSCs as follows if
redemptions occur later:
3 years - 3%
4 years - 3%
5 years - 2%
6 years - 1%
For additional information, see "Redemption-Contingent Deferred Sales Charge."
In addition, Class B and H shares are subject to higher annual Rule 12b-1 fees
as described below.
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the Fund in connection
with the sale of Class B and H shares, such as the payment of compensation to
selected broker-dealers, and for selling such shares. The combination of the
CDSC and the Rule 12b-1 fee enables the Fund to sell such shares without
deduction of a sales charge at the time of purchase. Although such shares are
sold without an initial sales charge, Investors pays a dealer concession equal
to: (1) 4.00% of the amount invested to broker-dealers who sell Class B shares
at the time the shares are sold and an annual fee of .25% of the average daily
net assets of the Portfolio attributable to such shares; or (2) 5.25% of the
amount invested to broker-dealers who sell Class H shares at the time the shares
are sold (with no annual fee). Under alternative (2), from time to time the
dealer concession paid to broker-dealers who sell Class H shares may be
increased up to 5.50%.
RULE 12B-1 FEES Class B and H shares are subject to a Rule 12b-1 fee payable at
an annual rate of 1.00% of the average daily net assets of the Fund attributable
to such shares. The higher Rule 12b-1 fee will cause Class B and H shares to
have a higher expense ratio and to pay lower dividends than Class A and E
shares. For additional information about this fee, see "Management-The
Underwriter and Distribution Expenses."
CONVERSION TO CLASS A SHARES Class B and H shares (except for those purchased by
reinvestment of dividends and other distributions) will automatically convert to
Class A shares after eight years. Each time any such shares in the shareholder's
account convert to Class A, a proportionate amount of the Class B and H shares
purchased through the reinvestment of dividends and other distributions paid on
such shares will also convert to Class A.
CLASS C SHARES-LEVEL SALES CHARGE ALTERNATIVE
The public offering price of Class C shares 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 "Redemption-Contingent Deferred Sales Charge." In addition,
Class C shares are subject to higher annual Rule 12b-1 fees as described below.
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
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, Investors pays a sales commission equal to
1.00% of the amount invested to broker-dealers who sell Class C shares at the
time the shares are sold and an annual fee of 1.00% of the amount invested that
begins to accrue one year after the shares are sold.
RULE 12B-1 FEES Class C shares are subject to a Rule 12b-1 fee payable at an
annual rate of 1.00% of the average daily net assets of the Portfolio
attributable to such 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 and E
shares. For additional information about this fee, see "Management-The
Underwriter and Distribution Expenses."
SPECIAL PURCHASE PLANS FOR ALL CLASSES
GIFTS OR TRANSFERS TO MINOR CHILDREN Adults can make an irrevocable gift or
transfer of up to $10,000 annually per child ($20,000 for married couples) to as
many children as they choose without having to file a Federal gift tax return.
SYSTEMATIC INVESTMENT PLAN Voluntary $25 or more per month purchases by
automatic financial institution transfers (see ACH Authorization Agreement in
this Prospectus) or $50 or more per month by any other means enable an investor
to lower his or her average cost per share through the principle of "dollar cost
averaging;"
EXCHANGE PRIVILEGE Except for Class E shares, Portfolio shares may be exchanged
among other Portfolios or funds of the same class managed by Advisers without
payment of an exchange fee or additional sales charge. Similarly, shareholders
of other Fortis funds may exchange their shares for Portfolio shares of the same
class (at net asset value if the shares to be exchanged have already incurred a
sales charge). Also, holders of Class E shares of other Fortis funds that have a
front-end sales charge may exchange their shares for Class A Portfolio shares
and holders of Fortis Money Fund Class A shares may exchange their shares for
any class of Portfolio shares (at net asset value and only into Class A, if the
shares have already incurred a sales charge). Finally, holders of Portfolio
Class E shares who exchange such shares for Class A shares of another Portfolio
or other Fortis fund may re-exchange such Class A shares for Portfolio Class E
shares. A shareholder initiates an exchange by writing to or telephoning his or
her broker-dealer, sales representative, or the Fund regarding the shares to be
exchanged. Telephone exchanges will be permitted only if the shareholder
completes and returns the Telephone Exchange section of the Account Application.
During times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching his or her broker-dealer, sales representative, or the Fund
by telephone. Consequently, a telephone exchange may be difficult to implement
at those times. (See "Redemption".)
Advisers reserves the right to restrict the frequency of-or otherwise modify,
condition, terminate, or impose charges upon-the exchange and/or telephone
transfer privileges, all with 30 days notice to shareholders.
REDEMPTION
Registered holders of Fund shares may redeem their shares without any charge
(except any applicable contingent deferred sales charge) at the per share net
asset value next determined following receipt by the Fund of a written
redemption request in proper form (and a properly endorsed stock certificate if
one has been issued). However, if shares are redeemed through another
broker-dealer who receives the order prior to the close of the Exchange, then
Investors will apply that day's price to the order as long as the broker-dealer
places the order with Investors by the end of the day. Some broker-dealers may
charge a fee to process redemptions.
Any certificates should be sent to the Fund by certified mail. Share
certificates and/or stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. If the
redemption proceeds are to be paid to the registered holder and sent to the
address of record, normally no signature guarantee is required unless Advisers
does not have the shareholder's signature on file and the redemption proceeds
are greater than $25,000. However, for example, if the redemption proceeds are
to be paid to someone other than the registered holder, sent to a different
address, or the shares are to be transferred, the owner's signature must be
guaranteed by a bank, broker (including government or municipal), dealer
(including government or municipal), credit union, national securities exchange,
registered securities association, clearing agency, or savings association.
Class A shares may be registered in broker-dealer "street name accounts" only if
the broker-dealer has a selling agreement with Investors. In such cases,
instructions from the broker-dealer are required to redeem shares or transfer
ownership and transfer to another broker-dealer requires the new broker-dealer
to also have a selling agreement with Investors. If the proposed new
broker-dealer does not have a selling agreement with Investors, the shareholder
can, of course, leave the shares under the original street name account or have
the broker-dealer transfer ownership to the shareholder's name.
Broker-dealers having a sales agreement with Investors may orally place a
redemption order, but proceeds will not be released until the appropriate
written materials are received.
An individual shareholder (or in the case of multiple owners, any shareholder)
may orally redeem up to $25,000 worth of their shares, provided that the account
is not a tax-qualified plan, the check will be sent to the address of record,
and the address of record has not changed for at least 30 days. During times of
chaotic economic or market circumstances, a shareholder may have difficulty
reaching his or her broker-dealer, sales representative, or the Fund by
telephone. Consequently, a telephone redemption may be difficult to implement at
those times. If a shareholder is unable to reach the Fund by telephone, written
instructions should be sent. Advisers reserves the right to modify, condition,
terminate, or impose charges upon this telephone redemption privilege, with 30
days notice to shareholders. Advisers, Investors, and the Fund will not be
responsible for, and the shareholder will bear the risk of loss from, oral
instructions, including fraudulent instructions, which are reasonably believed
to be genuine. The telephone redemption procedure is automatically available to
shareholders. The Fund will employ reasonable procedures to confirm that
telephone instructions are genuine, but if such procedures are not deemed
reasonable, it may be liable for any losses due to unauthorized or fraudulent
instructions. The Fund's procedures are to verify address and social security
number, tape record the telephone call, and provide written confirmation of the
transaction.
Payment will be made as soon as possible, but not later than three days after
receipt of a proper redemption request. However, if shares subject to the
redemption request were recently purchased with non-guaranteed funds (e.g.,
personal check), the mailing of your redemption check may be delayed by fifteen
days. A shareholder wishing to avoid these delays should consider the wire
purchase method described under "How to Buy Fund Shares."
The Fund has the right to redeem accounts with a current value of less than $500
unless the original purchase price of the remaining shares (including sales
commissions) was at least $500. Fund shareholders actively participating in the
Fund's Systematic Investment Plan or Group Systematic Investment Plan will not
have their accounts redeemed. Before redeeming an account, the Fund will mail to
the shareholder a notice of its intention to redeem, which will give the
shareholder an opportunity to make an additional investment. If no additional
investment is received by the Fund within 60 days of the date the notice was
mailed, the shareholder's account will be redeemed. Any redemption in an account
established with the minimum initial investment of $500 may trigger this
redemption procedure.
The Fund has a "Systematic Withdrawal Plan," which provides for voluntary
automatic withdrawals of at least $50 per quarter, semiannually, or annually or
$50 per month. Deferred sales charges may apply to monthly redemptions.
There is also a "Reinvestment Privilege," which is a one-time opportunity to
reinvest sums redeemed within the prior 60 days without payment of an additional
sales charge. For further information about these plans, contact your
broker-dealer or sales representative.
CONTINGENT DEFERRED SALES CHARGE
CLASS A AND E SHARES
The Fund imposes a contingent deferred sales charge ("CDSC") on Class A and E
shares in certain circumstances. Under the CDSC arrangement, for sales of shares
of $1,000,000 or more (including right of accumulation and statements of
intention (see "How to Buy Fund Shares-Special Purchase Plans")), the front-end
sales charge ("FESC"), will no longer be imposed (although Investors intends to
pay its registered representatives and other dealers that sell Fund shares, out
of its own assets, a fee of up to 1% of the offering price of such sales except
on purchases exempt from the FESC). However, if such shares are redeemed within
two years after their purchase date (the "CDSC Period"), the redemption proceeds
will be reduced by the 1.00% CDSC.
The CDSC will be applied to the lesser of (a) the net asset value of shares
subject to the CDSC at the time of purchase, or (b) the net asset value of such
shares at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. The CDSC
will not be applied to shares acquired through reinvestment of income dividends
or capital gain distributions or shares held for longer than the applicable CDSC
Period. In determining which shares to redeem, unless instructed otherwise,
shares that are not subject to the CDSC and having a higher Rule 12b-1 fee will
be redeemed first, shares not subject to the CDSC having a lower Rule 12b-1 fee
will be redeemed next, and shares subject to the CDSC then will be redeemed in
the order purchased.
The Fund will waive the CDSC in the event of the shareholder's death or
disability, as defined in Section 72(m)(7) of the Code (if satisfactory evidence
is provided to the Fund) and for tax-qualified retirement plans (excluding IRAs,
SEPS, 403(b) plans, and 457 plans) and each class of transaction that qualifies
for exemption from the Fund FESC (see "How to Buy Fund Shares-Special Purchase
Plans"). Shares of the Fund that are acquired in exchange for shares of another
Fortis fund that were subject to a CDSC will remain subject to the CDSC that
applied to the shares of the other Fortis fund. Additionally, the CDSC will not
be imposed at the time that Fund shares subject to the CDSC are exchanged for
shares of Fortis Money Fund or at the time such Fortis Money Fund shares are
reexchanged for shares of any Fortis fund subject to a CDSC; provided, however,
that, in each such case, the shares acquired will remain subject to the CDSC if
redeemed within the CDSC Period.
Investors, upon notification, will provide a PRO RATA refund of any CDSC paid in
connection with a redemption of shares of any Fortis fund (by crediting such
refunded CDSC to such shareholder's account) if, within 60 days of such
redemption, all or any portion of the redemption proceeds are reinvested in
shares of the Fund. Any reinvestment within 60 days of a redemption on which the
CDSC was paid will be made without the imposition of a FESC. Such reinvestment
will be subject to the same CDSC to which such amount was subject prior to the
redemption, but the CDSC Period will run from the original investment date.
CLASS B, H, AND C SHARES
The CDSC on Class B, H, and C shares 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 amounts
representing an increase in share value due to capital appreciation. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions or on shares held for longer than the
applicable CDSC Period.
Upon any request for redemption of shares of any class of shares that imposes a
CDSC, it will be assumed, unless otherwise requested, that shares subject to no
CDSC will be redeemed first in the order purchased and all remaining shares that
are subject to a CDSC will be redeemed in the order purchased. With respect to
the redemption of shares subject to no CDSC where the shareholder owns more than
one class of shares, those shares with the highest Rule 12b-1 fee will be
redeemed in full prior to any redemption of shares with a lower Rule 12b-1 fee.
The CDSC does not apply to: (1) redemption of shares when a Fund exercises its
right to liquidate accounts which are less than the minimum account size; (2)
death or disability, as defined in Section 72(m)(7) of the Code (if satisfactory
evidence is provided to the Fund); (3) with respect to Class B and H shares
only, an amount that represents, on an annual (non-cumulative) basis, up to 10%
of the amount (at the time of the investment) of the shareholder's purchases;
and (4) with respect to Class B, H, and C shares, qualified plan benefit
distributions due to participant's separation from service, loans or financial
hardship (excluding IRAs, SEPs, and 403(b), 457, and Fortis KEY plans) upon the
Fund's receipt from the plan's administrator or trustee of a signature guarantee
and written instructions detailing the reason for the distribution.
As an illustration of CDSC calculations, assume that Shareholder X purchases on
Year 1/Day 1 100 shares at $10 per share. Assume further that, on Year 2/Day 1,
Shareholder X purchased an additional 100 shares at $12 per share. Finally,
assume that, on Year 3/Day 1, Shareholder X wishes to redeem shares worth
$1,300, and that the net asset value per share as of the close of business on
such day is $13. To effect Shareholder X's redemption request, 100 shares at $13
per share (totaling $1,300) would be redeemed. The CDSC would be waived in
connection with the redemption of that number of shares equal in value (at the
time of redemption) to $220 (10% of $1,000-the purchase amount of the shares
purchased by Shareholder X on Year 1/Day 1-plus 10% of $1200-the purchase amount
of the shares purchased by Shareholder X on Year 2/Day 1.) In addition, no CDSC
would apply to the $400 in capital appreciation on Shareholder X's shares
($2,600 Year 3 value minus $2,200 purchase cost of shares).
If a shareholder exchanges shares subject to a CDSC for Class B, H, or C shares
of a different Fortis Fund, the transaction will not be subject to a CDSC.
However, when shares acquired through the exchange are redeemed, the shareholder
will be treated as if no exchange took place for the purpose of determining the
CDSC Period and applying the CDSC.
Investors, upon notification, will provide, out of its own assets, a PRO RATA
refund of any CDSC paid in connection with a redemption of Class B, H, or Class
C shares of any Fund (by crediting such refunded CDSC to such shareholder's
account) if, within 60 days of such redemption, all or any portion of the
redemption proceeds are reinvested in shares of the same class in any of the
Fortis Funds. Any reinvestment within 60 days of a redemption to which the CDSC
was paid will be made without the imposition of a front-end sales charge but
will be subject to the same CDSC to which such amount was subject prior to the
redemption. The CDSC Period will run from the original investment date.
SHAREHOLDER INQUIRIES
Inquiries should be directed to your broker-dealer or sales representative, or
to the Fund at the telephone number or mailing address listed on the cover of
this Prospectus. A $10 fee will be charged for copies of Annual Account
Summaries older than the preceding year.
APPENDIX
TAX-EXEMPT BOND RATINGS
STANDARD & POOR'S CORPORATION. Its ratings for municipal debt have the following
definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated "BB," "B," "CCC" and "CC" is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
Debt rated "CCC" has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
The rating "CC" is typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
The rating "C" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
The rating "CI" is reserved for income bonds on which no interest is being paid.
Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major categories.
"NR" indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings) are
generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states impose certain rating or other standards for
obligations eligible for investment by savings banks, trust companies, insurance
companies, and fiduciaries generally.
MOODY'S INVESTORS SERVICE, INC. Its ratings for municipal bonds include the
following:
Bonds which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS
STANDARD & POOR'S CORPORATION. A Standard & Poor's note rating reflects the
liquidity concerns and market access risks unique to notes. Notes due in three
years or less will likely receive a note rating. Notes maturing beyond three
years will most likely receive a long-term debt rating.
Note rating symbols are as follows:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICES. Moody's ratings for state and municipal notes and
other short-term loans are designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower and
short-term cyclical elements are critical in short-term ratings, while other
factors of major importance in bond risk may be less important over the short
run. In the case of variable rate demand obligations, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of variable rate demand obligations is designated
as VMIG. Moody's ratings for short-term loans have the following definitions:
MIG 1/VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
TAX-EXEMPT DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all long-term debt issues that have
as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols are used to denote the put option (for example,
"AAA/A-1+"). For the newer "demand notes," Standard & Poor's note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
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FORTIS ACCOUNT APPLICATION
Complete this application to open a new Fortis account or to
add services to an existing Fortis account. For personal
service, please call your investment professional or Fortis
at 1-800-800-2638, ext. 3012.
DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR FORTIS MONEY
FUND ACCOUNT.
Mail to:
FORTIS MUTUAL FUNDS
CM-9614
St. Paul, MN 55170-9614
1 ACCOUNT INFORMATION
Please provide the information requested below:
|_| INDIVIDUAL: Please print your name, Social Security number, U.S. citizen
status.
|_| JOINT TENANT: List all names, one Social Security number, one U.S. citizen
status.
|_| UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (ONLY ONE) and
minor, minor's Social Security number, minor's U.S. citizen status and date
of birth of minor.
|_| TRUST: List trustee and trust title, including trust date, trust's Taxpayer
ID number
|_| CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, Taxpayer ID
number.
|_| FORTIS KEY PLAN: Include Social Security number.
|_| QUALIFIED PLAN: Include name of Plan and trustee, Plan's Taxpayer ID
number.
|_| OTHER:
Owner (Individual, 1st Joint Tenant, Custodian, Trustee) (Please print)
Owner (2nd Joint Tenant, Minor, Trust Name) (Please print)
Additional information, if needed
Street address
City State Zip
Social Security number (Taxpayer ID)
( )
Daytime phone Date of birth
(Uniform Gift/Transfer to Minors)
Date of Trust (if applicable)
Are you a U.S. citizen? |_| Yes |_| No
If no, country of permanent residence
2 TRANSFER ON DEATH
Please indicate the Primary Beneficiary with "PB" after the beneficiary(ies)
name(s). Indicate Contingent Beneficiary with "CB." Indicate Lineal Descendant
Per Stirpes with "LDPS" if you want ownership to pass to the legal heirs of the
primary beneficiary in the event a designated beneficiary dies before the
account owner.
TOD IS ONLY AVAILABLE FOR INDIVIDUAL AND JOINT TENANTS (JTWROS) ACCOUNTS.
BENEFICIARY(IES):
Name _______________________ SS#_________
Name _______________________ SS#_________
Name _______________________ SS#_________
3 INVESTMENT ACCOUNT
A. PHONE ORDERS
Was order previously phoned in? If yes, date_____
Confirmation #________ Account #_________________
For phone orders, check must be made payable to Fortis Investors
B. MAIL-IN ORDERS
Check enclosed for $_______. (Made payable to Fortis Funds)
MUST INDICATE CLASS
1)_____________________________ $___________ |_| A |_| B |_| C |_| H
Fund Name Amount or % Class
2)_____________________________ $___________ |_| A |_| B |_| C |_| H
Fund Name Amount or % Class
3)_____________________________ $___________ |_| A |_| B |_| C |_| H
Fund Name Amount or % Class
4)_____________________________ $___________ |_| A |_| B |_| C |_| H
Fund Name Amount or % Class
5)_____________________________ $___________ |_| A |_| B |_| C |_| H
Fund Name Amount or % Class
4 EXEMPTION FROM SALES CHARGE
CHECK IF APPLICABLE (for net asset value purchases):
|_| I am a member of one of the categories of persons listed under "Exemptions
from Sales Charge" in the prospectus. I qualify for exemption from the
sales charge because .
|_| I was (within the past 60 days) the owner of a fixed annuity contract not
deemed a security or a shareholder of an unrelated mutual fund with a
front-end and/or deferred sales charge. I have attached the mutual
fund/insurance check (or copy of the redemption confirmation/surrender
form).
5 SIGNATURE & CERTIFICATION
I HAVE RECEIVED AND READ EACH APPROPRIATE FUND PROSPECTUS AND UNDERSTAND THAT
ITS TERMS ARE INCORPORATED BY REFERENCE INTO THIS APPLICATION. I AM OF LEGAL AGE
AND LEGAL CAPACITY.
I understand that this application is subject to acceptance by Fortis Investors,
Inc.
I certify, under penalties of perjury, that:
(1) The Social Security number or Taxpayer ID number provided is correct; and
(cross out the following if not true)
(2) that the IRS has never notified me that I am subject to 31% backup
withholding, or has notified me that I am no longer subject to such backup
withholding.
Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.
IF YOU ARE NOT SIGNING AS AN INDIVIDUAL, STATE YOUR TITLE OR CAPACITY (INCLUDE
APPROPRIATE DOCUMENTS VERIFYING YOUR CAPACITY).
AUTHORIZED SIGNATURE(S)
X_______________________________________________
Owner, Custodian, Trustee Date
X_______________________________________________
Joint Owner, Trustee Date
6 DEALER/REPRESENTATIVE INFORMATION
________________________________________________
Representative's name (please print)
________________________________________________
Name of Broker/Dealer
________________________________________________
Branch Office address
________________________________________________
Representative's signature
( )
________________________________________________ _____________________________
Representative's number Representative's Phone Number
________________________________________________
AUTHORIZED SIGNATURE OF BROKER/DEALER
7 DISTRIBUTION OPTIONS
If no option is selected, all distributions will be reinvested in the same
Fortis fund(s) selected above. Please note that distributions can only be
reinvested in the same Class.
|_| Reinvest dividends and capital gains
|_| Dividends in cash and reinvest capital gains (See Section 9 for payment
options.)
|_| Dividends and capital gains in cash (See Section 9 for payment options.)
|_| Distributions into another Fortis fund (must be same Class).
______________________________ ____________________________________
Fund Name Fund/Account # (if existing account)
8 SYSTEMATIC EXCHANGE PROGRAM
Fortis' Systematic Transfer Program allows you to transfer money from any Fortis
fund, in which you have a current balance of at least $1,000, into any other
Fortis fund (maximum of three), on a monthly basis. The minimum amount for each
transfer is $50. Generally, transfers between funds must be within the SAME
CLASS. See prospectus for details.
_________________________________________ ________________
Fund from which shares will be exchanged: Effective Date
FUND(S) TO RECEIVE INVESTMENT(S):
________________________________________________________________________________
Fund Amount to invest monthly
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
9 WITHDRAWAL OPTIONS
A. CASH DIVIDENDS
PLEASE SEND THE PAYMENT TO:
|_| My bank. (Please complete Bank Information in Section D next page.)
|_| My address of record.
B. SYSTEMATIC WITHDRAWAL PLAN
Please consult your financial or tax adviser before electing a Systematic
Withdrawal Plan.
Please redeem shares from my Fortis___________________Fund, account
number_________________ in the amount of $____________ .
Effective Payment Date____________ ______
Month Day
FREQUENCY : |_| Monthly DATE: |_| Semi-Annually
|_| Quarterly |_| Annually
PLEASE SEND THE PAYMENT TO:
|_| My bank. (Please complete Bank Information in Section D next page.)
|_| My address of record. (If bank option is not chosen, check will be
processed on the 15th of every month.)
C. TELEPHONE OPTIONS
|_| TELEPHONE EXCHANGE. All exchanges must be into accounts having the
identical registration-ownership. All authorized signatures listed in
Section 5 (or your registered representative with shareholder consent) can
make telephone transfers.
|_| TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
If you have not changed your address in the past 60 days, you are eligible
for this service. This option allows all authorized signatures in Section 5
(or your registered representative with shareholder consent) to redeem up
to $25,000 from your Fortis account.
PLEASE SEND THE PAYMENT TO:
|_| My bank. (Please complete Bank Information in Section D next page.)
|_| My address of record.
(WITHDRAWAL OPTIONS, CONTINUED)
D. BANK INFORMATION
I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. This authorization will remain in
effect until I notify FFG.
TYPE OF ACCOUNT: |_| Checking |_| Savings
Bank name____________________________________________
Address______________________________________________
City, State, Zip_____________________________________
Name of bank account_________________________________
Bank account number__________________________________
Bank transit number__________________________________
Bank phone number____________________________________
Attach a voided check from your bank checking account
10 REDUCED FRONT-END SALES CHARGES
A. RIGHT OF ACCUMULATION
|_| I own shares of more than one fund in the Fortis Family of Funds, which may
entitle me to a reduced sales charge.
__________________________ ______________________
Name on account Account number
__________________________ ______________________
Name on account Account number
__________________________ ______________________
Name on account Account number
B. STATEMENT OF INTENT
I agree to invest $_________ over a 13-month period beginning ____________,
19___ (not more than 90 days prior to this application). I understand that an
additional sales charge must be paid if I do not complete my purchase.
11 PRIVILEGED ACCOUNT SERVICE
Fortis' Privileged Account Service systematically rebalances your funds back to
your original specifications ($10,000 minimum per account). All funds must be
within the SAME CLASS. START DATE:_________________
Frequency: |_| quarterly |_| semi-annually |_| annually
Fund Selected Percentage
(up to 5) (whole %)
1)_______________________________________ _________________
2)_______________________________________ _________________
3)_______________________________________ _________________
4)_______________________________________ _________________
5)_______________________________________ _________________
12 SUITABILITY
NOTE: Must be completed with each fund application unless you provide
suitability information to your broker/dealer on a different form.
State In Which Application Was Signed______________________________
Employer___________________________________________________________
Business Address___________________________________________________
City, state, ZIP___________________________________________________
____________________________ ______________
Occupation Age (optional)
Is customer associated with or employed by another
NASD member? |_| Yes |_| No
PLEASE MARK ONE BOX UNDER ESTIMATED
ESTIMATED ANNUAL ESTIMATED NET
INCOME ANNUAL WORTH
AND ONE BOX UNDER INCOME (EXCLUSIVE OF
ESTIMATED NET WORTH (ALL SOURCES) FAMILY RESIDENCE)
________________________________________________________________________________
under $10,000
________________________________________________________________________________
$10,000 - $25,000
________________________________________________________________________________
$25,000 - $50,000
________________________________________________________________________________
$50,000 - $100,000
________________________________________________________________________________
$100,000 - $500,000
________________________________________________________________________________
$500,000 - $1,000,000
________________________________________________________________________________
Over $1,000,000
________________________________________________________________________________
Declined
________________________________________________________________________________
Source of Funds_________________________________________________________________
ESTIMATED TAX BRACKET
|_| 15% |_| 28% |_| 31% |_| 33% |_| Declined
INVESTMENT OBJECTIVES
|_| Growth (long-term capital appreciation)
|_| Income (cash generating)
|_| Tax-free Income
|_| Diversification
|_| Other (please specify) _____________
Did you use a Fortis Asset Allocation model? |_| Yes |_| No
13 SYSTEMATIC INVESTMENT PLAN
Complete the Automated Clearing House (ACH) Authorization Agreement Form in the
prospectus and attach a VOIDED check from your bank checking account. These
plans may be established for as little as $25.
14 OTHER SPECIAL INSTRUCTIONS
________________________________________________________________________________
________________________________________________________________________________
FORTIS MUTUAL FUND FORTIS(R)
AUTOMATED CLEARING HOUSE (ACH) MAIL TO:
AUTHORIZATION AGREEMENT FORTIS MUTUAL FUNDS
P.O. BOX 64284
ST. PAUL, MN 55164
Please complete each section below to establish ACH capability to your Fortis
Mutual Fund Account. For personal service, please call your investment
professional or Fortis at (800) 800-2638, Ext. 3012.
1 FORTIS ACCOUNT INFORMATION
Account Registration:
________________________________________________________________________________
Owner (Individual, 1st Joint Tenant, Custodian, Trustee)
________________________________________________________________________________
Owner (2nd Joint Tenant, Minor, Trust Name)
________________________________________________________________________________
Additional Information, if needed
________________________________________________________________________________
Street address
________________________________________________________________________________
City State Zip
________________________________________________________________________________
Social Security number (Taxpayer I.D.)
Account #______________________________________________________________________
FUND: CLASS:
1)______________________________ |_| A |_| B |_| C |_| H
Fund Name
2)______________________________ |_| A |_| B |_| C |_| H
Fund Name
3)______________________________ |_| A |_| B |_| C |_| H
Fund Name
4)______________________________ |_| A |_| B |_| C |_| H
Fund Name
5)______________________________ |_| A |_| B |_| C |_| H
Fund Name
2 BANK/FINANCIAL INSTITUTION INFORMATION
PLAN TYPE: |_| New Plan |_| Bank Change
Account Type: |_| Checking |_| Savings
(must attach a (must attach a
voided check) deposit slip)
________________________________________________________________________________
Transit Number
________________________________________________________________________________
Bank Account Number
________________________________________________________________________________
Account Owner (if other than name of Depositor)
________________________________________________________________________________
Depositor's Daytime Phone Number
CLEARLY PRINT THE BANK/FINANCIAL INSTITUTION'S NAME AND ADDRESS BELOW:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature of Depositor Date
________________________________________________________________________________
Signature of Joint-Depositor Date
3 SELECT OPTION
I. Investment Option(s)
A. |_| Invest via FORTIS INFORMATION LINE by phone (minimum $25, maximum
$10,000) Please allow up to four business days for deposit into
Fortis Funds. Transactions after 3:00 p.m. (CST) will be
processed the following business day. * Not available on tax
qualified accounts such as IRA, SEP, SARSEP and Key plans.
B. |_| Systematic Investment Plan
|_| New Plan
|_| Change Plan
________________________________________________________________________________
I request Fortis Financial Group (FFG) to obtain payment of sums becoming due
the company by charging my account in the form of electronic debit entries. I
request and authorize the financial institution named to accept, honor and
charge those entries to my account. Please allow 30 days for collected funds to
be available in your Fortis account.
________________________________________________________________________________
Draft Date (1-26 only):_____________________________
Amount per Fund (Min. $25):_________________________
Beginning Draft Month:______________________________
II. WITHDRAWAL OPTION(S)
(Please consult your financial or tax adviser before electing a systematic
withdrawal plan. For tax qualified accounts, additional forms are required
for distribution.)
A. |_| Cash Dividends
B. |_| Redeem via FORTIS INFORMATION LINE by phone (minimum $100,
maximum $25,000) Please allow up to four business days for
withdrawal to credit your bank account. Transactions after 3:00
p.m. (CST) will be processed the following business day. * Not
available on tax qualified accounts such as IRA, SEP, SARSEP and
Key plans.
C. |_| Systematic Withdrawal Plan
|_| New Plan
|_| Change Plan
________________________________________________________________________________
I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. I request and authorize the financial
institution to accept, honor and credit those entries to my account.
________________________________________________________________________________
Withdrawal Date (1-26 only):________________________
Amount per Fund (Min. $25):_________________________
Beginning Withdrawal Month:_________________________
4 SIGNATURES
Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.
This authorization will remain in effect until I notify FFG. I hereby terminate
any prior Authorization of FFG to initiate charges to this account. I understand
that any returned item or redemption of the entire account may result in
termination of my Automated Clearing House agreement. This authorization will
become effective upon acceptance by FFG at its home office.
Authorized Signature(s)
X_______________________________________________________________________________
Owner, Custodian, Trustee Date
X_______________________________________________________________________________
Joint Owner, Trustee Date
FORTIS(R)
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; (member SIPC)
P.O. Box 64284
St. Paul, MN 55164
(800) 800-2638
Attach additional information if more space is needed.
98049 (7/95)
PROSPECTUS
FEBRUARY 1, 1996
FORTIS TAX-FREE PORTFOLIOS, INC.
TAX-FREE CURRENT INCOME
FORTIS
FORTIS FINANCIAL GROUP
P.O. Box 64284
St. Paul, MN 55164
BULK RATE
U.S. POSTAGE
PAID
Permit No.
3794
Minneapolis,MN
95749 (12/95)
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER __, 1996
ACQUISITION OF THE ASSETS OF
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR NEW YORK TAX FREE FUND
A NEWLY FORMED, SEPARATELY MANAGED SERIES OF
VOYAGEUR MUTUAL FUNDS, INC.
90 SOUTH SEVENTH STREET, SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
(800-553-2143)
This Statement of Additional Information relates to the proposed Agreement
and Plan of Reorganization providing for (a) the acquisition of all or
substantially all of the assets and the assumption of certain stated and
identified liabilities of the New York Portfolio ("Fortis Fund"), a series of
Fortis Tax-Free Portfolios, Inc. ("Fortis Tax-Free") by Voyageur New York Tax
Free Fund ("Voyageur Fund"), a newly organized series of Voyageur Mutual Funds,
Inc. ("Voyageur Mutual Funds" ) in exchange for common shares of Voyageur Fund
having an aggregate net asset value equal to the aggregate value of the assets
acquired (less the liabilities assumed) of Fortis Fund and (b) the liquidation
of Fortis Fund and the pro rata distribution of Voyageur Fund shares to Fortis
Fund shareholders.
The following documents are incorporated by reference herein:
1. The Statement of Additional Information of Fortis Tax-Free dated
February 1, 1996 .
2. The Annual Report of Fortis Tax-Free for the fiscal year ended
September 30, 1995.
3. The unaudited Semi-Annual Report of Fortis Tax-Free for the six-month
period ended March 31, 1996.
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus/Proxy Statement dated September __,
1996. This Statement of Additional Information does not include all information
that a shareholder should consider before voting on the proposal contained in
the Prospectus/Proxy Statement and shareholders should obtain and read the
Prospectus/Proxy Statement prior to voting. A copy of the Prospectus/Proxy
Statement may be obtained free of charge by contacting Voyageur Fund at 90 South
Seventh Street, Suite 4400, Minneapolis, Minnesota 55402. Telephone: (612)
376-7000 or (800) 553-2143.
TABLE OF CONTENTS
PAGE
Investment Policies and Restrictions...................................... 1
Special Factors Affecting Voyageur Fund................................... 13
Board Members and Executive Officers of Voyageur Fund..................... 22
The Investment Adviser and Underwriter.................................... 25
Taxes..................................................................... 31
Special Purchase Plans ................................................... 32
Net Asset Value and Public Offering Price................................. 34
Calculation of Performance Data........................................... 34
Monthly Cash Withdrawal Plan.............................................. 36
Additional Information.................................................... 37
Unaudited Pro Forma Financial Statements.................................. F-1
Appendix A - Descriptions of Bond Ratings................................. A-1
Appendix B - General Characteristics and Risks of Options and Futures .... B-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/Proxy Statement dated September__, 1996, and, if
given or made, such information or representations may not be relied upon as
having been authorized by Voyageur 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 objectives, policies and restrictions of Voyageur New York
Tax Free Fund ("Voyageur Fund"), a newly organized separately managed series of
Voyageur Mutual Funds, Inc. ("Voyageur Mutual Funds") are set forth in the
Prospectus/Proxy Statement. Certain additional investment information is set
forth below. All capitalized terms not defined herein have the same meanings as
set forth in the Prospectus/Proxy Statement.
TAX-EXEMPT OBLIGATIONS
Tax-Exempt Obligations are generally issued to obtain funds for various
public purposes, including the construction or improvement of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Tax-Exempt Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
Tax-Exempt Obligations may be issued by or on behalf of public bodies to obtain
funds to provide for the construction, equipping, repair or improvement of
housing facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities and certain local facilities for water
supply, gas, electricity, sewage or solid waste disposal.
Securities in which Voyageur Fund may invest, including Tax-Exempt
Obligations, are subject to the provisions of bankruptcy, insolvency,
reorganization and other laws affecting the rights and remedies of creditors,
such as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or New York State's legislature extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations within constitutional limitations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of issuers to meet their obligations for the payment of interest on and
principal of their Tax-Exempt Obligations may be materially affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Tax-Exempt Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Tax-Exempt Obligations for investment by
Voyageur Fund and the value of the Fund's portfolio. In such event, management
of Voyageur Fund may discontinue the issuance of shares to new investors and may
reevaluate the Fund's investment objective and policies and submit possible
changes in the structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") for Tax-Exempt
Obligations may change as a result of changes in such organizations or their
rating systems, Voyageur Fund will attempt to use comparable ratings as
standards for their investments in accordance with the investment policies
contained in Voyageur Fund's Prospectus/Proxy Statement and this Statement of
Additional Information. The ratings of Moody's and S&P represent their opinions
as to the quality of the Tax-Exempt Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and are
not absolute standards of quality. Although these ratings provide an initial
criterion for selection of portfolio investments, Voyageur Fund Managers, Inc.
("VFM"), the Fund's investment manager, will subject these securities to other
evaluative criteria prior to investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. Voyageur Fund may purchase
floating and variable rate demand notes. Generally, such notes are secured by
letters of credit or other credit support arrangements provided by banks. Such
notes normally have a stated long-term maturity but permit the holder to tender
the note for purchase and payment of principal and accrued interest upon a
specified number of days' notice. The issuer of floating and variable rate
demand notes normally has a corresponding right, after a given period, to prepay
in its discretion the outstanding principal amount of the note plus accrued
interest upon a specified number of days' notice to the note holders. The
interest rate on a floating rate demand note is based on a specified interest
index, such as a bank's prime rate, and is adjusted automatically each time such
index is adjusted. The interest rate on a variable rate demand note is adjusted
at specified intervals, based upon current market conditions. VFM monitors the
creditworthiness of issuers of floating and variable rate demand notes in
Voyageur Fund's portfolio.
ESCROW SECURED BONDS OR DEFEASED BONDS. Escrow secured bonds or defeased
bonds are created when an issuer refunds in advance of maturity (or pre-refunds)
some of its outstanding bonds and it becomes necessary or desirable to set aside
funds for redemption or payment of the bonds at a future date or dates. In an
advance refunding, the issuer will use the proceeds of a new bond issue to
purchase high grade interest bearing debt securities which are then deposited in
an irrevocable escrow account held by an escrow agent to secure all future
payments of principal and interest of the advance refunded bond. Escrow secured
bonds will often receive a triple A rating from S&P and Moody's.
STATE OR MUNICIPAL LEASE OBLIGATIONS. Municipal leases may take the form of
a lease with an option to purchase, an installment purchase contract, a
conditional sales contract or a participation certificate in any of the
foregoing. In determining leases in which Voyageur Fund will invest, VFM will
evaluate the credit rating of the lessee and the terms of the lease.
Additionally, VFM may require that certain municipal leases be secured by a
letter of credit or put arrangement with an independent financial institution.
State or municipal lease obligations frequently have the special risks described
below which are not associated with general obligation or revenue bonds issued
by public bodies.
The Constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits, interest rate
limits and public sale requirements. Leases have evolved as a means for public
bodies to acquire property and equipment without needing to comply with all of
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations may be inapplicable for one or more of the following
reasons: (1) the inclusion in many leases or contracts of "non-appropriation"
clauses that provide that the public body has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis
(the "non-appropriation" clause); (2) the exclusion of a lease or conditional
sales contract from the definition of indebtedness under relevant state law; or
(3) the lease provides for termination at the option of the public body at the
end of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If the lease is terminated by the public body for non-appropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.
CONCENTRATION POLICY. As a fundamental policy, the Fund may not invest 25%
or more of its total assets in the securities of any industry although, for
purposes of this limitation, tax-exempt securities and U.S. Government
obligations are not considered to be part of any industry. The Fund may invest
25% or more of its total assets in industrial development revenue bonds. In
addition, it is possible that the Fund from time to time will invest 25% or more
of its total assets in a particular segment of the municipal bond market, such
as utility, transportation, education or industrial obligations. In such
circumstances, economic, business, political or other changes affecting one bond
(such as proposed legislation affecting the financing of a project; shortages or
price increases of needed materials; or a declining market or need for the
project) might also affect other bonds in the same segment, thereby potentially
increasing market or credit risk.
HOUSING OBLIGATIONS. Voyageur Fund may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
HEALTH CARE OBLIGATIONS. Voyageur Fund may invest, from time to time, 25%
or more of its total assets in obligations issued by public bodies, including
state and municipal authorities, to finance hospital or health care facilities
or equipment. The ability of any health care entity or hospital to make payments
in amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
UTILITY OBLIGATIONS. Voyageur Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
TRANSPORTATION OBLIGATIONS. Voyageur Fund may, from time to time, invest
25% or more of its total assets in obligations issued by public bodies,
including state and municipal authorities, to finance airports and highway,
bridge and toll road facilities. The major portion of an airport's gross
operating income is generally derived from fees received from signatory airlines
pursuant to use agreements which consist of annual payments for airport use,
occupancy of certain terminal space, service fees and leases. Airport operating
income may therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased competition,
excess capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines are experiencing severe financial difficulties.
The revenues of issuers which derive their payments from bridge, road or tunnel
toll revenues could be adversely affected by competition from toll-free
vehicular bridges and roads and alternative modes of transportation. Such
revenues could also be adversely affected by a reduction in the availability of
fuel to motorists or significant increases in the costs thereof.
EDUCATION OBLIGATIONS. Voyageur Fund may, from time to time, invest 25% or
more of their total assets in obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from tuition, dormitory revenues, grants and endowments. General
problems of such issuers include the prospect of a declining percentage of the
population consisting of college aged individuals, possible inability to raise
tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants, state funding and alumni
support, and government legislation or regulations which may adversely affect
the revenues or costs of such issuers.
INDUSTRIAL REVENUE OBLIGATIONS. Voyageur Fund may, from time to time,
invest 25% or more of their total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or deterioration resulting from leveraged buy-outs or takeovers. The
bonds may be subject to special or extraordinary redemption provisions which may
provide for redemption at par or accredited value, plus, if applicable, a
premium.
OTHER RISKS. The exclusion from gross income for purposes of federal income
taxes and the personal income taxes of New York State and New York City for
certain housing, health care, utility, transportation, education and industrial
revenue bonds depends on compliance with relevant provisions of the Code. The
failure to comply with these provisions could cause the interest on the bonds to
become includable in gross income, possibly retroactively to the date of
issuance, thereby reducing the value of the bonds, subjecting shareholders to
unanticipated tax liabilities and possibly requiring Voyageur Fund to sell the
bonds at the reduced value. Furthermore, such a failure to meet these ongoing
requirements may not enable the holder to accelerate payment of the bond or
require the issuer to redeem the bond.
TAXABLE OBLIGATIONS
As set forth in the Prospectus/Proxy Statement, Voyageur Fund may invest to
a limited extent in obligations and instruments, the interest on which may be
includable in gross income for purposes of federal income taxation and New York
State and New York City personal income taxation.
GOVERNMENT OBLIGATIONS. Voyageur Fund may invest in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. These
securities include a variety of Treasury securities, which differ in their
interest rates, maturities and times of issuance. Treasury Bills generally have
maturities of one year or less; Treasury Notes generally have maturities of one
to ten years; and Treasury Bonds generally have maturities of greater than ten
years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U.S. Treasury;
other obligations, such as those of the Federal Home Loan Banks, are secured by
the right of the issuer to borrow from the Treasury; other obligations, such as
those issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued by
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law.
Voyageur Fund will invest in such securities only when VFM is satisfied that the
credit risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. Voyageur Fund may invest in repurchase agreements.
The Fund's custodian will hold the securities underlying any repurchase
agreement or such securities will 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 obligor under the agreement will promptly
furnish additional collateral to the Fund's custodian (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
OTHER TAXABLE INVESTMENTS. Voyageur Fund also may invest in certificates of
deposit, bankers' acceptances and other time deposits. Certificates of deposit
are certificates representing the obligation of a bank to repay the Fund
deposited (plus interest thereon) at a time certain after the deposit. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate.
OPTIONS AND FUTURES TRANSACTIONS
To the extent set forth in the Prospectus/Proxy Statement, Voyageur Fund
may buy and sell put and call options on the securities in which it may invest,
and the Fund may enter into futures contracts and options on futures contracts
with respect to fixed-income securities or based on financial indices including
any index of securities in which the Fund may invest. Futures and options will
be used to facilitate allocation of the Fund's investments among asset classes,
to generate income or to hedge against changes in interest rates or declines in
securities prices or increases in prices of securities proposed to be purchased.
Different uses of futures and options have different risk and return
characteristics. Generally, selling futures contracts, purchasing put options
and writing (i.e. selling) call options are strategies designed to protect
against falling securities prices and can limit potential gains if prices rise.
Purchasing futures contracts, purchasing call options and writing put options
are strategies whose returns tend to rise and fall together with securities
prices and can causes losses if prices fall. If securities prices remain
unchanged over time option writing strategies tend to be profitable, while
option buying strategies tend to decline in value.
WRITING OPTIONS. Voyageur Fund may write (i.e. sell) covered put and call
options with respect to the securities in which it may invest. By writing a call
option, the Fund becomes obligated during the term of the option to deliver the
securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, the Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by the Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the investment objective of the Fund.
"Covered options" means that so long as the Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
(or comparable securities satisfying the cover requirements of securities
exchanges). 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.
Through the writing of call or put options, the Fund may obtain a greater
current return than would be realized on the underlying securities alone. The
Fund receives premiums from writing call or put options, which it retains
whether or not the options are exercised. By writing a call option, the Fund
might lose the potential for gain on the underlying security while the option is
open, and by writing a put option, the Fund might become obligated to purchase
the underlying security for more than its current market price upon exercise.
PURCHASING OPTIONS. Voyageur Fund may purchase put options in order to
protect portfolio holdings in an underlying security against a decline in the
market value of such holdings. Such protection is provided during the life of
the put because the Fund may sell the underlying security at the put exercise
price, regardless of a decline in the underlying security's market price. Any
loss to the Fund is limited to the premium paid for, and transaction costs paid
in connection with, the put plus the initial excess, if any, of the market price
of the underlying security over the exercise price. However, if the market price
of such security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put is sold.
Voyageur Fund may wish to protect certain portfolio securities against a
decline in market value at a time when no put options on those particular
securities are available for purchase. The Fund may therefore purchase a put
option on securities other than those it wishes to protect even though it does
not hold such other securities in its portfolio.
Voyageur Fund may also purchase call options. During the life of the call
option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, the Fund will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
SECURITIES INDEX OPTION TRADING. Voyageur Fund may purchase and write put
and call options on securities indexes. Options on securities indexes are
similar to options on securities except that, rather than the right to take or
make delivery of a security at a specified price, an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated to make delivery of
this amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in the Fund's
portfolio correlate with price movements of the index selected. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular security, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index depends upon movements
in the level of prices in the relevant underlying securities markets generally
or, in the case of certain indexes, in an industry market segment, rather than
movements in the price of a particular security. Accordingly, successful use by
the Fund of options on security indexes will be subject to VFM's ability to
predict correctly movements in the direction of the stock market or interest
rates market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities. In the event VFM is unsuccessful in predicting the movements of an
index, the Fund could be in a worse position than had no hedge been attempted.
Because exercises of index options are settled in cash, the Fund cannot
determine the amount of its settlement obligations in advance and, with respect
to call writing, cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. When Voyageur
Fund writes an option on an index, the Fund will segregate or put into escrow
with its custodian or pledge to a broker as collateral for the option, cash,
high-grade liquid debt securities or "qualified securities" with a market value
determined on a daily basis of not less than 100% of the current market value of
the option.
Options purchased and written by Voyageur Fund may be exchange traded or
may be options entered into by the Fund in negotiated transactions with
investment dealers and other financial institutions (over-the-counter or "OTC"
options) (such as commercial banks or savings and loan associations) deemed
creditworthy by VFM. OTC options are illiquid and it may not be possible for the
Fund to dispose of options it has purchased or to terminate its obligations
under an option it has written at a time when VFM believes it would be
advantageous to do so.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Voyageur Fund may enter
into futures contracts and purchase and write options on these contracts,
including but not limited to interest rate and securities index contracts and
put and call options on these futures contracts. These contracts will be entered
into on domestic and foreign exchanges and boards of trade, subject to
applicable regulations of the Commodity Futures Trading Commission. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes.
In connection with transactions in futures contracts and writing related
options, the Fund will be required to deposit as "initial margin" a specified
amount of cash or short-term, U.S. Government securities. The initial margin
required for a futures contract is set by the exchange on which the contract is
traded. It is expected that the initial margin would be approximately 1-1/2% to
5% of a contract's face value. Thereafter, subsequent payments (referred to as
"variation margin") are made to and from the broker to reflect changes in the
value of the futures contract. The Fund will not purchase or sell futures
contracts or related options if, as a result, the sum of the initial margin
deposit on the Fund's existing futures and related options positions and
premiums paid for options or futures contracts entered into for other than bona
fide hedging purposes would exceed 5% of the Fund's assets.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS.
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several risks in
using securities index or interest rate futures contracts as hedging devices.
One risk arises because the prices of futures contracts may not correlate
perfectly with movements in the underlying index or financial instrument due to
certain market distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements. Rather than making
additional variation margin payments, investors may close the contracts through
offsetting transactions which could distort the normal relationship between the
index or security and the futures market. Second, the margin requirements in the
futures market are lower than margin requirements in the securities market, and
as a result the futures market may attract more speculators than does the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Because of possible price distortion
in the futures market and because of imperfect correlation between movements in
indexes of securities and movements in the prices of futures contracts, even a
correct forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements in
the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by Voyageur Fund is subject to the
ability of VFM to predict correctly movements in the direction of interest rates
or the relevant underlying securities market. If the Fund has hedged against the
possibility of an increase in interest rates adversely affecting the value of
fixed-income securities held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its security which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
LIQUIDITY OF FUTURES CONTRACTS. Voyageur 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
Voyageur Fund intends to enter into futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
contract at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such 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.
RISK OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transactions costs). The
writing of a call option generates a premium, which may partially offset a
decline in the value of the Fund's portfolio assets. By writing a call option,
the Fund becomes obligated to sell an underlying instrument or a futures
contract, which may have a value higher than the exercise price. Conversely, the
writing of a put option generates a premium, but the Fund becomes obligated to
purchase the underlying instrument or futures contract, which may have a value
lower than the exercise price. Thus, the loss incurred by the Fund in writing
options may exceed the amount of the premium received.
The effective use of options strategies is dependent, among other things,
on Voyageur Fund's ability to terminate options positions at a time when VFM
deems it desirable to do so. Although the Fund will enter into an option
position only if VFM 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.
Voyageur Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by VFM, which
could prove to be inaccurate. Even if the expectations of VFM are correct, there
may be an imperfect correlation between the change in the value of the options
and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of a purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Voyageur Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
Voyageur Fund may purchase call options to hedge against an increase in
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
As discussed above, options may be traded over-the-counter ("OTC options").
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. OTC options are illiquid and it
may not be possible for the Fund to dispose of options it has purchased or
terminate its obligations under an option it has written at a time when VFM
believes it would be advantageous to do so. Accordingly, OTC options are subject
to the Fund's limitation that a maximum of 15% of its net assets be invested in
illiquid securities. In the event of the bankruptcy of the writer of an OTC
option, the Fund could experience a loss of all or part of the value of the
option. VFM anticipates that options on Tax-Exempt Obligations will consist
primarily of OTC options.
ILLIQUID INVESTMENTS
Voyageur Fund is permitted to invest up to 15% of its net assets in
illiquid investments. See "Investment Restrictions" below. 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. As set forth in the
Prospectus/Proxy Statement, the Fund may invest in certain restricted securities
(securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act")), commercial
paper issued pursuant to Section 4(2) under the 1933 Act, and municipal lease
obligations, and treat such securities as liquid when they have been determined
to be liquid by VFM subject to the oversight of and pursuant to procedures
adopted by the Board of Directors of Voyageur Mutual Funds (the "Voyageur
Board"). Under these procedures, factors taken into account in determining the
liquidity of a security include (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 (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). With respect to restricted
securities, the liquidity of such securities increased as a result of the
adoption of Rule 144A under the 1933 Act, which provides a safe harbor exemption
from the registration requirements of the 1933 Act for resales of restricted
securities to "qualified institutional buyers," as defined in the rule.
Investing in such securities could have the effect of increasing the level of
Fund illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
DIVERSIFICATION
Voyageur Fund is "non-diversified," as defined in the 1940 Act. See
"Principal Risk Factors" in the Prospectus/Proxy Statement regarding certain
considerations relating to "non-diversified" status.
Voyageur Fund intends to conduct its operations so that it will comply with
diversification requirements and qualify under the Internal Revenue Code of 1986
as a "regulated investment company." In order to qualify as a regulated
investment company, the Fund must limit its investments so that, at the close of
each quarter of the taxable year, with respect to at least 50% of its total
assets, not more than 5% of its total assets will be invested in the securities
of a single issuer. In addition, the Code requires that not more than 25% in
value of the Fund's total assets may be invested in the securities of a single
issuer at the close of each quarter of the taxable year.
For purposes of such diversification, the identification of the issuer of
Tax-Exempt Obligations depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the State, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.
Similarly, in the case of an industrial development bond, if that bond is
backed only by certain revenues to be received from the non-governmental user of
the project financed by the bond, then such non-governmental user is deemed to
be the sole issuer. If, however, in any of the above cases, a State, political
subdivision or some other entity guarantees a security and the value of all
securities issued or guaranteed by the guarantor and owned by the Fund exceeds
10% of the value of the Fund's total assets, the guarantee is considered a
separate security and is treated as an issue of the guarantor. Investments in
municipal obligations refunded with escrowed U.S. Government securities will be
treated as investments in U.S. Government securities for purposes of determining
the Fund's compliance with the 1940 Act diversification requirements.
PORTFOLIO TURNOVER
Portfolio turnover for Voyageur Fund 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 the Fund, not including securities
maturing in less than 12 months. A 100% portfolio turnover rate would occur, for
example, if the lesser of the value of purchases or sales of the Fund's
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned by the Fund during the year. Voyageur
Fund estimates its portfolio turnover rate will be less than 100%.
INVESTMENT RESTRICTIONS
Voyageur Fund has adopted certain investment restrictions set forth below
which, together with the investment objectives of the Fund and other policies
which are specifically identified as fundamental in the Prospectus/Proxy
Statement or herein cannot be changed without approval by holders of a majority
of the outstanding voting shares of the Fund. As defined in the 1940 Act, this
means the lesser of the vote of (1) 67% of the shares of the Fund at a meeting
where more than 50% of the outstanding shares of the Fund are present in person
or by proxy or (2) more than 50% of the outstanding shares of the Fund. Voyageur
Fund will not:
(1) Borrow money (provided that the Fund may enter into reverse
repurchase agreements), except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of the Fund's total
assets, including the amount borrowed. The Fund may not borrow for leverage
purposes, provided that the Fund may enter into reverse repurchase
agreements for such purposes, and securities will not be purchased while
outstanding borrowings exceed 5% of the value of the Fund's total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, the Fund
may be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more of its assets in the securities of issuers in
any industry; although, for purposes of this limitation, tax-exempt
securities and U.S. Government obligations are not considered to be part of
any industry.
(6) Issue any senior securities (as defined in the 1940 Act), except
as set forth in investment restriction number (1) above, and except to the
extent that using options, futures contracts and options on futures
contracts, purchasing or selling on a when-issued or forward commitment
basis or using similar investment strategies may be deemed to constitute
issuing a senior security.
(7) Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the
Fund from purchasing or selling, on a basis consistent with any
restrictions contained in its then-current Prospectus, any financial
contracts or instruments which may be deemed commodities (including, by way
of example and not by way of limitation, options, futures, and options on
futures with respect, in each case, to interest rates, currencies, stock
indices, bond indices or interest rate indices).
The following non-fundamental investment restrictions may be changed by the
Voyageur Board at any time. Voyageur Fund will not:
(1) Invest more than 5% of its total assets in securities of any
single investment company, nor more than 10% of its total assets in
securities of two or more investment companies, except as part of a merger,
consolidation or acquisition of assets.
(2) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(3) Make short sales of securities or maintain a short position for
the account of the Fund, unless at all times when a short position is open
it owns an equal amount of such securities or owns securities which,
without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to,
the securities sold short.
Except for Voyageur Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
SPECIAL FACTORS AFFECTING VOYAGEUR FUND
The following information is a brief summary of New York State and New York
City factors affecting Voyageur Fund and does not purport to be a complete
description of such factors. As described above, except during temporary
defensive periods, the Voyageur Fund will invest at least 80% of the value of
its net assets in Tax-Exempt Obligations, the interest on which is exempt from
federal income, New York State and New York City personal income tax (except for
New York State and New York City franchise tax on corporations and financial
institutions, which is measured by income). Therefore, the financial condition
of New York State, its public authorities and local governments could affect the
market values and marketability of, and therefore the net asset value per share
and the interest income of the Fund, or result in the default of existing
obligations, including obligations which may be held by the Fund. Further, New
York State and New York City face numerous forms of litigation seeking
significant damages which, if awarded, could adversely affect the financial
situation of New York State or New York City or issuers located in New York
State. It should be noted that the creditworthiness of obligations issued by
local issuers (including New York City) may be unrelated to the creditworthiness
of New York State, and that there is no obligation on the part of New York State
to make payment on such local obligations in the event of default in the absence
of a specific guarantee or pledge provided by New York State.
Bond ratings received on New York State's and New York City's general
obligation bonds are discussed below. Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's Ratings Services ("S&P") provide an
assessment/rating of the creditworthiness of an obligor. The debt rating is not
a recommendation to purchase, sell, or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor. The ratings
are based on current information furnished by the issuer or obtained by the
rating service from other sources it considers reliable. Each rating service
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstance. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised or
withdrawn entirely by any such rating agencies, if in their respective
judgments, circumstances so warrant. The ratings are based, in varying degrees,
on the following considerations:
(1) Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
(2) Nature of, and provisions of, the obligation.
(3) Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement(s) under
the laws of bankruptcy and other laws affecting creditors rights.
A revision or withdrawal of any such credit rating could have an effect on
the market price of the related debt obligations. An explanation of the
significance and status of such credit ratings may be obtained from the rating
agencies furnishing the same. In addition, a description of Moody's, S&P's and
Fitch's bond ratings is set forth in Appendix A hereto.
The following information provides only a brief summary of the complex
factors affecting the financial situation in New York State and New York City,
is derived from sources that are generally available to investors and is
believed to be accurate. It is based on information drawn from the Annual
Information Statement of the State of New York dated June 23, 1995 and updates
thereto issued on July28, 1995 and October 26, 1995, and from other
official statements and prospectuses issued by, and other information reported
by, the State of New York (the "State"), by its various public bodies (the
"Agencies"), and other entities located within the State, including the City of
New York (the "City"), in connection with the issuance of their respective
securities.
THE FUND MAKES NO REPRESENTATION OR WARRANTY REGARDING THE COMPLETENESS OR
ACCURACY OF SUCH INFORMATION. THE MARKET VALUE OF SHARES OF THE FUND MAY
FLUCTUATE DUE TO FACTORS SUCH AS CHANGES IN INTEREST RATES, MATTERS AFFECTING
NEW YORK STATE OR NEW YORK CITY, OR FOR OTHER REASONS.
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. Travel and tourism constitute an important part of
New York's economy. Relative to the nation, the State has a smaller share of
manufacturing and construction and a larger share of service-related industries.
The State is likely to be less affected than the nation as a whole during an
economic recession that is concentrated in manufacturing and construction, but
likely to be more affected during a recession that is concentrated more in the
service-producing sector.
The State historically has been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
During the calendar years 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation. In the 1990-91 recession,
the economy of the State, and that of the rest of the Northeast, was more
heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State dipped below the
national rate in the second half of 1981 and remained lower until 1991; since
then, it has been higher.
The State has the second highest combined state and local tax burden in the
United States. The burden of state and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State. The State's 1995-96 budget reflects significant actions to
reduce the burden of State taxation, including adoption of a 3-year, 20 percent
reduction in the State's personal income tax.
The State Financial Plan is based on a projection by State's Division of
the Budget ("DOB") of national and State economic activity. The national economy
began the current expansion in 1991 and has added over 7 million jobs since
early 1992. However, the recession lasted longer in the State and the State's
economic recovery has lagged behind the nation's. Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer
and instrument manufacturing, utility, defense, and banking industries. New
York's economic forecast calls for employment growth to slow significantly in
1996 as the pace of national economic growth slackens, entire industries
experience consolidations, and governmental employment continues to shrink.
Personal income is expected to increase more moderately in 1996 than in 1995.
1995-96 FISCAL YEAR. The State's current fiscal year commenced on April 1,
1995, and ends on March 31, 1996 (the "1995-96 fiscal year"). The State's budget
for the 1995-96 fiscal year was enacted by the Legislature on June 7, 1995, more
than two months after the start of the fiscal year. Prior to adoption of the
budget, the Legislature enacted appropriations for disbursements considered to
be necessary for State operations and other purposes, including all necessary
appropriations for debt service. The State Financial Plan for the 1995-96 fiscal
year was formulated on June 20, 1995 and is based on the State's budget as
enacted by the legislature and signed into law by the Governor.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the State Financial Plan, based on then-current law governing spending and
revenues, would be out of balance by almost $4.7 billion. The Governor proposed
additional tax cuts, which were larger than those ultimately adopted, and which
added $240 million to the then projected imbalance or budget gap, bringing the
total to approximately $5 billion. This gap is projected to be closed in the
1995-96 State Financial Plan based on the enacted budget, through a series of
actions, mainly spending reductions and cost containment measures and certain
reestimates that are expected to be recurring, but also through the use of
one-time solutions.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds are projected
to be $33.110 billion, a decrease of $48 million from total receipts in the
prior fiscal year. Total General Fund disbursements and transfers to other funds
are projected to be $33.055 billion, a decrease of $344 million from the total
amount disbursed in the prior fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. As noted, the 1995-96 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
The 1995-96 State Financial Plan includes actions that will have an effect
on the budget outlook for State fiscal year 1996-97 and beyond. The DOB
estimates that the 1995-96 State Financial Plan contains actions that provide
nonrecurring resources or savings totalling approximately $900 million. The
Comptroller believes that the amount of nonrecurring resources or savings
exceeds $1.0 billion. The DOB also estimates that the 1995-96 State Financial
Plan contains nonrecurring expenditures totalling nearly $250 million. The net
amount of nonrecurring resources used in the 1995-96 State Financial Plan,
accordingly, is estimated by the DOB at over $600 million.
In addition to this use of nonrecurring resources, the 1995-96 State
Financial Plan reflects actions that will directly affect the State's 1996-97
fiscal year baseline receipts and disbursements. The three-year plan to reduce
State personal income taxes will decrease State tax receipts by an estimated
$1.7 billion in State fiscal year 1996-97, in addition to the amount of
reduction in State fiscal year 1995-96. Further significant reductions in the
personal income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements in
the State's 1995-96 fiscal year are expected to provide greater reductions in
State fiscal year 1996-97.
The net impact of these and other factors is expected to produce a
potential imbalance in receipts and disbursements in State fiscal year 1996-97.
The Governor has indicated that in the 1996-97 Executive Budget he will propose
to close this potential imbalance primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. On October 2, 1995, the State Comptroller released a report entitled
"Comptroller's Report on the Financial Conditions of New York State 1995" in
which he identified several risks to the State Financial Plan and reaffirmed his
estimate that the State faces a potential imbalance in receipts and
disbursements of at least $2.7 billion for the State's 1996-97 fiscal year and
at least $3.9 billion for the State's 1997-98 fiscal year.
To address a potential imbalance in any given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution, the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursement in future fiscal years. There can
be no assurance, however that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and disbursements
in future fiscal years.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the state. For example, a significant risk to the
1995-96 State Financial Plan arises from tax legislation pending in Congress.
Changes to Federal tax treatment of capital gains are likely to flow through
automatically to the State personal income tax. Such changes, depending upon
their precise character and timing, and upon taxpayer response, could produce
either revenue gains or losses during the balance of the State's fiscal year.
Uncertainties with respect to both the economy and potential decisions at the
Federal level add further pressure on future budget balance in New York State.
Specific budget proposals being discussed at the Federal level but not included
in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states. Because of the uncertainty and
unpredictability of these potential changes, their impact is not included in the
assumptions underlying the State's projections.
The 1995-96 State Financial Plan is based upon forecasts by the DOB of
national and State economic activity. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurances that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the Federal government, and changes in the demand for and use of State
services. There can be no assurance that the State's projections for tax and
other receipts for the 1995-96 fiscal year are not overstated and will not be
revised downward, or that disbursements will not be in excess of the amounts
projected. Such variances could adversely affect the State's cash flow during
the 1995-96 fiscal year or subsequent fiscal years, as well as the State's
ability to achieve a balanced budget on a cash basis for such fiscal year or
subsequent fiscal years.
The DOB believes that its projections of receipts and disbursements
relating to the current State Financial Plan, and the assumptions on which they
are based, are reasonable. Projections and estimates of receipts from taxes have
been subject to variance in recent fiscal years. The personal income tax, the
sales tax, and the corporation franchise tax have been particularly subject to
overestimation as a result of several factors, most recently the significant
slowdown in the national and regional economies and uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax laws. As a
result of the foregoing uncertainties and other factors, actual results could
differ materially and adversely from the projections discussed herein, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address cash flow needs and State Financial Plan shortfall,
and DOB believes it could take similar action should variances from its
projections occur in the current and/or subsequent fiscal years. Those variances
could, however, affect the State's ability to achieve a balanced budget on a
cash basis for the current and/or subsequent fiscal years.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future years, nor can there be any assurance that budgetary
difficulties will not lead to further adverse consequences for the State and its
obligations.
As a result of changing economic conditions and information, public
statements or reports may be released by the Governor, members of the State
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, as reflected in the 1995-96 State Financial Plan, that may
vary materially and adversely from the information provided herein.
INDEBTEDNESS. As of March 31, 1995, the total amount of long-term State
general obligation debt authorized but unissued stood at $1.789 billion. As of
the same date, the State had approximately $5.181 billion in general obligation
debt, including $149.3 million in bond anticipation notes outstanding.
As of March 31, 1995, $17.980 billion of bonds, issued in connection with
lease-purchase and contractual-obligation financings of State capital programs,
were outstanding. The total amount of outstanding State-supported debt as of
March 31, 1995 was $27.913 billion. As of March 31, 1995, total State-related
debt (which includes the State-supported debt, moral obligation and certain
other financings and State-guaranteed debt) was $36.1 billion.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1995-96 fiscal
year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in certificates of participation
during the State's 1995-96 fiscal year for equipment purchases and $14 million
for capital purposes. The projection of the State regarding its borrowings for
the 1995-96 fiscal year may change if circumstances require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7
billion, and has been authorized to issue its bonds to provide net proceeds of
up to $529 million during the State's 1995-96 fiscal year to redeem notes sold
in June 1995.
RATINGS. As of September 1995, Moody's rating of the State's general
obligation bonds stood at A, and S&P's rating stood at A-. Moody's lowered its
rating to A on June 6, 1990, its rating having been A1 since May 27, 1986. S&P
lowered its rating from A to A- on January 13, 1992. S&P's previous ratings were
A from March 1990 to January 1992, AA- from August 1987 to March 1990 and A+
from November 1982 to August 1987.
THE CITY AND THE MUNICIPAL ASSISTANCE CORPORATION ("MAC")
The City accounts for approximately 41% of the State's population and
personal income, and the City's financial health affects the State in numerous
ways.
In February 1975, the New York State Urban Development Corporation ("UDC"),
which had approximately $1 billion of outstanding debt, defaulted on certain of
its short-term notes. Shortly after the UDC default, the City entered a period
of financial crisis. Both the State Legislature and the United States Congress
enacted legislation in response to this crisis. During 1975, the State
Legislature (i) created MAC to assist with long-term financing for the City's
short-term debt and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the City's budgets and
four-year financial plans (the financial plans also apply to certain
City-related public agencies).
The national economic downturn which began in July 1990 adversely affected
the City economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and the City's economy declined in
those two years. Beginning in 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated and the
City's economy improved, boosted by strong wage gains. However, after noticeable
improvements in the City's economy during calendar year 1994, the City's current
four-year financial plan assumes that economic growth will slow in calendar year
1996, with local employment increasing modestly. During the 1995 fiscal year,
the City experienced substantial shortfalls in payments of non-property tax
revenues from those forecasted.
For each of the 1981 through 1993 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
its recent fiscal years in order to maintain balanced operating results. There
can be no assurance that the City will continue to maintain a balanced budget,
or that it can maintain a balanced budget without additional tax or other
revenue increases or reductions in City services, which could adversely affect
the City economic base.
Pursuant to State law the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The current financial plan
extends through the 1999 fiscal year. The City is required to submit its
financial plans to review bodies, including the Control Board. If the City were
to experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood of the occurrence of an annual operating deficit
of more than $100 million or the loss of access to the public credit markets to
satisfy the City's capital and seasonal financial requirements, the Control
Board would be required by State law to exercise certain powers, including prior
approval of City financial plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. The State's 1995-96
Financial Plan projects a balanced General Fund. If the State experiences
revenue shortfalls or spending increases during its 1995-96 fiscal year or
subsequent years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance that State budgets
in future fiscal years will be adopted by the April 1 statutory deadline and
that there will not be adverse effects on the City's cash flow and additional
City expenditures as a result of such delays.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1996 through 1999 fiscal
years. The City projections set forth in its financial plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in such financial plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability to complete revenue generating transactions, provision of State and
Federal aid and mandate relief, State legislative approval of future State
budgets, levels of education expenditures as may be required by State law,
adoption of future City budgets by the New York City Council, approval by the
Governor or the State Legislature and the cooperation of MAC with respect to
various other actions proposed in such financial plan, and the impact on City
revenues of proposals for Federal and State welfare reform.
Implementation of its financial plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $9.7 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The terms and
success of projected public sales of City general obligation bonds and notes
will be subject to prevailing market conditions, and no assurance can be given
that such sales will be completed. If the City were unable to sell its general
obligation bonds and notes, it would be prevented from meeting its planned
capital and operating expenditures. Future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obligation bonds
or notes.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than those
forecast in the financial plan. In addition, the Control Board staff and others
have questioned whether the City has the capacity to generate sufficient
revenues in the future to provide the level of services included in the
financial plan. It is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.
1995 FISCAL YEAR. On July 21, 1995, the City submitted to the Control Board
a fourth quarter modification to the financial plan for the 1995 fiscal year.
The City projects a balanced budget in accordance with GAAP for the 1995 fiscal
year after taking into account a transfer of $75 million.
1996-99 FINANCIAL PLAN. On July 11, 1995, the City submitted to the Control
Board the 1996-99 Financial Plan, which relates to the City, the Board of
Education and the City University of New York. The 1996-99 Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal year,
which were adopted on June 14, 1995, and sets forth proposed actions by the City
for the 1996 fiscal year to close substantial projected budget gaps resulting
from lower than projected tax receipts and other revenues and greater than
projected expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated with
the City's labor unions, the 1996-99 Financial Plan reflects a strategy to
substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years.
The 1996-99 Financial Plan also sets forth projections for the 1997 through
1999 fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $888 million, $1.5 billion and $1.4 billion for the 1997, 1998
and 1999 fiscal years, respectively, after successful implementation of the $3.1
billion gap-closing program for the 1996 fiscal year. The proposed gap-closing
actions, a substantial number of which are not specified in detail, include
various actions which may be subject to State or Federal approval.
On July 24, 1995, the City Comptroller issued a report on the 1996-99
Financial Plan. The report concluded that the 1996-99 Financial Plan includes
total risks of $749 million to $1.034 billion for the 1996 fiscal year. With
respect to the 1997-99 fiscal years, the report noted that the gap-closing
program in the 1996-99 Financial Plan does not include information about how the
City will implement the various gap-closing programs, and that the entitlement
cost containment and revenue initiatives will require approval of the State
legislature. The report estimated that the 1996-99 Financial Plan includes total
risks of $2.0 billion to $2.5 billion in the 1997 fiscal year, $2.8 billion to
$3.3 billion in the 1998 fiscal year, and $2.9 billion to $3.4 billion in the
1999 fiscal year.
In early December 1994, the City Comptroller issued a report which noted
that the City is currently seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.75 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be greatly reduced
in future years due to the decline in value of taxable real property. The report
concluded that the debt incurring power of the City would likely be curtailed
substantially in the 1997 and 1998 fiscal years.
On July 21, 1995, the staff of the Control Board issued a report on the
1996-99 Financial Plan which identified risks of $873 million, $2.1 billion,
$2.8 billion and $2.8 billion for the 1996 through 1999 fiscal years,
respectively.
On June 14, 1995, the staff of the Office of the State Deputy Comptroller
for the City of New York ("OSDC") issued a report on the financial plan with
respect to the 1995 fiscal year. The report noted that, during the 1995 fiscal
year, the City faced adverse financial developments totaling over $2 billion
resulting from the inability to initiate approximately 35% of the City's
gap-closing program, as well as newly-identified spending needs and revenue
shortfalls. The report noted that the City relied heavily on one-time actions to
offset adverse developments, using $2 billion in one-time resources in the 1995
fiscal year, or nearly double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the 1996-99
Financial Plan. The report concluded that there remains a budget gap for the
1996 fiscal year of $392 million, largely because the City and its unions have
yet to reach an agreement on how to achieve $160 million in unspecified labor
savings and the remaining $100 million in recurring health insurance savings
from last year's agreement. The report further noted that growth in City
revenues is being constrained by the weak economy in the City, which is likely
to be compounded by the slowing national economy, and that there is a likelihood
of a national recession during the course of the 1996-99 Financial Plan.
Moreover, the report noted that State and Federal budgets are undergoing
tumultuous changes, and that the potential for far-reaching reductions in
intergovernmental assistance is clearly on the horizon, with greater uncertainty
about the impact on City finances and services.
LITIGATION. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts, and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, of the
proceedings and claims are not currently predictable, adverse determinations in
certain such proceedings and claims might have a material adverse effect upon
the City's ability to carry out its financial plan. As of June 30, 1994, the
City estimated its potential future liability in respect of outstanding claims
to be approximately $2.6 billion. The 1996-99 Financial Plan includes provisions
for judgments and claims of $279 million, $236 million, $251 million and $264
million for the 1996 through 1999 fiscal years, respectively.
RATINGS. On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector." Other
factors identified by S&P in lowering its rating on City bonds included a trend
of using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance financial
plans, optimistic projections of additional Federal and State aid or mandate
relief, a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate the
City general obligations bonds A-. Moody's rating for City general obligation
bonds is Baa1.
On February 11, 1991, Moody's had lowered its rating from A. Previously,
Moody's had raised its rating to A in May 1988, to Baa1 in December 1986, to Baa
in November 1983 and to Ba1 in November 1981. S&P had raised its rating to A- in
November 1987, to BBB+ in July 1985 and to BBB in March 1981.
INDEBTEDNESS. As of June 30, 1995, the City and MAC had, respectively,
$23.258 billion and $4.033 billion of outstanding net long-term indebtedness.
THE STATE AGENCIES: Certain Agencies of the State, including the State
Housing Finance Agency ("HFA") and the UDC, have faced substantial financial
difficulties which could adversely affect the ability of such Agencies to make
payments of interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called "moral
obligation" provisions, which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to appropriate
funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having financial
difficulties to meet their obligations (including HFA and UDC) could result in a
default by one or more of the Agencies. Such default, if it were to occur, would
be likely to have a significant adverse effect on investor confidence in, and
therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal guarantees of City
and MAC obligations and could thus jeopardize the City's long-term financing
plans.
(4) STATE LITIGATION: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal laws.
Included in the State's outstanding litigation are a number of cases challenging
the constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the future.
The State is also engaged in a variety of contract and tort claims wherein
significant monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally taken
from the Indians in violation of various treaties and agreements during the
eighteenth and nineteenth centuries. The claimants seek recovery of
approximately six million acres of land as well as compensatory and punitive
damages.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the 1995-96 fiscal year
or thereafter.
(5) OTHER MUNICIPALITIES: Certain localities in addition to New York City could
have financial problems leading to requests for additional State assistance and
the need to reduce their spending or increase their revenues. The potential
impact on the State of such actions by localities is not included in projections
of State revenues and expenditures in the State's 1995-96 fiscal year
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the Fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1993, the total indebtedness of all localities in
the State other than New York City was approximately $17.7 billion. State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Fifteen localities had outstanding indebtedness for
deficit financing at the close of their fiscal year ending in 1993.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, New York City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State,
including notes or bonds in the Fund, could be adversely affected. Localities
also face anticipated and potential problems resulting from certain pending
litigation, judicial decisions, and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures, and
other economic trends could adversely affect localities and require increasing
State assistance in the future.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF VOYAGEUR MUTUAL FUNDS
The Board members and officers of Voyageur Mutual Funds, their position
with Voyageur Mutual Funds and their principal occupations during the past five
years are set forth below. In addition to the occupations set forth below, the
Directors and officers also serve as directors and trustees or officers of
various other closed-end and open-end investment companies managed by VFM.
<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 currently
W-875 serves on the board of directors of Tosco Corporation (an
First National Bank Building oil refining and marketing company), Milwaukee Land Company,
332 Minnesota Street and Independence One Mutual Funds.
St. Paul, Minnesota 55101
Richard F. McNamara, 63 Director Chief Executive Officer of Activar, Inc., a
7808 Creekridge Circle, #200 Minneapolis-based holding company consisting of seventeen
Minneapolis, Minnesota 55439 companies in industrial plastics, sheet metal, automotive
aftermarket, construction supply, electronics and financial
services. Mr. McNamara currently serves on the board of Rimage
(electronics manufacturing) and Interbank.
Thomas F. Madison, 60 Director President and CEO of MLM Partners, Inc. since January 1993;
200 South Fifth Street previously Vice Chairman- Office of the CEO, The Minnesota
Suite 2100 Mutual Life Insurance Company from February 1994 to
Minneapolis, Minnesota 55402 September 1994; President of U.S. West
Communications-Markets from 1988 to 1993; Mr. Madison
currently serves on the board of directors of Valmont
Industries, Inc. (metal manufacturing), Eltrax Systems,
Inc. (a data communications integration company),
Minnegasco, Lutheran Health Systems, Communications
Holdings, Inc., Alexander and Alexander (insurance and risk
management), Span Link Communications (telecommunications),
Medical Benefits Administrators, D&D Farms, Aether Works
(software applications), Digital River (digital data
provider) and various civic and educational organizations.
James W. Nelson, 54 Director Chairman and Chief Executive Officer of Eberhardt Holding
81 South Ninth Street Company and its subsidiaries.
Suite 400
Minneapolis, Minnesota 55440
Robert J. Odegard, 75 Director Special Assistant to the President of the University
of Minnesota Foundation University of Minnesota.
1300 South Second Street
Minneapolis, Minnesota 55454
John G. Taft, 41 President President and Director (since 1993) of VFM;
90 South Seventh Street Director (since 1993) and Executive Vice President
Suite 4400 (since 1995) of Voyageur Fund Distributors, Inc.
Minneapolis, Minnesota 55402 ("VFD") previously, President of VFD from 1991
to 1995; Management Committee member of VFM
from 1991 to 1993.
Andrew M. McCullagh, Jr., 47 Executive Portfolio Manager of VFM; previously Director
717 Seventeenth Street Vice of VFM and VFD from 1993 to 1995.
Denver, Colorado 80202 President
Jane M. Wyatt, 41 Executive Chief Investment Officer of VFM (since 1993) and Portfolio
90 South Seventh Street Vice Manager of VFM; Director of VFM and VFD since 1993;
Suite 4400 President previously Executive Vice President and Portfolio Manager of
Minneapolis, Minnesota 55402 VFM from 1992 to 1993; Vice President and Portfolio Manager
from 1989 to 1992 of VFM.
Steven Eldredge, 40 Vice Senior Tax Exempt Portfolio
90 South Seventh Street President Manager of VFM since 1995;
Suite 4400 previously portfolio manager for ABT Mutual Funds
Minneapolis, Minnesota 55402 from 1989 to 1995.
Elizabeth H. Howell, 34 Vice Senior Tax Exempt Portfolio Manager of VFM.
90 South Seventh Street President
Suite 4400
Minneapolis, Minnesota 55402
James C. King, 55 Vice Senior Equity Portfolio Manager of VFM since
90 South Seventh Street President 1993; previously Director of VFM and the Suite 4400
Minneapolis, Minnesota 55402 Underwriter from 1993 to 1995.
Kenneth R. Larsen, 33 Treasurer Treasurer of VFM and VFD; previously
90 South Seventh Street Director, Secretary and Treasurer of VFM
Suite 4400 and VFD from 1993 to 1995.
Minneapolis, Minnesota
Thomas J. Abood, 32 Secretary Senior Vice President (since 1995) and General Counsel
90 South Seventh Street (since October 1994) of VFM, VFD and Voyageur Companies,
Suite 4400 Inc.; previously Vice President of VFM and Voyageur
Minneapolis, Minnesota 55402 Companies, Inc. from October 1994 to 1995; associated with
the law firm of Skadden, Arps, Slate, Meagher & Flom,
Chicago, Illinois from 1988 to 1994.
</TABLE>
Voyageur Fund does not compensate its officers. Each director or trustee
(who is not an employee of VFM or any of its affiliates) currently receives a
total annual fee of $26,000 for serving as a director or trustee for all of the
open-end and closed-end investment companies (the "Fund Complex") for which VFM
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. As of the date of this Statement of Additional Information, the Fund
Complex consists of ten open-end investment companies comprising 33 series or
funds and six closed-end investment companies. In addition, each director or
trustee who is not an employee of VFM 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 for the Fund
Complex during the calendar year ended December 31, 1995. As of the date of this
Statement of Additional Information, Voyageur Fund had not paid any compensation
to directors.
TOTAL COMPENSATION
DIRECTORS FROM FUND COMPLEX
--------- -----------------
Clarence G. Frame 24,500
Thomas F. Madison 24,500
Richard F. McNamara 24,500
James W. Nelson 24,500
Robert J. Odegard 24,500
THE INVESTMENT ADVISER AND UNDERWRITER
Voyageur Fund Managers, Inc., a Minnesota corporation ( "VFM"), has been
retained under an investment advisory agreement (the "Advisory Agreement") to
act as Voyageur Fund's investment adviser, subject to the authority of the Board
of Voyageur Mutual Funds. VFM and Voyageur Fund Distributors, Inc. ("VFD") 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. Certain key employees
of DFG and its subsidiaries and an employee benefit plan benefitting the
employees of such companies have been offered the opportunity to purchase voting
common shares of DFG through stock options granted with respect thereto, with
the shareholdings of Pohlad Companies and Mr. Dougherty each to be diluted
proportionately by any such purchases. Following any such purchases, Mr.
Dougherty and Pohlad Companies would each continue to own greater than 25% of
the outstanding voting common shares of DFG, and no other person or entity would
own greater than 25% of such shares. The principal executive offices of VFM are
located at 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
VFD is the principal distributor of Voyageur Fund shares. With regard to
VFD, Mr. Taft and Ms. Wyatt are Executive Vice Presidents and directors, Mr.
Abood is Senior Vice President and General Counsel, and Mr. Larsen is Treasurer.
INVESTMENT ADVISORY AGREEMENT
Voyageur Fund does not maintain its own research department. Voyageur Fund
has contracted with VFM for investment advice and management. Pursuant to an
Investment Advisory Agreement, Voyageur has the sole and exclusive
responsibility for the management of the Fund's portfolio and the making and
execution of all investment decisions for the Fund subject to the objectives and
investment policies and restrictions of the Fund and subject to the supervision
of the Voyageur Board. VFM also furnishes, at its own expense, office
facilities, equipment and personnel for servicing the investments of the Fund.
VFM has agreed to arrange for officers and employees of VFM to serve without
compensation from Voyageur Fund as directors, officers or employees of the Fund
if duly elected to such positions by the shareholders or directors of Voyageur
Fund.
As compensation for VFM's services, the Fund is obligated to pay to VFM a
monthly investment advisory and management fee equivalent on an annual basis to
.50 of 1% of its average daily net assets, respectively. The fee is based on the
average daily value of the Fund's net assets at the close of each business day.
The Investment Advisory Agreement on behalf of Voyageur Fund continues from
year to year only if approved annually (a) by the Voyageur Board or by vote of a
majority of the outstanding voting securities of the Fund and (b) by vote of a
majority of board members of the Fund who are not parties to the Investment
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting of the Board called for the purpose of
voting on such approval. The Advisory Agreement may be terminated by either
party on 60 days' notice to the other party and terminates automatically upon
its assignment. The Investment Advisory Agreement also provides that amendments
to the Agreement may be affected if approved by the Voyageur Board (including a
majority of the directors who are not interested persons of VFM or the Fund),
unless the 1940 Act requires that any such amendment must be submitted for
approval by the Fund's shareholders and that all proposed assignments of such
agreement are subject to approval by the Voyageur Board (unless the 1940 Act
otherwise requires shareholder approval).
ADMINISTRATIVE SERVICES AGREEMENT
VFM also acts as the Fund's dividend disbursing, transfer, administrative
and accounting services agent pursuant to an Administrative Services Agreement.
Pursuant to the Administrative Services Agreement, VFM provides the Fund all
dividend disbursing, transfer agency, administrative and accounting services
required by the Fund including, without limitation, the following: (i) the
calculation of net asset value per share (including the pricing of the Fund's
portfolio of securities) at such times and in such manner as is specified in the
Fund's current Prospectus and Statement of Additional Information, (ii) upon the
receipt of funds for the purchase of the Fund's shares or the receipt of
redemption requests with respect to the Fund's shares outstanding, the
calculation of the number of shares to be purchased or redeemed, respectively,
(iii) upon the Fund's distribution of dividends, the calculation of the amount
of such dividends to be received per share, the calculation of the number of
additional shares of the Fund to be received by each shareholder of the Fund
(other than any shareholder who has elected to receive such dividends in cash)
and the mailing of payments with respect to such dividends to shareholders who
have elected to receive such dividends in cash, (iv) the provision of transfer
agency services, (v) the creation and maintenance of such records relating to
the business of the Fund as the Fund may from time to time reasonably request,
(vi) the preparation of tax forms, reports, notices, proxy statements, proxies
and other shareholder communications, and the mailing thereof to shareholders of
the Fund, and (vii) the provision of such other dividend disbursing, transfer
agency, administrative and accounting services as the Fund and VFM may from time
to time agree upon. Pursuant to the Administrative Services Agreement, VFM also
provides such regulatory, reporting and compliance related services and tasks as
Voyageur Fund may reasonably request.
As compensation for these services, Voyageur Fund pays VFM a monthly fee
based upon the Fund's average daily net assets and the number of shareholder
accounts then existing. This fee is equal to the sum of (i) $1.33 per
shareholder account per month, (ii) $1,000 per month if the Fund's average daily
net assets do not exceed $50 million, $1,250 per month if the Fund's average
daily net assets are greater than $50 million but do not exceed $100 million,
and $1,500 per month if the Fund's average daily net assets exceed $100 million,
and (iii) 0.11% per annum of the first $50 million of the Fund's average daily
net assets, 0.06% per annum of the next $100 million of the Fund's average daily
net assets, 0.035% per annum of the next $250 million of the Fund's average
daily net assets, 0.03% per annum of the next $300 million of the Fund's average
daily net assets and 0.02% per annum of the Fund's average daily net assets in
excess of $700 million. For purposes of calculating average daily net assets, as
such term is used in the Administrative Services Agreements, the Fund's net
assets equal its total assets minus its total liabilities. The Fund also
reimburses VFM for its out-of-pocket expenses in connection with VFM's provision
of services under the Fund's Administrative Services Agreement.
The Administrative Services Agreement is renewable from year to year if the
directors approve it in the same way they approve the Investment Advisory
Agreement. The Administrative Services Agreement can be terminated by either
party on 60 days' notice to the other party and the Agreement terminates
automatically upon its assignment. The Administrative Services Agreement also
provide that amendments to the Agreement may be effected if approved by the
Board (including a majority of the board members who are not interested persons
of VFM or the Fund), unless the 1940 Act requires that any such amendment must
be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board (unless the
1940 Act otherwise requires shareholder approval thereof).
EXPENSES OF VOYAGEUR FUND
VFM is contractually obligated to pay the operating expenses of Voyageur
Fund (excluding interest, taxes, brokerage fees and commissions and Rule 12b-1
fees, if any) which exceed 1% of the Fund's average daily net assets on an
annual basis up to the amount of the investment advisory and management fee and
the dividend disbursing, administrative and accounting services fee. In
addition, VFM reserves the right to voluntarily waive its fees in whole or part
and to voluntarily absorb certain other of Voyageur Fund's expenses. Any such
waiver or absorption, however, is in VFM's sole discretion and may be lifted or
reinstated at any time.
All costs and expenses (other than those specifically referred to as being
borne by VFM or VFD) incurred in the operation of Voyageur Fund are borne by the
Fund. These expenses include, among others, fees of the Board members who are
not employees of VFM 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 bond and other coverage, expenses of
redemption of shares, expenses of issue and sale of shares (to the extent not
borne by VFD under its agreement with the Fund), expenses of printing and
mailing stock certificates representing shares of the 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 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, reports and statements to shareholders.
RULE 12B-1 PLANS OF DISTRIBUTION; DISTRIBUTION AGREEMENTS
Voyageur Fund has adopted a Plan of Distribution (the "Plan") 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.
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
Voyageur Board and of the directors who are not interested persons of the Fund
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 Fund 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
Fund may rely upon Rule 12b-1 only if the selection and nomination of the Fund'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.
Voyageur Fund has entered into a Distribution Agreement with VFD, pursuant
to which VFD acts as the principal underwriter of the Fund's shares. The
Distribution Agreement and Plan provide that VFD 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 VFD shall also pay all costs of
distributing the shares of the Fund ("Distribution Expenses"). Shareholder
Servicing Expenses include all expenses of VFD incurred in connection with
providing administrative or accounting services to shareholders of the Fund,
including, but not limited to, an allocation of VFD's overhead and payments made
to persons, including employees of VFD, 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 Voyageur Fund's
investment adviser or dividend disbursing, transfer, administrative and
accounting services agent. Distribution Expenses include, but are not limited
to, initial and ongoing sales compensation (in addition to sales loads) paid to
investment executives of VFD 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 VFD'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, VFD 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 Voyageur 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 VFD under the
Distribution Agreement may exceed or be less than VFD's actual distribution
expenses and shareholder servicing expenses. In the event such distribution
expenses and shareholder servicing expenses exceed amounts payable to VFD under
the Plan, VFD shall not be entitled to reimbursement by the Fund. In addition to
being paid shareholder servicing and distribution fees, VFD also receives for
its services the sales charge on sales of Fund shares set forth in the
Prospectus/Proxy Statement.
Voyageur Fund's Distribution Agreement is renewable from year to year if
the Voyageur Board approves the Agreement and the Fund's Plan. The Fund or VFD
can terminate its Distribution Agreement on 60 days' notice to the other party,
and the Distribution Agreement terminates automatically upon its assignment. In
the Fund's Distribution Agreement, VFD 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 VFD only
from persons affiliated with the Fund but not VFD.
PORTFOLIO TRANSACTIONS, ALLOCATION OF BROKERAGE AND TURNOVER RATE
As Voyageur Fund's portfolio is composed exclusively of debt, rather than
equity securities, most portfolio transactions are effected with dealers without
the payment of brokerage commissions, but rather at net prices which usually
include a spread or markup. In effecting such portfolio transactions on behalf
of Voyageur Fund, VFM seeks the most favorable net price consistent with the
best execution. However, frequently, VFM selects a dealer to effect a particular
transaction without contacting all dealers who might be able to effect such
transaction, because of the volatility of the bond market and the desire of VFM
to accept a particular price for a security because the price offered by the
dealer meets its guidelines for profit, yield or both.
Decisions with respect to placement of Voyageur Fund's portfolio
transactions are made by VFM. The primary consideration in making these
decisions is efficiency in the execution of orders and obtaining the most
favorable net prices for the Fund. When consistent with these objectives,
business may be placed with broker-dealers who furnish investment research
services to VFM. 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 VFM to supplement its own
investment research activities and enables VFM to obtain the views and
information of individuals and research staffs of many different securities
firms prior to making investment decisions for the Fund. To the extent portfolio
transactions are effected with broker-dealers who furnish research services to
VFM, VFM receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to Voyageur Fund from these
transactions.
VFM has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of Voyageur Fund's portfolio transactions in
exchange for research services provided VFM, except as noted below. However, VFM
does maintain an informal list of broker-dealers, which is used from time to
time as a general guide in the placement of Voyageur Fund's business, in order
to encourage certain broker-dealers to provide VFM with research services which
VFM anticipates will be useful to it. Because the list is merely a general
guide, which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. VFM will authorize Voyageur
Fund to pay an amount of commission for effecting a securities transaction in
excess of the amount of commission another broker-dealer would have charged only
if VFM 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 VFM's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion. If Voyageur Fund executes any transactions on an agency
basis, it will generally pay higher than the lowest commission rates available.
Voyageur Fund will not effect any brokerage transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with VFM,
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 Voyageur Fund. In determining the commissions to be paid to a
broker-dealer affiliated with VFM, it is the policy of Voyageur Fund that such
commissions will, in the judgment of VFM, subject to review by the Voyageur
Board, be both (a) at least as favorable as those which would be charged by
other qualified brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time, and (b) at least as favorable as commissions contemporaneously
charged by such affiliated broker-dealers on comparable transactions for their
most favored comparable unaffiliated customers. While the Fund does not deem it
practicable and in its best interest to solicit competitive bids for commission
rates on each transaction, consideration will regularly be given to posted
commission rates as well as to other information concerning the level of
commissions charged on comparable transactions by other qualified brokers.
Pursuant to conditions set forth in rules of the Securities and Exchange
Commission, Voyageur 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 Voyageur
Board, particularly those Board members who are not interested persons of the
Fund.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Voyageur Board may determine, VFM may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's securities transactions.
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 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/Proxy Statement, a
signature guaranty will be required when redemption proceeds: (1) exceed $50,000
(unless it is being wired to a pre-authorized bank account, in which case a
guarantee is not required), (2) are to be paid to someone other than the
registered shareholder or (3) are to be mailed to an address other than the
address of record or wired to an account other than the pre-authorized bank or
brokerage account. On joint account redemptions of the type previously listed,
each signature must be guaranteed. A signature guarantee may not be provided by
a notary public. Please contact your investment executive for instructions as to
what institutions constitute eligible signature guarantors.
VALUATION OF PORTFOLIO SECURITIES. Generally, trading in certain securities
such as tax-exempt securities, corporate bonds, U.S. Government securities and
money market instruments is substantially completed each day at various times
prior to the primary close of trading on the Exchange. The values of such
securities used in determining the net asset value of Fund shares are computed
as of such times. Occasionally events affecting the value of such securities may
occur between such times and the primary close of trading on the Exchange which
are not reflected in the computation of net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities are valued at their fair market value as determined in good faith by
VFM in accordance with procedures adopted by the Voyageur Board.
BANK PURCHASES. Banks, acting as agents for their customers and not for
Voyageur Fund or VFD, 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 the 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 Voyageur 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.
TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), all or a
portion of the interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest dividends, such as
Voyageur Fund, will not be deductible by a shareholder. Indebtedness may be
allocated to shares of the Fund even though not directly traceable to the
purchase of such shares.
The Fund's present policy is to designate exempt-interest dividends at each
daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
An exchange of shares in one fund in the Fund Complex for shares in another
fund pursuant to exercise of the Exchange Privilege is considered to be a sale
of the shares for federal tax purposes that may result in a taxable gain or
loss. If a shareholder incurs a sales charge in acquiring shares and then, after
holding those shares not more than 90 days, exchanges them pursuant to the
Exchange Privilege for shares of another fund in the Fund Complex, the
shareholder may not take into account the initial sales charge (to the extent
that the otherwise applicable sales charge on the later-acquired shares is
reduced) for purposes of determining the shareholder's gain or loss on the
exchange of the first held shares. To the extent that the sales charge is
disregarded upon the exchange of the first shares, however, it may be taken into
account in determining gain or loss on the eventual sale or exchange of the
later-acquired shares.
The Fund will be subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the taxable amount required to be distributed for each
calendar year over the amount actually distributed. In order to avoid this
excise tax, The Fund must declare dividends by the end of the calendar year
representing 98% of the Fund's ordinary income for the calendar year and 98% of
its capital gain net income (both long- and short-term partial gain) for the
12-month period ending on October 31 of such year. For purposes of the excise
tax, any income on which the Fund has paid corporate-level tax is considered to
have been distributed. The Fund intends to make sufficient distributions each
year to avoid the payment of the excise tax.
Under a special provision of the Revenue Reconciliation Act of 1993, all or
a portion of the gain that the Fund realizes on the sale of a Tax-Exempt
Obligation that it purchased at a market discount may have to be treated as
ordinary income rather than capital gain.
For shareholders who are recipients of Social Security benefits, exempt
interest dividends are includable in computing "modified adjusted gross income"
for purposes of determining the amount of Social Security benefits, if any, that
is required to be included in gross income. The maximum amount of Social
Security benefits that may be included in gross income is 85%.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's
regular income tax liability (with certain adjustments). Exempt-interest
dividends attributable to interest income on certain tax-exempt obligations
issued after August 7, 1986 to finance private activities are treated as an item
of tax preference that is included in alternative minimum taxable income for
purposes of computing the federal AMT for all taxpayers and the federal
environmental tax on corporations. In addition, all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be included
in adjusted current earnings for purposes of determining the federal corporate
AMT and the environmental tax imposed on corporations by Section 59A of the
Code. Liability for AMT will depend on each shareholder's individual tax
situation.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
bonds held by the Fund. Voyageur Fund will avoid investment in bonds which, in
the opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a bond in the Fund's portfolio lost its exempt status,
the Fund would make every effort to dispose of such investment on terms that are
not detrimental to the Fund.
The Code forbids a regulated investment company from earning 30% or more of
its gross income from the sale or other disposition of securities held less than
three months. This restriction may limit the extent to which the Fund may
purchase options. To the extent the Fund engages in short-term trading and
enters into options transactions, the likelihood of violating this 30%
requirement is increased.
Gain or loss on options is taken into account when realized by entering
into a closing transaction or by exercise. In addition, with respect to many
types of 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 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 options will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale under the "marked-to-market, 60/40
system."
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 Voyageur 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 VFD.
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 Prospectus/Proxy Statement by combining
purchases of any class of shares of any one or more of the funds in the Fund
Complex which bear a FESC (and, in certain circumstances, purchases of FESC
shares of certain other open end investment companies) if the combined purchase
of all such funds totals at least $50,000.
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act;
ii) an individual, his or her spouse and their children under 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 funds of the Fund Complex which has a
FESC held by the investor; and
(iii) the amount previously invested (valued at the time of
investment) in shares of any class of one or more funds of the Fund Complex
which has a FESC owned by another shareholder eligible to participate with
the investor in a "Combined Purchase Privilege" (see above).
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 shown in the Prospectus/Proxy Statement by means of a written Letter of
Intention, which expresses the investor's intention to invest not less than
$50,000 (including certain "credits," as described below) within a period of 13
months in any one or more funds of the Fund Complex 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 $20,000 in shares
which are still held by such persons, it will only be necessary to invest a
total of $30,000 during the 13 months following the first date of purchase of
such shares in order to qualify for the sales charges applicable to investments
of $50,000. The cumulative purchase would have to total at least $50,000 to
qualify for a reduced sales charge for the Fund.
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 received
from VFD or attached to the then current 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 VFM or VFD has engaged to provide
administration or accounting services to Fund omnibus accounts in connection
with the offering of Voyageur Fund as part of such other investment companies'
family of funds. Additionally, the maximum reduction of the applicable 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 tables in the prospectus).
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the net asset value of Voyageur Fund shares is
summarized in Appendix D to the Prospectus/Proxy Statement under "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 3.90% 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 will invest will fluctuate in
value, and therefore, the net asset value per share of the Fund also fluctuates.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for Voyageur Fund may refer to
"yield," "taxable equivalent yield," "average annual total return" and
"cumulative total return." Yield, taxable equivalent yield, average annual total
return and cumulative total return are calculated as follows.
No performance data is provided because the Fund had not commenced
operations as of the date of this Statement of Additional Information.
YIELD
Yield is computed by dividing the net investment income per share deemed
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD = 2[(a-b + 1) -1]
----
cd
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
TAXABLE EQUIVALENT YIELD
Taxable equivalent yield is computed by dividing that portion of the yield
of Voyageur Fund (as computed above) which is tax-exempt by one minus a stated
marginal income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt. The following tables show the yield
that taxable investments would have to earn to equal tax-exempt income earned by
an investment in Voyageur Fund. The tax-exempt yields shown are for illustrative
purposes only and are not indicative of the Fund's yield.
<TABLE>
<CAPTION>
STATE OF NEW YORK
TAX-EXEMPT YIELDS
FEDERAL TAXABLE APPROXIMATE 4.00% 5.00% 6.00% 7.00% 8.00%
INCOME BRACKET COMBINED FEDERAL
JOINT RETURNS SINGLE RETURNS AND STATE TAX RATE TAXABLE EQUIVALENT YIELDS
- ------------------- -------------------- ------------------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$38,000 $0-$22,750 19.25% 4.95% 6.19% 7.43% 8.67% 9.91%
$38,000-$91,850 $22,750-$55,100 33.13% 5.98% 7.48% 8.97% 10.47% 11.96%
$91,850-$140,000 $55,100-$115,000 35.92% 6.24% 7.80% 9.36% 10.92% 12.48%
$140,000-$250,000 $115,000-$250,000 40.56% 6.73% 8.41% 10.09% 11.78% 13.46%
Over $250,000 Over $250,000 43.90% 7.13% 8.91% 10.70% 12.48% 14.26%
</TABLE>
CITY OF NEW YORK
<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
FEDERAL TAXABLE APPROXIMATE 4.00% 5.00% 6.00% 7.00% 8.00%
INCOME BRACKET COMBINED FEDERAL, STATE
JOINT RETURNS SINGLE RETURNS AND LOCAL TAX RATE TAXABLE EQUIVALENT YIELDS
- ------------------- --------------------- ------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0-$40,100 0-$24,000 21.72% 5.11% 6.39% 7.66% 8.94% 10.22%
$40,100-$96,900 $24,000-$58,150 35.36% 6.19% 7.74% 9.28% 10.83% 12.38%
$96,900-$147,700 $58,150-$121,300 38.26% 6.48% 8.10% 9.72% 11.34% 12.96%
$147,700-$263,750 $121,300-$263,750 42.74% 6.99% 8.73% 10.48% 12.22% 13.97%
Over $263,750 Over $263,750 45.96% 7.40% 9.25% 11.10% 12.95% 14.80%
</TABLE>
The tax rates shown above are based on federal and New York tax rates in effect
in 1996. (In the case of New York State and New York City rates, certain
brackets with different tax rates have been combined, and the tax rates
applicable to those brackets have been averaged, in order to simplify the
tables.) The combined tax rates assume that state and local income taxes paid
are deducted in calculating federal taxable income. The tables do not reflect
the federal and state rules for the phase-out of personal exemptions and
deductions. For years after 1996, the federal and New York tax bracket amounts
will be adjusted for inflation. If these scheduled changes take effect, they
will result in slightly different taxable equivalent yields for 1997 and later
years from those shown in the tables.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus/Proxy Statement, and includes all recurring fees, such as
investment advisory and management fees, charged as expenses to all shareholder
accounts.
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
ERV-P
CTR=(----------)100
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus/Proxy Statement, and includes all recurring fees, such as
investment advisory and management fees, charged as expenses to all shareholder
accounts.
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of Voyageur 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 the Fund at net asset value or distributed in cash.
Shares in a Withdrawal Plan account are then redeemed to make each withdrawal
payment. Deferred sales charges may apply to monthly redemptions of Class B and
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 would normally be disadvantageous to the investor because of the FESC
payable on such purchases. For this reason, an investor may not maintain a plan
for the accumulation of Class A shares of the Fund (other than through
reinvestment of distributions) and a Withdrawal Plan at the same time. The cost
of administering Withdrawal Plans is borne by the Fund as an expense of all
shareholders. The Fund or VFD 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. Voyageur Fund makes no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
As of the date of this Statement of Additional Information there were no
public shareholders of Voyageur Fund's shares.
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
Norwest Bank Minnesota, N.A., Sixth Street & Marquette Avenue, Minneapolis,
Minnesota 55479, acts as custodian of Voyageur Fund's assets and portfolio
securities.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402,
serves as counsel for Voyageur Fund.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
serves as independent auditors for Voyageur Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director owes certain fiduciary duties to
Voyageur Mutual Funds and to its shareholders. Minnesota law provides that a
director "shall discharge the duties of the position of director in good faith,
in a manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care". Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of directors
(i) for any breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
law, or (iv) for any transaction from which the directors derived an improper
personal benefit. The Articles of Incorporation of Voyageur Mutual Funds limits
the liability of the directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as provided
in the 1940 Act (which Act prohibits any provisions which purport to limit the
liability of directors arising from such directors' willful misfeasance, 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
Voyageur Mutual Funds is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Regular and special
shareholder meetings are held only at such times and with such frequency as
required by law. Minnesota corporation law provides for the Board of Directors
to convene shareholder meetings when it deems appropriate. In addition, if a
regular meeting of shareholders has not been held during the immediately
preceding fifteen months, a shareholder or shareholders holding three percent or
more of the voting shares of the Fund may demand a regular meeting of
shareholders of the Fund by written notice of demand given to the chief
executive officer or the chief financial officer of the Fund. Within ninety days
after receipt of the demand, a regular meeting of shareholders must be held at
the expense of the Fund. Additionally, the 1940 Act requires shareholder votes
for all amendments to fundamental investment policies and restrictions and for
amendments to investment advisory contracts and certain amendments to Rule 12b-1
distribution plans.
FINANCIAL STATEMENTS
The financial statements of Fortis Fund included as part of the Annual
Report of Fortis Tax-Free for the fiscal year ended September 30, 1995, and the
unaudited Semi-Annual Report of Fortis Tax-Free for the six-month period ended
March 31, 1996, are incorporated herein by reference. No financial statements
are included for Voyageur Fund because the Fund will not be in operation prior
to the Reorganization. Accordingly, no pro forma financial information showing
the impact of the Reorganization is presented.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Description of Standard and Poor's Ratings Services ("S&P") and Moody's
Investors Service, Inc. ("Moody's") ratings:
S&P'S RATINGS FOR MUNICIPAL BONDS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an object with respect to a specific obligation. S&P's
letter ratings may be modified by the addition of a plus or minus sign, which is
used to show relative standing within the major rating categories, except in the
AAA (Prime Grade) category.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
AAA is the highest rating assigned by S&P. An issuer's capacity to pay
interest and repay the principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB and B
Debt rated BB and B (as well as debt rated CCC, C and C) is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation within this category, B represents a somewhat
higher degree of speculation and C represents the highest degree of speculation
of these ratings.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal repayments.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
S&P RATINGS FOR MUNICIPAL NOTES
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. A short-term rating designated VMIG, may also be assigned an issue having
a demand feature. The municipal obligations bearing the designation MIG 1/VMIG 1
are of the best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. The municipal obligations bearing the designation are
ample although not so large as in the preceding group.
Description of S&P A-1+
and
A-1 Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must possess overwhelming safety
characteristics regarding timely payment. Commercial paper rated A-1 must have a
degree of safety that is either overwhelming or very strong.
Description of
Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation and well established access
to a range of financial markets and assured sources of alternate liquidity.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF OPTIONS AND FUTURES
GENERAL. As described in the Prospectus/Proxy Statement under "Investment
Objectives and Policies--Options and Futures," Voyageur Fund may purchase and
sell options on the securities in which it may invest and may purchase and sell
options on futures contracts (as defined below) and may purchase and sell
futures contracts. The Fund intends to engage in such transactions if it appears
advantageous to VFM to do so in order to pursue Voyageur Fund's investment
objectives, to seek to hedge against the effects of market conditions and to
seek to stabilize the value of its assets. Voyageur Fund will engage in hedging
and risk management transactions from time to time in VFM's discretion, and may
not necessarily be engaging in such transactions when movements in interest
rates that could affect the value of the assets of the Fund occur.
Conditions in the securities, futures and options markets will determine
whether and in what circumstances Voyageur Fund will employ any of the
techniques or strategies described below. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the Commodity
Futures Trading Commission (the "CFTC") and the federal tax requirements
applicable to regulated investment companies. Transactions in options and
futures contracts may give rise to income that is subject to regular federal
income tax and, accordingly, in normal circumstances Voyageur Fund do not intend
to engage in such practices to a significant extent.
The use of futures and options, and the possible benefits and attendant
risks, are discussed below.
FUTURES CONTRACTS AND RELATED OPTIONS. Voyageur Fund may enter into
contracts for the purchase or sale for future delivery (a "futures contract") of
fixed-income securities or contracts based on financial indices including any
index of securities in which the Fund may invest. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the securities, or
the cash value of an index, called for by the contract at a specified price
during a specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities, or cash value
of an index, at a specified price during a specified delivery period. The Fund
may also purchase and sell (write) call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during, or at the termination of, the
period specified in the terms of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. The
Fund would be required to deposit with its custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. The Fund's
ability to establish and close out positions in futures contracts and options on
futures contracts will be subject to the liquidity of the market. Although the
Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance
that a liquid market on an exchange will exist for any particular futures
contract or option thereon at any particular time. Where it is not possible to
effect a closing transaction in a contract or to do so at a satisfactory price,
the Fund would have to make or take delivery under the futures contract, or, in
the case of a purchased option, exercise the option. The Fund will incur
brokerage fees when it purchases or sells futures contracts.
At the time a futures contract is purchased or sold, Voyageur Fund must
deposit in a custodial account cash or securities as a good faith deposit
payment (known as "initial margin"). It is expected that the initial margin on
futures contracts the Fund may purchase or sell may range from approximately 3%
to approximately 15% of the value of the securities (or the securities index)
underlying the contract. In certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily in a process known as "marking to market." If the
market value of the futures contract has changed, the Fund will be required to
make or will be entitled to receive a payment in cash or specified high quality
debt securities in an amount equal to any decline or increase in the value of
the futures contract. These additional deposits or credits are calculated and
required on a daily basis and are known as "variation margin."
There may be an imperfect correlation between movements in prices of the
futures contract Voyageur Fund purchases or sells and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by Voyageur Fund in a
hedging transaction, even if Voyageur correctly forecasts market trends the
Fund's hedging strategy may not be successful.]If this should occur, the Fund
could lose money on the futures contracts and also on the value of its portfolio
securities.
Although Voyageur Fund believes that the use of futures contracts and
options thereon will benefit it, if VFM's judgment about the general direction
of securities prices or interest rates is incorrect, the Fund's overall
performance may be poorer than if it had not entered into futures contracts or
purchased or sold options thereon. For example, if the Fund seeks to hedge
against the possibility of an increase in interest rates, which generally would
adversely affect the price of fixed-income securities held in its portfolio, and
interest rates decrease instead, the Fund will lose part or all of the benefit
of the increased value of its assets which it has hedged due to the decrease in
interest rates because it will have offsetting losses in its futures positions.
In addition, particularly in such situations, the Fund may have to sell assets
from its portfolio to meet daily margin requirements at a time when it may be
disadvantageous to do so.
OPTIONS ON SECURITIES. Voyageur Fund may purchase and sell (write) options
on securities, which options may be either exchange-listed or over-the-counter
options. The Fund may write call options only if the call option is "covered." A
call option written by the Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. Voyageur Fund may write put
options only if the put option is "secured." A put option written by the Fund is
secured if the Fund, which is obligated as a writer of a put option, invests an
amount, not less than the exercise price of a put option, in eligible
securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Voyageur Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
Voyageur Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
The Fund may purchase and sell options that are exchange-traded or that are
traded over-the- counter ("OTC options"). Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when the Fund
purchases OTC options, it must rely on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Although Voyageur Fund will enter into OTC options only with dealers that
agree to enter into, and which are expected to be capable of entering into,
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction in a
covered OTC call option the Fund has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or different
cover is substituted. This may impair the Fund's ability to sell a portfolio
security at a time when such a sale might be advantageous. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
SEC releases and staff positions, when entering into futures contracts or
certain option transactions, such as writing a put option, Voyageur Fund will
maintain, in a segregated account, cash or liquid high-grade securities equal to
the value of such contracts. Compliance with such segregation requirements may
restrict Voyageur Fund's ability to invest in intermediate- and long-term
Tax-Exempt Obligations.
Voyageur Fund intends to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that futures and options
positions be used (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. Voyageur Fund currently does not
intend to engage in transactions in futures contracts or options thereon for
speculation.
ACCOUNTING CONSIDERATIONS. When Voyageur Fund writes an option, an amount
equal to the premium received by it is included in the Fund's Statement of
Assets and Liabilities as a liability. The amount of the liability subsequently
is marked to market to reflect the current market value of the option written.
When the Fund purchases an option, the premium paid by the Fund is recorded as
an asset and subsequently is adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the Fund,
an amount equal to the initial margin deposit is recorded as an asset. The
amount of the asset subsequently is adjusted to reflected changes in the amount
of the deposit as well as changes in the value of the contract.
FORTIS TAX-FREE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1996
This Statement of Additional Information is NOT a prospectus, but should be
read in conjunction with the Fortis Tax-Free Portfolios, Inc. (the "Fund")
(prior to January 31, 1992, known as AMEV Tax-Free Fund, Inc.) Prospectus dated
February 1, 1996. A copy of that prospectus may be obtained from your
broker-dealer or sales representative. The address of Fortis Investors, Inc.
("Investors") is P.O. Box 64284, St. Paul, Minnesota 55164. Telephone: (612)
738-4000. Toll Free 1-(800) 800-2638.
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Statement of Additional Information, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or Investors. This Statement of Additional Information does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
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ORGANIZATION AND CLASSIFICATION............................................................................................30
INVESTMENT OBJECTIVES AND POLICIES.........................................................................................30
* Investment Objectives................................................................................................30
* Investment Restrictions..............................................................................................30
* Portfolio Turnover ..................................................................................................32
* Variable Amount Master Demand Notes..................................................................................32
* Illiquid Securities................................................................................................32
* Risks of Transactions in High-Yielding Securities..................................................................33
* Special Considerations Relating to Minnesota Tax Exempt Bonds......................................................34
* Special Considerations Relating to New York Tax Exempt Bonds.......................................................35
DIRECTORS AND EXECUTIVE OFFICERS...........................................................................................44
INVESTMENT ADVISORY AND OTHER SERVICES.....................................................................................48
* General............................................................................................................48
* Control and Management of Advisers and Investors...................................................................49
* Investment Advisory and Management Agreement.......................................................................50
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE.........................................................................52
CAPITAL STOCK..............................................................................................................53
COMPUTATION OF NET ASSET VALUE AND PRICING.................................................................................55
SPECIAL PURCHASE PLANS.....................................................................................................57
* Statement of Intention.............................................................................................57
* Gifts or Transfers to Minor Children...............................................................................57
* Systematic Investment Plan.........................................................................................57
* Exchange Privilege.................................................................................................58
* Reinvested Dividend/Capital Gains Distributions between Fortis Funds...............................................58
* Purchases by Fortis, Inc. (or its Subsidiaries) or Associated Persons..............................................58
* Purchases by Fund Directors or Officers............................................................................58
* Purchases by Representatives or Employees of Broker-Dealers........................................................59
* Purchases by Registered Investment Companies.......................................................................59
* Purchases with Proceeds from Redemption of Unrelated Mutual Fund Shares or Surrender of Certain
Fixed Annuity Contracts............................................................................................59
* Purchases by Employees of Certain Banks and Other Financial Services Firms.........................................59
* Purchases by Investment Advisers, Trust Companies, and Bank Trust Departments Exercising
Discretionary Investment Authority or Using a Money Management Mutual Fund "Wrap" Program..........................59
* Purchases by Certain Pathfinder Fund Accounts......................................................................59
REDEMPTION.................................................................................................................59
* Systematic Withdrawal Plan.........................................................................................60
* Reinvestment Privilege.............................................................................................60
TAXATION...................................................................................................................61
UNDERWRITER................................................................................................................62
PLAN OF DISTRIBUTION.......................................................................................................63
PERFORMANCE................................................................................................................63
TAX-EXEMPT VERSUS TAXABLE INCOME...........................................................................................67
FINANCIAL STATEMENTS.......................................................................................................72
CUSTODIAN; COUNSEL; ACCOUNTANTS............................................................................................72
LIMITATION OF DIRECTOR LIABILITY...........................................................................................72
ADDITIONAL INFORMATION.....................................................................................................72
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ORGANIZATION AND CLASSIFICATION
An investment company is an arrangement by which a number of persons invest
in a company that in turn invests in securities of other companies. The Fund
operates as an "open-end" investment company because it generally must redeem an
investor's shares upon request. The National and Minnesota Portfolios operate as
"diversified" investment companies because they offer investors an opportunity
to minimize the risk inherent in all investments in securities by spreading
their investment over a number of issuers. However, diversification cannot
eliminate such risks. The New York Portfolio operates as a "nondiversified"
investment company.
INVESTMENT OBJECTIVES AND POLICIES
The National and Minnesota Portfolios will operate as "diversified"
investment companies as defined under the Investment Company Act of 1940 (the
"1940 Act"), which means that they each must meet the following requirements:
At least 75% of the value of its total assets will 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 the total assets of the Portfolio and to
not more than 10% of the outstanding voting securities of such
issuer.
INVESTMENT OBJECTIVES
The Fund currently is comprised of three separate investment portfolios,
each with its own investment goals, policies, and investment restrictions. The
investment objective of the National Portfolio is to seek as high a level of
current income exempt from federal income tax as is believed to be consistent
with the preservation of capital. The National Portfolio will invest primarily
in securities of states, territories, and possessions of the United States and
the District of Columbia, and their political subdivisions, agencies, and
instrumentalities. The investment objective of the Minnesota Portfolio is to
seek as high a level of current income exempt from both federal and Minnesota
income tax as is believed to be consistent with the preservation of capital. The
Minnesota Portfolio will invest primarily in securities which are issued by the
State of Minnesota, its agencies, instrumentalities, and political subdivisions.
The investment objective of the New York Portfolio is to seek as high a level of
current income exempt from federal, New York State, and New York City income tax
as is believed to be consistent with the preservation of capital. The New York
Portfolio will invest primarily in securities which are issued by the State of
New York, its agencies, instrumentalities, and political subdivisions.
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies. They
may be changed only by the vote of a "majority" of the outstanding voting
securities of each Portfolio, which as used in this Statement of Additional
Information means the lesser of: (i) 67% or more of the shares present at a
shareholders' meeting if more than 50% of the Portfolio's outstanding shares are
represented at the meeting in person or by proxy or (ii) more than 50% of the
outstanding shares of the Portfolio.
None of the Portfolios may:
(1) Buy or hold any commodity or commodity future contracts, or any oil,
gas or mineral exploration or development program.
(2) Invest directly in real estate or interests in real estate; however,
the Portfolios may invest in interests in debt securities secured by real estate
or interests therein, or debt securities issued by companies which invest in
real estate or interests therein.
(3) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under applicable laws.
(4) Purchase securities on margin or otherwise borrow money or issue senior
securities, except that the Portfolio, in accordance with its investment
objectives and policies, may purchase securities on a when-issued, delayed
delivery, or forward commitment basis (including the entering into of "roll"
transactions). The Portfolio may also obtain such short-term credit as it needs
for the clearance of securities transactions, and may borrow from a bank as a
temporary measure to facilitate redemptions (but not for leveraging or
investment) in an amount that does not exceed 10% of the value of the
Portfolio's total assets. Investment securities will not be purchased while
outstanding bank borrowings (including "roll" transactions) exceed 5% of the
value of the Portfolio's total assets.
(5) Make loans to other persons, except that it may lend its portfolio
securities in an amount not to exceed 331/3% of the value of its total assets
(including the amount lent) if such loans are secured by collateral at least
equal to the market value of the securities lent, provided that such collateral
shall be limited to cash, securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, certificates of deposit or other
high-grade, short-term obligations or interest-bearing cash equivalents. Loans
shall not be deemed to include repurchase agreements or the purchase or
acquisition of a portion of an issue of notes, bonds, debentures, or other debt
securities, whether or not such purchase or acquisition is made upon the
original issuance of the securities. ("Total assets" of a Portfolio includes the
amount lent as well as the collateral securing such loans.)
The following investment restriction may be changed by the Board of
Directors of the Fund (the "Board of Directors") without shareholder approval.
The Portfolios will not:
(1) Invest more than 5% of its net assets in securities of other investment
companies, except in connection with a merger, consolidation, acquisition or
reorganization. (Although the Portfolio indirectly absorbs its pro rata share of
the other investment companies' expenses through the yield received on these
securities, management believes the yield and liquidity features of these
securities to, at times, be more beneficial to the Portfolio than other types of
short-term securities and that the indirect absorption of these expenses has a
de minimus effect on the Portfolio's return.)
(2) Write, purchase, or sell put or call options.
(3) Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations. Securities that have been determined to be
liquid by the Board of Directors of the Fund or Advisers subject to the
oversight of such Board of Directors will not be subject to this limitation.
(4) Make short sales, except for sales "against the box."
(5) Mortgage, pledge, or hypothecate its assets, except to the extent
necessary to secure permitted borrowings.
(6) Invest in real estate investment trusts.
(7) Invest more than 5% of its net assets, valued at the lower of cost or
market, in warrants; nor, within such amount, invest more than 2% of such net
assets in warrants not listed on the New York Stock Exchange or American Stock
Exchange. Warrants attached to securities or acquired in units are excepted from
the above limitations.
(8) Invest in real estate limited partnerships or in oil, gas, and other
mineral leases.
(9) Buy securities of any issuer for the purpose of exercising control or
management.
Any investment policy or restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.
PORTFOLIO TURNOVER
Portfolio turnover, as described in the Prospectus, is the ratio of the
lesser of annual purchases or sales of portfolio securities to average monthly
portfolio value, not including short-term securities. A 100% portfolio turnover
rate would occur, for example, if all of the Fund's portfolio securities were
replaced within one year.
The Portfolios' portfolio turnover rates for the fiscal year ended
September 30, 1995 and the three-month fiscal period ended September 30, 1994,
respectively, were as follows: National Portfolio-35% and 17%; Minnesota
Portfolio-27% and 8%; and New York Portfolio-10% and 0%.
VARIABLE AMOUNT MASTER DEMAND NOTES
The Fund may invest in variable amount master demand notes. These
instruments are short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs. They allow the investment of fluctuating
amounts by the Fund at varying market rates of interest pursuant to arrangements
between the Fund, as lender, and the borrower. Variable amount master demand
notes permit a series of short-term borrowings under a single note. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. Such notes provide that the interest rate on the
amount outstanding varies on a daily basis depending upon a stated short-term
interest rate barometer. Advisers will monitor the creditworthiness of the
borrower throughout the term of the variable master demand note. It is not
generally contemplated that such instruments will be traded and there is no
secondary market for the notes. Typically, agreements relating to such notes
provide that the lender shall not sell or otherwise transfer the note without
the borrower's consent. Thus, variable amount master demand notes may under
certain circumstances be deemed illiquid assets. However, such notes will not be
considered illiquid where the Fund has a "same day withdrawal option," I.E.,
where it has the unconditional right to demand and receive payment in full of
the principal amount then outstanding together with interest to the date of
payment.
ILLIQUID SECURITIES
Each of the Portfolios may invest in illiquid securities, including
"restricted" securities. (A restricted security is one which was originally sold
in a private placement and was not registered with the Securities and Exchange
Commission (the "Commission" or the "SEC") under the Securities Act of 1933 (the
"1933 Act") and which is not free to be resold unless it is registered with the
Commission or its sale is exempt from registration.) However, no Portfolio will
invest more than 15% of the value of its net assets in illiquid securities, as
determined pursuant to applicable Commission rules and interpretations.
The staff of the SEC has taken the position that the liquidity of
securities in the portfolio of a fund offering redeemable securities is a
question of fact for a board of directors of such a fund to determine, based
upon a consideration by such board of the readily available trading markets and
a review of any contractual restrictions. The SEC staff also acknowledges that,
while such a board retains ultimate responsibility, it may delegate this
function to the fund's investment adviser.
The Board of Directors of the Fund has adopted procedures to determine
liquidity of certain securities, including commercial paper issued pursuant to
the private placement exemption of Section 4(2) of the 1933 Act and securities
that are eligible for resale to qualified institutional buyers pursuant to Rule
144A under the 1933 Act. Under these procedures, factors taken into account in
determining the liquidity of a security include (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 (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). Section 4(2) commercial paper or a Rule 144A security that when
purchased enjoyed a fair degree of marketability may subsequently become
illiquid, thereby adversely affecting the liquidity of the Portfolio.
Illiquid securities may offer a higher yield than securities that are more
readily marketable. The sale of illiquid securities, however, often requires
more time and results in higher brokerage charges or dealer discounts or other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. A Portfolio
may also be restricted in its ability to sell such securities at a time when it
is advisable to do so. Restricted securities often sell at a price lower than
similar securities that are not subject to restrictions on resale.
RISKS OF TRANSACTIONS IN HIGH-YIELDING SECURITIES
While at least 90% of each Portfolio will be of "investment grade" quality,
up to 10% may be invested in non-investment grade securities (securities rated
below BBB). Participation in lower rated securities transactions generally
involves greater returns in the form of higher average yields. However,
participation in such transactions involves greater risks, often related to
sensitivity to interest rates, economic changes, solvency, and relative
liquidity in the secondary trading market.
The high yielding, high risk securities market is still relatively new and
its recent growth paralleled a long period of economic expansion and an increase
in merger, acquisition, and leveraged buyout activity. Such securities are
especially subject to adverse changes in general economic conditions, to changes
in the financial condition of their issuers, and to price fluctuation in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, issuers of such securities may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. While the Portfolios do
not generally directly invest in corporate obligations, the credit quality of
certain types of industrial development bonds is at least in part a function of
the credit quality of the underlying corporate obligation.
Yields on high yield, high risk securities will fluctuate over time. The
prices of such securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual corporate developments. Also, during an economic downturn
or substantial period of rising interest rates highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by a Portfolio defaulted, such Portfolio may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of such securities
and such Portfolio's asset value. Furthermore, in the case of such securities
structured as zero coupon securities, their market prices are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than securities which pay interest periodically and in cash.
High-yielding, high risk securities present risks based on payment
expectations. For example, such securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Portfolios would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a
high-yielding, high risk security's value will decrease in a rising interest
rate market, as will the value of such Portfolio's assets. If the Portfolios
experience unexpected net redemptions, this may force them to sell such
securities, without regard to their investment merits, thereby decreasing the
asset base upon which the Portfolios' expenses can be spread and possibly
reducing the rate of return.
To the extent that there is no established secondary market, there may be
thin trading of high-yielding, high risk securities. This may adversely affect
the ability of the Fund's Board of Directors to accurately value such securities
and the Portfolio's assets, and the Portfolios' ability to dispose of the
securities. Securities valuation becomes more difficult and judgment plays a
greater role in valuation because there is less reliable, objective data
available. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of such securities,
especially in a thinly traded market. Illiquid or restricted high-yielding, high
risk securities purchased by the Portfolios may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.
Certain risks are associated with applying credit ratings as a method for
evaluating high-yielding, high risk securities. For example, credit ratings
evaluate the safety of principal and interest payments, not market value risk of
such securities. Since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, Advisers continuously monitors the
issuers of such securities held by the Portfolios to determine if the issuers
will have sufficient cash flow and profits to meet required principal and
interest payments, and to assure the securities' liquidity so the Portfolios can
meet redemption requests. The achievement of the investment objective of the
Portfolios may be more dependent upon Advisers' own credit analysis than is the
case for higher quality bonds. Also, the Portfolios may retain a portfolio
security whose rating has been changed if the security otherwise meets the
Portfolio's investment objective and investment criteria.
SPECIAL CONSIDERATIONS RELATING TO MINNESOTA TAX EXEMPT BONDS
Minnesota's constitutionally prescribed fiscal period is a biennium, and
the state operates on a biennial budget basis. Legislative appropriations for
each biennium are prepared and adopted during the final legislative session of
the immediately preceding biennium. Prior to each fiscal year of a biennium, the
state's Department of Finance allots a portion of the applicable biennial
appropriation to each agency or other entity for which an appropriation has been
made. An agency or other entity may not expend monies in excess of its
allotment. If revenues are insufficient to balance total available resources and
expenditures, the state's Commissioner of Finance, with the approval of the
Governor, is required to reduce allotments to the extent necessary to balance
expenditures and forecast available resources for the then current biennium. The
Governor may prefer legislative action when a large reduction in expenditures
appears necessary, and if the state's legislature is not in session the Governor
is empowered to convene a special session.
Frequently in recent years, legislation has been required to eliminate
projected budget deficits by raising additional revenue, reducing expenditures,
including aids to political subdivisions and higher education, reducing the
State's budget reserve, imposing a sales tax on purchases by local governmental
units, and making other budgetary adjustments. The Minnesota Department of
Finance November 1995 Forecast has projected that, under current laws, the State
will complete its current biennium June 30, 1997 with a $15 million surplus,
plus a $350 million cash flow account balance, plus a $220 million budget
reserve. Total General Fund expenditures and transfers for the biennium are
projected to be $18.7 billion. State expenditures for education finance (K- 12),
post-secondary education, and human services in the biennium ending June 30,
1997 are not anticipated to be sufficient to maintain program levels of the
previous biennium. Although it is not possible to anticipate economic
performance four years into the future, planning estimates (extrapolations) for
the biennium ending June 30, 1999 show a General Fund deficit of $28 million,
after funding a $350 million cash flow account plus a $220 million budget
reserve, if current law is not changed. Accordingly, there may be additional
revenue increases or spending cuts relative to current law. The State is party
to a variety of civil actions that could adversely affect the State's General
Fund. In addition, substantial portions of State and local revenues are derived
from federal expenditures, and reductions in federal aid to the State and its
political subdivisions and other federal spending cuts may have substantial
adverse effects on the economic and fiscal condition of the State and its local
governmental units. The November 1995 Forecast states that pending federal
legislation could reduce federal aid to Minnesota's state and local governments
by a total of $3.2 billion over seven years. Risks are inherent in making
revenue and expenditure forecasts. Economic or fiscal conditions less favorable
than those reflected in State budget forecasts and planning estimates may create
additional budgetary pressures.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficulties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota municipal obligations that are held by the Fund or the value or
marketability of such obligations.
Minnesota relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system unusually
sensitive to economic conditions. In 1993, the structure of the State's economy
closely paralleled the structure of the United States economy as a whole. State
employment in ten major sectors was distributed in approximately the same
proportions as national employment.
During the period from 1980 to 1990, overall employment growth in Minnesota
lagged behind national growth; total employment increased 17.9% in Minnesota
while increasing 20.1% nationally. Most of Minnesota's relatively slower growth
during this period is associated with declining agricultural employment and with
the two recessions in the United States economy occurring in the early 1980s,
which were more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with that of the nation after the end of
the 1981-82 recession. Employment data through 1994 indicate that the recession
that began in July 1990 was less severe in Minnesota than in the national
economy. During 1993, 1994, and the first five months of 1995, the State's
unemployment rate was generally less than the national unemployment rate,
averaging 5.1% in 1993 as compared to the national average of 7.4%, 4.0% in 1994
as compared to the national average of 6.1%, and 3.9% for the first five months
of 1995 as compared to the national average of 5.8%.
Since 1980, Minnesota per capita personal income has been within three
percentage points of national per capita personal income. Minnesota per capita
income has generally remained above the national average during this period in
spite of the early 1980s recessions and some difficult years in agriculture. In
1994, Minnesota per capita income was 103.0% of the national average. During
1993-4, personal income in Minnesota grew more rapidly than the United States
average, with a growth of 8.04% in Minnesota as compared to a United States
average of 5.89%. Between 1990 and 1994, Minnesota non-agricultural employment
increased 8.5%, compared to a national average of 4.2%.
Between 1983 and 1994, increases in retail sales in Minnesota averaged 6.4%
per year, compounded.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK TAX EXEMPT BONDS
As described above, except during temporary defensive periods, the New York
Portfolio will invest at least 80% of its net assets in New York Tax Exempt
Bonds. The New York Portfolio is therefore susceptible to political, economic or
regulatory factors affecting New York State and governmental bodies within New
York State. Some of the more significant events and conditions relating to the
financial situation in New York are summarized below. The following information
provides only a brief summary of the complex factors affecting the financial
situation in New York, is derived from sources that are generally available to
investors and is believed to be accurate. It is based on information drawn from
the Annual Information Statement of the State of New York dated June 23, 1995
and updates thereto issued on July 28, 1995 and October 26, 1995, and from other
official statements and prospectuses issued by, and other information reported
by, the State of New York (the "State"), by its various public bodies (the
"Agencies"), and other entities located within the State, including the City of
New York (the "City"), in connection with the issuance of their respective
securities.
(1) THE STATE: New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse,
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. Travel and tourism constitute an
important part of New York's economy. Relative to the nation, the State has a
smaller share of manufacturing and construction and a larger share of service-
related industries. The State is likely to be less affected than the nation as a
whole during an economic recession that is concentrated in manufacturing and
construction, but likely to be more affected during a recession that is
concentrated more in the service-producing sector.
The State historically has been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
During the calendar years 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation. In the 1990-91 recession,
the economy of the State, and that of the rest of the Northeast, was more
heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State dipped below the
national rate in the second half of 1981 and remained lower until 1991; since
then, it has been higher.
The State has the second highest combined state and local tax burden in the
United States. The burden of state and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State. The State's 1995-96 budget reflects significant actions to
reduce the burden of State taxation, including adoption of a 3-year, 20 percent
reduction in the State's personal income tax.
The State Financial Plan is based on a projection by State's Division of
the Budget ("DOB") of national and State economic activity. The national economy
began the current expansion in 1991 and has added over 7 million jobs since
early 1992. However, the recession lasted longer in the State and the State's
economic recovery has lagged behind the nation's. Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer
and instrument manufacturing, utility, defense, and banking industries. New
York's economic forecast calls for employment growth to slow significantly in
1996 as the pace of national economic growth slackens, entire industries
experience consolidations, and governmental employment continues to shrink.
Personal income is expected to increase more moderately in 1996 than in 1995.
1995-96 FISCAL YEAR. The State's current fiscal year commenced on April 1,
1995, and ends on March 31, 1996 (the "1995-96 fiscal year"). The State's budget
for the 1995-96 fiscal year was enacted by the Legislature on June 7, 1995, more
than two months after the start of the fiscal year. Prior to adoption of the
budget, the Legislature enacted appropriations for disbursements considered to
be necessary for State operations and other purposes, including all necessary
appropriations for debt service. The State Financial Plan for the 1995-96 fiscal
year was formulated on June 20, 1995 and is based on the State's budget as
enacted by the legislature and signed into law by the Governor.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the State Financial Plan, based on then-current law governing spending and
revenues, would be out of balance by almost $4.7 billion. The Governor proposed
additional tax cuts, which were larger than those ultimately adopted, and which
added $240 million to the then projected imbalance or budget gap, bringing the
total to approximately $5 billion. This gap is projected to be closed in the
1995-96 State Financial Plan based on the enacted budget, through a series of
actions, mainly spending reductions and cost containment measures and certain
reestimates that are expected to be recurring, but also through the use of
one-time solutions.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds are projected
to be $33.110 billion, a decrease of $48 million from total receipts in the
prior fiscal year. Total General Fund disbursements and transfers to other funds
are projected to be $33.055 billion, a decrease of $344 million from the total
amount disbursed in the prior fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. As noted, the 1995-96 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
The 1995-96 State Financial Plan includes actions that will have an effect
on the budget outlook for State fiscal year 1996-97 and beyond. The DOB
estimates that the 1995-96 State Financial Plan contains actions that provide
nonrecurring resources or savings totalling approximately $900 million. The
Comptroller believes that the amount of nonrecurring resources or savings
exceeds $1.0 billion. The DOB also estimates that the 1995-96 State Financial
Plan contains nonrecurring expenditures totalling nearly $250 million. The net
amount of nonrecurring resources used in the 1995-96 State Financial Plan,
accordingly, is estimated by the DOB at over $600 million.
In addition to this use of nonrecurring resources, the 1995-96 State
Financial Plan reflects actions that will directly affect the State's 1996-97
fiscal year baseline receipts and disbursements. The three-year plan to reduce
State personal income taxes will decrease State tax receipts by an estimated
$1.7 billion in State fiscal year 1996-97, in addition to the amount of
reduction in State fiscal year 1995-96. Further significant reductions in the
personal income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements in
the State's 1995-96 fiscal year are expected to provide greater reductions in
State fiscal year 1996-97.
The net impact of these and other factors is expected to produce a
potential imbalance in receipts and disbursements in State fiscal year 1996-97.
The Governor has indicated that in the 1996-97 Executive Budget he will propose
to close this potential imbalance primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. On October 2, 1995, the State Comptroller released a report entitled
"Comptroller's Report on the Financial Conditions of New York State 1995" in
which he identified several risks to the State Financial Plan and reaffirmed his
estimate that the State faces a potential imbalance in receipts and
disbursements of at least $2.7 billion for the State's 1996-97 fiscal year and
at least $3.9 billion for the State's 1997-98 fiscal year.
To address a potential imbalance in any given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution, the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursement in future fiscal years. There can
be no assurance, however that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and disbursements
in future fiscal years.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the state. For example, a significant risk to the
1995-96 State Financial Plan arises from tax legislation pending in Congress.
Changes to Federal tax treatment of capital gains are likely to flow through
automatically to the State personal income tax. Such changes, depending upon
their precise character and timing, and upon taxpayer response, could produce
either revenue gains or losses during the balance of the State's fiscal year.
Uncertainties with respect to both the economy and potential decisions at the
Federal level add further pressure on future budget balance in New York State.
Specific budget proposals being discussed at the Federal level but not included
in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states. Because of the uncertainty and
unpredictability of these potential changes, their impact is not included in the
assumptions underlying the State's projections.
The 1995-96 State Financial Plan is based upon forecasts by the DOB of
national and State economic activity. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurances that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the Federal government, and changes in the demand for and use of State
services. There can be no assurance that the State's projections for tax and
other receipts for the 1995-96 fiscal year are not overstated and will not be
revised downward, or that disbursements will not be in excess of the amounts
projected. Such variances could adversely affect the State's cash flow during
the 1995-96 fiscal year or subsequent fiscal years, as well as the State's
ability to achieve a balanced budget on a cash basis for such fiscal year or
subsequent fiscal years.
The DOB believes that its projections of receipts and disbursements
relating to the current State Financial Plan, and the assumptions on which they
are based, are reasonable. Projections and estimates of receipts from taxes have
been subject to variance in recent fiscal years. The personal income tax, the
sales tax, and the corporation franchise tax have been particularly subject to
overestimation as a result of several factors, most recently the significant
slowdown in the national and regional economies and uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax laws. As a
result of the foregoing uncertainties and other factors, actual results could
differ materially and adversely from the projections discussed herein, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address cash flow needs and State Financial Plan shortfall,
and DOB believes it could take similar action should variances from its
projections occur in the current and/or subsequent fiscal years. Those variances
could, however, affect the State's ability to achieve a balanced budget on a
cash basis for the current and/or subsequent fiscal years.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future years, nor can there be any assurance that budgetary
difficulties will not lead to further adverse consequences for the State and its
obligations.
As a result of changing economic conditions and information, public
statements or reports may be released by the Governor, members of the State
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, as reflected in the 1995-96 State Financial Plan, that may
vary materially and adversely from the information provided herein.
INDEBTEDNESS. As of March 31, 1995, the total amount of long-term State
general obligation debt authorized but unissued stood at $1.789 billion. As of
the same date, the State had approximately $5.181 billion in general obligation
debt, including $149.3 million in bond anticipation notes outstanding.
As of March 31, 1995, $17.980 billion of bonds, issued in connection with
lease-purchase and contractual-obligation financings of State capital programs,
were outstanding. The total amount of outstanding State-supported debt as of
March 31, 1995 was $27.913 billion. As of March 31, 1995, total State-related
debt (which includes the State-supported debt, moral obligation and certain
other financings and State-guaranteed debt) was $36.1 billion.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1995-96 fiscal
year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in certificates of participation
during the State's 1995-96 fiscal year for equipment purchases and $14 million
for capital purposes. The projection of the State regarding its borrowings for
the 1995-96 fiscal year may change if circumstances require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7
billion, and has been authorized to issue its bonds to provide net proceeds of
up to $529 million during the State's 1995-96 fiscal year to redeem notes sold
in June 1995.
RATINGS. As of September 1995, Moody's Investor Service, Inc.'s ("Moody's")
rating of the State's general obligation bonds stood at A, and Standard & Poor's
Ratings Group's ("S&P's") rating stood at A--. Moody's lowered its rating to A
on June 6, 1990, its rating having been A1 since May 27, 1986. S&P lowered its
rating from A to A-- on January 13, 1992. S&P's previous ratings were A from
March 1990 to January 1992, AA-- from August 1987 to March 1990 and A+ from
November 1982 to August 1987.
(2) THE CITY AND THE MUNICIPAL ASSISTANCE CORPORATION ("MAC"): The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In February 1975, the New York State Urban Development Corporation ("UDC"),
which had approximately $1 billion of outstanding debt, defaulted on certain of
its short-term notes. Shortly after the UDC default, the City entered a period
of financial crisis. Both the State Legislature and the United States Congress
enacted legislation in response to this crisis. During 1975, the State
Legislature (i) created MAC to assist with long-term financing for the City's
short-term debt and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the City's budgets and
four-year financial plans (the financial plans also apply to certain
City-related public agencies).
The national economic downturn which began in July 1990 adversely affected
the City economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and the City's economy declined in
those two years. Beginning in 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated and the
City's economy improved, boosted by strong wage gains. However, after noticeable
improvements in the City's economy during calendar year 1994, the City's current
four-year financial plan assumes that economic growth will slow in calendar year
1996, with local employment increasing modestly. During the 1995 fiscal year,
the City experienced substantial shortfalls in payments of non-property tax
revenues from those forecasted.
For each of the 1981 through 1993 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
its recent fiscal years in order to maintain balanced operating results. There
can be no assurance that the City will continue to maintain a balanced budget,
or that it can maintain a balanced budget without additional tax or other
revenue increases or reductions in City services, which could adversely affect
the City economic base.
Pursuant to State law the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The current financial plan
extends through the 1999 fiscal year. The City is required to submit its
financial plans to review bodies, including the Control Board. If the City were
to experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood of the occurrence of an annual operating deficit
of more than $100 million or the loss of access to the public credit markets to
satisfy the City's capital and seasonal financial requirements, the Control
Board would be required by State law to exercise certain powers, including prior
approval of City financial plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. The State's 1995-96
Financial Plan projects a balanced General Fund. If the State experiences
revenue shortfalls or spending increases during its 1995-96 fiscal year or
subsequent years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance that State budgets
in future fiscal years will be adopted by the April 1 statutory deadline and
that there will not be adverse effects on the City's cash flow and additional
City expenditures as a result of such delays.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1996 through 1999 fiscal
years. The City projections set forth in its financial plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in such financial plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability to complete revenue generating transactions, provision of State and
Federal aid and mandate relief, State legislative approval of future State
budgets, levels of education expenditures as may be required by State law,
adoption of future City budgets by the New York City Council, approval by the
Governor or the State Legislature and the cooperation of MAC with respect to
various other actions proposed in such financial plan, and the impact on City
revenues of proposals for Federal and State welfare reform.
Implementation of its financial plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $9.7 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The terms and
success of projected public sales of City general obligation bonds and notes
will be subject to prevailing market conditions, and no assurance can be given
that such sales will be completed. If the City were unable to sell its general
obligation bonds and notes, it would be prevented from meeting its planned
capital and operating expenditures. Future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obligation bonds
or notes.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than those
forecast in the financial plan. In addition, the Control Board staff and others
have questioned whether the City has the capacity to generate sufficient
revenues in the future to provide the level of services included in the
financial plan. It is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.
1995 FISCAL YEAR. On July 21, 1995, the City submitted to the Control Board
a fourth quarter modification to the financial plan for the 1995 fiscal year.
The City projects a balanced budget in accordance with GAAP for the 1995 fiscal
year after taking into account a transfer of $75 million.
1996-99 FINANCIAL PLAN. On July 11, 1995, the City submitted to the Control
Board the 1996-99 Financial Plan, which relates to the City, the Board of
Education and the City University of New York. The 1996-99 Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal year,
which were adopted on June 14, 1995, and sets forth proposed actions by the City
for the 1996 fiscal year to close substantial projected budget gaps resulting
from lower than projected tax receipts and other revenues and greater than
projected expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated with
the City's labor unions, the 1996-99 Financial Plan reflects a strategy to
substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years.
The 1996-99 Financial Plan also sets forth projections for the 1997 through
1999 fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $888 million, $1.5 billion and $1.4 billion for the 1997, 1998
and 1999 fiscal years, respectively, after successful implementation of the $3.1
billion gap-closing program for the 1996 fiscal year. The proposed gap-closing
actions, a substantial number of which are not specified in detail, include
various actions which may be subject to State or Federal approval.
On July 24, 1995, the City Comptroller issued a report on the 1996-99
Financial Plan. The report concluded that the 1996-99 Financial Plan includes
total risks of $749 million to $1.034 billion for the 1996 fiscal year. With
respect to the 1997-99 fiscal years, the report noted that the gap-closing
program in the 1996- 99 Financial Plan does not include information about how
the City will implement the various gap-closing programs, and that the
entitlement cost containment and revenue initiatives will require approval of
the State legislature. The report estimated that the 1996-99 Financial Plan
includes total risks of $2.0 billion to $2.5 billion in the 1997 fiscal year,
$2.8 billion to $3.3 billion in the 1998 fiscal year, and $2.9 billion to $3.4
billion in the 1999 fiscal year.
In early December 1994, the City Comptroller issued a report which noted
that the City is currently seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.75 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be greatly reduced
in future years due to the decline in value of taxable real property. The report
concluded that the debt incurring power of the City would likely be curtailed
substantially in the 1997 and 1998 fiscal years.
On July 21, 1995, the staff of the Control Board issued a report on the
1996-99 Financial Plan which identified risks of $873 million, $2.1 billion,
$2.8 billion and $2.8 billion for the 1996 through 1999 fiscal years,
respectively.
On June 14, 1995, the staff of the Office of the State Deputy Comptroller
for the City of New York ("OSDC") issued a report on the financial plan with
respect to the 1995 fiscal year. The report noted that, during the 1995 fiscal
year, the City faced adverse financial developments totaling over $2 billion
resulting from the inability to initiate approximately 35% of the City's
gap-closing program, as well as newly-identified spending needs and revenue
shortfalls. The report noted that the City relied heavily on one-time actions to
offset adverse developments, using $2 billion in one-time resources in the 1995
fiscal year, or nearly double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the 1996-99
Financial Plan. The report concluded that there remains a budget gap for the
1996 fiscal year of $392 million, largely because the City and its unions have
yet to reach an agreement on how to achieve $160 million in unspecified labor
savings and the remaining $100 million in recurring health insurance savings
from last year's agreement. The report further noted that growth in City
revenues is being constrained by the weak economy in the City, which is likely
to be compounded by the slowing national economy, and that there is a likelihood
of a national recession during the course of the 1996-99 Financial Plan.
Moreover, the report noted that State and Federal budgets are undergoing
tumultuous changes, and that the potential for far-reaching reductions in
intergovernmental assistance is clearly on the horizon, with greater uncertainty
about the impact on City finances and services.
LITIGATION. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts, and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, of the
proceedings and claims are not currently predictable, adverse determinations in
certain such proceedings and claims might have a material adverse effect upon
the City's ability to carry out its financial plan. As of June 30, 1994, the
City estimated its potential future liability in respect of outstanding claims
to be approximately $2.6 billion. The 1996-99 Financial Plan includes provisions
for judgments and claims of $279 million, $236 million, $251 million and $264
million for the 1996 through 1999 fiscal years, respectively.
RATINGS. On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A-- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector." Other
factors identified by S&P in lowering its rating on City bonds included a trend
of using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance financial
plans, optimistic projections of additional Federal and State aid or mandate
relief, a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate the
City general obligations bonds A--. Moody's rating for City general obligation
bonds is Baa1.
On February 11, 1991, Moody's had lowered its rating from A. Previously,
Moody's had raised its rating to A in May 1988, to Baa1 in December 1986, to Baa
in November 1983 and to Ba1 in November 1981. S&P had raised its rating to A--
in November 1987, to BBB+ in July 1985 and to BBB in March 1981.
INDEBTEDNESS. As of June 30, 1995, the City and MAC had, respectively,
$23.258 billion and $4.033 billion of outstanding net long-term indebtedness.
(3) THE STATE AGENCIES: Certain Agencies of the State, including the State
Housing Finance Agency ("HFA") and the UDC, have faced substantial financial
difficulties which could adversely affect the ability of such Agencies to make
payments of interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called "moral
obligation" provisions, which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to appropriate
funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having financial
difficulties to meet their obligations (including HFA and UDC) could result in a
default by one or more of the Agencies. Such default, if it were to occur, would
be likely to have a significant adverse effect on investor confidence in, and
therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal guarantees of City
and MAC obligations and could thus jeopardize the City's long-term financing
plans.
(4) STATE LITIGATION: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal laws.
Included in the State's outstanding litigation are a number of cases challenging
the constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the future.
The State is also engaged in a variety of contract and tort claims wherein
significant monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally taken
from the Indians in violation of various treaties and agreements during the
eighteenth and nineteenth centuries. The claimants seek recovery of
approximately six million acres of land as well as compensatory and punitive
damages.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the 1995-96 fiscal year
or thereafter.
(5) OTHER MUNICIPALITIES: Certain localities in addition to New York City could
have financial problems leading to requests for additional State assistance and
the need to reduce their spending or increase their revenues. The potential
impact on the State of such actions by localities is not included in projections
of State revenues and expenditures in the State's 1995-96 fiscal year
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the Fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1993, the total indebtedness of all localities in
the State other than New York City was approximately $17.7 billion. State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Fifteen localities had outstanding indebtedness for
deficit financing at the close of their fiscal year ending in 1993.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, New York City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State,
including notes or bonds in the Fund, could be adversely affected. Localities
also face anticipated and potential problems resulting from certain pending
litigation, judicial decisions, and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures, and
other economic trends could adversely affect localities and require increasing
State assistance in the future.
For more information on the Portfolio's investment objectives and policies
see the Fund Prospectus, "Investment Objectives and Policies."
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of directors
and executive officers of Fortis Money are given below:
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
FUND "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
<S> <C> <C>
Richard W. Cutting Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
Allen R. Freedman* Director Chairman, President and Chief Executive Officer of Fortis,
One Chase Manhattan Plaza Inc.; a Managing Director of Fortis International, N. V.
New York, New York
Dr. Robert M. Gavin Director President, Macalester College.
1600 Grand Avenue
St. Paul, Minnesota
Benjamin S. Jaffray Director Chairman of the Sheffield Group, Ltd., a financial consulting
4040 IDS Center group.
Minneapolis, Minnesota
Jean L. King Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota
Dean C. Kopperud* President and Chief Executive Officer and a Director of Advisers,
500 Bielenberg Drive Director President and a Director of Investors, and Senior Vice
Woodbury, Minnesota President and a Director of Fortis Benefits Insurance
Company and Time Insurance Company.
Edward M. Mahoney Director Retired; prior to December, 1994, Chairman and Chief
2760 Pheasant Road Executive Officer and a Director of Advisers and Invest-
Excelsior, Minnesota ors, Senior Vice President and a Director of Fortis
Benefits Insurance Company, and Senior Vice President of
Time Insurance Company.
Robb L. Prince Director Retired; prior to June, 1995, Vice President and
5108 Duggan Plaza Treasurer, Jostens, Inc., a producer of products and
Edina, Minnesota services for the youth, education, sports award, and
recognition markets.
Leonard J. Santow Director Principal, Griggs & Santow, lncorporated, economic and
75 Wall Street financial consultants.
21st Floor
New York, New York
Joseph M. Wikler Director Investment consultant and private investor; prior to January,
12520 Davan Drive 1994, Director of Research, Chief Investment Officer,
Silver Spring, Maryland Principal, and a Director, The Rothschild Co., Baltimore,
Maryland. The Rothschild Co. is an investment advisory
firm.
Gary N. Yalen Vice President President and Chief Investment Officer of Advisers (since
One Chase Manhattan Plaza August, 1995) and Fortis Asset Management, a division of
New York, New York Fortis, Inc., New York, NY, and Senior Vice Presdient,
Investments, Fortis, Inc.
Howard G. Hudson Vice President Executive Vice President of Advisers (since August, 1995)
One Chase Manhattan Plaza and Senior Vice President, Fixed Income, Fortis Asset
New York, New York Management; prior to February, 1991, Senior Vice
President, Fairfield Research, New Canaan, CT.
James S. Byrd Vice President Executive Vice President of Advisers and Investors;
5500 Wayzata Boulevard prior to March, 1991, Senior Vice President, Templeton
Golden Valley, Minnesota Investment Counsel, Inc., Fort Lauderdale, Florida.
Stephen M. Poling Vice President Executive Vice President and Director of Advisers and
5500 Wayzata Boulevard Investors.
Golden Valley, Minnesota
Fred Obser Vice President Senior Vice President of Advisers (since August, 1995)
One Chase Manhattan Plaza and Senior Vice President, Equities, Fortis Asset
New York, New York Management
Dennis M. Ott Vice President Senior Vice President of Advisers and Investors.
5500 Wayzata Boulevard
Golden Valley, Minnesota
Nicholas L.M. dePeyster Vice President Vice President of Advisers (since August, 1995) and Vice
One Chase Manhattan Plaza President, Equities, Fortis Asset Management; prior to
New York, New York July, 1991, Research Associate, Smith Barney, Inc.,
New York, NY
Charles J. Dudley
One Chase Manhattan Plaza Vice President Vice President of Advisers and Fortis Asset Management;
New York, New York prior to August 1995, Senior Vice President, Sun America
Asset Management, Los Angeles, CA.
Maroun M. Hayek
One Chase Manhattan Plaza Vice President Vice Presdient of Advisers (since
New York, New York August, 1995) and Vice President,
Fixed Income, Fortis Asset Management.
Robert C. Lindberg Vice President Vice President of Advisers and Investors; prior to July, 1993,
One Chase Manhattan Plaza Vice President, Portfolio Manager, and Chief Securities
New York, New York Trader, COMERICA, Inc., Detroit, Michigan. COMERICA,
Inc. is a bank.
Kevin J. Michels Vice President Vice President of Advisers (since August, 1995) and Vice
One Chase Manhattan Plaza President, Administration, Fortis Asset Management.
New York, New York
Stephen M. Rickert Vice President Vice President of Advisers (since August 1995) and
One Chase Manhattan Plaza Corporate Bond Analyst, Fortis Asset Management; from
New York, New York August, 1993 to April, 1994, Corporate Bond Analyst,
Dillon, Read & Co., Inc., New York, NY; prior to
June, 1992, Corporate Bond Analyst, Western
Asset Management, Los Angeles, CA.
Keith R. Thomson Vice President Vice President of Advisers and Investors.
5500 Wayzata Boulevard
Golden Valley, Minnesota
Christopher J. Woods Vice President Vice President of Advisers (since August 1995) and Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management; prior
New York, New York to November, 1992, Head of Fixed Income, The Police and
Firemen's Disability and Pension Fund of Ohio, Columbus,
OH.
Robert W. Beltz, Jr. Vice President Vice President-Securities Operations of Advisers and
500 Bielenberg Drive Investors; Vice President of Fortis Benefits Insurance
Woodbury, Minnesota Company.
Thomas D. Gualdoni Vice President Vice President of Advisers, Investors, and Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota
Larry A. Medin Vice President Senior Vice President--Sales of Advisers and Investors;
500 Bielenberg Drive from August 1992 to November 1994, Senior Vice President,
Woodbury, Minnesota Western Divisional Officer of Colonial Investment Services,
Inc., Boston, Massachusetts; from June 1991 to August 1992,
Regional Vice President, Western Divisional Officer of Alliance
Capital Management, New York, New York; prior to June 1991, Senior
Vice Presdient, National Sales Director, Met Life State Street
Investment Services, Inc.
Jon H. Nicholson Vice President SeniorVice President--Marketing and Product Development
500 Bielenberg Drive of Fortis Benefits Insurance Company; Senior Vice
Woodbury, Minnesota President of Advisers and Investors; Director of Investors.
David A. Peterson Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota Vice President of Advisers and Investors; prior to
Richard P. Roche Vice President August, 1995, President of Prospecting By Seminars, Inc.
500 Bielenberg Drive Guttenberg, NJ.
Woodbury, Minnesota
Anthony J. Rotondi Vice President Senior Vice President of Advisers; from January, 1993 to
500 Bielenberg Drive August, 1995, Senior Vice President, Operations, Fortis
Woodbury, Minnesota Benefits Insurance Company; prior to January, 1993,
Senior Vice President, Information Technology,
Fortis, Inc.
Rhonda J. Schwartz Vice President Senior Vice President, General Counsel, and Secretary of
500 Bielenberg Drive Advisers and Investors; Senior Vice President and General
Woodbury, Minnesota Counsel, Life and Investment Products, Fortis Benefits
Insurance Company and Vice President
and General Counsel, Life and Investment
Products, Time Insurance Company; prior to January,
1996, Vice President, General Counsel, Fortis,
Inc. (1993-1995); prior to 1993, Attorney,Norris,
McLaughlin & Marcus, Washington, DC.
Michael J. Radmer Secretary Partner, Dorsey & Whitney P.L.L.P., the Fund's General
220 South Sixth Street Counsel.
Minneapolis, Minnesota
Tamara L. Fagely Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota
</TABLE>
- -------------------
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Fortis Money, Advisers, and Investors primarily because he is an officer of
each. Mr. Freedman is an "interested person" of Fortis Money, Advisers, and
Investors because he is Chairman and Chief Executive Officer of Fortis,
Inc. ("Fortis"), the parent company of Advisers and indirect parent company
of Investors, and a Managing Director of Fortis International, N. V., the
parent company of Fortis.
All of the above officers and directors also are officers and/or directors
of other investment companies of which Advisers is the investment adviser. No
compensation is paid by the Fund to any of its officers or directors except for
a fee of $100 per month, $100 per meeting attended, and $100 per applicable
committee meeting attended (and reimbursement of travel expenses to attend
meetings) to each director not affiliated with Advisers. For the fiscal period
ended September 30, 1995, the National Portfolio, Minnesota Portfolio, and New
York Portfolio, paid $8,909, $7,000, and $1,777 respectively, in directors' fees
to directors who were not affiliated with Advisers or Investors and reimbursed
two such directors a total of $383, $397, and $120, respectively, for travel
expenses incurred in attending directors' meetings. During the same period, the
National Portfolio, Minnesota Portfolio, and New York Portfolio paid legal fees
and expenses of $23,277, $17,105, and $3,479, respectively, to a law firm of
which the Fund's Secretary is a partner. As of September 30, 1995, the directors
and executive officers as a group beneficially owned LESS THAN 1% of the
outstanding shares of each Portfolio. Directors Gavin, Jaffray, Kopperud,
Mahoney and Prince are members of the Executive Committee of the Board of
Directors. While the Executive Committee is authorized to act in the intervals
between regular board meetings with full capacity and authority of the full
Board of Directors, except as limited by law, it is expected that the Committee
will act only infrequently.
The following table sets forth the aggregate compensation received by each
director during the fiscal year ended September 30, 1995, as well as the total
compensation received by each director from the Fund and all other open-end
investment companies managed by Advisers during the fiscal year ended September
30, 1995. Neither Mr. Freedman, who is an officer of the parent company of
Advisers, nor Mr. Kopperud, who is an officer of Advisers and Investors,
received any such compensation and they are not included in the table. No
executive officer of the Fund received compensation from the Fund during the
fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
Aggregate Pension or Total
Compensation Retirement Benefits Estimated Compensation from
from the Accrued as Part of Annual Benefits Fund Complex
Director Company Company Expenses Upon Retirement Paid to Director(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard W. Cutting $1,900 0 0 $32,300
Dr. Robert M. Gavin 1,700 0 0 30,100
Benjamin S. Jaffray 1,900 0 0 32,300
Jean L. King 2,000 0 0 33,400
Edward M. Mahoney 1,400 0 0 23,950
Thomas R. Pellet(2) 1,900 0 0 32,300
Robb L. Prince 1,800 0 0 31,200
Leonard J. Santow 1,790 0 0 31,100
Joseph M. Wikler 1,900 0 0 32,300
</TABLE>
(1) Includes aggregate compensation paid by the Fund and all 10 Other Fortis
Funds paid to the Director.
(2) Mr. Pellett resigned as a director of the Fortis Funds effective December
7, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of the Fund since the Fund began business in 1982. Investors acts as the
Fund's underwriter. Both act as such pursuant to written agreements periodically
approved by the directors or shareholders of the Fund. The address of both is
that of the Fund.
As of September 30, 1995, Advisers managed twenty-eight investment company
portfolios with combined net assets of approximately $4,068,451,000 and one
private account with net assets of approximately $17,770,000. Fortis Financial
Group also has approximately $2.0 billion in insurance reserves. As of the same
date, the investment company portfolios had an aggregate of 222,175
shareholders, including 4,962 shareholders of the Fund.
During the fiscal year ended September 30, 1995, the three-month fiscal
period ended September 30, 1994, and the fiscal year ended June 30, 1994, the
National Portfolio and the Minnesota Portfolio paid advisory and management fees
as follows: National Portfolio-$557,889, $147,364, and $598,148, Minnesota
Portfolio-$387,530, $99,924, and $402,022. During the same periods, Investors
received $151,195, $54,730, and $579,654, respectively, for underwriting the
National Portfolio's shares, and $95,293, $34,819, and $267,998, respectively,
for underwriting the Minnesota Portfolio's shares. Of the amounts received,
Investors paid $122,346, $43,947, and $473,014, respectively to broker-dealers
and registered representatives for selling shares of the National Portfolio and
$80,081, $29,921, and $227,529, for selling shares of the Minnesota Portfolio.
During the fiscal periods ended September 30, 1995, Investors received the
following amounts pursuant to the Plan of Distribution (see "Plan of
distribution"), paid the following amounts to broker-dealers and registered
representatives, and in addition to such amount (along with Advisers) spent the
following amounts on activities related to the distribution of the Fund's
shares:
MINNESOTA NATIONAL NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
FISCAL PERIOD ENDED: SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
------------------ ------------------ ------------------
Amount Received $ 9,454 $ 5,282 $1,894
Amount Paid 102,714 37,206 5,750
Additional Expenses 57,176 26,105 3,539
Paid
The New York Portfolio commenced operations on June 1, 1991, as a result of
the transfer of substantially all of the assets of the Pathfinder Fund, a series
of The Pathfinder Heritage Funds, to that Portfolio. The Pathfinder Fund
operated on a September 30 fiscal year end. Empire of American Advisory
Services, Inc. ("EAASI") and Empire National Securities, Incorporated ("ENSI")
acted as investment adviser and manager and as distributor, respectively, for
the Pathfinder Fund since commencement of operations of the Pathfinder Fund in
1987 through May 31, 1991. During the fiscal year-ended September 30, 1995, the
three-month fiscal period ended September 30, 1994, and the fiscal year ended
June 30, 1994, the New York Portfolio paid advisory and management fees of
$99,309 (less $63,096 reimbursed), $26,011, and $111,126 (less $14,541
reimbursed).
During the fiscal year-ended September 30, 1995, the three-month fiscal
period ended September 30, 1994, and the fiscal year ended June 30, 1994,
Investors received $11,694, $3,485, and $36,746, respectively, for underwriting
the New York Portfolio's shares. Of the amount received, Investors paid $10,124,
$2,905, and $31,425, respectively, to broker-dealers and registered
representatives for selling shares of the Portfolio.
CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS
Fortis owns 100% of the outstanding voting securities of Advisers, and
Advisers owns all of the outstanding voting securities of Investors.
Fortis, located in New York, New York, is a wholly owned subsidiary of
Fortis International, N.V., which has approximately $100 billion in assets
worldwide and is in turn a wholly owned subsidiary of AMEV/VSB 1990 N.V.
("AMEV/VSB 1990").
AMEV/VSB 1990 is a corporation organized under the laws of The Netherlands
to serve as the holding company for all U.S. operations and is owned 50% by
Fortis AMEV and 50% by Fortis AG. AMEV/VSB 1990 owns a group of companies active
in insurance, banking and financial services, and real estate development in The
Netherlands, the United States, Western Europe, Australia, and New Zealand.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
own a group of companies (of which AMEV/VSB 1990 is one) active in insurance,
banking and financial services, and real estate development in The Netherlands,
Belgium, the United States, Western Europe, and the Pacific Rim.
Dean C. Kopperud is Chief Executive Officer of Advisers and President of
Investors; Gary N. Yalen is President and Chief Investment Officer of Advisers;
James S. Byrd and Stephen M. Poling are Executive Vice Presidents of Advisers
and Investors; Howard G. Hudson is Executive Vice President of Advisers; Debra
L. Foss, Larry A. Medin, Jon H. Nicholson, Dennis M. Ott and Anthony J. Rotondi
are Senior Vice Presidents of Advisers and Investors; Rhonda J. Schwartz is
Senior Vice President, General Counsel, and Secretary of Advisers and Investors;
Fred Obser is Senior Vice President of Advisers; Robert W. Beltz, Jr., Thomas D.
Gualdoni, Robert C. Lindberg, Richard P. Roche, and Keith R. Thomson are Vice
Presidents of Advisers and Investors; Nicholas L. M. dePeyster, Charles J.
Dudley, Maroun M. Hayek, Kevin J. Michels, Stephen M. Rickert, and Christopher
J. Woods are Vice Presidents of Advisers; John E. Hite is 2nd Vice President and
Assistant Secretary of Advisers and Investors; Carol M. Houghtby is 2nd Vice
President and Treasurer of Advisers and Investors; Tamara L. Fagely, Barbara W.
Kirby, and Deborah K. Kramer are 2nd Vice Presidents of Advisers and Investors;
David C. Greenzang is Money Market Portfolio Officer of Advisers, Michael D.
O'Connor is Qualified Plan Officer of Advisers and Investors; Barbara J. Wolf is
Trading Officer of Advisers; Scott R. Plummer is Assistant Secretary of Advisers
and Investors; Joanne M. Herron is Assistant Treasurer of Advisers and Investors
and Sharon R. Jibben is Assistant Secretary of Advisers.
Messrs. Kopperud, Yalen, and Poling are the Directors of Advisers.
All of the above persons reside or have offices in the Minneapolis/St. Paul
area, except Messrs. Yalen, Hudson, dePeyster, Dudley, Hayek, Lindberg, Michels,
Obser, Rickert, Woods and Greenzang, who are all located in New York City.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Advisers acts as investment adviser and manager of each Portfolio under
separate Investment Advisory and Management Agreements (the "Agreements") dated
January 31, 1992 (for National Portfolio), December 12, 1990 (for Minnesota
Portfolio), and May 29, 1991 (for New York Portfolio), all of which became
effective on their respective dates. Shareholders approved these Agreements on
January 28, 1992, November 8, 1990, and May 29, 1991, respectively. The
Agreements were last approved by the Board of Directors on December 7, 1995. The
approval by the Board of Directors included approval by a majority of the
directors who are not parties to the contracts, or interested persons of such
parties. The Agreements will terminate automatically in the event of their
assignment. In addition, the Agreements are terminable at any time, without
penalty, by the Board of Directors or, with respect to any particular portfolio,
by vote of a majority of the Fund's outstanding voting securities of the
applicable portfolio, on not more than 60 days' written notice to Advisers, and
by Advisers on 60 days' notice to the Fund. Unless sooner terminated, the
Agreements continue in effect for more than two years after their execution only
so long as such continuance is specifically approved at least annually by either
the Board of Directors or, with respect to any particular portfolio, by a vote
of a majority of the outstanding voting securities of the applicable portfolio;
provided that, in either event, such continuance is also approved by the vote of
the majority of the directors who are not parties to such Agreements, or
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval.
The Agreements provide for investment advisory and management fees
calculated as described in the following table. As you can see from the table,
this fee decreases (as a percentage of Fund net assets) as the Fund grows. The
fee percentages for the National and New York Portfolios are based upon the
average net assets of the applicable Portfolio alone, while Minnesota
Portfolio's fee is based upon its prorata portion of the fee based on the
combined assets of the Minnesota and National Portfolios. As of December 31,
1995, the National Portfolio, Minnesota Portfolio, and New York Portfolio had
net assets of approximately $77,579,000, $56,249,000, and $12,182,000,
respectively.
ANNUAL
INVESTMENT ADVISORY
AVERAGE NET ASSETS AND MANAGEMENT FEE
------------------ ------------------
National For the first $50,000,000 .8%
Portfolio For assets over $50,000,000 .7%
Minnesota For the first $50,000,000 .8%
Portfolio For the next $50,000,000 .7%
For assets over $100,000,000 .625%
New York For the first $50,000,000 .8%
Portfolio For the next $50,000,000 .7%
For assets over $100,000,000 .625%
The Agreement requires the Fund to pay all its expenses which are not
assumed by Advisers and/or Investors. These Fund expenses include, by way of
example, but not by way of limitation, the fees and expenses of directors and
officers who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Fund and its shares for distribution under Federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the expense
of reports to shareholders, shareholders' meetings, and proxy solicitations.
Advisers bears the costs of acting as the Fund's transfer agent, registrar,
and dividend agent. Advisers or Investors also shall bear all promotional
expenses in connection with the distribution of Fund shares, including paying
for prospectuses and shareholder reports for new shareholders, and the costs of
sales literature.
For a description of Advisers' voluntary expense limitation on the New York
Portfolio see the Fund Prospectus, "Fund Expenses."
Pursuant to an undertaking given to the State of California, Advisers has
agreed to reimburse the Fund monthly for any amount by which the Fund's
aggregate annual expenses, exclusive of taxes, brokerage commissions, and
interest on borrowing exceeds 21/2% on the first $30,000,000 of average net
assets, 2% on the next $70,000,000, and 11/2% on the balance. Pursuant to an
additional undertaking given to the State of California, Advisers has agreed to
limit aggregate annual expenses charged to the Fund to 1.5% of the first
$30,000,000 of its average net assets and 1% of its remaining average net assets
with respect to any period that the Fund invests in other open-end investment
companies. Advisers reserves the right to agree to lesser expense limitations
from time to time. In the three-month fiscal period ended September 30, 1994,
Advisers was not required to make any reimbursement to the Fund pursuant to
these limitations.
Expenses that relate exclusively to a particular Portfolio, such as
custodian charges and registration fees for shares, are charged to that
Portfolio. Other expenses of the Fund are allocated pro rata among the
Portfolios in an equitable manner as determined by officers of the Fund under
the supervision of the Board of Directors, usually on the basis of net assets or
number of shares.
Under the Agreements, Advisers, as investment adviser to the Fund, has the
sole authority and responsibility to make and execute investment decisions for
the Fund within the framework of the Fund's investment policies, subject to
review by the Board of Directors. Advisers also furnishes the Fund with all
required management services, facilities, equipment, and personnel.
Although investment decisions for the Fund are made independently from
those of the other funds or private accounts managed by Advisers, sometimes the
same security is suitable for more than one fund or account. If and when two or
more funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by the Fund and other funds or accounts may have a
detrimental effect on the Fund, as this may affect the price paid or received by
the Fund or the size of the position obtainable by the Fund.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
As the Fund's portfolio is exclusively composed of debt, rather than equity
securities, most of the Fund's portfolio transactions are effected with dealers
without the payment of brokerage commissions, but at net prices which usually
include a spread or markup. In effecting such portfolio transactions on behalf
of the Fund, Advisers seeks the most favorable net price consistent with the
best execution. However, frequently Advisers selects a dealer to effect a
particular transaction without contacting all dealers who might be able to
effect such transaction, because of the volatility of the bond market and the
desire of Advisers to accept a particular price for a security because the price
offered by the dealer meets its guidelines for profit, yield, or both.
Decisions with respect to placement of the Fund's portfolio transactions
are made by its investment adviser. The primary consideration in making these
decisions is efficiency in the execution of orders and obtaining the most
favorable net prices for the Fund. When consistent with these objectives,
business may be placed with broker-dealers who furnish investment research
services to Advisers. 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 Advisers to supplement its own
investment research activities and enables Advisers to obtain the views and
information of individuals and research staffs of many different securities
firms prior to making investment decisions for the Fund. To the extent portfolio
transactions are effected with broker-dealers who furnish research services to
Advisers, Advisers receives a benefit, not capable of evaluation in dollar
amounts, without providing any direct monetary benefit to the Fund from these
transactions.
Advisers has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided Advisers, except as noted below. However, Advisers
does maintain an informal list of broker-dealers, which is used from time to
time as a general guide in the placement of Fund business, in order to encourage
certain broker-dealers to provide Advisers with research services which Advisers
anticipates will be useful to it. Because the list is merely a general guide,
which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. Advisers will authorize the
Fund to pay an amount of commission for effecting a securities transaction in
excess of the amount of commission another broker-dealer would have charged only
if Advisers 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 Advisers' overall responsibilities with respect to the accounts
as to which Advisers exercises investment discretion. Generally, the Fund pays
higher commissions than the lowest rates available.
During the fiscal period ended September 30, 1995, fixed income securities
transactions having an aggregate dollar value of approximately $52,302,000,
$29,987,108, and $3,033,311, for the National, Minnesota, and New York
Portfolios, respectively (excluding short-term securities), were traded at net
prices including a spread or markup; during the same period, the Portfolios paid
no brokerage commissions to brokers involved in the purchase and sale of
securities for the Portfolios.
The Portfolios will not effect any brokerage transactions in their
portfolio securities with any broker-dealer affiliated directly or indirectly
with Advisers, 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 Portfolios. No commissions were paid to
any affiliate of Advisers during the fiscal period ended September 30, 1995, the
three-month fiscal period ended September 30, 1994 or the fiscal year ended June
30, 1994.
During the fiscal period ended September 30, 1995, the Portfolios did not
acquire the securities of any of its regular brokers or dealers or the parent of
those brokers or dealers that derive more than fifteen percent of their gross
revenue from securities-related activities.
CAPITAL STOCK
The Fund's shares have a par value of $.01 per share and equal rights to
share in dividends and assets. The shares possess no preemptive or conversion
rights.
The Fund currently has three Portfolios, each issuing its own series of
common shares. Each Portfolio currently offers its shares in five classes, each
with different sales arrangements and bearing different expenses. Under the
Fund's Articles of Incorporation, the Board of Directors is authorized to create
new portfolios or classes without the approval of the shareholders of the Fund.
Each share of stock will have a pro-rata interest in the assets of the Portfolio
to which the stock of that series relates and will have no interest in the
assets of any other Portfolio. In the event of liquidation, each share of a
Portfolio would have the same rights to dividends and assets as every other
share of that Portfolio, except that, in the case of a series with more than one
class of shares, such distributions will be adjusted to appropriately reflect
any charges and expenses borne by each individual class.
On some issues, such as the election of directors, all shares of the Fund
vote together as one series. Each share of a Portfolio has one vote (with
proportionate voting for fractional shares) irrespective of the relative net
asset value of the Portfolios' shares.
On issues affecting particular Portfolios of the Fund, the series of shares
of the affected Portfolio vote as a separate series. An example of such an issue
would be a fundamental investment restriction pertaining to only one Portfolio.
Shareholders of a Portfolio are not entitled to vote on any issue which does not
affect that Portfolio but which requires a separate vote of another Portfolio.
In voting on the Agreement, approval of the Agreement by the shareholders of a
particular Portfolio would make the Agreement effective as to that Portfolio
whether or not it had been approved by the shareholders of the other Portfolios.
On December 31, 1995, the National Portfolio, Minnesota Portfolio, and New
York Portfolio had 6,996,135, 5,317,048, and 1,105,735 shares outstanding,
respectively. On that date, no person owned of record or, to the Fund's
knowledge, beneficially as much as 5% of the outstanding shares of any
Portfolio, except as follows:
NATIONAL PORTFOLIO: Class B--21% John W. and Carol J. Heim, 6923 South
Owens Street, Littleton, CO 80127-2814; 13% John M. Larson, 804 Fieldale Lane,
Grayslake, IL 60030-3201; 8% Lisa J. Mol, 8974 South Greenmeadows Drive,
Highlands Ranch, CO 80126-2815; 7% Jean and Joseph O'Brien, 407 Glenridge Road,
Stratford, CT 06497-4338; 5% First Trust National Association, Custodian For
Robert N. McDill IRA, 2731 State Road 25 North, Lafayette, IN 47905-3969; 5%
Debra K. and Alan S. Kube, 8241 West Nichols Avenue, Littleton, CO 80123-5559;
Class H--12% Mark Caban, 120 Arden Drive, Glenshaw, PA 15116-1602; 11% Sylvia W.
Jacobs, 73 High Street, Montclair, NJ 07042-4278; 8% Hunan Restaurant, Inc.,
2100 South Columbia Road, Grand Forks, ND 58201-5895; 5% First Trust National
Association, Custodian For K. L. Manternach IRA, P. O. Box 267, Summerfield, NC
27358-0267; 5% Hilary and Ernest Lisakowski, R.R. 1 Box 43, Manvel, ND
58256-9763; Class C--27% Jerry J. and Susan L. Cummins, 5340 Wolf Road, Western
Springs, IL 60558- 1858; 15% Gilbert W. and Barbara R. Grace, 159 Curtis Drive,
Beaver Falls, PA 15010-1056; 12% Cheryl Ramos, 2005 North 50th Avenue, Omaha, NE
68104-4331; 11% Byron V. Nair, 612 Arizona Street, Glidden, IA 51443-1001; 8%
Stanley G. and Ethel Zafran, 1136 Gilham Street, Philadelphia, PA 19111--5419;
8% Tina M. Yost, R.R. 1 Box 181, Worthington, WV 26591-9732.
MINNESOTA PORTFOLIO: Class A--15% Mary C. and Paul G. Smaagaard, Mariner
East Condominiums, 6211 Thomas Drive, Unit 406, Panama City Beach, FL 32408; 10%
First Trust National Association, Custodian for T. S. Forsythe IRA, 10555 Joliet
Avenue North, Stillwater, MN 55082-9435; 10% Garret W. and Leslie M. Johnson,
1085 Villa Lane, Detroit Lakes, MN 56501-4326; 6% Harlan J. Nickel Trust, 490
Pelham Blvd., St. Paul, MN 55104--4938; Robert E. Golden Trust, 2231 East 58th
Street, Minneapolis, MN 55417-2712; Class B--18% Robert R. and Sandra R.
Schreurs, 2829 Norwood Avenue, Slayton, MN 56172-1426; 13% Gary D. Floss, 1444
18th Street NW, New Brighton, MN 55112-5407; 10% Joseph J. Glatzmaier, 333 8th
Street SE, Apt. 313, Minneapolis, MN 55414-1255; 8% Wilbur R. L. Trimpe, 507
Jenkran Street, Apt. 2, Morrison, IL 61270-3012; 8% Elwood C. and Mary E. Black,
814 W 43rd Street, Indianapolis, IN 46208-3311; 6% Gloria A. Jungkans, R.R. 2
Box 180, New Ulm, MN 56073-9569; 6% Erwin L. Nolte, 204 East 12th Street, Blue
Earth, MN 56013-2106; 5% David L. and Eileen Cederberg, 3457 Orchard Avenue
North, Crystal, MN 55422- 2867; Class H--18% Donna Milam, 1735 Donegal Drive,
Woodbury, MN 55125-3352; 15% Mary C. Jackson, 4300 West River Pkwy., Apt 215,
Minneapolis, MN 55406-3677; 15% Keith B. Magnuson, 737 Memorial Drive,
Crookston, MN 56716-1131; 7% Michael L. Scott Profit Sharing Plan, 770 Torchwood
Drive, New Brighton, MN 55112-2560; 6% Betty D. Eullrich, 8407 Kell Avenue,
Bloomington, MN 55437-1501; 6% Gwen A. Turman, 23315 County Road 7, Hutchinson,
MN 55350-5513; 5% Myron A. Trebesch, R.R. 3 Box 167, Sleepy Eye, MN 56085-9306;
Class C--33% Rice Family Limited Partnership, P. O. Box 128, Sauk Rapids, MN
56379-0128; 25% Lois M. Elias, R. R. 1 Box 185, Kasson, MN 55944-9728; 12%
Dennis E. and Pamela M. Jones, P. O. Box 186, Lowry, MN 56349-0186; 12% Brandie
L. Pierson UTMA, R.R. 1 Box 87, Donnely, MN 56235-9742; 10% Catherine A. Estrem,
1594 Lakewood Drive, Maplewood, MN 55119-7167.
NEW YORK PORTFOLIO: Class A--49% Margherita Petitta, 204 Babbit Road, Box
163, Bedford Hills, NY 10507-0163; 49% Maria Vittoria Petitta, 204 Babbit Road,
Box 163, Bedford Hills, NY 10507-0163; Class B-- 76% Terrance P. Vertucci, 382
Truax Road, Amsterdam, NY 12010-7151; 13% Claudia Schellenberg, 32-43 90th
Street, Apt. 202, Flushing, NY 11369-2312; Class H--22% Tracy Dinsky UGMA, 4
Deepwood Court, Old Westbury, NY 11568-1006; 22% Brett Dinsky UGMA, 4 Deepwood
Court, Old Westbury, NY 11568-1006; 22% Courtney Dinsky UGMA, 4 Deepwood Court,
Old Westbury, NY 11568-1006; 11% John and Madeleine Mitchell, 155 South Fordham
Road, Hicksville, NY 11801-1639; 10% Wayne F. and Joyce M. Smith, 839 Nez Perce
Street, Moscow, ID 83843-3837; Dennis E. Fleming, 93 Pine Road, Mastic Beach, NY
11951-2521; Class C--99% Donaldson Lufkin Jenrette Securities Corporation, Inc.,
P. O. Box 2052, Jersey City, NJ 07303-2052.
The Fund is not required under Minnesota law to hold annual or periodically
scheduled regular meetings of shareholders. Minnesota corporation law provides
for the Board of Directors to convene shareholder meetings when it deems
appropriate. In addition, if a regular meeting of shareholders has not been held
during the immediately preceding fifteen months, a shareholder or shareholders
holding three percent or more of the voting shares of the Fund may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer of the Fund. Within ninety days
after receipt of the demand, a regular meeting of shareholders must be held at
the Fund's expense. Additionally, the 1940 Act requires shareholder votes for
all amendments to fundamental investment policies and restrictions and for all
investment advisory contracts and amendments thereto.
Cumulative voting is not authorized. This means that the holders of more
than 50% of the shares voting for the election of directors can elect 100% of
the directors if they choose to do so, and in such event the holders of the
remaining shares will be unable to elect any directors.
COMPUTATION OF NET ASSET VALUE AND PRICING
On September 30, 1995, the Portfolios' net asset values per share were
calculated as follows:
NATIONAL PORTFOLIO
Class E
NET ASSETS ($70,530,792) = Net Asset Value Per Share ($10.72)
- ------------------------
Shares Outstanding (6,581,433)
Class A
NET ASSETS ($1,807,181) = Net Asset Value Per Share ($10.71)
- -----------------------
Shares Outstanding (168,770)
Class B
NET ASSETS ($668,200) = Net Asset Value Per Share ($10.70)
- ---------------------
Shares Outstanding (62,463)
Class H
NET ASSETS ($1,756,529) = Net Asset Value Per Share ($10.71)
- -----------------------
Shares Outstanding (164,006)
Class C
NET ASSETS ($105,922) = Net Asset Value Per Share ($10.70)
- ---------------------
Shares Outstanding (9,896)
MINNESOTA PORTFOLIO
Class E
NET ASSETS ($52,603,103) = Net Asset Value Per Share ($10.32)
- ------------------------
Shares Outstanding (5,097,390)
Class A
NET ASSETS ($883,555) = Net Asset Value Per Share ($10.30)
- ---------------------
Shares Outstanding (85,773)
Class B
NET ASSETS ($179,976) = Net Asset Value Per Share ($10.27)
- ---------------------
Shares Outstanding (17,521)
Class H
NET ASSETS ($638,141) = Net Asset Value Per Share ($10.30)
- ---------------------
Shares Outstanding (61,971)
Class C
NET ASSETS ($143,053) = Net Asset Value Per Share ($10.30)
- ---------------------
Shares Outstanding (13,895)
NEW YORK PORTFOLIO
Class E
NET ASSETS ($11,882,000) = Net Asset Value Per Share ($10.87)
- ------------------------
Shares Outstanding (1,092,955)
Class A
NET ASSETS ($48,802) = Net Asset Value Per Share ($10.87)
- --------------------
Shares Outstanding (4,490)
Class B
NET ASSETS ($193,682) = Net Asset Value Per Share ($10.84)
- ---------------------
Shares Outstanding (17,863)
Class H
NET ASSETS ($72,372) = Net Asset Value Per Share ($10.83)
- --------------------
Shares Outstanding (6,684)
Class C
NET ASSETS ($50,901) = Net Asset Value Per Share ($10.85)
- --------------------
Shares Outstanding (4,691)
To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:
NATIONAL PORTFOLIO
Class E
$10.72 = Public Offering Price Per Share ($11.23)
------
.955
Class A
$10.71 = Public Offering Price Per Share ($11.21)
------
.955
MINNESOTA PORTFOLIO
Class E
$10.32 = Public Offering Price Per Share ($10.81)
------
.955
Class A
$10.30 = Public Offering Price Per Share ($10.79)
-----
.955
NEW YORK PORTFOLIO
Class E
$10.87 = Public Offering Price Per Share ($11.38)
------
.955
Class A
$10.87 = Public Offering Price Per Share ($11.38)
------
.955
The primary close of trading of the New York Stock Exchange (the
"Exchange") currently is 3:00 P.M. (Central Time), but this time may be changed.
The offering price for purchase orders received in the office of the Fund after
the beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading.
Generally, the net asset value of the Fund's shares is determined on each
day on which the Exchange is open for business. The Exchange is not open for
business on the following holidays (nor on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, net asset value need not be determined (i) on days on which
changes in the value of the Fund's portfolio securities will not materially
affect the current net asset value of the Fund's shares; or (ii) on days during
which no Fund shares are tendered for redemption and no orders to purchase or
sell Fund shares are received by the Fund.
SPECIAL PURCHASE PLANS
The Fund offers several special purchase plans, described in the
Prospectus, which allow reduction or elimination of the sales charge for Class A
and E shares under certain circumstances. Additional information regarding some
of the plans is as follows:
STATEMENT OF INTENTION
The 13-month period is measured from the date the letter of intent is
approved by Investors, or at the purchaser's option it may be made retroactive
90 days, in which case Investors will make appropriate adjustments on purchases
during the 90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales commission, the public offering price (at the time they were
purchased) of shares currently held in the Fortis Funds having a sales charge
and purchased within the past 90 days may be used as a credit toward Fund shares
to be purchased under the Statement of Intention. Any such fund shares purchased
during the remainder of the 13- month period also may be included as purchases
made under the Statement of Intention.
The Statement of Intention includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated. This is accomplished by holding in
escrow the number of shares represented by the sales charge discount. If the
investor's purchases equal those specified in the Statement of Intention, the
escrow is released. If the purchases do not equal those specified in the
Statement of Intention, the shareholder may remit to Investors an amount equal
to the difference between the dollar amount of sales charges actually paid and
the amount of sales charges that would have been paid on the aggregate purchases
if the total of such purchases had been made at a single time. If the purchaser
does not remit this sum to Investors on a timely basis, Investors will redeem
the escrowed shares. The Statement of Intention is not a binding obligation on
the part of the investor to purchase, or the Fund to sell, the full amount
indicated. Nevertheless, the Statement of Intention should be read carefully
before it is signed.
GIFTS OR TRANSFERS TO MINOR CHILDREN
This gift or transfer is registered in the name of the custodian for a
minor under the Uniform Transfers to Minors Act (in some states the Uniform
Gifts to Minors Act). Dividends or capital gains distributions are taxed to the
child, whose tax bracket is usually lower than the adult's. However, if the
child is under 14 years old and his or her unearned income is more than $1,300
per year, then that portion of the child's income which exceeds $1,300 per year
will be taxed to the child at the parents' top rate. Control of the Fund shares
passes to the child upon reaching a specified adult age (either 18 or 21 years
in most states).
SYSTEMATIC INVESTMENT PLAN
The Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Systematic Investment Plan."
The principal purposes of the Plan are to encourage thrift by enabling you
to make regular purchases in amounts less than normally required, and to employ
the principle of dollar cost averaging, described below.
By acquiring Fund shares on a regular basis pursuant to a Systematic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging. Under dollar
cost averaging, if a constant amount is invested at regular intervals at varying
price levels, the average cost of all the shares will be lower than the average
of the price levels. This is because the same fixed number of dollars buys more
shares when price levels are low and fewer shares when price levels are high. It
is essential that the investor consider his or her financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of dollar cost averaging will not protect against loss in a
declining market, as a loss will result if the plan is discontinued when the
market value is less than cost.
An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty. Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs Investors
in writing to pay them in cash. Investors reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than the amount
indicated.
EXCHANGE PRIVILEGE
The amount to be exchanged must meet the minimum purchase amount of the
fund being purchased.
Shareholders should consider the differing investment objectives and
policies of these other funds prior to making such exchange.
For Federal tax purposes, except where the transferring shareholder is a
tax qualified plan, a transfer between funds is a taxable event that probably
will give rise to a capital gain or loss. Furthermore, if a shareholder carries
out the exchange within 90 days of purchasing the shares in the Fund, the sales
charge incurred on that purchase cannot be taken into account for determining
the shareholder's gain or loss on the sale of those shares to the extent that
the sales charge that would have been applicable to the purchase of the
later-acquired shares in the other fund is reduced because of the exchange
privilege. However, the amount of the sales charge that may not be taken into
account in determining the shareholder's gain or loss on the sale of the
first-acquired shares may be taken into account in determining gain or loss on
the eventual sale or exchange of the later-acquired shares.
REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN FORTIS FUNDS
This privilege is based upon the fact that such orders are generally
unsolicited and the resulting lack of sales effort and expense.
PURCHASES BY FORTIS, INC. (OR ITS SUBSIDIARIES) OR ASSOCIATED PERSONS
This privilege is based upon the relationship of such persons to the Fund
and the resulting economies of sales effort and expense.
PURCHASES BY FUND DIRECTORS OR OFFICERS
This privilege is based upon their familiarity with the Fund and the
resulting lack of sales effort and expense.
PURCHASES BY REPRESENTATIVES OR EMPLOYEES OF BROKER-DEALERS
This privilege is based upon the presumed knowledge such persons have about
the Fund as a result of their working for a company selling the Fund's shares
and resulting economies of sales effort and expense.
PURCHASES BY REGISTERED INVESTMENT COMPANIES
This privilege is based upon the generally unsolicited nature of such
purchases and the resulting lack of sales effort and expense.
PURCHASES WITH PROCEEDS FROM REDEMPTION OF UNRELATED MUTUAL FUND SHARES OR
SURRENDER OF CERTAIN FIXED ANNUITY CONTRACTS
SHAREHOLDERS OF UNRELATED MUTUAL FUNDS WITH SALES LOADS-This privilege is
based upon the existing relationship of such persons with their broker-dealer or
registered representative and/or the familiarity of such shareholders with
mutual funds as an investment concept, with resulting economies of sales effort
and expense.
OWNERS OF A FIXED ANNUITY CONTRACT NOT DEEMED A SECURITY UNDER THE
SECURITIES LAWS-This privilege is based upon the existing relationship of such
persons with their broker-dealer or registered representative and/or the lower
acquisition costs associated with such sale, with resulting economies of sales
effort and expense.
PURCHASES BY EMPLOYEES OF CERTAIN BANKS AND OTHER FINANCIAL SERVICES FIRMS
This privilege is based upon the familiarity of such investors with the
Fund and the resulting lack of sales effort and expense.
PURCHASES BY INVESTMENT ADVISERS, TRUST COMPANIES, AND BANK TRUST
DEPARTMENTS EXERCISING DISCRETIONARY INVESTMENT AUTHORITY OR USING A MONEY
MANAGEMENT MUTUAL FUND "WRAP" PROGRAM
This privilege is based upon the familiarity of such investors with the
Fund and the resulting lack of sales effort and expense.
PURCHASES BY CERTAIN PATHFINDER FUND ACCOUNTS
This privilege is based upon their familiarity with the Fund stemming from
the Fund's acquisition of Pathfinder Fund and resulting economies of sales
effort and expense.
REDEMPTION
The obligation of the Fund to redeem its shares when called upon to do so
by the shareholder is mandatory with certain exceptions. The Fund will pay in
cash all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the net asset value
of the Fund at the beginning of such period. When redemption requests exceed
such amount, however, the Fund reserves the right to make part or all of the
payment in the form of readily marketable securities or other assets of the
Fund. An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges.
Redemption of shares, or payment, may be suspended at times (a) when the
Exchange is closed for other than customary weekend or holiday closings, (b)
when trading on said Exchange is restricted, (c) when an emergency exists, as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist. The Exchange
is not open for business on the following holidays (nor on the nearest Monday or
Friday if the holiday falls on a weekend), on which the Fund will not redeem
shares: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
There is no charge for redemption, nor does the Fund contemplate
establishing a charge, although it has the right to do so. In the event a charge
were established, it would apply only to persons who became shareholders after
such charge was implemented, and it would not, in any event, exceed 1% of the
net asset value of the shares redeemed. Should further public sales ever be
discontinued, the Fund may deduct a proportionate share of the cost of
liquidating assets from the asset value of the shares being redeemed, in order
to protect the equity of the other shareholders.
SYSTEMATIC WITHDRAWAL PLAN
An investor may open a "Systematic Withdrawal Plan" providing for
withdrawals of $50 or more per quarter, semiannually, or annually if he or she
has made a minimum investment in Fund shares of $4,000 ($50 or more per month if
at least $10,000 has been invested), or has acquired and deposited shares having
either an original cost, or current value computed on the basis of the offering
price, equal to the appropriate amount. The minimum amount which may be
withdrawn of $50 per month is a minimum only, and should not be considered a
recommendation.
These payments may constitute return of capital, and it should be
understood that they do not represent a yield or return on investment and that
they may deplete or eliminate the investment. The shareholder cannot be assured
of receiving payment for any specific period because payments will terminate
when all shares have been redeemed. The number of such payments will depend on
the amount of each payment, the frequency of each payment, and the increase (or
decrease) in value of the remaining shares.
Under this Plan, any distributions of income and realized capital gains are
reinvested at net asset value. If a shareholder wishes to purchase additional
shares of the Fund under this Plan, other than by reinvestment of distributions,
it should be understood that he or she would be paying a sales commission on
such purchases, while liquidations effected under the Plan would be at net asset
value. Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
Additions to a shareholder account in which an election has been made to receive
systematic withdrawals will be accepted only if each such addition is equal to
at least one year's scheduled withdrawals or $1,200, whichever is greater. A
shareholder may not have a "Systematic Withdrawal Plan" and a "Systematic
Investment Plan" in effect simultaneously, as it is not, as explained above,
advantageous to do so.
The Plan is voluntary, flexible, and under the shareholder's control and
direction at all times, and does not limit or alter his or her right to redeem
shares. The Plan may be terminated in writing at any time by either the
shareholder or the Fund. The cost of operating the Plan is borne by Advisers.
The redemption of Fund shares pursuant to the Plan is a taxable event to the
shareholder.
REINVESTMENT PRIVILEGE
In order to allow investors who have redeemed Fund shares an opportunity to
reinvest, without additional cost, a one-time privilege is offered whereby an
investor may reinvest in the Fund, or in any other fund underwritten by
Investors and available to the public, without a sales charge. The reinvestment
privilege must be exercised in an amount not exceeding the proceeds of
redemption; must be exercised within 60 days of redemption; and only may be
exercised once with respect to the Fund.
The purchase price for Fund shares will be based upon net asset value at
the time of reinvestment, and may be more or less than the redemption value.
Should an investor utilize the reinvestment privilege within 30 days following a
redemption which resulted in a loss, all or a portion of that loss may not be
currently deductible for Federal income tax purposes. Exercising the
reinvestment privilege would not alter any capital gains taxes payable on a
realized gain. Furthermore, if a shareholder redeems within 90 days of
purchasing the shares in the Fund, the sales charge incurred on that purchase
cannot be taken into account for determining the shareholder's gain or loss on
the sale of those shares.
TAXATION
The Portfolios qualified in the tax year ended September 30, 1995, and
intend to continue to qualify, as regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). As long as they so
qualify, the Portfolios are not taxed on the income distributed to shareholders.
For individuals in taxable year 1995, long-term capital gains are subject
to a maximum tax rate of 28% while ordinary income is subject to a maximum rate
of 39.6% (for taxable income in excess of $250,000). (The maximum effective tax
rate may be in excess of 39.6%, resulting from a combination of the nominal tax
rate and a phase-out of personal exemptions and a partial disallowance of
itemized deductions for individuals with taxable incomes above certain levels.)
Gain or loss realized upon the sale of shares in the Fund will be treated
as capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term capital gain
or loss if the shares were held for more than one year.
Under the Code, the Fund is required to withhold and remit to the U.S.
Treasury 31% of dividend and capital gain income on the accounts of certain
shareholders who fail to provide a correct tax identification number, fail to
certify that they are not subject to backup withholding, or are subject to
backup withholding for some other reason.
Under the Code, interest on indebtedness incurred or continued to purchase
or carry shares of an investment company paying exempt-interest dividends, such
as the Fund, will not be deductible by the investor in proportion to the
percentage of each Portfolio's distributions from investment income and
short-term capital gains that is exempt from federal income tax. Minnesota and
New York law will also restrict the deductibility of interest on indebtedness
incurred or continued to purchase or carry shares of the Fund. Indebtedness may
be allocated to shares of the Fund even though not directly traceable to the
purchase of such shares.
Any loss on the sale or exchange of shares held for six months or less
(although regulations may reduce this time period to 31 days) will be disallowed
for Federal income tax purposes to the extent of the amount of any
exempt-interest dividend received with respect to such shares. Except to the
extent disallowed pursuant to the preceding sentence, any loss on the sale or
exchange of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of any dividend received from long-term
capital gains with respect to such shares. Similar rules apply in the case of
individuals, estates, and trusts under Minnesota and New York law.
Certain deductions otherwise allowable to financial institutions and
property and casualty insurance companies will be eliminated or reduced by
reason of the receipt of certain exempt-interest dividends.
For Federal income tax purposes the National and Minnesota Portfolios had
the following capital loss carryovers at September 30, 1995, which, if not
offset by subsequent capital gains, will expire in 2003. It is unlikely the
Board of Directors will authorize a distribution of any net realized gains until
the available capital loss carryovers have been offset or expired.
National Portfolio $1,125,424
Minnesota Portfolio $ 335,029
The New York Portfolio had no capital loss carryover at September 30, 1995.
Under a special provision of the Revenue Reconciliation Act of 1993, if any
of the Portfolios dispose of a Municipal Obligation that it acquired after April
30, 1993 at a market discount, it must recognize any gain it realizes on the
disposition as ordinary income (and not as capital gain) to the extent of the
accrued market discount.
If the Portfolios invest in zero coupon obligations upon their issuance,
such obligations will have original issue discount in the hands of the
Portfolios. Generally, original issue discount equals the difference between the
"stated redemption price at maturity" of the obligation and its "issue price,"
as those terms are defined in the Code. The Portfolios are required to accrue as
ordinary interest income a portion of such original issue discount even though
the Portfolios receive no cash currently as interest payments, on the
obligation. Because the Portfolios are each required to distribute substantially
all of their net investment income (including accrued original issue discount)
in order to qualify as regulated investment companies, the Portfolios may be
required to distribute an amount greater than the total cash income the
Portfolios actually receive. Accordingly, in order to make the required
distribution, the Portfolios may be required to borrow or to liquidate
securities. The extent to which the Portfolios may liquidate securities at a
gain may be limited by the requirement that generally less than 30% of the
Portfolios' gross income (on an annual basis) must consist of gains from the
sale of securities held for less than three months.
The foregoing is a general discussion of the Federal income tax
consequences of an investment in the Fund as of the date of this Statement of
Additional Information. Distributions from net investment income and from net
realized capital gains may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, or local taxes.
UNDERWRITER
On December 7, 1995, the Board of Directors (including a majority of the
directors who are not parties to the contract, or interested persons of any such
party) reapproved the existing Underwriting Agreement with Investors dated
November 14, 1994, which will become effective November 14, 1994. This
Underwriting Agreement may be terminated by the Fund or Investors at any time by
the giving of 60 days' written notice, and terminates automatically in the event
of its assignment. Unless sooner terminated, the Underwriting Agreement shall
continue in effect for more than two years after its execution only so long as
such continuance is also approved by the vote of a majority of the directors who
are not parties to such Underwriting Agreement, or interested persons of such
parties, cast in person at a meeting called for the purpose of voting on such
approval.
The Underwriting Agreement requires Investors or Advisers to pay all
promotional expenses in connection with the distribution of the Fund's shares,
including paying for printing and distributing prospectuses and shareholder
reports to new shareholders, and the costs of sales literature.
In the Underwriting Agreement, Investors undertakes to indemnify the Fund
against all costs of litigation and other legal proceedings, and against any
liability incurred by or imposed upon 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
Investors only from persons affiliated with the Fund but not with Investors.
PLAN OF DISTRIBUTION
The policy of having the Fund compensate those who sell Fund shares has
been adopted pursuant to Rule 12b-1 under the 1940 Act. Rule 12b-1(b) provides
that any payments made by the Fund in connection with financing the distribution
of its shares may only be made pursuant to a written plan describing all aspects
of the proposed financing of distribution, and also requires that all agreements
with any person relating to the implementation of the plan must be in writing.
in addition, Rule 12b-1(b)(1) requires that such plan be approved by a majority
of the Fund's outstanding shares, and Rule 12b-1(b)(1) requires that such plan,
together with any related agreements, be approved by a vote of the Board of
Directors who are not interested persons of the fund and have no direct or
indirect interest in the operation of the plan or in the agreements related to
the plan, cast in person at a meeting called for the purpose of voting on such
plan or agreement. Rule 12b-1(b)(3) requires that the plan or agreement provide
in substance:
(i) 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 a paragraph
(b)(3) of Rule 12b-1;
(ii) That any person authorized to direct the disposition of monies paid or
payable by the fund pursuant to the 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 amounts so expended and the purpose for which such
expenditures were made; and
(iii) 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 Fund 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 fund may rely on Rule 12b-1(b) only if the
selection and nomination of the disinterested directors of the Fund are
committed to the discretion of such disinterested directors. Rule 12b-1(c)
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 88(a) and (b)
of the 1940 Act, that there is a reasonable likelihood that the plan will
benefit the Fund and its shareholders.
The Board of Directors last approved the plan on December 7, 1995.
PERFORMANCE
Until June 1, 1991, the New York Portfolio was managed by a different
organization. Therefore, prior data may not provide a basis for evaluating the
current operations of the Portfolio. The National, Minnesota, and New York
Portfolios' yields for the 30-day period ended September 30, 1995, respectively,
were:
TAX-EXEMPT YIELDS
CLASS A CLASS B CLASS C CLASS H CLASS E
------- ------- ------- ------- -------
National Portfolio 4.43% 4.10% 4.10% 4.10% 4.65%
Minnesota Portfolio 4.64% 4.04% 4.04% 4.04% 4.81%
New York Portfolio 5.10% 4.63% 4.63% 4.63% 5.33%
The National, Minnesota, and New York Portfolios' annualized tax-exempt
yields for the same period, assuming a Federal tax rate of 39.6%, combined
Minnesota/Federal tax rate of 44.7%, combined New York/Federal tax rate of
44.36%, and investors subject to the New York City personal income tax, assuming
a 46.41% combined Federal, New York, and local rate, the tax equivalent yields
respectively were:
TAX-EQUIVALENT YIELDS
CLASS A CLASS B CLASS C CLASS H CLASS E
------- ------- ------- ------- -------
National Portfolio 7.33% 6.79% 6.79% 6.79% 7.69%
Minnesota Portfolio 8.39% 7.31% 7.31% 7.31% 8.69%
New York Portfolio 9.16% 8.31% 8.31% 8.31% 9.57%
New York Portfolio also 9.51% 8.63% 8.63% 8.63% 9.94%
subject to New York City tax
TAX-FREE NATIONAL PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS E
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**86 979 0 8 987 -1.3%
87 903 4 74 981 -0.6%
88 942 4 157 1,103 12.4%
89 948 4 242 1,194 8.3%
90 923 4 319 1,246 4.4%
91 986 4 430 1,420 14.0%
92 1,018 4 540 1,562 10.0%
93 1,093 4 677 1,774 13.6%
94 999 10 709 1,718 -3.2%
95 1,032 11 836 1,879 9.4%
------------------------------------
CUMULATIVE TOTAL RETURN Last 5 Years 44.0%
Life of Portfolio 87.9%
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($)+ Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*95 1,045 1 51 1,097 9.7%
CLASS B
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,093 1 46 1,140 14.0%
CLASS C
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,093 1 46 1,140 14.0%
CLASS H
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,094 1 46 1,141 14.1%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
Most recent: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 years 8 Years 9 Years Life of
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 4.38% 0.55% 4.74% 6.02% 7.57% 7.03% 7.21% 7.84% 6.87% 6.99%
Class A --- --- --- --- --- --- --- --- --- *9.63%
Class B --- --- --- --- --- --- --- --- --- *13.96%
Class C --- --- --- --- --- --- --- --- --- *13.95%
Class H --- --- --- --- --- --- --- --- --- *14.06%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This reflects the cumulative total return from November 14, 1994 to September
30, 1995 ** June 2, 1986 to September 30, 1986
Had dividends and capital gains distributions been taken in cash, with no
shares being acquired through reinvestment, the cash payments for Classes E, A,
B, C, and H for the period would have been $8, $1, $1, $1, and $1, respectively,
for capital gains distributions and $580, $49, $44, $44, and $44, respectively
for income dividends, and the value of the shares as of September 30, 1995,
would have been $1,032, $1,045, $1,093, $1,093 and $1,094, respectively. All
figures are based upon historical earnings and are not intended to indicate
future performance. Investment return and share value fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. No adjustment has been made for a shareholder's income tax liability on
dividends or capital gains.
TAX-FREE MINNESOTA PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS E
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**86 979 0 7 986 -1.4%
87 897 0 73 970 -1.6%
88 931 0 151 1,082 11.5%
89 930 0 231 1,161 7.3%
90 916 0 305 1,221 5.2%
91 962 0 407 1,369 12.1%
92 987 0 508 1,495 9.2%
93 1,047 0 632 1,679 12.3%
94 976 0 678 1,654 -1.5%
95 1,000 0 793 1,793 8.4%
------------------------------------
CUMULATIVE TOTAL RETURN Last 5 Years 40.1%
Life of Portfolio 79.3%
CLASS A
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,030 0 50 1,080 8.0%
CLASS B
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,075 0 46 1,121 12.1%
CLASS C
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,077 0 46 1,123 12.3%
CLASS H
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,079 0 45 1,124 12.4%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
Most recent: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 years 8 Years 9 Years Life of
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 3.47% 0.97% 4.61% 5.76% 6.98% 6.69% 6.77% 7.37% 6.31% 6.45%
Class A --- --- --- --- --- --- --- --- --- *8.06%
Class B --- --- --- --- --- --- --- --- --- *12.10%
Class C --- --- --- --- --- --- --- --- --- *12.31%
Class H --- --- --- --- --- --- --- --- --- *12.42%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This reflects the cumulative total return from November 14, 1994 to September
30, 1995 ** June 2, 1986 to September 30, 1986
Had dividends and capital gains distributions been taken in cash, with no
shares being acquired through reinvestment, the cash payments for Classes E, A,
B, C, and H for the period would have been $0, $0, $0, and $0, respectively, for
capital gains distributions and $562, $49, $44, $44, and $44, respectively, for
income dividends, and the value of the shares as of September 30, 1995, would
have been $1,000, $1,030, $1,075, $1,077 and $1,079, respectively. All figures
are based upon historical earnings and are not intended to indicate future
performance. Investment return and share value fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. No
adjustment has been made for a shareholder's income tax liability on dividends
or capital gains.
TAX-FREE NEW YORK PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS E
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
<S> <C> <C> <C> <C> <C>
**88 984 0 58 1,042 4.2%
89 1,003 0 135 1,138 9.2%
90 981 1 206 1,188 4.4%
91 1,035 1 302 1,338 12.6%
92 1,069 22 399 1,490 11.4%
93 1,114 45 507 1,666 11.8%
94 1,026 63 557 1,646 -1.2%
95 1,038 67 661 1,766 7.3%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN Last 5 Years 42.0%
Life of Portfolio 76.6%
CLASS A
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*95 1,004 2 49 1,055 5.5%
CLASS B
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,048 2 45 1,095 9.5%
CLASS C
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,049 2 45 1,096 9.6%
CLASS H
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------------
*95 1,047 2 45 1,094 9.4%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
Most recent: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 years Life of
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 2.48% 0.61% 4.23% 5.95% 7.27% 6.79% 7.13% 7.46%
Class A --- --- --- --- --- --- --- *5.54%
Class B --- --- --- --- --- --- --- *9.46%
Class C --- --- --- --- --- --- --- *9.56%
Class H --- --- --- --- --- --- --- *9.36%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This reflects the cumulative total return from November 14, 1994 to September
30, 1995 ** November 6, 1987 to September 30, 1988
Had dividends and capital gains distributions been taken in cash, with no
shares being acquired through reinvestment, the cash payments for Classes E, A,
B, C, and H for the period would have been $48, $2, $2, $2, and $2,
respectively, for capital gains distributions and $498, $48, $43, $43, and $43,
respectively, for income dividends, and the value of the shares as of September
30, 1995, would have been $1,038, $1,004, $1,048, $1,049, and $1,047,
respectively. All figures are based upon historical earnings and are not
intended to indicate future performance. Investment return and share value
fluctuate so that an investors's shares, when redeemed, may be worth more or
less than their original cost. No adjustment has been made for a shareholder's
income tax liability on dividends or capital gains.
Cumulative total return is the increase in value of a hypothetical $1,000
investment made at the beginning of the advertised period. It may be expressed
in terms of dollars or percentage. Average annual total return is the annual
compounded rate of return based upon the same hypothetical investment. The above
tables each include reduction due to the maximum 4.5% sales charge and assume
reinvestment of all Fund dividend and capital gains distributions.
TAX-EXEMPT VERSUS TAXABLE INCOME
The following tables show the yield that taxable investments would have to
earn to equal tax-exempt income earned by an investment in the National
Portfolio, the Minnesota Portfolio, or the New York Portfolio, respectively. The
tax-exempt yields shown are for illustrative purposes only and are not
indicative of the Funds' yields.
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
TAX-EXEMPT YIELDS
-----------------------------
FEDERAL TAXABLE 4.00% 5.00% 6.00% 7.00% 8.00%
INCOME BRACKET
JOINT RETURNS SINGLE RETURNS FEDERAL TAX RATE TAXABLE EQUIVALENT YIELDS
- ----------------- -------------------- ---------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$40,100 $0-24,000 15% 4.71% 5.88% 7.06% 8.24% 9.41%
$40,100-$96,900 $24,000-$58,150 28% 5.56% 6.94% 8.33% 9.72% 11.11%
$96,900-$147,700 $58,150-$121,300 31% 5.80% 7.25% 8.70% 10.14% 11.59%
$147,700-$263,750 $121,300-$263,750 36% 6.25% 7.81% 9.38% 10.94% 12.50%
Over $263,750 Over $263,750 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
MINNESOTA PORTFOLIO
<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
-----------------------------
FEDERAL TAXABLE APPROXIMATE 4.00% 5.00% 6.00% 7.00% 8.00%
INCOME BRACKET COMBINED STATE AND
JOINT RETURNS SINGLE RETURNS FEDERAL TAX RATE TAXABLE EQUIVALENT YIELDS
- ----------------- -------------------- -------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$22,080 $0-$15,110 20.1% 5.01% 6.26% 7.51% 8.76% 10.01%
$22,080-$40,100 $15,110-$24,000 21.8% 5.12% 6.39% 7.67% 8.95% 10.23%
$40,100-$86,340 $24,000-$48,890 33.8% 6.04% 7.55% 9.06% 10.57% 12.08%
$86,340-$96,900 $48,890-$58,150 34.1% 6.07% 7.59% 9.10% 10.62% 12.14%
$96,900-$147,700 $58,150-$121,300 36.9% 6.44% 7.92% 9.50% 11.09% 12.68%
$147,700-$263,750 $121,300-$263,750 41.4% 6.83% 8.53% 10.24% 11.95% 13.65%
Over $263,750 Over $263,750 44.7% 7.23% 9.04% 10.85% 12.66% 14.47%
</TABLE>
NEW YORK PORTFOLIO
STATE OF NEW YORK
<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
---------------------------------
FEDERAL TAXABLE APPROXIMATE 4.00 %5.00% 6.00 %7.00 %8.00%
INCOME BRACKET COMBINED FEDERAL
JOINT RETURNS SINGLE RETURNS AND STATE TAX RATE TAXABLE EQUIVALENT YIELDS
- ------------- -------------- ------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$38,000 $0-$22,750 19.25% 4.95% 6.19% 7.43% 8.67% 9.91%
$38,000-$91,850 $22,750-$55,100 33.13% 5.98% 7.48% 8.97% 10.47% 11.96%
$91,850-$140,000 $55,100-$115,000 35.92% 6.24% 7.80% 9.36% 10.92% 12.48%
$140,000-$250,000 $115,000-$250,000 40.56% 6.73% 8.41% 10.09% 11.78% 13.46%
Over $250,000 Over $250,000 43.90% 7.13% 8.91% 10.70% 12.48% 14.26%
</TABLE>
NEW YORK PORTFOLIO
CITY OF NEW YORK
<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
-------------------------------
FEDERAL TAXABLE APPROXIMATE 4.00% 5.00% 6.00% 7.00% 8.00%
INCOME BRACKET COMBINED FEDERAL,
JOINT RETURNS SINGLE RETURNS STATE AND LOCAL TAX RATE TAXABLE EQUIVALENT YIELDS
- ------------- -------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0-$40,100 0-$24,000 21.72% 5.11% 6.39% 7.66% 8.94% 10.22%
$40,100-$96,900 $24,000-$58,150 35.36% 6.19% 7.74% 9.28% 10.83% 12.38%
$96,900-$147,700 $58,150-$121,300 38.26% 6.48% 8.10% 9.72% 11.34% 12.96%
$147,700-$263,750 $121,300-$263,750 42.74% 6.99% 8.73% 10.48% 12.22% 13.97%
Over $263,750 Over $263,750 45.96% 7.40% 9.25% 11.10% 12.95% 14.80%
</TABLE>
The tax rates shown above are based on federal, Minnesota and New York tax rates
in effect in 1996. (In the case of New York State and New York City rates,
certain brackets with different tax rates have been combined, and the tax rates
applicable to those brackets have been averaged, in order to simplify the
tables.) In the tables for Minnesota Portfolio and New York Portfolio, the
combined tax rates assume that state and local income taxes paid are deducted in
calculating federal taxable income. The tables do not reflect the federal and
state rules for the phase-out of personal exemptions and deductions. For years
after 1996, the federal and New York tax bracket amounts will be adjusted for
inflation. If these scheduled changes take effect, they will result in slightly
different taxable equivalent yields for 1997 and later years than those shown in
the tables.
"Tax equivalent yield" is computed by dividing the portion of the
Portfolio's yield which is tax-exempt by one minus a stated income tax rate and
then adding the result to the non tax-exempt po rtion of the Portfolio's yield.
While yield may be compared to that of "CDs" (insured, fixed rate
certificates of deposit issued by financial institutions), the Portfolios' yield
is not fixed and an investment in the Portfolios is not insured.
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CRT = ERV + P 100
-------
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
Average annual total return figures are computed by finding the average
annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
This calculation deducts the maximum sales charge from the initial
hypothetical $1,000 investment, assumes all dividends and capital gains
distributions are reinvested at net asset value on the appropriate reinvestment
dates as described in the Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
YIELD = 2[(a-b)] -1
----
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
As noted in the Prospectus, the Fund may advertise its relative performance
as compiled by outside organizations or refer to publications which have
mentioned its performance.
Following is a list of ratings services which may be referred to, along
with the category in which the Fund is included. Because some of these services
do not take into account sales charges, their ratings may sometimes be different
than had they done so:
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. general municipal bond
Wiesenberger Investment Companies
Services U.S. Government Securities
Morningstar Publications, Inc. municipal bond - general
Johnson's Charts municipal bond
CDA Technologies, Inc. municipal bond
Following is a list of the publications whose articles may be referred to:
AMERICAN BANKER (The) AP-DOW Jones News Service
ASSOCIATED PRESS (The) BARRON'S
BETTER INVESTING BOARDROOM REPORTS
BOND BUYER & CREDIT MARKETS (The) BOND BUYER (The)
BONDWEEK BUSINESS MONTH
BUSINESS WEEK CABLE NEWS NETWORK
CASHFLOW MAGAZINE CFO
CHICAGO TRIBUNE (The) CHRISTIAN SCIENCE MONITOR
CITY BUSINESS/CORPORATE REPORT CITYBUSINESS PUBLICATIONS
COMMERCIAL & FINANCIAL CHRONICLE CONSUMER GUIDE
CORPORATE FINANCE DALLAS MORNING NEWS
DOLLARS & SENSE DOW-JONES NEWS SERVICE
ECONOMIST (The) EQUITY INTERNATIONAL
EUROMONEY FINANCIAL EXECUTIVE
FINANCIAL PLANNING FINANCIAL SERVICES WEEK
FINANCIAL TIMES FINANCIAL WORLD
FORBES FORTUNE
FUTURES GLOBAL FINANCE
GLOBAL INVESTOR INDUSTRY WEEK
INSTITUTIONAL INVESTOR INTERNATIONAL HERALD TRIBUNE
INVESTMENT DEALER'S DIGEST INVESTOR'S BUSINESS DAILY
KIPLINGER PERSONAL FINANCE KIPLINGER CALIF. LETTER (The)
KIPLINGER FLORIDA LETTER KIPLINGER TEXAS LETTER
KIPLINGER WASHINGTON LETTER (The) KNIGHT/RIDDER FINANCIAL
LA TIMES LIPPER ANALYTICAL SERVICES
MARKET CHRONICLE MINNEAPOLIS STAR TRIBUNE
MONEY MONEY MANAGEMENT LETTER
MOODY'S INVESTORS SERVICE, INC. NATIONAL THRIFT NEWS
NATIONAL UNDERWRITER NELSON'S RESEARCH MONTHLY
NEW YORK DAILY NEWS NEW YORK NEWSDAY
NEW YORK TIMES (The) NEWSWEEK
NIGHTLY BUSINESS REPORT (The) PENSION WORLD
PENSIONS & INVESTMENT AGE PERSONAL INVESTOR
PORTFOLIO LETTER REGISTERED REPRESENTATIVE
RUETERS SECURITIES PRODUCT NEWS
SECURITIES WEEK SECURITY TRADERS HANDBOOK
SAINT PAUL PIONEER PRESS STANDARD & POOR'S CORPORATION
STANGER'S INVESTMENT ADVISOR STANGER'S SELLING MUTUAL FUNDS
STOCK MARKET MAGAZINE (The) TIME
TRUSTS & ESTATES U.S. NEWS & WORLD REPORT
UNITED PRESS INTERNATIONAL USA TODAY
WALL STREET JOURNAL (The) WASHINGTON POST (The)
FORTIS BENEFITS INSURANCE COMPANY WOODBURY BULLETIN
WIESENBERGER INVESTMENT COMPANIES
SERVICES
FINANCIAL STATEMENTS
The financial statements included as part of the Fund's 1995 Annual Report
to Shareholders, filed with the Securities and Exchange Commission in December,
1995, are incorporated herein by reference. The Annual Report accompanies this
Statement of Additional Information.
CUSTODIAN; COUNSEL; ACCOUNTANTS
First Bank National Association, First Bank Place, Minneapolis, MN 55480
acts as custodian of the Fund's assets and portfolio securities; Dorsey &
Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, MN 55402, is the
independent General Counsel for the Fund; and KPMG Peat Marwick LLP, 4200
Norwest Center, Minneapolis, MN 55402, acts as the Fund's independent auditors.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of Fortis Income owes certain fiduciary
duties to it and to its shareholders.
Minnesota law provides that a director "shall discharge the duties of the
position of director in good faith, in a manner the director reasonably believes
to be in the best interest of the corporation, and with the care an ordinarily
prudent person in a like position would exercise under similar circumstances."
Fiduciary duties of a director of a Minnesota corporation include, therefore,
both a duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances). Minnesota law authorizes corporations 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 director's 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 laws, or (iv) for any transaction from which
the director derived an improper personal benefit. The Articles of Incorporation
of Fortis Income limit the liability of directors to the fullest extent
permitted by Minnesota statutes, except to the extent that such a liability
cannot be limited as provided in the 1940 Act (which act prohibits any
provisions which purport to limit the liability of directors arising from such
directors' willful misfeasance, 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 under such act.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the common stock offered hereby. The Prospectus and
this Statement of Additional Information do not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with Rules and Regulations of the Commission. The Registration
Statement may be inspected at the principal office of the Commission at 450
Fifth Street, N.W., Washington, D.C., and copies thereof may be obtained from
the Commission at prescribed rates.
2/1/96
FORTIS TAX-FREE PORTFOLIOS, INC. ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULE OF INVESTMENTS
NATIONAL PORTFOLIO 4
MINNESOTA PORTFOLIO 7
NEW YORK PORTFOLIO 10
STATEMENTS OF ASSETS AND LIABILITIES 12
STATEMENTS OF OPERATIONS 13
STATEMENTS OF CHANGES IN NET ASSETS 14
NOTES TO FINANCIAL STATEMENTS 17
INDEPENDENT AUDITORS' REPORT 22
FEDERAL INCOME TAX INFORMATION 23
BOARD OF DIRECTORS AND OFFICERS 24
* TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2638, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
* TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2638, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638. TO ORDER
PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800) 800-2638,
EXT. 4579.
HIGHLIGHTS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
CLASS A* CLASS B* CLASS C* CLASS E CLASS H*
-------- -------- -------- -------- ---------
NATIONAL PORTFOLIO
NET ASSET VALUE PER SHARE:
<S> <C> <C> <C> <C> <C>
Beginning of period.................... $ 9.79 $ 9.79 $ 9.79 $ 10.38 $ 9.79
End of period.......................... 10.71 10.70 10.70 10.72 10.71
DISTRIBUTIONS PER SHARE:
From net investment income............. $ 0.50 $ 0.43 $ 0.43 $ 0.59 $ 0.43
From net realized gains on
investments.......................... 0.01 0.01 0.01 0.01 0.01
MINNESOTA PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period.................... $ 9.55 $ 9.55 $ 9.55 $ 10.08 $ 9.55
End of period.......................... 10.30 10.27 10.30 10.32 10.30
DISTRIBUTIONS PER SHARE:
From net investment income............. $ 0.49 $ 0.42 $ 0.42 $ 0.57 $ 0.42
NEW YORK PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period.................... $ 10.35 $ 10.35 $ 10.79** $ 10.74 $10.89***
End of period.......................... 10.87 10.84 10.85 10.87 10.83
DISTRIBUTIONS PER SHARE:
From net investment income............. $ 0.52 $ 0.45 $ 0.21+ $ 0.61 $ 0.17++
From net realized gains on
investments.......................... 0.02 0.02 -- 0.02 --
* Period from November 14, 1994 (commencement of operations) to September 30,
1995.
** April 26, 1995.
*** May 31, 1995.
+ For the period from April 26, 1995 (date of first investment) to September
30, 1995.
++ For the period from May 31, 1995 (date of first investment) to September
30, 1995.
</TABLE>
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past twelve months,
refer to the Highlights box below. The letter from the portfolio manager and
president provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings chart shows the type of securities in
which the fund invests, and the pie chart shows a breakdown of the fund's assets
by industry.
The performance chart graphically compares the fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
FORTIS TAX-FREE PORTFOLIOS
[PHOTO]
"Not only does the Fortis Tax-Free National Portfolio help me reduce my tax bill
now, it lets me help revitalize our country by investing in America."
DEAR SHAREHOLDER:
We're pleased to present the Fortis Tax-Free Portfolios annual report for the
year ended September 30, 1995.
ECONOMIC REVIEW AND
INVESTMENT STRATEGIES
Over the past year, fixed income markets performed well, even though short-term
rates rose in 1994. Longer-term rates have since declined about 1 1/2 percent.
This rally in bond prices was caused by signs of an economic slowdown, combined
with subdued inflation. In fact, the Federal Reserve confirmed the bond market's
recognition of a slowdown by lowering short-term rates in July.
Recent moderate growth may be the economic response to the doubling of
short-term interest rates, which the Federal Reserve engineered last year. With
the cost of money now lower, we feel economic expansion should continue through
the balance of this year and into 1996. As long as productivity continues to
rise and labor cost increases remain small, the expectation for inflation should
remain below 2 percent.
PORTFOLIO REVIEW
While interest rates for municipal bonds have also declined over the past 12
months, their decline has been significantly less than the decline in rates on
taxable fixed income securities. For example, a longer term U.S. Treasury
security has declined in yield nearly 1.5 percent over the past year, resulting
in substantial price appreciation. By contrast, municipal securities have
declined in yield by about one-half of 1 percent, resulting in less price
appreciation.
The primary reason for this relative underperformance is congressional
consideration for a simpler tax, such as the "flat tax."
A flat tax would presumably treat all income as taxable, and under such a
proposal, municipal securities would be repriced to compete with all other
taxable alternatives with similar credit characteristics. This concern has
reduced the demand from many traditional and nontraditional buyers of municipal
securities.
The goal of the funds during 1995 has been to improve performance in the current
falling rate environment by lengthening fund duration. We have swapped bonds
with lesser call protection for those with greater call protection. In the
National Portfolio, we continue to emphasize securities issued from states which
have high tax levels and double tax exemption.
IN CLOSING
We appreciate your investment in the Fortis Tax-Free Portfolios. If you have any
questions, please call us or talk with your investment professional.
Sincerely,
/s/ DEAN C. KOPPERUD
- --------------------
Dean C. Kopperud
President
/s/ HOWARD G. HUDSON
- --------------------
Howard G. Hudson
Vice President
October 26, 1995
NATIONAL PORTFOLIO COMPOSITION BY INDUSTRY AS OF 9/30/95
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
General Obligation 22.8%
Health Care/Services 14.5%
Utilities Electric 14.2%
Utilities Water and Sewer 12.2%
Refunded with U.S. Gov't 11.9%
Transportation 10.8%
Other 4.3%
Cash Equivalents/Receivables 2.9%
Housing 2.4%
Higher Education 2.2%
Miscellaneous 1.8%
100.0%
TAX-FREE NATIONAL
TOP TEN HOLDINGS AS OF 09/30/95
Percent of
Bonds Net Assets
- --------------------------------------------------------------------------------
1. Massachusetts Water Resources (6.25%) 2010 4.1%
2. Massachusetts General Obligation (5.875%) 2010 3.9%
3. Michigan State Trunk Line (5.50%) 2021 3.6%
4. Nebraska Public Power Dist (6.125%) 2015 3.4%
5. Boston (City of) MA General Obligation (6.00%) 2014 3.4%
6. New York Triborough Bridge & Tunnel Auth (5.50%) 2017 3.3%
7. New York State Dorm Auth (7.70%) 2012 3.2%
8. Metropolitan Transportation Auth, NY (5.75%) 2013 3.1%
9. Fairfax County Virginia Water Auth (6.00%) 2022 2.7%
10. Fulton County Georgia Water & Sewer (6.375%) 2014 2.6%
NATIONAL PORTFOLIO
CLASS A, B, C AND H CUMULATIVE TOTAL RETURNS
Without With
Sales Sales
Charge Charge
- --------------------------------------------------------------------------------
Class A shares+ +14.80% +9.63%
Without With
CDSC CDSC++
- --------------------------------------------------------------------------------
Class B shares+ +13.96% +10.36%
Class C Shares+ +13.95% +12.95%
Class H shares+ +14.06% +10.46%
Past performance is not indicative of future performance. Total returns include
investment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if
redeemed within two years of purchase, and Class C has a CDSC of 1.00% if
redeemed within one year of purchase.
+ Since November 14, 1994 -- Date shares were first offered to the public
++ Assumes redemption on September 30, 1995.
NATIONAL PORTFOLIO CLASS E SHARES
Value of $10,000 invested June 2, 1986
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROS. MUNICIPAL NATIONAL PORTFOLIO
BOND INDEX*** CLASS E
------------- -------
06/02/86 10,000 9,525
09/30/86 10,638 9,868
09/30/87 10,694 9,810
09/30/88 12,082 11,024
09/30/89 13,131 11,940
09/30/90 14,023 12,460
09/30/91 15,872 14,205
09/30/92 17,531 15,619
09/30/93 19,765 17,749
09/30/94 19,290 17,193
09/30/95 21,448 18,792
National Portfolio Class E
Average Annual Total Return
1 Year 5 Year Since June 2, 1986 @
------ ------ --------------------
Class E* +4.38% +7.57% +6.99%
Class E** +9.30% +8.57% +7.52%
Annual period ended September 30
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
@ Date shares were first offered to the public
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
[PHOTO]
"The Fortis Tax-Free Minnesota Portfolio provides tax-free income exempt from
both state and federal taxes. We feel good knowing our investments ultimately
support the schools, hospitals and roads in our state."
MINNESOTA PORTFOLIO COMPOSITION BY INDUSTRY AS OF 9/30/95
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Health Care / Services 18.7%
Housing 19.7%
General Obligation 16.1%
Utilities Electric 12.8%
Public Facilities 7.0%
Higher Education 5.5%
Refunded with U.S. Gov't 7.9%
Miscellaneous 4.7%
Pollution Control 4.2%
Cash Equivalents/Receivables 2.4%
Utilities Water and Sewer 1.0%
100.0%
TAX-FREE MINNESOTA
TOP TEN HOLDINGS AS OF 9/30/95
Percent of
Bonds Net Assets
- --------------------------------------------------------------------------------
1. Robbinsdale, MN Hospital Revenue (5.45%) 2013 3.7%
2. Minneapolis, MN General Obligation (6.25%) 2012 3.7%
3. Minneapolis & St. Paul, MN HRA Healthcare System
(5.70%) 2016 3.6%
4. Puerto Rico Public Building Authority (5.75%) 2016 3.5%
5. Southern MN Municipal Power Agency (5.75%) 2018 3.3%
6. Brainerd, MN Refunding Revenue (6.65%) 2017 3.0%
7. Stillwater Independent School District #834, MN (5.75%) 2015 2.9%
8. St. Paul, MN HRA Sales Tax (5.55%) 2023 2.8%
9. St. Louis Park, MN Hospital Facility (7.25%) 2015 2.7%
10. Rochester, MN Health Care Facility (6.25%) 2014 2.4%
MINNESOTA PORTFOLIO
CLASS A, B, C AND H CUMULATIVE TOTAL RETURNS
Without With
Sales Sales
Charge Charge
- --------------------------------------------------------------------------------
Class A shares+ +13.15% +8.06%
Without With
CDSC CDSC++
- --------------------------------------------------------------------------------
Class B shares+ +12.10% +8.50%
Class C shares+ +12.31% +11.31%
Class H shares+ +12.42% +8.82%
Past performance is not indicative of future performance. Total returns include
investment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if
redeemed within two years of purchase, and Class C has a CDSC of 1.00% if
redeemed within one year of purchase.
+ Since November 14, 1994 -- Date shares were first offered to the public
++ Assumes redemption on September 30, 1995.
MINNESOTA PORTFOLIO CLASS E SHARES
Value of $10,000 invested June 2, 1986
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROS. MUNICIPAL MINNESOTA PORTFOLIO
BOND INDEX*** CLASS E
------------- -------
6/2/86 10,000 9,525
9/30/86 10,638 9,865
9/30/87 10,694 9,692
9/30/88 12,082 10,817
9/30/89 13,131 11,603
9/30/90 14,023 12,214
9/30/91 15,872 13,681
9/30/92 17,531 14,952
9/30/93 19,765 16,787
9/30/94 19,290 16,541
9/30/95 21,448 17,922
Minnesota Portfolio Class E
Average Annual Total Return
1 Year 5 Year Since June 2, 1986@
------ ------ -------------------
Class E* +3.47% +6.98% +6.45%
Class E** +8.35% +7.97% +6.98%
Annual period ended September 30
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
@ Date shares were first offered to the public
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
[PHOTO]
"The recent increase in federal tax brackets concerned me. Because I live in New
York City, which has a very heavy tax burden, the Fortis Tax-Free New York
Portfolio offers the triple tax-free income I need."
NEW YORK PORTFOLIO COMPOSITION BY INDUSTRY AS OF 9/30/95
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Refunded with U.S. Gov't 37.2%
Housing 21.5%
Transportation 12.5%
Health Care / Services 6.8%
Miscellaneous 6.4%
Pollution Control 6.4%
General Obligation 3.8%
Cash Equivalents/ Receivables 3.1%
Utilities Electric 2.3%
100.0%
TAX-FREE NEW YORK
TOP TEN HOLDINGS AS OF 9/30/95
Percent of
Bonds Net Assets
- -----------------------------------------------------------------------------
1. New York State Dorm Auth (7.50%) 2011 7.2%
2. New York State Dorm Auth (7.80%) 2005 7.0%
3. New York City, NY General Obligation (8.25%) 2017 6.8%
4. New York State Urban Development Corp (7.375%) 2018 5.7%
5. New York Local Government Assistance Corp (7.50%) 2020 5.7%
6. New York State Med Care (7.45%) 2029 5.6%
7. New York Triborough Bridge & Tunnel Auth (8.125%) 2012 4.5%
8. New York State Med Care (6.375%) 2029 4.2%
9. New York State Thruway Auth (6.25%) 2014 4.1%
10. United Nations Development Corp, NY (6.00%) 2012 4.1%
NEW YORK PORTFOLIO
CLASS A, B, C AND H CUMULATIVE TOTAL RETURNS
Without With
Sales Sales
Charge Charge
- --------------------------------------------------------------------------------
Class A shares+ +10.51% +5.54%
Without With
CDSC CDSC++
- --------------------------------------------------------------------------------
Class B shares+ +9.46% +5.86%
Class C shares* +2.54% +1.54%
Class H shares** +1.00% -2.60%
Past performance is not indicative of future performance. Total returns include
investment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if
redeemed within two years of purchase, and Class C has a CDSC of 1.00% if
redeemed within one year of purchase.
+ Since November 14, 1994 -- Date shares were first offered to the public ++
Assumes redemption on September 30, 1995.
* Since April 26, 1995 -- Date of first investment.
** Since May 31, 1995 -- Date of first investment.
NEW YORK PORTFOLIO CLASS E SHARES
Value of $10,000 invested November 6, 1987
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROS. MUNICIPAL NEW YORK PORTFOLIO CLASS
BOND INDEX*** CLASS E
------------- -------
11/6/87 10,000 9,550
9/30/88 11,258 10,413
9/30/89 12,235 11,371
9/30/90 13,067 11,877
9/30/91 14,790 13,385
9/30/92 16,336 14,893
9/30/93 18,418 16,662
9/30/94 17,974 16,458
9/30/95 19,986 17,662
New York Portfolio Class E
Average Annual Total Return
1 Year 5 Year Since November 6, 1987@
------ ------ -----------------------
Class E* +2.48% +7.27% +7.46%
Class E** +7.31% +8.26% +8.09%
Annual period ended September 30
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
@ Date shares were first offered to the public
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
National Portfolio
Schedule of Investments
September 30, 1995
MUNICIPAL BONDS-97.07%
- -------------------------------------------------------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
- ----------- ----------- ------------ ------------
CALIFORNIA-3.14%
<C> <C> <C> <C> <C>
$4,000,000 Southern California Public Power, 6.36% Zero Coupon Bond 7-1-2013
(d)................................................................. A+ $ 1,316,482 $ 1,352,760
2,750,000 Sulphur Springs (City of) CA, 7.00% Zero Coupon General Obligation Ser
A MBIA Insured 9-1-2012 (d)......................................... AAA 858,700 998,030
------------ ------------
2,175,182 2,350,790
------------ ------------
DISTRICT OF COLUMBIA-4.14%
1,250,000 District of Columbia, 7.50% General Obligation Ser 1990B FSA Insured
6-1-2010 (Refunded 6-1-2000 @ 102).................................. AAA 1,235,937 1,427,750
1,500,000 Georgetown University, 8.25% District of Columbia Bond 4-1-2018
(Crossover Refunded 10-1-2001 @ 103)................................ A+ 1,552,500 1,670,055
------------ ------------
2,788,437 3,097,805
------------ ------------
FLORIDA-2.40%
500,000 Florida (State of), 7.50% Mid-Bay Bridge Auth Ser 1991A 10-1-2017
(Crossover Refunded 10-1-2001 @ 103)................................ NR 472,956 551,070
500,000 Leesburg (City of) FL, 7.50% Capital Improvement Hosp Rev Bond
(Leesburg Regional Med Ctr) Ser 1991A 7-1-2021 (Refunded 7-1-2002 @
102)................................................................ A- 488,074 586,845
600,000 Tampa (City of) FL, 8.25% Cap Improvement Program Rev Bond Ser A
10-1-2018........................................................... AA 598,858 660,996
------------ ------------
1,559,888 1,798,911
------------ ------------
GEORGIA-4.00%
1,800,000 Fulton County Georgia Water & Sewer, 6.375% Ref Bond FGIC Insured
1-1-2014............................................................ AAA 1,784,800 1,951,542
1,000,000 Municipal Electric Auth of Georgia, 6.50% 5th Crossover Ser Proj 1
1-1-2017............................................................ A 992,427 1,053,300
------------ ------------
2,777,227 3,004,842
------------ ------------
ILLINOIS-5.76%
500,000 Channahon Park IL District, 7.50% General Obligation 1-1-2011......... NR 499,375 536,480
750,000 Chicago Gas Supply, 7.50% Rev for Peoples Gas Ser B 3-1-2015.......... AA- 759,976 827,700
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj Ser 1991-A 7-1-2021....... BBB 992,291 1,079,290
750,000 Illinois Health Fac Auth, 8.25% Rev Ref Bond (West Suburban Hospital
Med Ctr) 8-1-2013................................................... A* 765,293 806,610
1,000,000 Illinois Housing Dev Auth, 7.55% Multifamily Housing Ser 1990A
7-1-2014............................................................ A+ 987,575 1,065,000
------------ ------------
4,004,510 4,315,080
------------ ------------
INDIANA-3.69%
1,200,000 Indiana Bond Bank, 8.50% Special Loan Program Ser B 2-1-2018.......... A 1,213,251 1,334,028
1,250,000 Indianapolis (City of) IN Local Public Improvement Bond Bank, 7.40%
Ser 1990A 1-1-2020 (Refunded 7-1-2000 @ 102)........................ Aaa* 1,247,201 1,424,900
------------ ------------
2,460,452 2,758,928
------------ ------------
KENTUCKY-1.46%
1,000,000 Louisville & Jefferson County KY, 6.75% Metro Sewer Dist Rev Bond Ser
A AMBAC Insured 5-15-2019........................................... AAA 996,244 1,090,290
------------ ------------
MAINE-2.22%
1,500,000 Regional Waste Sys, Inc. of ME, 7.95% Ser A-C 7-1-2010................ AA 1,512,038 1,660,905
------------ ------------
MARYLAND-2.46%
1,940,000 Maryland Industrial Dev Fin Auth Rev Bonds, 5.50% Ser 1995 MBIA
Insured Bon Secours Health System Project 8-15-2020................. AAA 1,858,817 1,841,681
------------ ------------
MASSACHUSETTS-12.18%
2,500,000 Boston (City of) MA 6.00% General Obligation AMSAC Insured 8-1-2014... AAA 2,493,783 2,529,550
500,000 Boston City Hospital MA, 7.625% Rev Bond Ser A 2-15-2021 (Refunded
8-15-2000 @102)..................................................... Aaa* 496,262 571,025
2,850,000 Massachusetts, 5.875% General Obligation Ser B FGIC Insured
8-1-2010............................................................ AAA 2,824,750 2,910,448
3,000,000 Massachusetts Water Resources, 6.25% Gen Rev Ref Bond Ser 1992B
11-1-2010........................................................... A 2,995,744 3,104,820
------------ ------------
8,810,539 9,115,843
------------ ------------
MICHIGAN-6.80%
1,300,000 Lake Orion MI, 5.50% School District Ref Bonds UT100 AMBAC Insured
Q-SBLF 5-1-2020..................................................... AAA 1,250,795 1,244,230
2,850,000 Michigan State Trunk Line, 5.50% Ser A MBIA-IBC Insured 10-1-2021..... AAA 2,566,595 2,674,155
1,200,000 University of Michigan, 5.75% Hospital Revenue Bond Series A
12-1-2012........................................................... AA 1,174,255 1,171,764
------------ ------------
4,991,645 5,090,149
------------ ------------
MINNESOTA-4.35%
$1,140,000 Fergus Falls (City of) MN, 6.50% Health Care Facility (Lake Regional
Hospital) Ser A 9-1-2018............................................ BBB+ $ 1,133,579 $ 1,114,703
2,000,000 Minneapolis (City of) MN, 5.75% General Obligation Zero Coupon Bond
Ser 1993A 12-1-2013 (d)............................................. AAA 728,921 700,140
670,000 Minneapolis (City of) MN, 7.00% Health Care Fac Rev (St Olaf
Residence) Ser 1993 10-1-2012....................................... NR 670,000 693,859
690,000 St. Anthony (City of) MN, 6.75% Housing Dev Rev Ref Bond 7-1-2007..... AA 690,000 749,237
------------ ------------
3,222,500 3,257,939
------------ ------------
MISSOURI-1.75%
1,250,000 Missouri State Health & Educ, 7.70% Still Regional Med Ctr 2-1-2013... BBB 1,302,861 1,310,000
------------ ------------
NEBRASKA-3.39%
2,500,000 Nebraska Public Power District, 6.125% Power Supply Sys Rev
1-1-2015............................................................ A+ 2,459,190 2,535,800
------------ ------------
NEVADA-4.09%
1,500,000 Nevada School District #3 (Clark County), 7.65% General Obligation
5-1-2010 (Refunded 5-1-2000 @102)................................... A+ 1,490,865 1,719,645
1,200,000 Washoe County Nevada Hosp, 7.60% (Washoe Med Ctr) Rev Bond Ser 1989A
6-1-2019............................................................ A 1,171,449 1,341,840
------------ ------------
2,662,314 3,061,485
------------ ------------
NEW YORK-14.98%
2,465,000 Metropolitan Transportation Authority NY Commuter Facilities, 5.75%
Ser O 7-1-2013...................................................... BBB 2,387,428 2,353,976
750,000 New York City, 7.50% General Obligation Group A Ser B 2-1-2009........ BBB+ 733,539 810,053
1,000,000 New York City, 8.25% General Obligation Ser B 6-1-2005................ BBB+ 988,988 1,175,240
730,000 New York State Med Care, 7.50% Mental Health Ser A 2-15-2021 (Refunded
2-15-2001 @ 102).................................................... AAA 701,558 845,763
2,080,000 New York State, 7.70% Dorm Auth Ser 1990A 5-15-2012 (Refunded
5-15-2000 @ 102).................................................... BBB+ 2,090,007 2,398,427
1,000,000 New York State, 7.75% UDC Correctional Fac Ser 1 1-1-2014 (Refunded
1-1-2000 @ 102)..................................................... Aaa* 958,341 1,145,220
2,600,000 New York Triborough Bridge and Tunnel Auth, 5.50% General Purpose Ser
Y 1-1-2017.......................................................... A+ 2,490,444 2,486,770
------------ ------------
10,350,305 11,215,449
------------ ------------
NORTH DAKOTA-2.28%
500,000 Mercer County ND, 7.70% Basin City Elec Power Ser 1984C 1-1-2019...... A 500,961 520,080
1,100,000 Ward County ND, 7.50% Health Care Fac Ser 1991B 7-1-2011.............. A- 1,134,289 1,184,755
------------ ------------
1,635,250 1,704,835
------------ ------------
OHIO-1.07%
750,000 Cleveland (City of) OH Parking Fac, 8.10% Improvement Rev Bond
9-15-2022........................................................... NR 761,327 800,595
------------ ------------
PENNSYLVANIA-2.30%
750,000 Clarion County PA Hosp Auth, 8.50% Clarion Hosp Proj Rev Bond
7-1-2021............................................................ BBB- 733,008 792,900
890,000 Delaware County PA, 8.10% IDA Rev Res Recov Ser A LOC Security
Pacific: Proj Guar by Westinghouse 12-1-2013........................ A+ 933,920 931,839
------------ ------------
1,666,928 1,724,739
------------ ------------
PUERTO RICO-1.99%
1,555,000 Puerto Rico, 5.75% Public Building Auth Rev Ref Bond Ser L 7-1-2016... A 1,534,855 1,489,457
------------ ------------
SOUTH CAROLINA-1.34%
1,000,000 Charleston (City of) SC, 6.00% Water & Sewer Rev Bond 1-1-2018........ AA- 968,881 1,002,460
------------ ------------
UTAH-2.18%
1,500,000 Intermountain Power Agency, 7.75% Utah Power Supply Rev Ref Bond Ser B
7-1-2020............................................................ AA- 1,535,836 1,634,595
------------ ------------
VIRGINIA-4.75%
2,000,000 Fairfax County VA, 6.00% Authority Water Rev 4-1-2022................. AA- 1,974,030 2,001,820
1,500,000 Virginia State Public School Auth, 6.20% Ser A 8-1-2014............... AA 1,491,571 1,553,730
------------ ------------
3,465,601 3,555,550
------------ ------------
WASHINGTON-3.24%
1,200,000 Washington Public Power Supply Sys, 7.00% Nuclear Proj 2 Ref Rev Bond
Ser 1990B 7-1-2012.................................................. AA 1,157,141 1,275,168
1,000,000 Washington Public Power Supply Sys, 7.625% Proj 2 Rec Bond Ser 1990A
7-1-2008 (Refunded 7-1-2000 @ 102).................................. AAA 986,875 1,149,450
------------ ------------
2,144,016 2,424,618
------------ ------------
WISCONSIN-1.11%
$ 750,000 Wisconsin Health & Educ Fac Auth, 8.50% Rev Bond Ser 1990 (Franciscan
Health Sys) 3-1-2020 (Refunded 3-1-2000 @ 102)...................... BBB+ $ 750,000 $ 833,685
------------ ------------
TOTAL MUNICIPAL BONDS................................................. $68,394,843 $72,676,431
============ ============
SHORT-TERM INVESTMENTS-1.46%
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value (b)
- ----------- ------------
INVESTMENT COMPANY-1.46%
$1,090,543 Federated Tax-Free Obligation Fund, Current Rate -- 4.04%........................... $ 1,090,543
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $69,485,386) (A)............................. $73,766,974
===========
</TABLE>
(a) At September 30, 1995, the cost of securities for federal income tax
purposes was $69,491,180 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation................. $ 4,442,638
Unrealized depreciation................. (166,844)
-----------------------------------------------------
Net unrealized appreciation............. $ 4,275,794
-----------------------------------------------------
(b) See Note A of accompanying Notes to Financial Statements regarding
valuation of securities
(c) Note:Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rate disclosed for zero coupon securities represents the
effective yields on the date of acquisition.
*Moody's Rating.
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
Minnesota Portfolio
Schedule of Investments
September 30, 1995
MUNICIPAL BONDS-97.67%
- ------------------------------------------------------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
- ----------- ----------- ------------ ------------
GENERAL OBLIGATIONS-16.11%
<S> <C> <C> <C>
$ 450,000 Eagan (City of) MN, 7.25% General Obligation Water Rev Sys Bond Ser
1990A 12-1-2008 (Crossover Refunded 12-1-1999 @ 100)................ A+ $ 445,500 $ 499,446
500,000 Edina (City of) MN,7.30% General Obligation 2-1-2008 (Crossover
Refunded 2-1-1998 @ 100)............................................ NR 503,456 535,175
1,900,000 Minneapolis (City of) MN, 6.25% General Obligation Sales Tax & Rev
Bond Ser 1992 4-1-2012.............................................. AAA 1,920,857 2,003,645
1,995,000 Puerto Rico, 5.75% Public Building Auth Ref Rev Bond Ser L 7-1-2016... A 1,978,500 1,910,911
1,200,000 St Paul (City of) MN, 5.80% Independent School District #625 Ser B
2-1-2012............................................................ AA 1,190,805 1,209,348
1,600,000 Stillwater (City of) MN, 5.75% Independent School District #834 MBIA
Ins. Sch Dist Enhancement Program 2-1-2015.......................... AAA 1,581,379 1,600,976
1,000,000 Wayzata (City of) MN, 5.95% Independent School District #284-GO Ser
1995B 2-1-2013...................................................... AAA 1,000,000 1,012,030
------------ ------------
8,620,497 8,771,531
------------ ------------
HEALTH CARE/SERVICES-18.72%
1,000,000 Duluth (City of) MN, 8.375% EDA Health Care Fac Rev (St. Mary's Med
Ctr) Ser 1990 2-15-2020 (Refunded 2-15-2000 @ 102).................. AAA 1,022,980 1,169,660
785,000 Duluth (City of) MN, 9.00% Hospital Fac Rev Bond for St. Luke's Ser
1988 5-1-2018 (Refunded 5-1-1998 @ 102)............................. AAA 802,172 890,151
500,000 Minneapolis & St Paul (Cities of) MN HRA, 6.75% Health Care Fac Rev
Bond Group Health Inc Ser 1992 12-1-2013............................ A- 485,875 523,945
1,100,000 Minneapolis & St. Paul MN, 6.75% HRA Health Care System HealthOne
Obligated Group MBIA Insured 8-15-2014.............................. AAA 1,098,784 1,177,836
2,000,000 Minneapolis & St. Paul MN, 5.70% HRA Health Care System Childrens
Health Care Ser A 8-15-2016......................................... AAA 1,975,800 1,968,680
2,100,000 Robbinsdale (City of) MN, 5.45% Hospital Rev North Memorial Medical
Ctr Ser B AMBAC Insured 5-15-2013................................... AAA 2,107,362 2,012,661
1,275,000 Rochester (City of) MN, 6.25% Health Care Fac Rev Bond Mayo
Foundation/Mayo Medical Ctr Ser 1992D 11-15-2014.................... AA+ 1,274,860 1,316,004
1,180,000 St. Paul (City of) MN, 5.50% HRA Hospital Revenue St. Paul Ramsey
Medical Ctr AMBAC Insured 5-15-2013................................. AAA 1,134,636 1,137,355
------------ ------------
9,902,469 10,196,292
------------ ------------
HIGHER EDUCATION-5.54%
1,275,000 Minnesota Higher Education, 6.40% Rev Ser 3J for Macalester College
3-1-2022............................................................ AA- 1,263,286 1,314,079
460,000 Minnesota Higher Education, 7.625% Mortgage Rev Ser 3F for St. Mary's
College 10-1-2016 (Refunded 10-1-2001 @ 100)........................ BBB- 457,700 531,245
500,000 Northfield (City of) MN, 8.00% College Fac Rev Bond for St Olaf
College 10-1-2018 (Refunded 10-1-1998 @ 100)........................ A 500,887 550,895
600,000 University of Minnesota, 7.75% Ref Bond Ser A 2-1-2010 (Refunded
2-1-1996 @ 102)..................................................... AAA 610,027 619,614
------------ ------------
2,831,900 3,015,833
------------ ------------
HOUSING-19.73%
1,500,000 Brainerd (City of) MN, 6.65% Ref Rev Bond Ser 1992B, Evangelical
Lutheran-Good Samaritan Project 3-1-2017............................ AAA 1,514,668 1,609,980
365,000 Dakota County MN,8.10% HRA Single Family Rev GNMA Backed 3-1-2016..... AAA 372,287 388,302
300,000 Eden Prairie (City of) MN, 7.40% Multifamily Housing Ser 1990 FHA
Insured 8-1-2025.................................................... AAA 299,956 317,988
880,000 Eden Prairie (City of) MN, 8.00% Multifamily Housing Ser A FHA Insured
7-1-2026............................................................ AAA 880,000 951,218
595,000 Edina (City of) MN, 7.50% Housing Dev Ref Rev Edina Park Plaza Ser
1989A 12-1-2009..................................................... Aa* 594,625 633,782
500,000 Edina (City of) MN, 7.70% Housing Dev Ref Rev Edina Park Plaza Ser A
FHA Insured 12-1-2028............................................... Aa* 500,000 529,765
525,000 Mankato (City of) MN, 8.25% Nursing Home Rev Bond Board of Soc
Ministry Mankato Lutheran Ser 1991A 10-1-2021....................... NR 520,000 561,540
600,000 Minneapolis (City of) MN CDA & HRA, 7.875% Rev Bond 7-1-2017.......... AA- 592,536 624,342
1,070,000 Minneapolis (City of) MN HRA, 7.10% Mortgage Rev Bond Riverplace Proj
Ser A LOC Bank of Tokyo 1-1-2020.................................... Aa3* 1,082,871 1,106,990
485,000 Minneapolis (City of) MN, 8.25% Health Care Fac Rev Bond
Jones-Harrison Residence Ser 1991 9-1-2011 NR 479,122 524,804
350,000 Minneapolis (City of) MN, 8.25% Rev Bond Trinity Housing Proj Ser 1991
2-1-2018............................................................ NR 350,000 358,806
500,000 Minnesota Housing Finance Agency, 6.95% Housing Dev Bond Ser 1992A
8-1-2017............................................................ A+ 500,000 524,735
220,000 Minnesota Housing Finance Agency, 7.70% Single Family Mtg Bond Ser C
7-1-2014............................................................ AA+ 221,286 234,139
440,000 Northfield (City of) MN, 7.00% Health Care Facility Northfield
Retirement Center 5-1-2015.......................................... NR 436,036 450,072
735,000 Red Wing (City of) MN, 6.50% Elderly Housing Fac Ref Rev River Region
Obligated Group Ser 1993C 9-1-2022.................................. BBB+ 730,648 729,399
500,000 Spring Park (City of) MN, 8.25% Health Care Fac Rev Bond Twin Birch
Health Care Ctr 8-1-2011............................................ NR 500,000 544,690
660,000 Waconia (City of) MN HRA, 6.00% Ref Rev Bond Evangelical Lutheran Good
Samaritan Society Ser 1993A 6-1-2014................................ A- $ 660,000 $ 652,634
------------ ------------
10,234,035 10,743,186
------------ ------------
MISCELLANEOUS-4.67%
450,000 Dakota County MN HRA, 7.50% Limited Annual Appropriation Tax & Rev
Supported Bond Ser 1991 1-1-2006.................................... BBB+ 450,000 474,043
400,000 Dawson (City of) MN, 7.30% IDR Ref Bond Associated Milk Producers
9-1-2000............................................................ NR 396,426 419,940
1,000,000 Minneapolis (City of) MN CDA, 7.375% Limited Tax Supported Dev Rev
Common Bond Fund Ser 1992G-3 12-1-2012.............................. BBB+ 1,000,000 1,100,780
500,000 Minneapolis (City of) MN CDA, 8.375% Limited Tax Supported Dev Rev
Common Bond Fund Ser 1990-6A 6-1-2007............................... BBB+ 497,500 549,635
------------ ------------
2,343,926 2,544,398
------------ ------------
POLLUTION CONTROL-4.22%
650,000 East Grand Forks (City of) MN, 7.75% Pollution Control Rev (American
Crystal Sugar) Ser 1991A 4-1-2018................................... BBB+ 650,521 682,910
1,000,000 Minnesota Public Fac Auth, 6.65% Zero Coupon Water Pollution Rev Bond
Ser 1992A 3-1-2007 (d).............................................. AAA 473,932 520,670
1,000,000 Minnesota Public Fac Auth, 7.10% Water Pollution Rev Bond Ser 1990A
3-1-2012............................................................ AAA 978,768 1,093,200
------------ ------------
2,103,221 2,296,780
------------ ------------
PUBLIC FACILITES-6.96%
400,000 Duluth (City of) MN, 6.75% Gross Rev Recreation Fac Bond Spirit
Mountain Ser 1992 2-1-2007.......................................... NR 400,000 417,004
325,000 Moorhead (City of) MN, 7.75% Golf Course Rev Bond Ser 1992A
12-1-2015........................................................... NR 325,000 359,931
500,000 St. Paul (City of) MN HRA, 6.45% Parking Rev Bond Ser 1992A 8-1-2007
(Refunded 8-1-2000 @ 102)........................................... A- 500,000 548,615
1,000,000 St. Paul (City of) MN, 5.45% HRA Sales Tax Rev Bond Civic Ctr Proj Ser
1993 11-1-2013...................................................... A 983,751 958,880
1,600,000 St. Paul (City of) MN, 5.55% HRA Sales Tax Rev Civic Ctr Proj MBIA-IBC
11-1-2023........................................................... AAA 1,523,244 1,506,832
------------ ------------
3,731,995 3,791,262
------------ ------------
REFUNDED WITH U.S. GOVERNMENT SECURITIES-7.90%
400,000 Minneapolis (City of) MN, 8.00% HRA St. Paul HealthOne Ser 1990B
8-15-2014 (Prerefunded 8-15-2000) AAA 412,624 467,492
1,100,000 Minneapolis (City of) MN, 9.125% Hospital Fac Ref Rev Bond Ser B
12-1-2014 (Refunded 12-1-97 @102)................................... AAA 1,187,139 1,234,024
230,000 Minneapolis (City of) MN, 9.50% CDA For Mt Sinai Hospital Assoc Ser
1986 11-1-2006 (Refunded 11-1-96 @102).............................. AAA 243,271 248,060
1,275,000 St. Louis Park (City of) MN, 7.25% Hospital Fac Rev Methodist Ser
1990C AMBAC Insured 7-1-2015 (Prerefunded 7-1-2000 @ 102)........... AAA 1,261,527 1,445,289
765,000 St. Louis Park (City of) MN, 8.50% Health Care Fac (Park Nicollet Med
Ctr) Ser A 1-1-2011 (Refunded 1-1-2001 @ 100)....................... AAA 771,416 904,352
------------ ------------
3,875,977 4,299,217
------------ ------------
UTILITIES-ELECTRIC-12.79%
1,000,000 Northern MN Municipal Power Agency, 5.50% Elec Sys Rev Bond Ser B
AMBAC Insured 1-1-2018.............................................. AAA 947,300 966,300
1,295,000 Northern MN Municipal Power Agency, 7.102% Zero Coupon Elec Sys Rev
Ref Ser A Primary Insured AMBAC 1-1-2011 (d)........................ AAA 457,604 539,717
945,000 Northern MN Municipal Power Agency, 7.25% Elec Sys Rev Bond Ser A
1-1-2016............................................................ A 961,913 1,037,327
500,000 Northern MN Municipal Power Agency, 7.40% Elec Sys Rev Bond Ser A
AMBAC Insured 1-1-2018 (Refunded 1-1-1999 @ 102).................... AAA 508,075 554,465
1,870,000 Southern Minnesota Municipal Power Agency, 5.75% Ser A 01-01-2018..... A+ 1,811,833 1,806,083
1,000,000 Southern MN Municipal Power Agency, 5.00% Power Supply Sys Rev Bond
Ser 1993A 1-01-2012................................................. A+ 948,412 902,760
1,100,000 St. Cloud, (City of) MN Hydro Electric, 7.375% Gen Fac Rev Bond
12-16-2018.......................................................... A- 1,138,493 1,156,210
------------ ------------
6,773,630 6,962,862
------------ ------------
UTILITIES-WATER AND SEWER-1.03%
500,000 St. Paul (City of) MN, 8.00% Sewer Rev Bond Ser 1988A 12-1-2008
(Crossover Refunded 12-1-1998 @101)................................. BBB 500,000 558,785
------------ ------------
TOTAL MUNICIPAL BONDS................................................. $50,917,650 $53,180,146
------------ ------------
------------ ------------
INVESTMENT COMPANY-0.83%
$453,221 Federated Minnesota Municipal Cash Trust, Current rate -- 4.07%..................... $ 453,221
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $51,370,871) (A)............................. $53,633,367
============
</TABLE>
(a) At September 30, 1995, the cost of securities for federal income tax
purposes was $51,385,837 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation................. $ 2,546,495
Unrealized depreciation................. (298,965)
-----------------------------------------------------
Net unrealized appreciation............. $ 2,247,530
-----------------------------------------------------
(b) See Note A of accompanying Notes to Financial Statements regarding
valuation of securities
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rate disclosed for zero coupon securities represents the
effective yields on the date of acquisition.
*Moody's Rating.
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
New York Portfolio
Schedule of Investments
September 30, 1995
MUNICIPAL BONDS-96.80%
- -----------------------------------------------------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
- --------- ----------- ------------ ------------
GENERAL OBLIGATIONS-3.84%
<S> <C> <C> <C>
$250,000 North Hempstead (Town of) NY, 7.25% Public Improvement Bond FGIC
Insured Ser A Unlimited Tax 4-1-2012 (Refunded 4-1-1999 @ 102)...... AAA $ 249,375 $ 278,325
200,000 Puerto Rico, 5.75% Public Building Auth Rev Ref Bond Ser l 7-1-2016... A 194,101 191,570
------------ ------------
443,476 469,895
------------ ------------
HEALTH CARE/SERVICES-6.83%
305,000 New York State Med Care Fac Fin Agency, 7.70% Mental Health Rev Bond
2-15-2018........................................................... BBB+ 315,525 328,140
500,000 New York State Med Care Fac Fin Agency, 6.375% Mt.Sinai Hospital &
Nursing Home Rev Ref Mtg C FHA Insured 8-15-2029.................... AAA 497,107 508,925
------------ ------------
812,632 837,065
------------ ------------
HOUSING-21.49%
410,000 New York State Mtg Agency, 7.85% Rev Homeowner Mtg Ser BB-2
10-1-2008........................................................... Aa* 409,133 438,966
770,000 New York State, 7.50% Dorm Auth Rev Ref State Univ Educ Fac Ser B
5-15-2011........................................................... BBB+ 785,078 886,848
791,000 New York State, 7.80% Dorm Auth Rev Bond Insd-Pooled Cap Prog, FGIC
Insured 12-1-2005 (Partially Refunded 12-1-1998 @ 102).............. AAA 801,578 861,106
400,000 New York State, 8.125% Dorm Auth City Univ Ref Bond Ser A 7-1-2007.... BBB 401,701 444,768
------------ ------------
2,397,490 2,631,688
------------ ------------
MISCELLANEOUS-6.37%
250,000 New York (City of) Municipal Assistance Corp., 7.625% Ser 67 Bond (Pub
Benefit Corp. of the State of NY) 7-1-2008.......................... AA- 252,682 279,905
500,000 United Nations Development Corp. of NY, 6.00% Rev Ref Sr Lien Ser
1992A 7-1-2012...................................................... A* 483,883 500,305
------------ ------------
736,565 780,210
------------ ------------
POLLUTION CONTROL-6.35%
290,000 Babylon (Town of) NY, 8.10% Industrial Dev Agency Res Recov Rev Bond
Ser 1985C (Ogden Martin Systems,Inc.) 1-1-2000 (Refunded 7-1-1998 @
103)................................................................ Aaa* 289,825 320,270
405,000 Babylon (Town of) NY, 8.50% Industrial Dev Agency Res Recov Rev Bond
Ser 1985C (Ogden Martin Systems,Inc.) 1-1-2019 (Refunded 7-1-1998 @
103)................................................................ Aaa* 420,910 457,581
------------ ------------
710,735 777,851
------------ ------------
REFUNDED WITH U.S. GOVERNMENT SECURITIES-37.15%
395,000 Metropolitan Transportation Auth, NY, 8.375% Transit Fac Rev Bond Ser
F 7-1-2016 (Refunded 7-1-1996 @ 102)................................ AAA 397,494 416,030
350,000 New York (City of) Municipal Assistance Corp., 8.25% Ser 56 Bond
7-1-2008 (Refunded 7-1-1996 @ 102).................................. AA- 353,530 368,316
450,000 New York City Municipal Water Fin Auth, 7.875% Water & Sewer Sys Rev
Bond Ser B 6-15-2016 (Refunded 6-15-1996 @ 102)..................... A- 455,636 471,533
690,000 New York City, 8.25% General Obligation Ser 1991F 11-15-2017 (Refunded
11-15-2001 @ 101.5)................................................. BBB+ 672,629 835,873
600,000 New York Local Government Assistance Corp., 7.50% Ser 1991B Bond
4-1-2020 (Refunded 4-1-2001 @ 102).................................. AAA 599,375 696,948
345,000 New York Med Care Fac Fin Agency, 7.70% Mental Health 2-15-2018
(Refunded 2-15-1998 @ 102).......................................... AAA 354,724 378,772
600,000 New York State Med Care, 7.45% (St. Luke's Hosp) FHA and Secondary
MBIA Insured Ser B 2-15-2029 (Refunded 2-15-2000 @ 102)............. AAA 598,500 682,026
600,000 New York State Urban Development Corp., 7.375% Rev Correctional Cap
Fac FSA Insured Ser 3 1-1-2018 (Refunded 1-1-2002 @102)............. Aaa* 595,918 700,014
------------ ------------
4,027,806 4,549,512
------------ ------------
TRANSPORTATION-12.52%
500,000 Metropolitan Transportation Authority NY Commuter Facilities, 5.75%
Ser O 7-1-2013...................................................... BBB 483,732 477,480
500,000 New York State Thruway Auth, 6.25% Loc Hwy & Bridge Svc Contract Ser
1995 4-1-2014....................................................... BBB 490,000 502,440
500,000 New York Triborough Bridge and Tunnel Auth, 8.125% General Purpose Rev
Ref Bond Ser L 1-1-2012............................................. A+ 501,897 553,840
------------ ------------
1,475,629 1,533,760
------------ ------------
UTILITIES-ELECTRIC-2.25%
300,000 New York (State of), 5.25% Power Auth General Purpose Ser CC
1-1-2018............................................................ AA- 296,174 275,976
------------ ------------
TOTAL MUNICIPAL BONDS................................................. $10,900,507 $11,855,957
============ ============
</TABLE>
*Moody's Rating
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS-1.30%
- --------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value (b)
- --------- ------------
CLOSED END BOND FUNDS-1.30%
<C> <C>
$159,088 Federated Tax-Free Obligation Fund, Current Rate -- 4.04%........................... $ 159,088
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $11,059,595) (A)............................. $12,015,045
============
</TABLE>
(a) At September 30, 1995, the cost of securities for federal income tax
purposes was $11,059,595 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation................. $ 984,431
Unrealized depreciation................. (28,981)
---------------------------------------------------
Net unrealized appreciation............. $ 955,450
---------------------------------------------------
(b) See Note A of accompanying Notes to Financial Statements regarding
valuation of securities
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
<TABLE>
<CAPTION>
Fortis Tax-Free Portfolios, Inc.
Statements of Assets and Liabilities
September 30, 1995
- ------------------------------------------------------------------------------------------------------------------
NATIONAL MINNESOTA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
ASSETS:
<S> <C> <C> <C>
Investments in securities, as detailed in the accompanying
schedules, at market (cost $69,485,386; $51,370,871; and
$11,059,595; respectively) (Note A)............................... $73,766,974 $53,633,367 $12,015,045
Receivables:
Investment securities sold........................................ -- 1,929,395 --
Interest.......................................................... 1,245,659 939,794 226,234
Subscriptions of capital stock.................................... 2,955 5,148 --
Deferred registration costs (Note A)................................ 20,423 30,117 16,058
Prepaid expenses.................................................... 96 -- 13,442
------------ ------------ ------------
TOTAL ASSETS.......................................................... 75,036,107 56,537,821 12,270,779
------------ ------------ ------------
LIABILITIES:
Cash portion of dividends payable................................... 111,028 57,484 11,649
Payable for investment securities purchased......................... -- 1,975,801 --
Redemptions of capital stock........................................ 30 17,000 1,308
Payable for investment advisory and management fees (Note B)........ 46,948 32,612 8,091
Payable for distribution fees (Note B).............................. 243 96 27
Accounts payable and accrued expenses............................... 9,234 7,000 1,947
------------ ------------ ------------
TOTAL LIABILITIES..................................................... 167,483 2,089,993 23,022
------------ ------------ ------------
NET ASSETS:
Net proceeds of capital stock, par value $.01 per share-authorized;
100,000,000,000 shares............................................ 71,756,984 52,576,541 11,285,224
Unrealized appreciation of investments.............................. 4,281,588 2,262,496 955,450
Distributions in excess of net investment income.................... (38,630) (21,214) (1,619)
Accumulated net realized gain (loss) from sale of investments....... (1,131,318) (369,995) 8,702
------------ ------------ ------------
TOTAL NET ASSETS...................................................... $74,868,624 $54,447,828 $12,247,757
============ ============ ============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $1,807,181; $883,555; and
$48,802; respectively and 168,770; 85,773; and 4,490 shares
outstanding; respectively)........................................ $10.71 $10.30 $10.87
------------ ------------ ------------
Class B shares (based on net assets of $668,200; $179,976; and $193,682;
respectively and 62,463; 17,521; and 17,863 shares
outstanding; respectively)........................................ $10.70 $10.27 $10.84
------------ ------------ ------------
Class C shares (based on net assets of $105,922; $143,053; and $50,901;
respectively and 9,896; 13,895; and 4,691 shares
outstanding; respectively)........................................ $10.70 $10.30 $10.85
------------ ------------ ------------
Class E shares (based on net assets of $70,530,792; $52,603,103; and
$11,882,000; respectively and 6,581,433; 5,097,390; and 1,092,955
shares outstanding; respectively)................................. $10.72 $10.32 $10.87
------------ ------------ ------------
Class H shares (based on net assets of $1,756,529; $638,141; and $72,372;
respectively and 164,006; 61,971; and 6,684 shares
outstanding; respectively)........................................ $10.71 $10.30 $10.83
------------ ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
Statements of Operations
For the Year Ended September 30, 1995
- -------------------------------------------------------------------------------------------------------------
NATIONAL MINNESOTA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ---------
NET INVESTMENT INCOME:
Income:
<S> <C> <C> <C>
Interest income................................................... $4,763,639 $3,539,411 $839,939
----------- ----------- ---------
Expenses:
Investment advisory and management fees (Note B).................. 557,889 387,530 99,309
Distribution fees (Class A) (Note B).............................. 1,880 833 75
Distribution fees (Class B) (Note B).............................. 2,002 784 1,464
Distribution fees (Class C) (Note B).............................. 314 310 132
Distribution fees (Class H) (Note B).............................. 5,258 3,355 223
Registration fees (Note A)........................................ 69,049 48,000 57,069
Legal and auditing fees (Note B).................................. 45,501 35,791 21,302
Shareholders' notices and reports................................. 40,819 26,776 10,270
Custodian fees.................................................... 15,248 11,000 3,764
Directors' fees and expenses...................................... 9,292 7,397 1,897
Other............................................................. 12,023 9,900 2,996
----------- ----------- ---------
Total expenses...................................................... 759,275 531,676 198,501
Less reimbursable expenses.......................................... -- -- (63,096)
----------- ----------- ---------
Net Expenses........................................................ 759,275 531,676 135,405
----------- ----------- ---------
NET INVESTMENT INCOME................................................. 4,004,364 3,007,735 704,534
----------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A):
Net realized gain (loss) from security transactions................. (592,450) (208,947) 18,022
Net change in unrealized appreciation of investments................ 2,893,045 1,525,922 158,431
----------- ----------- ---------
NET GAIN ON INVESTMENTS............................................... 2,300,595 1,316,975 176,453
----------- ----------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $6,304,959 $4,324,710 $880,987
=========== =========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
NATIONAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
THREE-MONTH
FOR THE PERIOD ENDED
YEAR ENDED SEPTEMBER 30, 1994
SEPTEMBER 30, 1995 (NOTE C)
------------------ ------------------
OPERATIONS:
<S> <C> <C>
Net investment income............................................... $ 4,004,364 $ 1,096,634
Net realized loss from security transacations....................... (592,450) (480,946)
Net change in unrealized appreciation (depreciation) of investments
in securities..................................................... 2,893,045 (144,516)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 6,304,959 471,172
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A........................................................... (40,810) --
Class B........................................................... (8,802) --
Class C........................................................... (1,397) --
Class E........................................................... (4,004,117) (1,042,508)
Class H........................................................... (23,755) --
From net realized gains on investments
Class A........................................................... (158) --
Class B........................................................... (39) --
Class C........................................................... -- --
Class E........................................................... (35,901) --
Class H........................................................... (111) --
------------- ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................................... (4,115,090) (1,042,508)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (174,678 shares).......................................... 1,836,979 --
Class B (61,707 shares)........................................... 652,193 --
Class C (10,282 shares)........................................... 108,826 --
Class E (554,163 and 288,469 shares).............................. 5,801,785 3,032,231
Class H (162,867 shares).......................................... 1,720,757 --
Proceeds from shares issued as a result of reinvested dividends
Class A (2,193 shares)............................................ 23,365 --
Class B (756 shares).............................................. 8,023 --
Class C (104 shares).............................................. 1,105 --
Class E (255,916 and 66,477 shares)............................... 2,677,589 701,460
Class H (1,187 shares)............................................ 12,614 --
Less cost of repurchase of shares
Class A (8,101 shares)............................................ (86,435) --
Class B (0 shares)................................................ -- --
Class C (490 shares).............................................. (5,246) --
Class E (1,440,336 and 478,650 shares)............................ (14,948,936) (5,031,493)
Class H (48 shares)............................................... (514) --
------------- ------------
NET DECREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS............ (2,197,895) (1,297,802)
------------- ------------
TOTAL DECREASE IN NET ASSETS.......................................... (8,026) (1,869,138)
NET ASSETS:
Beginning of period................................................. 74,876,650 76,745,788
------------- ------------
End of period [includes undistributed (excess of distributions over)
net investment income of ($38,630) and $35,887, respectively]..... $ 74,868,624 $74,876,650
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
MINNESOTA PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
THREE-MONTH
FOR THE PERIOD ENDED
YEAR ENDED SEPTEMBER 30, 1994
SEPTEMBER 30, 1995 (NOTE C)
------------------ ------------------
OPERATIONS:
<S> <C> <C>
Net investment income............................................... $ 3,007,735 $ 783,827
Net realized loss from security transacations....................... (208,947) (86,449)
Net change in unrealized appreciation (depreciation) of investments
in securities..................................................... 1,525,922 (300,009)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 4,324,710 397,369
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A........................................................... (17,812) --
Class B........................................................... (3,618) --
Class C........................................................... (1,393) --
Class E........................................................... (3,012,388) (777,817)
Class H........................................................... (15,259) --
------------- ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................................... (3,050,470) (777,817)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (87,978 shares)........................................... 892,384 --
Class B (17,169 shares)........................................... 173,312 --
Class C (13,795 shares)........................................... 140,806 --
Class E (236,250 and 115,839 shares).............................. 2,367,394 1,180,013
Class H (60,955 shares)........................................... 614,862 --
Proceeds from shares issued as a result of reinvested dividends
Class A (665 shares).............................................. 6,825 --
Class B (355 shares).............................................. 3,618 --
Class C (103 shares).............................................. 1,058 --
Class E (228,148 and 59,511 shares)............................... 2,306,428 607,372
Class H (1,016 shares)............................................ 10,395 --
Less cost of repurchase of shares
Class A (2,870 shares)............................................ (28,715) --
Class B (3 shares)................................................ (25) --
Class C (3 shares)................................................ (25) --
Class E (781,394 and 166,694 shares).............................. (7,875,096) (1,700,863)
Class H (0 shares)................................................ -- --
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL STOCK
TRANSACTIONS........................................................ (1,386,779) 86,522
------------- ------------
TOTAL DECREASE IN NET ASSETS.......................................... (112,539) (293,926)
NET ASSETS:
Beginning of period................................................. 54,560,367 54,854,293
------------- ------------
End of period [includes undistributed (excess of distributions over)
net investment income of ($21,214) and $21,521, respectively]..... $54,447,828 $54,560,367
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
NEW YORK PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
THREE-MONTH
FOR THE PERIOD ENDED
YEAR ENDED SEPTEMBER 30, 1994
SEPTEMBER 30, 1995 (NOTE C)
------------------ ------------------
OPERATIONS:
<S> <C> <C>
Net investment income............................................... $ 704,534 $ 183,772
Net realized gain from security transacations....................... 18,022 --
Net change in unrealized appreciation (depreciation) of investments
in securities..................................................... 158,431 (93,136)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 880,987 90,636
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A........................................................... (941) --
Class B........................................................... (7,056) --
Class C........................................................... (568) --
Class E........................................................... (694,432) (183,333)
Class H........................................................... (1,034) --
From realized gains on investments
Class A........................................................... (34) --
Class B........................................................... (287) --
Class E........................................................... (21,816) --
Excess distributions of net investment income
Class E........................................................... -- (2,122)
------------- ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................................... (726,168) (185,455)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (4,869 shares)............................................ 51,726 --
Class B (17,184 shares)........................................... 178,351 --
Class C (4,640 shares)............................................ 50,125 --
Class E (26,693 and 12,315 shares)................................ 287,441 133,289
Class H (6,604 shares)............................................ 72,245 --
Proceeds from shares issued as a result of reinvested dividends
Class A (86 shares)............................................... 929 --
Class B (679 shares).............................................. 7,285 --
Class C (53 shares)............................................... 571 --
Class E (52,417 and 13,268 shares)................................ 561,495 143,899
Class H (82 shares)............................................... 881 --
Less cost of repurchase of shares
Class A (465 shares).............................................. (5,003) --
Class B (0 shares)................................................ -- --
Class C (2 shares)................................................ (25) --
Class E (178,182 and 21,826 shares)............................... (1,909,876) (236,486)
Class H (2 shares)................................................ (25) --
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL STOCK
TRANSACTIONS........................................................ (703,880) 40,702
------------- ------------
TOTAL DECREASE IN NET ASSETS.......................................... (549,061) (54,117)
NET ASSETS:
Beginning of period................................................. 12,796,818 12,850,935
------------- ------------
End of period (includes excess of distributions over net investment
income of $1,619 and $2,122, respectively)........................ $12,247,757 $12,796,818
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fortis Tax-Free Portfolios, Inc. (the fund) is an open-end management
investment company which currently is comprised of three separate
investment portfolios and series of capital stock: the National and
Minnesota Portfolios, both of which are diversified portfolios, and the New
York Portfolio, which is a non-diversified portfolio, each of which has
different investment objectives and its own investment portfolio and net
asset values. The investment objective of National Portfolio is to seek as
high a level of current income exempt from federal income tax as is
believed to be consistent with preservation of capital. The investment
objective of Minnesota Portfolio is to seek as high a level of current
income exempt from federal and Minnesota income tax as is believed to be
consistent with preservation of capital. The investment objective of New
York Portfolio is to seek as high a level of current income exempt from
federal, New York State, and New York City income tax as is believed to be
consistent with the preservation of capital.
The Minnesota and New York Portfolios concentrate their investments in a
single state and, therefore, may have more credit risk related to the
economic conditions of the respective state than a portfolio with broader
geographical diversification.
The fund offers Class A, Class B, Class C, Class E and Class H shares. The
fund began to issue class shares effective November 14, 1994. Class E
shares were only available to existing shareholders on November 14, 1994.
Class A and E shares are sold with a front-end sales charge. Class B and H
shares are sold without a front-end sales charge and may be subject to a
contingent deferred sales charge for six years, and such shares
automatically convert to Class A after eight years. Class C shares are sold
without a front-end sales charge and may be subject to a contingent
deferred sales charge for one year. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that the level of distribution fees charged differs
between classes. Income, expenses (other than expenses incurred under each
class's distribution agreement) and realized and unrealized gains or losses
on investments are allocated to each class of shares based on its relative
net assets.
The significant accounting policies followed by the fund are summarized as
follows:
SECURITY VALUATION: Tax exempt bonds for which quotations are not readily
available are valued at fair value as determined by a pricing system
approved by the Board of Directors. The pricing service may employ
electronic data processing techniques and/or a matrix system to determine
valuations using methods which include consideration of yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market
conditions. Short-term investments, with maturities of less than 60 days
when acquired, or which subsequently are within 60 days of maturity, are
valued at amortized cost.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. For financial reporting purposes, the portfolios
amortize long-term bond premium and original issue discount.
For the year ended September 30, 1995, the cost of purchases and proceeds
from sales of securities (other than short-term securities) aggregated
$24,873,211 and $27,429,219 for National Portfolio; $14,366,327 and
$15,620,781 for Minnesota Portfolio; and $1,162,950 and $1,870,361 for New
York Portfolio; respectively.
INCOME TAXES: The portfolios intend to qualify, under the Internal Revenue
Code, as regulated investment companies and if so qualified, will not have
to pay federal income taxes to the extent their taxable net income is
distributed. On a calendar year basis, the fund intends to distribute
substantially all of its taxable net investment income and realized gains,
if any, to avoid the payment of federal excise taxes.
Net realized gains may differ for financial statement and tax purposes
primarily because of wash sale transactions. The character of distributions
made during the year from net investment income or net realized gains may
also differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year that the
income or realized gains (losses) were recorded by the fund. The effect on
dividend distributions of certain book-to-tax differences are reflected as
excess distributions of net investment income in the statements of changes
in net assets and the financial highlights.
For federal income tax purposes the National and Minnesota Portfolios had
the following capital loss carryovers at September 30, 1995, which, if not
offset by subsequent capital gains, will expire in 2002 and 2003 for the
National Portfolio, and in 1997, 2002 and 2003 for the Minnesota Portfolio.
It is unlikely the Board of Directors will authorize a distribution of any
net realized gains until the available capital loss carryovers have been
offset or expired.
National Portfolio................................. $1,125,524
Minnesota Portfolio................................ $ 355,029
DEFERRED COSTS: Registration costs are deferred and charged to income over
the registration period.
INCOME AND CAPITAL GAINS DISTRIBUTION: The portfolios declare income
distributions daily to be paid on the last business day of each month. The
portfolios will make annual distributions of any realized capital gains as
required by law. These income and capital gains distributions may be
reinvested in additional shares of the portfolio at net asset value on the
payable date or paid in cash five business days after month end without any
charge to the shareholder.
B. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc. (Advisers), is the
investment adviser for the fund. Investment advisory fees paid by the
Minnesota and New York Portfolios are computed at an annual rate of .8% of
the first $50 million in average daily net assets, .7% of the next $50
million in average daily net assets and .625% of average daily net assets
in excess of $100 million. The National Portfolio's investment advisory
fees are computed at an annual rate of .8% of the first $50 million in
average daily net assets, and .7% of average daily net assets in excess of
$50 million. The fee percentage for the Minnesota Portfolio is based upon
the aggregate average net assets of the National and Minnesota Portfolios
combined. The fee is then allocated to the Minnesota Portfolio based upon
proportionate net assets. The fee percentage for National and New York
Portfolio is based upon the average net assets of each portfolio alone.
In addition to the investment advisory and management fee, Classes A, B, C
and H pay Fortis Investors, Inc. (the fund's principal underwriter)
distribution fees equal to .25% (Class A) and 1.00% (Class B, C, and H) of
average daily net assets (of the respective classes) on an annual basis, to
be used to compensate those who sell shares of the fund and to pay certain
other expenses of selling fund shares. Fortis Investors, Inc., also
received sales charges (paid by purchasers of the fund's shares)
aggregating $47,430 for Class A and $103,765 for Class E for National
Portfolio; $25,681 for Class A and $69,612 for Class E for Minnesota
Portfolio; and $11,694 for Class E for New York Portfolio for the year
ended September 30, 1995.
Advisers has voluntarily undertaken to limit annual expenses for New York
Portfolio (exclusive of interest, taxes, brokerage commissions, 12b-1 fees
and non-recurring extraordinary charges and expenses) commencing November
1, 1994 to 1.09% of average daily net assets. During the year ended
September 30, 1995, Advisers waived $63,096 of its advisory fee.
Legal fees and expenses aggregating $23,277, $17,105 and $3,479 for the
National, Minnesota, and New York Portfolios, respectively, were paid to a
law firm of which the secretary of the fund is a partner.
C. CHANGE IN ACCOUNTING PERIOD: Effective September 30, 1994, Fortis Tax-Free
Portfolios, Inc. changed its fiscal accounting year-end to September 30
(previously June 30).
D. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
Portfolios were as follows:
<TABLE>
<CAPTION>
CLASS E
-------------------------------------------------------------------------
Three-Month Six-Month
YEAR ENDED Period Ended Year Ended June 30, Period Ended
SEPTEMBER 30, September 30, --------------------------- June 30,
NATIONAL PORTFOLIO 1995 1994 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.38 $ 10.46 $ 11.13 $ 10.54 $ 9.99 $ 9.82
------------- ------------- ------- ------- ------- ------------
Operations:
Investment income - net......................... .58 .15 .60 .63 .66 .32
Net realized and unrealized gains (losses) on
investments................................... .36 (.09) (.64) .59 .55 .17
------------- ------------- ------- ------- ------- ------------
Total from operations............................. .94 .06 (.04) 1.22 1.21 .49
------------- ------------- ------- ------- ------- ------------
Distributions to shareholders:
From investment income - net.................... (.59) (.14) (.59) (.62) (.66) (.32)
Excess distribution of net investment income.... -- -- -- (.01) -- --
From realized gains............................. (.01) -- (.04) -- -- --
------------- ------------- ------- ------- ------- ------------
Total distributions to shareholders............... (.60) (.14) (.63) (.63) (.66) (.32)
------------- ------------- ------- ------- ------- ------------
Net asset value, end of period.................... $ 10.72 $ 10.38 $ 10.46 $ 11.13 $ 10.54 $ 9.99
------------- ------------- ------- ------- ------- ------------
Total Return @.................................... 9.30% .59% (0.49%) 11.99% 12.46% 5.09%
Net assets, end of period (000s omitted).......... $70,531 $74,877 $76,746 $70,754 $54,189 $43,707
Ratio of expenses to average daily net assets..... 1.03% .87%* .87% .94% .92% .95%*
Ratio of net investment income to average daily
net assets....................................... 5.54% 5.74%* 5.38% 5.80% 6.40% 6.58%*
Portfolio turnover rate........................... 35% 17% 25% 29% 38% 25%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
NATIONAL PORTFOLIO 1995+ 1995+ 1995+ 1995+
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.79 $ 9.79 $ 9.79 $ 9.79
------- ------- ------- -------
Operations:
Investment income - net................................... .49 .42 .43 .43
Net realized and unrealized gains (losses) on
investments............................................. .94 .93 .92 .93
------- ------- ------- -------
Total from operations....................................... 1.43 1.35 1.35 1.36
------- ------- ------- -------
Distribution to shareholders:
From investment income - net.............................. (.50) (.43) (.43) (.43)
From net realized gains................................... (.01) (.01) (.01) (.01)
------- ------- ------- -------
Total distributions to shareholders......................... (.51) (.44) (.44) (.44)
------- ------- ------- -------
Net asset value, end of period.............................. $10.71 $10.70 $10.70 $10.71
------- ------- ------- -------
Total Return @.............................................. 14.80% 13.96% 13.95% 14.06%
Net assets end of period (000s omitted)..................... $1,807 $ 668 $ 106 $1,757
Ratio of expenses to average daily net assets............... 1.28%* 2.03%* 2.03%* 2.03%*
Ratio of net investment income to average daily net
assets..................................................... 5.03%* 4.04%* 4.14%* 4.24%*
Portfolio turnover rate..................................... 35%** 35%** 35%** 35%**
*Annualized.
</TABLE>
** For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
<TABLE>
<CAPTION>
CLASS E
---------------------------------------------------------
Three-Month
YEAR ENDED Period Ended Year Ended June 30,
SEPTEMBER 30, September 30, -------------------------
MINNESOTA PORTFOLIO 1995 1994 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.08 $ 10.15 $ 10.65 $ 10.16 $ 9.78
Operations:
Investment income - net................................... .57 .15 .59 .61 .64
Net realized and unrealized gains (losses) on
investments............................................. .24 (.08) (.51) .49 .38
------------- ------------- ------- ------- -------
Total from operations....................................... .81 .07 (.08) 1.10 1.02
------------- ------------- ------- ------- -------
Distributions to shareholders:
From investment income - net.............................. (.57) (.14) (.58) (.61) (.64)
------------- ------------- ------- ------- -------
Net asset value, end of period.............................. $ 10.32 $ 10.08 $ 10.15 $ 10.65 $ 10.16
------------- ------------- ------- ------- -------
Total Return @.............................................. 8.35% .72% .64% 11.17% 10.71%
Net assets, end of period (000s omitted).................... $52,603 $54,560 $54,854 $52,271 $38,586
Ratio of expenses to average daily net assets............... .98% .85%* .85% .89% .90%
Ratio of net investment income to average daily net
assets..................................................... 5.60% 5.69%* 5.51% 5.82% 6.37%
Portfolio turnover rate..................................... 27% 8% 11% 17% 10%
</TABLE>
Six-Month
Period Ended
June 30,
MINNESOTA PORTFOLIO 1991
- --------------------------------------------------------------------------
Net asset value, beginning of period........................ $ 9.68
Operations:
Investment income - net................................... .31
Net realized and unrealized gains (losses) on
investments............................................. .11
------------
Total from operations....................................... .42
------------
Distributions to shareholders:
From investment income - net.............................. (.32)
------------
Net asset value, end of period.............................. $ 9.78
------------
Total Return @.............................................. 4.36%
Net assets, end of period (000s omitted).................... $29,449
Ratio of expenses to average daily net assets............... .97%*
Ratio of net investment income to average daily net
assets..................................................... 6.47%*
Portfolio turnover rate..................................... 8%
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
MINNESOTA PORTFOLIO 1995+ 1995+ 1995+ 1995+
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.55 $ 9.55 $ 9.55 $ 9.55
------- ------- ------- -------
Operations:
Investment income - net................................... .48 .41 .42 .41
Net realized and unrealized gains (losses) on
investments............................................. .76 .73 .75 .76
------- ------- ------- -------
Total from operations....................................... 1.24 1.14 1.17 1.17
------- ------- ------- -------
Distribution to shareholders:
From investment income - net.............................. (.49) (.42) (.42) (.42)
------- ------- ------- -------
Net asset value, end of period.............................. $10.30 $10.27 $10.30 $10.30
------- ------- ------- -------
Total Return @.............................................. 13.15% 12.10% 12.31% 12.42%
Net assets end of period (000s omitted)..................... $ 884 $ 180 $ 143 $ 638
Ratio of expenses to average daily net assets............... 1.23%* 1.98%* 1.98%* 1.98%*
Ratio of net investment income to average daily net
assets..................................................... 5.10%* 4.37%* 4.28%* 4.29%*
Portfolio turnover rate..................................... 27%** 27%** 27%** 27%**
</TABLE>
* Annualized.
** For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
<TABLE>
<CAPTION>
CLASS E
-----------------------------------------------------------------------
Three-Month Nine-Month
YEAR ENDED Period Ended Year Ended June 30, Period Ended
SEPTEMBER 30, September 30, ------------------------- June 30,
NEW YORK PORTFOLIO 1995 1994 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.74 $ 10.81 $ 11.51 $ 11.03 $ 10.57 $ 10.27
------------- ------------- ------- ------- ------- ------------
Operations:
Investment income - net......................... .61 .15 .62 .65 .66 .48
Net realized and unrealized gains (losses) on
investments................................... .15 (.06) (.54) .65 .62 .30
------------- ------------- ------- ------- ------- ------------
Total from operations............................. .76 .09 .08 1.30 1.28 .78
------------- ------------- ------- ------- ------- ------------
Distributions to shareholders:
From investment income - net.................... (.61) (.16) (.62) (.65) (.66) (.48)
Excess distribution of net investment income.... -- -- -- (.01) -- --
From realized gains............................. (.02) -- (.16) (.16) (.16) --
------------- ------------- ------- ------- ------- ------------
Total distributions to shareholders............... (.63) (.16) (.78) (.82) (.82) (.48)
------------- ------------- ------- ------- ------- ------------
Net asset value, end of period.................... $ 10.87 $ 10.74 $ 10.81 $ 11.51 $ 11.03 $ 10.57
------------- ------------- ------- ------- ------- ------------
Total Return @.................................... 7.31% .79% .63% 12.19% 12.53% 8.23%
Net assets, end of period (000s omitted).......... $11,882 $12,797 $12,851 $13,915 $14,943 $15,952
Ratio of expenses to average daily net assets
(a).............................................. 1.09% 1.09%* .99% .99% 1.00% 1.23%*
Ratio of net investment income to average daily
net assets (a)................................... 5.69% 5.74%* 5.55% 5.74% 6.15% 6.08%*
Portfolio turnover rate........................... 10% 0% 4% 17% 19% 18%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
NEW YORK PORTFOLIO 1995+ 1995+ 1995++ 1995+++
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $10.34 $10.34 $10.79 $10.89
------- ------- ------- -------
Operations:
Investment income - net......................... .50 .43 .21 .16
Net realized and unrealized gains (losses) on
investments................................... .57 .54 .06 (.05)
------- ------- ------- -------
Total from operations............................. 1.07 .97 .27 .11
------- ------- ------- -------
Distribution to shareholders:
From investment income - net.................... (.52) (.45) (.21) (.17)
From net realized gains on investments.......... (.02) (.02) -- --
------- ------- ------- -------
Total distributions to shareholders............... (.54) (.47) (.21) (.17)
------- ------- ------- -------
Net asset value, end of period.................... $10.87 $10.84 $10.85 $10.83
------- ------- ------- -------
Total Return @.................................... 10.51% 9.46% 2.54% 1.00%
Net assets end of period (000s omitted)........... $ 49 $ 194 $ 51 $ 72
Ratio of expenses to average daily net assets
(a).............................................. 1.34%* 2.09%* 2.09%* 2.09%*
Ratio of net investment income to average daily
net assets (a)................................... 5.41%* 4.68%* 4.44%* 4.36%*
Portfolio turnover rate........................... 10%** 10%** 10%** 10%**
</TABLE>
(a) Advisers has voluntarily undertaken to limit annual expenses for New York
Portfolio (exclusive of interest, taxes, brokerage commissions, 12b-1 fees
and non-recurring extraordinary charges and expenses) to 1.09% of average
net assets. From June 1, 1993 to June 30, 1994, Advisers agreed to limit
expenses to .99% of average net assets. Prior to June 1, 1993, Advisers
agreed to limit expenses to 1.00% of average net assets. Prior to June 1,
1991 Empire of American Advisory Services, Inc., the previous advisor of
the Portfolio, and Empire National Securities, Incorporated, the previous
distributor of the Portfolio, each agreed to waive a portion of its fees or
reimburse the Fund for certain operating expenses. For each of the periods
presented, had the waivers and reimbursement of expenses not been in
effect, the ratios of expenses and net investment income to average daily
net assets would have been 1.60% and 5.18% for class E, 1.85% and 4.90% for
class A, 2.60% and 4.17% for class B, 2.60% and 3.93% for class C, 2.60%
and 3.85% for class H, for the year ending September 30, 1995; 1.09% and
5.45% for the year ended June 30, 1994; 1.05% and 5.68% for the year ended
June 30, 1993; 1.26% and 5.89% for the year ended June 30, 1992; and 1.48%
and 5.83% for the nine-month period ended June 30, 1991.
* Annualized.
** For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
++ For the period from April 26, 1995 (date of first investment) to September
30, 1995.
+++ For the period from May 31, 1995 (date of first investment) to September
30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Fortis Tax-Free Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of National Portfolio, Minnesota
Portfolio and New York Portfolio (portfolios within Fortis Tax-Free Portfolios,
Inc.) as of September 30, 1995, and the related statements of operations for the
year then ended, the statements of changes in net assets for the year ended
September 30, 1995, and for the three-month period ended September 30, 1994, and
the financial highlights presented in footnote D to the financial statements.
These financial statements and the financial highlights are the responsibility
of fund management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
National Portfolio, Minnesota Portfolio and New York Portfolio at September 30,
1995, and the results of their operations for the year then ended, the changes
in their net assets for the year ended September 30, 1995 and for the
three-month period ended September 30, 1994, and the financial highlights
presented in footnote D to the financial statements, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 10, 1995
FEDERAL INCOME TAX INFORMATION
Exempt interest dividends are exempt from federal income taxes and should not be
included in shareholder's gross income, but need to be reported on the income
tax return for informational purposes. Each shareholder should consult a tax
adviser about reporting this income for state and local tax purposes. In
January, 1996, the fund will provide the shareholder with information regarding
the percentage of distributions exempt from federal income taxes and a breakdown
setting forth states from which income was earned.
During the year ended September 30, 1995, 100% of the National, Minnesota and
New York Portfolios' distributions were derived from interest on municipal
securities and qualify as exempt interest dividends for federal tax purposes.
Detailed below are the per share distributions made for the year ended September
30, 1995.
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
Ordinary Income Per Share
RECORD DATE Class E Class A* Class B* Class C* Class H*
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
October 31, 1994.............. $ 0.048 $ N/A $ N/A $ N/A $ N/A
November 30, 1994............. 0.048 0.029 0.025 0.025 0.025
December 30, 1994............. 0.050 0.048 0.042 0.042 0.042
January 31, 1995.............. 0.048 0.046 0.040 0.040 0.040
February 28, 1995............. 0.050 0.048 0.042 0.042 0.042
March 31, 1995................ 0.050 0.048 0.042 0.042 0.042
April 28, 1995................ 0.050 0.048 0.042 0.042 0.042
May 31, 1995.................. 0.050 0.048 0.041 0.041 0.041
June 30, 1995................. 0.050 0.048 0.041 0.041 0.041
July 31, 1995................. 0.050 0.048 0.041 0.041 0.041
August 31, 1995............... 0.048 0.046 0.039 0.039 0.039
September 29, 1995............ 0.048 0.046 0.039 0.039 0.039
------- -------- -------- --------- ----------
Total Distributions........... $ 0.590 $ 0.503 $ 0.434 $ 0.434 $ 0.434
------- -------- -------- --------- ----------
Short-Term Capital Gain Per
Share
DECEMBER 30, 1994............. $0.0052 $0.0052 $0.0052 $0.0052 $0.0052
------- -------- -------- --------- ----------
MINNESOTA PORTFOLIO
Ordinary Income Per Share
RECORD DATE Class E Class A* Class B* Class C* Class H*
-----------------------------------------------------
October 31, 1994.............. $ 0.048 $ N/A $ N/A $ N/A $ N/A
November 30, 1994............. 0.048 0.029 0.025 0.025 0.025
December 30, 1994............. 0.048 0.046 0.040 0.040 0.040
January 31, 1995.............. 0.048 0.046 0.040 0.040 0.040
February 28, 1995............. 0.048 0.046 0.040 0.040 0.040
March 31, 1995................ 0.048 0.046 0.040 0.040 0.040
April 28, 1995................ 0.048 0.046 0.040 0.040 0.040
May 31, 1995.................. 0.048 0.046 0.040 0.040 0.040
June 30, 1995................. 0.048 0.046 0.040 0.040 0.040
July 31, 1995................. 0.048 0.046 0.040 0.040 0.040
August 31, 1995............... 0.047 0.045 0.038 0.038 0.038
September 29, 1995............ 0.047 0.045 0.038 0.038 0.038
------- -------- -------- --------- ----------
Total Distributions........... $ 0.574 $ 0.487 $ 0.421 $ 0.421 $ 0.421
------- -------- -------- --------- ----------
NEW YORK PORTFOLIO
Ordinary Income Per Share
RECORD DATE Class E Class A* Class B* Class C** Class H***
-----------------------------------------------------
October 31, 1994.............. $ 0.051 $ N/A $ N/A $ N/A $ N/A
November 30, 1994............. 0.051 0.031 0.027 N/A N/A
December 30, 1994............. 0.051 0.049 0.042 N/A N/A
January 31, 1995.............. 0.051 0.049 0.042 N/A N/A
February 28, 1995............. 0.051 0.049 0.042 N/A N/A
March 31, 1995................ 0.051 0.049 0.042 N/A N/A
April 28, 1995................ 0.051 0.049 0.042 0.004 N/A
May 31, 1995.................. 0.051 0.049 0.042 0.042 0.001
June 30, 1995................. 0.051 0.049 0.042 0.042 0.042
July 31, 1995................. 0.051 0.049 0.042 0.042 0.042
August 31, 1995............... 0.050 0.048 0.041 0.041 0.041
September 29, 1995............ 0.050 0.048 0.041 0.041 0.041
------- -------- -------- --------- ----------
Total Distributions........... $ 0.610 $ 0.519 $ 0.445 $ 0.212 $ 0.167
------- -------- -------- --------- ----------
Long-Term Capital Gain Per
Share
DECEMBER 30, 1994............. $0.0188 $$0.0188 $0.0188 $ N/A $N/A
------- -------- -------- --------- ----------
</TABLE>
* Period from November 14, 1994 (initial offering shares) to September 30,
1995.
** Period from April 26, 1995 (date of first investment) to September 30,
1995.
*** Period from May 31, 1995 (date of first investment) to September 30, 1995.
DIRECTORS
OFFICERS
RICHARD W. CUTTING
CPA and Financial
Consultant
ALLEN R. FREEDMAN
Chairman and Chief
Executive Officer
Fortis, Inc.;
Managing Director of
Fortis International, N.V.
DR. ROBERT M. GAVIN
President
Macalester College
BENJAMIN S. JAFFRAY
Chairman
Sheffield Group, Ltd.
JEAN L. KING
President
Communi-King
DEAN C. KOPPERUD
Chief Executive Officer
and Director
Fortis Advisers, Inc.
President and Director
Fortis Investors, Inc.
Senior Vice President
of Fortis Benefits
Insurance Company and
Time Insurance
Company
EDWARD M. MAHONEY
Prior to January, 1995, Chairman and Chief Executive Officer
Fortis Advisers, Inc.
Fortis Investors, Inc.
THOMAS R. PELLETT
Prior to January, 1991: Senior Vice
President-Administration
and Corporate Affairs
and Director
Pet, Inc.
ROBB L. PRINCE
Prior to July, 1995,
Vice President and
Treasurer
Jostens, Inc.
LEONARD J. SANTOW
Principal
Griggs & Santow, Inc.
JOSEPH M. WIKLER
Investment Consultant and Private Investor
Prior to January, 1994, Director of Research, Chief Investment Officer,
Principal, and Director
The Rothschild Co.
DEAN C. KOPPERUD
President and Director
ROBERT W. BELTZ, JR.
Vice President
JAMES S. BYRD
Vice President
CHARLES J. DUDLEY
Vice President
THOMAS D. GUALDONI
Vice President
MAROUN M. HAYEK
Vice President
HOWARD G. HUDSON
Vice President
ROBERT C. LINDBERG
Vice President
LARRY A. MEDIN
Vice President
KEVIN J. MICHELS
Vice President
JON H. NICHOLSON
Vice President
JOHN W. NORTON
Vice President
FRED OBSER
Vice President
DENNIS M. OTT
Vice President
DAVID A. PETERSON
Vice President
NICHOLAS L. M. DE PEYSTER
Vice President
STEPHEN M. POLING
Vice President
STEPHEN M. RICKET
Vice President
RICHARD P. ROCHE
Vice President
ANTHONY J. ROTONDI
Vice President
KEITH R. THOMSON
Vice President
CHRISTOPHER J. WOODS
Vice President
GARY N. YALEN
Vice President
MICHAEL J. RADMER
Secretary
TAMARA L. FAGELY
Treasurer
INVESTMENT MANAGER, REGISTRAR AND
TRANSFER AGENT
Fortis Advisers, Inc.
Box 64284
St. Paul, Minnesota 55164
PRINCIPAL UNDERWRITER
Fortis Investors, Inc.
Box 64284
St. Paul, Minnesota 55164
CUSTODIAN
First Bank
National Association
Minneapolis, Minnesota
GENERAL COUNSEL
Dorsey & Whitney P.L.L.P.
Minneapolis, Minnesota
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Minneapolis, Minnesota
THE USE OF THIS MATERIAL IS AUTHORIZED ONLY WHEN PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
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& Variable Annuity
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GLOBAL GROWTH
INTERNATIONAL STOCK
AGGRESSIVE GROWTH
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[LOGO]
THE FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and
life insurance products. The mutual funds, variable life and variable annuity
products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS
ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE
COMPANY and TIME INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
FORTIS-Registered Trademark-
[GRAPHIC]
FORTIS
TAX-FREE
PORTFOLIOS, INC.
Semi-Annual Report
March 31, 1996
[GRAPHICS]
FORTIS TAX-FREE PORTFOLIOS, INC. SEMI-ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULE OF INVESTMENTS
NATIONAL PORTFOLIO 5
MINNESOTA PORTFOLIO 8
NEW YORK PORTFOLIO 11
STATEMENTS OF ASSETS AND LIABILITIES 13
STATEMENTS OF OPERATIONS 14
STATEMENTS OF CHANGES IN NET ASSETS 15
NOTES TO FINANCIAL STATEMENTS 18
BOARD OF DIRECTORS AND OFFICERS 24
* TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- - (800) 800-2638, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
* TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net
asset value information
- (800) 800-2638, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638. TO ORDER
PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800) 800-2638,
EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past six months, refer
to the Highlights box below. The letter from the portfolio manager and president
provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings chart shows the type of securities in
which the fund invests, and the pie chart shows a breakdown of the fund's assets
by industry.
The performance chart graphically compares the fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
-------- -------- -------- -------- --------
NATIONAL PORTFOLIO
NET ASSET VALUE PER SHARE:
<S> <C> <C> <C> <C> <C>
Beginning of period................... $ 10.71 10.70 10.70 10.72 10.71
End of period......................... 10.72 10.71 10.72 10.73 10.72
DISTRIBUTIONS PER SHARE:
From net investment income............ $ 0.27 $ 0.23 $ 0.23 $ 0.28 $ 0.23
MINNESOTA PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period................... $ 10.30 $ 10.27 $ 10.30 $ 10.32 $ 10.30
End of period......................... 10.25 10.23 10.25 10.28 10.26
DISTRIBUTIONS PER SHARE:
From net investment income............ $ 0.26 $ 0.22 $ 0.22 $ 0.28 $ 0.22
NEW YORK PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period................... $ 10.87 $ 10.84 $ 10.85 $ 10.87 $ 10.83
End of period......................... 10.76 10.73 10.74 10.76 10.72
DISTRIBUTIONS PER SHARE:
From net investment income............ $ 0.28 $ 0.24 $ 0.24 $ 0.30 $ 0.24
From net realized gains on
investments......................... 0.02 0.02 0.02 0.02 0.02
</TABLE>
Photo
"Not only do the Fortis Tax-Free Portfolios help me reduce my tax bill now, they
let me help revitalize our country by investing in America."
DEAR SHAREHOLDER,
We are pleased to present the Fortis Tax-Free Portfolios, Inc., semi-annual
report for the period ended March 31, 1996.
ECONOMIC REVIEW AND INVESTMENT STRATEGIES
During the past six months, the bond and money markets have responded to a wide
variety of economic information. Late last year, the economy appeared quite weak
and the bond market responded favorably, reflecting the assumption that slow
growth would allow inflation to continue at the 2.5 to 3 percent pace
experienced over the past year. This scenario was upset during the first quarter
of 1996, as strong recovery was evidenced in several economic reports--most
notably the February employment numbers. Long interest rates, as represented by
the 30-year treasury bond, began the fourth quarter at about 6.5 percent, ended
the year at just under 6 percent, and then more than retraced their steps to end
the first quarter at 6.65 percent.
In contrast to long rates, money market rates benefited from a more
accommodative monetary policy, as the Federal Reserve moved the federal funds
rate downward by one-half of a percentage point, and treasury bills moved down
approximately one-quarter of a percentage point. However, earlier expectations
of further ease by the Federal Reserve have changed to reflect stable policy and
the possibility of future tightening.
Last fall, our investment strategy was based on the assumption that the economy
would continue to expand at a modest pace, with no upward inflationary pressure
until late 1996. Accordingly, we positioned the portfolios with durations or
effective maturities longer than their respective benchmarks to benefit from
price appreciation resulting from further rate declines. This strategy has been
changed recently to a more defensive position reflecting stronger economic
growth and the possibility of further rate increases.
PORTFOLIO REVIEW
To improve the performance of the Tax-Free Portfolios in a declining rate
environment, we increased the call protection, effectively lengthening the
maturity of the portfolios during the balance of 1995 and early 1996. Therefore,
the effective maturity or duration has improved by more than two years in the
National Portfolio, and by about nine months in the Minnesota Portfolio.
Transactions in the New York Portfolio were relatively few to limit taxable
gains.
When municipal interest yields fell by one-quarter to one-half of a percent
during the fourth quarter of 1995, this improvement in call protection resulted
in enhanced fund performance, particularly by the National Portfolio.
During the first quarter of 1996, the shifting market sentiment pushed municipal
interest rates back up by approximately the same amount. Because of the
uncertain rate environment in the immediate future, we have moved the National
Portfolio toward a more neutral profile, in comparison to its standard of
measure or benchmark. The New York Portfolio benefited from its shorter average
maturity and higher average coupon rate during this period of rising rates.
Looking forward, we will continue our efforts to improve the risk profile of the
portfolios, limiting their exposure to further interest rate increases by
maintaining or shortening the average maturities of the National and Minnesota
Portfolios.
IN CLOSING
We remain committed to our disciplined investment strategy, and we consider it a
privilege to help you invest for your future. Please call us or talk with your
investment professional if you have any questions or comments.
Sincerely,
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
[SIGNATURE]
Robert C. Lindberg
Vice President
April 12, 1996
NATIONAL PORTFOLIO
COMPOSITION BY INDUSTRY
AS OF 3/31/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
General Obligation 32.3%
Health Care/Services 14.4%
Utilities - Electric 9.7%
Utilities - Water and Sewer 13.1%
Utilities - Gas 1.1%
Refunded with U.S. Gov't 6.4%
Transportation 9.3%
Public Facilities 1.1%
Cash Equivalents/Receivables 1.8%
Housing 3.7%
Pollution Control 2.5%
Higher Education 2.1%
Industrial 0.8%
Miscellaneous 1.7%
VALUE OF $10,000 INVESTED JUNE 2, 1986
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NATIONAL PORTFOLIO CLASS E
AVERAGE ANNUAL TOTAL RETURN
Since
1 Year 5 Year June 2, 1986@
Class E* +2.07% +6.75% +6.92%
Class E** +6.88% +7.74% +7.42%
Lehman Bros. National Portfolio
Municipal Bond Index*** Class E
6/02/86 10,000 9,525
87 11,006 10,457
88 12,307 10,569
89 13,634 11,411
90 14,628 12,318
91 16,404 13,298
92 17,850 14,680
93 20,043 16,544
94 19,012 16,972
95 22,332 18,057
96 22,063 19,300
Annual period ended March 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
@ Date shares were first offered to the public.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP TEN HOLDINGS AS OF 3/31/96
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
1. Massachusetts (5.875%) 2010 3.9%
2. Boston, MA (6.00%) 2014 3.4%
3. New York Triborough Bridge & Tunnel Auth (5.50%)
2017 3.3%
4. Metropolitan Transportation Auth, NY (5.75%) 2013 3.2%
5. Massachusetts Water Resources (6.25%) 2010 2.7%
6. Fairfax County Virginia Water Auth (6.00%) 2022 2.7%
7. Fulton County Georgia Water & Sewer (6.375%) 2014 2.6%
8. Honolulu, Hawaii City & County, (5.50%) 2011 2.6%
9. Maryland Industrial Dev Fin Auth Rev (5.50%) 2020 2.4%
10. Columbus, Ohio (5.50%) 2015 2.0%
CLASS A, B, C AND H TOTAL RETURNS
Since
1 Year Inception+
- ----------------------------------------------------------------
Class A shares** +6.55% +12.25%
Class A shares* +1.76% +8.66%
Class B shares# +9.35% +14.97%
Class B shares## +5.75% +11.37%
Class C shares# +6.84% +12.44%
Class C shares## +5.84% +11.44%
Class H shares# +9.44% +15.03%
Class H shares## +5.84% +11.43%
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if redeemed
within two years of purchase, and Class C has a CDSC of 1.00% if redeemed within
one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on March 31, 1996.
+ Since November 14, 1994 -- Date shares were first offered to the public.
COMPOSITION BY INDUSTRY
AS OF 3/31/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Health Care/Services 22.8%
Housing 19.1%
General Obligations 23.0%
Utilities - Electric 9.4%
Higher Education 1.9%
Public Facilities 4.1%
Refunded with U.S. Gov't 6.9%
Miscellaneous 4.6%
Pollution Control 4.2%
Cash Equivalents/Receivables 3.0%
Utility - Water & Sewer 1.0%
MINNESOTA PORTFOLIO
VALUE OF $10,000 INVESTED JUNE 2, 1986
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MINNESOTA PORTFOLIO CLASS E
AVERAGE ANNUAL TOTAL RETURN
Since
1 Year 5 Year June 2, 1986@
Class E* +1.50% +6.18% +6.36%
Class E** +6.28% +7.17% +6.86%
Lehman Bros. Minnesota Portfolio
Municipal Bond Index*** Class E
6/02/86 10,000 9,685
87 11,171 10,403
88 12,307 10,434
89 13,634 11,118
90 14,628 11,988
91 16,404 12,967
92 17,850 14,151
93 20,043 15,763
94 19,012 16,193
95 22,332 17,246
96 22,063 18,329
Annual period ended March 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
@ Date shares were first offered to the public.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP TEN HOLDINGS AS OF 3/31/96
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
1. Robbinsdale, MN (5.45%) 2013 3.6%
2. Minneapolis & St. Paul, MN (5.70%) 2016 3.5%
3. Minneapolis, MN (5.20%) 2013 3.5%
4. Northern MN Municipal Power Agency (5.50%) 2018 3.4%
5. Southern MN Municipal Power Agency (5.75%) 2018 3.3%
6. Spring Lake Park, MN (5.25%) 2017 3.0%
7. Stillwater Independent School District #834, MN
(5.75%) 2015 2.9%
8. Minneapolis, MN (5.25%) 2019 2.9%
9. Brainerd, MN (6.65%) 2017 2.9%
10. Minneapolis, MN Spec School District (5.375%) 2014 2.6%
CLASS A, B, C AND H TOTAL RETURNS
Since
1 Year Inception+
- ----------------------------------------------------------------
Class A shares** +5.95% +10.70%
Class A shares* +1.18% +7.16%
Class B shares# +8.86% +13.04%
Class B shares## +5.26% +9.74%
Class C shares# +6.11% +10.86%
Class C shares## +5.11% +9.86%
Class H shares# +8.84% +13.56%
Class H shares## +5.24% +9.96%
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if redeemed
within two years of purchase, and Class C has a CDSC of 1.00% if redeemed within
one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on March 31, 1996.
+ Since November 14, 1994 -- Date shares were first offered to the public.
NEW YORK PORTFOLIO
COMPOSITION BY INDUSTRY
AS OF 3/31/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Refunded with U.S. Gov't 37.8%
Housing 22.4%
Transportation 13.1%
Health Care/Services 7.2%
Miscellaneous 6.7%
General Obligation 4.3%
Cash Equivalents/Receivables 4.1%
Utilities - Electric 4.4%
VALUE OF $10,000 INVESTED NOVEMBER 6, 1987
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NEW YORK PORTFOLIO CLASS E
AVERAGE ANNUAL TOTAL RETURN
Since
1 Year 5 Year November, 6 1987@
Class E* +0.75% +6.39% +7.24%
Class E** +5.50% +7.37% +7.82%
Lehman Bros. New York Portfolio
Municipal Bond Index*** Class E
11/06/87 10,000 9,550
88 11,468 9,855
89 12,705 10,727
90 13,631 11,633
91 15,286 12,603
92 16,633 13,847
93 18,676 15,771
94 17,716 16,231
95 20,810 17,049
96 20,559 17,986
Annual period ended March 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
@ Date shares were first offered to the public.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP TEN HOLDINGS AS OF 3/31/96
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
1. New York State Dorm Auth (7.50%) 2011 7.6%
2. New York State Dorm Auth (7.80%) 2005 7.4%
3. New York City, NY (8.25%) 2017 7.1%
4. New York State Urban Development Corp (7.375%)
2018 5.9%
5. New York Local Government Assistance Corp (7.50%)
2020 5.9%
6. New York State Med Care (7.45%) 2029 5.8%
7. New York Triborough Bridge & Tunnel Auth (8.125%)
2012 4.6%
8. New York State Med Care (6.375%) 2029 4.4%
9. New York State Power Auth (5.25%) 2018 4.4%
10. United Nations Development Corp, NY (6.00%) 2012 4.3%
CLASS A, B, C AND H TOTAL RETURNS
Since
1 Year Inception+
- ----------------------------------------------------------------
Class A shares** +5.27% +8.26%
Class A shares* +.53% +5.14%
Class B shares# +7.98% +11.20%
Class B shares## +4.38% +7.60%
Class C shares# +5.47% +8.66%
Class C shares## +4.47% +7.66%
Class H shares# +7.50% +10.85%
Class H shares## +3.90% +7.25%
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if redeemed
within two years of purchase, and Class C has a CDSC of 1.00% if redeemed within
one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on March 31, 1996.
+ Since November 14, 1994 -- Date shares were first offered to the public.
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
Schedule of Investments
March 31, 1996 (Unaudited)
MUNICIPAL BONDS-98.21%
- ------------------------------------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
ARIZONA-2.08%
<S> <C> <C> <C>
$1,600,000 Tucson AZ, 5.50% Water Revenue Refunding
Bonds 7-1-2014............................. A+ $ 1,637,083 $ 1,574,512
------------ ------------
CALIFORNIA-5.24%
1,450,000 California State, 5.75% General Obligation
11-1-2012.................................. A 1,521,278 1,465,399
4,000,000 Southern California Public Power, 6.36% Zero
Coupon Bond 7-1-2013 (d)................... A+ 1,358,346 1,444,640
2,750,000 Sulphur Springs (City of) CA, 7.00% Zero
Coupon General Obligation Ser A MBIA
Insured 9-1-2012 (d)...................... AAA 888,755 1,060,042
------------ ------------
3,768,379 3,970,081
------------ ------------
CONNECTICUT-3.43%
1,500,000 Connecticut State, 6.125% Special Tax Obligation Rev
Transportation Infrastructure Ser B Noncall Sinking Fund
9-1-2012................................... AA- 1,582,088 1,593,750
1,000,000 Connecticut, 5.50% General Obligation Ser B
3-15-2011.................................. AA- 1,047,312 1,004,030
------------ ------------
2,629,400 2,597,780
------------ ------------
DISTRICT OF COLUMBIA-4.01%
1,250,000 District of Columbia, 7.50% General Obligation
Ser1990B FSA Insured 6-1-2010
(Refunded 6-1-2000 @ 102).................. AAA 1,235,937 1,414,412
1,500,000 Georgetown University, 8.25% District of Columbia Bond
4-1-2018 (Crossover Refunded 10-1-2001 @ 103)... A+ 1,551,330 1,629,315
------------ ------------
2,787,267 3,043,727
------------ ------------
FLORIDA-2.33%
500,000 Florida (State of), 7.50% Mid-Bay Bridge Auth
Ser 1991A 10-1-2017
(Crossover Refunded 10-1-2001 @ 103)....... N/R 473,572 544,005
500,000 Leesburg (City of) FL, 7.50% Capital
Improvement Hosp Rev Bond (Leesburg
Regional Med Ctr) Ser 1991A 7-1-2021
(Refunded 7-1-2002 @ 102).................. A- 488,306 581,655
600,000 Tampa (City of) FL, 8.25% Cap Improvement
Program Rev Bond Ser A 10-1-2018........... AA 598,883 643,056
------------ ------------
1,560,761 1,768,716
------------ ------------
GEORGIA-3.97%
1,800,000 Fulton County Georgia Water & Sewer, 6.375%
Ref Bond FGIC Insured 1-1-2014............. AAA 1,785,021 1,940,670
1,000,000 Municipal Electric Auth of Georgia, 6.50% 5th
Crossover Ser Proj 1 1-1-2017.............. A 992,606 1,072,410
------------ ------------
2,777,627 3,013,080
------------ ------------
HAWAII-2.63%
2,000,000 Honolulu, Hawaii City & County, 5.50% Ref &
Impt Ser B 10-1-2011....................... AA 2,026,291 1,991,740
------------ ------------
ILLINOIS-4.63%
500,000 Channahon Park IL District, 7.50% General
Obligation 1-1-2011........................ N/R 499,375 531,005
750,000 Chicago Gas Supply, 7.50% Rev for Peoples Gas
Ser B 3-1-2015............................. AA- 759,718 811,313
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj
Ser 1991-A 7-1-2021........................ BBB 992,441 1,111,280
1,000,000 Illinois Housing Dev Auth, 7.55% Multi-family
Housing Ser 1990A 7-1-2014................. A+ 987,575 1,060,090
------------ ------------
3,239,109 3,513,688
------------ ------------
INDIANA-3.58%
1,200,000 Indiana Bond Bank, 8.50% Special Loan Program
Ser B 2-1-2018............................. A 1,212,954 1,306,248
1,250,000 Indianapolis (City of) IN Local Public
Improvement Bond Bank, 7.40% Ser 1990A
1-1-2020
(Refunded 7-1-2000 @ 102).................. Aaa* 1,247,245 1,412,138
------------ ------------
2,460,199 2,718,386
------------ ------------
KENTUCKY-1.44%
1,000,000 Louisville & Jefferson County KY, 6.75% Metro
Sewer Dist Rev Bond Ser A AMBAC Insured
5-15-2019.................................. AAA 996,277 1,093,050
------------ ------------
MAINE-2.13%
1,500,000 Regional Waste Sys, Inc. of ME, 7.95% Ser A-C
7-1-2010................................... AA 1,511,073 1,612,500
------------ ------------
MARYLAND-3.74%
1,940,000 Maryland Industrial Dev Fin Auth Rev Bonds,
5.50% Ser 1995 MBIA Insured Bon Secours
Health System Project 8-15-2020............ AAA 1,859,835 1,849,829
1,000,000 Maryland Water Quality Financing Authority,
5.50% Refunding Bonds Ser 1995A 9-1-2012... AA 997,536 987,190
------------ ------------
2,857,371 2,837,019
------------ ------------
MASSACHUSETTS-12.34%
$2,500,000 Boston (City of) MA, 6.00% General Obligation
AMBAC Insured 8-1-2014..................... AAA $ 2,493,870 $ 2,577,075
500,000 Boston City Hospital MA, 7.625% Rev Bond Ser
A 2-15-2021 (Refunded 8-15-2000 @102)...... Aaa* 496,336 564,320
1,250,000 Massachusetts Water Resources Auth, 5.25%
1993 Ser C Rev Bond 12-1-2015.............. AAA 1,238,581 1,188,125
2,000,000 Massachusetts Water Resources, 6.25% Gen Rev
Ref Bond Ser 1992B 11-1-2010............... A 1,979,526 2,080,640
2,850,000 Massachusetts, 5.875% General Obligation Ser
B FGIC Insured 8-1-2010.................... AAA 2,825,284 2,946,815
------------ ------------
9,033,597 9,356,975
------------ ------------
MICHIGAN-3.23%
1,300,000 Lake Orion MI, 5.50% School District Ref
Bonds UT100 AMBAC Insured Q-SBLF
5-1-2020................................... AAA 1,251,192 1,249,651
1,200,000 University of Michigan, 5.75% Hospital
Revenue Bond Series A 12-1-2012............ AA 1,174,694 1,200,696
------------ ------------
2,425,886 2,450,347
------------ ------------
MINNESOTA-4.38%
1,140,000 Fergus Falls (City of) MN, 6.50% Health Care
Facility (Lake Regional Hospital) Ser A
9-1-2018................................... BBB+ 1,133,583 1,152,073
2,000,000 Minneapolis (City of) MN, 5.75% General
Obligation Zero Coupon Bond Ser 1993A
12-1-2013 (d).............................. AAA 749,454 724,400
670,000 Minneapolis (City of) MN, 7.00% Health Care
Fac Rev (St Olaf Residence) Ser 1993
10-1-2012.................................. N/R 670,000 694,917
690,000 St. Anthony (City of) MN, 6.75% Housing Dev
Rev Ref Bond 7-1-2007...................... AA 690,000 748,705
------------ ------------
3,243,037 3,320,095
------------ ------------
MISSOURI-1.75%
1,250,000 Missouri State Health & Educ, 7.70% Still
Regional Med Ctr 2-1-2013.................. BBB 1,299,684 1,327,450
------------ ------------
NEBRASKA-2.01%
1,500,000 Nebraska Public Power District, 6.125% Power
Supply Sys Rev 1-1-2015.................... A+ 1,475,745 1,524,705
------------ ------------
NEVADA-1.46%
1,000,000 Washoe County Nevada Hosp, 7.60% (Washoe Med
Ctr) Rev Bond Ser 1989A 6-1-2019........... A 971,310 1,104,830
------------ ------------
NEW YORK-13.31%
2,465,000 Metropolitan Transportation Authority NY
Commuter Facilities, 5.75% Ser O
7-1-2013................................... BBB 2,388,471 2,393,909
1,100,000 New York City, 5.75% General Obligation Ser G
2-1-2010................................... BBB+ 1,089,624 1,051,402
1,000,000 New York City, 8.25% General Obligation Ser B
6-1-2005................................... BBB+ 989,421 1,157,890
1,000,000 New York St Dorm Auth Revs Cons City Univ
System 2nd Gen A, 6.00% 7-1-2020........... BBB 1,019,233 991,060
730,000 New York State Med Care, 7.50% Mental Health
Ser A2-15-2021 (Refunded 2-15-2001 @
102)....................................... AAA 702,120 836,653
1,000,000 New York State, 7.75% UDC Correctional Fac
Ser 1 1-1-2014 (Refunded 1-1-2000 @ 102)... Aaa* 959,485 1,132,060
2,600,000 New York Triborough Bridge and Tunnel Auth,
5.50% General Purpose Ser Y 1-1-2017....... A+ 2,491,773 2,527,694
------------ ------------
9,640,127 10,090,668
------------ ------------
NORTH DAKOTA-1.58%
1,100,000 Ward County ND, 7.50% Health Care Fac Ser
1991B 7-1-2011............................. A- 1,131,693 1,196,690
------------ ------------
OHIO-3.31%
750,000 Cleveland (City of) OH Parking Fac, 8.10%
Improvement Rev Bond 9-15-2022............. N/R 760,694 820,095
1,720,000 Columbus (City of) OH, 5.50% General
Obligation Ser 2 5-15-2015................. AAA 1,715,952 1,691,912
------------ ------------
2,476,646 2,512,007
------------ ------------
PENNSYLVANIA-3.61%
750,000 Clarion County PA Hosp Auth, 8.50% Clarion
Hosp Proj Rev Bond 7-1-2021................ BBB- 733,339 810,450
890,000 Delaware County PA, 8.10% IDA Rev Res Recov
Ser A LOC Security Pacific: Proj Guar by
Westinghouse 12-1-2013..................... N/R 932,709 927,576
1,000,000 Pennsylvania State, 5.75% General Obligation
FGIC Insured 5-1-2015...................... AAA 1,013,118 1,002,530
------------ ------------
2,679,166 2,740,556
------------ ------------
PUERTO RICO-1.94%
500,000 Puerto Rico, 5.75% Public Building Auth Rev
Ref Bond Ser L 7-1-2016.................... A 475,041 479,750
900,000 Puerto Rico, 6.25% Public Building Auth Rev
GTD Gov't Facilities Ser A AMBAC Insured
7-1-2009................................... AAA 1,010,797 992,349
------------ ------------
1,485,838 1,472,099
------------ ------------
TENNESSEE-1.28%
$1,000,000 Shelby County TN, 5.50% Health, Education, &
Housing Fac Board Hosp Rev Methodist Health
System Inc. MBIA Insured 8-1-2012.......... AAA $ 1,006,701 $ 973,660
------------ ------------
VIRGINIA-4.74%
2,000,000 Fairfax County VA, 6.00% Authority Water Rev
4-1-2022................................... AA- 1,974,231 2,025,220
1,500,000 Virginia State Public School Auth, 6.20% Ser
A 8-1-2014................................. AA 1,491,689 1,571,940
------------ ------------
3,465,920 3,597,160
------------ ------------
WASHINGTON-2.91%
1,000,000 Washington Public Power Supply Sys, 7.00%
Nuclear Proj 2 Ref Rev Bond Ser 1990B
7-1-2012................................... AA 956,950 1,068,840
1,000,000 Washington Public Power Supply Sys, 7.625%
Proj 2 Rec Bond Ser 1990A 7-1-2008
(Refunded 7-1-2000 @ 102).................. AAA 986,875 1,138,340
------------ ------------
1,943,825 2,207,180
------------ ------------
WISCONSIN-1.15%
750,000 Wisconsin Health & Educ Fac Auth, 8.50% Rev
Bond Ser 1990 (Franciscan Health Sys)
3-1-2020 (Refunded 3-1-2000 @ 102)......... Aaa* 750,000 870,795
------------ ------------
TOTAL MUNICIPAL BONDS........................ $71,280,012 $74,479,496
============ ============
</TABLE>
SHORT-TERM INVESTMENTS-0.38%
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
--------- ------------
INVESTMENT COMPANY-0.38%
$286,019 Federated Tax-Free Obligation Fund, Current
Rate -- 3.30%.............................. $ 286,019
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$71,566,031) (a)........................... $74,765,515
===========
(a) At March 31, 1996, the cost of securities for federal income tax purposes
was $71,568,928 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation........................... $3,654,439
Unrealized depreciation........................... (457,852)
--------------------------------------------------------------
Net unrealized appreciation....................... $3,196,587
--------------------------------------------------------------
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note:Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rate disclosed for these securities represents the original
issue discount yields on the date of acquisition.
* Moody's Rating
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
Schedule of Investments
March 31, 1996 (Unaudited)
MUNICIPAL BONDS-96.97%
- ------------------------------------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
GENERAL OBLIGATIONS-23.04%
<S> <C> <C> <C>
$ 450,000 Eagan (City of), MN, 7.25% General Obligation
Water Rev Sys Bond Ser 1990A 12-1-2008
(Crossover Refunded 12-1-1999 @ 100)....... AA- $ 445,500 $ 493,492
1,000,000 Eden Prairie (City of), MN Independent School
District #272, 5.125% General Obligation
State Enhancement Program 2-1-2013......... Aa* 987,908 954,760
500,000 Edina (City of) MN,7.30% General Obligation
2-1-2008 (Crossover Refunded 2-1-1998 @
100)....................................... Aa1* 502,716 526,570
1,500,000 Minneapolis (City of), MN Spec School
District, 5.375% Unlimited General
Obligation State Enhancement Program FGIC
Insured 2-1-2014........................... AAA 1,500,248 1,458,810
2,000,000 Minneapolis (City of), MN, 5.20% General
Obligation Ref Ser B 3-1-2013.............. AAA 1,986,499 1,921,180
1,000,000 Puerto Rico, 5.75% Public Building Auth Rev
Ref Bond Ser L 7-1-2016.................... A 963,297 959,500
900,000 Puerto Rico, 6.25% Public Building Auth Rev
GTD Gov't Facilities Ser A AMBAC Insured
7-1-2009................................... AAA 1,010,797 992,349
1,760,000 Spring Lake Park (City of), MN, 5.25%
Independent School District #16 General
Obligation MBIA Insured 2-1-2017........... AAA 1,701,641 1,661,933
1,200,000 St. Paul (City of), MN, 5.80% Independent
School District #625 Ser B 2-1-2012........ AA 1,191,518 1,223,820
1,600,000 Stillwater (City of), MN, 5.75% Independent
School District #834 MBIA Ins. Sch Dist
Enhancement Program 2-1-2015............... AAA 1,581,787 1,602,048
1,000,000 Wayzata (City of), MN, 5.95% Independent
School District #284-General Obligation Ser
1995B 2-1-2013............................. AAA 1,000,000 1,023,350
------------ ------------
12,871,911 12,817,812
------------ ------------
HEALTH CARE/SERVICES-22.79%
1,000,000 Duluth (City of), MN, 8.375% EDA Health Care
Fac Rev (St. Mary's Med Ctr) Ser 1990
2-15-2020 (Refunded 2-15-2000 @ 102)....... AAA 1,021,779 1,155,170
785,000 Duluth (City of), MN, 9.00% Hospital Fac Rev
Bond for St. Luke's Ser 1988 5-1-2018...... AAA 801,181 875,463
500,000 Hibbing (City of), MN, 5.50% Health Care Fac
Rev (Duluth Clinic) Ser 1996 FSA Insured
11-1-2016.................................. AAA 495,006 479,760
500,000 Minneapolis & St Paul (Cities of), MN, 6.75%
HRA Health Care Fac Rev Bond Group Health,
Inc.
Ser 1992-1 2-1-2013........................ A- 486,264 523,295
2,000,000 Minneapolis & St. Paul (Cities of), MN, 5.70%
HSG & Redev Auth Health Care System
Childrens Health Care Ser A FSA Insured
8-15-2016.................................. AAA 1,975,999 1,964,400
1,100,000 Minneapolis & St. Paul (Cities of), MN, 6.75%
HRA Health Care System HealthOne Obligated
Group MBIA Insured 8-15-2014............... AAA 1,098,799 1,174,547
1,750,000 Minneapolis (City of), MN, 5.25% Health Care
Fac Rev (Fairview Hosp) MBIA Insured
11-15-2019................................. AAA 1,676,814 1,607,970
2,100,000 Robbinsdale (City of), MN, 5.45% Hospital Rev
North Memorial Med Ctr Ser B AMBAC Insured
5-15-2013.................................. AAA 2,106,979 2,020,725
1,275,000 Rochester (City of), MN, 6.25% Health Care
Fac Rev Bond Mayo Foundation/Mayo Med Ctr
Ser 1992D 11-15-2014....................... AA+ 1,274,860 1,330,106
350,000 St. Louis Park (City of), MN, 7.25% Hospital
Fac Rev Methodist Ser 1990C AMBAC Insured
7-1-2015................................... AAA 352,952 393,386
1,180,000 St. Paul (City of), MN, 5.50% Housing and
Redevelopment Authority Hospital Revenue
St. Paul Ramsey Medical Ctr AMBAC Insured
5-15-2013.................................. AAA 1,134,909 1,151,798
------------ ------------
12,425,542 12,676,620
------------ ------------
HIGHER EDUCATION-1.92%
460,000 Minnesota Higher Education, 7.625% Mortgage
Rev Ser 3F for St. Mary's College 10-1-2016
(Refunded 10-1-2001 @ 100)................. BBB- 457,700 526,281
500,000 Northfield (City of), MN, 8.00% College
Facility Rev Bond for St. Olaf College
10-1-2018 (Refunded 10-1-1998 @ 100)....... N/R 500,739 543,870
------------ ------------
958,439 1,070,151
------------ ------------
HOUSING-19.08%
1,500,000 Brainerd (City of), MN, 6.65% Rev Ref Bond
Ser 1992B, Evangelical Lutheran-Good
Samaritan Project FSA Insured 3-1-2017..... AAA 1,514,325 1,599,585
325,000 Dakota County, MN, 8.10% HRA Single Family
Rev GNMA Backed 3-1-2016................... AAA 332,109 343,759
300,000 Eden Prairie (City of), MN, 7.40% Multifamily
Housing Ser 1990 FHA Insured 8-1-2025...... AAA 299,956 315,078
870,000 Eden Prairie (City of), MN, 8.00% Multifamily
Housing Ser A FHA Insured 7-1-2026......... AAA 870,000 936,094
585,000 Edina (City of), MN, 7.50% Housing Dev Ref
Rev Edina Park Plaza Ser 1989A 12-1-2009... Aa* 584,625 620,299
500,000 Edina (City of), MN, 7.70% Housing Dev Ref
Rev Edina Park Plaza Ser A FHA Insured
12-1-2028.................................. Aa* 500,000 527,330
525,000 Mankato (City of), MN, 8.25% Nursing Home Rev
Bond Board of Soc Ministry Mankato Lutheran
Ser 1991A 10-1-2021........................ N/R 520,000 562,742
1,070,000 Minneapolis (City of), MN, 7.10% HRA Mortgage
Rev Bond Riverplace Proj Ser A LOC Bank of
Tokyo 1-1-2020............................. Aa3* 1,082,605 1,102,400
600,000 Minneapolis (City of), MN, 7.875% CDA & HRA
Rev Bond 7-1-2017.......................... AA- 592,536 616,296
485,000 Minneapolis (City of), MN, 8.25% Health Care
Fac Rev Bond Jones-Harrison Residence Ser
1991 9-1-2011.............................. N/R 479,122 517,961
$ 350,000 Minneapolis (City of), MN, 8.25% Rev Bond
Trinity Housing Proj Ser 1991 2-1-2018..... N/R $ 350,000 $ 357,980
500,000 Minnesota Housing Finance Agency, 6.95%
Housing Dev Bond Ser 1992A 8-1-2017........ AA 500,000 524,530
205,000 Minnesota Housing Finance Agency, 7.70%
Single Family Mortgage Bond Ser C
7-1-2014................................... AA+ 206,167 216,954
440,000 Northfield (City of), MN, 7.00% Health Care
Facility Northfield Retirement Center
5-1-2015................................... N/R 436,138 447,194
735,000 Red Wing (City of), MN, 6.50% Elderly Housing
Fac Ref Rev River Region Obligated Group
Ser 1993C 9-1-2022......................... BBB+ 730,729 740,608
500,000 Spring Park (City of), MN, 8.25% Health Care
Fac Rev Bond Twin Birch Health Care Ctr
8-1-2011................................... N/R 500,000 541,010
660,000 Waconia (City of), MN HRA, 6.00% Ref Rev Bond
Evangelical Lutheran Good Samaritan Society
Ser 1993A 6-1-2014......................... A- 660,000 645,658
------------ ------------
10,158,312 10,615,478
------------ ------------
MISCELLANEOUS-4.56%
450,000 Dakota County, MN, 7.50% HRA Limited Annual
Appropriation Tax & Rev Supported Bond Ser
1991 1-1-2006.............................. BBB+ 450,000 472,221
400,000 Dawson (City of), MN, 7.30% IDR Ref Bond
Associated Milk Producers 9-1-2000......... N/R 396,426 418,020
1,000,000 Minneapolis (City of), MN, 7.375% CDA Limited
Tax Supported Dev Rev Common Bond Fund
Ser 1995-G3 12-1-2012...................... BBB+ 1,000,000 1,102,590
500,000 Minneapolis (City of), MN, 8.375% CDA Limited
Tax Supported Dev Rev Common Bond Fund Ser
1990-6A 6-1-2007........................... BBB+ 497,500 540,990
------------ ------------
2,343,926 2,533,821
------------ ------------
POLLUTION CONTROL-4.19%
650,000 East Grand Forks (City of), MN, 7.75%
Pollution Control Rev (American Crystal
Sugar) Ser 1991A 4-1-2018.................. BBB+ 650,509 682,858
1,000,000 Minnesota Public Fac Auth, 6.65% Zero Coupon
WaterPollution Rev Bond Ser 1992A 3-1-2007
(d)........................................ AAA 489,691 534,250
1,000,000 Minnesota Public Fac Auth, 7.10% Water
Pollution Rev Bond Ser 1990A 3-1-2012...... AAA 978,767 1,111,190
------------ ------------
2,118,967 2,328,298
------------ ------------
PUBLIC FACILITES-4.13%
400,000 Duluth (City of), MN, 6.75% Gross Rev
Recreation Fac Bond Spirit Mountain Ser
1992 2-1-2007.............................. N/R 400,000 412,056
325,000 Moorhead (City of), MN, 7.75% Golf Course Rev
Bond Ser 1992A 12-1-2015................... N/R 325,000 360,350
1,000,000 St. Paul (City of), MN, 5.45% HRA Sales Tax
Rev Bond Civic Ctr Proj Ser 1993
11-1-2013.................................. A 984,201 976,740
500,000 St. Paul (City of), MN, 6.45% HRA Parking Rev
Bond Ser 1992A 8-1-2007 (Refunded 8-1-2000
@ 102)..................................... A- 500,000 545,835
------------ ------------
2,209,201 2,294,981
------------ ------------
REFUNDED WITH U.S. GOVERNMENT SECURITIES-6.91%
400,000 Minneapolis (City of), MN, 8.00% HRA St. Paul
HealthOne Ser 1990B 8-15-2014
(Prefunded 8-15-2000 @ 102)................ AAA 412,289 462,488
1,100,000 Minneapolis (City of), MN, 9.125% Hospital
Fac Ref Rev Bond Ser B 12-1-2014
(Refunded 12-1-1997 @ 102)................. AAA 1,184,861 1,214,290
220,000 Minneapolis (City of), MN, 9.50% CDA for Mt.
Sinai Hospital Assoc Ser 1986 11-1-2006
(Refunded 11-1-1996 @ 102)................. AAA 232,120 231,992
925,000 St. Louis Park (City of), MN, 7.25% Hospital
Fac Rev Methodist Ser 1990C AMBAC Insured
7-1-2015 (Refunded 7-1-2000 @ 102)......... AAA 908,761 1,039,663
765,000 St. Louis Park (City of), MN, 8.50% Health
Care Fac (Park Nicollet Med Ctr) Ser A
1-1-2011 (Refunded 1-1-2001 @ 100)......... Aaa* 770,804 892,472
------------ ------------
3,508,835 3,840,905
------------ ------------
UTILITIES-ELECTRIC-9.37%
2,000,000 Northern MN Municipal Power Agency, 5.50%
Electric Sys Rev Bond Ser B AMBAC Insured
1-1-2018................................... AAA 1,931,654 1,911,900
1,295,000 Northern MN Municipal Power Agency, 7.102%
Zero Coupon Elec Sys Rev Ref Ser A AMBAC
Primary Insured 1-1-2011 (d)............... AAA 473,481 561,033
1,000,000 Southern MN Municipal Power Agency, 5.00%
Power Supply Sys Rev Bond Ser 1993A
1-1-2012................................... A+ 949,635 924,820
1,870,000 Southern MN Municipal Power Agency, 5.75%
Power Supply Sys Rev 1-1-2018.............. A+ 1,812,471 1,815,620
------------ ------------
5,167,241 5,213,373
------------ ------------
UTILITIES-WATER AND SEWER-0.98%
500,000 St. Paul (City of), MN, 8.00% Sewer Rev Bond
Ser 1988A 12-1-2008
(Crossover Refunded 12-1-1998 @ 101)....... BBB 500,000 546,535
------------ ------------
TOTAL MUNICIPAL BONDS........................ $52,262,374 $53,937,974
============ ============
</TABLE>
SHORT-TERM INVESTMENTS-1.74%
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
--------- ------------
INVESTMENT COMPANY-1.74%
$965,487 Federated Minnesota Municipal Cash Trust,
Current rate -- 3.32%...................... $ 965,487
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$53,227,861) (a)........................... $54,903,461
===========
(a) At March 31, 1996, the cost of securities for federal income tax purposes
was $53,241,496 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation........................... $2,159,936
Unrealized depreciation........................... (497,971)
--------------------------------------------------------------
Net unrealized appreciation....................... $1,661,965
--------------------------------------------------------------
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note:Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rate disclosed for these securities represents the original
issue discount yields on the date of acquisition.
* Moody's Rating.
FORTIS TAX-FREE PORTFOLIOS, INC.
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
Schedule of Investments
March 31, 1996 (Unaudited)
MUNICIPAL BONDS-95.79%
- ----------------------------------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ------------- ------------ ------------
GENERAL OBLIGATIONS-4.26%
<S> <C> <C> <C>
$250,000 North Hempstead (Town of) NY, 7.25% Public
Improvement Bond FGIC Insured Ser A
Unlimited Tax 4-1-2012 (Refunded 4-1-1999 @
102)....................................... AAA $ 249,375 $ 275,433
200,000 Puerto Rico, 6.25% Public Building Auth Rev
GTD Gov't Facilities Ser A AMBAC Insured
7-1-2009................................... AAA 224,622 220,522
------------ ------------
473,997 495,955
------------ ------------
HEALTH CARE/SERVICES-7.18%
305,000 New York State Med Care Fac Fin
Agency -- Mental Health, 7.70% Rev Bond
2-15-2018.................................. BBB+ 315,290 325,688
500,000 New York State Med Care Fac Fin Agency,
6.375% Mt. Sinai Hospital & Nursing Home
Rev Ref Mtg C
FHA Insured 8-15-2029...................... AAA 497,149 510,185
------------ ------------
812,439 835,873
------------ ------------
HOUSING-22.43%
410,000 New York State Mtg Agency, 7.85% Rev
Homeowner Mtg Ser BB-2 10-1-2008........... Aa* 409,133 433,497
770,000 New York State, 7.50% Dorm Auth Rev Ref State
Univ Educ Fac Ser B 5-15-2011.............. BBB+ 784,595 885,377
791,000 New York State, 7.80% Dorm Auth Rev Bond
Insd-Pooled Cap Prog, FGIC Insured
12-1-2005 (Partially Refunded 12-1-1998
@102)...................................... AAA 801,057 858,029
400,000 New York State, 8.125% Dorm Auth City Univ
Ref Bond Ser A 7-1-2007.................... BBB 401,628 434,264
------------ ------------
2,396,413 2,611,167
------------ ------------
MISCELLANEOUS-6.69%
250,000 New York (City of) Municipal Assistance
Corp., 7.625% Ser 67 Bond (Pub Benefit
Corp., of the State of NY) 7-1-2008........ AA- 252,576 275,390
500,000 United Nations Development Corp., of NY,
6.00% Rev Ref Sr Lien Ser 1992A 7-1-2012... A 484,160 503,475
------------ ------------
736,736 778,865
------------ ------------
REFUNDED WITH U.S. GOVERNMENT SECURITIES-37.76%
290,000 Babylon (Town of) NY, 8.10% Indusrtrial Dev
Agency Res Recov Rev Bond Ser 1985C (Ogden
Martin Systems, Inc.) 1-1-2000 (Refunded
7-1-1988 @ 103)............................ Aaa* 289,825 322,860
405,000 Babylon (Town of) NY, 8.50% Industrial Dev
Agency Res Recov Rev Bond Ser 1985C (Ogden
Martin Systems, Inc.) 1-1-2019 (Refunded
7-1-1998 @ 103)............................ Aaa* 420,568 454,345
350,000 New York (City of) Municipal Assistance
Corp., 8.25% Ser 56 Bond 7-1-2008
(Refunded 7-1-1996 @ 102).................. AA- 353,382 361,190
690,000 New York City, 8.25% General Obligation Ser
1991F 11-15-2017 (Refunded 11-15-2001 @
101.5)..................................... BBB+ 673,023 825,005
600,000 New York Local Government Assistance Corp.,
7.50% Ser 1991B Bond 4-1-2020
(Refunded 4-1-2001 @ 102).................. AAA 599,375 689,478
345,000 New York Med Care Fac Fin Agency -- Mental
Health, 7.70% 2-15-2018 (Refunded 2-15-1998
@ 102)..................................... AAA 354,128 374,649
600,000 New York State Med Care, 7.45% (St. Luke's
Hosp) FHA and Secondary MBIA Insured Ser B
2-15-2029 (Refunded 2-15-2000 @ 102)....... AAA 598,500 674,911
600,000 New York State Urban Development Corp.,
7.375% Rev Correctional Cap Fac FSA Insured
Ser 3 1-1-2018 (Refunded 1-1-2002 @102).... Aaa* 595,918 692,532
------------ ------------
3,884,719 4,394,970
------------ ------------
TRANSPORTATION-13.11%
500,000 Metropolitan Transportation Authority NY
Commuter Facilities, 5.75% Ser O
7-1-2013................................... BBB 483,952 485,580
500,000 New York State Thruway Auth, 6.25% Loc Hwy &
Bridge Svc Contract Ser 1995 4-1-2014...... BBB 490,000 500,390
500,000 New York Triborough Bridge and Tunnel Auth,
8.125% General Purpose Rev Ref Bond Ser L
1-1-2012................................... A+ 501,838 539,905
------------ ------------
1,475,790 1,525,875
------------ ------------
UTILITIES-ELECTRIC-4.36%
550,000 New York (State of), 5.25% Power Auth General
Purpose Ser CC 1-1-2018.................... AA- 540,698 507,089
------------ ------------
TOTAL MUNICIPAL BONDS........................ $10,320,792 $11,149,794
=========== ===========
</TABLE>
SHORT-TERM INVESTMENTS-2.19%
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
--------- ------------
INVESTMENT COMPANY-2.19%
$254,725 Federated Tax-Free Obligation Fund, Current
Rate -- 3.30%.............................. $ 254,725
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$10,575,517) (a)........................... $11,404,519
===========
(a) At March 31, 1996, the cost of securities for federal income tax purposes
was $10,575,517 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized operations............................. $866,710
Unrealized depreciation........................... (37,708)
------------------------------------------------------------
Net unrealized appreciation....................... $829,002
------------------------------------------------------------
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note:Percentage of investments as shown is the ratio of the total market
value to total net assets.
* Moody's Rating
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Assets and Liabilities
(Unaudited)
March 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
NATIONAL MINNESOTA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
ASSETS:
<S> <C> <C> <C>
Investments in securities, as detailed in the accompanying schedules, at
market (cost $71,566,031; $53,227,861; and $10,575,517; respectively) (Note
1).......................................................................... $74,765,515 $54,903,461 $11,404,519
Receivables:
Interest and dividends...................................................... 1,182,263 868,477 227,010
Subscriptions of capital stock.............................................. 26,200 592 --
Deferred registration costs (Note 1).......................................... 34,190 37,091 26,172
Prepaid expenses.............................................................. 8,359 8,100 7,992
----------- ----------- -----------
TOTAL ASSETS.................................................................... 76,016,527 55,817,721 11,665,693
----------- ----------- -----------
LIABILITIES:
Bank overdraft................................................................ -- 1,878 --
Cash portion of dividends payable............................................. 106,391 52,816 11,566
Redemptions of capital stock.................................................. 17 86,286 --
Payable for investment advisory and management fees (Note 2).................. 49,397 33,898 7,947
Payable for distribution fees (Note 2)........................................ 526 304 --
Accounts payable and accrued expenses......................................... 21,713 17,008 6,890
----------- ----------- -----------
TOTAL LIABILITIES............................................................... 178,044 192,190 26,403
----------- ----------- -----------
NET ASSETS:
Net proceeds of capital stock, par value $.01 per share-authorized
100,000,000,000; 100,000,000,000; 100,000,000,000 shares; respectively...... 72,674,925 53,995,787 10,791,652
Unrealized appreciation of investments........................................ 3,199,484 1,675,600 829,002
Distributions in excess of net investment income.............................. (42,758 ) (21,855 ) (3,571 )
Accumulated net realized gain (loss) from sale of investments................. 6,832 (24,001 ) 22,207
----------- ----------- -----------
TOTAL NET ASSETS................................................................ $75,838,483 $55,625,531 $11,639,290
----------- ----------- -----------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $3,903,163; $1,751,902; and $58,207;
respectively and 364,099; 170,836; and 5,409 shares outstanding;
respectively)................................................................. $10.72 $10.25 $10.76
----------- ----------- -----------
Class B shares (based on net assets of $682,258; $446,167; and $204,815;
respectively and 63,698; 43,610; and 19,083 shares outstanding;
respectively)................................................................. $10.71 $10.23 $10.73
----------- ----------- -----------
Class C shares (based on net assets of $181,021; $248,569; and $51,584;
respectively and 16,894; 24,239; and 4,803 shares outstanding;
respectively)................................................................. $10.72 $10.25 $10.74
----------- ----------- -----------
Class E shares (based on net assets of $68,055,235; $51,530,611; and
$11,236,171; respectively and 6,342,309; 5,013,945; and 1,044,019 shares
outstanding; respectively).................................................... $10.73 $10.28 $10.76
----------- ----------- -----------
Class H shares (based on net assets of $3,016,806; $1,648,282; and $88,513;
respectively and 281,300; 160,695; and 8,259 shares outstanding;
respectively)................................................................. $10.72 $10.26 $10.72
----------- ----------- -----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Operations
(Unaudited)
March 31, 1996
- --------------------------------------------------------------------------------------------------------------------
NATIONAL MINNESOTA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ---------
NET INVESTMENT INCOME:
Income:
<S> <C> <C> <C>
Interest income............................................................. $2,336,686 $1,725,552 $390,271
----------- ---------- ---------
Expenses:
Investment advisory and management fees (Note 2)............................ 293,459 200,638 48,219
Distribution fees (Class A) (Note 2)........................................ 3,342 1,863 66
Distribution fees (Class B) (Note 2)........................................ 3,679 1,555 1,001
Distribution fees (Class C) (Note 2)........................................ 846 964 259
Distribution fees (Class H) (Note 2)........................................ 12,209 3,957 419
Registration fees (Note 1).................................................. 16,465 15,000 11,339
Legal and auditing fees (Note 2)............................................ 13,750 11,500 6,911
Shareholders' notices and reports........................................... 16,500 12,063 3,922
Custodian fees.............................................................. 6,500 5,500 1,850
Directors' fees and expenses................................................ 4,500 3,450 2,699
Other....................................................................... 8,100 6,232 1,800
----------- ---------- ---------
Total expenses................................................................ 379,350 262,722 78,485
Less reimbursable expenses (Note 2)......................................... -- -- (9,747 )
----------- ---------- ---------
Net Expenses.................................................................. 379,350 262,722 68,738
----------- ---------- ---------
NET INVESTMENT INCOME........................................................... 1,957,336 1,462,830 321,533
----------- ---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1):
Net realized gain from security transactions.................................. 1,138,150 345,994 30,565
Net change in unrealized depreciation of investments.......................... (1,082,104 ) (586,896 ) (126,448 )
----------- ---------- ---------
NET GAIN (LOSS) ON INVESTMENTS.................................................. 56,046 (240,902 ) (95,883 )
----------- ---------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $2,013,382 $1,221,928 $225,650
=========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
NATIONAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED FOR THE
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
-------------- ------------------
OPERATIONS:
<S> <C> <C>
Net investment income......................................................... $ 1,957,336 $ 4,004,364
Net realized gain (loss) from security transacations.......................... 1,138,150 (592,450)
Net change in unrealized appreciation (depreciation) of investments in
securities.................................................................. (1,082,104) 2,893,045
-------------- ------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 2,013,382 6,304,959
-------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A..................................................................... (65,913) (40,810)
Class B..................................................................... (15,367) (8,802)
Class C..................................................................... (3,535) (1,397)
Class E..................................................................... (1,825,799) (4,004,277)
Class H..................................................................... (50,850) (23,755)
From net realized gains on investments
Class A..................................................................... -- (158)
Class B..................................................................... -- (39)
Class E..................................................................... -- (35,741)
Class H..................................................................... -- (111)
-------------- ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............................................. (1,961,464) (4,115,090)
-------------- ------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (203,392 and 174,678 shares)........................................ 2,240,375 1,836,979
Class B (16,289 and 61,707 shares).......................................... 178,115 652,193
Class C (8,629 and 10,282 shares)........................................... 93,640 108,826
Class E (132,418 and 554,163 shares)........................................ 1,450,351 5,801,785
Class H (129,354 and 162,867 shares)........................................ 1,413,144 1,720,757
Proceeds from shares issued as a result of reinvested dividends
Class A (4,022 and 2,193 shares)............................................ 43,906 23,365
Class B (1,193 and 756 shares).............................................. 13,042 8,023
Class C (294 and 104 shares)................................................ 3,212 1,105
Class E (109,599 and 255,916 shares)........................................ 1,200,375 2,677,589
Class H (3,104 and 1,187 shares)............................................ 33,973 12,614
Less cost of repurchase of shares
Class A (12,085 and 8,101 shares)........................................... (131,702) (86,435)
Class B (16,247 shares)..................................................... (176,480) --
Class C (1,925 and 490 shares).............................................. (21,063) (5,246)
Class E (481,141 and 1,440,336 shares)...................................... (5,256,147) (14,948,936)
Class H (15,164 and 48 shares).............................................. (166,800) (514)
-------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS................... 917,941 (2,197,895)
-------------- ------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......................................... 969,859 (8,026)
NET ASSETS:
Beginning of period........................................................... 74,868,624 74,876,650
-------------- ------------------
End of period (includes excess of distributions over net investment income of
$42,758 and $38,630, respectively).......................................... $75,838,483 $ 74,868,624
============ ==============
</TABLE>
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statement of Changes in Net Assets
MINNESOTA PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
FOR THE
SIX-MONTH FOR THE
PERIOD ENDED YEAR ENDED
MARCH 31, 1996 SEPTEMBER 30,
(UNAUDITED) 1995
-------------- -----------------
OPERATIONS:
<S> <C> <C>
Net investment income......................................................... $ 1,462,830 $ 3,007,735
Net realized gain (loss) from security transacations.......................... 345,994 (208,947)
Net change in unrealized appreciation (depreciation) of investments in
securities.................................................................. (586,896) 1,525,922
-------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 1,221,928 4,324,710
-------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A..................................................................... (38,072) (17,812)
Class B..................................................................... (6,566) (3,618)
Class C..................................................................... (4,069) (1,393)
Class E..................................................................... (1,398,304) (3,012,388)
Class H..................................................................... (16,460) (15,259)
-------------- -----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............................................. (1,463,471) (3,050,470)
-------------- -----------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (101,560 and 87,978 shares)......................................... 1,061,862 892,384
Class B (27,415 and 17,169 shares).......................................... 287,772 173,312
Class C (10,029 and 13,795 shares).......................................... 105,022 140,806
Class E (101,999 and 236,250 shares)........................................ 1,066,421 2,367,394
Class H (97,466 and 60,955 shares).......................................... 1,004,071 614,862
Proceeds from shares issued as a result of reinvested dividends
Class A (2,465 and 665 shares).............................................. 25,754 6,825
Class B (601 and 355 shares)................................................ 6,246 3,618
Class C (334 and 103 shares)................................................ 3,484 1,058
Class E (104,047 and 228,148 shares)........................................ 1,089,694 2,306,428
Class H (1,258 and 1,016 shares)............................................ 13,102 10,395
Less cost of repurchase of shares
Class A (18,962 and 2,870 shares)........................................... (199,900) (28,715)
Class B (1,927 and 3 shares)................................................ (19,730) (25)
Class C (19 and 3 shares)................................................... (200) (25)
Class E (289,491 and 781,394 shares)........................................ (3,024,352) (7,875,096)
Class H (0 and 0 shares).................................................... -- --
-------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS................... 1,419,246 (1,386,779)
-------------- -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......................................... 1,177,703 (112,539)
NET ASSETS:
Beginning of period........................................................... 54,447,828 54,560,367
-------------- -----------------
End of period (includes excess distributions over net investment income of
$21,855 and $21,214, respectively).......................................... $55,625,531 $54,447,828
============== ================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statement of Changes in Net Assets
NEW YORK PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
FOR THE
SIX-MONTH FOR THE
PERIOD ENDED YEAR ENDED
MARCH 31, 1996 SEPTEMBER 30,
(UNAUDITED) 1995
-------------- -----------------
OPERATIONS:
<S> <C> <C>
Net investment income......................................................... $ 321,533 $ 704,534
Net realized gain from security transacations................................. 30,565 18,022
Net change in unrealized appreciation (depreciation) of investments in
securities.................................................................. (126,448) 158,431
-------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 225,650 880,987
-------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A..................................................................... (1,340) (941)
Class B..................................................................... (4,433) (7,056)
Class C..................................................................... (1,145) (568)
Class E..................................................................... (314,710) (694,432)
Class H..................................................................... (1,857) (1,034)
From realized gains on investments
Class A..................................................................... (70) --
Class B..................................................................... (283) (287)
Class C..................................................................... (73) --
Class E..................................................................... (16,521) (21,850)
Class H..................................................................... (113) --
-------------- -----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............................................. (340,545) (726,168)
-------------- -----------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (790 and 4,869 shares).............................................. 8,664 51,726
Class B (788 and 17,184 shares)............................................. 8,603 178,351
Class C (0 and 4,640 shares)................................................ -- 50,125
Class E (10,193 and 26,693 shares).......................................... 111,663 287,441
Class H (1,527 and 6,604 shares)............................................ 16,691 72,245
Proceeds from shares issued as a result of reinvested dividends
Class A (129 and 86 shares)................................................. 1,410 929
Class B (432 and 679 shares)................................................ 4,716 7,285
Class C (112 and 53 shares)................................................. 1,219 571
Class E (23,663 and 52,417 shares).......................................... 259,105 561,495
Class H (48 and 82 shares).................................................. 521 881
Less cost of repurchase of shares
Class A (0 and 465 shares).................................................. -- (5,003)
Class B (0 and 0 shares).................................................... -- --
Class C (0 and 2 shares).................................................... -- (25)
Class E (82,792 and 178,182 shares)......................................... (906,164) (1,909,876)
Class H (0 and 2 shares).................................................... -- (25)
-------------- -----------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.............................. (493,572) (703,880)
-------------- -----------------
TOTAL DECREASE IN NET ASSETS.................................................... (608,467) (549,061)
NET ASSETS:
Beginning of period........................................................... 12,247,757 12,796,818
-------------- -----------------
End of period (includes excess distributions over net investment income of
$3,571 and $1,619, respectively)............................................ $11,639,290 $12,247,757
============== ================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Fortis Tax-Free Portfolios,
Inc. (the fund) is an open-end management investment company which
currently is comprised of three separate investment portfolios and series
of capital stock: the National and Minnesota Portfolios, both of which are
diversified portfolios, and the New York Portfolio, which is a
non-diversified portfolio, each of which has different investment
objectives and its own investment portfolio and net asset values. The
investment objective of National Portfolio is to seek as high a level of
current income exempt from federal income tax as is believed to be
consistent with preservation of capital. The investment objective of
Minnesota Portfolio is to seek as high a level of current income exempt
from federal and Minnesota income tax as is believed to be consistent with
preservation of capital. The investment objective of New York Portfolio is
to seek as high a level of current income exempt from federal, New York
State, and New York City income tax as is believed to be consistent with
the preservation of capital.
The Minnesota and New York Portfolios concentrate their investments in a
single state and, therefore, may have more credit risk related to the
economic conditions of the respective state than a portfolio with broader
geographical diversification.
The fund offers Class A, Class B, Class C, Class E and Class H shares. The
fund began to issue class shares effective November 14, 1994. Class E
shares are only available to existing shareholders on November 14, 1994.
Class A and E shares are sold with a front-end sales charge. Class B and H
shares are sold without a front-end sales charge and may be subject to a
contingent deferred sales charge for six years, and such shares
automatically convert to Class A after eight years. Class C shares are sold
without a front-end sales charge and may be subject to a contingent
deferred sales charge for one year. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that the level of distribution fees charged differs
between classes. Income, expenses (other than expenses incurred under each
class's distribution agreement) and realized and unrealized gains or losses
on investments are allocated to each class of shares based on its relative
net assets.
The significant accounting policies followed by the fund are summarized as
follows:
SECURITY VALUATION: Tax exempt bonds for which quotations are not readily
available are valued at fair value as determined by a pricing system
approved by the Board of Directors. The pricing service may employ
electronic data processing techniques and/or a matrix system to determine
valuations using methods which include consideration of yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market
conditions. Short-term investments, with maturities of less than 60 days
when acquired, or which subsequently are within 60 days of maturity, are
valued at amortized cost.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. For financial reporting purposes, the portfolios
amortize long-term bond premium and original issue discount.
For the six-month period ended March 31, 1996, the cost of purchases and
proceeds from sales of securities (other than short-term securities)
aggregated $16,998,747 and $15,251,728 for National Portfolio; $10,370,327
and $9,371,597 for Minnesota Portfolio; and $467,451 and $1,077,731 for New
York Portfolio; respectively.
INCOME TAXES: The portfolios intend to qualify, under the Internal Revenue
Code, as regulated investment companies and if so qualified, will not have
to pay federal income taxes to the extent their taxable net income is
distributed. On a calendar year basis, the fund intends to distribute
substantially all of its taxable net investment income and realized gains,
if any, to avoid the payment of federal excise taxes.
Net realized gains may differ for financial statement and tax purposes
primarily because of wash sale transactions. The character of distributions
made during the year from net investment income or net realized gains may
also differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year that the
income or realized gains (losses) were recorded by the fund. The effect on
dividend distributions of certain book-to-tax differences are reflected as
excess distributions of net investment income in the statements of changes
in net assets and the financial highlights.
For federal income tax purposes the National and Minnesota Portfolios had
the following capital loss carryovers at September 30, 1995, which, if not
offset by subsequent capital gains, will expire in 2002 and 2003 for the
National Portfolio, and in 1997, 2002 and 2003 for the Minnesota Portfolio.
It is unlikely the Board of Directors will authorize a distribution of any
net realized gains until the available capital loss carryovers have been
offset or expired.
National Portfolio................................ $ 1,125,524
Minnesota Portfolio............................... $ 355,029
DEFERRED COSTS: Registration costs are deferred and charged to income over
the registration period.
INCOME AND CAPITAL GAINS DISTRIBUTION: The portfolios declare income
distributions daily to be paid on the last business day of each month. The
portfolios will make annual distributions of any realized capital gains as
required by law. These income and capital gains distributions may be
reinvested in additional shares of the portfolio at net asset value on the
payable date or paid in cash five business days after month end without any
charge to the shareholder.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of increase and decrease in net assets from operations during the
reporting period. Actual results could differ from those estimates.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc. (Advisers), is the
investment adviser for the fund. Investment advisory fees paid by the
Minnesota and New York Portfolios are computed at an annual rate of .8% of
the first $50 million in average daily net assets, .7% of the next $50
million in average daily net assets and .625% of average daily net assets
in excess of $100 million. The National Portfolio's investment advisory
fees are computed at an annual rate of .8% of the first $50 million in
average daily net assets, and .7% of average daily net assets in excess of
$50 million. The fee percentage for the Minnesota Portfolio is based upon
the aggregate average net assets of the National and Minnesota Portfolios
combined. The fee is then allocated to the Minnesota Portfolio based upon
proportionate net assets. The fee percentage for National and New York
Portfolio is based upon the average net assets of each portfolio alone.
In addition to the investment advisory and management fee, Classes A, B, C
and H pay Fortis Investors, Inc. (the fund's principal underwriter)
distribution fees equal to .25% (Class A) and 1.00% (Class B, C, and H) of
average daily net assets (of the respective classes) on an annual basis, to
be used to compensate those who sell shares of the fund and to pay certain
other expenses of selling fund shares. Fortis Investors, Inc., also
received sales charges (paid by purchasers or redeemers of the fund's
shares) aggregating
<TABLE>
<CAPTION>
Class E Class A Class B Class C Class H
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax Free National................................. $ 37,237 $ 62,458 $5,431 $121 $4,429
Tax Free Minnesota................................ $ 27,424 $ 19,181 $ 645 -- --
Tax Free New York................................. $ 2,702 $ 7 -- -- --
</TABLE>
Advisers has voluntarily undertaken to limit annual expenses for New York
Portfolio (exclusive of interest, taxes, brokerage commissions, 12b-1 fees
and non-recurring extraordinary charges and expenses) commencing November
1, 1994 to 1.09% of average net assets. During the six-month period ended
March 31, 1996, Advisers waived $9,747 of its advisory fee.
Legal fees and expenses aggregating $6,250, $4,750 and $1,100 for the
National, Minnesota, and New York Portfolios, respectively, were paid to a
law firm of which the secretary of the fund is a partner.
3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
Portfolios were as follows:
<TABLE>
<CAPTION>
Class E
--------------------------------------------------------------------------
SIX-MONTH Three-Month
PERIOD ENDED Year Ended Period Ended Year Ended June 30,
MARCH 31, September 30, September 30, ---------------------------
NATIONAL PORTFOLIO 1996 1995 1994 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.72 $ 10.38 $ 10.46 $ 11.13 $ 10.54 $ 9.99
------------ ------------- ------------- ------- ------- -------
Operations:
Investment income - net......................... .28 .58 .15 .60 .63 .66
Net realized and unrealized gains (losses) on
investments................................... .01 .36 (.09) (.64) .59 .55
------------ ------------- ------------- ------- ------- -------
Total from operations............................. .29 .94 .06 (.04) 1.22 1.21
------------ ------------- ------------- ------- ------- -------
Distributions to shareholders:
From investment income - net.................... (.28) (.59) (.14) (.59) (.62) (.66)
Excess distribution of net investment income.... -- -- -- -- (.01) --
From net realized gains......................... -- (.01) -- (.04) -- --
------------ ------------- ------------- ------- ------- -------
Total distributions to shareholders............... (.28) (.60) (.14) (.63) (.63) (.66)
------------ ------------- ------------- ------- ------- -------
Net asset value, end of period.................... $ 10.73 $ 10.72 $ 10.38 $ 10.46 $ 11.13 $ 10.54
------------ ------------- ------------- ------- ------- -------
Total Return @.................................... 2.71% 9.30% .59% (0.49%) 11.99% 12.46%
Net assets, end of period (000s omitted).......... $68,055 $70,531 $74,877 $76,746 $70,754 $54,189
Ratio of expenses to average daily net assets..... .94%* 1.03% .87%* .87% .94% .92%
Ratio of net investment income to average daily
net assets....................................... 5.16%* 5.54% 5.74%* 5.38% 5.80% 6.40%
Portfolio turnover rate........................... 20% 35% 17% 25% 29% 38%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C Class H
------------------ ------------------ ------------------ ------------------
NATIONAL PORTFOLIO 1996** 1995+ 1996** 1995+ 1996** 1995+ 1996** 1995+
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.71 $ 9.79 $10.70 $ 9.79 $10.70 $ 9.79 $10.71 $ 9.79
------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income - net............... .27 .49 .23 .42 .23 .43 .23 .43
Net realized and unrealized gains
(losses) on investments............. .01 .94 .01 .93 .02 .92 .01 .93
------- ------- ------- ------- ------- ------- ------- -------
Total from operations................... .28 1.43 .24 1.35 .25 1.35 .24 1.36
------- ------- ------- ------- ------- ------- ------- -------
Distribution to shareholders:
From investment income - net.......... (.27) (.50) (.23) (.43) (.23) (.43) (.23) (.43)
From net realized gains............... -- (.01) -- (.01) -- (.01) -- (.01)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions to shareholders..... (.27) (.51) (.23) (.44) (.23) (.44) (.23) (.44)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $10.72 $ 10.71 $10.71 $ 10.70 $10.72 $ 10.70 $10.72 $ 10.71
------- ------- ------- ------- ------- ------- ------- -------
Total Return @.......................... 2.60% 14.80% 2.21% 13.96% 2.30% 13.95% 2.21% 14.06%
Net assets end of period (000s
omitted)............................... $3,903 $ 1,807 $ 682 $ 668 $ 181 $ 106 $3,017 $ 1,757
Ratio of expenses to average daily net
assets................................. 1.19%* 1.28%* 1.94%* 2.03%* 1.94%* 2.03%* 1.94%* 2.03%*
Ratio of net investment income to
average daily net assets............... 4.93%* 5.03%* 4.16%* 4.04%* 4.16%* 4.14%* 4.17%* 4.24%*
Portfolio turnover rate................. 20% 35% 20% 35% 20% 35% 20% 35%
</TABLE>
* Annualized.
** Six-month period ended March 31, 1996.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
<TABLE>
<CAPTION>
Class E
------------------------------------------------------------------------
SIX-MONTH Three-Month
PERIOD ENDED Year Ended Period Ended Year Ended June 30,
MARCH 31, September 30, September 30, -------------------------
MINNESOTA PORTFOLIO 1996 1995 1994 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.32 $ 10.08 $ 10.15 $ 10.65 $ 10.16 $ 9.78
------------ ------------- ------------- ------- ------- -------
Operations:
Investment income - net............... .28 .57 .15 .59 .61 .64
Net realized and unrealized gains
(losses) on investments............. (.04) .24 .08 (.51) .49 .38
------------ ------------- ------------- ------- ------- -------
Total from operations................... .24 .81 .07 .08 1.10 1.02
------------ ------------- ------------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.28) (.57) (.14) (.58) (.61) (.64)
------------ ------------- ------------- ------- ------- -------
Net asset value, end of period.......... $ 10.28 $ 10.32 $ 10.08 $ 10.15 $ 10.65 $ 10.16
------------ ------------- ------------- ------- ------- -------
Total Return @.......................... 1.83% 8.35% .72% .64% 11.17% 10.71%
Net assets, end of period (000s
omitted)............................... $51,531 $52,603 $54,560 $54,854 $52,271 $38,586
Ratio of expenses to average daily net
assets................................. .91%* .98% .85%* .85% .89% .90%
Ratio of net investment income to
average daily net assets............... 5.25%* 5.60% 5.69%* 5.51% 5.82% 6.37%
Portfolio turnover rate................. 17% 27% 8% 11% 17% 10%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C Class H
----------------- ----------------- ----------------- -----------------
MINNESOTA PORTFOLIO 1996** 1995+ 1996** 1995+ 1996** 1995+ 1996** 1995+
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.30 $ 9.55 $10.27 $ 9.55 $10.30 $ 9.55 $10.30 $ 9.55
------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income - net............... .27 .48 .22 .41 .22 .42 .22 .41
Net realized and unrealized gains
(losses) on investments............. (.06) .76 (.04) .73 (.05) .75 (.04) .76
------- ------- ------- ------- ------- ------- ------- -------
Total from operations................... .21 1.24 .18 1.14 .17 1.17 .18 1.17
------- ------- ------- ------- ------- ------- ------- -------
Distribution to shareholders:
From investment income - net.......... (.26) (.49) (.22) (.42) (.22) (.42) (.22) (.42)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $10.25 $ 10.30 $10.23 $ 10.27 $10.25 $ 10.30 $10.26 $ 10.30
------- ------- ------- ------- ------- ------- ------- -------
Total Return @.......................... 2.06% 13.15% 1.76% 12.10% 1.72% 12.31% 1.76% 12.42%
Net assets end of period (000s
omitted)............................... $1,752 $ 884 $ 446 $ 180 $ 249 $ 143 $1,648 $ 638
Ratio of expenses to average daily net
assets................................. 1.16%* 1.23%* 1.91%* 1.98%* 1.91%* 1.98%* 1.91%* 1.98%*
Ratio of net investment income to
average daily net assets............... 5.05%* 5.10%* 4.30%* 4.37%* 4.30%* 4.28%* 4.30%* 4.29%*
Portfolio turnover rate................. 17% 27% 17% 27% 17% 27% 17% 27%
</TABLE>
* Annualized.
** Six-month period ended March 31, 1996.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustments for sales charge.
<TABLE>
<CAPTION>
Class E
------------------------------------------------------------------------
SIX-MONTH Three-Month
PERIOD ENDED Year Ended Period Ended Year Ended June 30,
MARCH 31, September 30, September 30, -------------------------
NEW YORK PORTFOLIO 1996 1995 1994 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.87 $ 10.74 $ 10.81 $ 11.51 $ 11.03 $ 10.57
------------ ------------- ------------- ------- ------- -------
Operations:
Investment income - net............... .30 .61 .15 .62 .65 .66
Net realized and unrealized gains
(losses) on investments............. (.09) .15 (.06) (.54) .65 .62
------------ ------------- ------------- ------- ------- -------
Total from operations................... .21 .76 .09 .08 1.30 1.28
------------ ------------- ------------- ------- ------- -------
Distributions to shareholders:
From net investment income - net...... (.30) (.61) (.16) (.62) (.65) (.66)
Excess distribution of net investment
income.............................. -- -- -- -- (.01) --
From net realized gains............... (.02) (.02) -- (.16) (.16) (.16)
------------ ------------- ------------- ------- ------- -------
Total distributions to shareholders..... (.32) (.63) (.16) (.78) (.82) (.82)
------------ ------------- ------------- ------- ------- -------
Net asset value, end of period.......... $ 10.76 $ 10.87 $ 10.74 $ 10.81 $ 11.51 $ 11.03
------------ ------------- ------------- ------- ------- -------
Total Return @.......................... 1.84% 7.31% .79% .63% 12.19% 12.53%
Net assets, end of period (000s
omitted)............................... $11,236 $11,882 $12,797 $12,851 $13,915 $14,943
Ratio of expenses to average daily net
assets (a)............................. 1.09%* 1.09% 1.09%* .99% .99% 1.00%
Ratio of net investment income to
average daily net assets (a)........... 5.39%* 5.69% 5.74%* 5.55% 5.74% 6.15%
Portfolio turnover rate................. 5% 10% 0% 4% 17% 19%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C Class H
----------------- ----------------- ----------------- -----------------
NEW YORK PORTFOLIO 1996** 1995+ 1996** 1995+ 1996** 1995++ 1996** 1995+++
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.87 $ 10.34 $10.84 $ 10.34 $10.85 $10.79 $10.83 $10.89
------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income - net............... .29 .50 .24 .43 .24 .21 .24 .16
Net realized and unrealized gains
(losses) on investments............. (.10) .57 (.09) .54 (.09) .06 (.09) (.05)
------- ------- ------- ------- ------- ------- ------- -------
Total from operations................... .19 1.07 .15 .97 .15 .27 .15 .11
------- ------- ------- ------- ------- ------- ------- -------
Distribution to shareholders:
From investment income - net.......... (.28) (.52) (.24) (.45) (.24) (.21) (.24) (.17)
From net realized gains............... (.02) (.02) (.02) (.02) (.02) -- (.02) --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions to shareholders..... (.30) (.54) (.26) (.47) (.26) (.21) (.26) (.17)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $10.76 $ 10.87 $10.73 $ 10.84 $10.74 $10.85 $10.72 $10.83
------- ------- ------- ------- ------- ------- ------- -------
Total Return @.......................... 1.73% 10.51% 1.34% 9.46% 1.34% 2.54% .97% 1.00%
Net assets end of period (000s
omitted)............................... $ 58 $ 49 $ 205 $ 194 $ 52 $ 51 $ 89 $ 72
Ratio of expenses to average daily net
assets (a)............................. 1.34%* 1.34%* 2.09%* 2.09%* 2.09%* 2.09%* 2.09%* 2.09%*
Ratio of net investment income to
average daily net assets (a)........... 5.14%* 5.41%* 4.39%* 4.68%* 4.39%* 4.44%* 4.39%* 4.36%*
Portfolio turnover rate................. 5% 10% 5% 10% 5% 10% 5% 10%
</TABLE>
(a) Advisers has voluntarily undertaken to limit annual expenses for New York
Portfolio (exclusive of interest, taxes, brokerage commissions, 12b-1 fees
and non- recurring extraordinary charges and expenses) to 1.09% of average
net assets. From June 1, 1993 to June 30, 1994, Advisers agreed to limit
expenses to .99% of average net assets. Prior to June 1, 1993, Advisers
agreed to limit expenses to 1.00% of average assets. For each of the
periods presented, had the waivers and reimbursement of expenses not been
in effect, the ratios of expenses and net investment income to average net
assets would have been 1.27% and 5.21% for class E, 1.52% and 4.96% for
class A, 2.27% and 4.21% for classes B, C & H, for the six-month period
ended March 31, 1996; 1.60% and 5.18% for class E, 1.85% and 4.90% for
class A, 2.60% and 4.17% for class B, 2.60% and 3.93% for class C, 2.60%
and 3.85% for class H, for the year ending September 30, 1995; 1.09% and
5.45% for the year ended June 30, 1994; 1.05% and 5.68% for the year ended
June 30, 1993; and 1.26% and 5.89% for the year ended June 30, 1992. *
Annualized.
** For the six-month period ended March 31, 1996.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
++ For the period from April 26, 1995 (date of first investment) to September
30, 1995.
+++ For the period from May 31, 1995 (date of first investment) to September
30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL Fortis Bond Funds MONEY FUND
FUNDS/PORTFOLIOS U.S. GOVERNMENT
CONVENIENT ACCESS TO SECURITIES FUND
A BROAD RANGE OF TAX-FREE MINNESOTA
SECURITIES PORTFOLIO
TAX-FREE NATIONAL
PORTFOLIO
TAX-FREE NEW YORK
PORTFOLIO
HIGH YIELD PORTFOLIO
Fortis Stock Funds ASSET ALLOCATION
PORTFOLIO
VALUE FUND
GROWTH & INCOME FUND
CAPITAL FUND
FIDUCIARY FUND
GLOBAL GROWTH PORTFOLIO
GROWTH FUND
CAPITAL APPRECIATION
PORTFOLIO
FIXED AND VARIABLE Fortis Opportunity Fixed FIXED ACCOUNT
ANNUITIES & Variable Annuity MONEY MARKET SUBACCOUNT
TAX-DEFERRED Masters Variable Annuity U.S. GOVERNMENT
INVESTING SECURITIES SUBACCOUNT
DIVERSIFIED INCOME SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
AGGRESSIVE GROWTH SUBACCOUNT
Fortune Fixed Annuities SINGLE PREMIUM ANNUITY
FLEXIBLE PREMIUM ANNUITY
Income Annuities GUARANTEED FOR LIFE
GUARANTEED FOR A
SPECIFIED PERIOD
LIFE AND DISABILITY Wall Street Series VUL FIXED ACCOUNT
INSURANCE PROTECTION 100, 220 & 500 MONEY MARKET SUBACCOUNT
AND TAX-DEFERRED U.S. GOVERNMENT
INVESTMENT SECURITIES SUBACCOUNT
OPPORTUNITY DIVERSIFIED INCOME SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT GROWTH &
INCOME SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT AGGRESSIVE
GROWTH SUBACCOUNT
Adaptable Life
Universal Life
Disability
THE FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and
life insurance products. The mutual funds, variable life and variable annuity
products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS
ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE
COMPANY and TIME INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FORTIS, INC. MANAGING DIRECTOR OF
FORTIS INTERNATIONAL, N.V.
Dr. Robert M. Gavin PRESIDENT, MACALESTER COLLEGE
Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD.
Jean L. King PRESIDENT, COMMUNI-KING
Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR,
FORTIS ADVISERS, INC. PRESIDENT AND
DIRECTOR, FORTIS INVESTORS, INC.
SENIOR VICE PRESIDENT OF FORTIS
BENEFITS INSURANCE COMPANY AND TIME
INSURANCE COMPANY
Edward M. Mahoney PRIOR TO JANUARY, 1995, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, FORTIS
ADVISERS, INC., FORTIS INVESTORS,
INC.
Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT
CONSULTANT PRIOR TO JULY, 1995, VICE
PRESIDENT AND TREASURER,
JOSTENS, INC.
Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC.
Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE
INVESTOR PRIOR TO JANUARY, 1994,
DIRECTOR OF RESEARCH, CHIEF
INVESTMENT OFFICER, PRINCIPAL, AND
DIRECTOR, THE ROTHSCHILD CO.
OFFICERS
Dean C. Kopperud Kevin J. Michels Anthony J. Rotondi
PRESIDENT AND DIRECTOR VICE PRESIDENT VICE PRESIDENT
Robert W. Beltz, Jr. Jon H. Nicholson Keith R. Thomson
VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT
James S. Byrd Fred Obser Rhonda J. Schwartz
VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT
Charles J. Dudley Dennis M. Ott Christopher J. Woods
VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT
Thomas D. Gualdoni David A. Peterson Gary N. Yalen
VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT
Maroun M. Hayek Nicholas L. M. de Peyster Michael J. Radmer
VICE PRESIDENT VICE PRESIDENT SECRETARY
Howard G. Hudson Stephen M. Poling Tamara L. Fagely
VICE PRESIDENT VICE PRESIDENT TREASURER
Robert C. Lindberg Stephen M. Rickert
VICE PRESIDENT VICE PRESIDENT
Larry A. Medin Richard P. Roche
VICE PRESIDENT VICE PRESIDENT
INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc.
AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164
PRINCIPAL UNDERWRITER Fortis Investors, Inc.
BOX 64284, ST. PAUL, MINNESOTA 55164
CUSTODIAN First Bank National Association
MINNEAPOLIS, MINNESOTA
GENERAL COUNSEL Dorsey & Whitney LLP
MINNEAPOLIS, MINNESOTA
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
FORTIS FINANCIAL GROUP
Fortis Financial Group (FFG) is a premier provider of insurance and
investment portfolios whose fund manager, Fortis Advisers, Inc. has established
a nationwide reputation for money management. Through Fortis Investors, Inc.,
FFG offers mutual funds, annuities and life insurance. Life insurance products
are issued and underwritten by Fortis Benefits Insurance Company and Time
Insurance Company.
[PHOTO]
FFG is part of Fortis, Inc., a financial services company that owns or
manages approximately $11 billion* in assets. Fortis, Inc. is part of Fortis, a
wordwide group of companies active in the fields of insurance, banking and
investments with assets in excess of $140 billion.* Fortis is jointly owned by
Fortis AMEV of The Netherlands and Fortis AG of Belgium.
Like the Fortis name, which comes from the Latin for steadfast, our focus
is on the long-term in all we do: the relationships we build, the performance we
seek, the service we provide and the products we offer.
*Assets as of 12/31/95
-----------------
FORTIS-Registered Trademark Bulk Rate
FORTIS FINANCIAL GROUP US Postage
P.O. Box 64284 PAID
St. Paul, MN 55164 Permit No. 3794
Minneapolis, MN
-----------------
PRINTED ON RECYCLED PAPER WITH
[GRAPHIC] 40% PRECONSUMER WASTE AND
10% POST CONSUMER WASTE.
PLEASE RECYCLE.
95380 (Ed. 6/96)
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Incorporated by reference to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A, File Nos. 33-63238 and
811-7742, filed March 1, 1996.
ITEM 16. EXHIBITS.
1.1 Articles of Incorporation of Voyageur Mutual Funds, Inc., dated April
14, 1993, filed as an Exhibit to Post-Effective Amendment Nos. 8 and 9
to Form N-1A, on April 30, 1996, File Nos. 33-63238 and 811-7742
respectively, and incorporated herein by reference.
1.2 Certificate of Designation of Series J, filed as an Exhibit hereto.
2 Bylaws of Voyageur Mutual Funds, Inc., as amended by the Board of
Directors on May 14, 1996, filed as an Exhibit hereto.
3 Voting Trust Agreement. Not applicable.
4 Agreement and Plan of Reorganization is attached as Exhibit A to the
Prospectus/Proxy Statement included in Part A of this Registration
Statement on Form N-14.
5 Specimen Security for company incorporated under the laws of the State
of Minnesota, filed as an Exhibit to Post-Effective Amendment Nos. 8
and 9 to Form N-1A, on April 30, 1996, File Nos. 33-63238 and 811-7742
respectively, and incorporated herein by reference.
5.1 See #1 above
6 Form of Investment Advisory Agreement, dated November 1, 1993, filed
as an Exhibit hereto.
7.1 Form of Distribution Agreement dated June 3, 1996, filed as an Exhibit
hereto.
7.2 Form of Dealer Sales Agreement, filed as an Exhibit to Post-Effective
Amendment Nos. 8 and 9 to Form N-1A, on April 30, 1996, file Nos.
33-63238 and 811-7742 respectively, and incorporated herein by
reference.
7.3 Form of Bank Agreement, filed as an Exhibit to Post-Effective
Amendment Nos. 8 and 9 to Form N-1A, on April 30, 1996, file Nos.
33-63238 and 811-7742 respectively, and incorporated herein by
reference.
8 Bonus, Profit Sharing, or Pension Plans. None.
9 Form of Custodian Agreement dated August 27, 1993, filed as an Exhibit
hereto.
10 Form of Plan of Distribution filed as an Exhibit hererto.
11 Opinion and Consent of Dorsey & Whitney LLP with respect to the
legality of the securities filed as an Exhibit hereto.
12 Opinion and Consent of Dorsey & Whitney LLP with respect to tax
matters to be filed by amendment.
13 Form of Administrative Services Agreement dated October 27, 1994 filed
as an exhibit hereto.
14.1 Consent of KPMG Peat Marwick LLP, independent auditors to the
Registrant filed as an Exhibit hereto.
14.2 Consent of KPMG Peat Marwick LLP, independent auditors to Fortis
Tax-Free Portfolios, Inc. filed as an Exhibit hereto.
15 Not applicable.
16 Power of Attorney filed as an Exhibit hereto.
17.1 Rule 24f-2 Election of Registrant filed as an Exhibit hereto.
17.2 Form of Class A share proxy card filed as an Exhibit hereto.
17.3 Form of Class B share proxy card filed as an Exhibit hereto.
17.4 Form of Class C share proxy card filed as an Exhibit hereto.
17.5 Form of Class E share proxy card filed as an Exhibit hereto.
17.6 Form of Class H share proxy card filed as an Exhibit hereto.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective amendment,
an opinion of counsel or a copy of ruling of the Internal Revenue Service
supporting the tax consequences of the proposed reorganization within a
reasonable time after receipt of such opinion or ruling.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of Minneapolis, State of
Minnesota, on the 27th day of August 1996.
VOYAGEUR MUTUAL FUNDS, INC.
By /S/ JOHN G. TAFT
---------------------------
John G. Taft, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ JOHN G. TAFT President
- -------------------- (Principal August 27, 1996
John G. Taft Executive Officer)
/S/ KENNETH R. LARSEN Treasurer
- --------------------- (Principal Financial August 27, 1996
Kenneth R. Larsen and Accounting Officer)
James W. Nelson* Director
Clarence G. Frame* Director
Robert J. Odegard* Director
Richard F. McNamara* Director
Thomas F. Madison* Director
/S/ THOMAS J. ABOOD Attorney-in-Fact August 27, 1996
- --------------------
Thomas J. Abood
(Pursuant to a Power of Attorney dated January 24, 1995)
CERTIFICATE OF DESIGNATION
OF
SERIES J COMMON SHARES
OF
VOYAGEUR MUTUAL FUNDS, INC.
The undersigned duly elected Secretary of Voyageur Mutual Funds, 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 May 14, 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 Articles of Incorporation (the
"Articles");
WHEREAS, one hundred billion of each of such shares have been
designated as Series A, Series B, Series C, Series D, Series E, Series F,
Series G, Series H and Series I Common Shares; and
WHEREAS, the Articles set forth that the balance of the Corporation's
authorized common 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, one hundred billion are hereby designated
as Series J Common Shares, ten billion of which are hereby designated as
Series J, Class A Common Shares, ten billion of which are hereby designated
as Series J, Class B Common Shares and ten billion of which are hereby
designated Series J, Class C Common Shares and seventy billion of which
shall remain undesignated as to class.
FURTHER RESOLVED, that the Series J 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. Such Series 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 the Series J 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 Minnesota a Certificate of Designation setting forth the relative rights
and preferences of the Series J, Classes A, B and C Common Shares
designated hereby, 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 day ______ of August 1996.
/s/Thomas J. Abood
--------------------------
Thomas J. Abood, Secretary
BYLAWS
OF
VOYAGEUR MUTUAL FUNDS, INC.
(AS AMENDED BY THE BOARD OF DIRECTORS ON MAY 14, 1996)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. NAME. The name of the corporation is "Voyageur Mutual Funds,
Inc." The name of the series represented by the corporation's Series A Common
Shares is "Voyageur Arkansas Tax Free Fund." The name of the series represented
by the corporation's Series B Common Shares is "Voyageur Iowa Tax Free Fund."
The name of the series represented by the corporation's Series C Common Shares
is "Voyageur Wisconsin Tax Free Fund." The name of the series represented by the
corporation's Series D Common Shares is "Voyageur Montana Tax Free Fund." The
name of the series represented by the corporation's Series E Common Shares is
"Voyageur Idaho Tax Free Fund." The name of the series represented by the
corporation's Series F Common Shares is "Voyageur Arizona Tax Free Fund." The
name of the series represented by the corporation's Series G Common Shares is
"Voyageur California Tax Free Fund." The name of the series represented by the
corporation's Series H Common Shares is "Voyageur National Tax Free Fund." The
name of the series represented by the corporation's Series I Common Shares is
"Voyageur Minnesota High Yield Municipal Bond Fund." The name of the series
represented by the corporation's Series J Common Shares is "Voyageur New York
Tax Free Fund." The name of the series represented by the corporation's Series K
Common Shares is "Voyageur National High Yield Muncipal Bond 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. Until the first
meeting of shareholders, the number of directors shall be the number named in
the Articles of Incorporation. Thereafter, 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, 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.
Voyageur shall reimburse each Fund, in an amount not in excess of the
investment advisory and management fee payable by such Fund, if, and to the
extent that, the aggregate operating expenses of the Company, including the
investment advisory and management fee, administrative services fees, and
deferred organizational costs but excluding Rule 12b-1 fees (if any), interest
expense, taxes, brokerage fees and commissions and extraordinary charges and
expenses, are in excess of the expense limit applicable to such Fund, which is
set forth in EXHIBIT A hereto.
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, INC.
By /s/John G. Taft
--------------------------
John G. Taft
Its /s/President
-------------------------
President
VOYAGEUR FUND MANAGERS, INC.
By /s/Ted Jessen
-------------------------
Ted Jessen
Its /s/Vice President
------------------------
Vice President
Exhibit A
to
Investment Advisory Agreement
between
Voyageur Fund Managers, Inc.
and
Voyageur Mutual Funds, Inc.
<TABLE>
<CAPTION>
MONTHLY
ADVISORY FEE
(AS % OF
AVERAGE
FUND EFFECTIVE DATE DAILY NET ASSETS)
<S> <C> <C>
Series B--Voyageur Iowa Tax Free Fund November 1, 1993 .041667% (1)
Series C--Voyageur Wisconsin Tax Free Fund November 1, 1993 .041667% (1)
Series E--Voyageur Idaho Tax Free Fund December 1, 1994 .041667% (1)
Series F--Voyageur Arizona Tax Free Fund March 1, 1995 .041667% (1)
Series G--Voyageur California Tax Free Fund March 1, 1995 .041667% (1)
Series H--Voyageur National Tax Free Fund March 1, 1995 .041667% (1)
Series I--Voyageur Minnesota High Yield
Municipal Bond Fund June 3, 1996 .054167% (1)
Series J--Voyageur New York Tax Free Fund .041667% (1)
Series K--Voyageur National High Yield
Municipal Bond Fund .054167% (1)
</TABLE>
(1) Voyageur shall reimburse the Fund, in an amount not in excess of the
administrative services fee payable under the Administrative Services
Agreement and the advisory and management fee payable hereunder, if, and to
the extent that, the aggregate operating expenses of the Fund-- including
the advisory and management fee, the administrative services fee and
deferred organizational costs, but excluding Rule 12b-1 fees (if any),
interest expense, taxes, brokerage fees and commissions and extraordinary
charges and expenses -- are in excess of 1.00% (on an annual basis) of the
average daily net assets of the Fund (the "Expense Limit"). Voyageur shall
first reimburse the advisory and management fee payable hereunder and then,
to the extent necessary to reduce the Fund's expenses to the Expense Limit,
shall reimburse the administrative services fee payable under the
Administrative Services Agreement.
VOYAGEUR MUTUAL FUNDS, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of this____________ day of
_________, 1996, by and between Voyageur Mutual Funds, Inc., a Minnesota
corporation (the "Company"), for and on behalf of each series of the Company
(each series is referred to hereinafter as a "Fund"), and Voyageur Fund
Distributors, Inc., a Minnesota corporation (the "Underwriter"). This Agreement
shall apply to each class of shares offered by the following Funds:
Voyageur Iowa Tax Free Fund (currently offering shares of Classes A, B and
C)
Voyageur Wisconsin Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur Idaho Tax Free Fund (currently offering shares of Classes A, B and
C)
Voyageur Arizona Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur California Tax Free Fund (currently offering shares of Classes A,
B and C)
Voyageur National Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur Minnesota High Yield Muncicipal Bond Fund (currently offering
shares of Classes A, B and C)
Voyageur New York Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur National High Yield Muncicipal Bond Fund (currently offering
shares of Classes A, B and C)
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.
(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 Trust's Board of Trustees. Until further action by the
Board of Trustees, 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.
(iii) Class C 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 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, INC.
By /s/Kenneth Larsen
-----------------------------
Kenneth Larsen
Its /S/Treasurer
--------------------------
Treasurer
VOYAGEUR FUND DISTRIBUTORS, INC.
By /s/Kenneth Larsen
-----------------------------
Kenneth Larsen
Its /s/CFO
--------------------------
CFO
CUSTODIAN AGREEMENT
THIS AGREEMENT, made as of the 27th day of August, 1993, by and between
Voyageur Mutual Funds, Inc., a Minnesota corporation (the "Fund"), for and on
behalf of each series of the Fund that adopts this Agreement (said series being
hereinafter referred to, individually, as a "Series" and, collectively, as the
"Series"), and Norwest Bank Minnesota N.A., a national banking association
organized and existing under the laws of the United States of America (the
"Custodian"). The name of each Series that adopts this Agreement and the
effective date of this Agreement with respect to each such Series are set forth
in EXHIBIT A hereto.
WITNESSETH:
WHEREAS, the Fund desires to appoint the Custodian as the custodian for the
assets of each Series, and the Custodian desires to accept such appointment,
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein made, the Fund and the Custodian agree as follows:
ARTICLE 1. DEFINITIONS
The word "Securities" as used herein shall be construed to include, without
being limited to, shares, stocks, bonds, debentures, notes, scrip, participation
certificates, rights to subscribe, warrants, options, certificates of deposit,
bankers' acceptances, repurchase agreements, commercial paper, choses in action,
evidences of indebtedness, investment contracts, voting trust certificates,
certificates of indebtedness and certificates of interest of any and every kind
and nature whatsoever, secured and unsecured, issued or to be issued, by any
corporation, company, partnership (limited or general), association, trust,
entity or person, public or private, whether organized under the laws of the
United States, or any state, commonwealth, territory or possession thereof, or
organized under the laws of any foreign country, or any state, province,
territory or possession thereof, or issued or to be issued by the United States
government or any agency or instrumentality thereof, options on stock indexes,
stock index and interest rate futures contracts and options thereon, and other
futures contracts and options thereon.
The words "Written Order from the Fund" shall mean a writing signed or
initialed by one or more person or persons designated in the current certified
list referred to in Article 2, provided that if said writing is signed by only
one person, that person shall be an officer of the Fund designated in said
current certified list. "Written Order from the Fund" also may include a
communication effected directly between electro-mechanical or electronic devices
(including, but not limited to, facsimile transceivers) provided that management
of the Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the assets of each Series.
ARTICLE 2. NAMES, TITLES AND SIGNATURES OF FUND'S OFFICERS
The Fund shall certify to the Custodian the names, titles and signatures of
officers and other persons who are authorized to give any Written Order from the
Fund on behalf of each Series. The Fund agrees that, whenever any change in such
authorization occurs, it will file with the Custodian a new certified list of
names, titles and signatures which shall be signed by at least one officer
previously certified to the Custodian if any such officer still holds an office
in the Fund. The Custodian is authorized to rely and act upon the names, titles
and signatures of the individuals as they appear in the most recent such
certified list which has been delivered to the Custodian as hereinbefore
provided.
ARTICLE 3. SUB-CUSTODIANS AND DEPOSITORIES
Notwithstanding any other provision in this Agreement to the contrary, all
or any of the cash and Securities of each Series may be held in the Custodian's
own custody or in the custody of one or more other banks or trust companies
selected by the Custodian or as directed in one or more Written Orders from the
Fund. Any such sub-custodian must have the qualifications required for
custodians under the Investment Company Act of 1940, as amended. The Custodian
or sub-custodian, as the case may be, may participate directly or indirectly in
one or more "securities depositories" (as defined in Rule 17f-4 under the
Investment Company Act of 1940, as amended, or in any successor provisions or
rules thereto). Any references in this Agreement to the delivery of Securities
by or to the Custodian shall, with respect to Securities custodied with one of
the aforementioned "securities depositories," be interpreted to mean that the
Custodian shall cause a bookkeeping entry to be made by the applicable
securities depository to indicate the transfer of ownership of the applicable
Security to or from the Fund, all as set forth in one or more Written Orders
from the Fund. Additionally, any references in this Agreement to the receipt of
proceeds or payments with respect to Securities transactions shall, with respect
to Securities custodied with one of the aforementioned "securities
depositories," be interpreted to mean that the Custodian shall have received an
advice from such securities depository that said proceeds or payments have been
received by such depository and deposited in the Custodian's account.
ARTICLE 4. RECEIPT AND DISBURSING OF MONEY
SECTION (1). The Fund shall from time to time cause cash owned by the Fund
to be delivered or paid to the Custodian for the account of any Series, but the
Custodian shall not be under any obligation or duty to determine whether all
cash of the Fund is being so deposited or to take any action or to give any
notice with respect to cash not so deposited. The Custodian agrees to hold such
cash, together with any other sum collected or received by it for or on behalf
of each Series of the Fund, in the account of such Series in conformity with the
terms of this Agreement. The Custodian shall be authorized to disburse cash from
the account of each Series only:
(a) upon receipt of and in accordance with Written Orders from the
Fund stating that such cash is being used for one or more of the following
purposes, and specifying such purpose or purposes, provided, however, that
a reference in such Written Order from the Fund to the pertinent paragraph
or paragraphs of this Article shall be sufficient compliance with this
provision:
(i) the payment of interest;
(ii) the payment of dividends;
(iii) the payment of taxes;
(iv) the payment of the fees or charges to any investment adviser
of any Series;
(v) the payment of fees to a Custodian, stock registrar,
transfer agent or dividend disbursing agent for any Series;
(vi) the payment of distribution fees and commissions;
(vii)the payment of any operating expenses, which shall be
deemed to include legal and accounting fees and all other
expenses not specifically referred to in this paragraph (a);
(viii) payments to be made in connection with the conversion,
exchange or surrender of Securities owned by any Series;
(ix) payments on loans that may from time to time be due;
(x) payment to a recognized and reputable broker for Securities
purchased by the Fund through said broker (whether or not
including any regular brokerage fees, charges or commissions
on the transaction) upon receipt by the Custodian of such
Securities in proper form for transfer and after the receipt
of a confirmation from the broker or dealer with respect to
the transaction;
(xi) payment to an issuer or its agent on a subscription for
Securities of such issuer upon the exercise of rights so to
subscribe, against a receipt from such issuer or agent for
the cash so paid;
(b) as provided in Article 5 hereof; and
(c) upon the termination of this Agreement.
SECTION (2). The Custodian is hereby appointed the attorney-in-fact of the
Fund to use reasonable efforts to enforce and collect all checks, drafts or
other orders for the payment of money received by the Custodian for the account
of each Series and drawn to or to the order of the Fund and to deposit them in
the account of the applicable Series.
ARTICLE 5. RECEIPT OF SECURITIES
The Fund agrees to place all of the Securities of each Series in its
account with the Custodian, but the Custodian shall not be under any obligation
or duty to determine whether all Securities of any Series are being so
deposited, or to require that such Securities be so deposited, or to take any
action or give any notice with respect to the Securities not so deposited. The
Custodian agrees to hold such Securities in the account of the Series designated
by the Fund, in the name of the Fund or of bearer or of a nominee of the
Custodian, and in conformity with the terms of this Agreement. The Custodian
also agrees, upon Written Order from the Fund, to receive from persons other
than the Fund and to hold in the account of the Series designated by the Fund
Securities specified in said Written Order of the Fund, and, if the same are in
proper form, to cause payment to be made therefor to the persons from whom such
Securities were received, from the funds of the applicable Series held by the
Custodian in said account in the amounts provided and in the manner directed by
the Written Order from the Fund.
The Custodian agrees that all Securities of each Series placed in its
custody shall be kept physically segregated at all times from those of any other
Series, person, firm or corporation, and shall be held by the Custodian with all
reasonable precautions for the safekeeping thereof. Upon delivery of any
Securities of any Series to a subcustodian pursuant to Article 3 of this
Agreement, the Custodian will create and maintain records identifying those
assets which have been delivered to the subcustodian as belonging to the
applicable Series.
ARTICLE 6. DELIVERY OF SECURITIES
The Custodian agrees to transfer, exchange or deliver Securities as
provided in Article 7, or on receipt by it of, and in accordance with, a Written
Order from the Fund in which the Fund shall state specifically which of the
following cases is covered thereby:
(a) in the case of deliveries of Securities sold by the Fund, against
receipt by the Custodian of the proceeds of sale and after receipt of a
confirmation from a broker or dealer (or, in accordance with industry
practice with respect to "same day trades," acceptance of delivery of such
securities by the broker or dealer, which acceptance is followed up by
confirmation thereof within the normal settlement period) with respect to
the transaction;
(b) in the case of deliveries of Securities which may mature or be
called, redeemed, retired or otherwise become payable, against receipt by
the Custodian of the sums payable thereon or against interim receipts or
other proper delivery receipts;
(c) in the case of deliveries of Securities which are to be
transferred to and registered in the name of the Fund or of a nominee of
the Custodian and delivered to the Custodian for the account of the Series,
against receipt by the Custodian of interim receipts or other proper
delivery receipts;
(d) in the case of deliveries of Securities to the issuer thereof, its
transfer agent or other proper agent, or to any committee or other
organization for exchange for other Securities to be delivered to the
Custodian in connection with a reorganization or recapitalization of the
issuer or any split-up or similar transaction involving such Securities,
against receipt by the Custodian of such other Securities or against
interim receipts or other proper delivery receipts;
(e) in the case of deliveries of temporary certificates in exchange
for permanent certificates, against receipt by the Custodian of such
permanent certificates or against interim receipts or other proper delivery
receipts;
(f) in the case of deliveries of Securities upon conversion thereof
into other Securities, against receipt by the Custodian of such other
Securities or against interim receipts or other proper delivery receipts;
(g) in the case of deliveries of Securities in exchange for other
Securities (whether or not such transactions also involve the receipt or
payment of cash), against receipt by the Custodian of such other Securities
or against interim receipts or other proper delivery receipts;
(h) in the case of warrants, rights or similar Securities, the
surrender thereof in the exercise of such warrants, rights or similar
Securities or the surrender of interim receipts or temporary Securities for
definitive Securities;
(i) for delivery in connection with any loans of securities made by
the Fund for the benefit of any Series, but only against receipt of
adequate collateral as agreed upon from time to time by the Custodian and
the Fund;
(j) for delivery as security in connection with any borrowings by the
Fund for the benefit of any Series requiring a pledge of assets from the
applicable Series, but only against receipt of amounts borrowed;
(k) for delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a bank, broker-dealer or futures
commission merchant relating to compliance with applicable rules and
regulations regarding account deposits, escrow or other arrangements in
connection with transactions by the Fund for the benefit of any Series;
(l) in a case not covered by the preceding paragraphs of this Article,
upon receipt of a resolution adopted by the Board of Directors of the Fund,
signed by an officer of the Fund and certified to by the Secretary,
specifying the Securities and assets to be transferred, exchanged or
delivered, the purposes for which such delivery is being made, declaring
such purposes to be proper corporate purposes, and naming a person or
persons (each of whom shall be a properly bonded officer or employee of the
Fund) to whom such transfer, exchange or delivery is to be made; and
(m) in the case of deliveries pursuant to paragraphs (a) through (k)
above, the Written Order from the Fund shall direct that the proceeds of
any Securities delivered, or Securities or other assets exchanged for or in
lieu of Securities so delivered, are to be delivered to the Custodian.
ARTICLE 7. CUSTODIAN'S ACTS WITHOUT WRITTEN ORDERS FROM THE FUND
Unless and until the Custodian receives contrary Written Orders from the
Fund, the Custodian shall without order from the Fund:
(a) present for payment all bills, notes, checks, drafts and similar
items, and all coupons or other income items (except stock dividends), held
or received for the account of any Series, and which require presentation
in the ordinary course of business, and credit such items to the account of
the applicable Series conditionally, subject to final payment;
(b) present for payment all Securities which may mature or be called,
redeemed, retired or otherwise become payable and credit such items to the
account of the applicable Series conditionally, subject to final payment;
(c) hold for and credit to the account of any Series all shares of
stock and other Securities received as stock dividends or as the result of
a stock split or otherwise from or on account of Securities of the Series,
and notify the Fund, in the Custodian's monthly reports to the Fund, of the
receipt of such items;
(d) deposit or invest (as instructed from time to time by the Fund)
any cash received by it from, for or on behalf of any Series to the credit
of the account of the applicable Series;
(e) charge against the account for any Series disbursements authorized
to be made by the Custodian hereunder and actually made by it, and notify
the Fund of such charges at least once a month;
(f) deliver Securities which are to be transferred to and reissued in
the name of any Series, or of a nominee of the Custodian for the account of
any Series, and temporary certificates which are to be exchanged for
permanent certificates, to a proper transfer agent for such purpose against
interim receipts or other proper delivery receipts; and
(g) hold for disposition in accordance with Written Orders from the
Fund hereunder all options, rights and similar Securities which may be
received by the Custodian and which are issued with respect to any
securities held by it hereunder, and notify the Fund promptly of the
receipt of such items.
ARTICLE 8. SEGREGATED ACCOUNTS
Upon receipt of a Written Order from the Fund, the Custodian shall
establish and maintain one or more segregated accounts for and on behalf of the
Series specified in said Written Order from the Fund for purposes of segregating
cash and/or Securities (of the type agreed upon from time to time by the
Custodian and the Fund) for the purpose or purposes specified in said Written
Order from the Fund.
ARTICLE 9. DELIVERY OF PROXIES
The Custodian shall deliver promptly to the Fund all proxies, notices and
communications with relation to Securities held by it which it may receive from
sources other than the Fund.
ARTICLE 10. TRANSFER
The Fund shall furnish to the Custodian appropriate instruments to enable
the Custodian to hold or deliver in proper form for transfer any Securities
which it may hold for the account of any Series of the Fund. For the purpose of
facilitating the handling of Securities, unless otherwise directed by Written
Order from the Fund, the Custodian is authorized to hold Securities deposited
with it under this Agreement in the name of its registered nominee or nominees
(as defined in the Internal Revenue Code and any regulations of the United
States Treasury Department issued thereunder or in any provision of any
subsequent federal tax law exempting such transaction from liability for stock
transfer taxes) and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. The Custodian shall, if requested by the Fund, advise the
Fund of the certificate number of each certificate so presented for transfer and
that of the certificate received in exchange therefor, and shall use its best
efforts to the end that the specific Securities held by it hereunder shall be at
all times identifiable.
ARTICLE 11. TRANSFER TAXES AND OTHER DISBURSEMENTS
The Fund, for and on behalf of each Series, shall pay or reimburse the
Custodian for any transfer taxes payable upon transfers of Securities made
hereunder, including transfers incident to the termination of this Agreement,
and for all other necessary and proper disbursements and expenses made or
incurred by the Custodian in the performance or incident to the termination of
this Agreement, and the Custodian shall have a lien upon any cash or Securities
held by it for the account of each applicable Series of the Fund for all such
items, enforceable, after thirty days' written notice by registered mail from
the Custodian to the Fund, by the sale of sufficient Securities to satisfy such
lien. The Custodian may reimburse itself by deducting from the proceeds of any
sale of Securities an amount sufficient to pay any transfer taxes payable upon
the transfer of Securities sold. The Custodian shall execute such certificates
in connection with Securities delivered to it under this Agreement as may be
required, under the provisions of any federal revenue act and any regulations of
the Treasury Department issued thereunder or any state laws, to exempt from
taxation any transfers and/or deliveries of any such Securities as may qualify
for such exemption.
ARTICLE 12. CUSTODIAN'S LIABILITY FOR
PROCEEDS OF SECURITIES SOLD
If the mode of payment for Securities to be delivered by the Custodian is
not specified in the Written Order from the Fund directing such delivery, the
Custodian shall make delivery of such Securities against receipt by it of cash,
a postal money order or a check drawn by a bank, trust company or other banking
institution, or by a broker named in such Written Order from the Fund, for the
amount the Custodian is directed to receive. The Custodian shall be liable for
the proceeds of any delivery of Securities made pursuant to this Article, but
provided that it has complied with the provisions of this Article, only to the
extent that such proceeds are actually received.
ARTICLE 13. CUSTODIAN'S REPORT
The Custodian shall furnish the Fund, as of the close of business on the
last business day of each month, a statement showing all cash transactions and
entries for the account of each Series of the Fund. The books and records of the
Custodian pertaining to its actions as Custodian under this Agreement shall be
open to inspection and audit, at reasonable times, by officers of, and auditors
employed by, the Fund. The Custodian shall furnish the Fund with a list of the
Securities held by it in custody for the account of each Series of the Fund as
of the close of business on the last business day of each quarter of the Fund's
fiscal year.
ARTICLE 14. CUSTODIAN'S COMPENSATION
The Custodian shall be paid compensation at such rates and at such times as
may from time to time be agreed on in writing by the parties hereto (as set
forth with respect to each Series in EXHIBIT B hereto), and the Custodian shall
have a lien for unpaid compensation, to the date of termination of this
Agreement, upon any cash or Securities held by it for the Series accounts of the
Fund, enforceable in the manner specified in Article 11 hereof.
ARTICLE 15. DURATION, TERMINATION AND AMENDMENT OF AGREEMENT
This Agreement shall remain in effect with respect to each Series, as it
may from time to time be amended, until it shall have been terminated as
hereinafter provided, but no such amendment or termination shall affect or
impair any rights or liabilities arising out of any acts or omissions to act
occurring prior to such amendment or termination.
The Custodian may terminate this Agreement by giving the Fund ninety days'
written notice of such termination by registered mail addressed to the Fund at
its principal place of business.
The Fund may terminate this Agreement by giving ninety days' written notice
thereof delivered by registered mail to the Custodian at its principal place of
business. Additionally, this Agreement may be terminated with respect to any
Series of the Fund pursuant to the same procedures, in which case this Agreement
shall continue in full effect with respect to all other Series of the Fund.
Upon termination of this Agreement, the assets of the Fund, or Series
thereof, held by the Custodian shall be delivered by the Custodian to a
successor custodian upon receipt by the Custodian of a Written Order from the
Fund designating the successor custodian; and if no successor custodian is
designated in said Written Order from the Fund, the Custodian shall, upon such
termination, deliver all such assets to the Fund.
This Agreement may be amended or terminated at any time by the mutual
agreement of the Fund and the Custodian. Additionally, this Agreement may be
amended or terminated with respect to any Series of the Fund at any time by the
mutual agreement of the Fund and the Custodian, in which case such amendment or
termination would apply to such Series amending or terminating this Agreement
but not to the other Series of the Fund.
This Agreement may not be assigned by the Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
ARTICLE 16. SUCCESSOR CUSTODIAN
Any bank or trust company into which the Custodian or any successor
custodian may be merged or converted or with which it or any successor custodian
may be consolidated, or any bank or trust company resulting from any merger,
conversion or consolidation to which the Custodian or any successor custodian
shall be a party, or any bank or trust company succeeding to the business of the
Custodian, shall be and become the successor custodian without the execution of
any instrument or any further act on the part of the Fund or the Custodian or
any successor custodian.
Any successor custodian shall have all the power, duties and obligations of
the preceding custodian under this Agreement and any amendments thereof and
shall succeed to all the exemptions and privileges of the preceding custodian
under this Agreement and any amendments thereof.
ARTICLE 17. GENERAL
Nothing expressed or mentioned in or to be implied from any provisions of
this Agreement is intended to give or shall be construed to give any person or
corporation other than the parties hereto any legal or equitable right, remedy
or claim under or in respect of this Agreement or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be, and being, for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns.
It is the purpose and intention of the parties hereto that the Fund shall
retain all the power, rights and responsibilities of determining policy,
exercising discretion and making decisions with respect to the purchase, or
other acquisition, and the sale, or other disposition, of all of its Securities,
and that the duties and responsibilities of the Custodian hereunder shall be
limited to receiving and safeguarding the assets and Securities of each Series
of the Fund and to delivering or disposing of them pursuant to the Written Order
from the Fund as aforesaid, and the Custodian shall have no authority, duty or
responsibility for the investment policy of the Fund or for any acts of the Fund
in buying or otherwise acquiring, or in selling or otherwise disposing of, any
Securities, except as hereinbefore specifically set forth.
The Custodian shall in no case or event permit the withdrawal of any money
or Securities of the Fund upon the mere receipt of any director, officer,
employee or agent of the Fund, but shall hold such money and Securities for
disposition under the procedures herein set forth.
ARTICLE 18. STANDARD OF CARE; INDEMNIFICATION
In connection with the performance of its duties and responsibilities
hereunder, the Custodian (and each officer, employee, agent, sub-custodian and
depository of or engaged by the Custodian) shall at all times be held to the
standard of reasonable care. The Custodian shall be fully responsible for any
action taken or omitted by any officer, employee, agent, sub-custodian or
depository of or engaged by the Custodian to the same extent as if the Custodian
were to take or omit to take such action directly. The Custodian agrees to
indemnify and hold the Fund and each Series of the Fund harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the Custodian's own negligence, misfeasance, bad
faith or willful misconduct or that of any officer, employee, agent,
sub-custodian and depository of or engaged by the Custodian in the performance
of the Custodian's duties and obligations under this Agreement; PROVIDED,
HOWEVER, that, notwithstanding any other provision in this Agreement, the
Custodian shall not be responsible for the following:
(a) any action taken or omitted in accordance with any Written Order
from the Fund reasonably believed by the Custodian to be genuine and to be
signed by the proper party or parties; or
(b) any action taken or omitted in reasonable reliance on the advice
of counsel of or reasonably acceptable to the Fund relating to any of its
duties and responsibilities hereunder.
The Fund agrees to indemnify and hold the Custodian harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the performance by the Custodian (and each officer,
employee, agent, sub-custodian and depository of or engaged by the Custodian) of
its duties and responsibilities under this Agreement PROVIDED THAT the Custodian
(or any officer, employee, agent, sub-custodian or depository of or engaged by
the Custodian, as applicable) exercised reasonable care in the performance of
its duties and responsibilities under this Agreement.
ARTICLE 19. EFFECTIVE DATE
This Agreement shall become effective with respect to each Series that
adopts this Agreement when this Agreement shall have been approved with respect
to such Series by the Board of Directors of the Fund. The effective date with
respect to each Series shall be set forth on EXHIBIT A hereto. The Fund shall
transmit to the Custodian promptly after such approval by said Board of
Directors a copy of its resolution embodying such approval, certified by the
Secretary of the Fund.
ARTICLE 20. GOVERNING LAW
This Agreement is executed and delivered in Minneapolis, Minnesota, and the
laws of the State of Minnesota shall be controlling and shall govern the
construction, validity and effect of this contract.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement
to be executed in duplicate as of the date first above written by their duly
authorized officers.
ATTEST: VOYAGEUR MUTUAL FUNDS, INC.
_______________________ By /s/John G. Taft
Secretary Its /s/President
ATTEST: NORWEST BANK MINNESOTA, N.A.
_______________________ By /s/Brent Siegel
Trust Officer Its /s/Assistant Vice President
EXHIBIT A
TO
CUSTODIAN AGREEMENT
BETWEEN
VOYAGEUR MUTUAL FUNDS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
NAME OF SERIES EFFECTIVE DATE
- -------------- --------------
Series B--Voyageur Iowa Tax Free Fund August 27, 1993
Series C--Voyageur Wisconsin Tax Free Fund August 27, 1993
Series E--Voyageur Idaho Tax Free Fund December 1, 1994
Series F--Voyageur Arizona Tax Free Fund March 1, 1995
Series G--Voyageur California Tax Free Fund March 1, 1995
Series H--Voyageur National Tax Free Fund March 1, 1995
Series I--Voyageur Minnesota High Yield
Municipal Bond Fund June 3, 1996
Series J--Voyageur New York Tax Free Fund
Series K--Voyageur National High Yield
Municipal Bond Fund
EXHIBIT B
TO
CUSTODIAN AGREEMENT
BETWEEN
VOYAGEUR MUTUAL FUNDS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
COMPENSATION SCHEDULE
[To be provided by Norwest]
VOYAGEUR MUTUAL FUNDS, 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, Inc., a Minnesota corporation (the "Company"),
for and on behalf of each series (each series is referred to hereinafter as a
"Fund") and, if applicable, each class thereof (each such class is referred to
hereinafter as a "Class"). The Funds and, if applicable, Classes thereof that
currently have adopted this Plan, and the effective dates of such adoptions, are
as follow:
<TABLE>
<CAPTION>
<S> <C>
Voyageur Iowa Tax Free Fund, Class A November 1, 1993
Voyageur Iowa Tax Free Fund, Class B March 1, 1995
Voyageur Iowa Tax Free Fund, Class C December 1, 1994
Voyageur Wisconsin Tax Free Fund, Class A November 1, 1993
Voyageur Wisconsin Tax Free Fund, Class B March 1, 1995
Voyageur Wisconsin Tax Free Fund, Class C December 1, 1994
Voyageur Idaho Tax Free Fund, Class A December 1, 1994
Voyageur Idaho Tax Free Fund, Class B March 1, 1995
Voyageur Idaho Tax Free Fund, Class C December 1, 1994
Voyageur Arizona Tax Free Fund, Class A March 1, 1995
Voyageur Arizona Tax Free Fund, Class B March 1, 1995
Voyageur Arizona Tax Free Fund, Class C March 1, 1995
Voyageur California Tax Free Fund, Class A March 1, 1995
Voyageur California Tax Free Fund, Class B March 1, 1995
Voyageur California Tax Free Fund, Class C March 1, 1995
Voyageur National Tax Free Fund, Class A March 1, 1995
Voyageur National Tax Free Fund, Class B March 1, 1995
Voyageur National Tax Free Fund, Class C March 1, 1995
Voyageur Minnesota High Yield Municipal Bond Fund, Class A June 3, 1996
Voyageur Minnesota High Yield Municipal Bond Fund, Class B June 3, 1996
Voyageur Minnesota High Yield Municipal Bond Fund, Class C June 3, 1996
Voyageur New York Tax Free Fund, Class A ______,1996
Voyageur New York Tax Free Fund, Class B ______,1996
Voyageur New York Tax Free Fund, Class C ______,1996
Voyageur National High Yield Municipal Bond Fund, Class A ______,1996
Voyageur National High Yield Municipal Bond Fund, Class B ______,1996
Voyageur National High Yield Municipal Bond Fund, Class C ______,1996
</TABLE>
1. COMPENSATION
Class A 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
.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 Trust's Board of Trustees. Until further
action by the Board of Trustees, 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 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.
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 Fund or, if
applicable, Class thereof, 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 Fund or, if applicable,
Class thereof, 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 Fund or
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.
EXHIBIT 11
DORSEY & WHITNEY LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
August 16, 1996
Voyageur Mutual Funds, Inc.
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
Re: Voyageur New York Tax Free Fund, a Series of Voyageur Mutual Funds,
Inc.--Shares to be Issued Pursuant to Agreement and Plan of
Reorganization
Ladies and Gentlemen:
We have acted as counsel to Voyageur Mutual Funds, Inc., a Minnesota
corporation ("Voyageur Mutual Funds"), in connection with its authorization and
proposed issuance of its Series J common shares, par value $.01 per share (the
"Shares"). The Shares are to be issued pursuant to an Agreement and Plan of
Reorganization (the "Agreement"), by and between Voyageur Mutual Funds, on
behalf of its New York Tax Free Fund series, and Fortis Tax-Free Portfolios,
Inc., a Minnesota corporation, on behalf of its New York Portfolio series, the
form of which Agreement is included as Appendix A to the Prospectus/Proxy
Statement relating to the transactions contemplated by the Agreement included in
Voyageur Mutual Funds' Registration Statement on Form N-14 filed with the
Securities and Exchange Commission (the "Registration Statement").
In rendering the opinions hereinafter expressed, we have reviewed the
corporate proceedings taken by Voyageur Mutual Fund in connection with the
authorization and issuance of the Shares, and we have reviewed such questions of
law and examined copies of such corporate records of Voyageur Mutual Fund,
certificates of public officials and of responsible officers of Voyageur Mutual
Fund, and other documents as we have deemed necessary as a basis for such
opinions. As to the various matters of fact material to such opinions, we have,
when such facts were not independently established, relied to the extent we deem
proper on certificates of public officials and of responsible officers of
Voyageur Mutual Fund. In connection with such review and examination, we have
assumed that all copies of documents provided to us conform to the originals;
that all signatures are genuine; and that prior to the consummation of the
transactions contemplated thereby, the Agreement will have been duly and validly
executed and delivered on behalf of each of the parties thereto in substantially
the form included in the Registration Statement.
Based on the foregoing, it is our opinion that the Shares, when issued and
delivered by Voyageur Mutual Funds pursuant to, and upon satisfaction of the
conditions contained in, the Agreement, will be duly authorized, validly issued,
fully paid and nonassessable.
In rendering the foregoing opinions (a) we express no opinion as to the
laws of any jurisdiction other than the State of Minnesota; and (b) we have
assumed, with your concurrence, that the conditions to closing set forth in the
Agreement will have been satisfied.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in Voyageur Mutual Funds' final Prospectus/Proxy Statement
relating to the Shares included in the Registration Statement.
Very truly yours,
/s/ Dorsey & Whitney LLP
DTB
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made and entered into this 27th day of October 1994, by
and between Voyageur Mutual Funds, 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, INC.
By /s/John G. Taft
------------------------
John G. Taft
Its /s/President
------------------------
President
VOYAGEUR FUND MANAGERS, INC.
By/s/John G. Taft
-----------------------
John G. Taft
Its /s/President
------------------------
President
EXHIBIT A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
VOYAGEUR FUND MANAGERS, INC.
AND
VOYAGEUR MUTUAL FUNDS, INC.
FUND EFFECTIVE DATE
---- --------------
Series B--Voyageur Iowa Tax Free Fund October 27, 1994
Series C--Voyageur Wisconsin Tax Free Fund October 27, 1994
Series E--Voyageur Idaho Tax Free Fund December 1, 1994
Series F--Voyageur Arizona Tax Free Fund March 1, 1995
Series G--Voyageur California Tax Free Fund March 1, 1995
Series H--Voyageur National Tax Free Fund March 1, 1995
Series I--Voyageur Minnesota High Yield Municipal
Bond Fund June 3, 1996
Series J--Voyageur New York Tax Free Fund
Series K--Voyageur National High Yield Municipal
Bond Fund
COMPENSATION
SERIES B, SERIES C AND SERIES E
The sum of (i) $1.33 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 $20
million of the Fund's average daily net assets, .035% per annum of the next $60
million of the Fund's average daily net assets, .03% per annum of the next $400
million of the Fund's average daily net assets, and .02% per annum of the Fund's
average daily net assets in excess of $500 million. **
SERIES F, SERIES G, SERIES H, SERIES I, SERIES J AND SERIES K
The sum of (i) $1.33 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 $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. **
** Voyageur shall reimburse each Fund, in an amount not in excess of the
advisory and management fee payable under the Investment Advisory Agreement and
the administrative services fee payable hereunder, if, and to the extent that,
the aggregate operating expenses of the Fund (including the advisory and
management fee, the administrative services fee and deferred organizational
costs, but excluding Rule 12b-1 fees, interest expense, taxes, brokerage fees
and commissions and extraordinary charges and expenses) are in excess of 1.00%
of the average daily net assets of the Fund on an annual basis (the "Expense
Limit"). Voyageur shall first reimburse the Fund the advisory and management fee
payable and then, to the extent necessary to reduce the Fund's expenses to the
Expense Limit, shall reimburse the administrative services fee payable
hereunder.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Voyageur Mutual Funds, Inc.:
We consent to the references to our firm under the headings "FINANCIAL
STATEMENTS AND EXPERTS" in Part A and "ADDITIONAL INFORMATION - Custodian;
Counsel; Independent Auditors" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 26, 1996
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fortis Tax-Free Portfolios, Inc.:
We consent to the use of our report incorporated by reference herein and the
reference to our Firm under the heading "FINANCIAL STATEMENTS AND EXPERTS" in
Part A of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 26, 1996
EXHIBIT 16
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John G. Taft, Kenneth R. Larsen
and Thomas J. Abood, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form N-14 of
Voyageur Mutual Funds, Inc., relating to the combination (i) of the New York
Portfolio of the Fortis Tax-Free Portfolios, Inc. with and into Voyageur New
York Tax Free Fund and (ii) Great Hall National Tax-Exempt Fund of Great Hall
Investment Funds, Inc with and into Voyageur National High Yield Municipal Bond
Fund and to sign a Registration Statement on Form N-14 of Voyageur Insured
Funds, Inc. relating to the combination of Great Hall Minnesota Insured
Tax-Exempt Fund of Great Hall Investments, Inc. with and into Voyageur Minnesota
Insured Fund of Voyageur Insured Funds, Inc. and any and all amendments thereto,
including post-effective amendments, and to file the same with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or the
substitutes for such attorneys-in-fact and agents, may lawfully do or cause to
be done by virtue hereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ JOHN G. TAFT President August 20, 1996
- -----------------
John G. Taft
/S/ KENNETH R. LARSEN Treasurer August 20, 1996
- ----------------------
Kenneth R. Larsen
/S/ CLARENCE G. FRAME Director August 20, 1996
- ----------------------
Clarence G. Frame
/S/ RICHARD F. MCNAMARA Director August 20, 1996
- ------------------------
Richard F. McNamara
/S/ THOMAS F. MADISON Director August 20, 1996
- ----------------------
Thomas F. Madison
/S/ JAMES W. NELSON Director August 20, 1996
- --------------------
James W. Nelson
/S/ ROBERT J. ODEGARD Director August 20, 1996
- ----------------------
Robert J. Odegard
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 24F-2
ANNUAL NOTICE OF SECURITIES SOLD
PURSUANT TO RULE 24F-2
READ INSTRUCTIONS AT END OF FORM BEFORE PREPARING FORM.
PLEASE PRINT OR TYPE.
- --------------------------------------------------------------------------------
1. Name and address of issuer:
Voyageur Mutual Funds, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, MN 55402
- --------------------------------------------------------------------------------
2. Name of each series or class of funds for which this notice is filed:
Voyageur Arizona Tax Free Fund
Voyageur California Tax Free Fund
Voyageur Idaho Tax Free Fund
Voyageur National Tax Free Fund
Voyageur Iowa Tax Free Fund
Voyageur Wisconsin Tax Free Fund
- --------------------------------------------------------------------------------
3. Investment Company Act File Number:
811-7742
Securities Act File Number:
33-63238
- --------------------------------------------------------------------------------
4. Last day of fiscal year for which this notice is filed:
December 31, 1995
- --------------------------------------------------------------------------------
5. Check box if this notice is being filed more than 180 days after the close
of the issuer's fiscal year for purposes of reporting securities sold after
the close of the fiscal year but before termination of the issuer's 24f-2
declaration:
N/A
- --------------------------------------------------------------------------------
6. Date of termination of issuer's declaration under rule 24f-2(a)(1), if
applicable (see instruction A.6):
N/A
- --------------------------------------------------------------------------------
7. Number and amount of securities of the same class or series which had been
registered under the Securities Act of 1933 other than pursuant to rule
24f-2 in a prior fiscal year, but which remained unsold at the beginning of
the fiscal year:
-0-
- --------------------------------------------------------------------------------
8. Number and amount of securities registered during the fiscal year other
than pursuant to rule 24f-2.
-0-
- --------------------------------------------------------------------------------
9. Number and aggregate sale price of securities sold during the fiscal year:
4,889,666 shares $49,109,261
- --------------------------------------------------------------------------------
10. Number and aggregate sale price of securities sold during the fiscal year
in reliance upon registration pursuant to rule 24f-2:
4,889,666 $49,109,261
- --------------------------------------------------------------------------------
11. Number and aggregate sale price of securities issued during the fiscal year
in connection with dividend reinvestment plans, if applicable (see
instruction B.7):
245,214 shares $2,311,822
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
12. Calculation of registration fee:
<S> <C>
(i) Aggregate sale price of securities sold during the fiscal year in
reliance on rule 24f-2 (from Item 10): $ 49,109,261
------------
(ii) Aggregate price of shares issued in connection with dividend
reinvestment plans (from Item 11, if applicable): + 2,311,822
------------
(iii) Aggregate price of shares redeemed or repurchased during the fiscal
year (if applicable): - 14,984,250
------------
(iv) Aggregate price of shares redeemed or repurchased and previously
applied as a reduction to filing fees pursuant to rule 24e-2 (if
applicable): + --
------------
(v) Net aggregate price of securities sold and issued during the fiscal
year in reliance on rule 24f-2 [line (i), plus line (ii), less line
(iii), plus line (iv)] (if applicable): 36,436,833
------------
(vi) Multiplier prescribed by Section 6(b) of the Securities Act of 1933 or
other applicable law or regulation (see Instruction C.6): X 1/29 of 1%
------------
(vii) Fee due [line (i) or line (v) multiplied by line (vii)]: $ 12,564.43
============
INSTRUCTION: ISSUERS SHOULD COMPLETE LINES (ii), (iii), (iv), AND (v) ONLY IF
THE FORM IS BEING FILED WITHIN 60 DAYS AFTER THE CLOSE OF THE
ISSUER'S FISCAL YEAR. See Instruction C.3.
- ---------------------------------------------------------------------------------------------------
</TABLE>
13. Check box if fees are being remitted to the Commission's lockbox depository
as described in section 3a of the Commission's Rules of Informal and Other
Procedures (17 CFR 202.3a)
[ ]
Date of mailing or wire transfer of filing fees to the Commission's lockbox
depository: Fed Wire on February 23, 1996
NOTE:VOYAGEUR MUTUAL FUNDS, INC. HAS ALREADY WIRED $7,287.37 WHEN THE FEE
WAS 1/50 OF 1%. THE BALANCE CURRENTLY DUE IS $5,277.06 WHICH RESULTS IN A
TOTAL FEE OF $12,564.13.
- --------------------------------------------------------------------------------
SIGNATURES
This report has been signed below by the following persons on behalf of the
issuer and in the capacities and on the date indicated.
By (Signature and Title)* Kenneth R. Larsen
-----------------------------
KENNETH R. LARSEN - TREASURER
Date /s/02/23/96
*Please print the name and title of the signing officer below the signature.
DORSEY & WHITNEY
PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
PILLSBURY CENTER SOUTH
220 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-1498
(612) 340-2600
FAX (612) 340-2868
February 23, 1996
Voyageur Fund Managers, Inc.
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
Re: Rule 24f-2 Notice for Voyageur Mutual Funds, Inc.
(File Nos. 33-63238 and 811-7742)
Dear Sir or Madam:
We have acted as counsel to Voyageur Mutual Funds, Inc., a Minnesota
corporation (the "Funds"), in connection with the Funds' Registration Statement
on Form N-1A (File Nos. 33-63238 and 811-7742). This opinion is addressed to you
in connection with a filing by the Funds of a notice (the "Notice") pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. In that
connection, we have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of this
opinion. Based thereon, we advise you that, in our opinion, the 5,134,880 shares
of common stock, $.01 par value per share, issued by the Funds for the fiscal
year ended December 31, 1995, as set forth in the Notice, were legally issued,
have been fully paid, and are nonassessable, if issued and sold upon the terms
and in the manner set forth in the Registration Statement of the Funds referred
to above.
Very truly yours,
/s/Dorsey & Whitney P.L.L.P
KLP
EXHIBIT 17.2
CLASS A SHARES
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MN 55164
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FORTIS TAX-FREE
PORTFOLIOS, INC.
The undersigned appoints Michael J. Radmer, Robert W. Betz, Jr., Tamara J.
Fagely, and Scott R. Plummer, and each of them, with power to act without the
other and with the right of substitution in each, as proxies of the undersigned
and hereby authorizes each of them to represent and to vote, as designated
below, all the Class A shares of New York Portfolio ("Fortis Fund"), a series of
Fortis Tax-Free Portfolios, Inc. ("Fortis Tax-Free"), held of record by the
undersigned on August __, 1996, at the Special Meeting of Shareholders of Fortis
Fund to be held on October __, 1996, or any adjournments or postponements
thereof, with all powers the undersigned would possess if present in person. All
previous proxies given with respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of certain stated and identified liabilities of Fortis Fund by
Voyageur New York Tax Free Fund ("Voyageur Fund"), a newly formed, separately
managed series of Voyageur Mutual Funds, Inc. in exchange for common shares of
Voyageur Fund having an aggregate net asset value equal to the aggregate value
of the assets acquired (less the liabilities equal to the aggregate value of the
assets acquired (less the liabilities assumed) of Fortis Fund and (b) the
liquidation of Fortis Fund and the pro rata distribution of Voyageur Fund shares
to Fortis Fund shareholders. Under the Plan, Fortis Fund Class A, Class B and
Class C shareholders will receive the same class of shares of Voyageur Fund that
they held in Fortis Fund, having a net asset value equal as of the effective
time of the Plan to the net asset value of their Fortis Fund shares. Fortis Fund
Class E shareholders and Fortis Fund Class H shareholders will receive Voyageur
Fund Class A shares and Voyageur Fund Class B shares, respectively, having a net
asset value equal as of the effective time of the Plan to the net asset value of
their Fortis Fund shares. A vote in favor of the Plan will be considered a vote
in favor of an amendment to the articles of incorporation of Fortis Tax-Free
required to effect the reorganization contemplated by the Plan.
FOR /_/ AGAINST /_/ ABSTAIN /_/
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THE PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated: _____, 1996 ____________________________________________________________
____________________________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
EXHIBIT 17.3
CLASS B SHARES
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MN 55164
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FORTIS TAX-FREE
PORTFOLIOS, INC.
The undersigned appoints Michael J. Radmer, Robert W. Betz, Jr., Tamara J.
Fagely, and Scott R. Plummer, and each of them, with power to act without the
other and with the right of substitution in each, as proxies of the undersigned
and hereby authorizes each of them to represent and to vote, as designated
below, all the Class A shares of New York Portfolio ("Fortis Fund"), a series of
Fortis Tax-Free Portfolios, Inc. ("Fortis Tax-Free"), held of record by the
undersigned on August __, 1996, at the Special Meeting of Shareholders of Fortis
Fund to be held on October __, 1996, or any adjournments or postponements
thereof, with all powers the undersigned would possess if present in person. All
previous proxies given with respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of certain stated and identified liabilities of Fortis Fund by
Voyageur New York Tax Free Fund ("Voyageur Fund"), a newly formed, separately
managed series of Voyageur Mutual Funds, Inc. in exchange for common shares of
Voyageur Fund having an aggregate net asset value equal to the aggregate value
of the assets acquired (less the liabilities equal to the aggregate value of the
assets acquired (less the liabilities assumed) of Fortis Fund and (b) the
liquidation of Fortis Fund and the pro rata distribution of Voyageur Fund shares
to Fortis Fund shareholders. Under the Plan, Fortis Fund Class A, Class B and
Class C shareholders will receive the same class of shares of Voyageur Fund that
they held in Fortis Fund, having a net asset value equal as of the effective
time of the Plan to the net asset value of their Fortis Fund shares. Fortis Fund
Class E shareholders and Fortis Fund Class H shareholders will receive Voyageur
Fund Class A shares and Voyageur Fund Class B shares, respectively, having a net
asset value equal as of the effective time of the Plan to the net asset value of
their Fortis Fund shares. A vote in favor of the Plan will be considered a vote
in favor of an amendment to the articles of incorporation of Fortis Tax-Free
required to effect the reorganization contemplated by the Plan.
FOR /_/ AGAINST /_/ ABSTAIN /_/
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THE PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated: _____, 1996 ____________________________________________________________
____________________________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
EXHIBIT 17.4
CLASS C SHARES
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MN 55164
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FORTIS TAX-FREE
PORTFOLIOS, INC.
The undersigned appoints Michael J. Radmer, Robert W. Betz, Jr., Tamara J.
Fagely, and Scott R. Plummer, and each of them, with power to act without the
other and with the right of substitution in each, as proxies of the undersigned
and hereby authorizes each of them to represent and to vote, as designated
below, all the Class A shares of New York Portfolio ("Fortis Fund"), a series of
Fortis Tax-Free Portfolios, Inc. ("Fortis Tax-Free"), held of record by the
undersigned on August __, 1996, at the Special Meeting of Shareholders of Fortis
Fund to be held on October __, 1996, or any adjournments or postponements
thereof, with all powers the undersigned would possess if present in person. All
previous proxies given with respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of certain stated and identified liabilities of Fortis Fund by
Voyageur New York Tax Free Fund ("Voyageur Fund"), a newly formed, separately
managed series of Voyageur Mutual Funds, Inc. in exchange for common shares of
Voyageur Fund having an aggregate net asset value equal to the aggregate value
of the assets acquired (less the liabilities equal to the aggregate value of the
assets acquired (less the liabilities assumed) of Fortis Fund and (b) the
liquidation of Fortis Fund and the pro rata distribution of Voyageur Fund shares
to Fortis Fund shareholders. Under the Plan, Fortis Fund Class A, Class B and
Class C shareholders will receive the same class of shares of Voyageur Fund that
they held in Fortis Fund, having a net asset value equal as of the effective
time of the Plan to the net asset value of their Fortis Fund shares. Fortis Fund
Class E shareholders and Fortis Fund Class H shareholders will receive Voyageur
Fund Class A shares and Voyageur Fund Class B shares, respectively, having a net
asset value equal as of the effective time of the Plan to the net asset value of
their Fortis Fund shares. A vote in favor of the Plan will be considered a vote
in favor of an amendment to the articles of incorporation of Fortis Tax-Free
required to effect the reorganization contemplated by the Plan.
FOR /_/ AGAINST /_/ ABSTAIN /_/
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THE PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated: _____, 1996 ____________________________________________________________
____________________________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
EXHIBIT 17.5
CLASS E SHARES
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MN 55164
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FORTIS TAX-FREE
PORTFOLIOS, INC.
The undersigned appoints Michael J. Radmer, Robert W. Betz, Jr., Tamara J.
Fagely, and Scott R. Plummer, and each of them, with power to act without the
other and with the right of substitution in each, as proxies of the undersigned
and hereby authorizes each of them to represent and to vote, as designated
below, all the Class A shares of New York Portfolio ("Fortis Fund"), a series of
Fortis Tax-Free Portfolios, Inc. ("Fortis Tax-Free"), held of record by the
undersigned on August __, 1996, at the Special Meeting of Shareholders of Fortis
Fund to be held on October __, 1996, or any adjournments or postponements
thereof, with all powers the undersigned would possess if present in person. All
previous proxies given with respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of certain stated and identified liabilities of Fortis Fund by
Voyageur New York Tax Free Fund ("Voyageur Fund"), a newly formed, separately
managed series of Voyageur Mutual Funds, Inc. in exchange for common shares of
Voyageur Fund having an aggregate net asset value equal to the aggregate value
of the assets acquired (less the liabilities equal to the aggregate value of the
assets acquired (less the liabilities assumed) of Fortis Fund and (b) the
liquidation of Fortis Fund and the pro rata distribution of Voyageur Fund shares
to Fortis Fund shareholders. Under the Plan, Fortis Fund Class A, Class B and
Class C shareholders will receive the same class of shares of Voyageur Fund that
they held in Fortis Fund, having a net asset value equal as of the effective
time of the Plan to the net asset value of their Fortis Fund shares. Fortis Fund
Class E shareholders and Fortis Fund Class H shareholders will receive Voyageur
Fund Class A shares and Voyageur Fund Class B shares, respectively, having a net
asset value equal as of the effective time of the Plan to the net asset value of
their Fortis Fund shares. A vote in favor of the Plan will be considered a vote
in favor of an amendment to the articles of incorporation of Fortis Tax-Free
required to effect the reorganization contemplated by the Plan.
FOR /_/ AGAINST /_/ ABSTAIN /_/
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THE PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated: _____, 1996 ____________________________________________________________
____________________________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
EXHIBIT 17.6
CLASS H SHARES
NEW YORK PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS TAX-FREE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MN 55164
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FORTIS TAX-FREE
PORTFOLIOS, INC.
The undersigned appoints Michael J. Radmer, Robert W. Betz, Jr., Tamara J.
Fagely, and Scott R. Plummer, and each of them, with power to act without the
other and with the right of substitution in each, as proxies of the undersigned
and hereby authorizes each of them to represent and to vote, as designated
below, all the Class A shares of New York Portfolio ("Fortis Fund"), a series of
Fortis Tax-Free Portfolios, Inc. ("Fortis Tax-Free"), held of record by the
undersigned on August __, 1996, at the Special Meeting of Shareholders of Fortis
Fund to be held on October __, 1996, or any adjournments or postponements
thereof, with all powers the undersigned would possess if present in person. All
previous proxies given with respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of certain stated and identified liabilities of Fortis Fund by
Voyageur New York Tax Free Fund ("Voyageur Fund"), a newly formed, separately
managed series of Voyageur Mutual Funds, Inc. in exchange for common shares of
Voyageur Fund having an aggregate net asset value equal to the aggregate value
of the assets acquired (less the liabilities equal to the aggregate value of the
assets acquired (less the liabilities assumed) of Fortis Fund and (b) the
liquidation of Fortis Fund and the pro rata distribution of Voyageur Fund shares
to Fortis Fund shareholders. Under the Plan, Fortis Fund Class A, Class B and
Class C shareholders will receive the same class of shares of Voyageur Fund that
they held in Fortis Fund, having a net asset value equal as of the effective
time of the Plan to the net asset value of their Fortis Fund shares. Fortis Fund
Class E shareholders and Fortis Fund Class H shareholders will receive Voyageur
Fund Class A shares and Voyageur Fund Class B shares, respectively, having a net
asset value equal as of the effective time of the Plan to the net asset value of
their Fortis Fund shares. A vote in favor of the Plan will be considered a vote
in favor of an amendment to the articles of incorporation of Fortis Tax-Free
required to effect the reorganization contemplated by the Plan.
FOR /_/ AGAINST /_/ ABSTAIN /_/
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THE PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated: _____, 1996 ____________________________________________________________
____________________________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
