Registration No. 333-___________
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1996
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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)
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Exact name of Registrant as Specified in Charter:
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 October 4, 1996 (30 days after filing) pursuant to Rule 488.
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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.
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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
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<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 Great Hall 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 Great Hall 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
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10. Cover Page........................................... Cover Page
11. Table of Contents.................................... Table of Contents
12. Additional Information about the Registrant ......... Investment Policies and Restrictions; 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 APPENDICES
PROSPECTUS DATED DECEMBER 1, 1995, OF
GREAT HALL INVESTMENT FUNDS, INC.
CONTAINING INFORMATION ABOUT
NATIONAL TAX-EXEMPT FUND
[INCORPORATED BY REFERENCE INTO PROSPECTUS/PROXY STATEMENT]
[INSIGHT INVESTMENT MANAGEMENT LETTERHEAD]
GREAT HALL NATIONAL TAX-EXEMPT FUND
60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-4422
September __, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Great Hall National Tax-Exempt Fund ("Great Hall Fund"), a series of Great Hall
Investment Funds, Inc. ("Great Hall Investment Funds") to be held on ________,
1996 at _______, Central Time, at the offices of Great Hall Investment Funds, 60
South Sixth Street, Minneapolis, Minnesota 55402, for the purpose of considering
and voting upon a proposed Agreement and Plan of Reorganization (the "Plan") for
Great Hall Fund.
If the Plan is approved by the shareholders of Great Hall Fund, all or
substantially all of the assets and certain stated and identified liabilities of
Great Hall Fund will be exchanged for shares of Voyageur National High Yield
Municipal Bond Fund ("Voyageur Fund") having an aggregate net asset value equal
to the value of Great Hall Fund's aggregate net assets transferred to Voyageur
Fund. In the reorganization, you will receive Class A shares of Voyageur Fund
having a net asset value equal to the value of your Great Hall Fund shares.
Voyageur Fund is a newly formed series of Voyageur Mutual Funds, Inc.
("Voyageur Mutual Funds"), an open-end management investment company located in
Minneapolis, Minnesota. Voyageur Fund Managers, Inc. ("VFM") acts as the
investment adviser to Voyageur Fund. As of June 30, 1996, VFM served as the
investment adviser to 6 closed-end and 10 open-end funds (comprised of 33
separate investment portfolios), administered numerous private accounts and,
together with its affiliates, managed approximately $11.5 billion in assets.
The investment objectives of Great Hall Fund and Voyageur Fund are similar
in that both seek a high level of current income exempt from federal income tax
by investing primarily in medium- and lower-grade municipal securities.
Shareholders should carefully consider, however, both the similarities and the
differences (including the differences that Voyageur Fund may invest to a
greater extent than Great Hall Fund in securities subject to alternative minimum
tax and also may invest in certain Derivative Municipal Obligations, as defined
herein) between the investment objectives, policies and restrictions of the two
Funds. These similarities and differences, as well as other important
information concerning the proposed combination of the Funds, are described in
detail in the Prospectus/Proxy Statement, which you are encouraged to review
carefully.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOUR APPROVAL OF THE PLAN.
The Board has recognized that the strategy of Great Hall Fund's distributors of
promoting predominantly externally managed retail mutual funds (exclusive of
Great Hall money market funds) could in the long term cause Great Hall Fund's
size to decrease and thereby make the objective of providing competitive
investment returns increasingly difficult to achieve. The Board therefore has
determined that a transfer of Great Hall Fund to another investment firm would
be in the Fund's best interests. The Board has further determined that VFM is an
organization with strong professional credentials and with business strategies
that are consistent in all material respects with the Fund's long term best
interests.
Approval of the Plan will require the affirmative vote of the holders of a
majority of the outstanding shares of Great Hall Fund. 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.
Sincerely,
/s/J. Scott Spiker
------------------
J. Scott Spiker
Chief Executive
Officer of Great Hall Investment
Funds, Inc.
GREAT HALL NATIONAL TAX-EXEMPT FUND
A SEPARATELY MANAGED SERIES OF
GREAT HALL INVESTMENT FUNDS, INC.
60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _______, 1996
------------------------
To the Shareholders of Great Hall National Tax-Exempt Fund:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Great Hall
National Tax-Exempt Fund ("Great Hall Fund"), a separately managed series of
Great Hall Investment Funds, Inc. ("Great Hall Investment Funds"), will be held
at _____, Central time, on __________, 1996, at the offices of Great Hall
Investment Funds, Inc., 60 South Sixth Street, Minneapolis, Minnesota 55402. The
purpose of the special meeting is 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 Great Hall Fund by Voyageur National High Yield Municipal
Bond Fund, ("Voyageur Fund"), a newly formed, separately managed series of
Voyageur Mutual Funds, Inc. ("Voyageur Mutual Funds"), in exchange for
Class A common shares of Voyageur Fund having an aggregate net asset value
equal to the aggregate value of the assets acquired (less liabilities
assumed) of Great Hall Fund and (b) the liquidation of Great Hall Fund and
the pro rata distribution of Voyageur Fund shares to Great Hall Fund
shareholders. Under the Plan, Great Hall Fund shareholders will receive
Voyageur Fund Class A shares, having a net asset value equal as of the
effective time of the Plan to the net asset value of their Great Hall 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 Great Hall Investment
Funds 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 Great Hall 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. GREAT HALL FUND SHAREHOLDERS WILL NOT BEAR COSTS DIRECTLY RELATED TO
THE REORGANIZATION.
THE BOARD OF DIRECTORS OF GREAT HALL INVESTMENT FUNDS UNANIMOUSLY
RECOMMENDS APPROVAL OF THE PLAN.
The close of business on __________, 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,
/s/Matthew L. Thompson
----------------------
Matthew L. Thompson
SECRETARY
PROSPECTUS/PROXY STATEMENT
DATED SEPTEMBER__, 1996
ACQUISITION OF THE ASSETS OF
GREAT HALL NATIONAL TAX-EXEMPT FUND
A SEPARATELY MANAGED SERIES OF
GREAT HALL INVESTMENT FUNDS, INC.
60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR NATIONAL HIGH YIELD MUNICIPAL BOND 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
Great Hall National Tax-Exempt Fund ("Great Hall Fund"), a separately managed
series of Great Hall Investment Funds, Inc. ("Great Hall Investment Funds"), in
connection with a special meeting (the "Meeting") of the shareholders of Great
Hall Fund to be held at the offices of Great Hall Investment Funds, 60 South
Sixth Street, Minneapolis, Minnesota, on __________, 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 Great Hall
Fund on or about September __, 1996. Information concerning the voting rights of
each Great Hall Fund shareholder is set forth under "Voting Information" below.
Representatives of Insight Investment Management ("Insight"), a division of IFG
Asset Management Services, Inc., the investment adviser and manager of Great
Hall Fund, or of its affiliates, may, without cost to Great Hall Fund, solicit
proxies for management of Great Hall 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 Great Hall Fund by Voyageur National High Yield
Municipal Bond Fund ("Voyageur Fund"), a series of Voyageur Mutual Funds, Inc.
("Voyageur Mutual Funds"), in exchange for Class A common shares of Voyageur
Fund having an aggregate net asset value equal to the aggregate value of the
assets acquired (less liabilities assumed) of Great Hall Fund, and (b) the
liquidation of Great Hall Fund and the pro rata distribution of its holdings of
Voyageur Fund shares to Great Hall Fund shareholders. Great Hall 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 Great Hall
Investment Funds 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 Great Hall Fund will receive Voyageur
Fund Class A shares having a net asset value equal as of the effective time of
the Plan to the net asset value of their Great Hall Fund shares. The
Reorganization is being structured as a tax-free reorganization so that no
income, gain or loss will be recognized by Great Hall Fund or its shareholders
as a result thereof (except that Great Hall Fund may 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 Great Hall Fund
shareholders subject to taxation). The shareholders of Great Hall 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 Great Hall
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, Inc.,
an open-end management investment company which offers its shares in multiple
series. The investment objective of Voyageur Fund is to seek a high level of
current income exempt from federal income tax primarily through investment in a
portfolio of medium- and lower-grade Municipal Obligations. The Fund will
attempt to invest 100% (and as a matter of fundamental policy during normal
circumstances will invest at least 80%) of the value of net assets in securities
the interest on which is exempt from regular federal tax. Voyageur Fund may
invest without limit in securities that generate interest that is an item of tax
preference for purposes of federal alternative minimum tax ("AMT"). 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 Great Hall
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 December 1, 1995 as supplemented August 28, 1996
of Great Hall Fund is incorporated in this Prospectus/Proxy Statement
in its entirety by reference.
2. The Statement of Additional Information dated December 1, 1995 of
Great Hall Fund is incorporated by reference in its entirety in the
Statement of Additional Information relating to this Prospectus/Proxy
Statement.
3. The audited Annual Report of Great Hall Fund for the fiscal year ended
July 31, 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 Great Hall Fund for the six-month
period ended January 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 HERETO 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. GREAT HALL 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 all or substantially all of
the assets and the assumption of certain stated and identified liabilities of
Great Hall Fund by Voyageur Fund in exchange for Class A common shares of
Voyageur Fund having an aggregate net asset value equal to the aggregate value
of the assets acquired (less liabilities assumed) of Great Hall Fund and (b) the
liquidation of Great Hall Fund and the pro rata distribution of its holdings of
Voyageur Fund shares to Great Hall 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 ______, 1996, or such later date as
provided for in the Plan) (such time and date, the "Effective Time"). GREAT HALL
FUND SHAREHOLDERS WILL NOT BEAR COSTS DIRECTLY RELATED TO THE REORGANIZATION.
The Board of Directors of Great Hall Investment Funds, including all of the
directors who are not "interested persons," as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), of Great Hall Investment Funds, has
unanimously determined that the Reorganization would be in the best interests of
Great Hall Fund and its shareholders and therefore has approved and submitted
the Plan for approval by Great Hall Fund shareholders. The Board has recognized
that the strategy of Great Hall Fund's distributors of promoting predominantly
externally managed retail mutual funds (exclusive of Great Hall money market
funds) could in the long term cause Great Hall Fund's size to decrease and
thereby make the objective of providing competitive investment returns
increasingly difficult to achieve. The Board therefore has determined that a
transfer of Great Hall Fund to another investment firm would be in the Fund's
best interests. The Board has further determined that VFM is an organization
with strong professional credentials and with business strategies that are
consistent in all materials respects with the Fund's long term best interests.
For a more detailed discussion of the Board's reasons for approving the
Reorganization, see "Information About the Reorganization--Reasons for the
Reorganization."
The Board of Directors of Voyageur Mutual Funds, Inc. (the "Voyageur Board
of Directors") 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 Great Hall Fund.
TAX CONSEQUENCES
Prior to completion of the Reorganization, Great Hall Fund will have
received from Dorsey & Whitney LLP, counsel to Voyageur Fund, an opinion that,
upon the Reorganization, no gain or loss will be recognized by Great Hall 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 Great Hall
Fund shareholder will be the same as the holding period and aggregate tax basis
of Great Hall Fund shares previously held by such shareholders. In addition, the
holding period and tax basis of the assets of Great Hall Fund in the hands of
Voyageur Fund as a result of the Reorganization will be the same as in the hands
of Great Hall Fund immediately prior to the Reorganization. See "Information
About the Reorganization--Federal Income Tax Consequences."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Great Hall Fund and Voyageur Fund are both non-diversified, open-end
investment company series with investment objectives which are substantially the
same.
* The investment objective of Great Hall Fund is to maximize current
income exempt from federal income tax through investments primarily in
medium- and lower-grade municipal obligations.
* The investment objective of Voyageur Fund is to seek a high level of
current income exempt from federal income taxes through investment in
a portfolio of medium- and lower-grade Municipal Obligations.
The investment policies of Great Hall Fund and Voyageur Fund are similar
but not identical.
* Great Hall Fund as a matter of fundamental policy during normal
circumstances attempts to invest no more than 20% of the value of its
net assets in securities the interest on which is an item of tax
preference for purposes of the federal alternative minimum tax
("AMT"). Voyageur Fund may invest without limit in such. See
"Principal Risk Factors--Differences in Investment Risks--Alternative
Minimum Tax."
* The Funds invest in medium- and lower-grade Municipal Obligations.
Medium-grade Municipal Obligations are rated A or Baa, MIG-2 or
Prime-2 by Moody's Investors Service, Inc. ("Moody's"), or A or BBB,
SP-2 or A-2 by Standard & Poor's Ratings Group ("S&P"), A or BBB or
F-2 by Fitch Investors Service, L.P. ("Fitch"), or, if unrated, are
considered by the Fund's adviser to be of comparable quality. Baa and
BBB rated securities are regarded as having some speculative
characteristics. Medium-grade municipal obligations are generally
regarded as having adequate but not outstanding capacity to pay
interest and repay principal. Lower-grade municipal obligations are
rated Ba or B, MIG-3 or Prime-3 by Moody's, BB or B, SP-3 or A-3 by
S&P, BB or B, or F-3 by Fitch or if unrated, are considered by the
Fund's adviser to be of comparable quality.
Great Hall Fund invests in securities with ratings below Ba or BB only
when Insight believes the rating does not accurately reflect the
actual quality of the issuer's credit. As a non-fundamental policy,
Great Hall Fund will not invest more than 5% of its total assets in
municipal obligations rated below Ba or BB, or more than 35% of its
total assets in municipal obligations rated below Baa or BBB, or, if
unrated, having credit characteristics that are considered by Insight,
in accordance with policies established by the Great Hall Board, to be
of comparable quality. Voyageur Fund will invest at least 65% of its
total assets, except under abnormal market or economic situations, in
medium- and lower-grade Municipal Obligations rated, at the time of
investment, between BBB and B- (inclusive) by S&P, Baa and B3
(inclusive) by Moody's, and BBB and B- (inclusive) by Fitch Investors
Service, LP ("Fitch"), and Municipal Obligations determined by VFM to
be of comparable quality. Lower-grade obligations generally are
regarded as high risk securities and are highly speculative. See
"Principal Risk Factors--Differences in Investment Risks--Higher
Proportion of Total Assets in Lower Quality Municipal 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 may purchase
and sell Derivative Municipal Obligations. Great Hall Fund may not
enter into such transactions. See "Principal Risk Factors--Differences
in Investment Risks--Derivative Municipal Obligations" and
"--Options."
* In normal market conditions, Great Hall Fund has and Voyageur Fund
intends to generally invest its assets in Municipal Obligations. As
used in this Prospectus/Proxy Statement, the term "Municipal
Obligations" refers to debt obligations issued by or on behalf of a
state or territory or its agencies, instrumentalities, municipalities
and political subdivisions including, with respect to Voyageur Fund
only, Derivative Municipal Obligations.
* Great Hall Fund has and Voyageur Fund intends to attempt to invest
100% (and as a matter of fundamental policy during normal
circumstances at least 80%) of the value of net assets in securities
the interest on which is exempt from regular federal tax.
* Under normal market conditions, it is expected that the average
maturity of Great Hall Fund will generally range from 17 to 22 years
and possibly in excess of 22 years. Voyageur Fund expects the weighted
average maturity of its investment portfolio will be approximately 15
to 25 years.
* Both Funds may borrow money from banks for temporary or emergency
purposes (in an amount equal to 20% of total assets for Voyageur Fund
and 5% of total assets for Great Hall Fund).
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 Great Hall
Investment Funds for the fiscal year ended July 31, 1995 and unaudited
semi-annual report for the six-month period ended January 31, 1996 referred to
on the cover page hereof under "Incorporation by Reference," provide information
concerning the composition of the Fund's assets at such date.
FEES AND EXPENSES
GREAT HALL FUND EXPENSES. Insight serves as investment adviser of Great
Hall Fund pursuant to an Investment Advisory Agreement. For Insight's services
under such Agreement, Great Hall Fund is obligated to pay Insight a monthly fee
at an annual rate of .50% of the Fund's average daily net assets.
Dain Bosworth Incorporated and Rauscher Pierce Refsnes, Inc. (the
"Co-Distributors") serve as the exclusive distributors of the shares of Great
Hall Fund pursuant to a Co-Distributor Agreement with Great Hall Investment
Funds. Under the Agreement, the Co-Distributors retain the sales charges, if
any, paid by Great Hall Fund shareholders in connection with their purchases of
Fund shares. In addition, Great Hall Fund has adopted pursuant to Rule 12b-1
under the 1940 Act a distribution plan pertaining to its shares (the
"Distribution Plan"). Great Hall Fund's Distribution Plan provides that the
Co-Distributors are entitled to fees at the annual rate of up to .30% of the
average daily net assets attributable to Great Hall Fund's shares. The
Co-Distributors and Great Hall Fund have agreed to voluntarily limit 12b-1 fees
to .20% per year of the Fund's average daily net assets and to use such fees
only in connection with the provisions of services to existing Great Hall Fund
shareholders. This expense limitation may be terminated at any time.
Rodney Square Management Corporation is the transfer agent and dividend
paying agent for Great Hall Fund and provides certain shareholder and
shareholder-related services.
VOYAGEUR FUND EXPENSES. Voyageur Fund Managers, Inc. ("VFM") has been
retained under an Investment Advisory Agreement to act as Voyageur Fund's
investment adviser. Voyageur Fund pays VFM a monthly investment advisory and
management fee equivalent on an annual basis to 0.65% of the Fund's average
daily net assets. VFM has agreed to waive fees such that the investment advisory
fee will not exceed 0.50% through December 31, 1998.
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 0.02% to 0.11% 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 distributor 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 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 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 for servicing of
shareholder accounts and distribution related services.
VFM has undertaken to limit total Voyageur Fund expenses, including Rule
12b-1 fees, to .85% of average daily net assets for Class A shares. These
expense limitations may be terminated or revised at any time after December 31,
1998. In addition, VFM is contractually obligated to pay the operating expenses
of Voyageur Fund (excluding interest, taxes, brokerage fees and 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.
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 "Voyageur Fund
Management and General Information" in Appendix C hereto.
COMPARISON OF FEES AND EXPENSES
The following tables are intended to assist Great Hall Fund shareholders in
understanding the various costs and expenses (expressed as a percentage of
average net assets) (a) that such shareholders currently bear as Great Hall Fund
shareholders (under the "Great Hall Fund" column) and (b) that such shareholders
can expect to bear on an estimated basis 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 Great Hall Fund expenses for the fiscal
year ended July 31, 1996 and Voyageur Fund estimated annualized expenses for the
fiscal year ending December 31, 1996, assuming consummation of the
Reorganization.
GREAT HALL FUND SHARES AND
VOYAGEUR FUND CLASS A SHARES FEES AND EXPENSES
<TABLE>
<CAPTION>
VOYAGEUR
GREAT HALL FUND
FUND CLASS A (1)
---- -----------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................................. 4.50% 3.75%
Maximum Deferred Sales Charge (2).................................... 1.00% 1.00%
Other Redemption Fees................................................ None None
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management Fees (After Fee Waiver for Voyageur Fund) (3)............. 0.50% 0.50%
Rule 12b-1 Fees (After Fee Waiver for Great Hall Fund) (3)........... 0.20% 0.25%
Other Expenses (After Expense Reimbursement for Voyageur
Funds) (3)........................................................ 0.15% 0.10%
----- -----
Total Fund Operating Expenses (3).................................... 0.85% 0.85%
TOTAL FUND OPERATING EXPENSES WITHOUT
VOLUNTARY WAIVER AND REIMBURSEMENT(3)........................... 0.96% 1.15%
</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>
1 year............................................................... $53 $46
3 years.............................................................. $71 $64
5 years.............................................................. $90 $83
10 years............................................................. $145 $138
</TABLE>
(1) Voyageur Fund numbers are based on VFM's undertaking to limit Voyageur
Fund's Total Operating Expenses for Class A shares to .85% of average daily
net assets through the fiscal year ending December 31, 1998.
(2) For both Funds, a contingent deferred sales charge may apply to the
redemption of Class A shares that are purchased without an initial sales
charge. See "Purchase, Exchange and Redemption Procedures" below.
(3) Total Fund Operating Expenses for each Fund reflect expense limitations
discussed herein. Insight voluntarily limits 12b-1 Fees for Great Hall
Fund's shares to .20% of the Fund's average daily net assets attributable
to such shares. Without expense reimbursements, 12b-1 Fees would have been
.30% per year of its average daily assets, and Total Fund Operating
Expenses would have been .96% of average daily net assets. VFM believes
that without fee waivers and expense reimbursements, Management Fees for
Voyageur Fund Class A shares would be .65% of average daily net assets,
Rule 12b-1 Fees for Voyageur Fund Class A shares would be .25% of average
daily net assets, Other Expenses would be .25% of average daily net assets,
and Total Fund Operating Expenses would be 1.15% of average daily net
assets.
(4) Assumes deduction of the maximum initial sales charge at the time of
purchase (4.50% for Great Hall Fund and 3.75% for Voyageur Fund) and no
deduction of a contingent deferred sales charge at the time of redemption.
The example is based upon Total Fund Operating Expenses after voluntary
expense waivers and reimbursements.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
PURCHASES OF SHARES. Shares of both Great Hall Fund and Voyageur Fund Class
A 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 Great Hall 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
Voyageur Fund and Great Hall Fund are not subject to an initial sales charge.
However, shares of either Fund relating to such $1,000,000 purchases redeemed
during the two years after purchase are subject to a 1.00% contingent deferred
sales charge ("CDSC"). The holding period of Great Hall Fund shareholders who
purchased without initial sales charges because of the $1,000,000 waiver will
count toward determination of applicability of Voyageur Fund's CDSC following
the Reorganization. Shares of Great Hall Fund are subject to a Rule 12b-1 fee
payable at an annual rate of .20% of the Fund's average daily net assets.
Voyageur Fund Class A shares are subject to a Rule 12b-1 fee payable at an
annual rate of .25% of the Fund's average daily net assets attributable to such
shares.
Voyageur Fund also offers Class B and Class C shares, which Great Hall Fund
does not offer. For additional information on the purchase of Voyageur Fund and
Great Hall Fund shares, see "How to Purchase Shares" of Appendix D hereto, and
"How to Invest," beginning on page 16 of the Great Hall Fund prospectus
incorporated herein by reference.
PURCHASES AT REDUCED OR NO SALES CHARGE. For the shares of Great Hall Fund
and Voyageur Fund Class A, 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 Great Hall 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 the accompanying prospectus of
Voyageur Fund. These purchase plans and privileges differ in certain respects
from those currently offered by Great Hall Fund. See "How to Purchase
Shares--Class A Shares--Front End Sales Charge Alternative" in Appendix D hereto
and "How to Invest--Reduced Sales Charges" beginning on page 17 of the Great
Hall Fund prospectus incorporated herein by reference. Additionally, Class A
shares of Voyageur Fund will be offered at net asset value, without the
imposition of a sales charge, to shareholder accounts which were in existence
and entitled to purchase shares of Great Hall Fund without a sales charge as of
the Effective Time.
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 shales charge may apply to redemptions of
certain Class A shares initially purchased without a sales charge. For
additional information on redemption of shares, see " "How to Sell Shares," in
Appendix D hereto, and "How to Redeem Shares," beginning on page 18 of the Great
Hall Fund prospectus incorporated herein by reference.
EXCHANGE PRIVILEGES. Shares of Voyageur Fund may be exchanged for shares of
the same class of other funds advised by VFM ("Voyageur Complex Funds"). These
exchange privileges are further explained in Appendix D hereto under the heading
"Exchange Privilege."
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares dividends from net investment income on each day it is
open for business and pays such distributions monthly. Net realized long-term
capital gains, if any, are declared and distributed by each Fund annually.
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
All Great Hall Fund shares are the same class and freely transferable. Each
share has equal dividend rights and is entitled to one vote at all shareholder
meetings. Voyageur Fund will offer Class A, Class B and Class C shares. Each
class of shares of Voyageur Fund represents an interest in the same portfolio of
investments of Voyageur 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 the Fund's shares has exclusive voting rights with respect to
provisions of Fund's Rule 12b-1 plan which pertain to that particular class or
when a class vote is required by the 1940 Act.
Voyageur Fund has applied 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 substantially similar to those of the classes
of Voyageur Fund. Voyageur Fund expects to receive the requested ruling.
PRINCIPAL RISK FACTORS
DIFFERENCES IN INVESTMENT RISKS
As discussed below, there are certain differences in the investment risks
associated with investments in Voyageur Fund and Great Hall Fund that should be
considered carefully by Great Hall Fund shareholders.
HIGHER PROPORTION OF TOTAL ASSETS IN LOWER QUALITY MUNICIPAL OBLIGATIONS. A
higher proportion of the total assets of Voyageur Fund may be subject to a
greater degree of credit risk than Great Hall Fund. Each Fund invests in medium-
and lower-grade municipal obligations. Voyageur Fund will invest at least 65% of
its total assets, in normal circumstances, in medium- and lower-grade Municipal
Obligations rated, at the time of investment, between BBB and B-(inclusive) by
S&P, Baa and B3 (inclusive) by Moody's, and BBB and B- (inclusive) by Fitch, and
Municipal Obligations determined by VFM to be of comparable quality. As a
non-fundamental policy, Great Hall Fund will not invest more than 5% of its
total assets in municipal obligations rated below Ba or BB, or more than 35% of
its total assets in municipal obligations rated below Baa or BBB, or, if
unrated, having credit characteristics that are considered by Insight, in
accordance with policies established by the Great Hall Board, to be of
comparable quality. Consequently, while Great Hall Fund can invest no more than
35% of its assets in municipal obligations rated between BBB and B-(inclusive)
by S&P, Baa and B3 (inclusive) by Moody's, and BBB and B- (inclusive) by Fitch,
Voyageur Fund may invest without limit in Municipal Obligations with such
ratings.
Investment in such lower-grade tax-exempt obligations involves special
risks as compared with investment in higher grade tax-exempt 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. 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 Voyageur 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
Voyageur 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 Voyageur Fund.
Neither Fund will may invest in lower-grade municipal securities rated, at
the time of investment, lower than B- by S&P or Fitch, or B3 by Moody's, and in
municipal securities determined by their respective advisers to be of comparable
quality. Each Fund may retain municipal securities which are downgraded after
investment. There is no minimum rating with respect to securities that are in
default or with respect to which payment of interest and/or repayment of
principal is in arrears after investment. Additional information concerning the
risks associated with investments in lower-grade municipal obligations can be
found in Appendix B to this Prospectus/Proxy Statement under "Risks and Special
Investment Considerations--Special Risk Considerations Regarding Medium- and
Lower-Grade Municipal Obligations," and in the Statement of Additional
Information.
DERIVATIVE MUNICIPAL OBLIGATIONS. Voyageur Fund may acquire Derivative
Municipal 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.
Certain of these Derivative Municipal Obligations involve special risks. The
principal and interest payments on the custodial receipts or trust certificates
underlying Derivative Municipal 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
Municipal 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 Municipal Obligations or
an index of short-term Municipal 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 Municipal Obligations or index. As a result, the market values of
inverse floating obligations will generally be more volatile than the market
values of other Municipal Obligations and investments in these types of
obligations will increase the volatility of the net asset value of shares of
Voyageur Fund. Great Hall Fund may not invest in such securities.
ALTERNATIVE MINIMUM TAX. Voyageur Fund may invest without limit in
securities the interest on which is an item of tax preference for purposes of
calculation of federal or state alternative minimum tax ("AMT"). Great Hall Fund
attempts not to invest in AMT securities and may invest no more than 20% of its
net assets in such securities. See "Distribution to Shareholders and Taxes
- --Taxes-- Federal Income Taxation" in Appendix D hereto.
CONCENTRATION. 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
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 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 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. A discussion of
these segments of the municipal bond market is set forth in the Statement of
Additional Information 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. Great Hall 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. Great Hall 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 hereto under "Investment Objectives and
Policies of Voyageur Fund--Miscellaneous Investment Practices."
SHARED INVESTMENT RISKS
Because the investment objectives, policies and restrictions of Great Hall
Fund and Voyageur Fund are similar (see "Information About Great Hall 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 in securities providing the same investment return as the
securities redeemed. The yields on Municipal 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 Municipal Obligations will tend to fall as
interest rates rise and will tend to increase as interest rates decrease. In
addition, Municipal Obligations of longer maturity produce higher current yields
than Municipal 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 Municipal Obligations generally produce a higher
yield than higher-rated Municipal Obligations due to the perception of a greater
degree of risk as to the payment of principal and interest. Certain Municipal
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 the
Fund during a time of declining interest rates, the Fund might not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
MEDIUM- AND LOWER-GRADE MUNICIPAL OBLIGATIONS. Municipal Obligations which
are in the medium- and lower-grade categories generally offer a higher current
yield than is offered by higher-grade Municipal Obligations but they also
generally involve greater price volatility and greater credit and market risk.
Debt securities rated BB or below by S&P or Fitch and B or below by Moody's are
commonly referred to as "junk bonds."
The value of each of the Fund's portfolio securities can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed-income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities generally can be expected to decline. However, the
secondary market prices of medium- and lower-grade Municipal Obligations are
less sensitive to changes in interest rates and are more sensitive to adverse
economic changes or individual issuer developments than are the secondary market
prices of higher-grade debt securities. Such events also could lead to a higher
incidence of defaults by issuers of medium- and lower-grade Municipal
Obligations as compared with historical default rates. In addition, changes in
interest rates and periods of economic uncertainty can be expected to result in
increased volatility in the market price of the Municipal Obligation in the
Fund's portfolio and thus in the net asset value of the Fund. Also, adverse
publicity and investor perceptions, whether or not based on rational analysis,
may affect the value and liquidity of medium- and lower-grade Municipal
Obligations. The secondary market value of Municipal Obligations structured as
zero coupon securities and payment-in-kind securities may be more volatile in
response to changes in interest rates than debt securities which pay interest
periodically in cash. Investment in such securities also involves certain tax
considerations. For additional information on the risks of investing in medium-
and lower-grade Municipal Obligations, see "Risks and Special Investment
Considerations--Special Risk Considerations Regarding Medium- and Lower-Grade
Municipal Obligations"in Appendix B hereto.
NON-DIVERSIFIED STATUS. As non-diversified funds, each Fund is able to
invest, subject to certain federal tax requirements, a relatively higher
percentage (compared to "diversified" mutual funds) 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 Great Hall Fund). Each of these transactions involves certain
risks as set forth in the accompanying Voyageur Fund prospectus under
"Investment Objectives and Policies --Miscellaneous Investment Practices" and in
the Great Hall Fund prospectus incorporated herein by reference under
"Investment Techniques and Risk Factors."
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
Great Hall Fund and Voyageur Fund are both non-diversified, open-end funds
with investment objectives which are substantially the same.
* The investment objective of Great Hall Fund is to maximize current
income exempt from federal income tax through investments primarily in
medium- and lower-grade municipal obligations.
* The investment objective of Voyageur Fund is to seek a high level of
current income exempt from federal income taxes through investment in
a portfolio of medium- and lower-grade Municipal Obligations.
INVESTMENT POLICIES
The investment policies and restrictions of Great Hall Fund and Voyageur
Fund are similar but not identical, as discussed in further detail below.
GENERAL. In normal market conditions, each Fund generally invests its
assets in municipal securities issued by or on behalf of a state or territory or
its agencies, instrumentalities, municipalities and political subdivisions. Each
Fund will attempt to invest 100% (and as a matter of fundamental policy during
normal circumstances at least 80%) of the value of net assets in securities the
interest on which is exempt from regular federal tax. Great Hall Fund as a
matter of fundamental policy during normal circumstances also attempts to invest
no more than 20% of the value of its net assets in securities the interest on
which is an item of tax preference for purposes of the federal alternative
minimum tax ("AMT"). Voyageur Fund may invest without limit in securities that
generate interest that is an item of tax preference for purposes of the AMT.
SECURITIES RATINGS. Each Fund invests in medium- and lower-grade Municipal
Obligations. Great Hall Fund invests in medium-grade Municipal Obligations rated
A or Baa, MIG-2 or Prime-2 by Moody's, or A or BBB, SP-2 or A-2 by S&P, or, if
unrated, are considered by the Fund's adviser to be of comparable quality.
Lower-grade Municipal Obligations in which Great Hall Fund may invest include
those rated Ba or B, MIG-3 or Prime-3 by Moody's, or BB or B, SP-3 or A-3 by
S&P, or, if unrated, considered by Insight, in accordance with policies
established by the Board of Directors of Great Hall, to be of comparable
quality.
In normal circumstances, Voyageur Fund will invest at least 65% of its
total assets in medium- and lower-grade Municipal Obligations rated, at the time
of investment, between BBB and B- (inclusive) by S&P, Baa and B3 (inclusive) by
Moody's, and BBB and B- (inclusive) by Fitch, and Municipal Obligations
determined by VFM to be of comparable quality. Great Hall Fund invests in
Municipal Obligations with ratings below Ba or BB only when Insight believes the
rating does not accurately reflect the actual quality of the issuer's credit. As
a non-fundamental policy, Great Hall Fund will not invest more than 5% of its
total assets in Municipal Obligations rated below Ba or BB, or more than 35% of
its total assets in Municipal Obligations rated below Baa or BBB, or, if
unrated, having credit characteristics that are considered by Insight, in
accordance with policies established by the Great Hall Board, to be of
comparable quality. Consequently, while Great Hall Fund can invest no more than
35% of its assets in Municipal Obligations rated between BBB and B- (inclusive)
by S&P, Baa and B3 (inclusive) by Moody's, and BBB and B- (inclusive) by Fitch,
Voyageur Fund may invest without limit in Municipal Obligations with such
ratings.
Neither Fund may invest in lower-grade Municipal Obligations rated, at the
time of investment, lower than B- by S&P or Fitch, or B3 by Moody's, and in
Municipal Obligaitons determined by their respective advisers to be of
comparable quality.
Each Fund may retain Municipal Obligations which are downgraded after
investment. There is no minimum rating with respect to securities that are in
default or with respect to which payment of interest and/or repayment of
principal is in arrears after investment.
AVERAGE PORTFOLIO MATURITY. In normal market circumstances, Great Hall Fund
anticipates that longer-term maturities will provide the highest current income
and, accordingly, expects that 80% or more of the assets of Great Hall Fund will
be invested in long-term Municipal Obligations. Under normal market conditions,
it is anticipated that the average weighted maturity of Great Hall Fund's
portfolio will be in the range of 17 to 22 years, and possibly in excess of 22
years. The weighted average maturity of the investment portfolio of Voyageur
Fund is expected to be approximately 15 to 25 years.
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.
DERIVATIVE MUNICIPAL OBLIGATIONS. Voyageur Fund may also acquire Derivative
Municipal 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 Municipal Obligations.
Great Hall Fund may not purchase such obligations. Certain Derivative Municipal
Obligations involve special risks. See "Principal Risk Factors--Derivative
Municipal Obligations."
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. Great Hall 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 place. For a further
discussion of reverse repurchase agreements, including the risks thereof, see
Appendix B hereto 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 hereto.
TAXABLE INVESTMENTS. Although Great Hall Fund will attempt to invest 100%
of its net assets in tax-exempt obligations and Voyageur Fund anticipates that,
in normal market conditions, it will invest substantially all of its assets in
tax-exempt obligations, each Fund may invest without limit in taxable
obligations for temporary defensive purposes. The taxable obligations in which
Voyageur Fund may invest are described in Appendix B to the Prospectus/Proxy
Statement under "Investment Objectives and Policies of Voyageur Fund." To the
extent the Funds invest in taxable investments, the Funds may not at such times
be in a position to achieve the investment objective of current income exempt
from federal income tax. Great Hall Fund may invest up to 20% of its assets and
Voyageur Fund may invest without limit in securities the interest on which is an
item of tax preference for purposes of the federal alternative minimum tax.
BORROWING. As a fundamental policy, Great Hall Fund may borrow from banks
up to a limit of 5% of its total assets, but only for temporary or emergency
non-investment purposes. 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.
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. Great Hall 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 hereto.
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"). Great Hall 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 hereto.
The foregoing comparison does not purport to be a complete summary of the
investment policies, restrictions and risk factors of Great Hall Fund or
Voyageur Fund. For complete discussions of the investment policies, restrictions
and risk factors of the respective Funds, see Appendix B hereto; the Statement
of Additional Information; and Great Hall Fund's Prospectus and Statement of
Additional Information referred to under "Incorporation by Reference." The
Annual Report of Great Hall Fund for the fiscal year ended July 31, 1995 and
unaudited semi-annual report for the six-month period ended January 31, 1996
referred to on the cover page hereof under "Incorporation by Reference," provide
information concerning the composition of the Fund's assets at the applicable
date.
CAPITALIZATION
The following table shows the capitalization of Great Hall Fund with
respect to its Class A shares as of June 30, 1996 and on a pro forma basis as of
that date, giving effect to the proposed acquisition of the assets of Great Hall
Fund at the net asset value in the Reorganization. Voyageur Fund will not have
commenced operations prior to the Reorganization.
(In thousands, except per share values)
<TABLE>
<CAPTION>
GREAT HALL VOYAGEUR FUND
FUND PRO FORMA
---- ---------
CLASS A SHARES*
<S> <C> <C>
Net assets................................................ $63,403 $63,403
Net asset value per share................................. $10.14 $10.14
Shares outstanding........................................ 6,250 6,250
</TABLE>
* Great Hall Fund offers only one class of shares without designation.
Voyageur Fund offers Class A, Class B and Class C shares. In the
Reorganization, Great Hall Fund shareholders will receive Voyageur Fund
Class A shares.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
Great Hall Fund was organized and commenced operations in June 1992 by
acquiring all of the assets and liabilities of Carnegie Tax-Exempt Fund
("Carnegie Fund"), a mutual fund managed by Carnegie Capital Management
Corporation ("Carnegie"). Prior to such acquisition, 48% of Carnegie's stock was
owned by Insight's affiliates, Dain Bosworth Incorporated ("Dain") and Rauscher
Pierce Refsnes, Inc. ("Rauscher"), and Insight served as the sub-adviser and
portfolio manager of Carnegie Fund. Since the acquisition, Insight has served as
Great Hall Fund's sole investment adviser, and Dain and Rauscher have served as
the Fund's Co-Distributors. Each of Insight, Dain and Rauscher is a wholly owned
subsidiary of Inter-Regional Financial Group, Inc. ("IFG").
Since the Carnegie acquisition, IFG's strategy concerning retail mutual
funds (like that of many similar financial services firms) has evolved in the
direction of promoting predominantly retail funds that are managed by firms not
affiliated with IFG (exclusive of Great Hall money market funds). IFG and the
Board of Directors of Great Hall Investment Funds have recognized that IFG's
strategy could in the long term result in a decreasing asset base for the Great
Hall Funds and a corresponding difficulty in controlling fund expenses and in
providing competitive returns. For this reason, IFG and Great Hall Investment
Funds have explored and evaluated the relative merits of various options,
including the possible transfer of Great Hall Fund to a firm with a strategy
more congruent with the Fund's long-term best interests -- a firm that could,
among other factors, more actively promote and market the Fund. It was
ultimately decided by IFG and Great Hall Investment Funds' Board of Directors
that such a transfer would indeed be in the best interests of Great Hall Fund
and its shareholders.
IFG thereupon engaged an investment banker to assist in identifying and
screening potential acquiring firms. The banker identified a number of
potentially suitable candidates, and through the process of preliminary
negotiations and due diligence, the Voyageur organization emerged as the
apparent most suitable candidate.
The Board of Directors of Great Hall Investment Funds appointed a committee
of independent directors (the "Committee") to review and evaluate IFG's
recommendation of the proposed Voyageur transaction. Based on its review of the
Voyageur organization and the proposed transactions, the Committee recommended
and the Board of Directors of Great Hall Investment Funds agreed, that the
Reorganization would be in the best interest of Great Hall Fund and its
shareholders. In evaluating the Voyageur organization, the Committee or Insight
(among other matters): interviewed principal Voyageur executive, investment,
marketing, legal, compliance, administrative and accounting personnel and the
Voyageur Fund's independent auditors; reviewed, inspected and analyzed
applicable legal documents, compliance, accounting and administrative procedures
and systems, financial information and other relevant documents and files;
analyzed comparative fund performance and expenses; and conducted various
on-site visits and inspections. Based thereon, the Committee recommended that
the Board of Directors of Great Hall Investment Funds approve the Reorganization
and recommend the Reorganization for shareholder approval.
The Board of Directors believes that the Reorganization will be in the best
interests of Great Hall Fund and its shareholders for the following reasons (in
addition to the aforementioned reasons):
EXPERIENCE OF THE VOYAGEUR ORGANIZATION. VFM currently serves as the
investment adviser of 6 closed-end investment companies, 10 open-end investment
companies consisting of 33 separate portfolios and, together with its
affiliates, numerous privately-managed accounts with combined assets as of July
31, 1996 of approximately $11.5 billion (which includes over $2 billion of
municipal bonds). Therefore, the Reorganization appears consistent with VFM's
current areas of expertise as well as its business plans and strategies.
Additionally, VFM's portfolio managers appear to be well-experienced and to have
commendable track records managing portfolios similar to Great Hall Fund.
EXPENSES IN CONNECTION WITH THE REORGANIZATION. NO EXPENSES DIRECTLY
INCURRED IN CONNECTION WITH THE REORGANIZATION WILL BE BORNE BY GREAT HALL FUND,
VOYAGEUR FUND OR THEIR RESPECTIVE SHAREHOLDERS. The Class A Voyageur Fund shares
to be received by Great Hall Fund shareholders will not be subject to any
front-end sales charges. In addition, the Reorganization will be tax-free to
each Fund and its shareholders and will not result in any economic dilution to
either Fund or its shareholders.
ASSET LEVELS; MARKETING ABILITIES OF VOYAGEUR ORGANIZATION. Great Hall Fund
has a relatively small asset base, which in the long term could limit the Fund's
ability to control costs and to generate competitive returns (in the absence of
voluntary fee and expense waivers and reimbursements). The Voyageur organization
has a much more extensive and developed network of independent brokers and
dealers through whom the Voyageur Fund is distributed (with currently over 600
authorized dealers of Voyageur Fund shares). The greater marketing abilities and
coverage of the Voyageur organization may optimize the opportunities for growth
and the attendant opportunities for increased portfolio management flexibility
and investment returns and for control over Fund expense levels.
FEE AND EXPENSE LEVELS. VFM has agreed to voluntarily limit Voyageur Fund's
Class A expense levels to not more than Great Hall Fund's current fee and
expense level for the period through December 31, 1998.
EXCHANGE PRIVILEGES; SHAREHOLDER SERVICES. The Voyageur organization offers
a comprehensive and competitive range of services to Fund shareholders,
including among others the ability to exchange Voyageur Fund shares for shares
of most other mutual funds for which VFM serves as investment adviser at net
asset value without the payment of a sales charge. In addition, most mutual
funds managed by VFM offer additional purchase options to prospective
shareholders through the availability of multiple classes of shares.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF GREAT HALL INVESTMENT
FUNDS BELIEVES THAT THE REORGANIZATION WILL BE IN THE BEST INTERESTS OF THE
GREAT HALL FUND AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THE APPROVAL OF
THE REORGANIZATION BY SUCH SHAREHOLDERS. 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 all identified and stated liabilities of Great Hall 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 Great
Hall Fund. The value of Great Hall 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 Great Hall Fund, whether absolute or
contingent, other than those identified and stated in an unaudited statement of
assets and liabilities of Great Hall Fund as of the Effective Time. Because
Great Hall Fund is a separate series of Great Hall Investment Funds, for
corporate law purposes the transaction is structured as a sale of the assets and
assumption of the liabilities allocated to Great Hall Fund in exchange for the
issuance of Voyageur Fund shares to Great Hall Fund, followed immediately by the
distribution of such Voyageur Fund shares to Great Hall Fund shareholders and
the cancellation and retirement of outstanding Great Hall Fund shares.
Pursuant to the Plan, each holder of Great Hall Fund will receive, at the
Effective Time, Class A shares of Voyageur Fund with an aggregate net asset
value equal to the aggregate net asset value of Great Hall Fund shares owned by
such shareholder immediately prior to the Effective Time. Under the Plan, the
net asset value per share of Great Hall Fund's shares will be computed as of the
Effective Time using the valuation procedures set forth in the Fund's articles
of incorporation and bylaws and then-current prospectus and statement of
additional information and as may be required by the 1940 Act. At the Effective
Time, Voyageur Fund will issue to Great Hall Fund, and Great Hall Fund will
distribute to Great Hall Fund's shareholders of record, determined as of the
Effective Time, Voyageur Fund Class A shares issued in exchange for Great Hall
Fund assets as described above. All outstanding shares of Great Hall Fund
thereupon will be canceled and retired and no additional shares representing
interests in Great Hall Fund will be issued thereafter, and Great Hall Fund will
be deemed to be liquidated. The distribution of Voyageur Fund shares to former
Great Hall Fund shareholders will be accomplished by the establishment of
accounts on the share records of Voyageur Fund in the names of Great Hall Fund
shareholders, each representing the numbers of full and fractional Voyageur Fund
Class A shares due such shareholders.
The Plan provides that no sales charges will be incurred by Great Hall Fund
shareholders in connection with the acquisition by them of Voyageur Fund shares
pursuant thereto. However, if Great Hall Fund shares were initially acquired
without a front-end sales charge in connection with a purchase of $1,000,000 or
more, Voyageur Fund Class A shares acquired in the Reorganization may continue
to be subject to a contingent deferred sales charge. The Plan provides that in
determining whether to apply the two-year 1.0% contingent deferred sales charge
to Voyageur Fund Class A shares acquired in the Reorganization, credit will be
given for the period a former Great Hall Fund shareholder who is subject to such
a contingent deferred sales charge held his or her shares.
Great Hall Fund contemplates that it will make a distribution immediately
prior to the Effective Time of all of its current year net tax-exempt income,
ordinary taxable income and net realized capital gains, if any, not previously
distributed. Any portion of this distribution which does not constitute an
exempt-interest dividend will be taxable to Great Hall Fund shareholders subject
to taxation.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others: (i) approval of the Plan by the
shareholders of Great Hall 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 Great Hall
Fund and Voyageur Fund in the Plan; and (iv) the delivery of customary closing
certificates. See the Plan attached hereto as Exhibit 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 Great Hall Fund, by resolution
of the Board of Directors of either Great Hall Investment Funds 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
Great Hall 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 Great Hall Fund shareholder meeting required to
approve the Reorganization. The Plan also provides that at or prior to the
Effective Time, expenses incurred by Great Hall Fund shall have been maintained
by Insight or otherwise so as not to exceed any applicable state-imposed expense
limitations. In addition, the Plan provides that at or prior to the Effective
Time, appropriate action shall have been taken by Insight or otherwise such that
there are no unamortized organizational expenses on the books of Great Hall
Fund.
Under the Plan, Great Hall Fund has agreed not to acquire any securities
which are not permissible investments for Voyageur Fund prior to the Effective
Time, and it is a condition to closing that Great Hall Fund not hold any such
securities immediately prior to the Effective Time. See "Summary--Investment
Objectives, Policies and Restrictions" and "Information about Great Hall Fund
and Voyageur Fund--Comparison of Investment Objectives, Policies and
Restrictions." Great Hall Fund does not hold any such securities at the date of
this Prospectus/Proxy Statement.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of Great Hall Fund. If the Plan is not approved, the Board of
Directors of Great Hall Fund will consider other possible courses of action.
DESCRIPTION OF VOYAGEUR FUND SHARES
For information concerning the shares of Voyageur Fund, including voting
rights, see "Summary--Capital Shares; Shareholder Voting Rights" above. 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 Great Hall
Fund's net assets and the distribution of such shares to Great Hall Fund's
shareholders upon liquidation of Great Hall 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 Great Hall Fund's shareholders (except that Great Hall 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 represent
tax-exempt income or otherwise qualify as an exempt-interest dividend will be
taxable to Great Hall Fund shareholders subject to taxation). Great Hall 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, based in
part on certain representations to be furnished by each Fund and by VFM,
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 Great Hall
Fund each will qualify as a party to the Reorganization under Section
368(b) of the Code;
(ii) Great Hall Fund shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of Voyageur Fund shares.
Great Hall Fund shareholders subject to taxation will recognize income
upon receipt of any ordinary taxable income or net capital gains of
Great Hall Fund which are distributed by Great Hall Fund prior to the
Effective Time;
(iii)the tax basis of Voyageur Fund shares received by each Great Hall
Fund shareholder pursuant to the Reorganization will be equal to the
tax basis of Great Hall Fund shares exchanged therefor;
(iv) the holding period of Voyageur Fund shares received by each Great Hall
Fund shareholder pursuant to the Reorganization will include the
period during which the Great Hall Fund shareholder held Great Hall
Fund shares exchanged therefor, provided that the Great Hall Fund
shares were held as a capital asset at the Effective Time;
(v) Great Hall 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 Great Hall 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 Great Hall Fund; and
(ix) Voyageur Fund will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of Great Hall Fund as of
the Effective Time.
Shareholders of Great Hall 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 Great Hall Fund should
consult their tax advisors as to state and local tax consequences, if any, of
the Reorganization.
INTERESTS OF INSIGHT, VFM AND AFFILIATES IN REORGANIZATION
In a similar transaction to the Reorganization, Voyageur Minnesota Insured
Fund ("Voyageur Minnesota Fund"), a series of Voyageur Insured Funds, Inc., also
has agreed to purchase all or substantially all of the assets and to assume
certain stated and identified liabilities of Great Hall Minnesota Insured
Tax-Exempt Fund, a series of Great Hall Investment Funds, by and in exchange for
Class A common shares of equal value of Voyageur Minnesota Fund in a tax-free
reorganization. In connection with and following the Reorganization and this
additional reorganization (together, the "Reorganizations"), Insight and the
Co-Distributors have agreed to provide various consulting and shareholder
services and have agreed for a period of three years following the closing of
the Reorganizations not to sponsor or acquire a mutual fund that is similar to
either of the Great Hall funds being acquired in the Reorganizations. In return,
VFM has agreed to pay Insight and the Co-Distributors $1,100,000 at the closing
of the transactions plus an amount at the first anniversary of the closing equal
to approximately 2% of the value of the shareholder accounts being transferred
to the acquiring Voyageur funds (less the $1,100,000 paid at closing), adjusted
generally for fluctuations in market prices between the closing and the first
anniversary. In reviewing the aforementioned payments, the Board of Directors of
Great Hall Investment Funds was aware that Insight and its affiliates incurred
costs in organizing and maintaining the Funds (including costs associated with
acquiring the assets of the Great Hall Fund from the Carnegie organization), as
well as the nature of the other services and consideration to be performed by
Insight and the Co-Distributors.
Each acquiring Voyageur Fund and VFM have agreed to comply in all material
respects with all applicable provisions of Section 15(f) of the 1940 Act
following the Reorganizations. Section 15(f) requires that (i) for a period of
three years following the closing date, at least 75% of each acquiring Voyageur
fund's Board of Directors be comprised of persons who are not "interested
persons" (as defined in the 1940 Act) of either VFM or Insight, and (ii) no
"unfair burden" be imposed on the Great Hall funds being acquired or on the
acquiring Voyageur funds as a result of the transaction.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of Great Hall Investment Funds, including the
"non-interested" directors who are not interested persons of Great Hall
Investment Funds, unanimously recommends that shareholders of Great Hall Fund
approve the Plan. Approval of the Plan will require the affirmative vote of a
majority of the outstanding shares of Great Hall Fund.
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of Great Hall Investment Funds
to be used at the Special Meeting of Great Hall Fund shareholders to be held at
_______, Central time, on ______, 1996, at the offices of Great Hall Investment
Funds 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 Great Hall Fund on or about September __, 1996. Only
shareholders of record as of the close of business on _______, 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 Great Hall Fund at its principal
executive offices, 60 South Sixth Street, Minneapolis, Minnesota 55402, 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 Great Hall 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 _________, 1996 (a) Great Hall Fund had _______ shares outstanding
and entitled to vote at the Meeting; (b) Voyageur Fund had no shares
outstanding; and (C) THE DIRECTORS AND OFFICERS OF GREAT HALL FUND AS A GROUP
OWNED LESS THAN 1% OF THE OUTSTANDING SHARES OF GREAT HALL FUND. The following
table sets forth information concerning those persons known by Great Hall Fund
to own of record or beneficially more than 5% of the outstanding shares of Great
Hall Fund as of such date, including persons and entities who beneficially own
more than 25% of the Fund. Unless otherwise indicated, the persons named below
have both record and beneficial ownership:
NAME AND ADDRESS
OF RECORD HOLDER PERCENTAGE OWNERSHIP
--------------- -------------------
______________
* Record ownership only.
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of Insight and its
affiliates without cost to Great Hall 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 receive payments from
the Fund for services rendered pursuant to contractual arrangements with the
Fund: VFM receives payments from Voyageur Fund for investment advisory services
it renders pursuant to an Investment Advisory Agreement, and for dividend
disbursing, transfer agency, administrative and accounting services it renders
pursuant to an Administrative Services Agreement. VFD receives 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 statements of assets and liabilities, including the schedules
of investments in securities, of Great Hall Fund as of July 31, 1995, and the
related statements of operations for the years then ended, the statements of
changes in net assets for each of the periods indicated therein, and the
financial highlights for the periods indicated therein, as included in the
Annual Report of Great Hall Fund for the fiscal year ended July 31, 1995 have
been incorporated by reference into this Prospectus/Proxy Statement in reliance
on the reports of KPMG Peat Marwick LLP, independent auditors for Great Hall
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.
OTHER INFORMATION ABOUT GREAT HALL FUND AND VOYAGEUR FUND
Great Hall Investment Funds is a Minnesota corporation organized in 1991
and is registered with the Securities and Exchange Commission under the 1940 Act
as an "open-end management investment company." Great Hall Investment Funds
currently offers its shares in _____ series. Information concerning the
management of Great Hall Investment Funds and shares of Great Hall Fund is
incorporated herein by reference from Great Hall Fund's current Prospectus dated
December 1, 1995. The Prospectus of Great Hall Fund may be obtained in the
manner described under "Incorporation by Reference" and forms part of the
Registration Statement of Great Hall 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." As of July 31, 1996, Voyageur Mutual
Funds offered its shares in eight series. Additional information regarding the
management of Voyageur Mutual Funds and shares of Voyageur Fund is provided in
Appendix C to this Prospectus/Proxy Statement.
Voyageur Fund and Great Hall Fund 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 Fund and Great Hall
Fund 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
PROPOSED ACQUISITION OF ASSETS OF
GREAT HALL NATIONAL
TAX-EXEMPT FUND
A SEPARATELY MANAGED SERIES OF
GREAT HALL INVESTMENT FUNDS, INC.
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR NATIONAL HIGH YIELD
MUNICIPAL BOND FUND
A SEPARATELY MANAGED SERIES OF
VOYAGEUR MUTUAL FUNDS, INC.
=================
TABLE OF CONTENTS
=================
PAGE
----
INCORPORATION BY REFERENCE............................ 2
SUMMARY............................................... 4
PRINCIPAL RISK FACTORS................................ 11
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS........................ 15
CAPITALIZATION........................................ 18
INFORMATION ABOUT THE REORGANIZATION.................. 19
VOTING INFORMATION.................................... 25
FINANCIAL STATEMENTS AND EXPERTS...................... 27
LEGAL MATTERS......................................... 27
OTHER INFORMATION ABOUT GREAT HALL
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 September, 1996, by and between Voyageur Mutual Funds, Inc.
("VOYAGEUR), a Minnesota corporation, on behalf of its National High Yield
Municipal Bond Fund (the "ACQUIRING FUND"), a newly formed series of Voyageur,
and Great Hall Investment Funds, Inc. ("GREAT HALL"), a Minnesota corporation,
on behalf of its National Tax-Exempt Fund (the "ACQUIRED FUND"), a series of
Great Hall.
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 Class A common shares, 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. The distribution of Acquiring Fund shares to Acquired
Fund shareholders and the redemption, retirement and cancellation of the
Acquired Fund's shares will be effected pursuant to an amendment to the articles
of incorporation of Great Hall in the form attached hereto as Exhibit 1 (the
"AMENDMENT") to be adopted by Great Hall in accordance with the Minnesota
Business Corporation Act.
WITNESSETH:
WHEREAS, each of Voyageur and Great Hall is a registered, open-end
management investment company, with each of Voyageur and Great Hall offering its
shares in multiple series (each of which series represents a separate and
distinct portfolio of assets and liabilities);
WHEREAS, Great Hall offers shares of the Acquired Fund in a single class
and Voyageur offers shares of the Acquiring Fund in multiple classes which will,
at the time the transactions contemplated hereby are consummated, be Class A,
Class B and Class C shares;
WHEREAS, the Acquired Fund owns securities which generally are assets of
the character in which the Acquiring Fund is permitted to invest; and
WHEREAS, the Board of Directors of each of Great Hall on behalf of the
Acquired Fund and Voyageur on behalf of the Acquiring Fund 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 certain stated and identified
liabilities of the Acquired Fund by the Acquiring Fund is in the best interests
of the shareholders of the Acquired Fund and the Acquiring Fund, respectively.
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 ACQUIRED FUND IDENTIFIED AND STATED LIABILITIES AND THE
LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval by Acquired Fund shareholders and to
the other terms and conditions set forth herein 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 (a) to deliver to the Acquired Fund that number of full and fractional
Acquiring Fund Shares determined in accordance with Article 2, and (b) 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 the Acquired Fund's property,
including, but not limited to, all cash, securities, commodities, futures, and
interest and dividends 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 in the ordinary
course of its business and, subject to Section 5.1, 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 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 numbers of Acquiring Fund Shares due each
such shareholder. All issued and outstanding shares of the Acquired Fund will
simultaneously be canceled on the books of the Acquired Fund, although share
certificates representing interests in the Acquired Fund will represent those
numbers 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 issued in connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Acquiring Fund Shares will be issued in the manner described in
the Acquiring Fund's Prospectus and Statement of Additional Information as in
effect as of the Effective Time, except that no front-end sales charges will be
incurred by Acquired Fund Shareholders in connection with their acquisition of
Acquiring Fund Shares pursuant to this Agreement.
1.6 In the event Class A Acquired Fund shares are distributed by the
Acquiring Fund in the Reorganization to former holders of 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 shares shall be
computed as of the Effective Time and after the declaration of any dividends or
distributions on that date using the valuation procedures set forth in the
Acquired Fund's 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 (the "1940 ACT").
2.2 The total number of 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 the Acquired Fund's shares shall have an
aggregate net asset value equal to the aggregate net asset value of the Acquired
Fund's 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 in liquidation of the Acquired Fund
pro rata (based upon the ratio that the number of Acquired Fund shares owned by
each Acquired Fund Shareholder immediately prior to the Effective Time bears to
the total number of issued and outstanding Acquired Fund shares immediately
prior to the Effective Time) the full and fractional Acquiring Fund Shares
received by the Acquired Fund pursuant to Section 2.2. Accordingly, each
Acquired Fund Shareholder shall receive, immediately after the Effective Time,
Acquiring Fund Shares with an aggregate net asset value equal to the aggregate
net asset value of the Acquired Fund shares owned by such Acquired Fund
Shareholder immediately prior to the Effective Time.
3. EFFECTIVE TIME; CLOSING
3.1 The closing of the transactions contemplated by 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), and after the
declaration of any dividends or distributions on such date, five business days
after this Agreement and the transactions contemplated herein have been approved
by the requisite vote of the holders of the outstanding shares of the Acquired
Fund, 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 Acquired Fund shall deliver at the Closing its written instructions
to the custodian for the Acquired Fund, acknowledged and agreed to in writing by
such custodian, irrevocably instructing such custodian to transfer to the
Acquiring Fund all of the Acquired Fund's portfolio securities, cash, and any
other assets to be acquired by the Acquiring Fund pursuant to this Agreement.
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 the records maintained by the transfer agent (which
shall be made available to the Acquiring Fund) 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 certify at the Closing that the Acquiring Fund Shares required to be
issued by it pursuant to this Agreement have been issued and delivered as
required herein.
3.5 At the Closing, each party to this Agreement shall deliver to the other
such bills of sale, liability assumption agreements, checks, assignments, share
certificates, if any, receipts or other similar documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents, warrants and covenants to the Acquiring
Fund as follows:
(a) Great Hall 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) Great Hall 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 Great Hall (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 state securities laws and
any other applicable laws; said registrations, including any periodic
reports or supplemental filings, are complete and current in all material
respects; all fees required to be paid in connection with such
registrations have been paid; and the Acquired Fund 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 Prospectus and Statement of Additional Information of the Acquired
Fund, as of the date hereof and up to and including the Effective Time,
conform and 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 do not and will not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(e) The Acquired Fund is not in violation, and the execution, delivery and
performance of this Agreement will not result in a violation, of Great
Hall's articles of incorporation or bylaws 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;
(f) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the
best of 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;
(g) The Statement of Assets and Liabilities of the Acquired Fund as of the
end of its fiscal year ended July 31, 1995, audited by KPMG Peat Marwick
LLP, independent accountants, and the unaudited Statement of Assets and
Liabilities of the Acquired Fund as of January 31, 1996, are each in
accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) present fairly, in all material respects, the financial
position of the Acquired Fund as of such dates, and there are no known
material contingent liabilities of the Acquired Fund as of such dates not
disclosed therein;
(h) Since January 31, 1996, 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 (h), 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;
(i) The Statement of Assets and Liabilities of the Acquired Fund as of the
end of its most recently concluded fiscal year, will, as of the Effective
Time have been audited by KPMG Peat marwick LLP, independent accountants,
and will be in accordance with generally accepted accounting principles
consistently applied, and such statement (a copy of which has been
furnished to the Acquiring Fund) will present fairly, in all material
respects, the financial position of the Acquired Fund as of such date, and
there wil be no known material contingent liabilities of the Acquired Fund
as of such date not disclosed therein;
(j) 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;
(k) 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 current taxable year;
(l) 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 Acquired Fund
shares, and there is not outstanding any security convertible into any
Acquired Fund shares;
(m) 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 of
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;
(n) 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 Acquired Fund's 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, 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;
(o) The information to be furnished by and on behalf of 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;
(p) All information pertaining to the Acquired Fund, Great Hall, and their
agents and affiliates and included in the Registration Statement referred
to in Section 5.5 (or supplied by the Acquired Fund, Great Hall or their
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 (other than as may timely be
remedied by further appropriate disclosure);
(q) Since the end of the Acquired Fund's 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
(r) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for the omission of any
footnotes that would be required thereby) consistently applied and will
present accurately in all material respects 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 the Acquired Fund's articles of incorporation and
bylaws, its then-current Prospectus and Statement of Additional
Information, and as may be required by the 1940 Act. At the Effective Time,
the Acquired Fund will have no liabilities, whether absolute or contingent,
accrued or unaccrued, which are not reflected in the Effective Time
Statement.
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 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 are required to be registered
under state securities laws (including, but not limited to, all
jurisdictions necessary to effect the Reorganization) and any other
applicable laws; said registrations, including any periodic reports or
supplemental filings, will be complete and current; all fees required to be
paid in connection with such registrations will have been paid; and the
Acquiring Fund will be in good standing, 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 date 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 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) Voyageur 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
Voyageur 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
best of Voyageur's knowledge, threatened against Voyageur or the Acquiring
Fund or any of its properties or assets. Neither Voyageur nor the Acquiring
Fund is 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 the Effective Time will be, duly and validly issued and outstanding,
fully paid and non-assessable. 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 and outstanding, fully paid and non-assessable.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund shares, and there is
not outstanding any security convertible into any Acquiring Fund shares;
(i) At the Effective Time, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets;
(j) 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 Voyageur's Board of Directors, and at the Effective Time this
Agreement will constitute a valid and binding obligation of Voyageur and
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
by this Agreement does not require the approval of the Acquiring Fund's
shareholders;
(k) The information to be furnished by and on behalf of 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;
(l) Following the Reorganization, the Acquiring Fund shall determine the
net asset value per share in accordance with the valuation procedures set
forth in Voyageur's articles of incorporation and bylaws, and the Acquiring
Fund's 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
(m) 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 (other than as may timely
be remedied by further appropriate disclosure); 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, Great Hall, their agents and affiliates, and
Insight (or supplied by the Acquired Fund, Great Hall, or their agents or
affiliates for inclusion in said Registration Statement).
5. 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). Between
the date hereof and the Effective Time, the Acquired Fund will not acquire any
securities which are not permissible investments for the Acquiring Fund.
5.2 Great Hall will call a meeting of the Acquired Fund's shareholders to
consider and act upon this Agreement and to take all other action reasonably
necessary to obtain approval of the transactions contemplated herein.
5.3 Great Hall will assist Voyageur 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, Voyageur and Great Hall
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 Great Hall will provide Voyageur with information reasonably necessary
with respect to Great Hall and the Acquired Fund and its agents and affiliates
in connection with Voyageur's preparation of the Registration Statement on Form
N-14 of Voyageur (the "REGISTRATION STATEMENT"), in compliance with the 1933
Act, the 1934 Act and the 1940 Act.
5.6 Voyageur agrees to use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act, the 1940 Act and such state blue
sky or securities laws as may be necessary in order to conduct its operations
after the Effective Time.
5.7 Following the reorganization, Voyageur shall comply in all material
respects with all applicable provisions of Section 15(f) of the 1940 Act.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of Great Hall to consummate the transactions provided for
herein shall be subject, at its election, to the performance by Voyageur 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 Great Hall, in its sole and absolute discretion):
6.1 All representations and warranties of Voyageur and 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;
6.2 Voyageur and the Acquiring Fund shall have delivered to the Acquired
Fund a certificate executed in its name by its President or a Vice President, in
a form reasonably satisfactory to Great Hall and dated as of the date of the
Closing, to the effect that the representations and warranties of Voyageur and
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 Great Hall shall reasonably request;
6.3 The Acquiring Fund shall have delivered to the Acquired Fund the
certificate as to the issuance of Acquiring Fund shares contemplated by the
second sentence of Section 3.4;
6.4 The Acquiring Fund's investment adviser shall have paid or agreed to
pay the costs incurred by Voyageur and Great Hall in connection with the
Reorganization, including the fees and expenses associated with the preparation
and filing of 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 Acquired Fund shareholder meeting required to approve
the transactions contemplated by this Agreement; and
6.5 The Acquired Fund shall have received an opinion from Dorsey & Whitney
LLP, counsel to the Acquiring Fund, dated as of the Closing Date, to the effect
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, the Acquiring Fund
is registered as an investment company under the 1940 Act and such
registration is in full force and effect; and (h) the Registration
Statement conforms in all material respects to the applicable requirements
of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations of the Commission thereunder. 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 or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except that such statement shall not apply to statements contained in, or
omissions from, the Prospectus/Proxy Statement and the Registration
Statement concerning the Acquired Fund, Great Hall, their agents and
affiliates, and Insight (or supplied by the Acquired Fund, Great Hall, or
their agents or affiliates for inclusion in said Prospectus/Proxy Statement
or Registration Statement). 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 Great
Hall on behalf of the Acquired Fund, the Acquired Fund, and Great Hall's
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
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 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 6.5, references to the Prospectus/Proxy Statement include
and relate only to the text of such Prospectus/Proxy Statement and Appendices B,
C, and D thereto and not to any other 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 consummate 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 Great Hall and 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 Great Hall and the Acquired Fund shall have delivered to the Acquiring
Fund a certificate executed in its name by its President or a Vice President, in
a form reasonably satisfactory to the Acquiring Fund and dated as of the date of
the Closing, to the effect that the representations and warranties of Great Hall
and the Acquired 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.
7.4 The Acquired Fund shall have delivered to the Acquiring Fund the
written instructions to the custodian for the Acquired Fund contemplated by
Section 3.2.
7.5 The Acquired Fund shall have delivered to the Acquiring Fund the
certificate as to its shareholder records contemplated by the first sentence of
Section 3.4.
7.6 At or prior to the Effective Time, the expenses incurred by the
Acquired Fund (or accrued up to the Effective Time) shall have been maintained
by the Acquired Fund's investment adviser or otherwise so as not to exceed any
applicable contractual or state-imposed expense limitations.
7.7 At or prior to the Effective Time, appropriate action shall have been
taken by the Acquired Fund's investment adviser or otherwise such that no
unamortized organizational expenses shall be reflected in the Effective Time
Statement.
7.8 Immediately prior to the Effective Time, the Acquired Fund shall not
hold any securities which are not permissible investments for the Acquiring
Fund.
7.9 The Acquiring Fund shall have received an opinion from Faegre & Benson
LLP, counsel to the Acquired Fund, dated as of the Closing Date, to the effect
that:
(a) Great Hall 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 Great Hall 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 Great Hall or any
material agreement (known to such counsel) to which Great Hall on behalf of
the Acquired Fund or the Acquired Fund is a party or by which Great Hall 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 Great Hall 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; and (f) to such counsel's knowledge, Great Hall is
registered as an investment company under the 1940 Act and such
registration is in full force and effect. Such counsel also shall state
that they have reviewed with certain officers of Great Hall and
representatives of Great Hall 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 Great Hall and representatives of Great Hall 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 concerning the Acquired Fund, Great Hall,
their agents and affiliates (as supplied by any such person for inclusion
to the Prospectus/Proxy Statement and the Registration Statement) or
necessary to make the statements therein concerning or supplied by any such
persons, in light of the circumstances under which they were made, not
misleading. Such opinion may state that such opinion is solely for the
benefit of Voyageur on behalf of the Acquiring Fund, the Acquired Fund and
the Acquired Fund's directors and officers on behalf of the Acquiring Fund.
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 Great Hall and the Acquired
Fund in connection with the Reorganization and all attorneys currently
employed by counsel to Great Hall who have worked on matters for Great Hall
within the past 12 months actually receive from officers of Great Hall or
authorized representatives of Great Hall or the Acquired Fund, without
independent inquiry by counsel, and (iii include other customary
qualifications and exceptions reasonably acceptable to the Acquiring Fund.
In this Section 7.9, references to the Prospectus/Proxy Statement include
and relate only to the text of such Prospectus/Proxy Statement and Appendices B,
C, and D thereto and not to any other 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 This Agreement, the Amendment and the transactions contemplated herein
and therein shall have been approved by the requisite votes of (a) the Board of
Directors of each of Voyageur and Great Hall, and (b) the holders of the
outstanding shares of the Acquired Fund in accordance with the provisions of
their respective articles of incorporation and bylaws and applicable law, and
each of Voyageur and Great Hall shall have delivered certified copies of the
resolutions evidencing such approvals to the other party. Notwithstanding
anything herein to the contrary, neither Voyageur on behalf of the Acquiring
Fund nor Great Hall on behalf of the Acquired Fund may waive the conditions set
forth in this Section 8.1.
8.2 As of the Effective Time, no action, suit or other proceeding shall be,
to the knowledge of either party to this Agreement, 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.
8.3 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 or the Acquired 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.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop order 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.
8.5 The parties shall have received the opinion of Dorsey & Whitney LLP
addressed to Great Hall and Voyageur, dated as of the date of the Closing, and
based in part on certain representations to be furnished by Great Hall on behalf
of the Acquired Fund, Voyageur on behalf of the Acquiring Fund, and VFM,
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 Acquired Fund shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of the Acquiring Fund Shares.
Acquired Fund shareholders subject to taxation will recognize income upon
receipt of any net investment income or net capital gains of the Acquired
Fund which are distributed by the Acquired Fund prior to the Effective
Time;
(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.
8.6 The Amendment shall have been filed in accordance with the applicable
provisions of Minnesota law.
9. INDEMNIFICATION
9.1 Voyageur on behalf of the Acquiring Fund agrees to indemnify and hold
harmless Great Hall and the Acquired Fund and each of Great Hall'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, Great
Hall and the Acquired Fund or any of Great Hall's 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
Voyageur or the Acquiring Fund of any of their representations, warranties,
covenants or agreements set forth in this Agreement.
9.2 Great Hall on behalf of the Acquired Fund agrees to indemnify and hold
harmless Voyageur and 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, Voyageur
and the Acquiring Fund or any of Voyageur's 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 Great
Hall or the Acquired Fund of any of its representations, warranties, covenants
or agreements set forth in this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 Voyageur on behalf of the Acquiring Fund and Great Hall on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty, covenant or agreement 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 hereby.
11. TERMINATION
This Agreement and the transactions 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 this Agreement and
such transactions 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 Great Hall
and Voyageur; provided, however, that following the meeting of the Acquired Fund
shareholders called by Great Hall pursuant to Section 5.2 of this Agreement, no
such amendment may have the effect of changing the provisions for determining
the number of Acquiring Fund Shares to be issued to 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
Voyageur at 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 Great
Hall, 60 South Sixth Street, Minneapolis, MN 55402, Attention: President (with a
copy to Faegre & Benson LLP, 220 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, Attention: Matthew L. Thompson).
14. HEADINGS; COUNTERPARTS; ASSIGNMENT; 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
either 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 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
VOYAGEUR NATIONAL HIGH YIELD
MUNICIPAL BOND FUND
By_______________________________
Name_____________________________
Title____________________________
GREAT HALL INVESTMENT FUNDS, INC.
on behalf of
GREAT HALL NATIONAL TAX-EXEMPT
FUND
By_______________________________
Name_____________________________
Title____________________________
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
GREAT HALL INVESTMENT FUNDS, INC.
The undersigned officer of Great Hall Investment Funds, 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 August 21, 1996, and November __, 1996,
respectively, adopted the resolutions hereinafter set forth; and such officer
further certifies that the amendments to the Corporation's 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 E common shares of the Corporation 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 National High Yield Municipal Bond
Fund"); and
WHEREAS, the Corporation wishes to provide for the pro rata distribution of
such shares of Voyageur received by it to holders of the Corporation's
Series E shares and the simultaneous cancellation, redemption and
retirement of the outstanding Series E shares of the Corporation; 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 the Corporation Series E shares to the foregoing
transactions, and in particular to bind such holders to the cancellation
and retirement of the outstanding Series E shares of the Corporation, it is
necessary to adopt an amendment to the Corporation's Restated Articles of
Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Restated Articles of
Incorporation be, and the same hereby are, amended to add the following
Article 5B following Article 5 thereof:
5B. (a) For purposes of this Article 5B, 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 portfolio of assets and liabilities
represented by the Corporation's Series E shares.
"ACQUIRED FUND SHARES" means the Corporation's Series E shares.
"ACQUIRING FUND" means Voyageur's National High Yield Municipal Bond
Fund, which is represented by Voyageur's Series J shares.
"CLASS A ACQUIRING FUND SHARES" means the Acquiring Fund's Class A
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 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, 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 of the Corporation's Restated Articles of Incorporation.
(c) The number of Class A 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 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 Class A 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 of the
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 in liquidation of
the Acquired Fund pro rata (based upon the ratio that the number of
Acquired Fund Shares owned by each Acquired Fund shareholder
immediately prior to the Effective Time bears to the total number of
issued and outstanding Acquired Fund Shares immediately prior to the
Effective Time) the full and fractional Class A Acquiring Fund Shares
received by the Acquired Fund pursuant to (i) and (ii) above.
Accordingly, each holder of 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 Acquired Fund Shares owned by such Acquired Fund
shareholder immediately prior to the Effective Time.
(d) The distribution of Class A 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 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 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, redeemed 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
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 common shares of the Corporation without
designation as to series.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed
these Articles of Amendment on behalf of the Corporation on November __, 1996.
GREAT HALL INVESTMENT FUNDS, INC.
By_______________________________
Name_____________________________
Title____________________________
APPENDIX B
VOYAGEUR FUND
INVESTMENTS, INVESTMENT TECHNIQUES AND RISKS
INVESTMENT OBJECTIVE AND POLICIES OF VOYAGEUR FUND
The investment objective of Voyageur Fund is to seek a high level of
current income exempt from federal income tax primarily through investment in a
portfolio of medium- and lower-grade Municipal Obligations. The Fund does not
purchase insurance on its portfolio securities. The Fund will attempt to invest
100% (and as a matter of fundamental policy during normal circumstances will
invest at least 80%) of the value of its net assets in Municipal Obligations the
interest on which is exempt from regular federal income tax. The Fund may invest
without limit in securities that generate interest that is an item of tax
preference for purposes of federal alternative minimum tax ("AMT"). In normal
circumstances the weighted average maturity of the investment portfolio of the
Fund is expected to be approximately 15 to 25 years. However, if VFM determines
that market conditions warrant a shorter average maturity, the Fund's
investments will be adjusted accordingly. During times of adverse market
conditions when a defensive investment posture is warranted, the 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 the Fund's
shares will fluctuate with changes in the market value of its investments. The
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 the Fund's shareholders as provided in the 1940 Act.
The Fund will invest at least 65% of its total assets, in normal market or
economic situations, in medium- and lower-grade Municipal Obligations rated, at
the time of investment, between BBB and B-(inclusive) by Standard & Poor's
Ratings Group ("S&P"), Baa and B3 (inclusive) by Moody's Investors Service, Inc.
("Moody's"), or BBB and B- (inclusive) by Fitch Investors Service, LP ("Fitch"),
and Municipal Obligations determined by VFM to be of comparable quality.
Medium-grade Municipal Obligations are rated BBB by S&P or Fitch, Baa by
Moody's or determined by VFM to be of comparable quality. Municipal Obligations
rated BBB by S&P or Fitch generally are regarded by S&P or Fitch as having an
adequate capacity to pay interest and repay principal; adverse economic
conditions or changing circumstances are, however, more likely in S&P's or
Fitch's view to lead to a weakened capacity to pay interest and repay principal
as compared with higher rated Municipal Obligations. Municipal Obligations rated
Baa by Moody's generally are considered by Moody's as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. In Moody's view,
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. In Moody's view, such securities lack
outstanding investment characteristics and have speculative characteristics as
well.
The Fund may invest in lower-grade Municipal Obligations rated, at the time
of investment, no lower than B- by S&P or Fitch or B3 by Moody's, and in
municipal securities determined by VFM to be of comparable quality. Municipal
Obligations rated B by S&P or Fitch generally are regarded by S&P or Fitch, on
balance, as predominantly speculative with respect to capacity to pay interest
or repay principal in accordance with the terms of the obligations. While such
securities will likely have some quality and protective characteristics, in
S&P's or Fitch's view these are outweighed by large uncertainties or major risk
exposure to adverse conditions. Securities rated B by Moody's are viewed by
Moody's as generally lacking characteristics of the desirable investment. In
Moody's view, assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
The Fund will not make initial investments in Municipal Obligations rated,
at the time of investment, below B- by S&P or Fitch or below B3 by Moody's, or
in Municipal Obligations determined by VFM to be of comparable quality. The Fund
may retain Municipal Obligations which are downgraded after investment. There is
no minimum rating with respect to securities that the Fund may hold if
downgraded after investment. See Appendix A to the Statement of Additional
Information relating to the Prospectus/Proxy Statement (the "Statement of
Additional Information") for a description of Municipal Obligations ratings.
Investment in medium- and lower-grade securities involves special risks as
compared with investment in higher-grade securities, including potentially
greater sensitivity to a general economic downturn or to a significant increase
in interest rates, greater market price volatility and less liquid secondary
market trading. See "Risks and Special Investment Considerations." There can be
no assurance that the Fund will achieve its investment objective, and the Fund
may not be an appropriate investment for all investors. Furthermore, interest on
certain "private activity" obligations in which the Fund may invest is treated
as a preference item for the purpose of calculating the federal alternative
minimum tax and, accordingly, a portion of the income produced by the Fund may
be taxable under the federal alternative minimum tax. The Fund may not be a
suitable investment for investors who are already subject to the alternative
minimum tax or who would become subject to the alternative minimum tax as a
result of an investment in the Fund. See "Distributions to Shareholders and
Taxes - Taxes" in Appendix D to the Prospectus.
At times VFM may judge that conditions in the markets for medium and lower
grade Municipal Obligations make pursuing the Fund's basic investment strategy
of investing primarily in such Municipal Obligations inconsistent with the best
interests of shareholders. At such times, the Fund may invest all or a portion
of its assets in higher grade Municipal Obligations and in Municipal Obligations
determined by VFM to be of comparable quality. Although such higher grade
Municipal Obligations generally entail less credit risk, such higher grade
Municipal Obligations may have a lower yield than medium and lower grade
Municipal Obligations and investment in such higher grade Municipal Obligations
may result in a lower yield to Fund shareholders. VFM may also judge that
conditions in the markets for long- and intermediate-term Municipal Obligations
in general make pursuing the Fund's basic investment strategy inconsistent with
the best interests of the Fund's shareholders. At such times, the Fund may
pursue strategies primarily designed to reduce fluctuations in the value of the
Fund's assets, including investing the Fund's assets in high-quality, short-term
Municipal Obligations and in high-quality, short-term taxable securities. See
"Distributions to Shareholders and Taxes - Taxes" in Appendix D to the
Prospectus.
The Fund may invest without limitation in short-term Municipal 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, Fitch or S&P; commercial paper rated in the highest
grade by any such rating services (Prime-1, F-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.
MUNICIPAL OBLIGATIONS
As used in this Appendix B to the Prospectus/Proxy Statement, the term
"Municipal 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 "Municipal Obligations" also includes
Derivative Municipal Obligations as defined below.
Municipal 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 Municipal
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. Municipal 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 Municipal Obligations, there is a
variety of types of municipal securities. Certain Municipal 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 indexes, 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 Municipal 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.
Municipal 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 Fund's Board of Directors. 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--Municipal
Obligations" in the Statement of Additional Information.
Voyageur Fund may also acquire Derivative Municipal 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 Municipal 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 or trust certificate, the 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 the 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.
The principal and interest payments on the Derivative Municipal Obligations
underlying custodial receipts 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 Municipal 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 Municipal Obligations or an index of short-term
Municipal 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 Municipal
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other
Municipal Obligations and investments in these types of obligations will
increase the volatility of the net asset value of shares of the Fund.
ILLIQUID SECURITIES
Voyageur Fund may invest up to 15% of its net assets in illiquid
securities. A security is considered illiquid if it cannot be sold in the
ordinary course of business within seven days at approximately the price at
which it is valued. Illiquid securities may offer a higher yield than securities
which are more readily marketable, but they may not always be marketable on
advantageous terms.
The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Voyageur Fund may be restricted in its ability to sell such securities
at a time when VFM deems it advisable to do so. In addition, in order to meet
redemption requests, the Fund may have to sell other assets, rather than such
illiquid securities, at a time which is not advantageous.
Certain securities in which Voyageur Fund may invest, including municipal
lease obligations, certain restricted securities and commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the Securities
Act of 1933, historically have been considered illiquid by the staff of the
Securities and Exchange Commission. In accordance with more recent staff
positions, however, the Fund will treat such securities as liquid and not
subject to the above 15% limitation when they have been determined to be liquid
by VFM subject to the oversight of and pursuant to procedures adopted by the
Voyageur Board of Directors. See "Investment Policies and Restrictions--Illiquid
Investments" in the Statement of Additional Information.
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS
New issues of Municipal 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 the Fund's total assets which may be
invested in forward commitments. Municipal Obligations purchased on a
when-issued basis and the securities held in the 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. Municipal 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
Municipal 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 the 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 the 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, the 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.
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 the 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
the 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.
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 the 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 the Fund in the future for hedging purposes as they are developed to the
extent deemed appropriate by the Voyageur Board of Directors.
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, the 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 the Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the 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 the Fund at a higher price than its current market value. The risk
involved in writing a call option is that there could be an increase in the
market value of the underlying security 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. The 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 the Fund in privately
negotiated transactions. Such options are illiquid, and it may not be possible
for the Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when 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
the Fund may leave the Fund in a worse position than if such strategy was not
used.
Risks inherent in the use of options include (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 thereto 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 the 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,
the 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 the Fund's portfolio. There are no other numerical limits
on the 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, 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 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 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 of Directors may change any of the foregoing policies
that are not specifically designated fundamental.
RISKS AND SPECIAL INVESTMENT CONSIDERATIONS
GENERAL
The yields on Municipal 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
Municipal Obligations will tend to fall as interest rates rise and will tend to
increase as interest rates decrease. In addition, Municipal Obligations of
longer maturity produce higher current yields than Municipal 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
Municipal Obligations generally produce a higher yield than higher-rated
Municipal Obligations due to the perception of a greater degree of risk as to
the payment of principal and interest. Certain Municipal 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 the Fund during a
time of declining interest rates, the Fund might not be able to reinvest the
proceeds in securities providing the same investment return as the securities
redeemed.
SPECIAL RISK CONSIDERATIONS REGARDING MEDIUM- AND LOWER-GRADE MUNICIPAL
OBLIGATIONS
Voyageur Fund invests in medium- and lower-grade Municipal Obligations.
Municipal Obligations which are in the medium and lower grade categories
generally offer a higher current yield than is offered by higher-grade Municipal
Obligations but they also generally involve greater price volatility and greater
credit and market risk. Credit risk relates to the issuer's ability to make
timely payment of interest and principal when due. Market risk relates to the
changes in market value that occur as a result of variation in the level of
prevailing interest rates and yield relationships in the municipal securities
market. Debt securities rated BB or below by S&P or Fitch and B or below by
Moody's are commonly referred to as "junk bonds." Although Voyageur Fund
primarily will invest in medium- and lower-grade Municipal Obligations, the Fund
may invest in higher-grade Municipal Obligations for temporary defensive
purposes. Such investments may result in lower current income than if the Fund
were fully invested in medium and lower-grade securities.
The value of Voyageur Fund's portfolio securities can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed-income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities generally can be expected to decline. However, the
secondary market prices of medium- and lower-grade Municipal Obligations are
less sensitive to changes in interest rates and are more sensitive to adverse
economic changes or individual issuer developments than are the secondary market
prices of higher-grade debt securities. Such events also could lead to a higher
incidence of defaults by issuers of medium- and lower-grade Municipal
Obligations as compared with historical default rates. In addition, changes in
interest rates and periods of economic uncertainty can be expected to result in
increased volatility in the market price of the Municipal Obligation in the
Fund's portfolio and thus in the net asset value of the Fund. Also, adverse
publicity and investor perceptions, whether or not based on rational analysis,
may affect the value and liquidity of medium- and lower-grade Municipal
Obligations. The secondary market value of Municipal Obligations structured as
zero coupon securities and payment-in-kind securities may be more volatile in
response to changes in interest rates than debt securities which pay interest
periodically in cash. Investment in such securities also involves certain tax
considerations.
Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of medium- and lower-grade Municipal Obligations to pay
interest and to repay principal, to meet projected financial goals and to obtain
additional financing. In the event that an issuer of securities held by Voyageur
Fund experiences difficulties in the timely payment of principal or interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the Fund may be
unable to obtain full recovery thereof.
To the extent that there is no established retail market for some of the
medium- or lower-grade Municipal Obligations in which the Fund may invest,
trading in such securities may be relatively inactive. VFM has contracted with
Muller Data Corporation as pricing agent and VFM is responsible for determining
the net asset value of the Fund, subject to the supervision of the Voyageur
Board of Directors. During periods of reduced market liquidity and in the
absence of readily available market quotations for medium- and lower-grade
Municipal Obligations held in the Fund's portfolio, the ability of the pricing
agent to value the Fund's securities becomes more difficult and the pricing
agent's use of judgment may play a greater role in the valuation of the Fund's
securities due to the reduced availability of reliable objective data. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
Voyageur Fund may invest in zero-coupon and payment-in-kind Municipal
Obligations. Zero-coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. They are issued and traded at
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
Internal Revenue Code of 1986, as amended, requires that regulated investment
companies distribute at least 90% of their net investment income each year,
including tax-exempt and non-cash income. Accordingly, although the Fund will
receive no coupon payments on zero-coupon securities prior to their maturity,
the Fund is required, in order to maintain its desired tax treatment, to include
in its distributions to shareholders in each year any income attributable to
zero-coupon securities that is in excess of 10% of the Fund's net investment
income in that year. The Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. Payment-in-kind securities are securities that pay
interest through the issuance of additional securities. Such securities
generally are more volatile in response to changes in interest rates and are
more speculative investments than are securities that pay interest periodically
in cash.
VFM seeks to minimize the risks involved in investing in medium- and
lower-grade Municipal Obligations through multiple portfolio holdings, careful
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Fund will rely on VFM's judgment,
analysis and experience in evaluating the creditworthiness of an issue. In its
analysis, VFM will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. VFM may consider the credit ratings of Moody's, Fitch, and S&P in
evaluating Municipal Obligations, although it does not rely primarily on these
ratings. Such ratings evaluate only the safety of principal and interest
payments, not market value risk. Additionally, because the creditworthiness of
an issuer may change more rapidly than is able to be timely reflected in changes
in credit ratings, VFM continuously monitors the issuers of Municipal
Obligations held in the Fund's portfolio.
Municipal Obligations generally are not listed for trading on any national
securities exchange, and many issuers of medium- and lower-grade Municipal
Obligations choose not have a rating assigned to their obligations by any
nationally recognized statistical rating organization. The amount of information
available about the financial condition of an issuer of unlisted or unrated
securities generally is not as extensive as that which is available with respect
to issuers of listed or rated securities. Because of the nature of medium- and
lower-rated Municipal Obligations, achievement by the Fund of its investment
objective may be more dependent on the credit analysis of VFM than is the case
for an investment company which invests primarily in exchange listed
higher-grade securities.
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.
The Fund also has a number of non-fundamental investment restrictions which
may be changed by the Voyageur Board of Directors without shareholder approval.
These include restrictions providing that the 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 securities of
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
DIRECTORS AND EXECUTIVE OFFICERS OF VOYAGEUR MUTUAL FUNDS
The Board of Directors of Voyageur Mutual Funds (the "Voyageur Board of
Directors") 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 the Fund's investment adviser, subject to the authority of
the Voyageur Board of Directors. VFM and the Underwriter are each indirect
wholly-owned subsidiaries of Dougherty Financial Group, Inc. ("DFG"), which is
owned approximately 49% by Michael E. Dougherty, 49% by Pohlad Companies and
less than 1% by certain retirement plans for the benefit of DFG employees. Mr.
Dougherty co-founded the predecessor of DFG in 1977 and has served as DFG's
Chairman of the Board and Chief Executive Officer since inception. Pohlad
Companies is a holding company owned in equal parts by each of James O. Pohlad,
Robert C. Pohlad and William M. Pohlad. As of June 30, 1996, VFM and its
affiliates served as the manager to 6 closed-end and 10 open-end investment
companies (comprising 33 separate investment portfolios), administered numerous
private accounts and 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 0.65% of its average daily net assets. VFM has
agreed to limit its investment advisory fee to 0.50% through the period ended
December 31, 1998.
Steve Eldredge will have day-to-day portfolio management responsibility of
Voyageur Fund. Since July 1995, Mr. Eldredge has managed Voyageur Florida Tax
Free Fund, 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 in Florida from 1989 to 1995. Mr. Eldredge has over
18 years experience in portfolio management.
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. (the "Underwriter"). Pursuant to the Fund's Plan, the Fund
will pay the Underwriter a Rule 12b-1 fee, at an annual rate of .25% of the
Fund's average daily net assets attributable to Class A shares and 1% of the
Fund's average daily net assets attributable to each of Class B and Class C
shares for servicing of shareholder accounts and distribution related services.
Payments made under the Plan are not tied exclusively to expenses actually
incurred by the Underwriter and may exceed or be less than expenses actually
incurred by the Underwriter.
All of the Rule 12b-1 fee attributable to Class A shares, and a portion of
the fee equal to .25% of the average daily net assets of the Fund attributable
to each of Class B shares and Class C shares constitutes a shareholder servicing
fee designed to compensate the Underwriter for the provision of certain services
to the shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Underwriter may use such Rule 12b-1 fee
or portion thereof to make payments to qualifying broker-dealers and financial
institutions that provide such services.
That portion of the Rule 12b-1 fee equal to .75% of the average daily net
assets of the Fund attributable to Class B shares and Class C shares,
respectively, constitutes a distribution fee designed to compensate the
Underwriter for advertising, marketing and distributing the Class B shares and
Class C shares of the Fund. In connection therewith, the Underwriter may provide
initial and ongoing sales compensation to its investment executives and other
broker-dealers for sales of Class B shares and Class C shares and may pay for
other advertising and promotional expenses in connection with the distribution
of Class B shares and Class C shares. The distribution fee attributable to Class
B shares and Class C shares is designed to permit an investor to purchase such
shares through investment executives of the Underwriter and other broker-dealers
without the assessment of an initial sales charge and at the same time to permit
the Underwriter to compensate its investment executives and other broker-dealers
in connection with the sale of such shares.
CUSTODIAN; DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVE AND ACCOUNT SERVICES
AGENT
Norwest Bank Minnesota, N.A. 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 in detail in the Statement of
Additional Information. In addition, VFM and the Underwriter 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 and the Underwriter have agreed to
waive fees or absorb expenses for the fiscal year ending December 31, 1998 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, 1998, such voluntary fee and
expense waivers may be discontinued or modified by VFM and the Underwriter 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 the
Underwriter, 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 a separate series of the Voyageur Mutual
Funds, a Minnesota corporation which issues shares of common stock with a $.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 of Directors is empowered to issue other series of common stock without
shareholder approval.
Voyageur Fund currently offers 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 Voyageur Board of Directors and, in
liquidation, are entitled to receive the net assets, if any, of the Fund. The
Fund does not generally hold annual meetings of shareholders and will do so only
when required by law. Shareholders may remove Voyageur Board of Directors
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 of Directors 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 Voyageur Mutual Funds. Any general
expenses of Voyageur Mutual Funds not readily identifiable as belonging to a
particular series or class are allocated among the series or classes thereof,
based upon the relative net assets of the series or class at the time such
expenses were accrued.
Voyageur Mutual Funds' Articles of Incorporation limit the liability of the
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.
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, the Underwriter from time to time
pays certain additional cash incentives of up to $100 and/or non-cash incentives
such as vacations or other prizes to its investment executives and other
broker-dealers and financial institutions in consideration of their sales of
Fund shares. In some instances, other incentives may be made available only to
broker-dealers and financial institutions who meet certain objective standards
developed by the Underwriter.
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 the Underwriter and from certain financial institutions that
have selling agreements with the Underwriter.
When orders are placed for shares of the Fund, the public offering price
used for the purchase will be the net asset value per share next determined
after receipt of the order, plus the applicable sales charge, if any. If an
order is placed with the Underwriter or other broker-dealer, the broker-dealer
is responsible for promptly transmitting the order to the Fund. The Fund
reserves the right, in its absolute discretion, to reject any order for the
purchase of its shares.
Shares of the Fund may be purchased by opening an account either by mail or
by phone. 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 the Underwriter. Payment of redemption
proceeds will be delayed as long as necessary to verify by expeditious means
that the purchase payment has been or will be collected. Such period of time
typically will not exceed 15 days.
AUTOMATIC INVESTMENT PLAN
Investors may make systematic investments in fixed amounts automatically on
a monthly basis through Voyageur Fund's Automatic Investment Plan. Additional
information is available from the Underwriter by calling 800-545-3863.
PURCHASES BY MAIL
To open an account by mail, 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 Fund as follows:
Norwest Bank Minnesota, N.A., ABA #091000019
For Credit of: Voyageur National High Yield Municipal Bond 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 and banks that sell Fund shares, out of its own assets, a
fee of up to 1% of the offering price of sales of $1,000,000 or more, 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, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS--REDUCED SALES CHARGES
Certain investors (or groups of investors) may qualify for reductions in
the sales charges shown above. Investors should contact their broker-dealer or
the Fund for details about the 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 the Underwriter without notice to existing Fund shareholders.
RULE 12B-1 FEES
Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of
.25% of the average daily net assets of the Fund attributable to Class A shares.
All or a portion of such fees are paid quarterly to financial institutions and
service providers with respect to 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, the Underwriter pays investment dealers, out of its own
assets, a fee of up to 1% of the offering price of such shares. If these shares
are redeemed within 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 any Voyageur Complex fund as a member ("Other Load
Funds"), and officers, directors and full-time employees of parents,
subsidiaries and corporate affiliates of such investment advisers; (4) spouses
and lineal ancestors and descendants of the officers, directors/trustees and
employees referenced in clauses (1), (2) and (3), and lineal ancestors and
descendants of their spouses; (5) investment executives and other employees of
banks and dealers that have selling agreements with the Underwriter and parents,
spouses and children under the age of 21 of such investment executives and other
employees; (6) trust companies and bank trust departments for funds held in a
fiduciary, agency, advisory, custodial or similar capacity; (7) any state or any
political subdivision thereof or any instrumentality, department, authority or
agency of any state or political subdivision thereof; (8) partners and full-time
employees of the 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 "How to Sell
Shares--Contingent Deferred Sales Charge." In addition, Class B shares are
subject to higher Rule 12b-1 fees as described below. The CDSC will depend on
the number of years since the purchase was made according to the following
table:
CDSC AS A % OF
CDSC PERIOD AMOUNT REDEEMED*
----------- ----------------
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 the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Fund in connection with the sale of Class B shares, such as the payment
of compensation to selected broker-dealers and for selling Class B shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge, the
Underwriter pays to brokers who sell Class B shares a sales commission equal to
4% of the amount invested and an ongoing annual servicing fee of .15% (paid
quarterly) calculated on the net assets attributable to sales made by such
broker-dealers.
RULE 12B-1 FEES
Class B shares are subject to a Rule 12b-1 fee payable at an annual rate of
1% of the average daily net assets of the Fund attributable to Class B shares.
The higher 12b-1 fee will cause Class B shares to have a higher expense ratio
and to pay lower dividends than Class A shares. For additional information about
this fee, see "Fees and Expenses" in the Prospectus/Proxy Statement and
"Management--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" below. 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. For additional information, see "How to Sell
Shares--Deferred Sales Charge." In addition, Class C shares are subject to
higher annual Rule 12b-1 fees as described below.
RULE 12B-1 FEES
Class C shares are subject to a Rule 12b-1 fee payable at an annual rate of
1% of the average daily net assets of 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 the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Fund in connection with the sale of Class C shares, such as the payment
of compensation to selected broker-dealers and for selling Class C shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class C shares without deduction of a sales charge at the time of purchase.
Although Class C shares are sold without an initial charge, the Underwriter pays
an 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) redemption of shares when a
Fund exercises its right to liquidate accounts 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 VFM. No CDSC will be imposed at the time of any such exchange; however,
the shares acquired in any such exchange will remain subject to the CDSC and the
period during which such shares represent shares of the money market fund will
not be included in determining how long the shares have been held. Any CDSC due
upon a redemption of Fund shares will be reduced by the amount of any Rule 12b-1
payments made by such money market fund with respect to such shares.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A, Class B or Class C shares of 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 of shares (for which certificates have not been issued) may redeem by
telephoning the Fund directly at 612-376-7014 or 800-545-3863. The applicable
section of the general authorization form must have been completed by the
shareholder and filed with the Fund before the telephone request is received.
The proceeds of the redemption will be paid by check mailed to the shareholder's
address of record or, if requested at the time of redemption, by wire to the
bank designated on the general authorization form. The Fund will employ
reasonable procedures to confirm that telephone instructions are genuine,
including requiring that payment be made only to the shareholder's address of
record or to the bank account designated on the authorization form and requiring
certain means of telephonic identification. The Fund's Adviser and Distributor
will not be liable for following instructions which are reasonably believed to
be genuine.
EXPEDITED REDEMPTIONS THROUGH CERTAIN BROKER-DEALERS
Certain broker-dealers who have sales agreements with the Underwriter may
allow their customers to effect a redemption of shares of the Fund purchased
through such broker-dealer by notifying the broker-dealer of the amount of
shares to be redeemed. The broker-dealer is then responsible for promptly
placing the redemption request with the Fund on the customer's behalf. Payment
will be made to the shareholder by check or wire sent to the broker-dealer.
Broker-dealers offering this service may impose a fee or additional requirements
for such redemptions.
GOOD ORDER
"Good order" means that stock certificates, if issued, must accompany the
written request for redemption and must be duly endorsed for transfer, or must
be accompanied by a duly executed stock power. If no stock certificates have
been issued, a written request to redeem must be made. Stock certificates will
not be issued for Class B or Class C shares. In any case, the shareholder must
execute the redemption request exactly as the shares are registered. If the
redemption proceeds are to be paid to the registered holder(s), a signature
guarantee is not normally required. A signature guarantee is required in certain
other circumstances, for example, to redeem more than $50,000 or to have a check
mailed other than to the shareholder's address of record. See "Other
Information" in the Statement of Additional Information. 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 the
Adviser 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
relating to the Prospectus/Proxy Statement (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
the Underwriter receives a check along with a letter requesting reinstatement.
The Underwriter must receive the letter requesting reinstatement within 365 days
following the redemption. Investors who desire to exercise the Privilege should
contact their broker-dealer or the Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of 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, Voyageur Fund is intended for long term investment and not as a trading
vehicle. Voyageur reserves the right to prohibit excessive exchanges (more than
four per quarter). VFM reserves the right, upon 60 days' prior notice, to
restrict the frequency of, or otherwise modify, condition, terminate or impose
charges upon, exchanges. An exchange is considered to be a sale of shares on
which the investor may realize a capital gain or loss for income tax purposes.
Exchange requests may be placed directly with the fund in which the investor
owns shares, through VFM or through other broker-dealers. An investor
considering an exchange should obtain a prospectus of the fund to be acquired
and should read such prospectus carefully. Contact 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 of Voyageur Fund shares is
determined by dividing the value of the securities, cash and other assets of the
Fund attributable to such class less all liabilities attributable to such class
by the total number of shares of such class outstanding. For purposes of
determining the net assets of Voyageur Fund, tax-exempt securities are stated on
the basis of valuations provided by a pricing service, approved by the Voyageur
Board of Directors, 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 of Directors.
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 of the Fund 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 the 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.
The foregoing discussion relates to federal taxation as of the date of this
Prospectus/Proxy Statement. See "Taxes" in the Statement of Additional
Information. 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 the period by the maximum offering price
per share on the last day of the period. The result is then annualized using a
formula that provides for semiannual compounding of income.
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 612-376-7010 or 800-525-6584. 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.
GREAT HALL
NATIONAL TAX-EXEMPT FUND
-----------------------------------
MINNESOTA INSURED TAX-EXEMPT FUND [LOGO]
-----------------------------------
60 South Sixth Street
Minneapolis, Minnesota 55402
(800) 934-6674
Great Hall National Tax-Exempt Fund ("National Fund") and Great Hall
Minnesota Insured Tax-Exempt Fund ("Minnesota Fund" and, together with National
Fund, the "Funds") are non-diversified series of Great Hall Investment Funds,
Inc. ("Great Hall"), an open-end management investment company (commonly known
as a mutual fund) which currently offers its shares of common stock in five
series. This Prospectus pertains only to the Funds and does not pertain to any
other series of Great Hall.
National Fund seeks to maximize current income exempt from federal income
tax by investing primarily in medium and lower-grade municipal obligations, the
interest on which is exempt from regular federal income tax and is not an item
of tax preference for purposes of the federal alternative minimum tax.
National Fund will not purchase insurance on its portfolio securities.
National Fund may invest in lower rated or non-rated securities which involve
certain risks that are discussed under "Investment Objectives and Policies -
Risk Factors."
Minnesota Fund seeks to provide a high level of current income exempt
from both federal and State of Minnesota income taxes, and which is not an item
of tax preference for the purposes of the federal or State of Minnesota
alternative minimum tax. Minnesota Fund will invest exclusively in:
(a) obligations that at all times are fully insured as to the scheduled payment
of all installments of interest and principal; (b) uninsured obligations that
have a Aaa rating by Moody's Investors Service, Inc. ("Moody's") or a AAA
rating by Standard & Poor's Corporation ("S&P"), where the payment of interest
and principal is secured by an escrow account consisting of obligations of the
U.S. Government or its agencies or instrumentalities; and (c) to a limited
extent, certain uninsured short-term, tax-exempt obligations of issuers with
the highest rating from Moody's or S&P.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE
Prospectus dated December 1, 1995
<PAGE>
This Prospectus sets forth concisely the information about the Funds that
a prospective investor should know before investing. Please read this
Prospectus carefully before investing and retain it for future reference. A
Statement of Additional Information containing more information about the
Funds, dated December 1, 1995 (which is incorporated herein by reference), has
been filed with the Securities and Exchange Commission (the "SEC") and is
available upon request and without charge by calling Great Hall at the numbers
listed above.
The "Great Hall" name is a trademark of Inter-Regional Financial Group,
Inc. ("IFG"). IFG licenses this trademark in connection with a number of
investment products and services (including the Great Hall Investment Funds,
Inc.) sponsored or distributed by IFG or its subsidiaries.
No person is authorized to give any information or to make any
representations not contained in this Prospectus or in the Funds' official
sales literature; and any information or representation not contained herein
must not be relied upon as having been authorized by the Funds. Great Hall is
registered as an open-end management investment company under the Investment
Company Act of 1940 (the "1940 Act"). Such registration does not imply that
the Funds or any of their shares have been guaranteed, sponsored, recommended
or approved by the United States or any state or any agency or officer thereof.
This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, securities in any state to any person to whom it is not
lawful to make such an offer or solicitation in such state.
The Funds commenced operations on June 5, 1992 by acquiring the assets
and liabilities of National Tax Exempt Fund and Minnesota Insured Fund - series
of Carnegie Tax Exempt Income Trust. Historical financial information included
in this Prospectus and the related Statement of Additional Information that
pre-dates June 5, 1992 relates to the Funds' predecessors.
<PAGE>
FEES AND EXPENSES
The purpose of the following table is to assist you in understanding the
various costs and expenses that investors in the Funds will bear directly or
indirectly.
National Minnesota
Fund Fund
---- ----
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% 4.50%
Maximum Contingent Deferred Sales Charge 1.00%* 1.00%*
Other Redemption Fees none none
Annual Fund Operating Expense
(as a percentage of average net assets):
Management Fees 0.50% 0.23%**
12b-1 Shareholder Servicing Fees 0.20%** 0.20%**
Other Expenses 0.13% 0.38%
---- ----
Total Fund Operating Expenses 0.83%** 0.81%**
---- ----
_______________________________________________
* A contingent deferred sales charge may be imposed upon the redemption
of certain share purchases of $1 million or more. See "How to Redeem
Shares-Contingent Deferred Sales Charge."
** Net of voluntary fee waivers.
Example
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period:
National Minnesota
Fund Fund
---- ----
One Year.................................. $53 $53
Three Years............................... 70 70
Five Years................................ 89 88
Ten Years................................. 143 141
The above examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
Absent voluntary fee waivers and reimbursements, each of National and Minnesota
Fund would incur Management Fees of .50% per year of its average daily net
assets, would incur 12b-1 fees of .30% per year of its average daily net assets
and would incur estimated total fund operating expenses of approximately 0.93%
and 1.18%, respectively, of average daily net assets.
<PAGE>
Each Fund's investment adviser, Insight Investment Management
("Insight"), a division of IFG Asset Management Services, Inc. ("AMS"), and/or
each Fund's co-distributors, Dain Bosworth Incorporated and Rauscher Pierce
Refsnes, Inc. (the "Co-Distributors"), from time to time may voluntarily waive
or absorb certain additional Fund fees and expenses. Any such program may be
instituted or discontinued at any time in the sole discretion of Insight and/or
the Co-Distributors. AMS and each Co-Distributor is a wholly-owned subsidiary
of IFG.
FINANCIAL HIGHLIGHTS
The following tables show certain per share data for a share of capital
stock outstanding during the indicated periods and selected ratio information
for such periods for each Fund. This information has been derived from the
financial statements of the Funds (and their predecessors) (which have been
audited by KPMG Peat Marwick LLP, the Funds' independent auditors) included in
the Statements of Additional Information and should be read in connection
therewith:
NATIONAL FUND
- -------------
YEAR ENDED JULY 31,
------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
year....... $10.17 $10.50 $10.22 $9.65 $9.63 $9.68 $9.25 $9.31 $9.60
------ ------ ------ ----- ----- ----- ----- ----- -----
Income from
investment
operations:
Net investment
income....... 0.648 0.624 0.652 0.703 0.697 0.669 0.692 0.714 0.653
Realized and
unrealized gains
(losses) on
investments,
net...... 0.045 (0.313) 0.280 0.570 0.020 (0.050) 0.430 (0.060)(0.290)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total from
investment
operations. 0.693 0.311 0.932 1.273 0.717 0.619 1.122 0.654 0.363
----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions to
shareholders:
From investment
income....... (0.648)(0.624)(0.652)(0.703)(0.697)(0.669)(0.692)(0.714)(0.653)
From accumulated
net realized
gains...... (0.045)(0.017) --- --- --- --- --- --- ---
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of year.. $10.17 $10.17 $10.50 $10.22 $9.65 $9.63 $9.68 $9.25 $9.31
Total return##. 7.16% 2.99% 9.45% 13.84% 7.76% 6.69% 12.55% 7.35% 3.66%
Net assets at
end of year
(000s omitted)66,357 72,172 58,048 43,166 46,812 36,439 34,519 23,190 16,833
Ratio of net expenses
to average daily
net assets# 0.79% 0.91% 1.01% 0.84% 0.96% 1.23% 1.02% 0.68% 0.26%@
Ratio of net investment
income to average daily
net assets# 6.45% 5.98% 6.32% 7.15% 7.26% 6.99% 7.36% 7.71% 6.76%@
Portfolio turnover rate
(excluding short-term
securities) 8.45% 27.88% 16.36% 14.50% 13.52% 33.49% 15.76% 20.40% 11.33%
________________________________________________
See footnotes on the following page
<PAGE>
MINNESOTA FUND
- --------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986**
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
year... $9.85 $10.52 $10.29 $9.74 $9.60 $9.67 $9.17 $9.16 $9.34 $9.60
----- ------ ------ ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income. 0.494 0.502 0.560 0.604 0.623 0.640 0.624 0.624 0.641 0.139
Realized and unrealized gains
(losses) on investments,
net... 0.157 (0.465) 0.230 0.550 0.140 (0.070) 0.500 0.010 (0.180)(0.260)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment operations
........ 0.651 0.037 0.790 1.154 0.763 0.570 1.124 0.634 0.461 (0.121)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions to shareholders:
From investment income
........(0.494) (0.502)(0.560)(0.604)(0.623)(0.640)(0.624)(0.624)(0.641)(0.139)
From accumulated net realized
gain..(0.097) (0.205) --- --- --- --- --- --- --- ---
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
year... $9.91 $9.85 $10.52 $10.29 $9.74 $9.60 $9.67 $9.17 $9.16 $9.34
----- ----- ------ ------ ----- ----- ----- ----- ----- -----
Total return##
........ 7.00% 0.21% 7.95% 12.41% 8.27% 6.15% 12.69% 7.20% 4.92% (0.92%)
Net assets at end of year
(000s omitted)
........28,635 37,108 29,899 23,009 21,486 13,968 11,488 10,252 9,508 2,260
Ratio of net expenses to
average daily net assets#
........ 0.81% 0.80% 0.76% 0.61% 0.46% 0.45% 0.62% 0.69% 0.37% 0.24%@
Ratio of net investment income
to average daily net assets#
........ 5.12% 4.86% 5.44% 6.11% 6.45% 6.68% 6.65% 6.90% 6.57% 4.77%@
Portfolio turnover rate (excluding
short-term securities)
........ 3.44% 42.40% 20.12% 5.60% 1.25% 5.43% 6.30% 11.55% 0.35% 0%
________________________________________________
* For the period September 22, 1986 (commencement of operation of National
Fund) through July 31, 1987.
** For the period March 5, 1986 (commencement of operation of Minnesota
Fund) through July 31, 1986.
# Various fund fees and expenses were voluntarily waived or absorbed during
the periods referred to above. Had each Fund paid all expenses, the
ratios of expenses and net investment income to average daily net assets
would have been as follows: National Fund - 0.90%/6.34% in 1995,
1.01%/5.88% in 1994, 1.24%/6.09% in 1993, 1.14%/6.85% in 1992,
1.26%/6.96% in 1991, 1.23%/6.99% in 1990, 1.20%/7.18% in 1989,
1.21%/7.18% in 1988 and 1.06%/5.96% in 1987; Minnesota Fund - 1.16%/4.77%
in 1995, 1.00%/4.66% in 1994, 1.15%/5.05% in 1993, 1.16%/5.56% in 1992,
1.22%/5.69% in 1991, 1.25%/5.88% in 1990, 1.42%/5.85% in 1989,
1.49%/6.10% in 1988, 1.17%/5.77% in 1987 and 1.04%/3.97% in 1986.
## Total return does not reflect payment of a sales charge.
@ Annualized.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund, as set forth below, along with the
investment policies identified as fundamental policies, may not be changed
without the affirmative vote of the majority of the outstanding voting shares
of the Fund. All other policies of a Fund may be changed by the Board of
Directors of Great Hall without shareholder approval. There can be no
guarantee that the investment objective of either Fund will be achieved.
National Fund
The investment objective of National Fund is to maximize current income
exempt from federal income tax through investments primarily in medium and
lower grade municipal obligations. National Fund does not purchase insurance
on its portfolio securities.
National Fund invests in municipal obligations issued by or on behalf of
any state, territory or possession of the United States or the District of
Columbia or their political subdivisions, agencies or instrumentalities and
participation interests therein, the interest on which, in the opinion of
counsel to the issuer, is exempt from federal income taxation and is not an
item of tax preference for purposes of the federal alternative minimum tax.
The yield generated by National Fund may not be as high as funds that invest in
high yield obligations that are taxable. The types of municipal obligations in
which National Fund may invest include general obligation bonds (which are
payable from property taxing power, either unlimited or limited as to rate or
amount), revenue bonds (which are secured by such sources as water and sewer
revenues or other essential service revenues, sales tax or other fees, or
hospital/healthcare revenues), participation interests in municipal bonds, bond
anticipation notes, construction loan notes, revenue anticipation notes, tax
anticipation notes and short-term discount notes. See "Municipal Obligations"
below for a more detailed description of these municipal obligations.
Medium grade municipal obligations are rated A or Baa, MIG-2 or Prime-2
by Moody's, or A or BBB, SP-2 or A-2 by S&P, or, if unrated, are considered by
Insight, in accordance with policies established by the Board of Directors of
Great Hall, to be of comparable quality. Baa and BBB rated securities are
regarded as having some speculative characteristics. Medium grade municipal
obligations are generally regarded as having adequate but not outstanding
capacity to pay interest and repay principal. Lower grade municipal
obligations in which National Fund may invest include those rated Ba or B, MIG
- -3 or Prime-3 by Moody's, or BB or B, SP-3 or A-3 by S&P, or, if unrated, are
considered by Insight, in accordance with policies established by the Board of
Directors of Great Hall, to be of comparable quality. Lower grade obligations
generally are regarded as high risk securities and are highly speculative. See
"Risk Factors" discussed below.
National Fund invests in securities with ratings below Ba or BB only when
Insight believes the rating does not accurately reflect the actual quality of
the issuer's credit. As a non-fundamental policy, National Fund will not
invest more than 5% of its total assets in municipal obligations rated below Ba
or BB, or more than 35% of its total assets in municipal obligations rated
below Baa or BBB, or, if unrated, having credit characteristics that are
<PAGE>
considered by Insight, in accordance with policies established by the Board of
Directors of Great Hall, to be of comparable quality. National Fund will not
purchase municipal obligations rated Caa or lower by Moody's or CCC or lower by
S&P, or unrated securities considered by Insight to be of comparable quality.
For a description of the applicable Moody's and S&P ratings, see the appendix
to this Prospectus. See also "Risk Factors" below.
Many municipal issuers of medium and lower grade municipal obligations
choose not to request a rating for their obligations from the rating agencies.
National Fund therefore may consist of a large proportion of unrated
securities, which may carry a greater risk but a higher yield than rated
securities. Although unrated securities are not necessarily lower in quality,
the market for them may not be as broad as for rated securities. National Fund
will purchase only those unrated securities that Insight believes are
comparable to rated securities that qualify for purchase by National Fund.
Minnesota Fund
Minnesota Fund seeks to provide a high level of current income exempt
from both federal and State of Minnesota income taxes consistent with prudent
investment. Minnesota Fund has the added objective of providing income that is
not an item of tax preference for purposes of the federal or State of Minnesota
alternative minimum tax.
Minnesota Fund invests in the same types of municipal obligations as
described above in the second paragraph under "National Fund." Minnesota Fund
invests in municipal obligations of investment grade, i.e., those rated (or,
if not rated, considered by Insight, in accordance with policies established by
the Board of Directors of Great Hall, to have equivalent credit
characteristics) Baa or better, MIG-2 or better, or Prime-2 or better by
Moody's, or BBB or better, SP-2 or better, or A-2 or better by S&P. Municipal
obligations rated Baa or BBB have certain speculative characteristics. In
management's opinion, the risk involved in investing in these Baa or BBB rated
obligations will be substantially reduced by insurance.
Insurance. As a non-fundamental policy, the municipal obligations in the
investment portfolio of Minnesota Fund will consist of: (a) obligations that
are fully insured as to the scheduled payment of all installments of interest
and principal ("Insured Obligations"); and (b) uninsured obligations that have
a Aaa rating by Moody's or a AAA rating by S&P, where the payment of interest
and principal is secured by an escrow account consisting of obligations of the
U.S. Government or its agencies or instrumentalities. Additionally, pending
the investment or reinvestment of its assets in longer-term municipal
obligations, Minnesota Fund may invest up to 35% of its net assets in uninsured
short-term tax-exempt municipal obligations, provided such instruments carry an
A-1+ or SP-1+ short-term rating or AAA long-term rating by S&P, or a P-1 or
MIG-1 short-term rating or Aaa long-term rating by Moody's.
The Insured Obligations in the portfolio of Minnesota Fund are insured as
to the payment of principal and interest either through: (a) insurance
purchased by the issuer at the time of original issuance, (b) secondary
insurance purchased by a holder after the initial issuance; or (c) portfolio
<PAGE>
insurance purchased by the Fund. The purpose of insurance is to minimize
credit risks to Minnesota Fund and its shareholders associated with defaults in
municipal obligations owned by the Fund. There can be no assurance that any
insurer will be able to meet its obligations. Further, such insurance does not
insure against market risk and therefore does not guarantee the market value of
the securities in Minnesota Fund's investment portfolio upon which the net
asset value of the Fund's shares is based. Such market value will continue to
fluctuate in response to fluctuations in interest rates or the bond market.
Similarly, such insurance does not cover or guarantee the value of the shares
of Minnesota Fund. Therefore, the amount received upon redemption of shares of
Minnesota Fund may be more or less than the original cost of such shares less
any applicable sales charge paid in connection with the acquisition of such
shares.
The premiums for an insurance policy obtained by an issuer of an
obligation at its original issuance, or a secondary market insurance policy
obtained by a subsequent holder, have been paid in advance by such issuer or
subsequent holder and no further payment for such insurance will be required of
Minnesota Fund. If a municipal obligation is insured at its original issuance
or at a subsequent time through secondary market insurance, no additional
coverage will be provided by portfolio insurance, if any, purchased by the
Fund. Both original issue insurance and secondary market insurance are non-
cancelable and will continue in force so long as the municipal obligations are
outstanding and the respective insurers remain in business. Since such
insurance remains in effect as long as the obligations insured thereby are
outstanding, the insurance may have an effect on the resale value of
obligations in the Fund's portfolio. Therefore, such insurance may be
considered to represent an element of market value in regard to municipal
obligations thus insured, but the effect, if any, of this insurance on such
market value cannot be meaningfully estimated.
Secondary market insurance for a municipal obligation may be purchased by
Minnesota Fund if, in the opinion of Insight, the market value of such
obligation after obtaining such insurance would exceed the value of such
obligation (without insurance) plus the cost of such insurance. When the Fund
purchases secondary market insurance, the single premium is added to the cost
basis of the security and is not considered an item of expense of the Fund.
Any difference between the excess of a security's market value as an "Aaa" or
"AAA" rated security over its market value without such rating, including the
related single premium insurance cost, would inure to the Fund in determining
the net capital gain or loss realized by the Fund upon the sale of the
security.
Minnesota Fund purchased a portfolio insurance policy from Municipal Bond
Investors Assurance Corporation ("MBIA Corp."). Portfolio insurance provides
"blanket" coverage for those municipal obligations that are required to be
insured pursuant to the Fund's investment policy, but which are not otherwise
covered by original issue or secondary market insurance. Premiums for
portfolio insurance will vary based on the composition of the Fund's portfolio
and are expected to be approximately 0.02% of the aggregate principal amount of
the Fund's portfolio. Premiums for portfolio insurance will be paid by
Minnesota Fund from its assets and therefore will reduce the investment return
of the Fund.
The investment policy requiring insurance on investments applies only to
municipal obligations in Minnesota Fund's investment portfolio and will not
affect the Fund's ability to hold its assets in cash or to invest in escrow
<PAGE>
secured and defeased bonds or in certain short-term tax-exempt obligations as
set forth above, or affect its ability to invest in uninsured taxable
obligations for temporary or liquidity purposes or on a defensive basis in
accordance with the investment policies and restrictions of the Fund.
Minnesota Bonds. As described herein, except during temporary defensive
periods, Minnesota Fund will invest more than 80% of the value of its total
assets in Minnesota municipal obligations. Minnesota Fund is therefore
susceptible to political, economic or regulatory factors affecting issuers of,
and the market for, Minnesota municipal obligations.
Further, because of the relatively small number of issuers of Minnesota
municipal obligations, Minnesota Fund is more likely to invest a higher
percentage of its assets in the securities of one or a small number of issuers
than an investment company that invests in a broad range of tax-exempt
securities. This lack of diversification involves an increased risk of loss to
Minnesota Fund. As a result, the value of Minnesota Fund's shares may
fluctuate more widely than the value of shares of a portfolio investing in
securities relating to a number of different states. It should be noted that
the creditworthiness of obligations issued by local Minnesota issuers may be
unrelated to the creditworthiness of obligations issued by the State of
Minnesota, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default. The ability of
state, county or local governments to meet their obligations will depend
primarily on the availability of tax and other revenues to those governments
and on their fiscal conditions generally. The amounts of tax and other
revenues available to governmental issuers may be affected from time to time by
economic, political and demographic conditions within Minnesota. In addition,
constitutional or statutory restrictions may limit a government's power to
raise revenue or increase taxes. The availability of federal, state and local
aid to issuers may also affect their ability to meet their obligations.
Additional Information regarding Minnesota is set forth in the Statement of
Additional Information.
Investment Policies Applicable to National Fund and Minnesota Fund
National Fund and Minnesota Fund will attempt to invest 100% (and as a
matter of fundamental policy during normal circumstances will invest at least
80%) of the value of their respective net assets in securities the interest on
which is exempt from regular federal income tax and federal alternative minimum
tax and, with respect to Minnesota Fund, is exempt from the personal income tax
of the State of Minnesota and the Minnesota alternative minimum tax. At least
95% of the exempt interest dividends paid by Minnesota Fund will be derived
from interest income on obligations of the State of Minnesota or its political
or government subdivisions, municipalities, governmental agencies or
instrumentalities.
During temporary defensive periods (e.g., times when, in the opinion of
Insight, temporary imbalances of supply and demand or other temporary
dislocations in the tax-exempt bond market adversely affect the price at which
municipal obligations are available), and in order to keep cash on hand fully
invested, a Fund may invest any percentage of its assets in temporary
investments. Temporary investments are short-term, high-quality securities
that may be either tax-exempt or taxable. The Funds would not expect to invest
in taxable temporary investments unless suitable tax-exempt temporary
<PAGE>
investments are not available at reasonable prices and yields. Tax-exempt
temporary securities include various obligations issued by state and local
governmental issuers, such as tax-exempt notes (bond anticipation notes, tax
anticipation notes and revenue anticipation notes or other such municipal
obligations maturing in three years or less from the date of issuance) and
municipal commercial paper. Taxable temporary securities include short-term
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured thereby. See "Investment
Policies" in the Statement of Additional Information for a more detailed
description of such investments. To the extent the Funds invest in taxable
investments, the Funds may not at such times be in a position to achieve the
investment objective of current income exempt from regular federal income tax
and (in many cases) state personal income tax.
Under normal market circumstances, management anticipates that longer-
term maturities will provide the highest current income and, accordingly,
expects that 80% or more of the assets of National Fund and Minnesota Fund will
be invested in long-term municipal obligations. Under normal market
conditions, it is anticipated that the average weighted maturity of each Fund's
portfolio will be in the range of 17 to 22 years, and possibly in excess of 22
years. However, management reserves the right to substantially shorten average
portfolio maturity if yields on shorter-term municipal obligations of
comparable quality approach or exceed yields on longer-term municipal
obligations or if management otherwise believes it is prudent to do so based on
its expectations regarding future yields.
Municipal Obligations
The Funds invest in municipal obligations, including, primarily,
municipal bonds and participation interests therein. The Funds also may invest
in bond anticipation notes, construction loan notes, revenue anticipation notes
and tax anticipation notes. In addition, each Fund may purchase other types of
tax-exempt municipal obligations, such as short-term discount notes. Municipal
bonds generally are classified as either "general obligation" or "revenue"
bonds. See "Investment Policies" in the Statement of Additional Information.
Bond Anticipation Notes. Bond anticipation notes are issued in
anticipation of a later issuance of bonds and are usually payable from the
proceeds of the anticipated sale of the bonds or of renewal notes.
Construction loan notes, issued to provide construction financing for specific
projects, are often redeemed after the projects are completed and accepted with
funds obtained from the Federal Housing Administration under "Fannie Mae"
(Federal National Mortgage Association) or "Ginnie Mae" (Government National
Mortgage Association). Revenue anticipation notes are issued by governmental
entities in anticipation of revenues to be received later in the then current
fiscal year. Tax anticipation notes are issued by state and local governments
in anticipation of collection of taxes to finance the current operations of
such governments. These notes are generally repayable only from tax
collections and often only from the proceeds of the specific tax levy whose
collection they anticipate.
Variable and Floating Rate Securities. The Funds may invest in certain
variable or floating rate demand securities, including participation interests
therein. These securities may be general obligation or revenue bonds. The
<PAGE>
value of such securities may change with changes in interest rates generally.
However, the variable or floating rate nature of such securities should reduce,
to the extent a Fund is invested in such securities, the degree of fluctuation
in the value of its portfolio investments. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation and risk of
potential capital depreciation is less than would be the case with a portfolio
composed entirely of fixed-income securities. The portfolio of a Fund may
contain variable or floating rate demand securities on which stated minimum or
maximum rates set by state law limit the degree to which interest on such
securities may fluctuate; to the extent it does, increases or decreases in
value may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the variable or floating rate
demand securities is made in relation to movements of the applicable indexes
(e.g., the prime rate), such securities are not comparable to longer-term fixed
rate securities. Accordingly, interest rates on such securities may be higher
or lower than current market rates for fixed rate obligations of comparable
quality with similar maturities.
The demand feature of variable rate participation interests will be
supported by a letter of credit or comparable guarantee provided by the selling
institution (generally, banks that are members of the Federal Reserve Board or
insurance companies). Such participation interests will not be purchased
unless accompanied by an opinion of counsel, given at the time of purchase by a
Fund, that the interest payable in connection with the participation is exempt
from federal income tax.
State and Municipal Lease Obligations. Each Fund is permitted to invest
in state and municipal lease obligations ("municipal leases"). Traditionally,
municipal leases have been viewed by the SEC staff as illiquid investments.
However, subject to Board standards similar to the standards applicable to
restricted securities (as discussed in the Statement of Additional
Information), Insight may treat certain municipal leases as liquid investments
and not subject to the policy limiting investments in illiquid investments.
Municipal leases are issued by state and local governments or authorities
to finance the acquisition of equipment and facilities. Municipal leases may
take the form of a lease, an installment purchase or conditional sale contract
or a participation certificate in such a lease or contract. Municipal leases
frequently have the special risks described below which are not associated with
general obligation or revenue bonds issued by public bodies. In determining
municipal leases in which the Funds will invest, Insight will evaluate the
credit rating of the lessee and the terms of the lease. Additionally, Insight
may require that certain municipal leases be secured by a letter of credit or
put arrangement with an independent financial institution.
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. Municipal 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: (a) the inclusion in many municipal leases of a
<PAGE>
"nonappropriation clause" 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; (b) the exclusion of a municipal lease from the
definition of indebtedness under relevant state law; or (c) the provision in
the municipal lease 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 a municipal lease is terminated by the public body for
nonappropriation or other 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 a loss.
Municipal leases represent a relatively new type of financing that has
not yet developed the depth of marketability associated with more conventional
municipal obligations. Therefore, as mentioned above, municipal leases held by
a Fund will be treated as illiquid unless they are determined to be liquid
pursuant to the aforementioned liquidity guidelines. Additionally, the lack of
an established trading market for municipal leases may make the determination
of fair market value more difficult.
Brokerage and Portfolio Turnover
Insight may consider a number of factors in determining which brokers to
use for the Funds' portfolio transactions. These factors, which are more fully
discussed in the Statement of Additional Information, include, but are not
limited to, research services, favorableness of net price, the reasonableness
of commissions, and quality of services and execution. A broker's sales of any
of the Funds' shares may also be considered a factor if Insight is satisfied
that a Fund would receive from that broker the most favorable price and
execution then available for a transaction. Transactions in municipal
obligations will generally be with the issuer or with dealers acting on a
principal basis. However, portfolio transactions for the Funds that are
executed on an agency basis may be effected through the Co-Distributors on a
securities exchange if the commissions, fees or other remuneration received by
a Co-Distributor are reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an
exchange during a comparable period of time. In effecting portfolio
transactions through a Co-Distributor, the Funds intend to comply with Section
17(e)(1) of the 1940 Act.
A change in securities held by a Fund is known as "portfolio turnover."
A 100% portfolio turnover rate would occur if all the securities in a Fund's
portfolio were replaced in a period of one year. As the portfolio turnover
increases, a Fund can be expected to incur greater brokerage commission
expenses and transaction costs, which will be borne by its shareholders. While
it is not the policy of either Fund to trade actively for short-term profits,
each Fund will dispose of securities without regard to the time they have been
held when such action appears advisable to Insight. Portfolio turnover rates
for the Funds are set forth in "Financial Highlights."
<PAGE>
When-Issued Securities
The Funds may purchase securities on a "when-issued" or delayed delivery
basis. Delivery and payment normally take place within one week of the
purchase of notes and within one month of the purchase of bonds.
There is no limit on the amount of assets that the Funds may invest in
"when-issued" obligations. No interest accrues to a Fund on "when-issued"
securities prior to the time such Fund takes delivery and makes payment.
Purchase of "when-issued" securities involves the risk that yields available
in the market when delivery occurs may be higher than those available when the
"when-issued" order is placed. The Custodian will maintain on a daily basis
segregated accounts for each Fund consisting of cash or liquid debt securities
with a value at least equal to the amount of the commitments to purchase
"when-issued" securities of such Fund.
Risk Factors
Although Insight seeks to manage the Funds with a view toward reducing
the price volatility of its portfolio, it can be expected that the net asset
value of each Fund will change with changes in the value of its portfolio
securities. The net asset value of the shares of the Funds can be expected to
change as general levels of interest rates fluctuate. When interest rates
decline, the value of a fixed-income portfolio can be expected to rise.
Conversely, when interest rates rise, the value of a fixed-income portfolio can
be expected to decline.
Interest rate fluctuations may affect payment expectations on fixed-
income securities. For example, certain municipal obligations may contain
redemption or call provisions. If an issuer exercises these provisions in a
declining interest rate market, a Fund would likely have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a municipal obligation's value will decrease in a
rising interest rate market, resulting in a decrease in the value of the Funds'
assets. If a Fund experiences unexpected net redemptions, this may force it to
sell its portfolio securities without regard to their investment merits,
thereby decreasing the asset base upon which the Fund's expenses can be spread
and possibly reducing the Fund's rate of return.
Each of the Funds is a "non-diversified" investment company and, as such,
could invest all of its assets in the obligations of a single issuer or
relatively few issuers. However, each Fund intends to conduct its operations
so that it will qualify under the Internal Revenue Code as a "regulated
investment company." In order to qualify, among other requirements, each Fund
must limit its investments so that, at the close of each quarter of the taxable
year, with respect to at least 50% of its total assets: (a) not more than 5% of
its total assets will be invested in the securities of a single issuer; and
(b) each Fund will not invest in more than 10% of the outstanding voting
securities of a single issuer. In addition, the Code requires that not more
than 25% in value of each Fund's total assets may be invested in the securities
of a single issuer at the close of each quarter of the taxable year.
<PAGE>
National Fund. Fixed income securities offering the high current income
sought by National Fund ordinarily will be in the medium or lower rating
categories of recognized rating agencies or will be unrated. Securities rated
BB or B by S&P or Ba or B by Moody's (or equivalently rated by another
nationally recognized statistical rating organization) are below investment
grade (such securities are commonly referred to as "junk bonds") and will
generally involve more credit risk than securities in the higher rating
categories. In some cases such securities are subordinated to the prior
payment of senior indebtedness, thus potentially limiting the Fund's ability to
receive payments or to recover full principal when senior securities are in
default. 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. Upon any default, National Fund may incur additional expenses to
the extent it is required to seek recovery of the payment of principal or
interest on the relevant portfolio holding. For information concerning the
rating categories of debt securities and commercial paper, see the appendix to
this Prospectus.
Some securities in National Fund's portfolio may be thinly traded, which
may have an adverse impact on market price and the ability of National Fund to
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. In addition, a thinly traded market may
interfere with the ability of National Fund to accurately value high yield
securities and, consequently, value the Fund's assets. Furthermore, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of high yield securities,
especially in a thinly traded market.
Set forth below are the dollar-weighted average percentages of total
investments represented by rated and unrated municipal obligations held by
National Fund during the year ended July 31, 1995. Obligations not rated by a
nationally recognized statistical rating organization have been assigned
ratings by Insight in accordance with rating policies approved by Great Hall's
Board of Directors. See "Risk Factors--Unrated Investments" below.
Unrated Securities
Rated Securities of Comparable Quality
Rating Category (% of assets) (% of assets) Total
--------------------- ------------- ------------- -----
AAA/Aaa.............. 2% 5% 7%
AA/Aa................ 1% 1% 2%
A.................... 7% 1% 8%
BBB/Baa.............. 15% 44% 59%
BB/Ba................ -- 24% 24%
B.................... -- -- --
---- ---- ----
TOTAL 25% 75% 100%
Unrated Investments. National Fund is permitted to invest without
limitation in municipal obligations that are unrated but that are considered by
Insight, in accordance with policies established by Great Hall's Board of
<PAGE>
Directors, to have characteristics and qualities that are comparable to those
rated municipal obligations in which the Funds may invest. The standards and
policies approved by Great Hall's Board and employed by Insight in assessing
the characteristics and qualities of unrated investments are discussed in the
Statement of Additional Information. Unrated issues tend to be somewhat
smaller in size and, therefore, less well known than rated issues. Moreover,
issuers that would expect to be rated lower by a rating organizations may opt
not to be rated because the rating process and associated expense may not be
justified from a marketing perspective. As a result, fewer dealers generally
are willing to "bid" unrated issues than are willing to bid rated issues, and
the bid/ask spreads of unrated issues tend to be somewhat higher than for rated
issues. Therefore, unrated issues may tend to be somewhat less liquid, and
their market prices more volatile, than rated issues. Additionally, during
periods of poor economic conditions, more investors tend to favor high quality
rated issues. As a result, the price at which unrated issues may be sold may
be more negatively affected during those times than would rated issues.
Because unrated municipal obligations generally are not insurable, Minnesota
Fund currently does not invest in unrated municipal obligations.
INVESTMENT MANAGEMENT
Insight, 60 South Sixth Street, Minneapolis, Minnesota 55402, serves as
each Fund's investment adviser. Pursuant to the investment advisory agreement
between the Funds and Insight (the "Advisory Agreement"), Insight manages the
investment and reinvestment of such Fund's assets in accordance with such
Fund's investment objective, policies and limitations, subject to the general
supervision and control of Great Hall's Board of Directors. In addition,
Insight is responsible for the overall management of each Fund's business
affairs, subject to the authority of the Board of Directors of Great Hall.
Under the Advisory Agreement, Insight furnishes each Fund with office
facilities and clerical and administrative services and, together with its
affiliates, the Co-Distributors, Insight may also bear certain promotional
expenses, including a portion of the costs of printing and distributing
prospectuses utilized for promotional purposes. Insight also performs and
bears the internal costs of research, statistical analysis and continuous
supervision of the investment portfolios of each Fund. Insight (formerly
Insight Bond Management, Inc.) has been registered with the SEC as an
investment adviser since 1983, and has been a portfolio manager of publicly
offered investment companies since 1986, including the predecessor funds of
National Fund and Minnesota Fund.
Under the Advisory Agreement, Insight is entitled to receive a monthly
advisory fee of .50% per year of each Fund's average daily net assets.
Each Fund pays all its expenses that are not expressly assumed by
Insight. These expenses include, among others, the advisory fee, the fees and
expenses of directors of Great Hall who are not "affiliated persons" of
Insight, interest expense, taxes, brokerage fees and commissions, fees and
expenses of registering and qualifying each 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, distribution expenses pursuant to the Rule 12b-1 plan, custodian
<PAGE>
and portfolio accounting charges, auditing and legal expenses, insurance
expense, association membership dues, and the expense of shareholders' reports,
meetings and proxy solicitations. Each Fund is also liable for such
nonrecurring expenses as may arise, including litigation to which such Fund may
be a party. Each Fund and/or Great Hall may have an obligation to indemnify
its directors and officers with respect to such litigation.
Insight and the Co-Distributors are wholly-owned subsidiaries of IFG.
The Co-Distributors are member firms of the New York Stock Exchange, Inc. (the
"NYSE"), other major securities exchanges and the National Association of
Securities Dealers, Inc. (the "NASD"). The Co-Distributors participate in the
securities and commodities brokerage business as well as the underwriting and
distribution of new issues and act as dealers in unlisted securities and
municipal and corporate bonds.
Raye C. Kanzenbach, Senior Portfolio Manager and Vice President of
Insight, currently oversees the investment portfolios of all accounts managed
by Insight, including the Funds. From 1983 to 1991, Mr. Kanzenbach served as a
Director and as Senior Vice President and Secretary of Insight's predecessor,
Insight Bond Management, Inc. Mr. Kanzenbach has approximately 21 years of
investment management experience. Portfolio management responsibilities are
shared by Dennis T. Hippen, Senior Portfolio Manager, Senior Vice President and
Director of Client Service of Insight. From 1983 to 1991, Mr. Hippen served as
a Director and as President of Insight Bond Management, Inc. Mr. Hippen has
approximately 28 years of investment management experience.
HOW TO INVEST
You may purchase shares of each Fund at the public offering price, which
is the net asset value next determined following receipt of an order plus the
applicable sales charge. The sales charge, which is a percentage of the public
offering price, varies with the amount of purchase as shown below.
Sales Charge
Sales Charge as Percentage of Dealers Discount
as Percentage of Net Amount as Percentage of
Amount of Purchase Offering Price Invested Offering Price
- ------------------ -------------- -------- --------------
Less than $100,000..... 4.50% 4.71% 4.00%
Less than $100,000..... 4.50% 4.71% 4.00%
$100,000 to $249,999... 3.75% 3.90% 3.25%
$250,000 to $499,999.. 3.00% 3.09% 2.50%
$500,000 to $999,999... 2.00% 2.04% 1.75%
$1,000,000 or more*.... none none *
________________________________
* A contingent deferred sales charge may be imposed with respect to
certain investments of $1,000,000 or more. See "How To Redeem Shares
Contingent Deferred Sales Charge."
<PAGE>
Pursuant to a Co-Distributor Agreement, shares of Minnesota Fund are
distributed through authorized dealers by Dain Bosworth Incorporated, and
shares of National Fund are distributed through authorized dealers by both of
the Co-Distributors.
You may open an account and make your initial investment in a Fund by
contacting one of the Co-Distributors. The minimum initial investment is
$1,000. Subsequent purchases must be in amounts of at least $250. The Funds
reserve the right to reject in whole or in part any order to purchase shares of
the Funds. The Funds do not issue share certificates.
Automatic Investment Plan
After you have opened your Fund account, you may arrange to make
automatic monthly or quarterly investments into your account by contacting your
investment executive and completing the accompanying Account Authorization
Form. Under this plan, funds will be drawn from your bank account at regular
intervals to purchase shares of a Fund at the applicable offering price on the
date of the transfer and a debit will appear on your bank statement. The
minimum amount for each such investment is $100.
Reduced Sales Charges
You may be eligible to purchase shares of National Fund and Minnesota
Fund at a reduced sales charge if you qualify for the combined purchase
privilege, the cumulative quantity discount or have executed a letter of
intent, or if you exercise the reinvestment or exchange privilege. In order
for reduced sales charges to apply to any of your investments in the Funds, you
must notify, and provide appropriate documentation to, your investment
executive regarding your eligibility.
Shares of National Fund and Minnesota Fund may be sold at net asset value
to: (a) officers, directors, partners and employees of Great Hall and Insight,
and their spouses, lineal ancestors, descendants and siblings (and the lineal
ancestors of such spouses and the spouses of such lineal ancestors, descendants
and siblings); (b) officers, directors, partners and employees of outside
counsel to the Funds, the Co-Distributors and NASD member firms that have
entered into selected dealer agreements with the Co-Distributors and the
spouses and minor children of such persons; and (c) advisory accounts through
their SEC-registered investment advisers.
Shareholders of unrelated open-end and closed-end funds with sales loads
may buy shares of National Fund and Minnesota Fund without paying a sales
charge to the extent that the purchase price of Fund shares is funded by the
proceeds from the redemption of shares of any such unrelated fund (within sixty
days of the purchase of Fund shares). The Co-Distributors may, out of their
own assets, compensate investment executives and other broker-dealers in
connection with these purchases of Fund shares.
It is the investor's obligation to notify (at the time of the investment)
his or her investment executive about the investor's eligibility for any
applicable reduced sales charge program. Absent such notification, no such
program will automatically be applied to any investment in Fund shares, and the
<PAGE>
applicability of any such program to an investor may be waived by the investor
if such waiver would be advantageous to such investor.
Plan of Distribution; Co-Distributor Agreement
Each of the Funds has adopted a plan of distribution pursuant to Rule
12b-1 under the 1940 Act. Under the plan of distribution and the Co-
Distributor Agreement, each Fund is authorized to pay the Co-Distributors fees
at the annual rate of not more than .30 of 1% of the average net assets of such
Fund, which fee may be used to compensate those who sell shares and to pay
other expenses of selling shares and providing various services to Fund
shareholders. The Co-Distributors have voluntarily agreed to waive their 12b-1
fees to the extent reflected under "Fees and Expenses" and to use such fees
only in connection with the provision of shareholder services (including, but
not limited to, responding to shareholder inquiries and providing information
on their investments) by the Co-Distributors and dealers who enter into selling
agreements with the Co-Distributors.
HOW TO REDEEM SHARES
You may redeem shares for cash at the net asset value next computed after
your redemption request is received by a Co-Distributor or, in the case of
redemptions made through another dealer, by Norwest Bank Minnesota, N.A., the
transfer agent for each Fund (the "Transfer Agent"). If shares have been
purchased by check and are being redeemed, the purchase check must be collected
by the Transfer Agent before payment for the redemption can be made. The net
asset value per share may fluctuate between the time you mail your redemption
request and the time your request is received.
Requests for redemption may be made by contacting your investment
executive or, if you have elected the Telephone Redemption Privilege on the
accompanying Account Authorization Form, by calling Great Hall. Great Hall (or
its agents) will employ reasonable procedures to confirm that phone
instructions in connection with telephone redemptions are genuine, including
requiring that payments be made only to the shareholder's address of record
shown on the Application and by requiring certain forms of identification. If
Great Hall (or its agents) fail to employ these procedures, Great Hall (or such
agent) may be liable for any losses suffered by shareholders as a result of
such failure. You may elect to receive payment of redemption proceeds by bank
wire to your designated account if the proceeds are $1,000 or more; otherwise,
proceeds will be sent by mail to your address of record. If shares are
redeemed under this procedure, you will not be required to provide a signature
guarantee.
Under the 1940 Act, the right of redemption may be suspended or the date
of payment postponed for more than seven days at times when the NYSE is closed
other than customary weekend or holiday closings, or when trading on the NYSE
is restricted, or under certain emergency circumstances, as determined by the
SEC.
<PAGE>
Shareholders who want to keep their accounts open should leave $500 in
the account. Otherwise, if the value of the shares in the account decreases to
below $500 as a result of redemption or transfer rather than a decline in the
market value of the shares, a Fund may close the account and mail the proceeds
from the redemption of the shares to the shareholder's address according to the
Transfer Agent's records. The required minimum investment may be changed from
time to time by the Board of Directors of Great Hall upon 60 days written
notice to shareholders.
Contingent Deferred Sales Charge
Sales of shares of $1,000,000 or more are not subject to the Funds'
front-end sales load ("FESL") (see "How to Invest" in the Funds' prospectus)
but are subject to a contingent deferred sales charge ("CDSC"). If such shares
are redeemed within a period of 24 months after their purchase date (the "CDSC
Period"), the redemption proceeds will be reduced by the CDSC (1% of 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).
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 CDSC
Period. In determining whether the CDSC is payable with respect to any
redemption, it will be assumed that shares that are not subject to the CDSC are
redeemed first and that other shares or amounts are then redeemed on a last-
purchased, first-redeemed basis.
The CDSC is waived with respect to each class of purchaser and each class
of transaction that currently qualifies for waiver of the Fund's FESL
(exclusive of waivers based on the amount of the investment), as disclosed
under "How to Invest-Reduced Sales Charges" above. Shares of one Fund that are
acquired in exchange for shares of the other Fund that were subject to the CDSC
generally will be subject to the same CDSC and CDSC period that applied to the
shares that were exchanged therefor. The CDSC will not be imposed at the time
that Fund shares subject to the CDSC are exchanged for shares of any of the
three Great Hall Money Market Funds or at the time such Money Market Funds'
shares are re-exchanged for shares of either Fund; provided, however, that, in
each such case, the shares acquired will remain subject to the CDSC, and the
CDSC Period applicable to such shares will be extended by the period during
which such shares represent shares of any of the Great Hall Money Market Funds.
The CDSC also is waived on redemption of shares in the event of the death or
disability of the shareholder within the meaning of Section 72(m)(7) of the
Code.
Additionally, as set forth under "How to Invest-Reduced Sales Charges," a
purchaser of Fund shares may qualify for a waiver or reduction of the FESL if
such purchaser qualifies for the combined purchase privilege or cumulative
quantity discount or enters into a letter of intent. Unless otherwise exempt
from the CDSC, combined purchase privileges, cumulative quantity discounts and
letters of intent involving purchases of $1,000,000 or more of Fund shares
without the imposition of a FESL will be subject to the CDSC.
The Co-Distributors, upon notification, provide (out of their own assets)
a pro rata refund of any CDSC paid in connection with a redemption of shares of
the Funds, by crediting such refunded CDSC to such shareholder's account, if,
<PAGE>
within 90 days of such redemption, all or any portion of the redemption
proceeds are reinvested in shares of one or more of the Funds. Any
reinvestment within 90 days of a redemption to which the CDSC was paid will be
made without the imposition of a FESL but will be subject to the same CDSC to
which such amount was subject prior to the redemption; provided, however, that
the CDSC Period will run from the original investment date but will be extended
by the number of days between the redemption and the reinvestment dates
(inclusive).
NET ASSET VALUE
The net asset value of each Fund is determined as of the primary closing
time of the NYSE (currently 4:00 p.m. New York time), Monday through Friday,
except on: (a) days during which no Fund shares are tendered for redemption and
no order to purchase or sell Fund shares is received by the Fund; or (b) the
following national holidays: New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of each Fund is calculated by subtracting
each Fund's liabilities from its assets and dividing the result by the number
of outstanding shares of such Fund. When calculating net asset value, all
portfolio securities of a Fund are valued at market value when there is a
reliable market quotation for the securities and otherwise in accordance with
procedures established by the Board of Directors of Great Hall. Reliable
market quotations normally are not considered to be readily available for tax-
exempt securities. These securities are stated at fair value on the basis of
valuations furnished by pricing services, approved by the Board of Directors of
Great Hall, which pricing services determine valuations using methods based on
market transactions for comparable securities and other factors that are
generally recognized by institutional traders.
Generally, trading in fixed-income municipal obligations is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in determining the net asset value of shares of the
Funds are computed as of such times. Events affecting the value of such
securities may occur between such times and the close of the NYSE, which
events will not be reflected in the computation of such Fund's net asset value.
When events that materially affect the value of securities occur during such a
period, the fixed-income securities will be valued at their fair value as
determined in good faith by Insight in accordance with procedures established
by the Board of Directors of Great Hall.
DISTRIBUTIONS
All dividends and any capital gain distributions of each Fund will be
reinvested in additional shares of such Fund (including fractional shares where
necessary) at net asset value, without a sales charge, unless you elect in
writing, not less than five full business days prior to the record date for a
particular dividend or distribution, to receive such dividend or distribution
in cash. If you elect to receive distributions in cash, your election will be
effective until you give other written instructions to the Fund. The timing
and amount of all dividends and distributions are subject to the discretion of
the Board of Directors of Great Hall.
<PAGE>
The Funds declare dividends from net investment income daily and pay such
dividends monthly. Net investment income for Saturdays, Sundays and other days
on which the NYSE is closed will be declared as dividends on the next business
day. Each daily dividend is payable on "shares of record" at the time of its
declaration. For this purpose, "shares of record" means shares for which
payment has been received by the applicable Fund, and excludes shares redeemed
on that day.
TAXES
Each Fund qualified as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended, during its last taxable year
and intends to continue to do so. If so qualified, the Fund will not be
subject to federal income taxes to the extent net investment income and net
capital gains are timely distributed to shareholders.
Federal Taxation of Shareholders
The Funds will distribute substantially all of their investment income
and capital gain net income to shareholders. Dividends derived from interest
earned on tax-exempt municipal obligations, including insurance proceeds
representing maturing interest on defaulted municipal obligations, constitute
"exempt-interest dividends" when designated as such by the Funds and will not
be subject to federal income taxation. Tax-exempt interest from certain
"private activity" bonds issued after August 7, 1986 is considered a tax
preference item for purposes of the alternative minimum tax. For corporations,
all tax-exempt interest will be included in adjusted current earnings for
purposes of calculating the alternative minimum tax.
Dividends, if any, derived from net capital gains will generally be
taxable to shareholders as long-term capital gains for federal income tax
purposes, regardless of the length of time the shareholder has held his or her
shares. Long-term capital gains are currently subject to a maximum tax rate of
28%. Dividends, if any, derived from sources other than tax-exempt interest
and net capital gains will be taxable to shareholders as ordinary income for
federal income tax purposes even if reinvested in additional shares.
Shareholders not subject to federal income taxation will not be required to pay
tax on any amounts distributed to them.
Upon exchange or disposition of shares in a Fund, a shareholder will
generally recognize capital gain or loss (which will be long-term capital gain
or loss if the shares were held more than one year).
The Funds anticipate that substantially all of their dividends will be
exempt from federal income taxes and will notify each shareholder annually of
the tax status of all distributions.
<PAGE>
Minnesota Taxation of Shareholders of Minnesota Fund
The portion of exempt-interest dividends excluded from federal adjusted
gross income that is derived from interest income on obligations of the State
of Minnesota, its political or governmental subdivisions, municipalities,
governmental agencies or instrumentalities (including insurance proceeds
representing maturing interest on such obligations), is excluded from the
Minnesota taxable net income of individuals, estates and trusts, provided that
the portion of the federal exempt-interest dividends from such Minnesota
sources paid to all shareholders represents 95 percent or more of the federal
exempt-interest dividends paid by Minnesota Fund. The remaining portion of
such dividends, and dividends that are not exempt-interest dividends or capital
gain dividends, are included in the Minnesota taxable net income of
individuals, estates and trusts, except for dividends that are directly
attributable to interest on obligations of the United States Government or
certain United States territories and possessions. Exempt-interest dividends
are not excluded from the Minnesota taxable income of corporations and
financial institutions. Dividends qualifying for federal income tax purposes
as capital gain dividends are to be treated by shareholders of Minnesota Fund
as long-term capital gains under Minnesota law. However, Minnesota has
repealed the favorable treatment of long-term capital gains, 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.
Minnesota Taxation of Shareholders of National Fund
The exempt-interest dividends paid by National Fund that are excluded
from federal adjusted gross income will be included in the Minnesota taxable
net income of individuals, estates and trusts, except for dividends that are
directly attributable to interest on obligations of the United States
Government and obligations of certain United States territories and
possessions.
Consult Tax Adviser for Additional Information
The foregoing is only a summary of some of the important federal and
Minnesota tax considerations generally affecting the Funds and their
shareholders. No attempt is made to present a detailed explanation of the
federal or state income tax treatment of the Funds or their shareholders, and
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, and regarding the tax status of distributions from the Funds in
states other than Minnesota. National Fund will report to its shareholders
annually the percentage and source, on a state-by-state basis, of interest
income earned on municipal obligations held during the preceding year. For a
discussion of state income taxes with respect to the Funds, see "Taxes" in the
Statement of Additional Information.
<PAGE>
SHAREHOLDER SERVICES
Shareholder inquiries may be directed to Insight or your investment
executive. Written inquires to Insight should be directed to Insight
Investment Management at the address set forth on the cover of this Prospectus.
You may call Insight, toll free, at (800) 934-6674.
Systematic Withdrawal Plan
You may participate in the Systematic Withdrawal Plan by contacting your
investment executive and completing the applicable section of the accompanying
Account Authorization Form. You may elect regular monthly, quarterly, semi-
annual or annual payments. This Plan enables you to receive a portion of your
invested funds on a periodic basis to supplement income. Such payments are
made from share redemptions. If redemptions continue, your account may
eventually be exhausted. The minimum initial investment required to start a
withdrawal plan is $10,000.
Exchange Privilege
You may exchange shares of either Fund for shares of the other Fund
(without paying any sales charge) or for shares of any of Great Hall's Money
Funds at any time. Exchanges of shares of the Money Funds for shares of
National Fund or Minnesota Fund will include the payment of the applicable
sales charge; however, subsequent to an exchange from National Fund or
Minnesota Fund into a Money Fund, you may re-exchange the shares of the Money
Fund for shares of either Fund without payment of another sales charge. It is
your responsibility, at the time of any exchange, to notify your investment
executive regarding your eligibility for a sales charge waivers. Additional
exchange instructions may be obtained by contacting your investment executive
or by calling the toll free number listed on the cover of this Prospectus.
Before considering an exchange to another portfolio of Great Hall, you should
read the prospectus for such portfolio.
Exchanges may be made by contacting your investment executive or, if you
have elected the Telephone Exchange Privilege on the accompanying Account
Authorization Form, by calling Great Hall. Neither the Funds nor the Transfer
Agent will be responsible for the authenticity of exchange instructions
received by telephone. The exchange privilege is subject to termination and
its terms are subject to change upon 60 days' written notice to shareholders.
PERFORMANCE
From time to time, each Fund may advertise its yield, which reflects the
rate of income the applicable Fund earns on its investments as a percentage of
its price per share. All yield figures are based on historical earnings and
are not intended to indicate future performance. The yield for the Funds is
computed by dividing the interest and dividend income each such Fund earned on
its investments for a 30-day (or one month) period, less expenses, by the
average number of Fund shares outstanding during the period. The figure is
<PAGE>
expressed as an annualized percentage rate based on the Fund's offering price,
including the sales charge, at the end of the 30-day (or one month) period.
The Funds may advertise their "taxable equivalent yield," which will be
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.
Performance advertising by the Funds will include total return data. The
total return of each Fund refers to its overall change in value, assuming
reinvestment of all dividends and gains distributions and deduction of the
maximum sales charge. Total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment that would compare the
initial amount to the ending redeemable value of such investment.
A Fund may also use "aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in such Fund for
the specific period (again reflecting changes in Fund share prices and assuming
reinvestment of dividends and distributions). Aggregate total returns may be
shown by means of schedules, charts or graphs, and may indicate subtotals of
the various components of total return (i.e., change in value of initial
investment, income dividends and capital gains distributions).
The Funds' performance from time to time in reports or promotional
literature may be compared to generally accepted indices or analyses such as
those provided by Lipper Analytical Service, Inc., S&P, Dow Jones, CDA
Investment Technologies, Inc., Morningstar and Investment Company Data
Incorporated. Performance ratings reported periodically in national financial
publications also may be used.
The Funds' Annual Report contains certain performance information
regarding the Funds. The Annual Report will be made available to any recipient
of this Prospectus upon request and without charge.
DESCRIPTION OF THE FUNDS
Great Hall was incorporated under the laws of the State of Minnesota in
June 1991 and is registered with the SEC under the 1940 Act as an open-end
management investment company (commonly known as a "mutual fund"). This
registration does not involve supervision of management or investment policy by
an agency of the federal government. A separate series of capital stock is
issued for each of the investment portfolios. Ten billion shares have been
designated for each of National Fund and Minnesota Fund.
Great Hall is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders, and does not intend to
hold such meetings. The Board of Directors may convene shareholder meetings
when it deems appropriate and is required under Minnesota law to schedule
regular or special meetings in certain circumstances. Additionally, under
Section 16(c) of the 1940 Act, the Board of Directors of Great Hall must
<PAGE>
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any director when requested in writing to do so by the
record holders of not less than 10% of the outstanding shares.
Under Minnesota law, the Board of Directors has overall responsibility
for managing Great Hall in good faith, in a manner reasonably believed to be in
the best interests of Great Hall, and with the care an ordinarily prudent
person in a like position would exercise in similar circumstances. The Articles
of Incorporation of Great Hall limit the liability of directors to the fullest
extent permitted by law.
CUSTODIAN AND TRANSFER AGENT
Norwest Bank Minnesota, N.A., a national banking association, serves as
the Custodian of the Funds pursuant to a Custodian Agreement and also serves as
the Dividend and Transfer Agent of the Funds pursuant to a Dividend and
Transfer Agency Agreement.
<PAGE>
TAX-EXEMPT VS. TAXABLE INCOME
The table below shows the approximate yields that taxable securities must
earn to equal federally tax-exempt yields and yields that are exempt from both
federal and Minnesota income taxes under selected combined federal/Minnesota
income tax brackets, which reflect effective combined rates after deducting
Minnesota taxes from federal income. The portion of the table under the
heading "Federal Tax Brackets" illustrates taxable equivalent yields for the
National Fund, and the portion of the table under the heading "Combined Federal
and Minnesota Tax Brackets" illustrates taxable equivalent yields for the
Minnesota Fund. In the Minnesota Fund portion of the table, the 33.8% combined
federal/Minnesota bracket assumes that the investor is subject to a 28%
marginal federal income tax rate and an 8% marginal Minnesota income tax rate.
The 36.9% combined federal/Minnesota bracket assumes that the investor is
subject to a 31% marginal federal income tax bracket and an 8.5% marginal
Minnesota income tax rate. The 41.4% combined federal/Minnesota bracket
assumes that the investor is subject to a 36% marginal federal income tax rate
and an 8.5% marginal Minnesota income tax rate. The 44.7% combined
federal/Minnesota bracket assumes that the investor is subject to a 39.6%
marginal federal income tax rate and an 8.5% marginal Minnesota income tax
rate. The 39.6% federal rate and 8.5% Minnesota rate are the highest rates
currently in effect and currently scheduled to be in effect for individuals in
1996.
------------------Taxable Equivalent Yields------------------
Combined Federal and
Federal Tax Brackets Minnesota Tax Brackets
Tax-Free ----------------------------- -----------------------------
Yields 28% 31% 36% 39.6% 33.8% 36.9% 41.4% 44.7%
------ ----- ----- ----- ----- ----- ----- ----- -----
4.0% 5.56% 5.80% 6.25% 6.62% 6.04% 6.34% 6.83% 7.23%
4.5% 6.25% 6.52% 7.03% 7.45% 6.80% 7.13% 7.68% 8.14%
5.0% 6.94% 7.25% 7.81% 8.28% 7.55% 7.92% 8.53% 9.04%
5.5% 7.64% 7.97% 8.59% 9.11% 8.31% 8.72% 9.39% 9.95%
6.0% 8.33% 8.70% 9.38% 9.93% 9.06% 9.51% 10.24% 10.85%
6.5% 9.03% 9.42% 10.16% 10.76% 9.82% 10.30% 11.09% 11.75%
7.0% 9.72% 10.14% 10.94% 11.59% 10.57% 11.09% 11.95% 12.66%
7.5% 10.42% 10.87% 11.72% 12.42% 11.33% 11.89% 12.80% 13.56%
8.0% 11.11% 11.59% 12.50% 13.25% 12.08% 12.68% 13.65% 14.47%
This table does not take into consideration any federal or Minnesota
alternative minimum tax. In addition, the table is based upon yields that are
derived solely from tax-exempt income. To the extent a Fund's actual yield is
derived from taxable income, the Fund's equivalent taxable yield will be less
than set forth in the table. The tax-free yields used in the table should not
be considered as representations of any particular rates of return and are for
purposes of illustration only.
<PAGE>
APPENDIX
RATINGS OF INVESTMENTS
The following is a description of Standard & Poor's Corporation ("S&P")
and Moody's Investors Service, Inc. ("Moody's") commercial paper, loan, note
and bond ratings. To the extent that ratings accorded by S&P or Moody's may
change as a result of changes in such organizations, the Funds will attempt to
use comparable rating standards for their permissible investments.
Description of Moody's Commercial Paper, Loan and Note Ratings.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Repayment capacity will normally be evidenced by the following characteristics:
* 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.
* Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Loans bearing the designation MIG-1 by Moody's are of the best quality,
enjoying strong protection from established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
Loans bearing the designation of MIG-2 are of high quality, with margins
of protection ample although not so large as the preceding group.
<PAGE>
Loans bearing the designation of MIG-3 are of 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
Description of S&P's Commercial Paper and Municipal Note Ratings
The rating A is the highest commercial paper rating assigned by S&P.
Issues in this category have the greatest capacity for timely payment and are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
The designation A-1 indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
The designation A-2 indicates that the capacity for timely payment is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
The designation A-3 indicates a satisfactory capacity for timely payment.
However, issues with this designation are somewhat more vulnerable to the
adverse effects of changes in circumstances than issues carrying the higher
designations.
Municipal notes rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issuers determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
Municipal notes rated SP-2 have a satisfactory capacity to pay principal
and interest.
Municipal notes rated SP-3 have a speculative capacity to pay principal
and interest.
Description of S&P's Bond Ratings
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in a small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
<PAGE>
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Although they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher-rated categories
BB, B, CCC, CC, C-Bonds rated BB, B, CCC, CC and C 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. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or (-): 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
rating categories.
Description of Moody's Bond Ratings
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-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than with respect
to 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.
<PAGE>
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
Caa-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.
Within each rating classification from Aa through B, Moody's has assigned
the numerical modifiers 1, 2 and 3. The modifier 1 indicates that a security
ranks in the high end of that rating category, 2 in the mid-range of a category
and 3 nearer the low end of a category.
<PAGE>
GREAT HALL INVESTMENT FUNDS, INC.
ACCOUNT AUTHORIZATION FORM
A. ACCOUNT IDENTIFICATION
Registered Account Name: ________________________________________
Account # _______________________________________________________
B. DIVIDEND/DISTRIBUTIONS
If you elected to receive dividends and distributions in cash, you
may select from the following options (NOTE: If no option is
selected, a check will be mailed to the registered address of my
account):
o Mail check to the following address: _________________________
_________________________
o Deposit directly into my bank account. Attached is a voided
check showing the bank account to which dividends and
distributions may be deposited.
C. AUTOMATIC INVESTMENT PLAN
o Please arrange with my bank to invest $_____________ ($100
minimum) per month in the above designated Fund. Please charge
my account on the 15th day (or next business day) of each month
commencing on __________ 15, 199__. Attached is a voided check
showing the bank account on which the automatic investment may
be drawn.
D. LETTER OF INTENT
o I elect to take advantage of the Letter of Intent and agree to
the escrow provisions herein and certify that I am entitled to
reduced rates in accordance with the provisions herein. My
initial investment will be at least 5% of the Letter amount. I
intend to purchase, although I am not obligated to do so,
shares of Great Hall National Tax-Exempt Fund and/or Great Hall
Minnesota Insured Tax-Exempt Fund within a 13-month period, in
an aggregate amount of at least:
o $100,000 o $250,000 o $500,000 o $1,000,000
o This is a retroactive 90-day Letter, requiring adjustment of
prior purchase(s).
<PAGE>
E. COMBINED PURCHASE PRIVILEGE
o I elect to take advantage of the Combined Purchase Privilege.
Below is a list of names and account numbers of qualifying
individuals, organizations or other persons (see "Reduced Sales
Charges-Combined Purchase Privilege" in the Statement of
Additional Information) with which I wish to combine my
purchase for reduced sales charge purposes.
__________________________ ___________________________
Name Account #
__________________________ ___________________________
Name Account #
F. TELEPHONE EXCHANGE PRIVILEGE
o I hereby authorize the Fund to honor the telephone request from
any of the registered shareholders of the account for the
exchange of shares in the Fund for shares of any other Great
Hall Fund. The Funds reserve the right to restrict the
frequency of transfers, and to otherwise modify, condition,
terminate or impose charges upon this telephone exchange
privilege at any time without prior notice.
G. TELEPHONE REDEMPTION PRIVILEGE
o I hereby authorize the Fund to honor any telephone instructions
from any of the registered shareholders of the account for
redemption, without signature guarantee, of any or all shares
held in my/our account. Proceeds will be mailed as registered
on the account or, on redemptions of $1,000 or more, I may
request that the proceeds be wired to the bank account
designated below. Attached is a voided check showing the bank
account to which proceeds of $1,000 or more may be wired if
requested.
NOTICE: Great Hall and the Co-Distributors will employ
reasonable procedures to confirm that phone instructions in
connection with telephone exchanges and redemptions are
genuine, including requiring that payments be made only to the
shareholder's address of record or to the bank account shown on
the voided check attached to this application and by requiring
certain forms of identification. If Great Hall and the Co-
Distributors fail to employ these procedures, they may be
liable for any losses suffered by shareholders as a result of
such failure.
<PAGE>
H. SYSTEMATIC WITHDRAWAL PLAN (Shares having a current value of
$10,000 or more must be held in the Account at initiation of the
Plan, and all shares must be in "book" (non-certificate) form.
Unless otherwise specified, all checks will be mailed to the
registered address of the account. If the 15th day of the
applicable month is not a business day, payment will be made on
the preceding business day.)
Please send a check for $_____________ ($100 minimum) per period
(indicate payment period below) commencing on _________ 15, 199__:
o Monthly o Quarterly o Semi-Annually o Annually
I. SIGNATURE AND CERTIFICATION
I hereby certify that I have received the Fund's current
prospectus, agree to be bound by its terms, and that I am
empowered and duly authorized to execute and carry out the terms
of this Account Authorization Form, and further certify that this
Account Authorization Form has been duly and validly executed on
behalf of the person or entity listed above and constitutes a
legal and binding obligation of such person or entity. All
registered owners of joint accounts must sign.
___________________________________________________________
Signature Title (if any) Date
___________________________________________________________
Signature (Joint owner) Title (if any) Date
<PAGE>
LETTER OF INTENT AND TERMS OF ESCROW
Each purchase will be made at the public offering price applicable at
the time of such purchase to a single transaction of the dollar amount
specified, as described in the Prospectus of the applicable Great Hall Fund.
The indication of an election to take advantage of the Letter of Intent does
not constitute a binding commitment to purchase and none of the Great Hall
Funds is making any binding commitment to sell, the full amount of shares
indicated.
To insure that future purchases will receive a quantity discount, you,
or your investment executive, must inform the appropriate Fund that this
Letter of Intent is in effect each time you make an investment in shares.
Where an Automatic Investment Plan is involved, your bank must make reference
to this Letter of Intent when each remittance is forwarded for investment.
Reduced rates on large transactions are limited to the following: an
individual, his or her spouse and their children under the age of 21
purchasing securities for their own account; a trustee or other fiduciary
purchasing securities for a single trust estate or single fiduciary account;
and any other organized group of investors, whether incorporated or not, 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. Such rates are not allowable to a group
of individuals whose funds are combined, directly or indirectly, for the
purchase of securities or to an agent, custodian or other representative of
such group.
Out of your initial purchase or purchases, 5% of the dollar amount
specified in the Letter of Intent shall be held in escrow by the applicable
Fund in the form of shares computed at the applicable public offering price.
For example, if the amount of this Letter of Intent is $100,000 and the
offering price (at the time of the initial transaction) is $10 a share, 500
shares ($5,000 worth) would be held in escrow. All shares purchased,
including those escrowed, will be registered in your name and recorded in the
same account, which will be credited fully with all income dividends and
capital gain distributions declared. If the total purchases equal or exceed
the amount specified by you as your expected aggregate purchases, the escrowed
shares will be credited to your account. If total purchases are less than the
amount specified, you will remit to the Fund an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount of
sales charges you would have paid on your aggregate purchases if the total of
such purchases had been made at a single time. Neither dividends from
investment income nor capital gain distributions taken in shares will apply
toward the completion of this Letter of Intent. The Fund will prepare and
mail a statement to you and your investment executive, who shall be
responsible for notifying you of the difference due and for determining from
you whether you prefer to pay it in cash or have it liquidated from the
escrowed shares. If the Fund has not received a check within 21 days of
notification, it will be assumed that the preferred method is liquidation.
The Fund will redeem a number of escrowed shares sufficient to realize the
difference and release the remainder.
The Fund is hereby irrevocably appointed your attorney to surrender for
redemption any or all escrowed shares under the conditions outlined above.
<PAGE>
TABLE OF CONTENTS
Page
----
Fees and Expenses................................................ 3
Financial Highlights............................................. 4
Investment Objectives and Policies............................... 6
Investment Management............................................ 15
How to Invest.................................................... 16
How to Redeem Shares............................................. 18
Net Asset Value.................................................. 20
Distributions.................................................... 20
Taxes............................................................ 21
Shareholder Services............................................. 23
Performance...................................................... 23
Description of the Funds......................................... 24
Custodian and Transfer Agent..................................... 25
Tax-Exempt vs. Taxable Income.................................... 26
Appendix -- Ratings of Investments............................... A-1
<PAGE>
GREAT HALL
NATIONAL TAX-EXEMPT FUND
MINNESOTA INSURED-TAX-EXEMPT FUND SUPPLEMENT DATED
60 SOUTH SIXTH AUGUST 28, 1996 TO
MINNEAPOLIS, MINNESOTA 55402 PROSPECTUS DATED
(612) 371-7970; (800) 934-6674 DECEMBER 1, 1995
The Board of Directors of Great Hall Investment Funds, Inc. ("Great Hall")
has approved Agreements and Plans of Reorganization pursuant to which the assets
and liabilities of Great Hall National Tax-Exempt Fund, a series of Great Hall,
will be acquired by and in exchange for Class A common shares of equal value of
Voyageur National High Yield Municipal Fund, a newly created series of Voyageur
Mutual Funds, Inc., and the assets and liabilities of Great Hall Minnesota
Insured Tax-Exempt Fund, also a series of Great Hall, will be acquired by and in
exchange for Class A common shares of equal value of Voyageur Minnesota Insured
Fund, a series of Voyageur Insured Funds, Inc. (the "Reorganizations"). As a
result of each Reorganization, each shareholders of the Great Hall Fund being
acquired will become a shareholder of the acquiring Voyageur Fund and, in
exchange for his or her Great Hall Fund shares, will receive Class A shares of
equal value of the acquiring Voyageur Fund. The Reorganizations are being
structured so that no federal or state taxes will be recognized by the Funds or
their shareholders in connection with the Reorganization and so that no
Reorganization costs will be borne by the Funds or their shareholders.
Consummation of each Reorganization is subject to the satisfaction of
various conditions, including the approval by the shareholders of the Great Hall
Fund being acquired. The shareholder meetings are currently scheduled to occur
in November, 1996, and each Reorganization is expected to close as soon as
practicable following its approval by shareholders.
Each acquiring Voyageur Fund is managed by Voyageur Fund Managers, Inc.
("VFM") and is distributed through Voyageur Fund Distributors, Inc. ("VFD") of
Minneapolis, Minnesota. VFM and VFD are indirect wholly-owned subsidiaries of
Dougherty Financial Group, Inc. ("DFG"). DFG, in turn, is owned approximately
49% by Michael E. Dougherty and 49% by Pohlad Companies, a holding company owned
in equal parts by James O. Pohlad, Robert C. Pohlad and William M. Pohlad. As of
July 31, 1996, VFM and its affiliates served as an investment adviser to six
closed-end investment companies, ten open-end investment companies (comprised of
33 separate funds) and numerous private accounts, with combined assets of
approximately $11.5 billion. VFM's principal business address is 90 South
Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED ___________________, 1996
ACQUISITION OF THE ASSETS OF
GREAT HALL NATIONAL TAX-EXEMPT FUND
A SEPARATELY MANAGED SERIES OF
GREAT HALL INVESTMENT FUNDS, INC.
60 SOUTH SIXTH STREET, MINNEAPOLIS, MINNESOTA 55402
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR NATIONAL HIGH YIELD MUNICIPAL BOND 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 Great Hall National Tax-Exempt Fund ("Great Hall
Fund"), a series of Great Hall Investment Funds, Inc. ("Great Hall Investment
Funds") by Voyageur National High Yield Municipal Bond 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 the liabilities assumed) of Great
Hall Fund and (b) the liquidation of Great Hall Fund and the pro rata
distribution of Voyageur Fund shares to Great Hall Fund shareholders.
The following documents are incorporated by reference herein:
1. The Statement of Additional Information of Great Hall Fund dated
December 1, 1995.
2. The Annual Report of Great Hall Fund for the fiscal year ended July
31, 1995.
3. The unaudited Semi-annual Report of Great Hall Fund for the six-month
period ended January 31, 1996.
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus/Proxy Statement dated __________, 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........................................ 3
Board Members and Executive Officers of Voyageur Fund....................... 15
The Investment Adviser and Underwriter...................................... 17
Taxes....................................................................... 23
Special Purchase Plans ..................................................... 25
Net Asset Value and Public Offering Price................................... 26
Calculation of Performance Data............................................. 26
Monthly Cash Withdrawal Plan................................................ 28
Additional Information...................................................... 28
Financial Statements........................................................ 30
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 ___________________, 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 the Voyageur
National High Yield Municipal Bond Fund (the "Fund"), a separately managed
series of Voyageur Mutual Funds, Inc., ("Voyageur Mutual Funds") are set forth
in the Prospectus/Proxy Statement and the appendices thereto. 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.
MUNICIPAL OBLIGATIONS
Municipal 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 Municipal 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,
Municipal 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 the Fund may invest, including Municipal 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 a 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 Municipal
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 Municipal Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Municipal Obligations for investment by the
Fund and the value of the Fund's portfolio. In such event, management of the
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"), Fitch Investors Service, LP ("Fitch"), or Standard & Poor's Ratings
Services ("S&P") for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for their investments in accordance with the
investment policies contained in the Prospectus/Proxy Statement and this
Statement of Additional Information. The ratings of Moody's, Fitch and S&P
represent their opinions as to the quality of the Municipal 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
adviser, will subject these securities to other evaluative criteria prior to
investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. The 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 noteholders. 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 the
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, Moody's and Fitch.
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 the 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 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.
HOUSING OBLIGATIONS. The 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. The 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. The 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. The 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. The Fund may, from time to time, invest 25% or more
of its 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. The 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 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 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 the 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, the Fund may invest to a
limited extent in obligations and instruments, the interest on which is
includable in gross income for purposes of federal income taxation.
GOVERNMENT OBLIGATIONS. The 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. The
Fund will invest in such securities only when VFM is satisfied that the credit
risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. The 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. The 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 funds
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, the 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. The 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. The 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.
The 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.
The 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. The 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 the 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 the 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. The 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 the 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. The Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by the Fund. The Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts. Although the
Fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISKS OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and 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 the 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.
The 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.
The Fund may purchase put options to hedge against a decline in the value
of their portfolios. By using put options in this way, the Fund will reduce any
profit they might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
The 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 Municipal Obligations will consist
primarily of OTC options.
ILLIQUID INVESTMENTS
The Fund is permitted to invest up to 15% of its net assets in illiquid
investments. An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment.
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 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 Fund's Board of Directors. 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
Although the Fund is characterized as a non-diversified fund under the 1940
Act, the Fund intends to conduct its operations so that it will 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
Internal Revenue 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
Municipal 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.
PORTFOLIO TURNOVER
Portfolio turnover for the 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. The Fund
estimates its portfolio turnover rate will be 100% or less.
INVESTMENT RESTRICTIONS
The 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. The following
investment restrictions apply to the Fund. The Fund will not:
(1) Borrow money (provided that the Fund may enter into reverse
repurchase agreements with respect to not more than 10% of its total
assets), 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 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.
(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 securities 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
Board of the Fund at any time. The 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) Write puts if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover such puts.
(4) 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 the 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.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF THE FUND
The Board members and officers of the Fund, their position with the Fund
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 (the "Underwriter") previously, President of the Underwriter
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>
The Fund does not compensate its officers. Each director or trustee (who is
not an employee of VFM or any of its affiliates) will receive a total annual fee
of $26,000 for serving as a director or trustee for each of the open-end and
closed-end investment companies (the "Fund Complex") for which 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.
Currently the Fund Complex consists of ten open-end investment companies
comprising 32 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 from the Fund Complex during the calendar year ended December 31,
1995. As of the date of this Statement of Additional Information, the Fund had
not paid any compensation to directors.
TOTAL COMPENSATION
DIRECTOR FROM FUND COMPLEX
-------- -----------------
Clarence G. Frame $24,500
Richard F. McNamara $24,500
Thomas F. Madison $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 the Fund's investment adviser, subject to the authority of the Board of
Directors. VFM and the Underwriter are each indirect wholly-owned subsidiaries
of Dougherty Financial Group Inc. ("DFG"), which is owned approximately 49% by
Michael E. Dougherty, 49% by Pohlad Companies and less than 1% by certain
retirement plans for the benefit of DFG employees. Mr. Dougherty co-founded the
predecessor of DFG in 1977 and has served as DFG's Chairman of the Board and
Chief Executive Officer since inception. Pohlad Companies is a holding company
owned in equal parts by each of James O. Pohlad, Robert C. Pohlad and William M.
Pohlad. 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.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Fund's shares. With regard to the Underwriter, 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
The Fund does not maintain its own research department. The Fund has
contracted with VFM for investment advice and management. Pursuant to an
Investment Advisory Agreement, VFM 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 objective and investment
policies and restrictions of the Fund and subject to the supervision of the
Fund's Board of Directors. 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 the Fund as directors, officers or employees of the Fund if
duly elected to such positions by the shareholders or directors of the 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
.65% of its average daily net assets. The fee is based on the average daily
value of the Fund's net assets at the close of each business day. VFM has agreed
to waive fees such that the investment advisory fee will not exceed .50% through
December 31, 1998
The Investment Advisory Agreement continues from year to year only if
approved annually (a) by the Fund's 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 such Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting of the Board called for the purpose of voting on such
approval. The Investment Advisory Agreement may be terminated by either party on
60 days' notice to the other party and terminates automatically upon its
assignment. The Investment Advisory Agreement also provides that amendments to
the Agreement may be affected if approved by the 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 Board of Directors (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
the Fund may reasonably request.
As compensation for these services, the 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
provides 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 THE FUND
VFM is contractually obligated to pay the operating expenses of the 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 the 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 the Underwriter) incurred in the operation of the 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 and 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 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 PLAN OF DISTRIBUTION; DISTRIBUTION AGREEMENT
The 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 a Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing.
Rule 12b-1(b)(1) requires that such plan be approved by a vote of at least
a majority of the Fund's outstanding shares, and Rule 12b-1(b)(2) requires that
such plan, together with any related agreements, be approved by a vote of the
Board of Directors and 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 a Fund pursuant to its plan or any related agreement shall provide to
the Board of Directors, and the directors shall review, at least quarterly, a
written report of the amount so expended and the purposes for which such
expenditures were made; and
(3) in the case of a plan, that it may be terminated at any time by vote of
a majority of the members of the Board of Directors who are not interested
persons of the 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 a 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 that
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.
The Fund has entered into a Distribution Agreement with the Underwriter,
pursuant to which the Underwriter acts as the principal underwriter of the
Fund's shares. The Distribution Agreement and Plan provide that the Underwriter
agrees to provide, and shall pay costs which it incurs in connection with
providing, administrative or accounting services to shareholders of the Fund
(such costs are referred to as "Shareholder Servicing Expenses") and that the
Underwriter shall also pay all costs of distributing the shares of the Fund
("Distribution Expenses"). Shareholder Servicing Expenses include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of the Fund, including, but not limited to,
an allocation of the Underwriter's overhead and payments made to persons,
including employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other administrative or
accounting services not otherwise required to be provided by the Fund's
investment adviser or 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 the Underwriter and to other broker-dealers and
participating financial institutions; expenses incurred in the printing of
prospectuses, statements of additional information and reports used for sales
purposes; expenses of preparation and distribution of sales literature; expenses
of advertising of any type; an allocation of the Underwriter's overhead;
payments to and expenses of persons who provide support services in connection
with the distribution of Fund shares; and other distribution-related expenses.
Pursuant to the provisions of the Distribution Agreement, the Underwriter
is entitled to receive a total fee each quarter at an annual rate of .25% of the
average daily net assets attributable to the Fund's Class A shares, 1.00% of the
average daily net assets attributable to the Fund's Class B shares and 1.00% of
the average daily net assets attributable to the Fund's Class C shares to pay
distribution expenses. As determined from time to time by the Board, a portion
of such fees shall be designated as a "shareholder servicing fee" and a portion
shall be designated as a "distribution fee." The Board has determined that all
of the fee payable with respect to Class A shares shall be designated a
shareholder servicing fee. With respect to fees payable with respect to Class B
shares and Class C shares, that portion of the fee equal to .25% of average
daily net assets attributable to each of the Fund's Class B shares and 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 each of the Fund's
Class B shares and Class C shares is designated a distribution fee. Amounts
payable to the Underwriter under the Distribution Agreement may exceed or be
less than the Underwriter's actual distribution expenses and shareholder
servicing expenses. In the event such distribution expenses and shareholder
servicing expenses exceed amounts payable to the Underwriter under the Plan, the
Underwriter shall not be entitled to reimbursement by the Fund. In addition to
being paid shareholder servicing and distribution fees, the Underwriter also
receives for its services the sales charge on sales of Fund shares set forth in
the Prospectus/Proxy Statement.
The Fund's Distribution Agreement is renewable from year to year if the
Fund's Board approves the Agreement and the Fund's Plan. The Fund or the
Underwriter 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, the Underwriter agrees to
indemnify the Fund against all costs of litigation and other legal proceedings
and against any liability incurred by or imposed on the Fund in any way arising
out of or in connection with the sale or distribution of the Fund's shares,
except to the extent that such liability is the result of information which was
obtainable by the Underwriter only from persons affiliated with the Fund but not
the Underwriter.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
As the 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 the
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 the 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 the 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 the 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 the 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. In the event any transactions
are executed on an agency basis, VFM 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 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
the Fund executes any transactions on an agency basis, it will generally pay
higher than the lowest commission rates available.
The 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. In determining the commissions to be paid to a
broker-dealer affiliated with VFM, it is the policy of the Fund that such
commissions will, in the judgment of VFM, subject to review by the Board of
Directors, be both (a) at least as favorable as those which would be charged by
other qualified brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time, and (b) at least as favorable as commissions contemporaneously
charged by such affiliated broker-dealers on comparable transactions for their
most favored comparable unaffiliated customers. 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, the Fund may purchase securities from an underwriting syndicate of
which an affiliated broker-dealer is a member (but not directly from such
affiliated broker-dealer itself). Such conditions relate to the price and amount
of the securities purchased, the commission or spread paid and the quality of
the issuer. The rules further require that such purchases take place in
accordance with procedures adopted and reviewed periodically by the Board of
Directors, particularly those 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 Fund's directors 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/Proxy Statement, 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 is not 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 Board of Directors.
BANK PURCHASES. Banks, acting as agents for their customers and not for the
Fund or the Underwriter, from time to time may purchase Fund shares for the
accounts of such customers. Generally, the Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. Should the activities of any bank, acting as agent for its customers
in connection with the purchase of any Fund's shares, be deemed to violate the
Glass-Steagall Act, management will take whatever action, if any, is appropriate
in order to provide efficient services for the Fund. Management does not believe
that a termination in the relationship with a bank would result in any material
adverse consequences to the Fund. In addition, state securities laws on this
issue may differ and banks and financial institutions may be required to
register as dealers pursuant to state law. Fund shares are not deposits or
obligations of, or guaranteed or endorsed by, any bank and are not insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other federal agency.
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
the 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 VFM fund 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 VFM fund, 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 capital 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 Municipal
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. The 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 a 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 pre-authorized automatic investment plan. Such
pre-authorized investments (at least $100) may be used to purchase shares of the
Fund at the public offering price next determined after the Fund receives the
investment (normally the 20th of each month, or the next business day
thereafter). Further information is available from the Underwriter.
COMBINED PURCHASE PRIVILEGE. The following persons (or groups of persons)
may qualify for reductions from the front end sales charge ("FESC") schedule for
Class A shares set forth in the Prospectus/Proxy Statement by combining
purchases of any class of shares of any one or more of the VFM funds which bears
a FESC (and, in certain circumstances, purchases of FESC shares of certain other
open-end investment companies) if the combined purchase of all such 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 age 21,
purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust) created pursuant to a plan qualified under
Section 401 of the Code;
(iv) tax-exempt organizations enumerated in Section 501(c)(3) of the
Code;
(v) employee benefit plans of a single employer or of affiliated
employers;
(vi) any organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying
redeemable securities of a registered investment company, and provided that
the purchase is made through a central administration, or through a single
dealer, or by other means which result in economy of sales effort or
expense. An organized group does not include a group of individuals whose
sole organizational connection is participation as credit cardholders of a
company, policyholders of an insurance company, customers of either a bank
or broker-dealer, or clients of an investment adviser.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchase of Class A
shares may qualify for a Cumulative Quantity Discount. The applicable FESC will
then be based on the total of:
(i) the amount of the current purchase;
(ii) the amount previously invested (valued at the time of investment)
in shares of any class of one or more VFM funds which has a FESC owned by
the investor; and
(iii) the amount previously invested (valued at the time of
investment) in shares of any class of one or more VFM funds 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 of the VFM funds 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 the Underwriter or attached to the then current Prospectus.
Shares of other open-end investment companies bearing a FESC will be
included with VFM 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 the Underwriter has engaged to provide
administration or accounting services to Fund omnibus accounts in connection
with the offering of the Fund as part of such other investment companies' family
of funds. Additionally, the maximum reduction of the Fund's FESC that may result
from the inclusion of shares of such other investment companies in a Combined
Purchase Privilege, Cumulative Quantity Discount or Letter of Intention shall be
a reduction to the front-end sales charge applicable to purchases of $500,000
but less than $1,000,000 (as set forth in the sales charge table in the
Prospectus/Proxy Statement).
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the net asset value of Fund shares is summarized
in Appendix D to the Prospectus/Proxy Statement in "Determination of Net Asset
Value." The public offering price of Class A shares is the net asset value of
Fund shares plus the applicable front end sales charge, if any. The maximum
front end sales charge is 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.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the 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 the 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 taxable equivalent yield is based on current Federal marginal income
tax rates for a single taxpayer. The marginal rates do not reflect federal rules
concerning the phase-out of personal exemptions and limitations on the allowance
of itemized deductions for certain high-income taxpayers.
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 the Fund valued at $10,000 or more
at the current offering price may open a Withdrawal Plan and have a designated
sum of money paid monthly to the investor or another person. 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 the Underwriter may terminate or change the terms of
the Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary and may
be terminated by the shareholder at any time without the imposition of any
penalty.
Since the Withdrawal Plan may involve invasion of capital, investors should
consider carefully with their own financial advisers whether the Withdrawal Plan
and the specified amounts to be withdrawn are appropriate in their
circumstances. The Fund makes no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
As of September __, 1996, there were no public shareholders of the Fund's
shares.
Organizational costs in connection with start-up and initial registration
will be amortized over 60 months on a straight-line basis. If VFM redeems any or
all of its shares of the Fund prior to the end of the Fund's 60-month
amortization period, the redemption proceeds will be reduced by its pro rata
portion of such Fund's unamortized organizational costs. If the Fund liquidates
prior to the date such costs are fully amortized, VFM will bear all unamortized
organizational costs of the Fund.
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
Norwest Bank Minnesota, N.A., Sixth Street & Marquette Avenue, Minneapolis,
Minnesota 55479, acts as custodian of the Fund's assets and portfolio
securities.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402,
serves as counsel for the Fund.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
serves as independent auditors for the Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director owes certain fiduciary duties to the
Fund and to its shareholders. Minnesota law provides that a director "shall
discharge the duties of the position of director in good faith, in a manner the
director reasonably believes to be in the best interest of the corporation, and
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances." Fiduciary duties of a director of a Minnesota
corporation include, therefore, both a duty of "loyalty" (to act in good faith
and act in a manner reasonably believed to be in the best interests of the
corporation) and a duty of "care" (to act with the care an ordinarily prudent
person in a like position would exercise under similar circumstances). Minnesota
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 the Fund limit the liability of the Fund's
directors to the fullest extent permitted by Minnesota statutes, except to the
extent that such liability cannot be limited as provided in the 1940 Act (which
Act prohibits any provisions which purport to limit the liability of directors
arising from such directors' willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their role as
directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted thereunder.
SHAREHOLDER MEETINGS
The Fund 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 Great Hall National Tax-Exempt Fund ("Great
Hall Fund") included as part of its Annual Report for the fiscal year ended July
31, 1995 and its Semi-Annual Report for the six months ended January 31, 1996
are incorporated herein by reference. No financial statements are included for
Voyageur National High Yield Municipal Bond 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"), Moody's
Investors Service, Inc. ("Moody's") and Fitch Investors Service, LP ("Fitch")
ratings:
S&P'S RATINGS FOR MUNICIPAL BONDS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor 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.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
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.
C1
The rating C1 is reserved for income bonds on which no interest is being
paid.
D
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 S&P 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.
Plus (+) or Minus (-)
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
NR
Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
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.
Caa
Bonds which are rated Caa are considered of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca
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.
C
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.
Unrated
When no rating has been assigned or when a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
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.
FITCH'S RATINGS FOR MUNICIPAL BONDS
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
AAA
Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA
Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A
Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB
Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.
BB
Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B
Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirement, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC
Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC
Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C
Bonds are in imminent default in payment of interest or principal.
DDD, DD and D
Bonds are in default on interest and/or principal payments. Such bonds are
extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. 'DDD' represents
the highest potential for recovery on these bonds, and 'D' represents the lowest
potential for recovery.
Plus(+) Minus(-)
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
NR
Indicates that Fitch does not rate the specific issue.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF OPTIONS AND FUTURES
GENERAL. As described in Appendix B to the Prospectus/Proxy Statement under
"Investment Objective and Policies of Voyageur Fund Miscellaneous Investment
Practices--Options and Futures," the Fund may purchase and sell options on the
securities in which it may invest and the Fund 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 the Fund's investment objective,
to seek to hedge against the effects of market conditions and to seek to
stabilize the value of its assets. The 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 the 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 the Fund does 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. The 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 will have to make or take delivery under the futures contract, or, in
the case of a purchased option, exercise the option. The Fund may incur
brokerage fees when it purchases or sells futures contracts.
At the time a futures contract is purchased or sold, the 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 1.5% to
approximately 5% 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 the 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, even if VFM 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 the 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. The 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. The 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.
The 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.
The 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 the 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, the 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 the Funds' ability to invest in intermediate- and long-term Municipal
Obligations.
The 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. The Fund currently does not intend to
engage in transactions in futures contracts or options thereon for speculation.
ACCOUNTING CONSIDERATIONS. When the 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.
GREAT HALL
NATIONAL TAX-EXEMPT FUND
-----------------------------------
MINNESOTA INSURED TAX-EXEMPT FUND
-----------------------------------
60 South Sixth Street
Minneapolis, Minnesota 55402
(800) 934-6674
_________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
dated December 1, 1995
_________________________________________________
Great Hall National Tax-Exempt Fund ("National Fund") and Great Hall
Minnesota Insured Tax-Exempt Fund ("Minnesota Fund" and, together with
National Fund, the "Funds") are non-diversified series of Great Hall
Investment Funds, Inc. ("Great Hall"), an open-end management investment
company (commonly known as a mutual fund) which currently offers its shares of
common stock in five series. This Statement of Additional Information
pertains only to the Funds and does not pertain to any other series of Great
Hall.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Funds, dated December 1,
1995, which has been filed with the Securities and Exchange Commission (the
"SEC"). To obtain a copy of the Prospectus, please call Great Hall or your
investment executive.
TABLE OF CONTENTS
-----------------
Page
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Investment Policies......................................... B-2
Investment Restrictions..................................... B-6
Taxes....................................................... B-8
Insurance for Minnesota Fund................................ B-9
Special Factors Affecting the Minnesota Fund................ B-12
Portfolio Transactions...................................... B-15
Reduced Sales Charges....................................... B-16
Reinvestment Privilege...................................... B-17
Exchange Privilege.......................................... B-17
Management and Distribution Agreements...................... B-18
Determination of Net Asset Value............................ B-20
Calculation of Performance Data............................. B-20
Directors and Officers...................................... B-22
General Information......................................... B-24
Counsel and Auditors........................................ B-26
Financial Statements........................................ F-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated December 1, 1995, and, if given or made,
such information or representations may not be relied upon as having been
authorized by Great Hall or the Co-Distributors. This Statement of Additional
Information does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any state or jurisdiction in which such offering
or solicitation 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 either of the Funds since the date hereof.
<PAGE>
INVESTMENT POLICIES
The following information supplements that set forth under "Investment
Objectives and Policies" in the Prospectus and does not, standing alone,
present a complete explanation of the matters disclosed. You must refer to
the Prospectus for a complete presentation of the matters disclosed below.
National Tax-Exempt Fund and Minnesota Insured Tax-Exempt Fund
The National Fund invests in municipal obligations issued by or on
behalf of any state, territory or possession of the United States or the
District of Columbia or their political subdivisions, agencies or
instrumentalities, and participation interests therein, the interest on which
is, in the opinion of counsel to the issuer, exempt from federal income
taxation.
The Minnesota Fund invests in municipal obligations issued by or on
behalf of the State of Minnesota or, in certain cases, a territory or
possession of the United States, or their political subdivisions, agencies or
instrumentalities, and participation interests therein, the interest on which
is exempt from federal income taxation and state personal income taxation for
residents of the State of Minnesota.
The Funds may invest in municipal bonds and participation interests
therein, including industrial development revenue bonds and pollution control
revenue bonds, and other types of tax-exempt municipal obligations, including
bond anticipation notes, construction loan notes, revenue anticipation notes,
tax anticipation notes and short-term discount notes.
Bond anticipation notes are issued in anticipation of a later issuance
of bonds and are usually payable from the proceeds of the sale of the bonds
anticipated or of renewal notes. Construction loan notes, issued to provide
construction financing for specific projects, are often redeemed after the
projects are completed and accepted with funds obtained from the Federal
Housing Administration under "Fannie Mae" (Federal National Mortgage
Association) or "Ginnie Mae" (Government National Mortgage Association).
Revenue anticipation notes are issued by governmental entities in anticipation
of revenues to be received later in the then current fiscal year. Tax
anticipation notes are issued by state and local governments in anticipation
of collection of taxes to finance the current operations of such governments.
These notes are generally payable only from tax collections and often only
from the proceeds of the specific tax levy whose collection they anticipate.
The applicable rating criteria for each Fund is as follows:
National Fund --
With respect to at least 95% of its assets, Ba or better, MIG-3 or
better or Prime-3 or better by Moody's Investors Service, Inc. ("Moody's");
BB or better, SP-3 or better or A-3 or better by Standard & Poor's
Corporation ("S&P"); with respect to at least 65% of its assets, Baa or
better, MIG-2 or better or Prime-2 or better by Moody's; BBB or better,
SP-2 or better or A-2 or better by S&P; with respect to the balance of its
assets, at least B by Moody's or S&P.
Minnesota Fund --
Baa or better, MIG-2 or better or Prime-2 or better by Moody's; and; BBB
or better, SP-2 or better or A-2 or better by S&P.
Each of these two Funds also may invest in municipal obligations that
are unrated, but that are considered by the Fund's investment adviser, Insight
Investment Management ("Insight"), a division of IFG Asset Management
Services, Inc., in accordance with policies established by the Board of
Directors of Great Hall, to have characteristics and quality comparable to
rated municipal obligations that such Fund is permitted to purchase. Each of
<PAGE>
these two Funds also may purchase municipal obligations backed by the full
faith and credit of the United States.
Credit ratings evaluate the safety of principal and interest payments,
not market value risk of high yield bonds. Also, since credit rating agencies
may fail to timely change the credit ratings to reflect subsequent events, an
investment company (either alone or in conjunction with its investment
adviser) should monitor the issuers of high-yield bonds to determine if the
issuers will have sufficient cash flow and profits to meet required principal
and interest payments, and to assure the bonds' liquidity so the investment
company can meet redemption requests.
Subsequent to a Fund's purchase of a security, such security may be
assigned a lower rating or cease to be rated. Such an event does not require
the elimination of the security from a Fund's portfolio, but Insight will
consider such an event in determining whether a Fund should continue to hold
the security in its portfolio. Other factors to be considered by Insight
include the financial history and condition of the issuer, its revenue and
expense prospects, and, in the case of revenue bonds, the financial history
and condition of the source of revenue to service the bonds.
Municipal bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating
expenses or to obtain funds to lend to other public institutions and
facilities. They are generally classified as either "general obligation" or
"revenue" bonds and frequently have maturities in excess of one year at the
time of issuance, although a number of such issues now have variable or
floating interest rates and demand features that may permit a Fund to treat
them as having maturities of less than one year. There are many variations in
the terms of, and the underlying security for, the various types of municipal
bonds. General obligation bonds are issued by states, counties, regional
districts, cities, towns and school districts for a variety of purposes
including mass transportation, highway, bridge, school, road, and water and
sewer system construction, repair or improvement. Payment of these bonds is
secured by a pledge of the issuer's full faith and credit and taxing (usually
property tax) power.
Revenue bonds are payable solely from the revenues generated from the
operations of the facility or facilities being financed or from other non-tax
sources. These bonds are often secured by debt service revenue funds, rent
subsidies and/or mortgage collateral to finance the construction of housing,
highways, bridges, tunnels, hospitals, university and college buildings, port
and airport facilities, and electric, water, gas and sewer systems.
Industrial development revenue bonds and pollution control revenue bonds are
usually issued by local government bodies or their authorities to provide
funding for commercial or industrial facilities, privately operated housing,
sports facilities, health care facilities, convention and trade show
facilities, port facilities and facilities for controlling or eliminating air
and water pollution. Payment of principal and interest on such bonds is not
secured by the taxing power of the governmental body. Rather, payment is
dependent solely upon the ability of the users of the facilities financed by
the bonds to meet their financial obligations and the pledge, if any, of real
and personal property financed as security for payment.
Although the Funds may invest more than 25% of their net assets in
municipal obligations the interest upon which is paid solely from revenue of
similar projects, management of the Funds does not presently intend that
either Fund will do so on a regular basis. The National Fund and the
Minnesota Fund may invest in repurchase agreements as temporary investments.
Management of the Funds currently does not expect that either of these two
Funds will invest more than five percent of its assets in repurchase
agreements.
Variable and Floating Rate Demand Municipal Obligations
Variable and floating rate demand municipal obligations are tax-exempt
obligations that provide for a periodic adjustment in the interest rate paid
on the obligations and permit the holder to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days'
notice either from the issuer or by drawing on a bank letter of credit or
comparable guarantee issued with respect to such obligations. The issuer of
such an obligation may have a corresponding right to prepay in its discretion
the outstanding principal of the obligation plus accrued interest upon notice
comparable to that required for the holder to demand payment.
<PAGE>
The variable or floating rate demand municipal obligations in which the
National Fund and the Minnesota Fund may invest are payable on demand at any
time on no more than 30 days' notice or at specified intervals not exceeding
one year and upon no more than 30 days' notice. The terms of such obligations
must provide that interest rates are adjustable at intervals ranging from
weekly up to annually. The adjustments are based upon the prime rate of a
bank or other appropriate interest rate adjustment index as provided in the
respective obligations. Such obligations are subject to the quality
characteristics for municipal obligations set forth above and described in the
Appendix to the Prospectus. The National Fund and the Minnesota Fund may
invest, without limitation, in such obligations.
The principal and accrued interest payable to the National Fund and the
Minnesota Fund on demand will be supported by an irrevocable letter of credit
or comparable guarantee of a financial institution (generally a commercial
bank) whose short-term taxable debt meets the quality criteria for investment
by such Funds in municipal obligations, except in cases where the security
itself meets the credit criteria of such Funds without such letter of credit
or comparable guarantee. Thus, although the underlying variable or floating
rate demand obligation may be unrated, the Funds in such cases will have at
all times an alternate credit source to draw upon for payment with respect to
such security.
The National Fund and the Minnesota Fund may also purchase participation
interests in variable or floating rate obligations. Such participation
interests will have, as part of the participation agreement between a Fund and
the selling financial institution, a demand feature that permits a Fund to
demand payment from the seller of the principal amount of the Fund's
participation plus accrued interest thereon. This demand feature always will
be supported by a letter of credit or comparable guarantee provided by the
selling financial institution. Such financial institution will retain a
service fee, a letter of credit fee and a fee for issuing commitments to
purchase on demand in an amount equal to the excess of the interest paid on
the variable or floating rate obligation in which a Fund has a participation
interest over the negotiated yield at which the participation interest was
purchased. Accordingly, the National Fund and the Minnesota Fund will
purchase such participation interests only when the yield to such Funds, net
of such fees, is equal to or greater than the yield then available on other
variable rate demand securities or short-term, fixed rate, tax-exempt
securities of comparable quality and where the fees are reasonable in relation
to the services provided by the financial institution and the security and
liquidity provided by the letter of credit or guarantee.
"When-Issued" Obligations
The National Fund and the Minnesota Fund may make commitments to
purchase municipal obligations on a "when-issued" basis, i.e., delivery and
payment for the obligations normally takes place at a date after the
commitment to purchase although the payment obligation and the coupon rate
have been established before the time a Fund enters into the commitment. The
settlement date usually occurs within one week of the purchase of notes and
within one month of the purchase of bonds. Insight intends that the National
Fund and the Minnesota Fund will make commitments to purchase obligations with
the intention of actually acquiring them, but may sell the obligations before
settlement date if such action is advisable or necessary as a matter of
investment strategy. At the time a Fund makes a commitment to purchase an
obligation, it will record the transaction and reflect the value of the
obligation in determining its net asset value. The Custodian will maintain on
a daily basis a separate account for each Fund consisting of cash or liquid
debt securities with a value at least equal to the amount of that Fund's
commitments to purchase "when-issued" obligations.
Obligations purchased on a "when-issued" basis or held in a Fund's
portfolio are subject to changes in market value based not only upon the
public's perception of the creditworthiness of the issuer but also upon
changes in the level of interest rates. In the absence of a change in credit
characteristics, which, of course, will cause changes in value, the value of
portfolio investments can be expected to decline in periods of rising interest
rates and to increase in periods of declining interest rates.
When payment is made for "when-issued" securities, the National Fund and
the Minnesota Fund will meet their respective obligations from each Fund's
then available cash flow, sale of securities held in the separate account,
sale of other securities or, although it would normally not expect to do so,
<PAGE>
from sale of the "when-issued" securities themselves (which may have a market
value greater or less than such Fund's obligation). Sale of securities to met
such obligations would involve a greater potential for the realization of
capital gains, which could cause such Fund to realize income not exempt from
federal income taxation.
Illiquid Investments
Each Fund is permitted to invest up to 15% of its assets in all forms of
"illiquid" investments and may invest without limitation in "restricted"
securities which Insight (pursuant to standards established by the Funds'
Board of Directors) has determined are liquid. However, each Fund's current
intention is to invest less than 5% of its net assets in illiquid investments.
An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold
in private placements and which have not been registered under the Securities
Act of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the SEC, since such securities may be resold only
subject to statutory restrictions and delays or if registered under the 1933
Act. However, the SEC has acknowledged that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, Insight and the Funds believe that a similar market
exists for commercial paper issued pursuant to the private placement exemption
of Section 4(2) of the 1933 Act. The Funds may invest without limitation in
these forms of restricted securities if such securities are deemed by Insight
to be liquid in accordance with guidelines established by the Funds' Board of
Directors. Under these guidelines, Insight must consider: (a) the frequency
of trades and quotes for the security; (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers;
(c) dealer undertakings to make a market in the security; and (d) the nature
of the security and the nature of the marketplace trades (for example, the
time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer). At the present time, it is not possible to
predict with accuracy how the markets for certain restricted securities will
develop. Investing in restricted securities could have the effect of
increasing the level of a Fund's illiquidity to the extent that qualified
purchasers of the securities become, for a time, uninterested in purchasing
these securities.
As indicated in the Funds' Prospectus, each Fund is permitted to invest
in state and municipal lease obligations ("municipal leases"). Traditionally,
municipal leases have been viewed by the SEC staff as illiquid investments.
However, subject to Board standards similar to the standards applicable to
restricted securities (as discussed above), Insight may treat certain
municipal leases as liquid investments and not subject to the policy limiting
investments in illiquid investments.
Unrated Obligations
National Fund is permitted to invest without limitation in municipal
obligations that are unrated but that are considered by Insight, in accordance
with policies established by Great Hall's Board of Directors, to have
characteristics and qualities that are comparable to those rated municipal
obligations in which the Funds may invest. Under the policies established by
Great Hall, Insight is required to base its assessment of unrated municipal
obligations upon publicly available information and various criteria (to the
extent deemed appropriate by Insight for each particular issue) including,
among others, analyses of: available cash and the calculation of various
financial ratios deemed appropriate for the issuer, as compared to the normal
industry ratios; the issuer's ability to react to future events, including a
review of the issuer's competitive position and capital intensiveness; the
issuer's alternative sources of liquidity, such as bank lines and surety bonds
to support its debt obligations; the condition of the local economy; the
protective covenants in the bond documents; the reputation of legal counsel
rendering an opinion on tax-exempt status; and if callable, the yields prior
to the call dates. If the issue is a general obligation issue, Insight also
will analyze the level of direct and overall debt per capita, debt in relation
to assessed valuation, and debt in relation to market valuation, the
diversification of major employers and taxpayers, and the issuer's tax
collection history. For municipal revenue bonds, Insight must assess the
importance of the service being financed, the issuer's historical and pro
forma debt service coverage and the diversification of the issuer's customer
<PAGE>
base. All unrated bonds are subject to a cash flow analysis, an assessment of
the issuer's ability to react to future events, and an assessment of the
issuer's liquidity.
Other Obligations
The municipal obligations described herein represent those which the
National Fund and the Minnesota Fund currently expect to purchase. However,
several new types of municipal bonds and notes, particularly those with
shorter maturities, have been introduced in recent years and Insight believes
that others may be offered in the future. Therefore, in order to preserve
maximum flexibility in seeking to attain its investment objective, Great Hall
has determined not to limit the purchases of either Fund to the types of
securities described herein, although such Funds will purchase only
obligations that have the credit characteristics described herein. In
addition, such Funds may not purchase any municipal bonds or notes having
characteristics or terms that are inconsistent with the investment objective
of the applicable Fund.
Legislation to restrict or eliminate the federal income tax exemption
for interest on certain municipal obligations that may be purchased by the
Funds has been introduced in Congress; other such legislation also may be
introduced in the future by Congress or by state legislatures. If enacted,
any such legislation could adversely affect the availability of municipal
obligations for a Fund's portfolio. Upon the effectiveness of any such
legislation that materially affects a Fund's ability to achieve its investment
objective, Great Hall will reevaluate such Fund's investment objective and
submit to its shareholders for approval necessary changes in its objectives
and policies.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and those policies identified
as fundamental in the Prospectus, each of the Funds has adopted the following
investment restrictions and limitations, which may not be changed without
approval of shareholders owning a majority of the outstanding shares of each
such Fund, which as used in the Prospectus and in this Statement of Additional
Information means the lesser of: (a) 67% or more of the shares present at a
shareholders' meeting if more than 50% of such Fund's shares are represented
at the meeting in person or by proxy; or (b) more than 50% of such Fund's
outstanding shares.
Neither the National Fund nor the Minnesota Fund may:
(1) borrow money, except for temporary or emergency non-
investment purposes such as to accommodate abnormally heavy redemption
requests, and then only in an amount not exceeding 5% of the value of
its total assets at the time of borrowing;
(2) pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by (1) above, it may pledge securities
having a market value at the time of pledge not exceeding 15% of its
total assets;
(3) sell securities short or purchase any securities on margin,
except for such short-term credits as are necessary for clearance of
portfolio transactions;
(4) write, purchase or sell put or call options, except that
either Fund may acquire rights to resell obligations as set forth herein
under "National Tax-Exempt Fund and Minnesota Insured Tax-Exempt Fund-
Variable and Floating Rate Demand Municipal Obligations";
(5) underwrite any securities issued by others;
(6) purchase or sell real estate (although a Fund may invest in
municipal obligations or temporary investments secured by interests in
real estate), real estate mortgage loans, real estate limited
<PAGE>
partnerships, commodities, commodity contracts (including futures
contracts), oil or gas and mineral leases and interests;
(7) make loans, other than by entering into repurchase
agreements and through the purchase of other permitted investments in
accordance with its investment objective and policies; provided,
however, that it may not enter into a repurchase agreement if, as a
result thereof, more than 10% of its total assets would be subject to
repurchase agreements maturing in more than seven days;
(8) invest in companies for the purpose of exercising control
or management of another company;
(9) own more than 3% of the total outstanding voting stock of
any other investment company, or 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;
(10) purchase or retain securities of any issuer if the officers
and directors of Great Hall or Insight, who individually own more than
1/2 of 1% of the outstanding securities of such issuer, together
beneficially own more than 5% of such outstanding securities;
(11) purchase its portfolio securities from, or sell its
portfolio securities to, any of the officers or directors of Great Hall
or Insight; or
(12) issue any class of securities senior to any other class of
securities, except insofar as a Fund may be deemed to have issued a
senior security by reason of: (a) entering into any repurchase
agreement; (b) permitted borrowings of money; or (c) purchasing
securities on a "when-issued" or delayed delivery basis.
The identification of the issuer of a municipal obligation depends on
the terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision, and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision
will be regarded as the sole issuer. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues
of the non-governmental user, then such non-governmental user will be deemed
to be the sole issuer. If in either case the creating government or another
entity guarantees an obligation, and the value of all securities issued or
guaranteed by the guarantor and owned by a Fund exceeds 10% of the value of
such Fund's total assets, the guarantee will be regarded as a separate
security and treated as an issue of such government or entity.
In addition to the above restrictions and limitations, the National Fund
and Minnesota Fund, as a matter of fundamental policy, may not purchase
securities that are not municipal obligations and the income from which is
subject to federal income tax, if such purchase would cause more than 20% of a
Fund's total assets, at the time of purchase, to be invested in such
securities, except that a Fund may invest more than 20% of its total assets in
such securities during other than normal market conditions. The National Fund
and Minnesota Fund, as a matter of fundamental policy, may not engage in
arbitrage transactions.
In addition to the above restrictions and limitations and as a matter of
fundamental policy, the Minnesota Fund may not purchase municipal obligations
the income from which is subject to personal income tax to residents of the
State of Minnesota, if such purchase would cause more than 20% of such Fund's
total assets, at the time of purchase, to be invested in such securities,
except that the Minnesota Fund may invest more than 20% of its total assets in
such securities for temporary defensive purposes.
Shareholders may incur duplicate operating fees to the extent a Fund
invests in securities of other investment companies. See investment
restriction (9) above.
<PAGE>
In addition to the fundamental limitations set forth above, as a non-
fundamental policy, each Fund may not invest more than 15% of its net assets
in all forms of illiquid investments, as set forth above under "Illiquid
Investments."
With respect to each of the Funds, if a percentage restriction or
limitation (except for investment restriction (1)), is adhered to at the time
of investment, a later increase or decrease in such percentage resulting from
a change of values or net assets will not be considered a violation thereof.
TAXES
Each of the Funds has qualified as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and intends to continue to do so. To so qualify, a Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing in such
stock, securities or currencies (the "90% test"); (b) derive in each taxable
year less than 30% of its gross income from the sale or other disposition of
stock or securities, or options, futures, and certain forward contracts or
foreign currencies, held for less than three months (the "30% test"); and
(c) satisfy certain diversification requirements at the close of each quarter
of the Fund's taxable year. Furthermore, in order to be entitled to pay tax-
exempt interest income dividends to shareholders, each of the Funds must
satisfy the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations
the interest on which is exempt from federal income tax ("tax-exempt
obligations").
As a regulated investment company, a Fund will not be liable for federal
income taxes on the part of its taxable net investment income and net capital
gains, if any, that it distributes to shareholders if at least 90% of its net
investment income (including tax-exempt income net of disallowed deductions
relative thereto) and net short-term capital gain for the taxable year is
distributed. However, if for any taxable year a Fund does not satisfy the
requirements of Subchapter M of the Code, all of its taxable income will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings and profits.
Each Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year a Fund
must distribute: (a) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year; (b) at least 98%
of its capital gain net income for the twelve month period ending on
October 31 (or December 31, if the Fund so elects); and (c) any portion (not
taxed to the Fund) of the respective balances from the prior year. Each Fund
intends to make sufficient distributions to avoid this 4% excise tax.
If either Fund disposes 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.
All distributions of investment income during the year will have the
same percentage designated as tax-exempt. Since each of the Funds invests
primarily in tax-exempt securities, the percentage will be substantially the
same as the amount actually earned during any particular distribution period.
For both federal and Minnesota income tax purposes, if a shareholder
receives an exempt-interest dividend with respect to any share and sells or
exchanges such share after holding it for six months or less, any loss on the
sale or exchange of such share will be disallowed to the extent of the amount
of such exempt-interest dividend. In certain limited instances, the portion
of social security benefits received by shareholders that may be subject to
<PAGE>
federal and Minnesota income tax may be affected by the amount of tax-exempt
interest income, including exempt-interest dividends, received by shareholders
of a Fund.
Under the Code, investors will not be allowed to deduct interest on
indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as the Funds, to the
extent such interest expenses relate to exempt-interest dividends received by
the shareholder. Minnesota law also restricts the deductibility of interest
on indebtedness incurred or continued to purchase or carry shares of a Fund.
Indebtedness may be allocated to shares of a Fund even though not directly
traceable to the purchase of such shares.
For federal tax purposes, if a shareholder exchanges shares of a Fund
for shares of any other of the Great Hall funds pursuant to the exchange
privilege (see below), such exchange will be considered a taxable sale of the
shares being exchanged. Furthermore, if a shareholder purchases shares of
either Fund and, within 90 days of purchasing such shares, exchanges them for
shares in the other Fund, any sales charge incurred on the purchase of the
earlier acquired shares 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 shares in
the second Fund is waived 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 earlier acquired shares may
be taken into account in determining gain or loss on the eventual sale or
exchange of the later acquired shares.
Each Fund, or a shareholder's broker with respect to each Fund, is
required to withhold federal income tax at a rate of 31% of dividends, capital
gains distributions and proceeds of redemptions if a shareholder fails to
furnish such Fund with a correct taxpayer identification number ("TIN") or to
certify that he or she is exempt from such withholding, or if the Internal
Revenue Service notifies such Fund or broker that the shareholder has provided
such Fund with an incorrect TIN or failed to properly report dividend or
interest income for federal income tax purposes. Any such withheld amount
will be fully creditable on the shareholder's federal income tax return. An
individual's TIN is his or her social security number.
Distributions of exempt-interest dividends by the National Fund may be
subject to state and local taxes even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations that, if
realized directly, would be exempt from such taxes. The National Fund and
Minnesota Fund will each report to its shareholders after the close of each
taxable year the percentage and source, on a state-by-state basis, of interest
income earned on tax-exempt obligations held by such Fund during the preceding
year.
The foregoing tax discussion is general in nature, and each investor is
advised to consult his or her tax advisor regarding specific questions as to
federal, state, local or foreign taxation.
INSURANCE FOR MINNESOTA FUND
Great Hall's Board of Directors has authorized Minnesota Fund to obtain
insurance coverage from Municipal Bond Investors Assurance Corporation ("MBIA
Corp."). The following information has been furnished by MBIA Corp. for use
in this Statement of Additional Information.
The MBIA Corp. insurance policy obtained by the Minnesota Fund from MBIA
Corp. is effective only so long as such Fund is in existence, the insurer is
still in business and the municipal obligations described in the policy
continue to be held by such Fund. In the event of a sale of any municipal
obligation by the Fund or payment thereof prior to maturity, the MBIA Corp.
policy terminates as to such municipal obligation on the settlement date of
the sale or the redemption date. Premium rates for each issue covered by the
MBIA Corp. insurance policy are fixed for the life of the Fund at the time of
purchase by the Fund, but may vary with subsequent purchases of the same
issue. The insurance premiums are payable monthly by the Fund and are
adjusted for purchases, sales and payments prior to maturity of covered
obligations during the month.
<PAGE>
Under the MBIA Corp. policy, the insurer unconditionally and irrevocably
guarantees to the Minnesota Fund the full and complete payment of principal
and interest on the municipal obligations as such payments become due but are
not paid by the issuer, except that in the event of any acceleration of the
due date of the principal by reason of mandatory or optional redemption or
acceleration resulting from default or otherwise, other than any advancement
of maturity pursuant to a mandatory sinking fund payment, the payments
guaranteed will be made in such amounts and at such times as payments of
principal would have been due had there not been any such acceleration. The
MBIA Corp. policy also guarantees the reimbursement of any payment made by or
on behalf of the issuer that is subsequently recovered from the Fund pursuant
to a final judgment by a court of competent jurisdiction that such payment
constitutes an avoidable preference to the Fund within the meaning of any
applicable bankruptcy law.
The MBIA Corp. policy does not insure against loss of any prepayment
premium that may at any time be payable with respect to any municipal
obligation. The policy does not insure against loss relating to: (a) optional
or mandatory redemptions (other than mandatory sinking fund redemptions);
(b) any payments to be made on an accelerated basis; (c) payments of the
purchase price of municipal obligations upon tender by an owner thereof; or
(d) any preference relating to (a) through (c) above. The policy also does
not insure against nonpayment of principal of or interest on the municipal
obligations resulting from the insolvency, negligence or any other act or
omission of the paying agent for the municipal obligations.
Upon receipt of proper notice (telegraphic or telephonic, subsequently
confirmed in writing) that required payment of an insured amount that is then
due on a municipal obligation has not been made, MBIA Corp. on the due date of
such payment or within one business day after receipt of notice of such
nonpayment, whichever is later, will make a deposit of funds, in an account
with Citibank, N.A., in New York, New York, or its successor, sufficient for
the payment of any such insured amounts that are then due. Upon presentment
and surrender of such obligation or presentment of such other proof of
ownership of the obligation, together with evidence satisfactory to Citibank,
N.A. that such obligation is covered by the MBIA Corp. policy and any
appropriate instruments to evidence the assignment of the insured amount due
on the obligation as is paid by the insurer, and appropriate instruments to
effect the appointment of MBIA Corp. as agent for the Fund in any legal
proceeding related to payment of insured amounts on the obligation, Citibank,
N.A. is required to disburse to the Fund or the paying agent payment of the
insured amounts due on such obligation, less any amount held by the paying
agent for the payment of such insured amount and legally available therefor.
With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the mutual fund insurance policy, the MBIA
Corp. policy guarantees the full and complete payments required to be made by
or on behalf of an issuer of such industrial development bonds and pollution
control revenue bonds if there occurs a loss of the tax-exempt status of
interest on such obligations, including principal or interest payments, as and
when required to be made. A "when issued" municipal obligation will be
covered under the policy upon the date on which the Fund enters into a binding
commitment to purchase the obligation, subject to prior credit approval by
MBIA Corp. In determining to insure municipal obligations held by the Fund,
MBIA Corp. has applied its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
municipal obligations. Such standards are not necessarily the same as the
criteria used in regard to the selection of municipal obligations by Insight
with respect to the Fund.
The MBIA Corp. policy terminates as to any municipal obligation that has
been redeemed from or sold by the Fund on the date of such redemption or the
settlement date of such sale, and, except in the case of a mandatory sinking
fund redemption payment deemed to be an avoidable preference to the Fund which
will be covered in the manner described above, MBIA Corp. will not have any
liability under the MBIA Corp. policy as to any such municipal obligation
thereafter. Unless otherwise terminated by the Fund, the MBIA Corp. policy
will terminate as to all municipal obligations on the date on which the last
of the municipal obligations mature, are redeemed or are sold by the Fund.
The Minnesota Fund may apply to purchase from MBIA Corp. secondary
market insurance with respect to a municipal obligation covered by the MBIA
Corp. policy at the time of its sale (i.e., insurance to maturity of the
<PAGE>
municipal obligation), subject to approval by MBIA Corp., upon the payment of
a single predetermined insurance premium from the proceeds of the sale of such
municipal obligation. Accordingly, any municipal obligation covered by the
MBIA Corp. mutual fund insurance policy would be eligible to be sold on an
insured basis if permanent insurance is obtained. It is expected that the
Fund will apply to obtain permanent insurance with respect to such municipal
obligations proposed to be sold only if, in the judgment of Insight, the Fund
would thereby receive net proceeds after deducting the cost of such permanent
insurance and related fees significantly in excess of the proceeds it would
receive if such municipal obligation were sold without permanent insurance.
The premium required to be paid for secondary market insurance with respect to
municipal obligations purchased for the Minnesota Fund would be determined
upon application by the Fund and approval by MBIA Corp. of such municipal
obligations for secondary market insurance.
The purpose of acquiring a permanent insurance policy would be to enable
the Minnesota Fund to sell the municipal obligation to a third party at a
rating and market price higher than what otherwise might be obtainable if the
obligation were sold without the insurance coverage. The difference between
the additional sale price and the single premium payment would inure to the
Fund in determining the net capital gain or loss realized by such Fund upon
the sale of the municipal obligation.
Because coverage under the MBIA Corp. policies terminates upon sale of
municipal obligations from the Fund's portfolio, such insurance does not have
an effect on the resale value of the covered municipal obligation. Therefore,
it is the intention of the Minnesota Fund to retain any insured municipal
obligations that are in default or in significant risk of default, and to
place a value on the insurance that will be equal to the difference between
the market value of the defaulted obligation and the market value of similar
obligations that are not in default. Because of this policy, Insight may be
unable to manage the Minnesota Fund's portfolio to the extent that it holds
defaulted obligations, which may limit its ability in certain circumstances to
purchase other municipal obligations.
MBIA Corp.
MBIA Corp. is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the
debts of or claims against MBIA Corp. MBIA Corp. is a limited liability
corporation rather than a several liability association. MBIA Corp. is
domiciled in the State of New York and licensed to do business in all 50
states, the District of Columbia and the Commonwealth of Puerto Rico.
As of December 31, 1994, MBIA Corp. had admitted assets of $3.4 billion
(audited), total liabilities of $2.3 billion (audited), and total capital and
surplus of $1.1 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of June 30, 1995, MBIA Corp. had admitted assets of $3.6
billion (unaudited), total liabilities of $2.4 billion (unaudited), and total
capital and surplus of $1.2 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA Corp.'s year end financial statements prepared in
accordance with statutory accounting practices are available from MBIA Corp.
The address of MBIA Corp. is 113 King Street, Armonk, New York 10504.
Moody's rates all bond issues insured by MBIA Corp. "Aaa" and short-term
loans "MIG-1," both designated to be of the highest quality.
S&P rates all new issues insured by MBIA Corp. "AAA" Prime Grade.
The Moody's rating of MBIA Corp. should be evaluated independently of
S&P's rating of MBIA Corp. No application has been made to any other rating
agency in order to obtain additional ratings on the municipal obligations.
The ratings reflect the respective rating agency's current assessment of the
creditworthiness of MBIA Corp. and its ability to pay claims on its policies
of insurance. Any further explanation as to the significance of the above
ratings may be obtained only from the applicable rating agency.
<PAGE>
The above ratings are not recommendations to buy, sell or hold the
municipal obligations, and such ratings may be subject to revision or
withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of either or both ratings may have an adverse effect on the market
price of the municipal obligations.
SPECIAL FACTORS AFFECTING THE MINNESOTA FUND
As described herein, except during temporary defensive periods, the
Minnesota Fund will invest substantially all of its assets in Minnesota
municipal obligations. The Minnesota Fund is therefore susceptible to
political, economic or regulatory factors affecting issuers of Minnesota
municipal obligations. The following information summarizes the complex
factors affecting the financial situation in Minnesota. This information is
derived from sources that are generally available to investors and is based in
part on information obtained from various state and local agencies in
Minnesota. It should be noted that the creditworthiness of obligations issued
by local Minnesota issuers may be unrelated to the creditworthiness of
obligations issued by the State of Minnesota, and that there is no obligation
on the part of the State to make payment on such local obligations in the
event of default.
Effect of Limitations on Ability to Pay Bonds
There are no constitutional or statutory provisions which would impair
the ability of Minnesota municipalities to meet their bond obligations if the
bonds have been properly issued.
Minnesota's Economy
The State of Minnesota relies heavily on a progressive individual income
tax and a retail sales tax for revenue, which results in a fiscal system that
is sensitive to economic conditions. In 1994, the structure of the State's
economy closely paralleled the structure of the United State's economy as a
whole. State employment in ten major sectors was distributed in approximately
the same proportions as national employment. In all sectors, the share of
total employment was within 2 percentage points of the national employment
share.
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. In the period 1990 to 1994,
non-farm employment grew 8.5 percent compared to 4.2 percent nationwide.
Employment data indicate that the recession that begin in July 1990 was less
severe in Minnesota than in the national economy and that Minnesota's
recovery has been more rapid than the nation's.
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 1993-94, personal income in Minnesota grew more rapidly than
the United States average, with a growth rate of 8.04% in Minnesota as
compared to a United States average of 5.89%.
Minnesota's unemployment rate was generally less than the national
average during 1993 and 1994, averaging 4.0% in 1994 as compared to the
national average of 6.1%. This trend continued through May of 1995. A major
continuing trend for Minnesota, as for the nation, is the large employment
gain in the service industries. In 1993, almost all private sector jobs added
had been in services and in finance, insurance and real estate. Accompanying
this was a decline in jobs in construction and mining.
<PAGE>
Minnesota resident population grew from 4,085,000 in 1980 to 4,387,000
in 1990 or, at an average annual compound rate of .7 percent. In comparison,
U.S. population grew at an annual compound rate of .9 percent during this
period. Minnesota population is currently forecast to grow at an annual
compound rate of .6 percent between 1990 and 2000.
Manufacturing has proven to be a strong sector, with Minnesota
employment growth in this area outperforming its U.S. counterpart in both the
1980-1990 and 1990-1993 periods. Minnesota's manufacturing industries
accounted for 17.4 percent of the State's employment mix in 1993. In the
durable goods industries, the State's employment in 1994 was highly
concentrated in the industrial machinery, instrument and miscellaneous
categories. Of particular importance is the industrial machinery category in
which 32.6% of the State's durable goods employment was concentrated in 1994,
as compared to 19.0% for the United States as a whole. The emphasis is partly
explained by the location in the State of Unisys, IBM, Cray Research, and
other computer equipment manufacturers which are included in the industrial
machinery classification.
The importance of the State's rich resource base for overall employment
is apparent in the employment mix in non-durable goods industries. In 1994,
29.0% of the State's non-durable goods employment was concentrated in food and
kindred industries, and 18.6% in paper and allied industries. This compares
to 21.4% and 8.8%, respectively, for comparable sectors in the national
economy. Both of these rely heavily on renewable resources in the State.
Over half of the State's acreage is devoted to agricultural purposes, and
nearly one-third to forestry. Printing and publishing is also relatively more
important in Minnesota than in the U.S.
The State is situated in the midst of the family farm belt. Although a
decline in jobs in agriculture is forecasted due to technological improvements
and the trend away from small family farms, in 1993 Minnesota ranked seventh
among all states in total cash receipts derived from agricultural products and
seventh among all states in percentage of income derived from farming. In
order of receipts, the six major agricultural products in 1993 were dairy,
corn, soybeans, cattle and calves, hogs and wheat.
Minnesota ranks seventh among all states in agricultural exports. The
State's major agricultural commodities exported in 1993, were in order of
value, feed grains and products, soybeans and products, wheat and wheat
products, live animals and meat, vegetables and feed and fodder. The average
Minnesota farm had gross farm income of $81,671 in 1993; however, expenses
used up $79,457 of the income leaving the average farm net income in 1993 at
$2,214, compared to the 1992 average farm net income of $17,352.
Mining is currently a less significant factor in the state economy than
it once was. Mining employment, primarily in the iron ore or taconite
industry, dropped from 17.3 thousand in 1979 to 7.6 thousand in 1994. It is
not expected that mining employment will return to 1979 levels. However,
Minnesota retains vast quantities of taconite as well as copper, nickel,
cobalt, and peat, which may be utilized in the future.
The fastest growing sector of the economy in Minnesota and the rest of
the country is the service sector. Business services employment is projected
to increase by 23% from 1989 to 1996, and health care services (exclusive of
hospitals and nursing homes) is projected to grow by 18%. Minnesota's service
industries accounted for 26.4% of 1993 non-farm employment.
In 1993, 29 Minnesota based public companies and 9 private companies
reported revenues of $600 million or more. These companies are involved in a
varied group of industries including agricultural and industrial commodities,
manufacturing, food and kindred products and services.
There can be no assurance that Minnesota's economy and fiscal condition
will not materially change in the future or that future difficulties will not
occur. Economic difficulties and the resultant impact on State and local
government finances may adversely affect the market value of obligations in
the portfolio of the Fund or the ability of respective obligors to make timely
payment of the principal and interest on such obligations.
<PAGE>
Risk Factors Relating to Minnesota Bonds
The State of 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 Commission 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.
In the early 1980's the State of Minnesota experienced financial
difficulties due to a downturn in the State's economy resulting from the
national recession. As a consequence, the State's revenues were significantly
lower than anticipated in the July 1, 1979 to June 30, 1981 biennium and the
July 1, 1981 to June 30, 1983 biennium. In response to revenue shortfalls,
the legislature broadened and increased the State sales tax, increased income
taxes (by increasing rates and eliminating deductions) and reduced
appropriations and deferred payments of State aid, including appropriations
for and aids to local governmental units. The State's fiscal problems
affected other governmental units within the State, such as local government,
school districts and state agencies, which, in varying degrees, also faced
cash flow difficulties. In certain cases, revenues of local governmental
units and agencies were reduced by the recession. Because of the State's
fiscal problems, Standard & Poor's Corporation reduced its rating on the
State's outstanding general obligation bonds from AAA to AA+ in August 1981
and to AA in March 1982. Moody's Investors Service, Inc. lowered its rating
on the State's outstanding general obligation bonds from Aaa to Aa in April
1982.
In 1986, 1987, 1991, 1992 and 1993, legislation was 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 (cash flow account), imposing a sales tax
on purchases by local governmental units, and making other budgetary
adjustments. In 1995, the Minnesota Legislature separated the budget reserve
and cash flow account into two separate accounts. The cash flow account was
established for the purpose of providing sufficient cash balances to cover
monthly revenue and expenditure imbalance. The cash flow account is set for
the current biennium, ending June 30, 1997, at $350 million. The budget
reserve was established for the purpose of cushioning the State from an
economic downturn, and its balance is set for the current biennium at $204
million. Total projected expenditures and transfers for the biennium are
$18.22 billion. The projections generally do not include increases for
inflation or operating costs, except where Minnesota law requires them.
The Minnesota Supreme Court held on April 1, 1994 that numerous banks
are entitled to refunds of Minnesota bank excise taxes paid for tax years 1979
through 1983, on the grounds that interest on federal obligations was
unlawfully included in the computation of the tax for such years. The trial
court has been directed to calculate the amounts to be refunded. The taxes
and interest are estimated to be in excess of $235 million. The State will be
permitted to pay the refunds over a four-year period. On December 12, 1994
the U.S. Supreme Court denied the State's Petition to review the decision of
the Minnesota Supreme Court. The 1995 Minnesota Legislature authorized the
State Commissioner of Finance to issue up to $400 million of State revenue
bonds to pay for the judgment and the related obligations. The State of
Minnesota also is a party to a variety of other civil actions which could
adversely affect the State's General Fund.
State grants and aids represent a large percentage of the total revenues
of cities, towns, counties and school districts in Minnesota. Even with
respect to Bonds that are revenue obligations of the issuer and not general
obligations of the State, there can be no assurance that fiscal problems of
the State will not adversely affect the market value or marketability of the
Bonds or the ability of the respective obligors to pay interest on and
principal of the Bonds.
<PAGE>
The 1995 Minnesota Legislature considered but did not enact legislation
that would include in Minnesota taxable income of individuals, estates and
trusts the interest income derived from obligations of the State of Minnesota
or its subdivisions that are otherwise exempt from federal income tax to the
extent the interest income was derived from obligations issued, sold or
acquired after July 1, 1995. The proposed legislation was partially in
response to a 1994 Ohio Supreme Court case which held that an Ohio law
subjecting the interest derived from obligations issued by non-Ohio
governmental entities to tax while exempting interest on bonds issued by Ohio
governmental entities did not violate the Commerce Clause of the United States
Constitution. Despite the fact that the Ohio law was upheld, the Ohio case
caused concern that if a similar Minnesota exemption were held to be
unconstitutional, the State of Minnesota would be subject to retroactive
income tax refunds. The 1995 Minnesota Legislature did enact a provision
stating that if a court determines the exemption of Minnesota bond interest
discriminates against interstate commerce, the State of Minnesota would remedy
the discrimination by adding interest on obligations of Minnesota governmental
units to federal taxable income, beginning in the year in which such a court
decision became final.
PORTFOLIO TRANSACTIONS
As provided in the investment advisory agreement with respect to the
Funds, Insight makes investment decisions and decisions as to the execution of
portfolio transactions for the Funds, subject to the general supervision of
the Board of Directors of Great Hall. At times, investment decisions may be
made to purchase or sell the same investment security for more than one of the
portfolios that comprise Great Hall, in which case the transactions will be
allocated as to amount and price in a manner considered equitable to each
portfolio. In some cases this procedure may possibly have a detrimental
effect on the price or volume of the security as far as certain funds are
concerned. On the other hand, the ability of the Funds to participate in
volume transactions may produce better executions for these funds in some
cases.
Under the 1940 Act, persons affiliated with Great Hall are prohibited
from dealing with the Funds as a principal in the purchase and sale of
investments unless an order allowing such transactions is obtained from the
SEC. Since over-the-counter transactions are usually principal transactions,
affiliated persons of Great Hall may not serve as a dealer in connection with
such transfers or commitments. The 1940 Act also prohibits the Funds from
purchasing a security being publicly underwritten from a syndicate in which
any affiliated person is a principal underwriter except in accordance with
certain limitations. Furthermore, the Funds may not use any affiliated person
as a broker or dealer in executing portfolio transactions without complying
with the limitations imposed by the rules of the SEC. Dain Bosworth
Incorporated and Rauscher Pierce Refsnes, Inc., among others, are affiliated
persons of the Funds by direct or indirect ownership interest in Insight.
Most purchase or sale transactions with respect to the Funds are with
the issuer or an underwriter or with major dealers of securities acting as
principals. Such transactions are normally on a net basis and generally do
not involve payment of brokerage commissions. However, the cost of securities
purchased from an underwriter normally includes a commission paid by the
issuer to the underwriter. Purchases or sales from or to dealers will
normally reflect the spread between bid and ask prices. During the fiscal
years ended July 31, 1993, 1994 and 1995, no brokerage commissions were paid
by either Fund.
In placing orders for securities transactions, the primary criterion for
selection of a broker-dealer is the ability of the broker-dealer, in the
opinion of Insight, to secure prompt execution of the transactions at the most
favorable net price, considering the state of the market at the time.
Frequently, Insight selects a broker-dealer to effect a particular transaction
without contacting all broker-dealers who might be able to effect such
transaction, because of the volatility of the market and the desire to accept
a particular price for a security because the price offered by the broker-
dealer meets a Fund's guidelines for profit, yield, or both.
When consistent with the objectives of prompt execution and favorable
net price, orders may be placed with broker-dealers who furnish investment
research or services to Insight. Such research or services include advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; and the availability of securities, or purchasers or
<PAGE>
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 Insight to supplement its own
investment research activities and enables Insight to obtain the views and
information of individuals and research statistics of many different
securities firms prior to making investment decisions for the Funds. To the
extent portfolio transactions are effected with broker-dealers who furnish
research services to Insight, Insight receives a benefit, not capable of
evaluation in dollar amounts, without providing any direct monetary benefit to
the Funds from these transactions. Insight believes that most research
services obtained by it generally benefit several or all of the investment
companies and private accounts that it manages, as opposed to solely
benefiting one specific managed fund or account.
Portfolio Turnover
The portfolio turnover rates for each Fund are set forth in the
Prospectus under "Financial Highlights."
REDUCED SALES CHARGES
As described under "How to Invest" in the Prospectus, the applicable
sales charge may be reduced or waived on certain purchases. Such sales charge
variations are offered in order to pass on to qualifying investors the lower
costs of marketing to such investors and in recognition of the economies of
scale involved in large purchases. In order for any of the following
privileges to be made available, you must notify Dain Bosworth Incorporated or
Rauscher Pierce Refsnes, Inc. (the "Co-Distributors") of the total holdings in
a Fund and other applicable Funds at the time each order is placed.
Combined Purchase Privilege
The table of reduced sales charges for larger-sized investments
contained under "How to Invest" in the Prospectus is applicable to purchases
of $100,000 or more of National Fund or Minnesota Fund if such purchases are
made at any one time by any "person." A "person" includes: (a) an individual,
his or her spouse and their children under the age of 21 purchasing securities
for his, her or their own account; (b) a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account; or (c) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Cumulative Quantity Discount
A person (as defined above) may also add the value (at the then current
offering price on the date of the subsequent additional purchase) of his
existing shares of National Fund and Minnesota Fund to his investment in
additional shares of such Funds when determining whether a reduced sales
charge applies.
Letter of Intent
Investors may qualify for reduced sales charges by means of a written
Letter of Intent, which expresses the investor's intention to invest at least
$100,000 in the Funds (including certain credits, as described below) within a
13-month period. Investors electing to take advantage of the Letter of Intent
should contact their investment executive and complete the applicable portion
of the Account Authorization Form that accompanies the Funds' prospectus. The
Account Authorization Form should be read carefully prior to its execution. A
Letter of Intent may include purchases of Fund shares made not more than 90
days prior to the date that a Letter of Intent is signed. The 13-month period
will run from the date of the earliest purchase to be included.
Sales charges applicable to all amounts invested under the Letter of
Intent are computed as if the aggregate amount intended to be invested had
been invested immediately. If such aggregate amount is not actually invested,
the difference in the sales charge actually paid and the sales charge payable
had the Letter of Intent not been in effect is due from the investor.
<PAGE>
However, for purchases actually made within the 13-month period, the sales
charge applicable will not be higher than that which would have applied
(including accumulations) had the Letter of Intent been for the amount
actually invested. If the goal under the Letter of Intent is exceeded in an
amount that qualifies for a lower sales charge, a price adjustment will be
made by refunding to the investor the amount of excess sales commissions, if
any, paid during the 13-month period.
The Letter of Intent does not constitute a binding commitment by the
investor to purchase, or by National Fund or Minnesota Fund to sell,
additional shares and may be terminated at any time. The minimum initial
investment under a Letter of Intent is 5% of the total amount indicated in the
Letter. 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.
For purposes of determining whether any contingent deferred sales charge
is applicable to redemptions of shares initially purchased without a sales
load pursuant to a Letter of Intent, shares will be deemed to have been
purchased as of the date on which the investment was actually made, and shares
will be redeemed in the order purchased.
REINVESTMENT PRIVILEGE
If you redeem all of your shares in either the National Fund or the
Minnesota Fund, you may reinvest all or part of the proceeds of such
redemption in additional shares of such Funds without paying any sales charge
if such reinvestment is effected within 60 days after the redemption and you
are exercising the reinvestment privilege. If you use the reinvestment
privilege following a redemption that resulted in a loss, some or all of the
loss will not be allowed as a tax deduction, depending on the amount
reinvested.
EXCHANGE PRIVILEGE
An Exchange Privilege among the portfolios comprising Great Hall is
available to shareholders of each portfolio. Shares of The Great Hall money
market funds (the "Money Market Funds") are sold to the public without a sales
charge. Shares of National Fund and Minnesota Fund (the "Load Funds") are
sold to the public with a sales charge. When shares of a Money Market Fund
are exchanged for shares of a Load Fund, the applicable sales charge will be
deducted. Shares of either Load Fund may be exchanged for shares of the other
Load Fund without a sales charge. If shares have been purchased by check and
are being exchanged, the purchase check must be collected by the Transfer
Agent before the exchange can be made, which may take up to 15 days or more
after investment.
The shares of the Fund being exchanged must meet the minimum initial
investment requirement which is currently $1,000 for all Funds.
An exchange request to redeem shares of a Load Fund for shares of a
Money Market Fund, or shares of one Load Fund for shares of the other Load
Fund, will be effective on the fifth business day following the date of the
net asset value next determined for such Fund after receipt of such request.
A request to exchange shares of a Money Market Fund for shares of a Load Fund
will be effective on the next business day following the date of the net asset
value next determined for such Fund after receipt of such request.
An exchange pursuant to the Exchange Privilege is, for federal income
tax purposes, a sale on which you may realize a taxable gain or loss. See
"Taxes." The Exchange Privilege is available only in states where legally
allowed, and may be modified or terminated at any time. Any Fund may limit or
discontinue the exchange of its shares.
<PAGE>
MANAGEMENT AND DISTRIBUTION AGREEMENTS
Investment Adviser; Investment Advisory Agreement
Insight serves as each Fund's investment adviser. Insight is a division
of IFG Asset Management Services, Inc. ("AMS"), a wholly-owned subsidiary of
Inter-Regional Financial Group, Inc. ("IFG"). Each Co-Distributor likewise is
a wholly-owned subsidiary of IFG.
Pursuant to an investment advisory agreement (the "Advisory Agreement"),
Insight performs and bears the cost of research, statistical analysis and
continuous supervision of the investment portfolio of each Fund and furnishes
office facilities and certain clerical and administrative services to the
Funds. In addition, to the extent not covered by the Funds' Rule 12b-1 Plan,
Insight may bear the cost of promotional expenses, including the cost of
printing and distributing prospectuses utilized for promotional purposes.
Other expenses are borne by whichever Fund incurs the expense and such
expenses include, but are not limited to, taxes, interest, brokerage fees and
commissions, and costs and expenses associated with the following matters and
services: registration and qualification of Great Hall, the Funds and their
shares with the SEC and the various states; services of custodians, transfer
agent, dividend disbursing agent, accounting services agents, shareholder
services agents, independent auditors and outside legal counsel; maintenance
of corporate existence; preparation, printing and distribution of prospectuses
to existing Fund shareholders; services of Great Hall directors who are not
employees of Insight or of the Co-Distributors or any of their affiliates;
directors' and shareholders' meetings, including the printing and mailing of
proxy materials; insurance premiums for fidelity, portfolio and other
coverage; issuance and sale of Fund shares (to the extent not borne by the Co-
Distributors under their agreement with Great Hall); redemption of Fund
shares; printing and mailing of stock certificates representing shares of the
Funds; association membership dues; preparation, printing and mailing of
shareholder reports; and portfolio pricing services, if any. Expenses borne
by Great Hall and attributable to only one Fund will be allocated to that
Fund; expenses that are not specifically allocable will be allocated to each
Fund in a manner and on a basis determined in good faith by the Board of
Directors of Great Hall, including a majority of the Directors who are not
"interested" persons of Great Hall or Insight, to be fair and equitable.
Under the Advisory Agreement, Insight receives a monthly advisory fee based on
the average daily net assets of each Fund. Each Fund pays a fee at an annual
rate of .50% of average daily net assets.
The Advisory Agreement continues in effect from year to year, if
specifically approved at least annually by a vote cast in person at a meeting
called for such purpose by a majority of the Directors of Great Hall, and a
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of Great Hall or Insight ("Independent Directors"). The Advisory
Agreement may be terminated by either party thereto, by the Independent
Directors or by a vote of the holders of a majority of the outstanding
securities of Great Hall, at any time, without penalty, upon 60 days' written
notice, and automatically terminates in the event of an assignment.
Termination will not affect the right of Insight to receive payment of any
unpaid balance of the compensation earned prior to termination.
The Funds commenced operations on June 5, 1992 upon the transfer of
substantially all of the assets held by Carnegie's National Tax Exempt Fund
and Minnesota Insured Fund. The Carnegie funds (like the Funds) operated on a
July 31 fiscal year end. For the fiscal years ended July 31, 1995, 1994 and
1993, National Fund paid advisory fees of $342,193, $353,208 and $248,836,
respectively, and Minnesota Fund paid advisory fees of $153,568, $143,771 and
$128,229, respectively. During such years, Insight waived advisory fees of
$74,000, $38,300 and $41,784, respectively, for Minnesota Fund pursuant to
expense waivers then in effect.
The Co-Distributors
Shares of the National Fund and the Minnesota Fund are offered
continuously. Both Co-Distributors serve as distributors of the National
Fund; however, only Dain Bosworth Incorporated serves as a distributor of the
Minnesota Fund. Under the terms of the Co-Distributor Agreement between the
Co-Distributors and the Funds, the Co-Distributors, as agent of Great Hall,
accept orders for the purchase and redemptions of shares of such Funds and, as
<PAGE>
compensation therefor, receive the amount of the sales charge described in the
Prospectus. The Co-Distributors are not obligated to sell any certain number
of shares of a Fund. The Co-Distributors may enter into Dealer's Agreements
with other dealers, pursuant to which such dealers also sell shares of the
Funds. The Distribution Agreements permit the Co-Distributors to re-allow
designated amounts of the sales charge, as shown in the Prospectus, to dealers
entering into dealer agreements with the Co-Distributors; accordingly, such
dealers may be deemed to be underwriters of the Funds, as that term is defined
in the 1933 Act. The Funds have agreed to indemnify the Co-Distributors and
their affiliates, to the extent permitted by applicable law, against certain
liabilities under the 1933 Act.
Distribution Plan
Rule 12b-1(b) under the 1940 Act provides that any payments made by the
Funds in connection with financing the distribution of their 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. Because
some of the payments described below to be made by the Funds are distribution
expenses within the meaning of Rule 12b-1, Great Hall has entered into a Co-
Distributor Agreement with the Co-Distributors pursuant to a Distribution Plan
adopted in accordance with such Rule.
In addition, Rule 12b-1(b)(1) requires that such plan be approved by a
majority of a Fund's outstanding shares, and Rule 12b-1(b)(2) requires that
such plan, together with any related agreements, be approved by a vote of the
Board of Directors and of the Directors who are not interested persons of
Great Hall and who 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:
* 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;
* that any person authorized to direct the disposition of moneys paid
or payable by Great Hall pursuant to the plan or any related
agreement shall provide to Great Hall's Board of Directors, and the
directors shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were
made; and
* in the case of a plan, that it may be terminated at any time by a
vote of a majority of the members of the Board of Directors of Great
Hall who are not interested persons of Great Hall and who have no
direct or indirect financial interest in the operation of the plan or
in any agreements related to the plan or by a vote of a majority of
the outstanding voting securities of a Fund.
Rule 12b-1(b)(4) requires that such a plan 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 Great Hall may rely upon Rule 12b-1(b) only
if the selection and nomination of Great Hall's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that Great Hall 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 Sections 36(a) and
(b) of the 1940 Act, that there is a reasonable likelihood that the plan will
benefit Great Hall and its shareholders. The Board of Directors has concluded
that there is a reasonable likelihood that the Distribution Plan will benefit
Great Hall and its shareholders.
<PAGE>
For the fiscal year ended July 31, 1993, the Co-Distributors earned fees
of $37,430 and $19,140 from the National Fund and Minnesota Fund, respectively
(net of voluntary fee waivers of $112,125 and $57,797, respectively). For
the fiscal year ended July 31, 1994, the Co-Distributors earned fees of
$140,340 and $72,789 from the National Fund and Minnesota Fund, respectively
(net of voluntary fee waivers of $71,584 and $36,453, respectively). For the
fiscal year ended July 31, 1995, the Co-Distributors earned fees of $126,890
and $59,184 from the National Fund and Minnesota Fund, respectively (net of
voluntary fee waivers of $78,426 and $32,957, respectively). Currently, the
Co-Distributors are permitted to use such fees only in connection with the
provision of shareholder services (including, but not limited to, responding
to shareholder inquiries and providing information on their investments) by
the Co-Distributors and dealers who enter into selling agreements with the Co-
Distributors.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is calculated separately for
each Fund. The assets and liabilities of each Fund are determined in
accordance with generally accepted accounting principles and the applicable
rules and regulations of the SEC. Assets and liabilities attributable to a
specific Fund are allocated to that Fund. Assets and liabilities not readily
identifiable to a Fund will be allocated among the Funds in a manner and on a
basis determined in good faith pursuant to procedures established by the Board
of Directors, including a majority of the Directors who are not "interested
persons" of Great Hall or Insight, to be fair and equitable.
The portfolio securities in which each Fund invests fluctuate in value,
and hence the net asset value per share (and therefore, the public offering
price) of each Fund also fluctuates. On July 31, 1995, the net asset value
per share and the maximum public offering price per share for the Funds were
calculated as follows:
National Fund
Net Assets ($66,357,252)
------------------------------------ = Net Asset Value Per Share
Shares Outstanding (6,521,963) ($10.17)
Maximum Public Offering Price Per Share = $10.17 + 4.50% of Public
Offering Price = $10.65
Minnesota Fund
Net Assets ($28,634,735)
------------------------------------ = Net Asset Value Per Share
Shares Outstanding (2,889,958) ($9.91)
Maximum Public Offering Price Per Share = $9.91 + 4.50% of Public
Offering Price = $10.38
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
"yield," "tax equivalent yield," "average annual total return" or "cumulative
total return." Such amounts are calculated as follows:
Yield is computed by dividing the net investment income per share (as
defined under SEC 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:
YIELD = 2[(a-b + 1)^6 - 1]
---
cd
<PAGE>
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.
National Fund's yield for the 30-day period ended July 31, 1995 was
5.86%. For the same period, Minnesota Fund's yield was 4.45%. Absent
voluntary fee waivers during this period, National Fund's 30-day yield would
have been 5.75%, and Minnesota Fund's 30-day yield would have been 4.09%.
Taxable equivalent yield is computed by dividing that portion of the
yield of a Fund (as computed pursuant to the above paragraph) which is tax-
exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt.
The taxable equivalent yields for National Fund for the 30-day period
ended July 31, 1995 were 8.14%, 8.49%, 9.16% and 9.70% assuming a federal
marginal income tax rate of 28%, 31%, 36% and 39.6%, respectively. For the
same period, the taxable equivalent yields for Minnesota Fund were 6.75%,
7.05%, 7.59% and 8.05% assuming a combined federal/Minnesota marginal income
tax rate of 34.1%, 36.9%, 41.4% and 44.7%, respectively. Absent voluntary fee
waivers during this period, National Fund's taxable equivalent 30-day yields
would have been 7.99%, 8.33%, 8.98 and 9.52%, respectively, and Minnesota
Fund's taxable equivalent 30-day yields would have been 6.21%, 6.48%, 6.98%
and 7.40%, respectively.
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:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period.
This calculation deducts the maximum sales charge from the initial
hypothetical $1,000 investment, assumes all dividends and capital 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.
The average annual total returns on an investment in the National Fund
for the one year, five year and since inception (September 22, 1986) periods
ended July 31, 1995 were 2.34%, 7.19% and 7.48%, respectively. The average
annual total returns on an investment in the Minnesota Fund for the one year,
five year and since inception (March 5, 1986) periods ended July 31, 1995 were
2.18%, 6.11% and 6.52%, respectively.
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:
<PAGE>
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, and includes all recurring
fees, such as investment advisory and management fees, charged as expenses to
all shareholder accounts.
The cumulative total return of National Fund from its inception
(September 22, 1986, including the operations of its predecessor) through
July 31, 1995 was 89.10%, and the cumulative total return of Minnesota Fund
from its inception (March 5, 1986, including the operations of its
predecessor) through July 31, 1995 was 79.36%.
DIRECTORS AND OFFICERS
Directors and officers of Great Hall, together with information as to
their principal occupations during the past five years, are set forth below.
Except as otherwise set forth below, the address of each officer and director
is the same as that of Great Hall - 60 South Sixth Street, Minneapolis,
Minnesota 55402.
Principal Occupations
During the Past Five Years and
Name and Address Position Other Affiliations
- ---------------- -------- ------------------------------
T. Geron ("Jerry") Bell Director President of the Minnesota
501 Chicago Avenue South Twins Baseball Club
Minneapolis, MN 55415 Incorporated since 1987.
Sandra J. Hale Director President of Enterprise
2308 West Lake of Management, Int'l. since 1991;
the Isles Pkwy. Minnesota Commissioner of
Minneapolis, MN 55402 Administration from 1983 to
1990.
Ron James* Director Vice-President - Minnesota of
150 South Fifth Street U.S. West Communications since
Suite 3300 1990; Vice President and General
Minneapolis, MN 55402 Manager-Large Business
Markets of U.S. West
Communications from 1987 to
1990; Director of Ceridian
Corporation since 1991;
Director of The St. Paul
Companies since 1993; Director
of Automotive Industries
Holding, Inc. since 1994.
<PAGE>
Principal Occupations
During the Past Five Years and
Name and Address Position Other Affiliations
- ---------------- -------- ------------------------------
Jay H. Wein Director Independent consultant since
12900 Whitewater Drive April 1995; Chairman of
Minnetonka, MN 55343 Information Advantage, Inc.
from 1992 to April 1995; Vice
Chairman of National
Designwear, Inc. (which filed
a petition for reorganization
under chapter 11 of Title 11
of the United States Code in
1992 and which currently is
inactive and in the process of
liquidation) since 1990;
Retired in August 1989 after
15 years as Office Managing
Partner of the Minneapolis/St.
Paul Office of Arthur Andersen
& Co.
J. Scott Spiker Chief President, Chief Executive
Executive Officer and Director of
Officer Insight and AMS since October
1994; Senior Vice President of
IFG since February 1994;
Senior Vice President and
Business Manager, Employee
Benefit Services, of Norwest
Corporation from 1990 through
January 1994; Product Manager,
Institutional Collective
Funds, of Norwest Corporation
from 1989 through January
1994.
Dennis T. Hippen Senior Senior Vice President and
Vice Senior Portfolio Manager of
President Insight since 1991; Director
and President of Insight Bond
Management, Inc. (Insight's
predecessor) from 1983 through
1991.
Raye C. Kanzenbach Vice Vice President and Senior
President Portfolio Manager of Insight;
prior to 1991, Director,
Senior Vice President and
Secretary of Insight Bond
Management, Inc. since 1983.
Julie K. Getchell Chief Vice President, Secretary,
Financial Treasurer and Chief Financial
Officer Officer of AMS; prior to 1991,
Vice President and Assistant
Controller of Dain Bosworth
Incorporated since 1985.
Matthew L. Thompson Secretary Partner of Faegre & Benson
Professional Limited Liability
Partnership, Great Hall's
general counsel, since May
1995; Vice President,
Assistant Secretary and
Corporate/Fund Counsel of IFG
from January 1994 to May
1995; prior thereto, Partner
of Dorsey & Whitney since 1993
and Associate of Dorsey &
Whitney from 1985 through
1992.
<PAGE>
__________________________
* Mr. James may be deemed to be an "interested" Director because he is a
director of The St. Paul Companies, which owns a majority interest in a
registered broker-dealer.
The annual compensation of each Director is $6,000 plus $1,000 for each
meeting attended. No compensation is paid by Great Hall to its officers. The
following table sets forth for such period the aggregate compensation
(excluding expenses) paid by Great Hall to its directors during the fiscal
year ended July 31, 1995:
COMPENSATION TABLE
------------------
Pensions or Retirement
Aggregate Benefits Accrued
Compensation as part of
Name of Director from Great Hall Great Hall Expenses
---------------- --------------- -------------------
T. Geron (Jerry) Bell $12,000 None
Sandra J. Hale $12,000 None
Ron James $12,000 None
Jay H. Wein $12,000 None
Additional directors of AMS are as follows:
Name Other Positions
--------------------- --------------------------------
Irving Weiser Chairman, Chief Executive Officer and
President of IFG; Chairman and Chief
Executive Officer of Dain Bosworth Inc.
Jerry W. Hayes Chief Executive Officer of Regional
Operations Group, Inc., a subsidiary of
IFG
John C. Appel President and Chief Operating Officer
of Dain Bosworth Inc.
Louis C. Fornetti Executive Vice President, Chief
Financial Officer and Treasurer of IFG.
GENERAL INFORMATION
Great Hall maintains accounting records that specifically allocate
assets and liabilities on a series by series basis. The shares of each series
represent an undivided interest in the assets and liabilities specifically
allocated to that series. Creditors and other persons contracting with Great
Hall with respect to a series may look solely to the assets of that series to
satisfy claims against Great Hall.
All Fund shares are the same class and are freely transferable. Each
share has equal dividend rights and is entitled to one vote at all shareholder
meetings. Separate votes are taken by each series of Great Hall except to the
extent that the 1940 Act requires shares of all series to be voted in the
aggregate. Shares have non-cumulative voting rights, so that the holders of
more than 50% of the shares can, if they choose to do so, elect all the
directors of Great Hall, in which event the holders of the remaining shares
will be unable to elect any person as a director. Whenever the approval of a
majority of the outstanding shares of a series of Great Hall is required in
connection with shareholder approval of an investment advisory agreement,
changes in the investment objectives, policies or limitations of that series,
or changes in the distribution expense plan, a "majority" shall mean the vote
of the lesser of (a) 67% or more of the shares of such series present at a
meeting, if the holders of more than 50% of the outstanding shares of such
<PAGE>
series are present in person or by proxy; or (b) more than 50% of the
outstanding shares of such series. As of September 29, 1995, Juanita M. Daly,
1200 Rancho Cr., Las Vegas, Nevada 89107 beneficially owned approximately
6.13% of National Fund's issued and outstanding shares. To the best of Great
Hall's knowledge, no other shareholder beneficially owned 5% or more of either
Fund's outstanding shares as of the same date.
Great Hall is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders, and does not intend
to hold such meetings. The Board of Directors may 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 Great Hall may demand a regular meeting of shareholders by
written notice of demand given to the chief executive officer or the chief
financial officer of Great Hall. Within ninety days after receipt of the
demand, a regular meeting of shareholders must be held at the expense of Great
Hall. Irrespective of whether a regular meeting of shareholders has been held
during the immediately preceding fifteen months, in accordance with Section
16(c) of the 1940 Act, the Board of Directors of Great Hall shall promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares, and Great Hall will
assist in communications with other shareholders as required by the 1940 Act.
Under Minnesota law, the Board of Directors has overall responsibility
for managing Great Hall in good faith, in a manner reasonably believed to be
in the best interests of Great Hall, and with the care an ordinarily prudent
person in a like position would exercise in similar circumstances.
Under Minnesota law, directors owe Great Hall and its shareholders
certain fiduciary duties, including a duty of "loyalty" (to act in good faith
and in the best interests of Great Hall) and a duty of "care" (to act with the
care that a reasonably prudent person would exercise under similar
circumstances). Minnesota law authorizes corporations to eliminate the
personal monetary liability of directors to the corporation or its
shareholders for breach of the duty of "care." Directors of corporations
adopting such a limitation provision still owe the corporation this duty of
"care," but under most circumstances cannot be sued for monetary damages for
breaches of such duty. The Articles of Incorporation of Great Hall limit the
liability of directors to the fullest extent permitted by law.
The directors of Great Hall remain fully liable (including possibly for
monetary damages) for breaches of their duty of "loyalty," for self-dealing,
for bad faith and intentional misconduct, and for violations of the 1933 Act,
the Securities Act of 1934, and certain provisions of Minnesota corporation
law. Additionally, the 1940 Act prohibits limiting a director's liability for
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
director's duties in the conduct of the director's office, and it is uncertain
whether and to what extent directors remain liable for monetary damages for
violations of the 1940 Act. The SEC staff has taken the position that
investment company directors remain liable for monetary damages under certain
circumstances.
Upon issuance and sale in accordance with the terms of the Fund's
Prospectus and Statement of Additional Information, each share of a Fund will
be fully paid and non-assessable. Shares have no preemptive, subscription or
conversion rights and are redeemable as set forth under "How To Redeem Shares"
in the Prospectus. In the event of the dissolution or liquidation of Great
Hall, the holders of the shares of any Fund are entitled to receive, as a
class, the underlying assets of such Fund available for distribution to
shareholders.
<PAGE>
COUNSEL AND AUDITORS
Faegre & Benson Professional Limited Liability Partnership, 2200 Norwest
Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, serves as Great
Hall's general counsel. Lindquist & Vennum PLLP, 4200 IDS Center, 80 South
Eighth Street, Minneapolis, Minnesota 55402, serves as counsel to Great Hall's
disinterested directors.
KPMG Peat Marwick LLP, 90 South Seventh Street, 4200 Norwest Tower,
Minneapolis, Minnesota 55402, has been selected as the independent auditors of
Great Hall for its fiscal year ending July 31, 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Great Hall Investment Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of National Tax-Exempt
Fund and Minnesota Insured Tax-Exempt Fund (funds within Great Hall Investment
Funds, Inc.) as of July 31, 1995 and the related statements of operations for
the year then ended and the statements of changes in net assets for each of
the years in the two-year period ended July 31, 1995 and the financial
highlights for each of the years in the five-year period ended July 31, 1995.
These financial statements and the financial highlights are the responsibility
of the Funds' 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. 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 Tax-Exempt Fund and Minnesota Tax-Exempt Fund at July 31, 1995, and
the results of their operations for the year then ended and the changes in
their net assets for each of the years in the two-year period ended July 31,
1995, and the financial highlights for each of the years in the five-year
period ended July 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 1, 1995
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1995
Minnesota
National Insured
Tax-Exempt Tax-Exempt
Fund Fund
- ------------------------------------------------------------------------------
Assets:
Investments in securities at market value
(note 2), identified cost $65,651,440 and
$28,124,352 respectively.......................... $65,882,703 $28,067,543
Cash in bank on demand deposit..................... 58,500 30,572
Receivable for fund shares sold.................... 347 47,736
Accrued interest receivable........................ 1,138,758 574,279
- ------------------------------------------------------------------------------
Total assets....................................... 67,080,308 28,720,130
- ------------------------------------------------------------------------------
Liabilities:
Cash portion of dividends payable to shareholders.. 177,369 28,416
Payable for fund shares redeemed................... 450,147 19,553
Accrued investment advisory fee.................... 28,407 5,228
Accrued distribution fee........................... 25,179 11,403
Other accrued expenses............................. 41,954 20,795
- ------------------------------------------------------------------------------
Total liabilities.................................. 723,056 85,395
- ------------------------------------------------------------------------------
Net assets applicable to
outstanding capital stock........................ $66,357,252 $28,634,735
- ------------------------------------------------------------------------------
Represented by:
Capital stock - authorized 10 billion shares of
$.01 par value for each Fund, outstanding
6,521,963 and 2,889,958 shares, respectively...... $65,220 $28,900
Additional paid-in capital......................... 65,492,505 29,279,152
Accumulated net realized gains (losses) on
investments (note 2).............................. 568,264 (616,508)
Unrealized appreciation
(depreciation) of investments.................... 231,263 (56,809)
- ------------------------------------------------------------------------------
Total - representing net assets applicable to
outstanding capital stock........................ $66,357,252 $28,634,735
- ------------------------------------------------------------------------------
Net asset value per share
of outstanding capital stock..................... $10.17 $9.91
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended July 31, 1995
Minnesota
National Insured
Tax-Exempt Tax-Exempt
Fund Fund
- ------------------------------------------------------------------------------
Income:
Interest.......................................... $4,957,707 $1,820,452
- ------------------------------------------------------------------------------
Expenses (note 5):
Investment advisory fee........................... 342,193 153,568
Distribution fee.................................. 205,316 92,141
Custodian, accounting and transfer agent fees..... 42,234 44,340
Reports to shareholders........................... 4,483 19,176
Directors' fees................................... 9,000 9,000
Audit and legal fees.............................. 1,916 23,114
Registration fees................................. -- 4,400
Insurance fees.................................... 10,067 9,000
Other expenses.................................... 3,751 1,249
- ------------------------------------------------------------------------------
Total expenses..................................... 618,960 355,988
Less expenses voluntarily
waived or absorbed by Advisor.................... (78,426) (106,957)
- ------------------------------------------------------------------------------
Total net expenses................................. 540,534 249,031
- ------------------------------------------------------------------------------
Investment income - net............................ 4,417,173 1,571,421
- ------------------------------------------------------------------------------
Realized and unrealized gains/(losses) on investments:
Net realized gain (loss) on investments (note 3).. 868,133 (616,795)
Net change in unrealized appreciation or
depreciation of investments...................... (592,387) 728,206
- ------------------------------------------------------------------------------
Net gain on investments............................ 275,746 111,411
- ------------------------------------------------------------------------------
Net increase in net
assets resulting from operations................. $4,692,919 $1,682,832
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
National Minnesota Insured
Tax-Exempt Fund Tax-Exempt Fund
- ------------------------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
7/31/95 7/31/94 7/31/95 7/31/94
- ------------------------------------------------------------------------------
Operations:
Investment income - net... $4,417,173 $4,227,017 $1,571,421 $1,770,456
Net realized gain (loss)
on investments........... 868,133 38,318 (616,795) 677,302
Net change in unrealized
appreciation or depreci-
ation of investments..... (592,387) (2,652,084) 728,206 (2,645,221)
- -------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations............... 4,692,919 1,613,251 1,682,832 (197,463)
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Investment income - net... (4,417,173) (4,227,017) (1,571,421) (1,770,456)
Accumulated net
realized gains........... (308,935) (118,925) (293,106) (747,780)
- ------------------------------------------------------------------------------
Total distributions
to shareholders......... (4,726,108) (4,345,942) (1,864,527) (2,518,236)
- ------------------------------------------------------------------------------
Capital share transactions (note 4):
Proceeds from sales
(note 5)................. 3,529,401 21,521,729 633,943 12,506,342
Shares issued for reinvest-
ment of distributions.... 2,501,190 2,385,802 1,145,781 1,620,838
Payment for shares
redeemed................. (11,812,598) (7,050,373) (10,071,324) (4,202,344)
- -------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital share
transactions............. (5,782,007) 16,857,158 (8,291,600) 9,924,836
- ------------------------------------------------------------------------------
Total increase (decrease)
in net assets............. (5,815,196) 14,124,467 (8,473,295) 7,209,137
- ------------------------------------------------------------------------------
Net assets at beginning
of year................... 72,172,448 58,047,981 37,108,030 29,898,893
- -------------------------------------------------------------------------------
Net assets at end of year.. $66,357,252 $72,172,448 $28,634,735 $37,108,030
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization
Great Hall Investment Funds, Inc. (the Company) was incorporated on June
24, 1991 and is registered under the Investment Company Act of 1940 (as
amended) as an open-end management investment company and presently
includes a series of five funds, including National Tax-Exempt Fund and
Minnesota Insured Tax-Exempt Fund (the funds), which are classified as
non-diversified funds. The Company's articles of incorporation permit the
board of directors to create additional funds in the future.
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the funds are as follows:
Investments in Securities
The values of fixed-income securities are provided by an independent
pricing service. When market quotations are not readily available,
securities are valued at fair value as determined in good faith by the
Board of Directors. Short-term securities are valued at amortized cost
which approximates market value.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified cost basis. Interest income, including amortization of premium
and original issue discount, is accrued daily and is computed on a level
yield basis. For the Minnesota Insured Tax-Exempt Fund, portfolio
insurance expense is recognized over the premium period, and the cost of
secondary market insurance, if any, is capitalized to the cost basis of
the underlying security. For the year ended July 31, 1995 portfolio
insurance expense was $5,559.
The Minnesota Insured Tax-Exempt Fund concentrates its investments in a
single state and, therefore, may have more risk related to the economic
conditions of the respective state than a fund that has broader
geographical diversification.
Securities Purchased on a When-Issued Basis
Delivery and payment for securities which have been purchased on a
forward commitment or when-issued basis can take place a month or more
after the transaction date. During this period, such securities are
subject to market fluctuations and the fund maintains, in a segregated
account with its custodian, assets with a market value equal to the
amount of its purchase commitments.
Federal Taxes
The funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore, no
income tax provision is required. Each fund within the Company will be
treated as a separate entity for federal income tax purposes. In
addition, on a calendar basis, each fund intends to distribute
substantially all of its taxable net investment income and realized
gains, if any, to avoid the payment of any federal excise taxes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies (continued)
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes. The character of distributions
made during the year from net investment income or net realized gains
may 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 the realized gains (losses) were recorded by the funds.
For federal income tax purposes, capital loss carryovers were $616,795
for the Minnesota Insured Tax-Exempt Fund at July 31, 1995, which if not
offset by subsequent capital gains, will expire in 2003 and 2004. It is
unlikely the Board of Directors will authorize a distribution of any net
realized capital gains until the available capital loss carryovers have
been offset or expired.
Distributions to Shareholders
Distributions to shareholders from net investment income are declared
daily and payable monthly in cash or reinvested in additional shares.
Distributions from net realized gains, if any, will be made on an annual
basis for the funds.
3. Investment Security Transactions
For the year ended July 31, 1995, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities,
aggregated $5,590,706 and $9,629,662 for National Tax-Exempt Fund and
$988,240 and $7,225,868 for Minnesota Insured Tax-Exempt Fund.
4. Capital Share Transactions
Transactions in shares of each Fund for the years ended July 31, 1995 and
1994 are as follows:
National Minnesota Insured
Tax-Exempt Tax-Exempt
Fund Fund
---------------------------------------------------------------------------
1995:
Sold 354,203 64,766
Issued for reinvested distributions 250,761 120,193
Redeemed (1,182,858) (1,060,778)
---------------------------------------------------------------------------
Decrease (577,894) (875,819)
---------------------------------------------------------------------------
1994:
Sold 2,021,958 1,175,716
Issued for reinvested distributions 229,255 156,844
Redeemed (678,653) (409,749)
---------------------------------------------------------------------------
Increase 1,572,560 922,811
---------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
5. Fees and Expenses
The funds have entered into an investment advisory and management
agreement with IFG Asset Management Services, Inc. (AMS), under which AMS
manages each fund's assets and furnishes related office facilities,
equipment, research and personnel. The agreement requires each fund to
pay AMS a monthly fee based on average daily net assets. The fee for each
fund is equal to an annual rate of 50% of average daily net assets.
Each fund also pays affiliates Dain Bosworth Incorporated (DBI) and
Rauscher Pierce Refsnes, Inc. (RPR) a monthly fee for expenses incurred in
the distribution and promotion of the funds' shares. The monthly fee is
limited to a maximum of 1/12 of .30% of average daily net assets for each
fund. However, DBI and RPR voluntarily limited the reimbursement fee to
0.186% and 0.193% of average daily net assets for the year ended July 31,
1995 for the National Tax-Exempt Fund and Minnesota Insured Tax-Exempt
Fund, respectively. Total distribution fees waived for the year ended
July 31, 1995 were $78,426 and $32,957 for National Tax-Exempt Fund and
Minnesota Insured Tax-Exempt Fund, respectively.
In addition to the investment advisory fee and the distribution fee, each
fund is responsible for paying most other operating expenses including
outside directors' fees and expenses, custodian fees, registration fees,
printing and shareholder reports, transfer agent fees and expenses, legal,
auditing and accounting services, organization costs, insurance, interest
and other miscellaneous expenses. For the year ended July 31, 1995, total
fees and expenses including the distribution fee were further voluntarily
limited to an annual rate of 0.79% and 0.81% of average daily net assets
for National Tax-Exempt Fund and Minnesota Insured Tax-Exempt Fund,
respectively.
Sales charges paid to affiliated brokers for distributing the funds'
shares were $76,256 for National Tax-Exempt Fund and $15,380 for Minnesota
Insured Tax-Exempt Fund for the year ended July 31, 1995.
Legal fees and expenses of $2,649 for the year ended July 31, 1995 were
paid to an affiliate of the fund's sponsor.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
6. Financial Highlights
Per share data for a share of capital stock outstanding throughout each
period and selected information for the period is as follows:
National Tax-Exempt Fund
- -------------------------------------------------------------------------------
Year ended July 31,
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
Net asset value, beginning of year $10.17 $10.50 $10.22 $9.65 $9.63
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income............ 0.648 0.624 0.652 0.703 0.697
Realized and unrealized gains
(losses) on investments, net.... 0.045 (0.313) 0.280 0.570 0.020
- -------------------------------------------------------------------------------
Total from investment operations.. 0.693 0.311 0.932 1.273 0.717
- -------------------------------------------------------------------------------
Distributions to shareholders:
From investment income........... (0.648) (0.624) (0.652) (0.703) (0.697)
From accumulated net
realized gains.................. (0.045) (0.017) -- -- --
- -------------------------------------------------------------------------------
Total distributions
to shareholders.................. (0.693) (0.641) (0.652) (0.703) (0.697)
- -------------------------------------------------------------------------------
Net asset value, end of year...... $10.17 $10.17 $10.50 $10.22 $9.65
- -------------------------------------------------------------------------------
Total return**.................... 7.16% 2.99% 9.45% 13.84% 7.76%
Net assets at end of
year (000s omitted).............. $66,357 $72,172 $58,048 $43,166 $46,812
Ratio of expenses to average
daily net assets*................ 0.79% 0.91% 1.01% 0.84% 0.96%
Ratio of net investment income
to average daily net assets*..... 6.45% 5.98% 6.32% 7.15% 7.26%
Portfolio turnover rate
(excluding short-term securities) 8.45% 27.88% 16.36% 14.50% 13.52%
- -------------------------------------------------------------------------------
* Various fund fees and expenses were voluntarily waived or absorbed during
the periods referred to above. Had the fund paid all expenses, the ratios
of expenses and net investment income to average daily net assets would
have been as follows: 0.90%/6.34% for the year ended July 31, 1995,
1.01%/5.88% in 1994, 1.24%/6.09% in 1993, 1.14%/6.85% in 1992, and
1.26%/6.96% in 1991.
** Total return does not reflect payments of a sales charge.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
6. Financial Highlights (continued)
Minnesota Insured Tax-Exempt Fund
- ------------------------------------------------------------------------------
Year ended July 31,
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
Net asset value, beginning of year $9.85 $10.52 $10.29 $9.74 $9.60
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income............ 0.494 0.502 0.560 0.604 0.623
Realized and unrealized gains
(losses) on investments, net.... 0.157 (0.465) 0.230 0.550 0.140
- ------------------------------------------------------------------------------
Total from investment operations.. 0.651 0.037 0.790 1.154 0.763
- ------------------------------------------------------------------------------
Distributions to shareholders:
From investment income........... (0.494) (0.502) (0.560) (0.604) (0.623)
From accumulated net
realized gains.................. (0.097) (0.205) -- -- --
- ------------------------------------------------------------------------------
Total distributions
to shareholders.................. (0.591) (0.707) (0.560) (0.604) (0.623)
- ------------------------------------------------------------------------------
Net asset value, end of year...... $9.91 $9.85 $10.52 $10.29 $9.74
- ------------------------------------------------------------------------------
Total return**.................... 7.00% 0.21% 7.95% 12.41% 8.27%
Net assets at end of
year (000s omitted).............. $28,635 $37,108 $29,899 $23,009 $21,486
Ratio of expenses to average
daily net assets*................ 0.81% 0.80% 0.76% 0.61% 0.46%
Ratio of net investment income
to average daily net assets*..... 5.12% 4.86% 5.44% 6.11% 6.45%
Portfolio turnover rate
(excluding short-term securities) 3.44% 42.40% 20.12% 5.60% 1.25%
- ------------------------------------------------------------------------------
* Various fund fees and expenses were voluntarily waived or absorbed during
the periods referred to above. Had the fund paid all expenses, the ratios
of expenses and net investment income to average daily net assets would
have been as follows: 1.16%/4.77% for the year ended July 31, 1995,
1.00%/4.66% in 1994, 1.15%/5.05% in 1993, 1.16%/5.56% in 1992, and
1.22%/5.69% in 1991.
** Total return does not reflect payments of a sales charge.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities
July 31, 1995
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets.)
Municipal Bonds (98.53%):
- ------------------------------------------------------------------------------
Alabama (7.45%)
Etowah County Refunding Warrants, 8.50%, 11/01/10 $800,000 $866,645
Orange Beach General Obligation, 6.25%, 10/01/13 1,500,000 1,429,510
Moundville Industrial Development, 6.75%, 12/01/11 1,500,000 1,485,201
Upper Bear Creek Water & Sewer, 6.25%, 08/01/15 1,250,000 1,162,569
-----------
4,943,925
-----------
Arizona (0.79%)
Prescott Valley Improvement District, 7.90%, 01/01/12 500,000 526,733
-----------
Colorado (9.74%)
Arapahoe Water & Sanitation District, 9.13%, 12/01/08 500,000 533,850
Arapahoe Water & Sanitation District, 9.25%, 12/01/13 250,000 266,881
Beaver Creek Metropolitan District, 9.25%, 12/01/05 245,000 264,507
Colorado Technical Center Metropolitan District,
9.75%, 06/01/09 620,000 633,417
Copper Mountain Metropolitan District,
8.20%, 11/01/09 400,000 409,250
Mountain Village Metropolitan District,
8.10%, 12/01/11 1,000,000 1,057,436
Panorama Metropolitan District, 9.00%, 12/01/09 750,000 796,573
Piney Creek Metropolitan District, 8.50%, 12/01/14 600,000 609,167
Winter Park West Water & Sanitation District,
9.75%, 12/01/05 525,000 539,686
Winter Park West Water & Sanitation District,
9.25%, 12/01/06 250,000 257,623
Mesa County Single Family Mortgage, 8.88%, 12/01/10 405,000 413,349
Chaparral Water & Sanitation District,
8.25%, 12/01/10 325,000 328,292
Westminster Shaw Heights Basin Special,
7.50%, 12/01/07 350,000 353,842
-----------
6,463,873
-----------
Florida (1.01%)
Sarasota County Industrial Development,
8.75%, 05/01/11 665,000 671,872
-----------
Georgia (2.16%)
Richmond County Development Authority,
8.50%, 12/01/12 1,400,000 1,430,073
-----------
See accompanying notes to investments in securities.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
Municipal Bonds (continued):
- ------------------------------------------------------------------------------
Illinois (13.23%)
Harvey Advanced Refunding, 8.50%, 12/01/08 $500,000 $556,822
Niles Park District Series A, 6.65%, 12/01/14 860,000 861,756
Romeoville Series A Utilities, 7.80%, 01/01/11 1,000,000 1,019,572
Streamwood Special Service Area #3, 8.38%, 01/01/09 1,000,000 1,031,783
Illinois Development Finance Authority,
7.00%, 03/01/06 400,000 375,824
Illinois Development Finance Authority,
7.20%, 03/01/07-03/01/08 800,000 759,826
Illinois Development Finance Authority,
7.38%, 11/15/11 1,100,000 1,158,067
Illinois Health Facilities Authority,
8.10%, 11/15/14 1,000,000 1,021,307
West Chicago Tax Increment Revenue, 7.38%, 12/01/12 720,000 742,468
Bedford Park Revenue Refunding, 8.00%, 12/01/10 1,200,000 1,255,123
-----------
8,782,548
-----------
Indiana (2.71%)
Indianapolis Economic Development, 7.25%, 10/01/10 700,000 723,061
Fishers Economic Development Revenue,
8.38%, 09/01/14 1,000,000 1,072,171
-----------
1,795,232
-----------
Kansas (0.20%)
Johnson City First Mortgage Revenue, 7.40%, 10/01/08 125,000 130,663
-----------
Maine (1.56%)
Yarmouth Pollution Control Revenue, 6.75%, 06/01/02 1,025,000 1,033,536
-----------
Michigan (3.14%)
Troy Economic Development Corporation,
6.75%, 10/01/12 1,500,000 1,552,623
Bad Axe Water Supply & Sewer Disposal,
8.25%, 12/01/07 500,000 532,635
-----------
2,085,258
-----------
Minnesota (3.58%)
Fergus Falls Health Care Facilities, 6.50%, 09/01/18 750,000 732,446
Alexandria Health Care Facilities, 8.75%, 08/01/21 500,000 554,082
Chisago City Health Facilities,
9.13%, 07/01/06-07/01/07 505,000 543,586
Spring Park Health Care Facilities, 8.25%, 08/01/11 500,000 545,808
-----------
2,375,922
-----------
See accompanying notes to investments in securities.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
Municipal Bonds (continued):
- ------------------------------------------------------------------------------
Missouri (8.09%)
Saint Louis County Industrial Development,
7.50%, 06/01/16 $1,500,000 $1,417,067
Clarence Cannon Wholesale Water Commission,
5.75%, 05/15/13 1,500,000 1,380,744
Franklin County Public Water Supply District,
7.38%, 12/01/18 1,255,000 1,297,548
Marion County Nursing Home, 7.00%, 08/01/13 1,050,000 1,039,423
Platte City Waterworks & Sewer,
7.75%, 04/01/08-04/01/09 220,000 230,895
-----------
5,365,677
-----------
Nebraska (2.64%)
Douglas County Zoo Facility, 6.00%, 06/01/03 1,750,000 1,750,000
-----------
New Mexico (1.09%)
Rio Grande Natural Gas Association, 6.13%, 07/01/13 750,000 723,112
-----------
North Carolina (2.62%)
Eastern Municipal Power Agency, 5.50%, 1/01/21 2,000,000 1,741,576
-----------
North Dakota (0.12%)
State Board of Higher Education, 10.13%, 08/01/05 75,000 76,500
-----------
Oklahoma (10.56%)
Chelsea Gas Authority, 7.30%, 07/01/19 700,000 684,477
Chelsea Gas Authority, 7.25%, 07/01/13 600,000 596,974
Comanche County Hospital Authority, 9.00%, 07/01/21 725,000 866,229
Shattuck Hospital Authority, 6.50%, 01/01/98-07/01/02 390,000 375,119
Clinton Public Works Authority, 6.25%, 01/01/14 1,725,000 1,653,985
Oklahoma City Public Property Authority,
8.30%, 10/01/16 1,000,000 1,077,139
Anadarko Public Works Authority, 7.00%, 10/01/12 1,000,000 1,018,507
Heavener Utilities Authority, 6.50%, 10/01/09 750,000 732,978
-----------
7,005,408
-----------
Pennsylvania (13.55%)
Adamstown Borough Authority Sewer, 9.00%, 10/01/17 500,000 550,799
Adamstown Borough Authority Sewer, 6.25%, 10/01/17 905,000 859,216
Butler General Obligation, 6.88%, 03/01/23 950,000 889,990
Chester General Obligation, 9.50%, 12/01/97 100,000 101,595
See accompanying notes to investments in securities.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
Municipal Bonds (continued):
- ------------------------------------------------------------------------------
Pennsylvania (continued)
Easton Area Joint Sewer Authority, 6.20%, 04/01/09 $1,000,000 $974,755
Elizabeth Borough Municipal Authority Sewer,
7.15%, 01/01/21 500,000 503,405
Hopewell Township Beaver County Sewer,
6.00%, 11/01/13 1,215,000 1,099,986
Lehigh County General Purpose, 8.75%, 11/01/14 750,000 687,001
Neville Township General Obligation, 5.90%, 11/01/12 500,000 450,891
Neville Township General Obligation, 6.00%, 11/01/18 615,000 541,617
New Kensington Municipal Sewer, 7.50%, 10/01/11 1,000,000 1,016,567
State Higher Educational Facilities
Authority Revenue, 6.75%, 05/01/12 1,300,000 1,317,408
-----------
8,993,230
-----------
South Dakota (3.98%)
Health & Educational Facilities, 7.25%, 09/01/13 1,125,000 1,020,128
Health & Educational Facilities, 7.00%, 04/01/10 1,000,000 985,480
Lease Revenue Community, 8.88%, 10/01/18 590,000 638,500
-----------
2,644,108
-----------
Tennessee (1.56%)
Newbern Industrial Development, 7.90%, 3/01/00 1,000,000 1,035,864
-----------
Texas (3.06%)
Denton County Health Facilities, 7.50%, 08/15/15 1,000,000 997,896
Wharton Housing Development Corp.,
8.00%, 02/01/03-02/01/10 1,025,000 1,033,788
-----------
2,031,684
-----------
Washington (1.38%)
State Housing Finance Commission,
8.25%, 07/01/02-07/01/12 870,000 914,457
-----------
Wisconsin (2.45%)
La Crosse Nursing Home Facilities, 9.25%, 07/01/17 600,000 625,722
Dodgeville School District,
6.50%, 05/01/11-05/01/12 1,000,000 997,241
-----------
1,622,963
-----------
West Virginia (1.21%)
Ohio County Building Commission, 9.63%, 01/01/13 775,000 806,097
-----------
See accompanying notes to investments in securities.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
Municipal Bonds (continued):
- ------------------------------------------------------------------------------
Wyoming (0.65%)
Green River Sweetwater County, 8.50%, 12/01/07 $400,000 $432,392
- ------------------------------------------------------------------------------
Total Municipal Securities (cost: $65,151,440) $65,382,703
- ------------------------------------------------------------------------------
Short-term Securities (0.75%)
Los Angeles, CA Regional Airports Series E,
3.90%, 12/01/24, LOC Wachovia Bank of Georgia 100,000 (b) 100,000
Lincoln County, WY Series 1984 D, 3.90%, 11/01/04 400,000 (b) 400,000
- ------------------------------------------------------------------------------
Total Short-Term Securities (cost: $500,000) $500,000
- ------------------------------------------------------------------------------
Total Investments in Securities (cost: $65,651,440) (d) $65,882,703
- ------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2
to the financial statements.
(b) Maturity date shown represents final maturity. However, the security can
be put back to the issuer on the next interest rate reset date. Interest
rate shown is effective rate on July 31, 1995.
(c) Investments in bonds, by rating category as a percentage of total bonds,
are as follows:
(Unaudited)
Rating 7/31/95
-------------- ---------
AAA 1%
AA 1
A 7
BBB and below 16
Non-rated 75
---------
Total 100%
---------
(d) At July 31, 1995, also represents the cost of securities for federal
income tax purposes. The approximate aggregate gross unrealized
appreciation and depreciation of investments in securities based on this
cost were:
Gross unrealized appreciation $ 1,496,860
Gross unrealized depreciation (1,265,597)
------------
Net unrealized appreciation $ 231,263
------------
<PAGE>
MINNESOTA INSURED TAX-EXEMPT FUND
Investments in Securities
July 31, 1995
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets.)
Municipal Bonds (95.57%):
- ------------------------------------------------------------------------------
Anoka Hennepin Independent School #11,
5.00%, 02/01/09 (FGIC) $1,030,000 $981,376
Anoka Hennepin Independent School #11,
5.10%, 02/01/11 (FGIC) 1,000,000 939,766
Becker Wastewater Treatment Facility,
5.95%, 02/01/14 (MBIA) 500,000 507,872
Brainerd Independent School District #181,
5.90%, 02/01/15 (CGIC) 1,000,000 1,003,975
Cass Lake Independent School District #115,
5.00%, 02/01/16 (FSA) 545,000 481,787
Dover & Eyota Independent School District #533,
5.25%, 02/01/14 (AMBAC) 1,000,000 939,179
Duluth Economic Development Authority,
6.00%, 02/15/20 (Connie Lee) 1,300,000 1,267,394
Duluth Independent School District #709,
5.20%, 02/01/11 (MBIA) 1,000,000 949,976
Lakeville Independent School District #194,
5.40%, 02/01/13 (FGIC) 1,100,000 1,053,195
Marshall Utility Revenue, 5.25%,
01/01/10-01/01/11 (CGIC) 625,000 595,952
Mpls. & St. Paul Housing & Redevelopment,
5.00%, 11/15/13 (AMBAC) 1,050,000 924,707
Mpls. & St. Paul Housing & Redevelopment,
7.40%, 08/15/05 (MBIA) 600,000 670,220
Minneapolis Health Care Facility,
5.30%, 11/15/08 (MBIA) 500,000 481,944
Minneapolis Tax Increment Revenue Refunding,
7.00%, 03/01/03 (MBIA) 1,140,000 1,200,475
Minnetonka Multifamily Revenue Housing,
7.50%, 12/01/17-12/01/27 (MBIA) 900,000 (e) 955,100
Mora General Obligation, 5.13%, 02/01/11 (AMBAC) 750,000 706,356
Mora Series A Waste Water Facilities,
6.85%, 02/01/10-02/01/11 (AMBAC) 510,000 557,465
Northern Minnesota Municipal Power Agency,
5.90%, 01/01/08 (AMBAC) 700,000 732,623
Northern Minnesota Municipal Power Agency,
6.13%, 01/01/20 (AMBAC) 500,000 503,166
Oakdale Refunding, 7.60%, 02/01/01 (MBIA) 50,000 50,810
Perham Independent School District #549,
5.25%, 02/01/10 (CGIC) 265,000 257,409
Perham Independent School District #549,
5.30%, 02/01/11 (CGIC) 295,000 283,254
Robbinsdale Hospital Revenue Series B,
5.30%, 05/15/06-05/15/07 (AMBAC) 1,185,000 1,186,799
Robbinsdale Hospital Revenue Series A,
5.45%, 05/15/13 (AMBAC) 1,000,000 951,800
Robbinsdale Hospital Revenue Series A,
5.30%, 05/15/07 (AMBAC) 150,000 149,727
St. Cloud Hospital Facilities Revenue Refunding,
6.75%, 07/01/11 (AMBAC) 400,000 428,851
St. Cloud Nursing Home Revenue Bonds,
5.35%, 10/01/16 (AMBAC) 145,000 133,285
St. Louis Park Multifamily Rent Housing Revenue,
7.38%, 12/01/28 (MBIA) 300,000 (e) 312,694
St. Paul Sewer Revenue, 5.60%, 12/01/08 (AMBAC) 2,000,000 2,014,952
Shakopee Public Utilities Commission,
5.60%, 08/01/18 (AMBAC) 750,000 713,734
Southern Minnesota Municipal Power Agency,
5.75%, 01/01/18 (MBIA) 1,000,000 976,567
State Housing Finance Agency, 8.50%, 02/01/17 (MBIA) 65,000 (e) 68,583
State Housing Finance Agency, 7.25%, 07/01/06 (MBIA) 180,000 (e) 188,543
State Housing Finance Agency, 8.38%, 02/01/15 (MBIA) 80,000 (e) 84,607
See accompanying notes to investments in securities.
<PAGE>
MINNESOTA INSURED TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- ------------------------------------------------------------------------------
Municipal Bonds (continued):
- ------------------------------------------------------------------------------
State Housing Finance Agency, 9.50%, 02/01/17 (MBIA) $380,000 (e) $405,617
Waconia Independent School District #110,
5.15%, 02/01/08 (CGIC) 600,000 584,367
Waconia Independent School District #110,
5.45%, 02/01/15 (CGIC) 980,000 930,393
Warroad Independent School District #690,
6.85%, 02/01/13 (AMBAC) 500,000 546,535
Western Minnesota Municipal Power Agency,
6.88%, 01/01/09 (MBIA) 300,000 312,780
Western Minnesota Municipal Power Agency,
7.00%, 01/01/13 (MBIA) 400,000 (e) 413,402
Wright County Refunding, 5.70%, 12/01/09 (CGIC) 900,000 920,306
- ------------------------------------------------------------------------------
Total Municipal Bonds (cost: $27,424,352) $27,367,543
- ------------------------------------------------------------------------------
Short-term Securities (2.44%)
Los Angeles, CA Regional Airports Improvement Corp.,
3.90%, 12/01/24, LOC Wachovia Bank of Georgia 200,000 (b) 200,000
State Higher Education Coordinating Board,
3.75%, 12/01/00 500,000 (b) 500,000
- ------------------------------------------------------------------------------
Total Short-Term Securities (cost: $700,000) $700,000
- ------------------------------------------------------------------------------
Total Investments in Securities (cost: $28,124,352) (d) $28,067,543
- ------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2
to the financial statements.
(b) Maturity date shown represents final maturity. However, the security can
be put back to the issuer on the next interest rate reset date. Interest
rate shown is effective rate on July 31, 1995.
(c) The following abbreviations are used in portfolio descriptions to
identify the insurer of the issuer:
AMBAC - American Municipal Bond Association Corporation
CGIC - Capital Guaranty Insurance Corporation
FGIC - Financial Guaranty Insurance Corporation
FSA - Financial Security Assurance Corporation
MBIA - Municipal Bond Insurance Association
(d) At July 31, 1995, also represents the cost of securities for federal
income tax purposes. The approximate aggregate gross unrealized
appreciation and depreciation of investments in securities based on this
cost were:
Gross unrealized appreciation $552,938
Gross unrealized depreciation (609,747)
---------
Net unrealized depreciation $(56,809)
---------
(e) Identifies issue covered under portfolio insurance policy purchased by
the Fund.
March 15, 1996
LOGO
To Our Shareholders:
I am pleased to present the January 31, 1996 Semi-Annual Report of the Great
Hall National Tax-Exempt Fund and Great Hall Minnesota Insured Tax-Exempt Fund.
This report contains a statement of each Fund's financial condition as of
January 31, 1996, which includes a detailed schedule of each Fund's investment
portfolio, and a statement of each Fund's operations and changes in net assets
for the six month period.
During this six month period bond prices generally rose as interest rates
declined. The economic environment of sluggish growth and low inflation was
very favorable for bonds. These factors prompted the Federal Reserve to lower
short-term interest rates by one quarter of 1% in both December of 1995 and
January of 1996. Uncertainty about the economy also lessened bond investors'
fears of future inflation, which helped bond prices move higher.
The prices of the Great Hall Tax-Exempt Bond Funds rose with the overall
improvement in the bond market. The yields of long maturity tax-exempt bonds
remained unusually high compared to the yields of taxable bonds. This is
presumably due to continued concern about possible changes in the federal tax
code which would reduce the advantage of tax-exempt securities. Both Funds
have continued to meet their objectives of providing a high level of current
income exempt from federal income taxes. Neither Fund has ever used risky
derivatives nor leverage to boost their yields.
On behalf of the Great Hall Investment Funds, I thank you for your continued
support.
Sincerely,
J. Scott Spiker
Chief Executive Officer
Great Hall Investment Funds, Inc.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
January 31, 1996
Minnesota
National Insured
Tax-Exempt Tax-Exempt
(unaudited) Fund Fund
- -------------------------------------------------------------------------------
Assets:
Investments in securities at market value
(note 2), identified cost $62,133,280 and
$26,462,894, respectively......................... $64,250,584 $27,343,084
Cash in bank on demand deposit..................... 203,213 50,607
Receivable for fund shares sold.................... 42,014 --
Accrued interest receivable........................ 1,113,107 521,561
- -------------------------------------------------------------------------------
Total assets....................................... 65,608,918 27,915,252
- -------------------------------------------------------------------------------
Liabilities:
Cash portion of dividends payable to shareholders.. 174,495 30,784
Payable for fund shares redeemed................... 84,911 63,569
Accrued investment advisory fee.................... 27,649 5,327
Accrued distribution fee........................... 21,938 9,464
Other accrued expenses............................. 22,710 35,396
- -------------------------------------------------------------------------------
Total liabilities.................................. 331,703 144,540
- -------------------------------------------------------------------------------
Net assets applicable to
outstanding capital stock......................... $65,277,215 $27,770,712
- -------------------------------------------------------------------------------
Represented by:
Capital stock - authorized 10 billion shares of
$.01 par value for each Fund, outstanding
6,290,040 and 2,711,743 shares, respectively..... $62,900 $27,117
Additional paid-in capital........................ 63,116,920 27,498,582
Accumulated net realized losses on
investments (note 2)............................. (19,909) (635,177)
Unrealized appreciation of investments............ 2,117,304 880,190
- -------------------------------------------------------------------------------
Total - representing net assets applicable to
outstanding capital stock...................... $65,277,215 $27,770,712
- -------------------------------------------------------------------------------
Net asset value per share
of outstanding capital stock..................... $10.38 $10.24
- -------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
STATEMENTS OF OPERATIONS
Six months ended January 31, 1996
Minnesota
National Insured
Tax-Exempt Tax-Exempt
(unaudited) Fund Fund
- -------------------------------------------------------------------------------
Interest.......................................... $2,299,221 $797,025
- -------------------------------------------------------------------------------
Expenses (note 5):
Investment advisory fee1.......................... 164,629 70,510
Distribution fee.................................. 98,778 42,305
Custodian, accounting and transfer agent fees..... 20,861 14,100
Reports to shareholders........................... 5,106 8,780
Directors' fees................................... 3,000 3,000
Audit and legal fees.............................. 11,916 22,324
Registration fees................................. -- 1,350
Insurance fees.................................... 500 5,600
Other expenses.................................... 1,000 3,394
- -------------------------------------------------------------------------------
Total expenses...................................... 305,790 171,363
Less expenses voluntarily waived or
absorbed by Advisor................................. (38,945) (56,679)
- -------------------------------------------------------------------------------
Total net expenses.................................. 266,845 114,684
- -------------------------------------------------------------------------------
Investment income - net............................. 2,032,376 682,341
- -------------------------------------------------------------------------------
Realized and unrealized gains/(losses) on investments:
Net realized gain (loss) on investments (note 3).. 216,685 (18,669)
Net change in unrealized appreciation or
depreciation of investments...................... 1,886,041 936,999
- -------------------------------------------------------------------------------
Net gain on investments............................. 2,102,726 918,330
- -------------------------------------------------------------------------------
Net increase in net
assets resulting from operations................... $4,135,102 $1,600,671
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
National Minnesota Insured
Tax-Exempt Fund Tax-Exempt Fund
- -------------------------------------------------------------------------------
Six month Year Six month Year
period ended Ended period ended Ended
1/31/96 7/31/95 1/31/96 7/31/95
(unaudited) (unaudited)
- -------------------------------------------------------------------------------
Operations:
Investment income - net.. $2,032,376 $4,417,173 $682,341 $1,571,421
Net realized gain (loss)
on investments.......... 216,685 868,133 (18,669) (616,795)
Net change in unrealized
appreciation or depreciation
of investments.......... 1,886,041 (592,387) 936,999 728,206
- -------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations.............. 4,135,102 4,692,919 1,600,671 1,682,832
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Investment income - net.. (2,032,376) (4,417,173) (682,341) (1,571,421)
Accumulated net
realized gains.......... (804,858) (308,935) -- (293,106)
- -------------------------------------------------------------------------------
Total distributions
to shareholders......... (2,837,234) (4,726,108) (682,341) (1,864,527)
- -------------------------------------------------------------------------------
Capital share transactions (note 4):
Proceeds from sales
(note 5)................ 1,495,112 3,529,401 790,394 633,943
Shares issued for reinvest-
ment of distributions... 1,544,993 2,501,190 453,266 1,145,781
Payment for shares
redeemed................ (5,418,010) (11,812,598) (3,026,013) (10,071,324)
- -------------------------------------------------------------------------------
Decrease in net assets
from capital share
transactions............ (2,377,905) (5,782,007) (1,782,353) (8,291,600)
- -------------------------------------------------------------------------------
Total decrease
in net assets............. (1,080,037) (5,815,196) (864,023) (8,473,295)
- -------------------------------------------------------------------------------
Net assets at
beginning of period....... 66,357,252 72,172,448 28,634,735 37,108,030
- -------------------------------------------------------------------------------
Net assets at
end of period............. $65,277,215 $66,357,252 $27,770,712 $28,634,735
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization
Great Hall Investment Funds, Inc. (the Company) was incorporated on June
24, 1991 and is registered under the Investment Company Act of 1940 (as
amended) as an open-end management investment company and presently
includes a series of five funds, including National Tax-Exempt Fund and
Minnesota Insured Tax-Exempt Fund (the funds), which are classified as non-
diversified funds. The Company's articles of incorporation permit the
board of directors to create additional funds in the future.
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the funds are as follows:
Investments in Securities
The values of fixed-income securities are provided by an independent
pricing service. When market quotations are not readily available,
securities are valued at fair value as determined in good faith by the
Board of Directors. Short-term securities are valued at amortized cost
which approximates market value.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified cost basis. Interest income, including amortization of premium
and original issue discount, is accrued daily and is computed on a level
yield basis. For the Minnesota Insured Tax-Exempt Fund, portfolio
insurance expense is recognized over the premium period, and the cost of
secondary market insurance, if any, is capitalized to the cost basis of the
underlying security. For the six month period ended January 31, 1996
portfolio insurance expense was $2,385.
The Minnesota Insured Tax-Exempt Fund concentrates its investments in a
single state and, therefore, may have more risk related to the economic
conditions of the respective state than a fund that has broader
geographical diversification.
Securities Purchased on a When-Issued Basis
Delivery and payment for securities which have been purchased on a forward
commitment or when-issued basis can take place a month or more after the
transaction date. During this period, such securities are subject to
market fluctuations and the fund maintains, in a segregated account with
its custodian, assets with a market value equal to the amount of its
purchase commitments.
Federal Taxes
The funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to shareholders. Therefore, no income tax
provision is required. Each fund within the Company will be treated as a
separate entity for federal income tax purposes. In addition, on a
calendar basis, each fund intends to distribute substantially all of its
taxable net investment income and realized gains, if any, to avoid the
payment of any federal excise taxes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies (continued)
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes. The character of distributions made
during the year from net investment income or net realized gains may 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 the
realized gains (losses) were recorded by the funds.
For federal income tax purposes, capital loss carryovers were $616,795 for
the Minnesota Insured Tax-Exempt Fund at July 31, 1995, which if not offset
by subsequent capital gains, will expire in 2003 and 2004. It is unlikely
the Board of Directors will authorize a distribution of any net realized
capital gains until the available capital loss carryovers have been offset
or expired.
Distributions to Shareholders
Distributions to shareholders from net investment income are declared daily
and payable monthly in cash or reinvested in additional shares.
Distributions from net realized gains, if any, will be made on an annual
basis for the funds.
3. Investment Security Transactions
For the six month period ended January 31, 1996, purchases of securities
and proceeds from sales, other than temporary investments in short-term
securities, aggregated $0 and $6,134,845 for National Tax-Exempt Fund and
$0 and $1,342,789 for Minnesota Insured Tax-Exempt Fund.
4. Capital Share Transactions
Transactions in shares of each Fund for the six month period ended January
31, 1996 and year ended July 31, 1995 are as follows:
National Minnesota Insured
Tax-Exempt Tax-Exempt
Fund Fund
- ------------------------------------------------------------------------------
1996:
Sold..................................... 145,199 77,788
Issued for reinvested distributions...... 149,417 44,778
Redeemed................................. (526,539) (300,781)
- ------------------------------------------------------------------------------
Decrease................................. (231,923) (178,215)
- ------------------------------------------------------------------------------
1995:
Sold..................................... 354,203 64,766
Issued for reinvested distributions...... 250,761 120,193
Redeemed................................. (1,182,858) (1,060,778)
- ------------------------------------------------------------------------------
Decrease................................. (577,894) (875,819)
- ------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
5. Fees and Expenses
The funds have entered into an investment advisory and management agreement
with IFG Asset Management Services, Inc. (AMS), under which AMS manages
each fund's assets and furnishes related office facilities, equipment,
research and personnel. The agreement requires each fund to pay AMS a
monthly fee based on average daily net assets. The fee for each fund is
equal to an annual rate of 0.50% of average daily net assets.
Each fund also pays affiliates Dain Bosworth Incorporated (DBI) and
Rauscher Pierce Refsnes, Inc. (RPR) a monthly fee for expenses incurred in
the distribution and promotion of the funds' shares. The monthly fee is
limited to a maximum of 1/12 of 0.30% of average daily net assets for each
fund. However, DBI and RPR voluntarily limited the reimbursement fee to
0.182% of average daily net assets for the six month period ended January
31, 1996 for both the National Tax-Exempt and Minnesota Insured Tax-Exempt
funds. Total distribution fees waived for the six month period ended
January 31, 1996 were $38,945 and $16,679 for National Tax-Exempt Fund and
Minnesota Insured Tax-Exempt Fund, respectively.
In addition to the investment advisory fee and the distribution fee, each
fund is responsible for paying most other operating expenses including
outside directors' fees and expenses, custodian fees, registration fees,
printing and shareholder reports, transfer agent fees and expenses, legal,
auditing and accounting services, organization costs, insurance, interest
and other miscellaneous expenses. For the six month period ended January
31, 1996, total fees and expenses including the distribution fee were
further voluntarily limited to an annual rate of 0.81% of average daily net
assets for both the National Tax-Exempt and Minnesota Insured Tax-Exempt
funds.
Sales charges paid to affiliated brokers for distributing the funds' shares
were $39,848 for National Tax-Exempt Fund and $19,290 for Minnesota Insured
Tax-Exempt Fund for the six month period ended January 31, 1996.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
6. Financial Highlights
Per share data for a share of capital stock outstanding throughout each
period and selected information for the period is as follows:
<TABLE>
Six Months Ended
January 31, 1996
NATIONAL TAX-EXEMPT FUND (unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period................. $10.17 $10.17 $10.50 $10.22 $9.65 $9.63
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income.............. 0.320 0.648 0.624 0.652 0.703 0.697
Realized and unrealized gains
(losses) on investments, net...... 0.338 0.045 (0.313) 0.280 0.570 0.020
- ------------------------------------------------------------------------------------------------------------
Total from investment operations..... 0.658 0.693 0.311 0.932 1.273 0.717
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income............. (0.320) (0.648) (0.624) (0.652) (0.703) (0.697)
From accumulated
net realized gains................ (0.128) (0.045) (0.017) -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders.. (0.448) (0.693) (0.641) (0.652) (0.703) (0.697)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period....... $10.38 $10.17 $10.17 $10.50 $10.22 $9.65
- ------------------------------------------------------------------------------------------------------------
Total return**....................... 6.56% 7.16% 2.99% 9.45% 13.84% 7.76%
Net assets at end
of period (000s omitted)............ $65,277 $66,357 $72,172 $58,048 $43,166 $46,812
Ratio of expenses to average
daily net assets*................... 0.81%*** 0.79% 0.91% 1.01% 0.84% 0.96%
Ratio of net investment income
to average daily net assets*........ 6.17%*** 6.45% 5.98% 6.32% 7.15% 7.26%
Portfolio turnover rate
(excluding short-term securities).. 0.00% 8.45% 27.88% 16.36% 14.50% 13.52%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Various fund fees and expenses were voluntarily waived or absorbed during
the periods referred to above. Had the fund paid all expenses, the ratios
of expenses and net investment income to average daily net assets would
have been as follows: 0.93%/6.05% for the six month period ended January
31, 1996, 0.90%/6.34% in 1995, 1.01%/5.88% in 1994, 1.24%/6.09% in 1993,
1.14%/6.85% in 1992, and 1.26%/6.96% in 1991.
** Total return does not reflect payments of a sales charge.
*** Adjusted to an annual basis.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
6. Financial Highlights (continued)
<TABLE>
Six Months Ended
Minnesota Insured January 31, 1996
Tax-Exempt Fund (unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period................. $9.91 $9.85 $10.52 $10.29 $9.74 $9.60
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income.............. 0.245 0.494 0.502 0.560 0.604 0.623
Realized and unrealized gains
(losses) on investments, net...... 0.330 0.157 (0.465) 0.230 0.550 0.140
- ------------------------------------------------------------------------------------------------------------
Total from investment operations..... 0.575 0.651 0.037 0.790 1.154 0.763
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income............. (0.245) (0.494) (0.502) (0.560) (0.604) (0.623)
From accumulated
net realized gains................ -- (0.097) (0.205) -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders.. (0.245) (0.591) (0.707) (0.560) (0.604) (0.623)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period....... $10.24 $9.91 $9.85 $10.52 $10.29 $9.74
- ------------------------------------------------------------------------------------------------------------
Total return**....................... 5.86% 7.00% 0.21% 7.95% 12.41% 8.27%
Net assets at end
of period (000s omitted)............ $27,771 $28,635 $37,108 $29,899 $23,009 $21,486
Ratio of expenses to
average daily net assets*........... 0.81%*** 0.81% 0.80% 0.76% 0.61% 0.46%
Ratio of net investment income
to average daily net assets*........ 4.84%*** 5.12% 4.86% 5.44% 6.11% 6.45%
Portfolio turnover rate (excluding
short-term securities).............. 0.00% 3.44% 42.40% 20.12% 5.60% 1.25%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Various fund fees and expenses were voluntarily waived or absorbed during
the periods referred to above. Had the fund paid all expenses, the ratios
of expenses and net investment income to average daily net assets would
have been as follows: 1.22%/4.43% for the six month period ended January
31, 1996, 1.16%/4.77% in 1995, 1.00%/4.66% in 1994, 1.15%/5.05% in 1993,
1.16%/5.56% in 1992, and 1.22%/5.69% in 1991.
** Total return does not reflect payments of a sales charge.
*** Adjusted to an annual basis.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (unaudited)
January 31, 1996
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets.)
Municipal Bonds (93.98%):
- -------------------------------------------------------------------------------
Alabama (7.92%)
Etowah County Refunding Warrants, 8.50%, 11/01/10 $800,000 $883,772
Orange Beach General Obligation, 6.25%, 10/01/13 1,500,000 1,505,269
Moundville Industrial Development, 6.75%, 12/01/11 1,500,000 1,550,481
Upper Bear Creek Water & Sewer, 6.25%, 08/01/15 1,250,000 1,230,646
---------
5,170,168
---------
Arizona (0.83%)
Prescott Valley Improvement District, 7.90%, 01/01/12 500,000 542,843
---------
Colorado (8.32%)
Arapahoe Water & Sanitation District,
9.13%, 12/01/98-12/01/08 500,000 551,648
Arapahoe Water & Sanitation District, 9.25%, 12/01/98 210,000 242,091
Colorado Technical Center Metropolitan District,
9.75%, 06/01/09 620,000 672,538
Mesa County Single Family Mortgage,
8.88%, 12/01/10 305,000 315,658
Mountain Village Metropolitan District,
8.10%, 12/01/11 1,000,000 1,074,603
Panorama Metropolitan District, 9.00%, 12/01/09 750,000 801,621
Piney Creek Metropolitan District, 8.50%, 12/01/14 600,000 620,573
Westminster Shaw Heights Basin Special,
7.50%, 12/01/07 350,000 351,829
Winter Park West Water & Sanitation District,
9.25%, 12/01/06 250,000 259,864
Winter Park West Water & Sanitation District,
9.75%, 12/01/05 525,000 538,096
---------
5,428,521
Florida (1.03%) ---------
Sarasota County Industrial Development,
8.75%, 05/01/11 665,000 671,893
---------
Illinois (13.08%)
Bedford Park Revenue Refunding, 8.00%, 12/01/04 1,200,000 1,289,335
Illinois Development Finance Authority,
7.00%, 03/01/06 400,000 389,010
Illinois Development Finance Authority,
7.20%, 03/01/07-03/01/08 800,000 787,630
Illinois Development Finance Authority,
7.38%, 11/15/11 1,100,000 1,217,351
Illinois Health Facilities Authority,
8.10%, 11/15/14 1,000,000 1,075,887
Niles Park District Series A, 6.65%, 12/01/14 860,000 905,029
See accompanying notes to financial statements.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Municipal Bonds (continued):
- -------------------------------------------------------------------------------
Illinois (continued)
Romeoville Series A Utilities, 7.80%, 01/01/11 $1,000,000 $1,050,996
Streamwood Special Service Area #3, 8.38%, 01/01/09 1,000,000 1,046,731
West Chicago Tax Increment Revenue, 7.38%, 12/01/12 720,000 774,653
---------
8,536,622
---------
Indiana (2.81%)
Indianapolis Economic Development, 7.25%, 10/01/10 700,000 751,536
Fishers Economic Development Revenue,
8.38%, 09/01/14 1,000,000 1,083,283
---------
1,834,819
---------
Kansas (0.20%)
Johnson City First Mortgage Revenue, 7.40%, 10/01/08 125,000 133,700
---------
Maine (1.58%)
Yarmouth Pollution Control Revenue, 6.75%, 06/01/02 1,025,000 1,032,164
---------
Michigan (3.28%)
Troy Economic Development Corporation,
6.75%, 10/01/12 1,500,000 1,606,386
Bad Axe Water Supply & Sewer Disposal,
8.25%, 12/01/07 500,000 532,831
---------
2,139,217
---------
Minnesota (2.89%)
Fergus Falls Health Care Facilities, 6.50%, 09/01/18 750,000 766,978
Alexandria Health Care Facilities, 8.75%, 08/01/21 500,000 566,057
Spring Park Health Care Facilities, 8.25%, 08/01/11 500,000 555,790
---------
1,888,825
---------
Missouri (8.62%)
Saint Louis County Industrial Development,
7.50%, 06/01/16 1,500,000 1,502,526
Clarence Cannon Wholesale Water Commission,
5.75%, 05/15/13 1,500,000 1,448,889
Franklin County Public Water Supply District,
7.38%, 12/01/18 1,255,000 1,346,316
Marion County Nursing Home, 7.00%, 08/01/13 1,050,000 1,095,090
Platte City Waterworks & Sewer,
7.75%, 04/01/08-04/01/09 220,000 230,849
---------
5,623,670
---------
Nebraska (2.70%)
Douglas County Zoo Facility, 6.00%, 06/01/03 1,750,000 1,763,627
---------
See accompanying notes to financial statements.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Municipal Bonds (continued):
- -------------------------------------------------------------------------------
New Mexico (1.17%)
Rio Grande Natural Gas Association, 6.13%, 07/01/13 $750,000 $762,450
---------
North Carolina (2.23%)
Eastern Municipal Power Agency, 5.50%, 1/01/21 1,500,000 1,454,443
---------
Oklahoma (9.73%)
Chelsea Gas Authority, 7.30%, 07/01/19 700,000 715,807
Chelsea Gas Authority, 7.25%, 07/01/13 600,000 622,591
Shattuck Hospital Authority,
6.50%, 01/01/98-07/01/02 390,000 381,817
Clinton Public Works Authority, 6.25%, 01/01/14 1,725,000 1,719,366
Oklahoma City Public Property Authority,
8.30%, 10/01/16 1,000,000 1,103,479
Anadarko Public Works Authority, 7.00%, 10/01/12 1,000,000 1,045,636
Heavener Utilities Authority, 6.50%, 10/01/09 750,000 764,458
---------
6,353,154
---------
Pennsylvania (14.40%)
Adamstown Borough Authority Sewer, 9.00%, 10/01/97 500,000 544,104
Adamstown Borough Authority Sewer, 6.25%, 10/01/17 905,000 915,327
Butler General Obligation, 6.88%, 03/01/23 950,000 954,671
Chester General Obligation, 9.50%, 12/01/97 70,000 70,627
Easton Area Joint Sewer Authority, 6.20%, 04/01/09 1,000,000 1,009,673
Elizabeth Borough Municipal Authority Sewer,
7.15%, 01/01/21 500,000 522,655
Hopewell Township Beaver County Sewer,
6.00%, 11/01/13 1,215,000 1,176,241
Lehigh County General Purpose, 8.75%, 11/01/14 750,000 726,410
Neville Township General Obligation, 5.90%, 11/01/12 500,000 481,429
Neville Township General Obligation, 6.00%, 11/01/18 615,000 584,249
New Kensington Municipal Sewer, 7.50%, 10/01/11 1,000,000 1,043,282
State Higher Educational Facilities Authority
Revenue, 6.75%, 05/01/12 1,300,000 1,373,956
---------
9,402,624
---------
See accompanying notes to financial statements.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Municipal Bonds (continued):
- -------------------------------------------------------------------------------
South Dakota (4.22%)
Health & Educational Facilities, 7.25%, 09/01/13 $1,125,000 $1,046,972
Health & Educational Facilities, 7.00%, 04/01/10 1,000,000 1,026,182
Lead Lease Revenue, 8.88%, 10/01/18 590,000 681,138
---------
2,754,292
---------
Tennessee (1.61%)
Newbern Individual Development, 7.90%,
3/01/00 1,000,000 1,049,422
---------
Texas (3.18%)
Denton County Health Facilities, 7.50%, 08/15/15 1,000,000 1,042,088
Wharton Housing Development Corp.,
8.00%, 02/01/03-02/01/10 1,025,000 1,035,342
---------
2,077,430
---------
Washington (1.35%)
State Housing Finance Commission,
8.25%, 07/01/02-07/01/12 845,000 879,122
---------
Wisconsin (0.96%)
La Crosse Nursing Home Facilities, 9.25%, 07/01/17 600,000 627,242
---------
West Virginia (1.21%)
Ohio County Building Commission, 9.63%, 01/01/13 775,000 792,821
---------
Wyoming (0.66%)
Green River Sweetwater County, 8.50%, 12/01/07 400,000 431,515
- -------------------------------------------------------------------------------
Total Municipal Securities (cost: $59,233,280) $61,350,584
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
NATIONAL TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Short-Term Securities (4.44%):
- -------------------------------------------------------------------------------
Los Angeles Regional Airport Improvement Corp.,
3.75%, 12/01/25, LOC Societe Generale $400,000 (b) $400,000
Los Angeles, CA Regional Airports Series E,
3.75%, 12/01/24, LOC Wachovia Bank of Georgia 200,000 (b) 200,000
New York City Water Finance Authority,
3.50%, 6/15/22 1,200,000 (b) 1,200,000
New York City, New York G.O.,
3.80%, 10/01/21-10/01/22 1,100,000 (b) 1,100,000
- -------------------------------------------------------------------------------
Total Short-Term Securities (cost: $2,900,000) $2,900,000
- -------------------------------------------------------------------------------
Total Investments in Securities (cost: $62,133,280) (d) $64,250,584
- -------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Maturity date shown represents final maturity. However, the security can
be put back to the issuer on the next interest rate reset date. Interest
rate shown is effective rate on January 31, 1996.
(c) Investments in bonds, by rating category as a percentage of total bonds,
are as follows:
(Unaudited)
Rating 1/31/96
---------- -----------
AAA 2%
AA 1
A 9
BBB and below 15
Non-rated 73
-----------
Total 100%
-----------
(d) At January 31, 1996, also represents the cost of securities for federal
income tax purposes. The approximate aggregate gross unrealized
appreciation and depreciation of investments in securities based on this
cost were:
Gross unrealized appreciation $2,355,942
Gross unrealized depreciation (238,638)
-----------
Net unrealized appreciation $2,117,304
-----------
<PAGE>
MINNESOTA INSURED TAX-EXEMPT FUND
Investments in Securities (unaudited)
January 31, 1996
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets.)
Municipal Bonds (97.02%):
- -------------------------------------------------------------------------------
Anoka Hennepin Independent School #11,
5.00%, 02/01/09 (FGIC) $1,030,000 $1,014,532
Anoka Hennepin Independent School #11,
5.10%, 02/01/11 (FGIC) 1,000,000 986,602
Becker Wastewater Treatment Facility,
5.95%, 02/01/14 (MBIA) 500,000 526,090
Brainerd Independent School District #181,
5.90%, 02/01/15 (CGIC) 1,000,000 1,040,033
Cass Lake Independent School District #115,
5.00%, 02/01/16 (FSA) 545,000 519,818
Dover & Eyota Independent School District #533,
5.25%, 02/01/14 (AMBAC) 1,000,000 990,814
Duluth Economic Development Authority, 6.00%,
02/15/20 (Connie Lee) 1,300,000 1,330,042
Duluth Independent School District #709,
5.20%, 02/01/11 (MBIA) 1,000,000 991,782
Lakeville Independent School District #194,
5.40%, 02/01/13 (FGIC) 1,100,000 1,103,909
Marshall Utility Revenue, 5.25%,
01/01/10-01/01/11 (CGIC) 625,000 627,164
Mpls. & St. Paul Housing & Redevelopment,
5.00%, 11/15/13 (AMBAC) 1,050,000 968,410
Mpls. & St. Paul Housing & Redevelopment,
7.40%, 08/15/05 (MBIA) 600,000 686,638
Minneapolis Health Care Facility,
5.30%, 11/15/08 (MBIA) 500,000 506,821
Minneapolis Tax Increment Revenue Refunding,
7.00%, 03/01/03 (MBIA) 1,140,000 1,207,192
Minnetonka Multifamily Revenue Housing,
7.50%, 12/01/17-12/01/27 (MBIA) 900,000 (e) 970,870
Mora General Obligation, 5.13%,
02/01/11 (AMBAC) 750,000 745,347
Mora Series A Waste Water Facilities,
6.85%, 02/01/00 (AMBAC) 510,000 561,457
Northern Minnesota Municipal Power Agency,
5.90%, 01/01/08 (AMBAC) 700,000 756,210
Northern Minnesota Municipal Power Agency,
6.13%, 01/01/20 (AMBAC) 500,000 524,463
Oakdale Refunding, 7.60%, 02/01/01 (MBIA) 50,000 50,000
Perham Independent School District #549,
5.25%, 02/01/10 (CGIC) 265,000 265,461
Perham Independent School District #549,
5.30%, 02/01/11 (CGIC) 295,000 294,094
Robbinsdale Hospital Revenue Series B,
5.30%, 05/15/06-05/15/07 (AMBAC) 1,185,000 1,219,017
Robbinsdale Hospital Revenue Series A,
5.45%, 05/15/13 (AMBAC) 1,000,000 1,008,615
Robbinsdale Hospital Revenue Series A,
5.30%, 05/15/07 (AMBAC) 150,000 154,095
St. Cloud Hospital Facilities Revenue Refunding,
6.75%, 07/01/11 (AMBAC) 400,000 434,384
St. Cloud Nursing Home Revenue Bonds, 5.35%,
10/01/16 (AMBAC) 145,000 141,101
St. Louis Park Multifamily Rent Housing Revenue,
7.38%, 12/01/28 (MBIA) 300,000 (e) 320,540
St. Paul Sewer Revenue, 5.60%, 12/01/08 (AMBAC) 2,000,000 2,077,740
Shakopee Public Utilities Commission,
5.60%, 08/01/18 (AMBAC) 750,000 755,474
Southern Minnesota Municipal Power Agency,
5.75%, 01/01/18 (MBIA) 1,000,000 1,025,882
State Housing Finance Agency,
8.50%, 02/01/17 (MBIA) 65,000 (e) 68,354
See accompanying notes to financial statements.
<PAGE>
MINNESOTA INSURED TAX-EXEMPT FUND
Investments in Securities (continued)
Principal Market
Name of Issuer (c) Amount Value (a)
- -------------------------------------------------------------------------------
Municipal Bonds (continued)
- -------------------------------------------------------------------------------
State Housing Finance Agency,
7.25%, 07/01/06 (MBIA) $170,000 (e) $175,115
State Housing Finance Agency,
8.38%, 02/01/15 (MBIA) 80,000 (e) 82,470
State Housing Finance Agency,
9.50%, 02/01/17 (MBIA) 380,000 (e) 391,400
Waconia Independent School District #110,
5.15%, 02/01/08 (CGIC) 600,000 605,087
Warroad Independent School District #690,
6.85%, 02/01/13 (AMBAC) 500,000 550,448
Western Minnesota Municipal Power Agency,
6.88%, 01/01/09 (MBIA) 300,000 312,558
Wright County Refunding, 5.70%, 12/01/09 (CGIC) 900,000 953,055
- -------------------------------------------------------------------------------
Total Municipal Bonds (cost: $26,062,894) $26,943,084
- -------------------------------------------------------------------------------
Short-Term Securities (1.44%):
New York City, New York General Obligation,
3.80%, 10/01/21 400,000 (b) 400,000
- -------------------------------------------------------------------------------
Total Short-Term Securities (cost: $400,000) $400,000
- -------------------------------------------------------------------------------
Total Investments in Securities (cost: $26,462,894) (d) $27,343,084
- -------------------------------------------------------------------------------
Notes to Investments in Securities:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Maturity date shown represents final maturity. However, the security can
be put back to the issuer on the next interest rate reset date. Interest
rate shown is effective rate on January 31, 1996.
(c) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issuer:
AMBAC - American Municipal Bond Association Corporation
CGIC - Capital Guaranty Insurance Corporation
FGIC - Financial Guaranty Insurance Corporation
FSA - Financial Security Assurance Corporation
MBIA - Municipal Bond Insurance Association
(d) At January 31, 1996, also represents the cost of securities for federal
income tax purposes. The approximate aggregate gross unrealized
appreciation and depreciation of investments in securities based on this
cost were:
Gross unrealized appreciation $962,415
Gross unrealized depreciation (82,225)
---------
Net unrealized appreciation $880,190
---------
(e) Identifies issue covered under portfolio insurance policy purchased by
the Fund.
<PAGE>
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 K, 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 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 effective 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 effective August 27, 1993, to be filed by
amendment.
10 Form of Plan of Distribution filed as an Exhibit hereto.
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 Not applicable.
14 Consent of KPMG Peat Marwick LLP, independent auditors to Great Hall
Investment Funds, 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 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 undertakes to file the document described in
Exhibit 12 by post-effective amendment within a reasonable time after receipt of
such document.
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 4th day of September 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 September 4, 1996
John G. Taft Executive Officer)
/S/ KENNETH R. LARSEN Treasurer
- --------------------- (Principal Financial September 4, 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 September 4, 1996
- --------------------
Thomas J. Abood
(Pursuant to a Power of Attorney dated January 24, 1995)
CERTIFICATE OF DESIGNATION
OF
SERIES K 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, Series I and Series J 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 K Common Shares, ten billion of which are hereby designated as
Series K, Class A Common Shares, ten billion of which are hereby designated
as Series K, Class B Common Shares and ten billion of which are hereby
designated Series K, Class C Common Shares and seventy billion of which
shall remain undesignated as to class.
FURTHER RESOLVED, that the Series K 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 K 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 K, 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 19th 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 30, 1996
Voyageur Mutual Funds, Inc.
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
Re: Voyageur National High Yield Municipal Bond 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 K, Class A 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 National High Yield Municipal Bond Fund series, and Great Hall
Investment Funds, Inc., a Minnesota corporation, on behalf of its National
Tax-Exempt Fund 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 Funds 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 Funds,
certificates of public officials and of responsible officers of Voyageur Mutual
Funds, 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 Funds. 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
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Voyageur Mutual Funds, Inc.
Great Hall Investment Funds, Inc.:
We consent to the incorporation by reference of (a) our report, dated September
1, 1995, relating to the July 31, 1995 financial statements and financial
highlights of Great Hall National Tax-Exempt Fund (a series of Great Hall
Investment Funds, Inc.) in the registration statement on Form N-14 (the
"Registration Statement") of Voyageur National High Yield Municipal Bond Fund (a
series of Voyageur Mutual Funds, Inc.). We also consent to the reference to our
Firm under the headings (a) "ADDITIONAL INFORMATION Custodian; Counsel:
Independent Auditors" in Part B of the Registration Statement, (b) "COUNSEL AND
AUDITORS" in the Statement of Additional Information of Great Hall National
Tax-Exempt Fund dated, December 1, 1995, which is incorporated by reference in
the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 29, 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
GREAT HALL NATIONAL TAX-EXEMPT FUND
A SEPARATELY MANAGED SERIES OF
GREAT HALL INVESTMENT FUNDS, INC.
60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GREAT HALL
INVESTMENT FUNDS, INC.
The undersigned appoints ________________________________________, 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 shares of Great Hall
National Tax-Exempt Fund ("Great Hall Fund"), a series of Great Hall Investment
Funds, Inc. ("Great Hall Investment Funds"), held of record by the undersigned
on ________, 1996, at the Special Meeting of Shareholders of Great Hall 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:
PROPOSAL TO APPROVE AN 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 Great Hall Fund
by Voyageur National High Yield Municipal Bond Fund ("Voyageur Fund"), a newly
formed, separately managed series of Voyageur Mutual Funds, Inc. in exchange for
Class A common shares of Voyageur Fund having an aggregate net asset value equal
to the aggregate value of the assets acquired (less liabilities assumed) of
Great Hall Fund and (b) the liquidation of Great Hall Fund and the pro rata
distribution of Voyageur Fund shares to Great Hall Fund shareholders. Under the
Plan, Great Hall Fund shareholders will receive shares of Voyageur Fund Class A
having a net asset value equal as of the effective time of the Plan to the net
asset value of their Great Hall 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
Great Hall Investment Funds 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" THE ABOVE PROPOSAL. RECEIPT OF THE 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 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.
