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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1996
File Nos. 33-63238
811-7742
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 8
and/or
REGISTRATIONSTATEMENT UNDER THE INVESTMENT COMPANY ACT OF1940 [X]
Amendment No. 9
(Check appropriate box or boxes.)
VOYAGEUR MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
90 SOUTH SEVENTH STREET, SUITE 4400, MINNEAPOLIS, MINNESOTA 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 376-7000
(Registrant's Telephone Number, including Area Code)
THOMAS J. ABOOD
90 SOUTH SEVENTH STREET, SUITE 4400, MINNEAPOLIS, MINNESOTA 55402
(Name and Address of Agent for Service)
Copy to:
MICHAEL J. RADMER, ESQ.
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b) of Rule 485
on (specify date) pursuant to paragraph (b) of Rule 485
on (specify date) pursuant to paragraph (b)(1)(v) of Rule 485
75 days after filing pursuant to paragraph (a) of Rule 485
on (specify date) pursuant to paragraph (a) of Rule 485
The Registrant has registered an indefinite number of shares of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. A Rule 24f-2 Notice was filed by the Registrant on or about
February 23, 1996.
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<TABLE>
<CAPTION>
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
ITEM NO.
OF FORM N-1A CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Investment
Restrictions; General Information
5 Management; General Information
6 Distributions to Shareholders and Taxes; General Information
7 How to Purchase Shares; Management; Determination of Net Asset
Value; Exchange Privilege
8 How to Sell Shares; Reinstatement Privilege
9 Not Applicable
CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Restrictions; Special Factors Affecting
the Funds
14 Board Members and Executive Officers of the Funds
15 Board Members and Executive Officers of the Funds; Additional
Information
16 Board Members and Executive Officers of the Funds; The Investment
Adviser and Underwriter
17 The Investment Adviser and Underwriter
18 Not Applicable
19 Special Purchase Plans; Monthly Cash Withdrawal Plan; Net Asset
Value and Public Offering Price
20 Taxes
21 The Investment Adviser and Underwriter
22 Calculation of Performance Data
23 Financial Information
</TABLE>
Explanatory Note
This Registration Statement, for administrative convenience, contains the
combined Part A (Prospectus), Part B (Statement of Additional Information) and
Part C (Other Information) of seven Registrants (each of which offers its shares
in one or more series): two series of Voyageur Tax Free Funds, Inc., five series
of Voyageur Intermediate Tax Free Funds, Inc., four series of Voyageur Insured
Funds, Inc., nine series of Voyageur Investment Trust, one series of Voyageur
Investment Trust II, six series of Voyageur Mutual Funds, Inc. and one series of
Voyageur Mutual Funds II, Inc.
A separate Registration Statement, each of which incorporates by reference
the aforementioned combined Part A and Part B and includes its own Part C, is
being filed for each registrant; however, this Registration Statement contains
only those exhibits which relate to Voyageur Mutual Funds, Inc.
TAX FREE MUTUAL FUNDS
VOYAGEUR
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ARIZONA TAX FREE FUNDS
CALIFORNIA TAX FREE FUNDS
COLORADO TAX FREE FUNDS
FLORIDA TAX FREE FUNDS
IDAHO TAX FREE FUND
IOWA TAX FREE FUND
KANSAS TAX FREE FUND
MINNESOTA TAX FREE FUNDS
MISSOURI INSURED TAX FREE FUND
NEW MEXICO TAX FREE FUND
NORTH DAKOTA TAX FREE FUND
OREGON INSURED TAX FREE FUND
UTAH TAX FREE FUND
WASHINGTON INSURED TAX FREE FUND
WISCONSIN TAX FREE FUND
NATIONAL TAX FREE FUNDS
TABLE OF CONTENTS
3 FEES AND EXPENSES
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6 FINANCIAL HIGHLIGHTS
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11 THE FUNDS
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11 INVESTMENT OBJECTIVES AND POLICIES
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21 RISKS AND SPECIAL INVESTMENT CONSIDERATIONS
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24 INVESTMENT RESTRICTIONS
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24 HOW TO PURCHASE SHARES
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30 HOW TO SELL SHARES
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33 REINSTATEMENT PRIVILEGE
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33 EXCHANGE PRIVILEGE
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34 MANAGEMENT
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37 DETERMINATION OF NET ASSET VALUE
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37 DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
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43 INVESTMENT PERFORMANCE
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44 GENERAL INFORMATION
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PROSPECTUS
Dated April 30, 1996
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Each of the funds listed on this page (individually, a "Fund" and together, the
"Funds") is a series of an open end management investment company, commonly
referred to as a mutual fund. Three styles of funds are contained in this
combined Prospectus: limited term tax free funds (the "Limited Term Tax Free
Funds"), longer term tax free funds (the "Tax Free Funds") and longer term
insured tax free funds (the "Insured Funds"). The investment objective of each
Limited Term Tax Free Fund is to provide investors with preservation of capital
and, secondarily, current income exempt from federal income tax and (except for
the "national" fund) the personal income tax, if any, of the Fund's particular
state, by maintaining a weighted average portfolio maturity of 10 years or less.
The investment objective of each Tax Free Fund and Insured Fund is to seek as
high a level of current income exempt from federal income tax and (except for
the "national" fund) from the personal income tax, if any, of the Fund's
particular state, as is consistent with preservation of capital. The weighted
average maturity of the investment portfolio of each Tax Free Fund and Insured
Fund is expected to be approximately 15 to 25 years. There is no assurance that
any Fund will achieve its investment objective.
Tax Exempt Obligations (as defined herein) in the investment portfolios of
the Insured Funds consist primarily of insured securities and "escrow secured"
or "defeased" bonds. Insurance on portfolio securities does not guarantee the
market value of such securities or the value of the Insured Funds' shares. See
"Investment Objectives and Policies--Insured Funds."
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<TABLE>
<CAPTION>
<S> <C>
Voyageur Arizona Limited Term Tax Free Fund Voyageur Kansas Tax Free Fund
Voyageur Arizona Insured Tax Free Fund (1) Voyageur Minnesota Limited Term Tax Free Fund (1)
Voyageur Arizona Tax Free Fund Voyageur Minnesota Insured Fund(1)
Voyageur California Limited Term Tax Free Fund Voyageur Minnesota Tax Free Fund (1)
Voyageur California Insured Tax Free Fund (1) Voyageur Missouri Insured Tax Free Fund
Voyageur California Tax Free Fund Voyageur New Mexico Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund Voyageur North Dakota Tax Free Fund
Voyageur Colorado Insured Tax Free Fund Voyageur Oregon Insured Tax Free Fund
Voyageur Colorado Tax Free Fund (1) Voyageur Utah Tax Free Fund
Voyageur Florida Limited Term Tax Free Fund Voyageur Washington Insured Tax Free Fund
Voyageur Florida Insured Tax Free Fund (1) Voyageur Wisconsin Tax Free Fund
Voyageur Florida Tax Free Fund Voyageur National Limited Term Tax Free Fund (1)
Voyageur Idaho Tax Free Fund Voyageur National Insured Tax Free Fund (1)
Voyageur Iowa Tax Free Fund Voyageur National Tax Free Fund (1)
</TABLE>
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(1) Diversified series
The Funds' investment adviser is Voyageur Fund Managers, Inc. ("Voyageur"). The
address of Voyageur and the Funds is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
AN INVESTMENT IN ANY OF THE FUNDS IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER FEDERAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS
INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL DUE TO
FLUCTUATIONS IN THE APPLICABLE FUND'S NET ASSET VALUE.
This Prospectus sets forth certain information about the Funds that a
prospective investor ought to know before investing. Investors should read and
retain this Prospectus for future reference. The Funds have filed a Statement of
Additional Information (dated April 30, 1996) with the Securities and Exchange
Commission. The Statement of Additional Information is available free of charge
by telephone (800-553-2143) and is incorporated by reference herein in its
entirety.
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.
The Funds offer investors a choice among classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.
CLASS A SHARES
An investor who purchases Class A shares pays a sales charge at the time of
purchase. As a result, Class A shares are not subject to any charges when they
are redeemed (except for sales at net asset value in excess of $1 million or
sales subject to special promotions identified from time to time by Voyageur
which in either case are subject to a contingent deferred sales charge). The
initial sales charge may be reduced or waived for certain purchases. Class A
shares of each Fund are subject to a Rule 12b-1 fee payable at an annual rate of
.25% of a Fund's average daily net assets attributable to Class A shares. See
"How to Purchase Shares--Class A Shares."
CLASS B SHARES
Class B shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 4% if redeemed within six years of
purchase. Class B shares are also subject to a higher Rule 12b-1 fee than Class
A shares. The Rule 12b-1 fee for Class B shares will be paid at an annual rate
of 1% of a Fund's average daily net assets attributable to Class B shares. Class
B shares will automatically convert to Class A shares at net asset value
approximately eight years after purchase. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made but until conversion will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares--Class B Shares."
CLASS C SHARES
Class C shares are sold without an initial sales charge. Class C shares are also
subject to a higher Rule 12b-1 fee than Class A shares. The Rule 12b-1 fee for
Class C shares of each Fund will be paid at an annual rate of 1% of the Fund's
average daily net assets attributable to Class C shares. Class C shares provide
an investor the benefit of putting all of the investor's dollars to work from
the time the investment is made, but will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares--Class C Shares." Class C shares do not convert to any other
class of shares.
The decision as to which class of shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
and intended length of the investment. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Other investors might
consider Class B or Class C shares because all of the purchase price is invested
immediately. Voyageur will treat orders for Class B shares for $250,000 or more
as orders for Class A shares or declined. Sales personnel may receive different
compensation depending on which class of shares they sell.
SHARES OF THE FUNDS COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN ALL STATES.
SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING OFFERED AND
SOLD IN SUCH STATES.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXAMPLE OF EXPENSES
EXPENSES ANNUAL FUND OPERATING EXPESNES TOTAL FUND AN INVESTOR IN A VOYAGEUR FUND
-------------------- AS A % OF AVERAGE NET ASSETS OPERATING WOULD PAY THE FOLLOWING
AFTER FEE WAIVERS AND EXPENSES AMOUNT OF DOLLAR EXPENSES
REIMBURSEMENT ARRANGEMENTS WITHOUT ON A $1,000 INVESTMENT
MAXIMUM --------------------------------- VOLUNTARY ASSUMING (A) A 5% ANNUAL
FRONT END MAXIMUM WAIVER RETURN AND (B)REDEMPTION
SALES LOAD CDSC TOTAL FUND AND AT THE END OF EACH PERIOD
IMPOSED ON IMPOSED ON MGT. OTHER OPERATING REIMBURSE- --------------------------------
VOYAGEUR FUNDS(4) PURCHASES REDEMPTIONS FEE 12b-1 FEE EXPENSES EXPENSES MENTS(5) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
STATE LONG TERM FUNDS
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Arizona Tax Free - Class A 4.75% 1.00%(2)0.50% 0.25% 0.25% 1.00% 1.25% $57 $78 $100 $164
Arizona Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 2.00 58(3) 85(3) 115(3) 186
Arizona Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
California Tax Free -
Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.22 57 78 100 164
California Tax Free -
Clas B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.93 58(3) 85(3) 115(3) 186
California Tax Free -
Class C N/A(1) None 0.50 1.00 0.25 1.75 1.93 18 55 95 206
Colorado Tax Free - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 0.93 47 68 91 155
Colorado Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.60 58(3) 85(3) 115(3) 186
Colorado Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.66 18 55 95 206
Florida Tax Free - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.25 57 78 100 164
Florida Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 2.00 58(3) 85(3) 115(3) 186
Florida Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
Idaho Tax Free - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 1.25 47 68 91 155
Idaho Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.90 58(3) 85(3) 115(3) 186
Idaho Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
Iowa Tax Free - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 1.06 47 68 91 155
Iowa Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.65 58(3) 85(3) 115(3) 186
Iowa Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.72 18 55 95 206
Kansas Tax Free - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.11 57 78 100 164
Kansas Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.68 58(3) 85(3) 115(3) 186
Kansas Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.79 18 55 95 206
Minnesota Tax Free - Class A 4.75 1.00(2) 0.50 0.25 0.18 0.93 0.93 57 76 97 156
Minnesota Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.18 1.68 1.63 57(3) 83(3) 111(3) 179
Minnesota Tax Free - Class C N/A(1) None 0.50 1.00 0.18 1.68 1.72 17 53 91 199
New Mexico Tax Free - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 1.09 47 68 91 155
New Mexico Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.83 58(3) 85(3) 115(3) 186
New Mexico Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.84 18 55 95 206
North Dakota Tax Free -
Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.05 57 78 100 164
North Dakota Tax Free -
Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.79 58(3) 85(3) 115(3) 186
North Dakota Tax Free -
Class C N/A(1) None 0.50 1.00 0.25 1.75 1.73 18 55 95 206
Utah Tax Free - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 1.25 47 68 91 155
Utah Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 2.00 58(3) 85(3) 115(3) 186
Utah Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
Wisconsin Tax Free - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 1.09 47 68 91 155
Wisconsin Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.70 58(3) 85(3) 115(3) 186
Wisconsin Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.77 18 55 95 206
STATE INSURED FUNDS
Arizona Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 0.95 57 78 100 164
Arizona Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.60 58(3) 85(3) 115(3) 186
Arizona Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.69 18 55 95 206
California Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.02 57 78 100 164
California Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.75 58(3) 85(3) 115(3) 186
California Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.77 18 55 95 206
Colorado Insured - Class A 3.75 1.00(2) 0.50 0.25 0.25 1.00 1.25 47 68 91 155
Colorado Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 2.00 58(3) 85(3) 115(3) 186
Colorado Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
Florida Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 0.95 57 78 100 164
Florida Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.68 58(3) 85(3) 115(3) 186
Florida Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.70 18 55 95 206
Minnesota Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 0.92 57 78 100 164
Minnesota Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.64 58(3) 85(3) 115(3) 186
Minnesota Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.67 18 55 95 206
Missouri Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.07 57 78 100 164
Missouri Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.81 58(3) 85(3) 115(3) 186
Missouri Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.55 18 55 95 206
Oregon Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.11 57 78 100 164
Oregon Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.86 58(3) 85(3) 115(3) 186
Oregon Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.74 18 55 95 206
Washington Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.25 57 78 100 164
Washington Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 2.00 58(3) 85(3) 115(3) 186
Washington Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
STATE LIMITED TERM FUNDS
Arizona Limited Term -
Class A 2.75 0.50(2) 0.40 0.25 0.35 1.00 1.25 37 58 81 147
Arizona Limited Term -
Class B N/A(1) 3.00 0.40 1.00 0.35 1.75 2.00 48(3) 75(3) 95(3) 186
Arizona Limited Term-
Class C N/A(1) None 0.40 1.00 0.35 1.75 2.00 18 55 95 206
California Limited Term -
Class A 2.75 0.50(2) 0.40 0.25 0.35 1.00 1.25 37 58 81 147
California Limited Term-
Class B N/A(1) 3.00 0.40 1.00 0.35 1.75 2.00 48(3) 75(3) 95(3) 186
California Limited Term -
Class C N/A(1) None 0.40 1.00 0.35 1.75 2.00 18 55 95 206
Colorado Limited Term -
Class A 2.75 0.50(2) 0.40 0.25 0.35 1.00 1.25 37 58 81 147
Colorado Limited Term-
Class B N/A(1) 3.00 0.40 1.00 0.35 1.75 2.00 48(3) 75(3) 95(3) 186
Colorado Limited Term-
Class C N/A(1) None 0.40 1.00 0.35 1.75 2.00 18 55 95 206
Florida Limited Term - Class A 2.75 0.50(2) 0.40 0.25 0.35 1.00 1.25 37 58 81 147
Florida Limited Term - Class B N/A(1) 3.00 0.40 1.00 0.35 1.75 2.00 48(3) 75(3) 95(3) 186
Florida Limited Term - Class C N/A(1) None 0.40 1.00 0.35 1.75 2.00 18 55 95 206
Minnesota Limited Term -
Class A 2.75 0.50(2) 0.40 0.25 0.26 0.91 0.91 37 56 77 136
Minnesota Limited Term -
Class B N/A(1) 3.00 0.40 1.00 0.26 1.66 1.55 47(3) 72(3) 90(3) 176
Minnesota Limited Term -
Class C N/A(1) None 0.40 1.00 0.26 1.66 1.63 17 52 90 197
NATIONAL FUNDS
National Tax Free - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.25 57 78 100 164
National Tax Free - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 2.00 58(3) 85(3) 115(3) 186
National Tax Free - Class C N/A(1) None 0.50 1.00 0.25 1.75 2.00 18 55 95 206
National Insured - Class A 4.75 1.00(2) 0.50 0.25 0.25 1.00 1.16 57 78 100 164
National Insured - Class B N/A(1) 4.00 0.50 1.00 0.25 1.75 1.81 58(3) 85(3) 115(3) 186
National Insured - Class C N/A(1) None 0.50 1.00 0.25 1.75 1.40 18 55 95 206
National Limited Term -
Class A 2.75 0.50(2) 0.40 0.25 0.35 1.00 1.25 37 58 81 147
National Limited Term -
Class B N/A(1) 3.00 0.40 1.00 0.35 1.75 2.00 48(3) 75(3) 95(3) 186
National Limited Term -
Class C N/A(1) None 0.40 1.00 0.35 1.75 2.00 18 55 95 206
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</TABLE>
(1) Class B and Class C shares are sold without a front end sales charge, but
their Rule 12b-1 fees may cause long term shareholders to pay more than the
economic equivalent of the maximum permitted front end sales charges.
(2) A contingent deferred sales charge of up to 1.00% is imposed on certain
redemptions of Class A shares (.50% for Class A shares of the Limited Term
Tax Free Funds) that were purchased without an initial sales charge as part
of an investment of $1 million or more.
(3) Class B share expenses would be lower assuming no redemption at the end of
the period.
(4) The Underwriter pays broker-dealers and financial institutions an annual
fee equal to .25% of the average daily net assets attributable to the Class
A shares (.15% for Class A shares of the Limited Term Tax Free Funds), .15%
of the average daily net assets attributable to the Class B shares, and
.75% of the average daily net assets attributable to the Class C shares
held by their customers. The fee is paid quarterly commencing when such
shares are sold.
(5) The expense ratio reflects the effect of gross expenses attributable to
earnings credits on uninvested cash balances received by each Fund.
THE EXAMPLES CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of the above Fees and Expenses table is to
assist the investor in understanding the various costs and expenses that
investors in the Funds will bear directly or indirectly. The information set
forth in the table under the heading "Annual Fund Operating Expenses as a
Percentage of Net Assets After Fee Waiver and Expense Arrangements" reflects
actual expenses incurred during fiscal 1995 for the Class A shares of Minnesota
Tax Free Fund and Minnesota Limited Term Tax Free Fund. For all other Funds and
classes of shares, such information has been restated to reflect anticipated
voluntary Rule 12b-1 waivers and expense reimbursements during the fiscal period
ending December 31, 1996. After December 31, 1996, such expense waivers and
reimbursements may be discontinued or modified by Voyageur and the Underwriter
in their sole discretion. The Funds' investment adviser, Voyageur, is
contractually obligated to pay certain of the operating expenses (excluding rule
12b-1 fees) of each Fund which exceed 1% of the Fund's average daily net assets
on an annual basis, as further discussed in the section "Management -- Expenses
of the Funds." For the fiscal period ended December 31, 1995, Voyageur and the
Underwriter voluntarily waived certain fees and absorbed certain expenses of
each Fund then in existence except for Minnesota Tax Free Fund and Minnesota
Limited Term Tax Free Fund. Absent such fee and expense waivers, Total Fund
Operating Expenses for such period would be equivalent to the corresponding
percentages disclosed under the column "Total Fund Operating Expenses Without
Voluntary Waiver and Reimbursement."
FINANCIAL HIGHLIGHTS
The following table shows certain per share data and selected information for a
share outstanding during the indicated periods for each Fund. This information
has been audited by KPMG Peat Marwick LLP, independent auditors, and should be
read in conjunction with the financial statements of each Fund contained in its
annual report. An annual report of each Fund is available without charge by
contacting the Funds at 800-553-2143. In addition to financial statements, the
annual reports contain further information about the performance of the Funds.
Per share data is not presented for all classes since not all classes of shares
were outstanding during the periods presented below.
<TABLE>
<CAPTION>
INCOME FROM LESS
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS/SUPPLEMENTAL DATA
-------------------------- -------------- -------------------------------------------------
NET DIVID- RATIO RATIO OF EXPENSES
REALIZED ENDS OF NET TO AVERATE
NET ASSET AND FROM DISTRIB- NET NET RATIO OF INVESTMENT PORT- NET ASSETS
VALUE NET UNREALIZED NET UTIONS VALUE TOTAL ASSETS EXPENSES INCOME TO FOLIO ASSUMING NO
BEGINNING INVEST- GAINS INVEST- FROM END INVEST- END OF TO (2) AVERAGE TURN- VOLUNTARY
OF MENT (LOSSES) ON MENT CAPITAL OF MENT PERIOD AVERAGE NET OVER WAIVERS AND
VOYAGEUR STATE FUNDS PERIOD INCOME SECURITIES INCOME GAINS PERIOD RETURN(4)(000s)NET ASSETS ASSETS RATE REIMBURSEMENTS
- ----------------------------------------------------------------------------------------------------------------------------
ARIZONA TAX FREE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A - 12/31/95(1) $10.00 0.46 0.84 (0.46) (0.09) $10.75 13.27% $6,225 0.52%(5) 5.19%(5)38.05% 1.25%(5)
Class B - 12/31/95(1) 10.30 0.26 0.53 (0.26) (0.09) 10.74 7.74 1,629 0.99(5) 4.60(5) 38.05 2.00(5)
Class C - 12/31/95(1) 10.20 0.30 0.65 (0.30) (0.09) 10.76 9.43 27 1.20(5) 4.65(5) 38.05 2.00(5)
ARIZONA INSURED
Class A - 12/31/95 9.86 0.54 1.31 (0.56) -- 11.15 19.10 238,114 0.69 5.07 42.96 0.95
Class A - 12/31/94 11.31 0.55 (1.37) (0.53) (0.10)(8)9.86 (7.41) 231,736 0.72 5.20 25.18 0.92
Class A - 12/31/93 10.71 0.58 0.74 (0.58) (0.14) 11.31 12.64 263,312 0.59 5.00 33.80 1.03
Class A - 12/31/92 10.39 0.61 0.38 (0.61) (0.06) 10.71 9.86 124,120 0.35 5.60 40.29 1.16
Class A - 12/31/91(1) 10.00 0.50 0.47 (0.50) (0.08) 10.39 9.98 38,322 --(6) 6.58(5)177.66 1.24(5)
Class B - 12/31/95(1) 10.44 0.38 0.69 (0.37) -- 11.14 10.36 2,048 1.33(5) 4.08(5) 42.96 1.60(5)
Class C - 12/31/95 9.86 0.45 1.31 (0.47) -- 11.15 18.10 541 1.54 4.18 42.96 1.69
Class C - 12/31/94(1) 10.48 0.27 (0.56) (0.25) (0.08)(8)9.86 (2.84) 326 1.50(5) 4.10(5) 25.18 1.71(5)
CALIFORNIA TAX FREE
Class A - 12/31/95(1) 10.00 0.47 0.70 (0.47) (0.06) 10.64 11.97 1,012 0.46(5) 5.57(5) 39.51 1.22(5)
Class B - 12/31/95(1) 9.96 0.20 0.74 (0.19) (0.06) 10.65 9.52 128 0.60(5) 5.33(5) 39.51 1.93(5)
CALIFORNIA INSURED
Class A - 12/31/95 9.33 0.53 1.34 (0.55) -- 10.65 20.51 33,860 0.70 5.23 107.45 1.02
Class A - 12/31/94 9.51 0.10 (0.18) (0.09) (0.01) 9.33 (0.84) 27,994 0.10(5) 6.30(5) 7.28 1.24(5)
Class A - 10/31/94 11.08 0.55 (1.52) (0.54) (0.06) 9.51 (8.97) 27,282 0.20 5.37 18.34 1.25
Class A - 10/31/93 10.02 0.60 1.11 (0.60) (0.05) 11.08 17.29 12,509 -- 5.26 24.19 1.25
Class A - 10/31/92(1) 10.00 -- 0.02 -- -- 10.02 0.20 2,056 -- -- 7.31 --
Class B - 12/31/95 9.33 0.50 1.33 (0.51) -- 10.65 20.01 6,029 1.10 4.75 107.45 1.75
Class B - 12/31/94 9.51 0.08 (0.17) (0.08) (0.01) 9.33 (0.92) 2,219 0.57(5) 5.54(5) 7.28 1.94(5)
Class B - 10/31/94(1) 10.68 0.31 (1.16) (0.30) (0.02) 9.51 (7.93) 1,427 0.73(5) 4.82(5) 18.34 1.95(5)
Class C - 12/31/95(1) 10.19 0.25 0.53 (0.32) -- 10.65 7.77 53 1.53(5) 4.25(5)107.45 1.77(5)
COLORADO TAX FREE
Class A - 12/31/95 9.53 0.54 1.38 (0.55) -- 10.90 20.54 392,815 0.76 5.18 82.83 0.93
Class A - 12/31/94 11.10 0.55 (1.54) (0.54) (0.04) 9.53 (9.12) 354,138 0.66 5.35 69.32 0.72
Class A - 12/31/93 10.57 0.56 0.85 (0.56) (0.32) 11.10 13.72 399,218 0.75 4.97 58.61 0.75
Class A - 12/31/92 10.27 0.58 0.45 (0.58) (0.15) 10.57 10.42 202,165 0.80 5.59 69.72 0.80
Class A - 12/31/91 10.02 0.61 0.43 (0.61) (0.18) 10.27 10.80 104,863 0.82 6.15 92.42 0.82
Class A - 12/31/90 10.00 0.64 0.02 (0.64) -- 10.02 6.81 53,987 1.00 6.38 69.64 1.00
Class A - 12/31/89 9.74 0.67 0.32 (0.67) (0.06) 10.00 10.73 34,625 1.00 6.37 33.06 1.00
Class A - 12/31/88 9.43 0.69 0.34 (0.69) (0.03) 9.74 10.57 19,767 1.00 6.77 56.31 1.00
Class A - 12/31/87(1) 9.58 0.49 (0.15) (0.49) -- 9.43 3.27 5,546 1.00(5) 6.49(5) 92.80 1.00(5)
Class B - 12/31/95(1) 10.25 0.35 0.65 (0.35) -- 10.90 9.96 1,643 1.39(5) 3.96(5) 82.83 1.60(5)
Class C - 12/31/95 9.53 0.45 1.37 (0.45) -- 10.90 19.44 1,042 1.66 4.20 82.83 1.66
Class C - 12/31/94(1) 10.21 0.29 (0.67) (0.27) (0.03) 9.53 (3.75) 465 1.80(5) 4.23(5) 69.32 1.81(5)
FLORIDA TAX FREE
Class A - 12/31/95(1) 10.00 0.47 0.75 (0.47) (0.02) 10.73 12.49 4,421 0.32(5) 5.26(5) 63.52 1.25(5)
Class B - 12/31/95(1) 10.37 0.15 0.38 (0.15) (0.02) 10.73 5.10 101 0.44(5) 4.88(5) 63.52 2.00(5)
Class C - 12/31/95(1) 10.20 0.33 0.56 (0.34) (0.02) 10.73 8.88 9 1.11(5) 4.57(5) 63.52 2.00(5)
FLORIDA INSURED
Class A - 12/31/95 9.52 0.54 1.44 (0.56) -- 10.94 21.22 242,425 0.51 5.24 101.48 0.95
Class A - 12/31/94 9.64 0.10 (0.12) (0.09) (0.01) 9.52 (0.11) 240,228 0.20(5) 6.24(5) 2.51 1.06(5)
Class A - 10/31/94 11.15 0.55 (1.46) (0.54) (0.06) 9.64 (8.30) 259,702 0.44 5.24 49.12 0.96
Class A - 10/31/93 10.11 0.58 1.12 (0.58) (0.08) 11.15 17.27 289,682 0.18 5.18 53.51 1.12
Class A - 10/31/92(1) 10.00 0.51 0.15 (0.51) (0.04) 10.11 6.74 50,666 -- 5.38(5) 208.24 1.25(5)
Class B - 12/31/95 9.52 0.50 1.44 (0.52) -- 10.94 20.76 2,814 0.89 4.80 101.48 1.68
Class B - 12/31/94 9.63 0.09 (0.11) (0.08) (0.01) 9.52 (0.03) 1,477 0.59(5) 5.68(5) 2.51 1.81(5)
Class B - 10/31/94(1) 10.82 0.31 (1.19) (0.30) (0.01) 9.63 (8.10) 1,135 1.00(5) 4.63(5) 49.12 1.28(5)
FLORIDA LIMITED TERM
Class A - 12/31/95 9.64 0.44 1.01 (0.49) (0.04) 10.56 15.14 859 0.63 4.28 27.76 1.25
Class A - 12/31/94(1) 10.00 0.18 (0.36) (0.18) -- 9.64 (1.55) 592 -- 4.19(5) -- 1.25(5)
Class B - 12/31/95(1) 10.58 0.10 0.03 (0.11) (0.04) 10.56 1.13 41 1.52(5) 3.32(5) 27.76 2.00(5)
Class C - 12/31/95(1) 10.08 0.25 0.55 (0.29) (0.04) 10.55 7.95 54 1.62(5) 3.10(5) 27.76 2.00(5)
IDAHO TAX FREE
Class A - 12/31/95(1) 10.00 0.60 1.10 (0.60) (0.08) 11.02 17.48 13,540 0.26(5) 5.24(5) 41.97 1.25(5)
Class B - 12/31/95(1) 10.50 0.42 0.59 (0.42) (0.08) 11.01 9.86 1,977 0.79(5) 4.68(5) 41.97 1.90(5)
Class C - 12/31/95(1) 10.04 0.50 1.06 (0.50) (0.08) 11.02 15.81 789 1.05(5) 4.48(5) 41.97 2.00(5)
IOWA TAX FREE
Class A - 12/31/95 8.56 0.45 1.29 (0.47) -- 9.83 20.80 42,374 0.72 4.88 21.67 1.06
Class A - 12/31/94 9.26 0.17 (0.72) (0.15) -- 8.56 (5.86) 32,373 0.11(5) 5.71(5) 7.18 1.25(5)
Class A - 8/31/94(1) 10.00 0.49 (0.74) (0.49) -- 9.26 (2.67) 38,669 0.12 4.89 119.35 1.25
Class B - 12/31/95(1) 9.18 0.31 0.64 (0.30) -- 9.83 10.62 819 1.28(5) 4.06(5) 21.67 1.65(5)
Class C - 12/31/95(1) 8.55 0.37 1.28 (0.37) -- 9.83 19.66 462 1.61(5) 3.74(5) 21.67 1.72(5)
KANSAS TAX FREE
Class A - 12/31/95 9.50 0.56 1.22 (0.55) -- 10.73 19.13 10,677 0.37 5.32 19.71 1.11
Class A - 12/31/94 9.63 0.09 (0.13) (0.09) -- 9.50 (0.38) 7,355 0.01(5) 5.88(5) -- 1.25(5)
Class A - 10/31/94 10.85 0.57 (1.21) (0.57) (0.01) 9.63 (6.10) 6,469 0.06 5.30 38.96 1.25
Class A - 10/31/93(1) 10.00 0.56 0.85 (0.56) -- 10.85 14.49 2,057 -- 5.26(5) 28.87 1.25(5)
Class B - 12/31/95(1) 10.19 0.34 0.54 (0.33) -- 10.74 8.76 677 0.94(5) 4.63(5) 19.71 1.68(5)
Class C - 12/31/95(1) 10.20 0.32 0.51 (0.31) -- 10.72 8.29 40 1.27(5) 4.21(5) 19.71 1.79(5)
MINNESOTA TAX FREE
Class A - 12/31/95 11.33 0.62 1.32 (0.64) -- 12.63 17.49 455,220 0.93 5.11 50.84 0.93
Class A - 12/31/94 12.85 0.63 (1.48) (0.61)(0.06)(7)11.33 (6.73) 406,497 0.90 5.29 24.26 0.90
Class A - 12/31/93 12.21 0.64 0.87 (0.64) (0.23) 12.85 12.70 458,145 1.02 5.02 31.77 1.02
Class A - 12/31/92 12.07 0.70 0.23 (0.70) (0.09) 12.21 7.97 331,314 0.96 5.73 23.60 1.04
Class A - 12/31/91 11.67 0.75 0.49 (0.75) (0.09) 12.07 11.04 251,594 0.83 6.44 26.40 0.98
Class A - 12/31/90 11.68 0.77 0.02 (0.77) (0.03) 11.67 7.03 197,629 0.82 6.68 20.54 1.02
Class A - 12/31/89 11.48 0.80 0.22 (0.80) (0.02) 11.68 9.11 172,476 0.77 6.85 22.84 0.77
Class A - 12/31/88 11.16 0.80 0.32 (0.80) -- 11.48 10.31 150,031 0.77 7.01 9.56 0.77
Class A - 12/31/87 11.85 0.81 (0.66) (0.81) (0.03) 11.16 1.38 124,082 0.78 7.10 13.84 0.78
Class A - 12/31/86 11.12 0.86 0.82 (0.86) (0.09) 11.85 15.68 106,563 0.85 7.45 11.40 0.85
Class B - 12/31/95(1) 11.90 0.45 0.71 (0.44) -- 12.62 9.95 2,701 1.38(5) 4.43(5) 50.84 1.63(5)
Class C - 12/31/95 11.33 0.53 1.32 (0.55) -- 12.63 16.62 2,319 1.67 4.33 50.84 1.67
Class C - 12/31/94(1) 11.96 0.34 (0.61) (0.32) (0.04) 11.33 (2.30) 1,061 1.72(5) 4.56(5) 24.26 1.72(5)
MINNESOTA INSURED
Class A - 12/31/95 9.61 0.51 1.14 (0.53) -- 10.73 17.52 307,734 0.87 4.92 53.72 0.92
Class A - 12/31/94 11.02 0.54 (1.39) (0.52) (0.04) 9.61 (7.88) 284,132 0.61 5.29 24.75 0.94
Class A - 12/31/93 10.27 0.54 0.84 (0.54) (0.09) 11.02 13.80 311,187 0.70 4.93 18.25 1.02
Class A - 12/31/92 10.07 0.59 0.25 (0.59) (0.05) 10.27 8.57 162,728 0.37 5.66 14.11 1.06
Class A - 12/31/91 9.65 0.60 0.48 (0.60) (0.06) 10.07 11.59 68,250 0.78 6.13 43.68 1.16
Class A - 12/31/90 9.64 0.61 0.02 (0.61) (0.01) 9.65 6.63 29,394 0.74 6.30 15.12 1.25
Class A - 12/31/89 9.48 0.63 0.20 (0.63) (0.04) 9.64 8.96 8,217 0.78 6.55 28.34 1.00
Class A - 12/31/88 9.19 0.67 0.29 (0.67) -- 9.48 10.70 4,707 0.86 7.08 68.09 1.00
Class A - 12/31/87(1) 9.51 0.46 (0.32) (0.46) -- 9.19 1.48 2,759 0.76(5) 7.93(5) 20.66 1.00(5)
Class B - 12/31/95(1) 10.14 0.38 0.58 (0.38) -- 10.72 9.59 4,655 1.34(5) 4.15(5) 53.72 1.64(5)
Class C - 12/31/95 9.61 0.43 1.14 (0.45) -- 10.73 16.63 3,166 1.66 4.11 53.72 1.67
Class C - 12/31/94(1) 10.23 0.30 (0.62) (0.28) (0.02) 9.61 (3.14) 1,525 1.36(5) 4.68(5) 24.75 1.68(5)
MINNESOTA LIMITED TERM
Class A - 12/31/95 10.50 0.51 0.64 (0.51) -- 11.14 11.00 72,405 0.91 4.61 40.28 0.91
Class A - 12/31/94 11.16 0.45 (0.66) (0.45) -- 10.50 (1.91) 84,168 0.92(5) 4.18(5) 42.06 0.92(5)
Class A - 12/31/93 10.83 0.47 0.37 (0.47) (0.04) 11.16 7.88 75,374 0.99 4.18 19.13 0.99(5)
Class A - 12/31/92 10.69 0.51 0.18 (0.51) (0.04) 10.83 6.62 48,210 1.09 4.71 25.56 1.09
Class A - 12/31/91 10.32 0.55 0.37 (0.55) -- 10.69 9.24 27,268 1.23 5.35 43.39 1.23
Class A - 12/31/90 10.26 0.60 0.06 (0.60) -- 10.32 6.59 22,526 1.18 5.81 51.47 1.18
Class A - 12/31/89 10.21 0.59 0.05 (0.59) -- 10.26 6.43 21,884 0.84 5.74 68.23 0.84
Class A - 12/31/88 10.17 0.53 0.04 (0.53) -- 10.21 6.02 24,157 0.84 5.15 16.13 0.84
Class A - 12/31/87 10.43 0.55 (0.25) (0.55) (0.01) 10.17 2.97 29,063 0.84 5.14 24.79 0.84
Class A - 12/31/86 10.20 0.61 0.24 (0.61) (0.01) 10.43 8.58 20,967 1.00 5.81 30.10 1.00
Class B - 12/31/95(1) 10.95 0.17 0.19 (0.17) -- 11.14 3.26 27 1.30(5) 3.93(5) 40.28 1.55(5)
Class C - 12/31/95 10.50 0.42 0.63 (0.42) -- 11.13 10.18 694 1.63 3.82 40.28 1.63
Class C - 12/31/94(1) 10.74 0.24 (0.24) (0.24) -- 10.50 (0.03) 341 1.71(5) 3.35(5) 42.05 1.71(5)
MISSOURI INSURED
Class A - 12/31/95 9.27 0.52 1.29 (0.54) -- 10.54 19.96 50,211 0.50 5.25 31.69 1.07
Class A - 12/31/94 9.37 0.10 (0.11) (0.09) -- 9.27 (0.07) 37,790 0.11(5) 6.00(5) 8.85 1.12(5)
Class A - 10/31/94 10.82 0.55 (1.43) (0.54) (0.03) 9.37 (8.28) 37,384 0.15 5.39 32.02 1.13
Class A - 10/31/93(1) 10.00 0.55 0.89 (0.55) (0.07) 10.82 14.74 30,270 -- 4.82(5) 76.51 1.25(5)
Class B - 12/31/95 9.27 0.48 1.28 (0.49) -- 10.54 19.18 6,195 0.97 4.70 31.69 1.81
Class B - 12/31/94 9.37 0.08 (0.10) (0.08) -- 9.27 (0.14) 2,742 0.60(5) 5.32(5) 8.85 1.84(5)
Class B - 10/31/94(1) 10.30 0.33 (0.94) (0.32) -- 9.37 (6.16) 1,701 0.49(5) 4.89(5) 32.02 1.83(5)
Class C - 12/31/95(1) 10.36 0.06 0.17 (0.05) -- 10.54 2.24 20 1.22(5) 4.09(5) 31.69 1.55(5)
NEW MEXICO TAX FREE
Class A - 12/31/95 9.59 0.52 1.33 (0.55) -- 10.89 19.64 21,402 0.87 5.07 55.72 1.09
Class A - 12/31/94 9.77 0.11 (0.20) (0.09) -- 9.59 (0.90) 19,706 0.06(5) 6.38(5) 2.21 1.25(5)
Class A - 10/31/94 10.92 0.56 (1.16) (0.55) -- 9.77 (5.56) 23,096 0.29 5.26 22.94 1.16
Class A - 10/31/93 10.00 0.57 0.98 (0.57) (0.06) 10.92 15.77 17,302 -- 5.10 30.76 1.25
Class A - 10/31/92(1) 10.00 -- -- -- -- 10.00 -- 361 -- -- -- --
Class B - 12/31/95 9.59 0.46 1.32 (0.48) -- 10.89 18.84 605 1.53 4.33 55.72 1.83
Class B - 12/31/94 9.77 0.09 (0.19) (0.08) -- 9.59 (0.98) 272 0.75(5) 5.60(5) 2.21 2.00(5)
Class B - 10/31/94(1) 10.69 0.31 (0.93) (0.30) -- 9.77 (5.84) 264 0.98(5) 4.57(5) 22.94 1.86(5)
NORTH DAKOTA TAX FREE
Class A - 12/31/95 9.85 0.54 1.18 (0.57) -- 11.00 17.81 36,096 0.81 5.07 45.34 1.05
Class A - 12/31/94 11.07 0.56 (1.15) (0.53) (0.10) 9.85 (5.47) 33,829 0.46 5.36 32.60 1.14
Class A - 12/31/93 10.59 0.58 0.58 (0.58) (0.10) 11.07 11.20 34,880 0.59 5.11 27.39 1.25
Class A - 12/31/92 10.34 0.62 0.34 (0.62) (0.09) 10.59 9.70 15,846 0.40 5.78 26.27 1.25
Class A - 12/31/91(1) 10.00 0.49 0.41 (0.49) (0.07) 10.34 9.23 4,914 0.16(5) 6.43(5) 126.37 1.25(5)
Class B - 12/31/95 9.85 0.48 1.18 (0.51) -- 11.00 17.24 375 1.29 4.56 45.34 1.79
Class B - 12/31/94(1) 10.31 0.30 (0.39) (0.27)(0.10)(9) 9.85 (0.77) 144 0.99(5) 4.97(5) 32.60 1.89(5)
Class C - 12/31/95(1) 10.51 0.17 0.50 (0.18) -- 11.00 6.47 20 1.73(5) 4.00(5) 45.34 1.73(5)
OREGON INSURED
Class A - 12/31/95 8.92 0.49 1.14 (0.50) -- 10.05 18.71 21,590 0.54 5.12 41.08 1.11
Class A - 12/31/94 9.00 0.09 (0.09) (0.08) -- 8.92 0.06 14,650 0.05(5) 5.79(5) -- 1.25(5)
Class A - 10/31/94 10.24 0.50 (1.24) (0.50) -- 9.00 (7.35) 14,086 0.03 5.17 48.98 1.25
Class A - 10/31/93(1) 10.00 0.13 0.24 (0.13) -- 10.24 3.64 4,609 -- 4.61(5) 11.08 1.25(5)
Class B - 12/31/95 8.92 0.44 1.14 (0.45) -- 10.05 18.10 2.786 1.04 4.57 41.08 1.86
Class B - 12/31/94 9.00 0.08 (0.09) (0.07) -- 8.92 0.03 1,303 0.60(5) 5.19(5) -- 2.00(5)
Class B - 10/31/94(1) 9.85 0.27 (0.85) (0.27) -- 9.00 (5.95) 1,146 0.75(5) 4.43(5) 48.98 2.00(5)
Class C - 12/31/95(1) 9.63 0.19 0.41 (0.18) -- 10.05 6.35 250 1.39(5) 4.00(5) 41.08 1.74(5)
UTAH TAX FREE
Class A - 12/31/95 9.80 0.59 1.24 (0.59) -- 11.04 19.06 4,142 0.38 5.51 35.28 1.25
Class A - 12/31/94 9.94 0.10 (0.15) (0.09) -- 9.80 (0.41) 3,728 0.11(5) 6.38(5) -- 1.14(5)
Class A - 10/31/94 11.07 0.60 (1.07) (0.60) (0.06) 9.94 (4.50) 4,054 0.10 5.64 2.77 1.25
Class A - 10/31/93 10.00 0.65 1.07 (0.65) -- 11.07 17.54 3,913 -- 5.65 44.54 1.25
Class A - 10/31/92(1) 10.00 -- -- -- -- 10.00 -- 19 -- -- -- --
Class B - 12/31/95(1) 10.63 0.30 0.39 (0.28) -- 11.04 6.60 363 0.92(5) 4.74(5) 35.28 2.00(5)
WASHINGTON INSURED
Class A - 12/31/95 9.21 0.59 1.21 (0.57) -- 10.44 19.94 2,099 0.28 5.57 50.54 1.25
Class A - 12/31/94 9.37 0.09 (0.16) (0.09) -- 9.21 (0.69) 2,049 0.10(5) 6.18(5) -- 1.25(5)
Class A - 10/31/94 10.67 0.55 (1.26) (0.57) (0.02) 9.37 (6.85) 2,118 0.14 5.44 -- 1.25
Class A - 10/31/93(1) 10.00 0.15 0.67 (0.15) -- 10.67 8.05 2,108 -- 5.50(5) 45.14 1.25(5)
Class B - 12/31/95(1) 10.18 0.09 0.25 (0.08) -- 10.44 3.30 15 1.04(5) 4.44(5) 50.54 2.00(5)
Class C - 12/31/95(1) 9.94 0.31 0.48 (0.30) -- 10.43 8.13 19 1.30(5) 4.45(5) 50.54 2.00(5)
WISCONSIN TAX FREE
Class A - 12/31/95(1) 8.74 0.48 1.04 (0.48) -- 9.78 17.74 26,449 0.88 5.05 12.10 1.09
Class A - 12/31/94 9.28 0.16 (0.55) (0.15) -- 8.74 (4.12) 20,167 0.08(5) 5.54(5) 20.52 1.25(5)
Class A - 8/31/94 10.00 0.49 (0.72) (0.49) -- 9.28 (2.40) 16,093 0.04 4.89 86.26 1.2(5)
Class B - 12/31/95(1) 9.39 0.28 0.37 (0.27) -- 9.77 7.08 725 1.45(5) 4.31(5) 12.10 1.70(5)
Class C - 12/31/95(1) 9.34 0.30 0.44 (0.29) -- 9.79 8.06 73 1.77(5) 4.04(5) 12.10 1.77(5)
NATIONAL TAX FREE
Class A - 12/31/95(1) 10.00 0.18 0.58 (0.18) (0.10) 10.48 7.11 1,274 0.35(5) 5.03(5) 49.62 1.25(5)
Class B - 12/31/95(1) 10.09 0.15 0.49 (0.15) (0.10) 10.48 6.41 157 0.88(5) 4.52(5) 49.62 2.00(5)
Class C - 12/31/95(1) 10.00 0.15 0.58 (0.15) (0.10) 10.48 7.32 48 1.22(5) 4.36(5) 49.62 2.00(5)
NATIONAL INSURED
Class A - 12/31/95 9.32 0.54 1.34 (0.56) -- 10.64 20.63 35,662 0.61 5.29 192.90 1.16
Class A - 12/31/94 10.67 0.56 (1.34) (0.55) (0.02) 9.32 (7.45) 35,305 0.10 5.71 31.25 1.25
Class A - 12/31/93 10.14 0.60 0.60 (0.60) (0.07) 10.67 12.10 25,315 -- 5.29 77.79 1.25
Class A - 12/31/92(1) 10.00 0.57 0.14 (0.57) -- 10.14 7.43 2,919 --(3) 5.85(5)114.92 1.25(5)
Class B - 12/31/95 9.32 0.50 1.34 (0.52) -- 10.64 20.10 1,545 0.93 4.85 192.90 1.81
Class B - 12/31/94(1) 9.81 0.31 (0.50) (0.29) (0.01) 9.32 (1.94) 478 0.48(5) 5.37(5) 31.25 1.99(5)
Class C - 12/31/95(1) 10.38 0.09 0.24 (0.08) -- 10.63 3.21 10 0.93(5) 4.46(5) 192.90 1.40(5)
NATIONAL LIMITED TERM
Class A - 12/31/95(1) 10.00 0.14 0.17 (0.14) (0.01) 10.16 3.22 1,230 0.56(5) 4.17(5) 54.31 1.25(5)
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
(1) The information is for the period from each Fund's commencement of
operations to the Fund's year end. The classes of each
Fund commenced operations on the following dates:
ARIZONA TAX FREE FUND
Class A March 2, 1995
Class B June 29, 1995
Class C May 13, 1995
ARIZONA INSURED TAX FREE FUND
Class A April 1, 1991
Class B March 10, 1995
Class C May 26, 1994
CALIFORNIA TAX FREE FUND
Class A March 3, 1995
Class B August 23, 1995
CALIFORNIA INSURED TAX FREE FUND
Class A October 15, 1992
Class B March 1, 1994
Class C April 12, 1995
COLORADO TAX FREE FUND
Class A April 23, 1987
Class B March 22, 1995
Class C May 6, 1994
FLORIDA TAX FREE FUND
Class A March 2, 1995
Class B September 15, 1995
Class C April 22, 1995
FLORIDA INSURED TAX FREE FUND
Class A January 1, 1992
Class B March 1, 1994
FLORIDA LIMITED TERM TAX FREE FUND
Class A May 1, 1994
Class B September 15, 1995
Class C March 23, 1995
IDAHO TAX FREE FUND
Class A January 4, 1995
Class B March 16, 1995
Class C January 11, 1995
IOWA TAX FREE FUND
Class A September 1, 1993
Class B March 24, 1995
Class C January 4, 1995
KANSAS TAX FREE FUND
Class A November 30, 1992
Class B April 8, 1995
Class C April 12, 1995
MINNESOTA TAX FREE FUND
Class B March 11, 1995
Class C May 4, 1994
MINNESOTA INSURED FUND
Class A May 1, 1987
Class B March 7, 1995
Class C May 4, 1994
MINNESOTA LIMITED TERM TAX FREE FUND
Class B August 15, 1995
Class C April 30, 1994
MISSOURI INSURED TAX FREE FUND
Class A November 2, 1992
Class B March 12, 1994
Class C November 11, 1995
NEW MEXICO TAX FREE FUND
Class A October 5, 1992
Class B March 3, 1994
NORTH DAKOTA TAX FREE FUND
Class A April 1, 1991
Class B May 10, 1994
Class C July 29, 1995
OREGON INSURED TAX FREE FUND
Class A August 1, 1993
Class B March 12, 1994
Class C July 7, 1995
UTAH TAX FREE FUND
Class A October 5, 1992
Class B May 27, 1995
WASHINGTON INSURED TAX FREE FUND
Class A August 1, 1993
Class B Ocober 24, 1995
Class C April 21, 1995
WISCONSIN TAX FREE FUND
Class A September 1, 1993
Class B April 22, 1995
Class C March 28, 1995
NATIONAL TAX FREE FUND
Class A September 8, 1995
Class B September 15, 1995
Class C September 12, 1995
NATIONAL INSURED TAX FREE FUND
Class A January 10, 1992
Class B May 26, 1994
Class C October 20, 1995
NATIONAL LIMITED TERM TAX FREE FUND
Class A September 7, 1995
(2) Beginning in the year ended December 31, 1995, the expense ratio reflects
the effect of gross expenses attributable to earnings credits on uninvested
cash balances received by the Fund. Prior period expense ratios have not
been adjusted.
(3) The Advisor also paid $6,364 beyond total fees and expenses for National
Insured Tax Free Fund for the period ended December 31, 1992.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(5) Adjusted to an annual basis.
(6) The Adviser also paid $25,631 for Arizona Insured Tax Free Fund for the
period ended December 31, 1991.
(7) Includes (.01) in excess of net realized gains.
(8) Includes (.06) and (.04) in excess of net realized gains for Class A and
Class C shares, respectively.
(9) Includes (.02) and (.02) in excess of net realized gains for Class A and
Class B shares, respectively.
THE FUNDS
- --------------------------------------------------------------------------------
Each of the Funds is a separate series of one of the parent corporate or trust
entities described herein under the heading "General Information." The series
which are diversified, as such term is defined in the Investment Company Act of
1940, as amended (the "1940 Act") are designated as such by a footnote on the
cover page of this Prospectus. All other series are non-diversified. Each
non-diversified Fund will be able to invest, subject to certain federal tax
requirements, a relatively higher percentage of its assets in the securities of
a limited number of issuers which may result in such Fund's securities being
more susceptible to any single economic, political or regulatory occurrence than
the securities of a diversified Fund. The investment objectives and policies of
each Fund are described below. Except where noted, an investment objective or
policy description applies to all Funds.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of each Limited Term Tax Free Fund is to provide
investors with preservation of capital and, secondarily, current income exempt
from federal income tax and (except for the National Limited Term Tax Free Fund)
the personal income tax, if any, of the Fund's particular state, by maintaining
a weighted average portfolio maturity of 10 years or less. The investment
objective of each Tax Free Fund and Insured Fund is to seek as high a level of
current income exempt from federal income tax and (except for National Tax Free
Fund and National Insured Tax Free Fund) from the personal income tax, if any,
of the Fund's particular state, as is consistent with preservation of capital.
The weighted average maturity of the investment portfolio of each Tax Free Fund
and Insured Tax Free Fund is expected to be approximately 15 to 25 years. Each
of Florida Limited Term Tax Free Fund, Florida Tax Free Fund and Florida Insured
Tax Free Fund will seek to select investments that will enable its shares to be
exempt from the Florida intangible personal property tax.
During times of adverse market conditions when a defensive investment
posture is warranted, each Fund may temporarily select investments without
regard to the foregoing policy. There are risks in any investment program, and
there is no assurance that a Fund's investment objective will be achieved. The
value of each Fund's shares will fluctuate with changes in the market value of
its investments. Each Fund's investment objective and certain other investment
policies explicitly designated herein as such are fundamental, which means that
they cannot be changed without the vote of its respective shareholders as
provided in the 1940 Act.
Each Fund anticipates that, in normal market conditions, it will invest
substantially all of its assets in Tax Exempt Obligations (as defined below),
the interest on which is exempt from federal income tax and (for Funds other
than the three "national" funds) from the personal income tax, if any, of its
respective state. Up to 20% of the securities owned by each such Fund may
generate interest that is an item of tax preference for purposes of federal and
state alternative minimum tax ("AMT"), except that the Minnesota Insured Fund
may invest without limit in such securities and the Minnesota Tax Free Fund may
not invest in such AMT securities.
TAX FREE AND LIMITED TERM TAX FREE FUNDS
Each Tax Free Fund and each Limited Term Tax Free Fund may invest without
limitation in securities rated "investment grade," i.e., within the four highest
investment grades, at the time of investment by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") or, if unrated, judged
by Voyageur to be of comparable quality. Bonds included in the lowest investment
grade rating category involve certain speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher rated bonds. Up to 20% of the Tax Exempt Obligations purchased by the
Funds may be rated lower than investment grade; however, all bonds must be rated
"B" or better by Moody's or S&P (or, if unrated, judged by Voyageur to be of
comparable quality). Such bonds are often referred to as "junk" bonds or "high
yield" bonds. Bonds rated below "BBB" have a greater vulnerability to default
than higher grade bonds. See "Risks and Special Investment
Considerations--General" for a discussion of the risks of investing in lower
grade Tax Exempt Obligations. A description of the ratings assigned by Moody's
and S&P is set forth in Appendix A to the Statement of Additional Information.
The following table sets forth the weighted average percentage of total
investments with respect to the portfolios of certain Funds during the year
ended December 31, 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MOODY'S RATING Aaa Aa A Baa Ba B Unrated
(S&P EQUIVALENT) (AAA) (AA) (A) (BBB) (BB) (B) Bonds Total
- ------------------------------------------------------------------------------------------------
VOYAGEUR TAX FREEFUNDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona 74% 1% 8% 17% -- -- 100%
California 19% -- 41% 40% -- -- -- 100%
Colorado 52% 18% 16% 14% -- -- -- 100%
Florida 49% 8% 19% 18% -- -- 6% 100%
Idaho 46% 5% 13% 28% -- -- 8% 100%
Iowa 22% 1% 74% 3% -- -- -- 100%
Kansas 70% 28% 2% -- -- -- -- 100%
Minnesota 65% 11% 16% 2% -- -- 6% 100%
National 67% 8% 10% 15% -- -- -- 100%
New Mexico 51% 24% 23% 2% -- -- -- 100%
North Dakota 51% 23% 25% -- -- -- 1% 100%
Utah 76% 15% 9% -- -- -- -- 100%
Wisconsin 31% 14% 36% 2% 8% -- 9% 100%
VOYAGEUR LIMITED
TERM
TAX FREE FUNDS
Florida 55% 24% 15% 6% -- -- -- 100%
Minnesota 70% 13% 6% 7% -- -- 4% 100%
National 67% 21% 8% 4% -- -- -- 100%
- ----------------------------------------------------------------------------------------------
</TABLE>
INSURED FUNDS
The Tax Exempt Obligations in each Insured Fund's portfolio will consist of (a)
obligations that at all times are fully insured as to scheduled payments of
principal and interest ("insured securities") and (b) "escrow secured" or
"defeased" bonds. Insured securities may consist of bonds covered by Primary
Insurance, Secondary Market Insurance or Portfolio Insurance (as defined below).
All insurers must have a triple A-rated claims paying ability (as assigned by
either or both of Moody's and S&P) at the time of investment. Securities that
are covered by either Primary or Secondary Market Insurance will carry a
triple-A rating at the time of investment by the Fund. However, securities that
are not covered by either Primary or Secondary Market Insurance at the time of
investment (or that are not "escrow secured" or "defeased") must be covered by
Portfolio Insurance immediately after their acquisition. Voyageur anticipates
that such securities, at the time of investment, generally will be rated
investment grade. However, all securities in each Insured Fund's portfolio,
after application of insurance, will be rated Aaa by Moody's and/or AAA by S&P
at the time of investment. Pending the investment or reinvestment of its assets
in longer-term Tax Exempt Obligations, each Insured Fund may invest up to 35% of
its net assets in short-term tax exempt instruments, without obtaining
insurance, provided such instruments carry an A-l+ or SP-l+ short-term rating or
AAA or Aaa long-term rating by S&P or Moody's, and may invest up to 10% of its
net assets in securities of tax exempt money market mutual funds. The "insured
securities" in each Insured Fund's investment portfolio are insured as to the
scheduled payment of all installments of principal and interest as they fall
due. The purpose of such insurance is to minimize credit risks to such Funds and
their shareholders associated with defaults in Tax Exempt Obligations owned by
such Funds. Such insurance does not insure against market risk and therefore
does not guarantee the market value of the securities in an Insured Fund's
investment portfolio or the value of any Insured Funds' shares.
Certain insurance companies will issue policies guaranteeing the timely
payment of principal of, and interest on, particular Tax Exempt Obligations or
on a portfolio of Tax Exempt Obligations. Insurance may be purchased by the
issuer of a Tax Exempt Obligation or by a third party at the time of issuance of
the Tax Exempt Obligation ("Primary Insurance") or by the Fund or a third party
subsequent to the original issuance of a Tax Exempt Obligation ("Secondary
Market Insurance"). In each case, a single premium is paid to the insurer by the
party purchasing the insurance when the insurance is obtained. Primary Insurance
and Secondary Market Insurance policies are non-cancellable and remain in effect
for so long as the insured Tax Exempt Obligation is outstanding and the insurer
is in business.
The Insured Funds may also purchase insurance covering certain Tax Exempt
Obligations which the Insured Funds intend to purchase for their portfolios or
which the Insured Funds already own ("Portfolio Insurance"). Portfolio Insurance
policies guarantee the timely payment of principal of, and interest on, covered
Tax Exempt Obligations only while they are owned by the Insured Funds. Such
policies are non-cancellable and remain in effect until the Fund terminates,
provided the Fund pays the applicable insurance premiums and the insurer remains
in business. Tax Exempt Obligations in the Insured Funds' portfolios covered by
a Portfolio Insurance policy will not be covered by such policy after they are
sold by a Fund unless the Fund elects to obtain some form of Secondary Market
Insurance for them at the time of sale. The Insured Funds would obtain such
Secondary Market Insurance only if, in Voyageur's view, it would be economically
advantageous for the Funds to do so. Further information about insurance
(including its limitations) is set forth in the Statement of Additional
Information.
ALL FUNDS
The foregoing policies as to credit quality of portfolio investments will apply
only at the time of the purchase of a security, and the Funds are not required
to dispose of securities in the event that Moody's or S&P downgrades its
assessment of the credit characteristics of a particular issuer or, in the case
of unrated securities, in the event Voyageur reassesses its view with respect to
the credit quality of the issuer thereof. In no event, however, will more than
5% of each Fund's total assets consist of securities that have been downgraded
to a rating lower than the minimum rating in which each Fund is permitted to
invest or, in the case of unrated securities, that Voyageur has determined to
have a quality lower than such minimum rating. With respect to the Insured
Funds, up to 35% of each such Fund's total assets may consist of securities that
have been downgraded to AA or Aa subsequent to initial investment in such
securities by an Insured Fund.
Each Fund may invest without limitation in short term Tax Exempt
Obligations or in taxable obligations on a temporary, defensive basis due to
market conditions or, with respect to taxable obligations, for liquidity
purposes. Such taxable obligations, whether purchased for liquidity purposes or
on a temporary, defensive basis, may include: obligations of the U.S.
Government, its agencies or instrumentalities; other debt securities rated
within the three highest grades by either Moody's or S&P; commercial paper rated
in the highest grade by either of such rating services (Prime-1 or A-1,
respectively); certificates of deposit and bankers' acceptances of domestic
banks which have capital, surplus and undivided profits of over $100 million;
high-grade taxable municipal bonds; and repurchase agreements with respect to
any of the foregoing investments. Each Fund also may hold its assets in cash and
in securities of tax exempt money market mutual funds.
TAX EXEMPT OBLIGATIONS
As used in this Prospectus, the term "Tax Exempt Obligations" refers to debt
obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions, the interest
payable on which is, in the opinion of bond counsel, excludable from gross
income for purposes of federal income tax and (with respect to Funds other than
the National Fund, National Insured Fund or National Limited Term Fund) from the
personal income tax, if any, of the state specified in the Fund's name. The term
"Tax Exempt Obligations" also includes Derivative Tax Exempt Obligations as
defined below. In certain instances the interest on Tax Exempt Obligations may
be an item of tax preference includable in alternative minimum taxable income
depending upon the shareholder's tax status. See "Distributions to Shareholders
and Taxes -- Taxes."
Tax Exempt Obligations are primarily debt obligations issued to obtain
funds for various public purposes such as constructing public facilities and
making loans to public institutions. The two principal classifications of Tax
Exempt Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Tax Exempt
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Tax Exempt Obligations, there is
a variety of types of municipal securities. Certain Tax Exempt Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or 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 Tax Exempt Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.
Tax Exempt Obligations also include state or municipal leases and
participation interests therein. The Funds may invest in these types of
obligation 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 a Fund
will be treated as illiquid unless they are determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors. Under these guidelines,
Voyageur will consider factors including, but not limited to (1) whether the
lease can be cancelled, (2) what assurance there is that the assets represented
by the lease can be sold, (3) the municipality's general credit strength (e.g.,
its debt, administrative, economic and financial characteristics), (4) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
non-appropriation"), and (5) the legal recourse in the event of failure to
appropriate. Additionally, the lack of an established trading market for
municipal lease obligations may make the determination of fair market value more
difficult. See "Investment Policies and Restrictions--Tax Exempt Obligations" in
the Statement of Additional Information.
Each Fund may also acquire Derivative Tax Exempt Obligations, which are
custodial receipts or certificates underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain Tax Exempt Obligations. The sponsor 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, a Fund typically would be authorized to assert its rights
directly against the issuer of the underlying obligation, a 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, a Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if a 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 such Fund and its
shareholders would be reduced by the amount of taxes paid. Furthermore, amounts
paid by the trust or custodial account to a 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, each 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 a Fund invests in custodial receipts, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.
Investments in Derivative Tax Exempt Obligations, when combined with
investments in below investment grade rated securities, will not exceed 20% of
each Fund's total assets. For a discussion of certain risks involved in
investments in Derivative Tax Exempt Obligations, see "Risks and Special
Investment Considerations -- General."
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS
New issues of Tax Exempt Obligations and other securities are often purchased on
a "when issued" or delayed delivery basis, with delivery and payment for the
securities normally taking place 15 to 45 days after the date of the
transaction. The payment obligation and the interest rate that will be received
on the securities are each fixed at the time the buyer enters into the
commitment. Each 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 each Fund's total assets which may be
invested in forward commitments. Tax Exempt Obligations purchased on a
when-issued basis and the securities held in a Fund's portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Tax Exempt Obligations
purchased on a when-issued basis may expose a Fund to risk because they may
experience such fluctuations prior to their actual delivery. Purchasing Tax
Exempt Obligations on a when-issued basis can involve the additional risk that
the yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Any significant commitment
by a Fund to the purchase of securities on a when-issued basis may increase the
volatility of the Fund's net asset value. Although each 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 Funds may realize
short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
Each 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. Each 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 a 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, a Fund could suffer a
loss. See "Investment Policies and Restrictions--Taxable Obligations" in the
Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS
Certain Funds (Arizona Limited Term Tax Free Fund, Arizona Tax Free Fund,
California Limited Term Tax Free Fund, California Tax Free Fund, Colorado
Limited Term Tax Free Fund, Colorado Insured Tax Free Fund, Florida Limited Term
Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free Fund, National Limited Term
Tax Free Fund and National Tax Free 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 a 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 Funds do not currently intend to utilize
reverse repurchase agreements in excess of 10% of total assets, the Funds
believe the risks of leveraging due to use of reverse repurchase agreements to
principal are reduced. Voyageur believes that the limited use of leverage may
facilitate the Fund's ability to provide current income without adversely
affecting the Fund's ability to preserve capital.
OPTIONS AND FUTURES
Each Fund may utilize put and call transactions and certain Funds (see "Futures
Contracts and Options on Futures Contracts" below) 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 a Fund's
portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), to protect a 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 a 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 Funds in the future for hedging purposes as they are developed to the
extent deemed appropriate by the Board.
OPTIONS ON SECURITIES
Each 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, a 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, a 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 a Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund.
If a put option written by a Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by a 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 a Fund in privately
negotiated transactions. Such options are illiquid, and it may not be possible
for a Fund to dispose of an option it has purchased or terminate its obligations
under an option it has written at a time when Voyageur believes it would be
advantageous to do so. Over the counter options are subject to each 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 the Funds would not be subject absent the use of this
strategy. If Voyageur's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
a 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 Voyageur's
ability to predict correctly movements in the direction of interest rates and
securities prices; (2) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (3) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences. See
"Investment Policies and Restrictions --Risks of Transactions in Futures
Contracts and Options" in the Statement of Additional Information for further
discussion and see Appendix B for a discussion of closing transactions and other
risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Certain Funds (Arizona Limited Term Tax Free Fund, Arizona Tax Free Fund,
California Limited Term Tax Free Fund, California Tax Free Fund, Colorado
Limited Term Tax Free Fund, Colorado Insured Tax Free Fund, Florida Limited Term
Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free Fund, National Limited Term
Tax Free Fund and National Tax Free 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 Voyageur's experience with respect to such instruments
and usually depends upon Voyageur'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.
A 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 a 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
Although each Fund may invest 25% or more of its total assets in revenue bonds,
as a fundamental policy, no Fund will invest 25% or more of its total assets in
revenue bonds payable only from revenues derived from facilities or projects
within a single industry, except that the Funds may invest without limitation,
in circumstances in which other appropriate available investments may be in
limited supply, in housing, health care, and/or utility obligations. In
addition, Arizona Limited Term Tax Free Fund, Arizona Tax Free Fund, California
Limited Term Tax Free Fund, California Tax Free Fund, Colorado Limited Term Tax
Free Fund, Colorado Insured Tax Free Fund, Florida Limited Term Tax Free Fund,
Florida Tax Free Fund, Idaho Tax Free Fund, National Limited Term Tax Free Fund
and National Tax Free Fund may invest in such circumstances in transportation,
education and/or industrial obligations. In such circumstances, economic,
business, political and other changes affecting one bond 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.
Each Fund's Board may change any of the foregoing policies that are not
specifically designated fundamental. The non-fundamental policy of each Insured
Fund requiring the Tax Exempt Obligations to be insured may not be eliminated
except upon 30 days' advance notice to the shareholders of the applicable
Insured Fund.
RISKS AND SPECIAL INVESTMENT CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
T he yields on Tax Exempt Obligations are dependent on a variety of factors,
including the financial condition of the issuer or other obligor thereon or the
revenue source from which debt service is payable, general economic and monetary
conditions, conditions in the relevant market, the size of a particular issue,
maturity of the obligation and the rating of the issue. Generally, the value of
Tax Exempt Obligations will tend to fall as interest rates rise and will tend to
increase as interest rates decrease. In addition, Tax Exempt Obligations of
longer maturity produce higher current yields than Tax Exempt Obligations with
shorter maturities but are subject to greater price fluctuation due to changes
in interest rates, tax laws and other general market factors. Lower-rated Tax
Exempt Obligations generally produce a higher yield than higher-rated Tax Exempt
Obligations due to the perception of a greater degree of risk as to the payment
of principal and interest. Certain Tax Exempt Obligations held by 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 may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
In normal circumstances, each Fund (except for the Insured Funds) may
invest up to 20% of its total assets in Tax Exempt Obligations rated below
investment grade (but not rated lower than B by S&P or Moody's) or in unrated
Tax Exempt Obligations considered by Voyageur to be of comparable quality to
such securities. Investment in such lower grade Tax Exempt Obligations involves
special risks as compared with investment in higher grade Tax Exempt
Obligations. The market for lower grade Tax Exempt Obligations is considered to
be less liquid than the market for investment grade Tax Exempt Obligations,
which may adversely affect the ability of a Fund to dispose of such securities
in a timely manner at a price which reflects the value of such securities in
Voyageur'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 Voyageur's valuation of such securities
more difficult, and Voyageur's judgment may play a greater role in the valuation
of the Fund's lower grade Tax Exempt Obligations. Periods of economic
uncertainty and changes may have a greater impact on the market price of such
bonds and, therefore, the net asset value of any Fund investing in such
obligations.
Lower grade Tax Exempt Obligations generally involve greater credit risk
than higher grade Tax Exempt Obligations and are more sensitive to adverse
economic changes, significant increases in interest rates and individual issuer
developments. Because issuers of lower grade Tax Exempt Obligations frequently
choose not to seek a rating of such securities, a Fund will rely more heavily on
Voyageur's ability to determine the relative investment quality of such
securities than if such Fund invested exclusively in higher grade Tax Exempt
Obligations. A Fund may, if deemed appropriate by Voyageur, retain a security
whose rating has been downgraded below B by S & P or Moody's, or whose rating
has been withdrawn. In no event, however, will more than 5% of each Fund's total
assets consist of securities that have been downgraded to a rating lower than
the minimum rating in which each Fund is permitted to invest or, in the case of
unrated securities, that have been determined by Voyageur to be of a quality
lower than such minimum rating. Additional information concerning the risks
associated with instruments in lower grade Tax Exempt Obligations is included in
the Fund's Statement of Additional Information.
The principal and interest payments on the Derivative Tax Exempt
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 Tax Exempt
Obligations. The Funds may also invest in custodial receipts which are "inverse
floating obligations" (also sometimes referred to as "residual interest bonds").
These securities pay interest rates that vary inversely to changes in the
interest rates of specified short term Tax Exempt Obligations or an index of
short term Tax Exempt Obligations. Thus, as market interest rates increase, the
interest rates on inverse floating obligations decrease. Conversely, as market
rates decline, the interest rates on inverse floating obligations increase. Such
securities have the effect of providing a degree of investment leverage, since
the interest rates on such securities will generally change at a rate which is a
multiple of the change in the interest rates of the specified Tax Exempt
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other Tax
Exempt Obligations and investments in these types of obligations will increase
the volatility of the net asset value of shares of the Funds.
STATE CONSIDERATIONS
The value of Tax Exempt Obligations owned by the Funds may be adversely affected
by local political and economic conditions and developments within a particular
state. Adverse conditions in an industry significant to a local economy could
have a correspondingly adverse effect on the financial condition of local
issuers. Other factors that could affect Tax Exempt Obligations include a change
in the local, state or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). A summary description of certain
factors affecting and statistics describing issuers of Tax Exempt Obligations of
each applicable state is set forth below. Such information has been taken from
publicly available offering documents relating to the relevant state or issuers
located in such state. No Fund or Voyageur has independently verified this
information and no Fund or Voyageur makes any representation regarding such
information. See "Special Factors Affecting the Funds" in the Statement of
Additional Information.
ARIZONA'S primary economic sectors include services, tourism and
manufacturing. Arizona maintained a general fund surplus of $269 million (on
general fund revenues of approximately $4.694 billion) for its 1995 fiscal year.
Currently there are no general obligation ratings for the state. CALIFORNIA'S
primary economic sectors are agriculature, services, trade and manufacturing. In
1994, Orange County, California filed a voluntary petition under the bankruptcy
code. It is uncertain what effect the filing will have on the state's ratings or
on issuers located within Orange County. California projected a general fund
surplus of $28 million for its 1995-96 fiscal year (on estimated revenues of
approximately $44 billion). Currently, California's general obligation bonds are
rated A1 by Moody's, A by S&P and "A+" by Fitch Investors Service, Inc.
("Fitch"). COLORADO'S economy is based primarily on services. Colorado
maintained a generally balanced budget for its 1995 fiscal year (on estimated
revenues of approximately $5.957 billion). Currently there are no general
obligation ratings for Colorado. FLORIDA'S economy is based primarily on the
services sector and tourism in particular. Florida projected a general fund
surplus of $478 million for its 1995-1996 fiscal year (on estimated revenues of
approximately $14.808 billion). Currently, Florida's general obligation bonds
are rated Aa by Moody's and AA by S&P. IDAHO'S primary economic sectors are
agriculture, manufacturing and mining. Idaho projected a fiscal year 1995
general fund surplus of approximately $37 million (on revenues of approximately
$1.330 billion). Currently there are no general obligation ratings for Idaho.
IOWA'S primary economic sectors are services, manufacturing and agriculture.
Iowa maintained an unreserved fund balance of approximately $434 million (on
revenues of approximately $6.946 billion) for its fiscal year 1995. Currently
there are no general obligation ratings for Iowa. KANSAS' economy is based
primarily on agriculture, manufacturing, and services. Kansas projected a
positive general fund balance for its 1996 fiscal year (on estimated general
fund revenues of approximately $3.367 billion). Currently there are no general
obligation ratings for Kansas. MINNESOTA'S economy is based primarily on
agriculture, manufacturing and services. Minnesota projects a balanced general
fund at the end of its 1997 biennium. Currently Minnesota's general obligation
bonds are rated Aa1 by Moody's and AA+ by S&P. MISSOURI'S primary economic
sectors are services, manufacturing and trade. Missouri had a general fund
surplus of $1.586 billion for its 1995 fiscal year (on revenues of approximately
$11 billion). Currently Missouri's general obligation bonds are rated Aaa by
Moody's and AAA by S&P. NEW MEXICO'S economy is based primarily on agriculture
but also has tourism, services and mining sectors. New Mexico projected a $185
million general fund surplus for its 1995 fiscal year (on estimated revenues of
approximately $2.676 billion). Currently New Mexico's general obligation bonds
are rated Aa1 by Moody's and AA by S&P. NORTH DAKOTA'S economy is based
primarily on agriculture. North Dakota had a positive fund balance for its 1995
fiscal year (on revenues of approximately $1.4 billion). Currently North
Dakota's general obligation bonds are rated Aa by Moody's and AA- by S&P.
OREGON'S economy is based primarily on forestry, agriculture and tourism
sectors. Oregon maintained a general fund surplus of approximately $499 million
for its 1995 biennium (on estimated revenue of approximately $6.536 billion).
Currently Oregon's general obligation bonds are rated Aa by Moody's and AA- by
S&P. UTAH'S economy is based primarily on agriculture and mining sectors. Utah
maintained a general fund surplus of approximately $386 million for its 1995
fiscal year (on estimated revenues of approximately $4.2 billion). Currently
Utah's general obligation bonds are rated Aaa by Moody's and AAA by S&P.
WASHINGTON'S economy is based primarily on manufacturing and service sectors.
Washington projected a general fund surplus for its 1995-1997 biennium (on
estimated revenues of approximately $17.669 billion). Currently Washington's
general obligation bonds are rated Aa by Moody's and AA by S&P. WISCONSIN'S
economy is based primarily on agriculture and manufacturing. Wisconsin
maintained a general fund surplus of $401 million for its 1995 fiscal year (on
estimated revenues of approximately $23,319 billion). Currently Wisconsin's
general obligation bonds are rated Aa by Moody's and AA by S&P.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Each Fund has adopted certain investment restrictions in addition to those set
forth above, which are set forth in their entirety in the Statement of
Additional Information. Certain of these restrictions are fundamental and cannot
be changed without shareholder approval, including the restriction providing
that no Fund may borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of its total assets (10%
for Colorado Tax Free Fund) (certain Funds may also borrow money in the form of
reverse repurchase agreements up to 10% of total assets). Also, certain Funds
may not, as a matter of fundamental policy invest more than 15% of their net
assets in illiquid securities and pledge, hypothecate, mortgage or otherwise
encumber their assets in excess of 10% of net assets. See "Investment Policies
and Restrictions--Investment Restrictions" in the Statement of Additional
Information. Each Fund also has a number of non-fundamental investment
restrictions which may be changed by the Fund's Board without the shareholder
approval. These include restrictions providing that no Fund may (i) invest more
than 5% of its total assets in securities of any single investment company or
(ii) invest more than 10% of its total assets in securities of two or more
investment companies. To the extent that a Fund invests in the securities of
other open-end investment companies, Voyageur will take appropriate action to
avoid subjecting such Fund's shareholders to duplicate management and other fees
and expenses.
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.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
ALTERNATIVE PURCHASE ARRANGEMENTS
The Funds offer investors the choice among three classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Page 2 of the Prospectus contains a
summary of these alternative purchase arrangements.
A broker-dealer may receive different levels of compensation depending on
which class of shares is sold. In addition, 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 not to exceed 1.25% of a Fund's
net assets (such as payments related to retention of shares sold by a particular
broker-dealer or financial institution for a specified period of time), will be
made available only to selected broker-dealers and financial institutions, based
on objective standards developed by the Underwriter, to the exclusion of other
broker-dealers and financial institutions. The Underwriter in its discretion may
from time to time, pursuant to objective criteria established by it, pay fees to
qualifying brokers, dealers or financial intermediaries for certain services or
activities which are primarily intended to result in sales of shares of a Fund.
GENERAL PURCHASE INFORMATION
The minimum initial investment in each Fund is $1,000, and the minimum
additional investment is $100. Each Fund's shares may be purchased at the public
offering price from the Underwriter, from other broker-dealers who are members
of the National Association of Securities Dealers, Inc. and who have selling
agreements with the Underwriter, and from certain financial institutions that
have selling agreements with the Underwriter.
When orders are placed for shares of a Fund, the public offering price used
for the purchase will be the net asset value per share next determined, plus the
applicable sales charge, if any. If an order is placed with the Underwriter or
other broker-dealer, the broker-dealer is responsible for promptly transmitting
the order to the Fund. The Fund reserves the right, in its absolute discretion,
to reject any order for the purchase of shares.
Shares of the Funds 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 each Fund's Automatic Investment Plan. Additional
information is available from the Underwriter by calling 800-545-3863.
PURCHASES BY MAIL
To open an account by mail, complete the general authorization form attached to
this Prospectus, designate an investment dealer or other financial institution
on the form, and mail it, along with a check payable to the Fund, to:
NW 9369
P.O. BOX 1450
MINNEAPOLIS, MN 55485-9369
PURCHASES BY TELEPHONE
To open an account by telephone, call 612-376-7014 or 800-545-3863 to obtain an
account number and instructions. Information concerning the account will be
taken over the phone. The investor must then request a commercial bank with
which he or she has an account and which is a member of the Federal Reserve
System to transmit Federal Funds by wire to the appropriate Fund as follows:
NORWEST BANK MINNESOTA, N.A., ABA #091000019
FOR CREDIT OF: (INSERT APPLICABLE FUND NAME)
CHECKING ACCOUNT NO.: 872-458
ACCOUNT NUMBER: (ASSIGNED BY TELEPHONE)
Information on how to transmit Federal Funds by wire is available at any
national bank or any state bank that is a member of the Federal Reserve System.
The bank may charge the shareholder for the wire transfer. If the phone order
and Federal Funds are received before the close of trading on the Exchange, the
order will be deemed to become effective at that time. Otherwise, the order will
be deemed to become effective as of the close of trading on the Exchange on the
next day the Exchange is open for trading. The investor will be required to
complete the general authorization form attached to this Prospectus and mail it
to the Fund after making the initial telephone purchase.
CLASS A SHARES -- FRONT END SALES CHARGE ALTERNATIVE
The public offering price of Class A shares of each Fund is the net asset value
of the Fund's shares plus the applicable front end sales charge ("FESC"), which
will vary with the size of the purchase. The Fund receives the net asset value.
The FESC varies depending on the size of the purchase and is allocated between
the Underwriter and other broker-dealers.
The current sales charges are:
GROUP 1* FUNDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
DEALER
SALES CHARGE SALES CHARGE DISCOUNT
AS % OF AS % OF AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE OFFERING PRICE OFFERING PRICE1
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.00%
$50,000 but less than $100,000 4.71 4.50 4.00
$100,000 but less than $250,000 3.90 3.75 3.25
$250,000 but less than $500,000 2.83 2.75 2.50
$500,000 but less than $1,000,000 2.30 2.25 2.00
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
- -----------------------------------------------------------------------------------------------
GROUP 2** FUNDS
- -----------------------------------------------------------------------------------------------
SALES
CHARGE DEALER
SALES CHARGE AS % OF DISCOUNT
AS % OF OFFERING AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE PRICE OFFERING PRICE1
- -----------------------------------------------------------------------------------------------
Less than $50,000 3.90% 3.75% 3.00%
$50,000 but less than $100,000 3.63 3.50 3.00
$100,000 but less than $250,000 3.09 3.00 2.50
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.75
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
- -----------------------------------------------------------------------------------------------
GROUP 3*** FUNDS
- -----------------------------------------------------------------------------------------------
DEALER
SALES CHARGE SALES CHARGE DISCOUNT
AS % OF AS % OF AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE OFFERING PRICE OFFERING PRICE1
- -----------------------------------------------------------------------------------------------
Less than $50,000 2.83% 2.75% 2.25%
$50,000 but less than $100,000 2.56 2.50 2.00
$100,000 but less than $250,000 2.04 2.00 1.75
$250,000 but less than $500,000 1.27 1.25 1.00
$500,000 but less than $1,000,000 1.01 1.00 0.75
$1,000,000 or more NAV(3) NAV(3) 0.50(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% (up to .50% for Group 3 Funds) 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."
* Group 1 Funds: Arizona Tax Free, Arizona Insured Tax Free, California Tax
Free, California Insured Tax Free, Florida Tax Free, Florida Insured Tax
Free, Missouri Insured Tax Free, National Tax Free, National Insured Tax
Free, Oregon Insured Tax Free, Washington Insured Tax Free, Kansas Tax
Free, Minnesota Tax Free, Minnesota Insured and North Dakota Tax Free.
** Group 2 Funds: Colorado Tax Free, Colorado Insured Tax Free, Iowa Tax Free,
New Mexico Tax Free, Utah Tax Free, Wisconsin Tax Free, Idaho Tax Free
*** Group 3 Funds: Arizona Limited Term Tax Free, Colorado Limited Term Tax
Free, California Limited Term Tax Free, National Limited Term Tax Free,
Minnesota Limited Term Tax Free, Florida Limited Term Tax Free.
In connection with the distribution of the Funds' Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS -- REDUCED SALES CHARGES
Certain investors (or groups of investors) may qualify for reductions in the
sales charges shown above. Investors should contact their broker-dealer or the
Funds for details about the Funds' Combined Purchase Privilege, Cumulative
Quantity Discount and Letter of Intention plans. Descriptions are also included
with the general authorization form and in the Statement of Additional
Information. 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 a 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" below.
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% (up to .50% for Group 3 Funds) of the offering price
of such shares. If these shares are redeemed within a certain period of time
after purchase, the redemption proceeds will be reduced by a contingent deferred
sales charge ("CDSC"). For additional information, see "How to Sell
Shares--Contingent Deferred Sales Charge." The CDSC will depend on the number of
years since the purchase was made according to the following table:
<TABLE>
<CAPTION>
CDSC AS A % OF AMOUNT REDEEMED FOR INVESTMENTS OF $1,000,000 OR MORE
- -----------------------------------------------------------------------------------------------
GROUP 1 & 2 FUNDS GROUP 3 FUNDS
CDSC PERIOD CDSC CDSC PERIOD CDSC
- ------------------------------------------- ------------------------------------------
<S> <C> <C> <C>
1st year after purchase 1.0% 1st year after purchase 0.5%
2nd year after purchase 0.5 Thereafter 0.0
Thereafter 0.0
- -----------------------------------------------------------------------------------------------
</TABLE>
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 the Funds; (2) officers, directors and full-time employees of Voyageur
Companies, Inc., Voyageur, Voyageur Asset Management Group, Inc., the
Underwriter and Pohlad Companies, and officers, directors and full-time
employees of parents and subsidiaries of the foregoing companies; (3) officers,
directors and full-time employees of investment advisers of other mutual funds
subject to a sales charge and included in any other family of mutual funds that
includes any Voyageur Fund as a member ("Other Load Funds"), and officers,
directors and full-time employees of parents, subsidiaries and corporate
affiliates of such investment advisers; (4) spouses and lineal ancestors and
descendants of the officers, directors/trustees and employees referenced in
clauses (1), (2) and (3), and lineal ancestors and descendants of their spouses;
(5) investment executives and other employees of banks and dealers that have
selling agreements with the Underwriter and parents, spouses and children under
the age of 21 of such investment executives and other employees; (6) trust
companies and bank trust departments for funds held in a fiduciary, agency,
advisory, custodial or similar capacity; (7) any state or any political
subdivision thereof or any instrumentality, department, authority or agency of
any state or political subdivision thereof; (8) partners and full-time employees
of the Funds' general counsel; (9) managed account clients of Voyageur, clients
of investment advisers affiliated with Voyageur and other registered investment
advisers and their clients (the Funds 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 Voyageur.
Class A shares will also be issued at net asset value, without a front end
or deferred sales charge, if the purchase of such shares is funded by the
proceeds from the redemption of shares of any unrelated open-end investment
company that charges 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 each Fund is the net asset value
of the Fund's shares. Class B shares are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. However, a
CDSC of up to 4% will be imposed if shares are redeemed within six years of
purchase. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge." In addition, Class B shares are subject to higher Rule
12b-1 fees as described below. The CDSC will depend on the number of years since
the purchase was made according to the following table:
<TABLE>
<CAPTION>
CDSC AS A % OF AMOUNT REDEEMED*
- -----------------------------------------------------------------------------------------------
GROUPS 1 & 2 FUNDS GROUP 3 FUNDS
CDSC PERIOD CDSC CDSC PERIOD CDSC
- ------------------------------------------------ --------------------------------------------
<S> <C> <C> <C>
1st year after purchase 4% 1st year after purchase 3%
2nd year after purchase 4 2nd year after purchase 3
3rd year after purchase 3 3rd year after purchase 2
4th year after purchase 3 4th year after purchase 1
5th year after purchase 2 Thereafter 0
6th year after purchase 1
Thereafter 0
- -----------------------------------------------------------------------------------------------
</TABLE>
* 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 Funds in connection with the sale of Class B shares, such as the payment
of compensation to selected broker dealers, and for selling Class B shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Funds to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge at the time the
shares are sold, the Underwriter pays a sales commission equal to 3% (2.5% for
Group 3) of the amount invested to broker-dealers who sell Class B shares and
pays 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 a Fund attributable to Class B shares. The
higher 12b-1 fee will cause Class B shares to have a higher expense ratio and to
pay lower dividends than Class A shares. For additional information about this
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 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 ALTERNATIVE
The public offering price of Class C shares of each Fund is the net asset value
of the Fund's shares. Class C shares are sold without an initial sales charge or
contingent deferred sales charge so that the Fund receives the full amount of
the investor's purchase. Class C shares are subject to higher annual Rule 12b-1
fees as described below.
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" above and "Management --Plan of Distribution"
below.
Proceeds from the Rule 12b-1 fee are paid to the Underwriter and are used
to defray expenses of the Underwriter related to providing distribution-related
services to the Funds in connection with the sale of Class C shares, such as the
payment of compensation to selected broker-dealers, and for selling Class C
shares. The Rule 12b-1 fee enables the Funds 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 or contingent deferred sales charge, the Underwriter
pays an annual fee of .75% (paid quarterly) of the net asset value of the amount
invested to broker-dealers who sell Class C shares.
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
E ach Fund will redeem its shares in cash at the net asset value next determined
after receipt of a shareholder's written request for redemption in good order
(see below). If shares for which payment has been collected are redeemed,
payment must be made within seven days. Shareholders will not earn any income on
redeemed shares on the redemption date. Each Fund may suspend this right of
redemption and may postpone payment only when the Exchange is closed for other
than customary weekends or holidays, or if permitted by the rules of the
Securities and Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it impracticable for such Fund
to dispose of its securities or to determine fairly the value of its net assets
or during any other period permitted by order of the Commission for the
protection of investors.
Each Fund reserves the right and currently plans to redeem Fund shares and
mail the proceeds to the shareholder if at any time the value of Fund shares in
the account falls below a specified value, currently set at $250. Shareholders
will be notified and will have 60 days to bring the account up to the required
value before any redemption action will be taken by a Fund.
CONTINGENT DEFERRED SALES 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 Class B shares,
then absent a shareholder choice to the contrary, Class B shares not subject to
a CDSC, will be redeemed in full prior to any redemption of Class A shares not
subject to a CDSC.
The CDSC does not apply to: (1) redemptions of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemptions of shares when
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 or Class B shares subject to a CDSC for
Class A or Class B shares, respectively, of a different Voyageur Fund, the
transaction will not be subject to a CDSC. However, when shares acquired through
the exchange are redeemed, the shareholder will be treated as if no exchange
took place for the purpose of determining the CDSC. Fund shares are exchangeable
for shares of any money market fund available through Voyageur. No CDSC will be
imposed at the time of any such exchange; however, the shares acquired in any
such exchange will remain subject to the CDSC and the period during which such
shares represent shares of the money market fund will not be included in
determining how long the shares have been held. Any CDSC due upon a redemption
of Fund shares will be reduced by the amount of any Rule 12b-1 payments made by
such money market fund with respect to such shares.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A or Class B shares of any Fund (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 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
Each Fund offers several expedited redemption procedures, described below, which
allow a shareholder to redeem Fund shares at net asset value determined on the
same day that the shareholder places the request for redemption of those shares.
Pursuant to these expedited redemption procedures, each Fund will redeem its
shares at their net asset value next determined following the Fund's receipt of
the redemption request. Each Fund reserves the right at any time to suspend or
terminate the expedited redemption procedures or to impose a fee for this
service. There is currently no additional charge to the shareholder for use of
the Funds' expedited redemption procedures.
EXPEDITED TELEPHONE REDEMPTION
Shareholders redeeming at least $1,000 and no more than $50,000 (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 Funds 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 a Fund purchased through
such broker-dealer by notifying the broker-dealer of the amount of shares to be
redeemed. The broker-dealer is then responsible for promptly placing the
redemption request with the Fund on the customer's behalf. Payment will be made
to the shareholder by check or wire sent to the broker-dealer. Broker-dealers
offering this service may impose a fee or additional requirements for such
redemptions.
GOOD ORDER
"Good order" means that stock certificates, if issued, must accompany the
written request for redemption and must be duly endorsed for transfer, or must
be accompanied by a duly executed stock power. If no stock certificates have
been issued, a written request 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. The Adviser 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 any Fund valued at $10,000 or more at the
current offering price may open a Withdrawal Plan and have a designated sum of
money paid monthly to the investor or another person. Deferred sales charges may
apply to monthly redemptions of Class B shares. See "Monthly Cash Withdrawal
Plan" in the Statement of Additional Information.
REINSTATEMENT PRIVILEGE
- --------------------------------------------------------------------------------
An investor in a Fund whose shares have been redeemed and who has not previously
exercised the Reinstatement Privilege as to such Fund may reinvest the proceeds
of such redemption in shares of the same class of any Voyageur Fund eligible for
sale in the shareholder's state of residence. Reinvestment will be at the net
asset value of Fund shares next determined after the Underwriter receives a
check along with a letter requesting reinstatement. The Underwriter must receive
the letter requesting reinstatement within 365 days following the redemption.
Investors who desire to exercise the Privilege should contact their
broker-dealer or the Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of shares of a Fund, but to
the extent that any shares are sold at a loss and the proceeds are reinvested
within 30 days in shares of such Fund, some or all of the loss may not be
allowed as a deduction, depending upon the number of shares reacquired.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Except as described below, shareholders may exchange some or all of their Fund
shares for shares of another Voyageur Fund, provided that the shares to be
acquired in the exchange are eligible for sale in the shareholder's state of
residence. Class A shareholders may exchange their shares for Class A shares of
other Voyageur Funds. Class B shareholders may exchange their shares for the
Class B shares of other Voyageur Funds and Class C shareholders may exchange
their shares for the Class C shares of other Voyageur Funds. Shares of each
class may also be exchanged for shares of any money market fund available
through Voyageur.
The minimum amount which may be exchanged is $1,000. The exchange will be
made on the basis of the relative net asset values next determined after receipt
of the exchange request, plus the amount, if any, by which the applicable sales
charge exceeds the sum of all sales charges previously paid in connection with
the prior investment. For a discussion of issues relating to the contingent
deferred sales charge upon such exchanges, see "How to Sell Shares--Contingent
Deferred Sales Charge." There is no specific limitation on exchange frequency;
however, the Funds are intended for long term investment and not as a trading
vehicle. The Adviser reserves the right to prohibit excessive exchanges (more
than four per quarter). The Adviser also reserves the right, upon 60 days' prior
notice, to restrict the frequency of, or otherwise modify, condition, terminate
or impose charges upon, exchanges. An exchange is considered 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 the Adviser 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 any of the Funds,
the Adviser or any of such other broker-dealers for further information about
the exchange privilege.
MANAGEMENT
- --------------------------------------------------------------------------------
The Boards of Directors, or Trustees, as the case may be, of the Funds are
responsible for managing the business and affairs of the Funds. The names,
addresses, principal occupations and other affiliations of Directors and
executive officers of the Funds are set forth in the Statement of Additional
Information.
INVESTMENT ADVISER; PORTFOLIO MANAGEMENT
Voyageur has been retained under an investment advisory agreement (the "Advisory
Agreement") to act as each Fund's investment adviser, subject to the authority
of the Board of Directors. Voyageur and the Underwriter are each indirect
wholly-owned subsidiaries of Dougherty Financial Group, Inc. ("DFG"), which is
owned approximately 49% by Michael E. Dougherty, 49% by Pohlad Companies and
less than 1% by certain retirement plans for the benefit of DFG employees. Mr.
Dougherty co-founded the predecessor of DFG in 1977 and has served as DFG's
Chairman of the Board and Chief Executive Officer since inception. Pohlad
Companies is a holding company owned in equal parts by each of James O. Pohlad,
Robert C. Pohlad and William M. Pohlad. As of March 31, 1996, Voyageur and its
affiliates served as the manager to six closed-end and ten open-end investment
companies (comprising 32 separate investment portfolios), administered numerous
private accounts and managed approximately $9 billion in assets. Voyageur's
principal business address is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402.
Each Fund pays Voyageur a monthly investment advisory and management fee
equivalent on an annual basis to .50% of its average daily net assets, except
each Limited Term Tax Free Fund pays .40% of its average daily net assets.
Andrew M. McCullagh, Jr. has had, since inception, day-to-day portfolio
management responsibility for the Arizona Funds, California Funds, Colorado
Funds, National Insured Fund, as well as the New Mexico Fund, North Dakota Fund
and Utah Fund. Mr. McCullagh was a Director of Voyageur and the Underwriter from
1993 through 1995 and has been Senior Tax Exempt Portfolio Manager for Voyageur
since January 1990. He is President of Colorado Tax Free Fund and is an
Executive Vice President of each of the other Voyageur Funds. Mr. McCullagh
currently has over 23 years experience in municipal bond trading, underwriting
and portfolio management.
Elizabeth H. Howell has had, since 1991, day-to-day portfolio management
responsibility for the Minnesota Funds, as well as, since inception, the Idaho,
Kansas, Missouri, Oregon and Washington Funds. Ms. Howell is a Vice President
and Senior Tax Exempt Portfolio Manager for Voyageur, where she has been
employed since 1991 and is a Vice President of each of the Voyageur Funds. Ms.
Howell has over ten years' experience as a securities analyst and portfolio
manager.
Steven P. Eldrege has had day-to-day portfolio management responsibility
for the Florida Funds, as well as National Tax Free, National Limited Term Tax
Free, Iowa and Wisconsin Funds since July 1995. Prior to that time, the Florida
Funds and the National Funds had been managed by Mr. McCullagh since their
inception and the Iowa and Wisconsin Funds had been managed by Ms. Howell since
their inception. Mr. Eldrege is a Senior Tax Exempt Portoflio Manager for
Voyageur where he has been employed since 1995. Prior to joining Voyageur, Mr.
Eldrege was a portfolio manager for ABT Mutual Funds from 1989 through 1995. Mr.
Eldrege has over 18 years experience in portfolio management.
PLAN OF DISTRIBUTION
Each Fund has adopted a Plan of Distribution under the 1940 Act (the "Plan") and
has entered into a Distribution Agreement with Voyageur Fund Distributors, Inc.
(the "Underwriter"). Pursuant to each Fund's Plan, the Fund pays the Underwriter
a Rule 12b-1 fee, at an annual rate of .25% of the Fund's average daily net
assets attributable to Class A shares and 1% 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.
Please see the "Fees and Expenses" table at the beginning of this Prospectus for
information with respect to fee waivers, if any.
All of the Rule 12b-1 fee attributable to Class A shares, and a portion of
the fee equal to .25% of the average daily net assets of the Fund attributable
to each of Class B shares and Class C shares constitutes a shareholder servicing
fee designed to compensate the Underwriter for the provision of certain services
to the shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Funds and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Underwriter may use such Rule 12b-1 fee
or portion thereof to make payments to qualifying broker-dealers and financial
institutions that provide such services.
That portion of the Rule 12b-1 fee equal to .75% of the average daily net
assets of the Fund attributable to Class B shares and Class C shares,
respectively, constitutes a distribution fee designed to compensate the
Underwriter for advertising, marketing and distributing the Class B shares and
Class C shares of each Fund. In connection therewith, the Underwriter may
provide initial and ongoing sales compensation to its investment executives and
other broker-dealers for sales of Class B shares and Class C shares and may pay
for other advertising and promotional expenses in connection with the
distribution of Class B shares and Class C shares. The distribution fee
attributable to Class B shares and Class C shares is designed to permit an
investor to purchase such shares through investment executives of the
Underwriter and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit the Underwriter to compensate its
investment executives and other broker-dealers in connection with the sale of
such shares.
CUSTODIAN; DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVE AND ACCOUNT SERVICES
AGENT
Norwest Bank Minnesota, N.A. serves as the custodian of each Fund's portfolio
securities and cash.
Voyageur acts as each Fund's dividend disbursing, transfer, administrative
and accounting services agent to perform dividend-paying functions, to calculate
each Fund's daily share price, to maintain shareholder records and to perform
certain regulatory and compliance related services for the Funds. The fees paid
for these services are based on each Fund's assets and include reimbursement of
out-of-pocket expenses. Voyageur receives a monthly fee from each Fund equal to
the sum of (1) $1.33 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 0.11% to
0.02% based on the average daily net assets of the Fund. See "The Investment
Adviser and Underwriter--Expenses of the Funds" in the Statement of Additional
Information.
Certain institutions may act as sub-administrators for one or more of the
Funds pursuant to contracts with Voyageur, whereby the institutions will provide
shareholder services to their customers. Voyageur will pay such
sub-administrators' fees out of its own assets. The fee paid by Voyageur to any
sub-administrator will be a matter of negotiation between the institution and
Voyageur based on the extent and quality of the services provided.
EXPENSES OF THE FUNDS
Voyageur is contractually obligated to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees and,
with respect to the Insured Funds, premiums with respect to Portfolio Insurance
or Secondary Market Insurance) of each Fund which exceed 1% of such 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, Voyageur and the
Underwriter reserve the right to voluntarily waive their fees in whole or part
and to voluntarily absorb certain other of the Funds' expenses. Voyageur and the
Underwriter have agreed to waive fees or absorb expenses for the fiscal year
ending December 31, 1996 in such a manner as will result in the Funds being
charged fees and expenses that approximate those set forth in the section "Fees
and Expenses" except Voyageur and the Underwriter are not waiving fees with
respect to Minnesota Tax Free Fund and Minnesota Limited Term Tax Free Fund.
After December 31, 1996, such voluntary fee and expense waivers may be
discontinued or modified by Voyageur and the Underwriter in their sole
discretion.
Each Fund's expenses include, among others, fees of directors, expenses of
directors' and shareholders' meetings, insurance premiums, expenses of
redemption of shares, expenses of the issue and sale of shares (to the extent
not otherwise borne by the Underwriter), expenses of printing and mailing stock
certificates and shareholder statements, association membership dues, charges of
such Fund's custodian, bookkeeping, auditing and legal expenses, the fees and
expenses of registering such 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
No Fund will effect any brokerage transactions in its portfolio securities with
any broker-dealer affiliated directly or indirectly with Voyageur unless such
transactions, including the frequency thereof, the receipt of commissions
payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions, are not unfair or unreasonable to the
shareholders of such Fund. It is not anticipated that any Fund will effect any
brokerage transactions with any affiliated broker-dealer, including the
Underwriter, unless such use would be to such Fund's advantage. Voyageur may
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute the Funds' securities transactions.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of Fund shares is determined once daily, Monday through
Friday, as of 3:00 p.m. Minneapolis time (the primary close of trading on the
Exchange) on each business day the Exchange is open for trading.
For each Fund, the net asset value per share of each class is determined by
dividing the value of the securities, cash and other assets of the Fund
attributable to such class less all liabilities attributable to such class by
the total number of shares of such class outstanding. For purposes of
determining the net assets of each Fund, tax exempt securities are stated on the
basis of valuations provided by a pricing service, approved by the 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 Voyageur
in accordance with procedures adopted by the Board of Directors.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
The present policy of each 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 a 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
Funds, 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 receive distributions from investment income and capital gains
in additional shares of the Fund and class owned by such shareholders at net
asset value, without any sales charge, unless they elect otherwise. Each Fund
sends to its shareholders no less than quarterly statements with details of any
reinvested dividends.
TAXES
FEDERAL INCOME TAXATION
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund qualified during its last taxable year and each Fund intends to qualify
during its current taxable year as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). Each 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 a Fund as exempt-interest dividends are excludable from the gross
income of the Fund's shareholders. Distributions paid from other interest income
and from any net realized short-term capital gains are taxable to shareholders
as ordinary income, whether received in cash or in additional shares.
Distributions paid from long-term capital gains (and designated as such) are
taxable as long-term capital gains for federal income tax purposes, whether
received in cash or shares, regardless of how long a shareholder has held shares
in a Fund.
Exempt-interest dividends attributable to interest income on certain tax
exempt obligations issued after August 7, 1986 to finance private activities are
treated as an item of tax preference for purposes of computing the alternative
minimum tax for individuals, estates and trusts. Each Fund may invest up to 20%
of its total assets in securities which generate interest which is treated as an
item of tax preference and subject to federal and state AMT, except that
Minnesota Insured Fund may invest without limit in such securities and Minnesota
Tax Free Fund may not invest in obligations which generate interest subject to
federal and state AMT.
The following is a summary of certain information regarding state taxation.
See "Taxes" in the Statement of Additional Information.
ARIZONA STATE TAXATION
The portion of exempt-interest dividends that is derived from interest income on
Arizona Tax Exempt Obligations is excluded from the Arizona taxable income of
individuals, estates, trusts, and corporations. Dividends qualifying for federal
income tax purposes as capital gain dividends are to be treated by shareholders
as long-term capital gains under Arizona law.
CALIFORNIA STATE TAXATION
Individual shareholders of the California Funds who are subject to California
personal income taxation will not be required to include in their California
gross income that portion of their federally tax exempt dividends which a Fund
clearly identifies as directly attributable to interest earned on California
state or municipal obligations, and dividends which a Fund clearly identifies as
directly attributable to interest earned on obligations of the United States,
the interest on which is exempt from California personal income tax pursuant to
federal law, provided that at least 50% of the value of the Fund's total assets
consists of obligations the interest on which is exempt from California personal
income taxation pursuant to federal or California law. Distributions to
individual shareholders derived from interest on state or municipal obligations
issued by governmental authorities in states other than California, short-term
capital gains and other taxable income will be taxed as dividends for purposes
of California personal income taxation. Each Fund's long term capital gains for
federal income tax purposes will be taxed as long-term capital gains to
individual shareholders of the Fund for purposes of California personal income
taxation. Gain or loss, if any, resulting from an exchange or redemption of
shares will be recognized in the year of the change or redemption.
COLORADO STATE TAXATION
To the extent that dividends are derived from interest income on Colorado Tax
Exempt Obligations, such dividends will also be exempt from Colorado income
taxes for individuals, trusts, estates, and corporations. Dividends qualifying
for federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains under Colorado law.
FLORIDA STATE TAXATION
Florida does not currently impose a tax on the income of individuals, and
individual shareholders of the Florida Funds will thus not be subject to income
tax in Florida on distributions from the Florida Funds or upon the sale of
shares held in such Funds. Florida does, however, impose a tax on intangible
personal property held by individuals as of the first day of each calendar year.
Under a rule promulgated by the Florida Department of Revenue, shares in the
Florida Funds will not be subject to the intangible property tax so long as, on
the last business day of each calendar year, all of the assets of each Fund
consist of obligations of the U. S. government and its agencies,
instrumentalities and territories, and the State of Florida and its political
subdivisions and agencies. If any Florida Fund holds any other types of assets
on that date, then the entire value of the shares in such Fund (except for the
portion of the value of the shares attributable to U. S. government obligations)
will be subject to the intangible property tax. Each Florida Fund must sell any
non-exempt assets held in its portfolio during the year and reinvest the
proceeds in exempt assets prior to December 31. Transaction costs involved in
converting the portfolio's assets to such exempt assets would likely reduce the
Florida Funds' investment return and might, in extraordinary circumstances,
exceed any increased investment return such Funds had achieved by investing in
non-exempt assets during the year. Corporate shareholders in the Florida Funds
may be subject to the Florida income tax imposed on corporations, depending upon
the domicile of the corporation and upon the extent to which income received
from such Fund constitutes "nonbusiness income" as defined by applicable Florida
law.
IDAHO STATE TAXATION
The Idaho Fund has received a ruling from the Idaho Department of Revenue that
provides that dividends paid by the Idaho Fund that are attributable to (i)
interest earned on bonds issued by the State of Idaho, its cities and political
subdivisions, and (ii) interest earned on obligations of the U.S. government or
its territories and possessions will not be included in the income of Fund
shareholders subject to either the Idaho personal income tax or the Idaho
corporate franchise tax. All other dividends paid by the Idaho Fund will be
subject to the Idaho personal or corporate income tax. Capital gain dividends
qualifying as long-term capital gains for federal tax purposes will be treated
as long-term capital gains for Idaho income tax purposes. Idaho taxes long-term
capital gains at the same rates as ordinary income, while imposing limitations
on the deductibility of capital losses similar to those under federal law.
IOWA STATE TAXATION
The Iowa Fund has received a ruling from the Iowa Department of Revenue and
Finance dated May 21, 1993 to the effect that dividends paid by the Iowa Fund
that are attributable to (1) interest earned on bonds issued by the State of
Iowa, its political subdivisions, agencies and instrumentalities, the interest
on which is exempt from taxation by Iowa statute, and (2) interest earned on
obligations of the U.S. government or its territories and possessions will not
be included in the income of the Fund shareholders subject to either the Iowa
personal or the Iowa corporate income tax, except in the case of shareholders
that are financial institutions subject to the tax imposed by Iowa Code ss.
422.60. All other dividends paid by the Iowa Fund will be subject to the Iowa
personal or corporate income tax. Capital gain dividends qualifying as long-term
capital gains for federal tax purposes will be treated as long-term capital
gains for Iowa income tax purposes.
KANSAS STATE TAXATION
Individuals, trusts, estates and corporations will not be subject to Kansas
income tax on the portion of dividends derived from interest on obligations of
Kansas and its political subdivisions issued after December 31, 1987, and
interest on specified obligations of Kansas and its political subdivisions
issued before January 1, 1988. The Fund intends to invest only in Kansas
obligations the interest on which is excludable from Kansas taxable income. All
remaining dividends (except for dividends, if any, derived from interest paid on
obligations of the United States, its territories and possessions), including
dividends derived from capital gains, will be includable in the taxable income
of individuals, trusts, estates, and corporations. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. Kansas taxes long-term capital gains at
the same rates as ordinary income, while restricting the deductibility of
capital losses. Dividends received by shareholders will be exempt from the tax
on intangibles imposed by certain counties, cities and townships.
MINNESOTA STATE TAXATION Minnesota taxable net income is based generally on
federal taxable income. The portion of exempt-interest dividends that is derived
from interest income on Minnesota Tax Exempt Obligations is excluded from the
Minnesota taxable net income of individuals, estates and trusts, provided that
the portion of the exempt-interest dividends from such Minnesota sources paid to
all shareholders represents 95 percent or more of the exempt-interest dividends
paid by the respective Fund. 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 as long-term capital gains. Minnesota has repealed the
favorable treatment of long-term capital gains, while retaining restrictions on
the deductibility of capital losses. Exempt interest dividends subject to the
federal alternative minimum tax will also be subject to the Minnesota
alternative minimum tax imposed on individuals, estates and trusts.
The 1995 Minnesota Legislature has enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota income
tax purposes if a court determines that Minnesota's exemption of such interest
unlawfully discriminates against interstate commerce because interest on
obligations of governmental issuers located in other states is so included. This
provision applies to taxable years that begin during or after the calendar year
in which any such court decision becomes final, irrespective of the date on
which the obligations were issued. The Minnesota Limited Term Tax Free Fund, the
Minnesota Insured Fund, and the Minnesota Tax Free Fund are not aware of any
decision in which a court has held that a state's exemption of interest on its
own bonds or those of its political subdivisions or Indian tribes, but not of
interest on the bonds of other states or their political subdivisions or Indian
tribes, unlawfully discriminates against interstate commerce or otherwise
contravenes the United States Constitution. Nevertheless, the Funds cannot
predict the likelihood that interest on the Minnesota Tax Exempt Obligations
held by the Funds would become taxable under this Minnesota statutory provision.
MISSOURI STATE TAXATION
The portion of exempt interest dividends that is derived from interest on
Missouri Tax Exempt Obligations is excluded from the taxable income of
individuals, trusts, and estates and of corporations subject to the Missouri
corporate income tax. All remaining dividends (except dividends attributable to
interest on obligations of the United States, its territories and possessions),
including dividends derived from capital gains, will be includable in the
taxable income of individuals, trusts, estates and corporations. Dividends
qualifying for federal income tax purposes as capital gain dividends are to be
treated by shareholders as long-term capital gains. Missouri taxes long-term
capital gains at the same rates as ordinary income, while restricting the
deductibility of capital losses.
NEW MEXICO STATE TAXATION
The portion of exempt interest dividends that is derived from interest on New
Mexico Tax Exempt Obligations is excluded from the taxable income of
individuals, trusts, and estates, and of corporations subject to the New Mexico
corporate income tax. The Fund will provide shareholders with an annual
statement identifying income paid to shareholders by source. All remaining
dividends (except for dividends, if any, derived from interest paid on
obligations of the United States, its territories and possessions), including
dividends derived from capital gains, will be includable in the taxable income
of individuals, trusts, estates and corporations. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. New Mexico taxes long-term capital
gains at the same rates as ordinary income, while restricting the deductibility
of capital losses.
NORTH DAKOTA STATE TAXATION
North Dakota taxable income is based generally on federal taxable income. The
portion of exempt interest dividends that is derived from interest income on
North Dakota Tax Exempt Obligations is excluded from the North Dakota taxable
income of individuals, estates, trusts and corporations. Exempt interest
dividends are not excluded from the North Dakota taxable income of banks.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains under North Dakota
law.
OREGON STATE TAXATION
The portion of exempt interest dividends that is derived from interest on Oregon
Tax Exempt Obligations is excluded from the taxable income of individuals,
trusts and estates. All remaining dividends (except for dividends, if any,
derived from interest paid on obligations of the United States, its territories
and possessions), including dividends derived from capital gains, will be
includable in the taxable income of individuals, trusts and estates.
Furthermore, all dividends, including exempt interest dividends, will be
includable in the taxable income of corporations subject to the Oregon
corporation excise tax. Dividends qualifying for federal income tax purposes as
capital gain dividends are to be treated by shareholders as long-term capital
gains. Oregon taxes long-term capital gains at the same rates as ordinary
income, while restricting the deductibility of capital losses.
UTAH STATE TAXATION
All exempt interest dividends, whether derived from interest on Utah Tax Exempt
Obligations or the Tax Exempt Obligations of any other state, are excluded from
the taxable income of individuals, trusts, and estates. Any remaining dividends
(except for dividends, if any, derived from interest paid on obligations of the
United States, its territories and possessions), including dividends derived
from capital gains, will be includable in the taxable income of individuals,
trusts, and estates. Furthermore, all dividends, including exempt interest
dividends, will be includable in the taxable income of corporations subject to
the Utah corporate franchise tax. Dividends qualifying for federal income tax
purposes as capital gain dividends are to be treated by shareholders as
long-term capital gains. Utah taxes long-term capital gains at the same rates as
ordinary income, while restricting the deductibility of capital losses.
WASHINGTON STATE TAXATION
Washington does not currently impose an income tax on individuals or
corporations. Therefore, dividends paid to shareholders will not be subject to
tax in Washington.
WISCONSIN STATE TAXATION
The Wisconsin Fund has received a ruling from the Wisconsin Department of
Revenue dated July 7, 1993 to the effect that dividends paid by the Wisconsin
Fund that are attributable to (1) interest earned on certain higher education
bonds issued by the State of Wisconsin, certain bonds issued by the Wisconsin
Housing and Economic Development authority, Wisconsin Housing Finance Authority
bonds, and public housing authority bonds and redevelopment authority bonds
issued by Wisconsin municipalities, the interest on which is exempt from
taxation by Wisconsin statute, and (2) interest earned on obligations of the U.
S. government or its territories and possessions will not be included in the
income of the Fund shareholders subject to the Wisconsin personal income tax.
Capital gain dividends qualifying as long-term capital gains for federal tax
purposes will be treated as long-term capital gains for Wisconsin income tax
purposes.
The foregoing discussion relates to federal and state taxation as of the
date of the Prospectus. See "Taxes" in the Statement of Additional Information.
Distributions from the Funds, including exempt-interest dividends, may be
subject to tax in other states. This discussion is not intended as a substitute
for careful tax planning. You are urged to consult your tax adviser with
specific reference to your own tax situation.
INVESTMENT PERFORMANCE
- --------------------------------------------------------------------------------
Advertisements and other sales literature for the Funds 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 Funds. When a Fund
advertises any performance information, it also will advertise its average
annual total return as required by the rules of the Securities and Exchange
Commission and will include performance data for Class A, Class B and Class C
shares. All such figures are based on historical earnings and performance and
are not intended to be indicative of future performance. Additionally,
performance information may not provide a basis for comparison with other
investments or other mutual funds using a different method of calculating
performance. The investment return on and principal value of an investment in
any of the Funds will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
The advertised yield of each 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 Funds' 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 a 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.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Each Fund sends to its shareholders six-month unaudited and annual audited
financial statements.
The shares of the Funds constitute separate series of the parent entities
listed below. Certain of these parent entities are organized as Minnesota
corporations, and the shares of the series thereof are transferable common
stock, $.01 par value per share, of such corporations. Other parent entities are
organized as business trusts under the laws of the Commonwealth of
Massachusetts, and the shares of the series thereof represent transferable
common shares of beneficial interest. All shares of each corporation and,
subject to the statement below regarding shareholder liability, of each trust,
are non assessable and fully transferable when issued and paid for in accordance
with the terms thereof and possess no cumulative voting, preemptive or
conversion rights. The Board of each corporation and trust is empowered to issue
other series of common stock or common shares of beneficial interest without
shareholder approval. Set forth below is a listing of the parent entities and
constituent series, form of organization and date of organization of the parent.
<TABLE>
<CAPTION>
PARENT FORM OF ORGANIZATION DATE ORGANIZED
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
VOYAGEUR TAX FREE FUNDS, INC. Minnesota Corporation November 10, 1993
Minnesota Tax Free
North Dakota Tax Free
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC. Minnesota Corporation July 11, 1985
Arizona Limited Term Tax Free
California Limited Term Tax Free
Colorado Limited Term Tax Free
Minnesota Limited Term Tax Free
National Limited Term Tax Free
VOYAGEUR INSURED FUNDS, INC. Minnesota Corporation January 6, 1987
Arizona Insured Tax Free
Colorado Insured Tax Free
Minnesota Insured
National Insured Tax Free
VOYAGEUR INVESTMENT TRUST Massachusetts Business Trust November 16, 1993
California Insured Tax Free
Florida Insured Tax Free
Florida Tax Free
Kansas Tax Free
Missouri Insured Tax Free
New Mexico Tax Free
Oregon Insured Tax Free
Utah Tax Free
Washington Insured Tax Free
VOYAGEUR INVESTMENT TRUST II Massachusetts Business Trust November 16, 1993
Florida Limited Term Tax Free
VOYAGEUR MUTUAL FUNDS, INC. Minnesota Corporation April 14, 1993
Arizona Tax Free
California Tax Free
Idaho Tax Free
Iowa Tax Free
Wisconsin Tax Free
National Tax Free
VOYAGEUR MUTUAL FUNDS II, INC. Minnesota Corporation January 13, 1987
Colorado Tax Free
- -------------------------------------------------------------------------------------------------
</TABLE>
The Funds currently offer their 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 respective
Funds 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 a Fund's Rule 12b-1 distribution
plan which pertain to a particular class and other matters for which separate
class voting is appropriate under applicable law.
Fund shares are freely transferable, subject to applicable securities laws,
are entitled to dividends as declared by the Board, and, in liquidation of a
Fund, are entitled to receive the net assets, if any, of such Fund. The Funds do
not generally hold annual meetings of shareholders and will do so only when
required by law. Shareholders may remove Board members from office by votes cast
in person or by proxy at a meeting of shareholders or by written consent and, in
accordance with Section 16 of the 1940 Act, the Board shall promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Board member when requested to do so by the record holders of not less
than 10% of the outstanding shares. Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations of
the Funds organized as Massachusetts business trusts. However, each Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of such Funds and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by such
Funds or the trustees. The Declaration of Trust further provides for
indemnification out of the assets and property of a Fund for all loss and
expense of any shareholder held personally liable for the obligations of such
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund would be
unable to meet its obligations. Each Fund organized as a series of a
Massachusetts business trust believes that the likelihood of such circumstances
is remote.
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, all
shares of a corporation or trust vote together as one series of such corporation
or trust. 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. In voting on the Investment Advisory Agreements, approval by the
shareholders of a particular series is necessary to make such agreement
effective as to that series.
The assets received by a corporation or trust for the issue or sale of
shares of each series or class thereof, and all income, earnings, profits and
proceeds thereof, subject only to the rights of creditors, are allocated to such
series, and in the case of a class, allocated to such class, and constitute the
underlying assets of such series or class. The underlying assets of each series
or class thereof, are required to be segregated on the books of account, and are
to be charged with the expenses in respect to such series or class thereof, and
with a share of the general expenses of such corporation or trust. Any general
expenses of a corporation or trust not readily identifiable as belonging to a
particular series or class shall be allocated among the series or classes
thereof, based upon the relative net assets of the series or class at the time
such expenses were accrued. Each corporation's Articles of Incorporation and
trust's Declaration of Trust limit the liability of the respective 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.
In the opinion of the staff of the Securities and Exchange Commission, the
use of this combined Prospectus may possibly subject all of the Funds to a
certain amount of liability for any losses arising out of any statement or
omission in this Prospectus regarding a particular Fund. In the opinion of the
Funds' executive officers, however, the risk of such liability is not materially
increased by the use of a combined Prospectus.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS (AND/OR IN THE STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE
COVER PAGE OF THIS PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR VOYAGEUR FUND DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN THE STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
PART B
VOYAGEUR ARIZONA LIMITED TERM TAX FREE FUND
VOYAGEUR ARIZONA INSURED TAX FREE FUND
VOYAGEUR ARIZONA TAX FREE FUND
VOYAGEUR CALIFORNIA LIMITED TERM TAX FREE FUND
VOYAGEUR CALIFORNIA TAX FREE FUND
VOYAGEUR CALIFORNIA INSURED TAX FREE FUND
VOYAGEUR COLORADO LIMITED TERM TAX FREE FUND
VOYAGEUR COLORADO TAX FREE FUND
VOYAGEUR COLORADO INSURED TAX FREE FUND
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
VOYAGEUR FLORIDA TAX FREE FUND
VOYAGEUR FLORIDA INSURED TAX FREE FUND
VOYAGEUR IDAHO TAX FREE FUND
VOYAGEUR IOWA TAX FREE FUND
VOYAGEUR KANSAS TAX FREE FUND
VOYAGEUR MINNESOTA LIMITED TERM TAX FREE FUND
VOYAGEUR MINNESOTA TAX FREE FUND
VOYAGEUR MINNESOTA INSURED FUND
VOYAGEUR MISSOURI INSURED TAX FREE FUND
VOYAGEUR NATIONAL LIMITED TERM TAX FREE FUND
VOYAGEUR NATIONAL INSURED TAX FREE FUND
VOYAGEUR NATIONAL TAX FREE FUND
VOYAGEUR NEW MEXICO TAX FREE FUND
VOYAGEUR NORTH DAKOTA TAX FREE FUND
VOYAGEUR OREGON INSURED TAX FREE FUND
VOYAGEUR UTAH TAX FREE FUND
VOYAGEUR WASHINGTON INSURED TAX FREE FUND
VOYAGEUR WISCONSIN TAX FREE FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with each Fund's Prospectus dated April 30, 1996. A copy of
the Prospectus or this Statement of Additional Information may be obtained free
of charge by contacting the Funds at 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402. Telephone: (612) 376-7000 or (800) 553-2143.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Investment Policies and Restrictions......................................................................B-2
Special Factors Affecting the Funds.......................................................................B-15
Insurance.................................................................................................B-58
Board Members and Executive Officers of the Funds.........................................................B-60
The Investment Adviser and Underwriter....................................................................B-62
Taxes ...................................................................................................B-73
Special Purchase Plans ...................................................................................B-77
Net Asset Value and Public Offering Price.................................................................B-79
Calculation of Performance Data...........................................................................B-83
Monthly Cash Withdrawal Plan..............................................................................B-95
Additional Information....................................................................................B-96
Appendix A - Descriptions of Bond Ratings.................................................................A-1
Appendix B - General Characteristics and Risks of Options and Futures ....................................B-1
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated April 30, 1996, and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made. The delivery of this Statement of Additional Information
at any time shall not imply that there has been no change in the affairs of any
of the Funds since the date hereof.
Dated April 30, 1996
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives, policies and restrictions of the open-end series
investment companies on the first page of this Statement of Additional
Information (collectively, the "Funds") are set forth in the combined
prospectus. Certain additional investment information is set forth below. All
capitalized terms not defined herein have the same meanings as set forth in the
prospectus.
TAX EXEMPT OBLIGATIONS
The term "Tax Exempt Obligations" refers to debt obligations issued by or
on behalf of a state or territory or its agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income taxation (except, in certain instances, the alternative minimum
tax, depending upon the shareholder's tax status) and with respect to the Funds
other than the three national funds, personal income tax of the state specified
in the Fund's name, if any. Tax-Exempt Obligations are generally issued to
obtain funds for various public purposes, including the construction or
improvement of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Tax Exempt Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, Tax Exempt Obligations may be issued by or on behalf of
public bodies to obtain funds to provide for the construction, equipping, repair
or improvement of housing facilities, convention or trade show facilities,
airport, mass transit, industrial, port or parking facilities and certain local
facilities for water supply, gas, electricity, sewage or solid waste disposal.
Securities in which the Funds may invest, including Tax Exempt Obligations,
are subject to the provisions of bankruptcy, insolvency, reorganization and
other laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or 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 Tax Exempt
Obligations may be materially affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Tax Exempt Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Tax Exempt Obligations for investment by the
Funds and the value of each Fund's portfolio. In such event, management of the
Funds may discontinue the issuance of shares to new investors and may reevaluate
each Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") for Tax Exempt
Obligations may change as a result of changes in such organizations or their
rating systems, the Funds will attempt to use comparable ratings as standards
for their investments in accordance with the investment policies contained in
the Funds' Prospectus and this Statement of Additional Information. The ratings
of Moody's and S&P represent their opinions as to the quality of the Tax Exempt
Obligations which they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings provide an initial criterion for selection of portfolio
investments, Voyageur Fund Managers, Inc. ("Voyageur"), the Funds' investment
manager, will subject these securities to other evaluative criteria prior to
investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. The Funds 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. Voyageur monitors the
creditworthiness of issuers of floating and variable rate demand notes in each
Fund's portfolio.
ESCROW SECURED BONDS OR DEFEASED BONDS. Escrow secured bonds or defeased
bonds are created when an issuer refunds in advance of maturity (or pre-refunds)
some of its outstanding bonds and it becomes necessary or desirable to set aside
funds for redemption or payment of the bonds at a future date or dates. In an
advance refunding, the issuer will use the proceeds of a new bond issue to
purchase high grade interest bearing debt securities which are then deposited in
an irrevocable escrow account held by an escrow agent to secure all future
payments of principal and interest of the advance refunded bond. Escrow secured
bonds will often receive a triple A rating from S&P and Moody's. The Insured Tax
Free Funds will purchase escrow secured bonds without additional insurance only
where the escrow is invested in securities of the U.S. government or agencies or
instrumentalities of the U.S. Government.
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 Funds will invest, Voyageur will
evaluate the credit rating of the lessee and the terms of the lease.
Additionally, Voyageur 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 "nonappropriation"
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 "nonappropriation" 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 nonappropriation 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 set forth in the Funds' Prospectus, although each
Fund may invest 25% or more of its total assets in limited obligation bonds, no
Fund will invest 25% or more of its total assets in limited obligation bonds
payable only from revenues derived from facilities or projects within a single
industry, except that the Funds may invest without limitation, in circumstances
in which other appropriate available investments may be in limited supply, in
housing, health care and/or utility obligations. Arizona Limited Term Tax Free
Fund, Arizona Tax Free Fund, California Limited Term Tax Free Fund, California
Tax Free Fund, Colorado Limited Term Tax Free Fund, Colorado Insured Tax Free
Fund, Florida Limited Term Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free
Fund, National Limited Term Fund and National Tax Free Fund also may, under such
circumstances, invest without limit in transportation, education and/or
industrial obligations. Appropriate available investments may be in limited
supply, from time to time in the opinion of Voyageur, due to, among other
things, each Fund's investment policy of investing primarily in obligations of
its state (and the state's municipalities, other political subdivisions and
public authorities) and of investing primarily in investment grade (high grade,
with respect to the Insured Tax Free Funds) securities. Additionally, the
insurance policies of the Insured Tax Free Funds may affect the appropriate
available investment supply from time to time in the opinion of Voyageur.
Certain of the risks set forth below may be reduced or eliminated to the extent
a Fund invests in insured Tax Exempt Obligations.
HOUSING OBLIGATIONS. Each 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. Each 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. Each 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. Certain Funds may, from time to time, invest
25% or more of their total assets in obligations issued by public bodies,
including state and municipal authorities, to finance 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. Certain Funds may, from time to time, invest 25% or
more of their total assets in obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from tuition, dormitory revenues, grants and endowments. General
problems of such issuers include the prospect of a declining percentage of the
population consisting of college aged individuals, possible inability to raise
tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants, state funding and alumni
support, and government legislation or regulations which may adversely affect
the revenues or costs of such issuers.
INDUSTRIAL REVENUE OBLIGATIONS. Certain Funds may, from time to time,
invest 25% or more of their total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or deterioration resulting from leveraged buy-outs or takeovers. The
bonds may be subject to special or extraordinary redemption provisions which may
provide for redemption at par or accredited value, plus, if applicable, a
premium.
OTHER RISKS. The exclusion from gross income for purposes of federal income
taxes and the personal income taxes of certain states 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 Funds 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 Funds' prospectus, the Funds may invest to a limited
extent in obligations and instruments, the interest on which is includable in
gross income for purposes of federal and state income taxation.
GOVERNMENT OBLIGATIONS. The Funds 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
Funds will invest in such securities only when Voyageur is satisfied that the
credit risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements. The
Funds' 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 Funds' custodian (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
OTHER TAXABLE INVESTMENTS. The Funds 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. With respect to Colorado Fund, investments in time deposits
generally are limited to London branches of domestic banks that have total
assets in excess of one billion dollars.
OPTIONS AND FUTURES TRANSACTIONS
To the extent set forth in the prospectus, each Fund may buy and sell put
and call options on the securities in which they may invest, and certain Funds
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 a 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 Funds may write (i.e. sell) covered put and call
options with respect to the securities in which they may invest. By writing a
call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, a Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by any Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the investment objective of such Fund.
"Covered options" means that so long as a Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
(or comparable securities satisfying the cover requirements of securities
exchanges). A Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of a put option, it deposits
and maintains with its custodian cash, U. S. Government securities or other
liquid 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, a Fund may obtain a greater
current return than would be realized on the underlying securities alone. A Fund
receives premiums from writing call or put options, which it retains whether or
not the options are exercised. By writing a call option, a Fund might lose the
potential for gain on the underlying security while the option is open, and by
writing a put option, a Fund might become obligated to purchase the underlying
security for more than its current market price upon exercise.
PURCHASING OPTIONS. The Funds may purchase put options in order to protect
portfolio holdings in an underlying security against a decline in the market
value of such holdings. Such protection is provided during the life of the put
because a Fund may sell the underlying security at the put exercise price,
regardless of a decline in the underlying security's market price. Any loss to a
Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit a Fund realizes on the sale of the security
will be reduced by the premium paid for the put option less any amount for which
the put is sold.
A Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. The Fund may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio.
Each of the Funds may also purchase call options. During the life of the
call option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
SECURITIES INDEX OPTION TRADING. The Funds may purchase and write put and
call options on securities indexes. Options on securities indexes are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on an index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of the option is obligated to make delivery of this
amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in a Fund's portfolio
correlate with price movements of the index selected. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular security, whether a Fund will realize a gain or loss from
the purchase or writing of options on an index depends upon movements in the
level of prices in the 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
a Fund of options on security indexes will be subject to Voyageur'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 Voyageur is unsuccessful in predicting the movements of
an index, a Fund could be in a worse position than had no hedge been attempted.
Because exercises of index options are settled in cash, a Fund cannot
determine the amount of its settlement obligations in advance and, with respect
to call writing, cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. When a Fund
writes an option on an index, the Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option, cash,
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 a Fund may be exchange traded or may be
options entered into by the Fund in negotiated transactions with investment
dealers and other financial institutions (over-the-counter or "OTC" options)
(such as commercial banks or savings and loan associations) deemed creditworthy
by Voyageur. 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 Voyageur believes it would be advantageous
to do so.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Certain Funds may enter
into futures contracts and purchase and write options on these contracts,
including but not limited to interest rate and securities index 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, each Fund will be required to deposit as "initial margin" a specified
amount of cash or short-term, U. S. Government securities. The initial margin
required for a futures contract is set by the exchange on which the contract is
traded. It is expected that the initial margin would be approximately 1-1/2% to
5% of a contract's face value. Thereafter, subsequent payments (referred to as
"variation margin") are made to and from the broker to reflect changes in the
value of the futures contract. No Fund will purchase or sell futures contracts
or related options if, as a result, the sum of the initial margin deposit on
that Fund's existing futures and related options positions and premiums paid for
options or futures contracts entered into for other than bona fide hedging
purposes would exceed 5% of the 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, a Fund will incur brokerage fees when it
purchases or sells futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS.
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several risks in
using 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 a Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by a Fund is subject to the ability of
Voyageur to predict correctly movements in the direction of interest rates or
the relevant underlying securities market. If a 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. A Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by the Fund. A Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts. Although the
Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISK OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transactions costs). The writing
of a call option generates a premium, which may partially offset a decline in
the value of a Fund's portfolio assets. By writing a call option, the Fund
becomes obligated to sell an underlying instrument or a futures contract, which
may have a value higher than the exercise price. Conversely, the writing of a
put option generates a premium, but the Fund becomes obligated to purchase the
underlying instrument or futures contract, which may have a value lower than the
exercise price. Thus, the loss incurred by a Fund in writing options may exceed
the amount of the premium received.
The effective use of options strategies is dependent, among other things,
on a Fund's ability to terminate options positions at a time when Voyageur deems
it desirable to do so. Although a Fund will enter into an option position only
if Voyageur believes that a liquid secondary market exists for such option,
there is no assurance that the Fund will be able to effect closing transactions
at any particular time or at an acceptable price. The Funds' transactions
involving options on futures contracts will be conducted only on recognized
exchanges.
A Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by Voyageur, which
could prove to be inaccurate. Even if the expectations of Voyageur 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 a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If a Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; a Fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Certain Funds may purchase put options to hedge against a decline in the
value of their portfolios. By using put options in this way, such Funds will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.
Certain Funds may purchase call options to hedge against an increase in
price of securities that the Funds anticipate purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
As discussed above, options may be traded over-the-counter ("OTC options").
In an over-the-counter trading environment, 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 Funds to dispose of options they have purchased or
terminate their obligations under an option they have written at a time when
Voyageur believes it would be advantageous to do so. Accordingly, OTC options
are subject to each Fund's limitation that a maximum of 15% of its net assets be
invested in illiquid securities. In the event of the bankruptcy of the writer of
an OTC option, a Fund could experience a loss of all or part of the value of the
option. Voyageur anticipates that options on Tax Exempt Obligations will consist
primarily of OTC options.
ILLIQUID INVESTMENTS
Each Fund is permitted to invest up to 15% of its net assets in illiquid
investments. For certain Funds, this policy is fundamental. See "Investment
Restrictions" below. An investment is generally deemed to be "illiquid" if it
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the Securities and Exchange Commission (the "SEC"),
since such securities may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. However, the Securities and Exchange
Commission has acknowledged that a market exists for certain restricted
securities (for example, securities qualifying for resale to certain "qualified
institutional buyers" pursuant to Rule 144A under the 1933 Act, certain forms of
interest-only and principal-only, mortgaged-backed U.S. Government securities
and commercial paper issued pursuant to the private placement exemption of
Section 4(2) of the 1933 Act). As a fundamental policy, the Funds may invest
without limitation in these forms of restricted securities if such securities
are deemed by Voyageur to be liquid in accordance with standards established by
the Funds' Board. Under these guidelines, Voyageur must consider, among other
things, (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 more fully described in the Funds' prospectus, the Funds are permitted
to invest in municipal leases. Traditionally, municipal leases have been viewed
by the Securities and Exchange Commission staff as illiquid investments.
However, subject to Board standards similar to the standards applicable to
restricted securities (as discussed above), Voyageur may treat certain municipal
leases as liquid investments and not subject to the policy limiting illiquid
investments.
DIVERSIFICATION
Each Fund designated as such on the cover of the prospectus operates as a
"diversified" management investment company, as defined in the Investment
Company Act of 1940 (the "1940 Act"), which means that at least 75% of its total
assets must be represented by cash and cash items (including receivables),
Government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of total assets of
such Fund and to not more than 10% of the outstanding voting securities of such
issuer. The other Funds are "non-diversified," as defined in the 1940 Act. See
the prospectus regarding certain considerations relating to "non-diversified"
status.
For purposes of such diversification, the identification of the issuer of
Tax Exempt Obligations depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the State, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.
Similarly, in the case of an industrial development bond, if that bond is
backed only by certain revenues to be received from the non-governmental user of
the project financed by the bond, then such non-governmental user is deemed to
be the sole issuer. If, however, in any of the above cases, a State, political
subdivision or some other entity guarantees a security and the value of all
securities issued or guaranteed by the guarantor and owned by one of the Funds
exceeds 10% of the value of such Fund's total assets, the guarantee is
considered a separate security and is treated as an issue of the guarantor.
Investments in municipal obligations refunded with escrowed U. S. Government
securities will be treated as investments in U. S. Government securities for
purposes of determining a Fund's compliance with the 1940 Act diversification
requirements.
In order to qualify as a regulated investment company, each Fund must limit
its investments so that, at the close of each quarter of the taxable year, with
respect to at least 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer. In addition, the
Internal Revenue Code of 1986, as amended (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. Each Fund
intends to conduct its operations so that it will comply with diversification
requirements and qualify under the Code as a "regulated investment company."
PORTFOLIO TURNOVER
Portfolio turnover for a 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 such Fund, not including securities
maturing in less than 12 months. A 100% portfolio turnover rate would occur, for
example, if the lesser of the value of purchases or sales of a Fund's portfolio
securities for a particular year were equal to the average monthly value of the
portfolio securities owned by the Fund during the year. The portfolio turnover
rate for each of the Funds (other than for Funds which have not commenced
investment operations as of the date of this Statement of Additional
Information) is set forth in the prospectus under "Financial Highlights."
Certain Funds had increased portfolio turnover rates in 1995. California Insured
Tax Free, Florida Insured Tax Free, Minnesota Tax Free, Minnesota Insured,
Missouri Insured Tax Free, New Mexico Tax Free and National Insured Tax Free
Funds experienced increased portfolio turnover as Voyageur sought to make
changes in the average maturity and duration of such Funds, to manage gains and
losses in the best interests of Fund shareholders, and to enhance yield where
possible.
INVESTMENT RESTRICTIONS
The Funds have adopted certain investment restrictions set forth below
which, together with the investment objectives of each Fund and other policies
which are specifically identified as fundamental in the Prospectus 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 a Fund at a meeting where more than 50% of
the outstanding shares of a Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of a Fund. The following investment
restrictions apply to Arizona Insured Tax Free Fund, California Insured Tax Free
Fund, Colorado Tax Free Fund, Florida Insured Tax Free Fund, Kansas Tax Free
Fund, Minnesota Insured Fund, Minnesota Limited Term Tax Free Fund, Minnesota
Tax Free Fund, Missouri Insured Tax Free Fund, National Insured Tax Free Fund,
New Mexico Tax Free Fund, North Dakota Tax Free Fund, Oregon Insured Tax Free
Fund, Utah Tax Free Fund, and Washington Insured Tax Free Fund. No such Fund
will:
(1) Borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% (10% for Colorado Tax Free Fund) of
the value of such Fund's total assets, including the amount borrowed. The
Funds may not borrow for leverage purposes, and securities will not be
purchased while borrowings are outstanding. Interest paid on any money
borrowed will reduce such Fund's net income.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of its total assets (taken at the lower of cost or current
value) and then only to secure borrowings permitted by restriction (1)
above.
(3) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
(4) Make short sales of securities or maintain a short position for
the account of such 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.
(5) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under federal securities laws.
(6) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(7) Purchase or sell commodities or commodity contracts (including
futures contracts).
(8) Make loans, except by purchase of debt obligations in which such
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(9) Invest in securities of any issuer if, to the knowledge of such
Fund, officers and directors (or trustees) of such Fund or officers and
directors of such Fund's investment adviser who beneficially own more than
1/2 of 1% of the securities of that issuer together own more than 5% of
such securities.
(10) Invest 25% or more of its assets in the securities of issuers in
any single industry, except that the Funds may invest without limitation,
in circumstances in which other appropriate available investments may be in
limited supply, in housing, health care and utility obligations; provided
that there shall be no limitation on the purchase of Tax Exempt Obligations
and, for defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. (Note: For purposes of this
investment restriction, Voyageur interprets "Tax Exempt Obligations" to
exclude limited obligation bonds payable only from revenues derived from
facilities or projects within a single industry.)
(11) Invest more than 15% of its net assets in illiquid investments.
The following fundamental investment restrictions apply to Iowa Tax Free
Fund and Wisconsin Tax Free Fund. These Funds will not:
(1) Borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of such Fund's total
assets, including the amount borrowed. The Funds may not borrow for
leverage purposes, and securities will not be purchased while borrowings
are outstanding. Interest paid on any money borrowed will reduce such
Fund's net income.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under federal securities laws.
(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 such
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more of its assets in the securities of issuers in
any single industry , except that it may invest without limitation, in
circumstances in which other appropriate available investments may be in
limited supply, in housing, health care and/or utility obligations;
provided that there shall be no limitation on the purchase of Tax Exempt
Obligations and, for defensive purposes, obligations issued or guaranteed
by U.S. Government, its agencies or instrumentalities. (Note: For purposes
of this investment restriction, Voyageur interprets "Tax Exempt
Obligations" to exclude limited obligations bonds payable only from
revenues derived from facilities or projects within a single 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 purchasing or selling on a when-issued or forward commitment
basis may be deemed to constitute issuing a senior security.
(7) Purchase or sell commodities or commodity contracts (including
futures contracts).
(8) Make short sales of securities or maintain a short position for
the account of such 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.
The following restrictions apply to Arizona Limited Term Tax Free Fund,
Arizona Tax Free Fund, California Limited Term Tax Free Fund, California Tax
Free Fund, Colorado Limited Term Tax Free Fund, Colorado Insured Tax Free Fund,
Florida Limited Term Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free Fund,
National Limited Term Tax Free Fund and National Tax Free Fund. No such Fund
will:
(1) Borrow money (provided that such Fund may enter into reverse
repurchase agreements), except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of the Fund's total
assets, including the amount borrowed. The Funds may not borrow for
leverage purposes, provided that such Funds may enter into reverse
repurchase agreements for such purposes, and securities will not be
purchased while outstanding borrowings exceed 5% of the value of such
Fund's total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, such
Fund may be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more of its assets in the securities of issuers in
any single industry (except that it may invest without limitation, in
circumstances in which other appropriate available investments may be in
limited supply, in housing, health care, utility, transportation, education
and/or industrial obligations); provided that there shall be no limitation
on the purchase of Tax Exempt Obligations and, for defensive purposes,
obligations issued or guaranteed by the U. S. government, its agencies or
instrumentalities. (Note: For purposes of this investment restriction,
Voyageur interprets "Tax Exempt Obligations" to exclude limited obligations
bonds payable only from revenues derived from facilities or projects within
a single industry.)
(6) Issue any senior securities (as defined in the 1940 Act), except
as set forth in investment restriction number (1) above, and except to the
extent that using options, futures contracts and options on futures
contracts, purchasing or selling on a when-issued or forward commitment
basis or using similar investment strategies may be deemed to constitute
issuing a senior security.
(7) Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the
Fund from purchasing or selling, on a basis consistent with any
restrictions contained in its then-current Prospectus, any financial
contracts or instruments which may be deemed commodities (including, by way
of example and not by way of limitation, options, futures, and options on
futures with respect, in each case, to interest rates, currencies, stock
indices, bond indices or interest rate indices).
(8) With respect to Florida Limited Term Tax Free Fund only, pledge,
hypothecate, mortgage or otherwise incumber its assets in excess of 10% of
its total assets (taken at the lower of cost or current value). For the
purposes of this restriction, collateral arrangements for margin deposits
on futures contracts with respect to the writing of options, with respect
to reverse repurchase agreements or with respect to similar investment
techniques are not deemed to be a pledge of assets.
The following non-fundamental investment restrictions may be changed by the
Board of each Fund at any time. None of the Funds will:
(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) With respect to the National Funds, such Funds will not 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) With respect to Arizona Limited Term Tax Free Fund, Arizona Tax
Free Fund, California Limited Term Tax Free Fund, California Tax Free Fund,
Colorado Limited Term Tax Free Fund, Colorado Insured Tax Free Fund,
Florida Limited Term Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free
Fund, National Limited Term Tax Free Fund and National Tax Free Fund, such
Funds will not make short sales of securities or maintain a short position
for the account of such 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.
Any investment restriction or limitation which involves a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after an acquisition of
securities or a utilization of assets and such excess results therefrom.
SPECIAL FACTORS AFFECTING THE FUNDS
The following information is a brief summary of particular state factors
effecting the Funds and does not purport to be a complete description of such
factors. The financial condition of a state, its public authorities and local
governments could affect the market values and marketability of, and therefore
the net asset value per share and the interest income of the respective state
Fund, or result in the default of existing obligations, including obligations
which may be held by a Fund. Further, each state faces numerous forms of
litigation seeking significant damages which, if awarded, may adversely affect
the financial situation of such state or issuers located in such state. It
should be noted that the creditworthiness of obligations issued by local issues
may be unrelated to the creditworthiness of a state, and there is no obligation
on the part of a state to make payment on such local obligations in the event of
default in the absence of a specific guarantee or pledge provided by a state.
Bond ratings received on a state's general obligation bonds, if any, are
discussed below. Moody's, S&P and/or Fitch Investors Service, Inc. provide an
assessment/rating of the creditworthiness of an obligor. The debt rating is not
a recommendation to purchase, sell, or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor. The ratings
are based on current information furnished by the issuer or obtained by the
rating service from other sources it considers reliable. Each rating service
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstance. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised or
withdrawn entirely by any such rating agencies, if in their respective
judgments, circumstances so warrant. The ratings are based, in varying degrees,
on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of, and provisions of, the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement(s) under the laws of
bankruptcy and other laws affecting creditors rights.
A revision or withdrawal of any such credit rating could have an effect on
the market price of the related debt obligations. An explanation of the
significance and status of such credit ratings may be obtained from the rating
agencies furnishing the same. In addition, a description of Moody's and S&P's
bond ratings is set forth in Appendix A hereto.
The information contained below is based primarily upon information derived
from state official statements, Certified Annual Financial Reports, state and
industry trade publications, newspaper articles, other public documents relating
to securities offerings of issuers of such states, and other historically
reliable sources. It has not been independently verified by the Funds. The Funds
make no representation or warranty regarding the completeness or accuracy of
such information. The market value of shares of any Fund may fluctuate due to
factors such as changes in interest rates, matters affecting a particular state,
or for other reasons.
FACTORS AFFECTING ARIZONA FUNDS
GENERAL ECONOMIC CONDITIONS. Progressing from its traditional reliance on a
cyclical construction industry, Arizona's economic base is maturing and
diversifying.
One of the nation's leaders in employment growth, Arizona has created more
that 171,000 jobs since January 1994 and close to 335,000 jobs since 1990. After
climbing by 6.2% in 1994, during which the state's economy produced the
second-highest number of jobs of any year in Arizona history, job creation in
Arizona is forecast to increase by 4.8% in 1995, 4.5% in 1996 (adding more than
60,000 new jobs) and 3.8% in 1997.
Overall, Arizona's forecast is for continued but moderate rates of growth
in employment and personal income. The numbers suggest a positive outlook,
although less so in 1996 than in 1995. By 1997 employment growth is expected by
Arizona to be less than half of Arizona's 1994 growth rate.
Continued job growth is forecast by Arizona to be accompanied by strong
population growth. During the last ten years, Arizona's population grew at an
average rate of 3.5% to a total of 4.1 million people. Arizona's population grew
by an estimated 2.8% in 1994 and could grow by another 3% in 1995. That rate is
expected by Arizona to drop back to 2.8% in 1996 and moderate further in 1997.
BUDGETARY PROCESS. Annually, no later than five days after the regular
Legislative session convenes, the Governor must submit a budget to the
Legislature. Before July 1 the budget is enacted through the passage of a
General Appropriations Act, a Capital Outlay Bill and various Omnibus
Reconciliation Bills (ORBs). The reconciliation bills are used for statutory
adjustments that must be implemented to carry out the adopted budget. Upon
presentation, the Governor has five days to sign the bills into law, veto it in
its entirety, line-item veto individual items of appropriations, or allow the
bill to become law without his signature. The Legislature may, with a two-thirds
vote, override a veto or line-item veto.
The Budget Reform Act of 1993 initiated a one-and two-year budget review
process for State agencies beginning with the FY 1996/FY 1997. Agencies selected
for annual review and appropriation are designated as Major Budget Units (MBUs).
MBUs can be described as agencies with difficult issues requiring frequent and
critical reviews and, ultimately, more resources. The 20 MBUs account for over
92% of the total General Fund expenditures. Agencies selected for biennial
review and appropriation are designated as Other Budget Units (OBUs). Whereas
Temporary Major Budgets Units (TMBUs) can be described as budget units that
would normally be appropriated for both years of the biennium but were given FY
1996 appropriations only because of pending issues that the Legislature chose to
review during the 1996 legislative session. Therefore these budget units are
temporarily on the annual budget schedule.
REVENUES AND EXPENDITURES. The General Fund closed fiscal year 1995 with a
$269.5 million ending balance, and the Executive plan for fiscal year 1996
anticipates a $275.4 million balance. Overall, fiscal year 1995 revenues
exceeded the spring 1995 forecast by about $60 million. While there were many
offsetting changes in the various revenue sources, the most notable were in
corporate and individual income taxes. Revetments were anticipated to be about
$76 million in spring 1995. The final closing of the books revealed total
revetments of some $127 million - a $51 million increase.
FISCAL YEAR 1996. In March 1995, when the fiscal year 1996 budget was
adopted, the consensus revenue estimate was $4.36 billion. The current Executive
forecast for fiscal year 1996 is $209 million higher, at $4.57 billion.
The major revenue source remaining essentially unchanged from the spring
1995 forecast is individual income taxes, still forecast to produce $1.45
billion for fiscal year 1996. As of November 1995, fiscal year 1996 YTD revenue
collections were up 9.45% over the previous year and support the present
Executive General Fund forecast. All three major revenue categories - individual
income taxes, corporate income taxes and transaction privilege taxes showed
gains on a year-over-year basis. Overall, the Executive anticipates a 2.9%, or
$133.9 billion, increase in base revenues of the current FY 1996 estimate. This
compares to the 2.3%, or $102.5 million, increase in base revenues between
fiscal year 1995 and fiscal year 1997.
FISCAL YEAR 1997. The Executive is recommending a base operating budget of
$4.59 billion for fiscal year 1997, an increase of approximately $127 million.
The majority of recommended expenditures for fiscal year 1997 are in the area of
education. The K-12 budget (Department of Education) and the higher education
budgets (Community Colleges and University system) account for 55% ($4.7
billion) of General Fund operating budget. Additionally, the health and welfare
area accounts for 24% ($1.1 billion), the protection and safety area accounts
for over 11% ($527 million), and other areas of government account for less than
8% of the General Fund operating budget.
The Executive fiscal plan for fiscal year 1997 is based on revenue
estimates, yet still provides for the implementation of last year's promised
$200 million property tax cut; a $50 million income tax reduction to continue
the Governor's phase-out of that revenue source; a $46.4 million capital
program; and a $15 million employee compensation package. The Executive projects
a fiscal year 1997 ending balance of $12.9 million.
SIGNIFICANT LITIGATION. In response to the court's ruling in the ROOSEVELT
V. BISHOP case the Executive recommends $30 million for the first-year
implementation of a capital assistance program for Arizona's schools. The
program would be designed to help school districts that lack bonding capacity
due to low value or rapid growth. It would require an application that would
include documentation of need and would be submitted to a capital equity board.
The board would determine the priority of requests and the amounts to be
allocated for each approved project. The board would receive funding for staff
and consultants who would provide technical assistance on school construction,
conduct needs assessments to verify applications, and make recommendations to
the board for action. A local share, proportionate to district wealth, would be
assumed in the initial analysis of each application, but the local share could
be waived or reduced under special circumstances. Monies allocated might be in
the form of grants, loans or debt service assistance, and could be used for new
construction, renovation, buses, equipment for new schools, and technology for
existing schools. A portion of the income from the State Land Fund could be
appropriated by statute to the capital equity board to provide a stable floor
funding for the program in future years.
DEBT ADMINISTRATION AND LIMITATION. The State is not permitted to issue
general obligation debt. The particular source of payment and security for each
of the Arizona Tax Exempt Obligations is detailed in the debt instruments
themselves and in related offering materials. There can be no assurances with
respect to whether the market value or marketability of any of the Arizona Tax
Exempt Obligations issued by an entity other than the State of Arizona will be
affected by financial or other conditions of the State or of any entity located
within the State. In addition, it should be noted that the State of Arizona, as
well as counties, municipalities, political subdivisions and other public
authorities of the State, are subject to limitations imposed by Arizona's
Constitution with respect to ad valorem taxation, bonded indebtedness and other
matters. For example, the State legislature cannot appropriate revenues in
excess of 7% of the total personal income of the State in any fiscal year. These
limitations may affect the ability of the issuers to generate revenues to
satisfy their debt obligations.
Although most of the Arizona Tax Exempt Obligations are revenue obligations
of local governments or authorities in the State, there can be no assurance that
the fiscal and economic conditions referred to above will not affect the market
value or marketability of the Arizona Tax Exempt Obligations or the ability of
the respective obligors to pay principal of and interest on the Arizona Tax
Exempt Obligations when due.
FACTORS AFFECTING CALIFORNIA FUNDS
GENERAL ECONOMIC CONDITIONS. California's economy is the largest among the
50 states and one of the largest in the world. This diversified economy has
major components in agriculture, manufacturing, high-technology, trade,
entertainment, tourism, construction and services. Total State gross domestic
product of about $835 billion in 1994 was larger than all but six nations in the
world.
After suffering through a severe recession, California's economy has been
on a steady recovery since the start of 1994. Employment has grown over 500,000
in 1994 and 1995, and the pre-recession level of total employment is expected to
be matched by early 1996. The strongest growth has been in export-related
industries, business services, electronics, entertainment and tourism, all of
which have offset the recession-related losses which were heaviest in aerospace
and defense-related industries (which accounted for two-thirds of the job
losses), finance and insurance. Residential housing construction, with new
permits for under 100,000 annual new units issued in 1994 and 1995, is weaker
than in previous recoveries, but has been growing slowly since 1993.
The State's July 1, 1994 population of 32.1 million represented over 12% of
the total United States population. California's population is concentrated in
metropolitan areas. As of July 1, 1994, the 5-county Los Angeles area accounted
for 48% of the State's population, with 15.6 million residents, and the
10-county San Francisco Bay Area represented 21% with a population of 6.7
million.
California enjoys a large and diverse labor force. For the year 1994, the
total civilian labor force was 15,470,000 with 14,141,000 individuals employed
and 1,330,000, or 8.6%, unemployed. In comparison, the unemployment rate for the
United States during the same time was 6.1%.
BUDGETARY PROCESS. The State's fiscal year begins on July 1 and ends on
June 30. The annual budget is proposed by the Governor by January 10 of each
year for the next fiscal year (the "Governor's Budget"). Under State law, the
annual proposed Governor's Budget cannot provide for projected expenditures in
excess of projected revenues and balances available from prior fiscal years.
Under the State Constitution, money may be drawn from the Treasury only through
an appropriation made by law. The primary source of the annual expenditure
authorizations is the Budget Act as approved by the Legislature and signed by
the Governor. The Budget Act must be approved by a two-thirds majority vote of
each House of the Legislature. The Governor may reduce or eliminate specific
line items in the Budget Act or any other appropriations bill without vetoing
the entire bill. Such individual line-item vetoes are subject to override by a
two-thirds majority vote of each House of the Legislature.
Appropriations also may be included in legislation other than the Budget
Act. Bills containing appropriations (except K-14 education) must be approved by
a two-thirds majority vote in each House of the Legislature and be signed by the
Governor. Bills containing K-14 education appropriations only require a simple
majority vote. Continuing appropriations, available without regard to fiscal
year, may also be provided by statute or the State Constitution. Funds necessary
to meet an appropriation need not be in the State Treasury at the time such
appropriation is enacted; revenues may be appropriated in anticipation of their
receipt.
REVENUES AND EXPENDITURES. The moneys of the State are segregated into the
General Fund and approximately 600 Special Funds. The General Fund consists of
revenues received by the State Treasury and not required by law to be credited
to any other fund, as well as earnings from the investment of State moneys not
allocable to another fund. The General Fund is the principal operating fund for
the majority of governmental activities and is the depository of most of the
major revenue sources of the State. The General Fund may be expended as a
consequence of appropriation measures enacted by the Legislature and approved by
the Governor, as well as appropriations pursuant to various constitutional
authorizations and initiative statutes.
Moneys on deposit in the State's Centralized Treasury System are invested
by the Treasurer in the Pooled Money Investment Account ("PMIA"). As of January
31, 1996, the PMIA held approximately $17.31 billion of State moneys, and $10.60
billion of moneys invested for 2,366 local governmental entities through the
Local Agency Investment Fund ("LAIF"). The total assets of the PMIA as of
January 31, 1996 were $27,912,100,000. The Treasurer does not invest in
leveraged products or inverse floating rate securities. The investment policy
permits the use of reverse repurchase agreements subject to limits of no more
than 10% of PMIA. All reverse repurchase agreements are cash matched either to
the maturity of the reinvestment or an adequately positive cash flow date which
is approximate to the maturity date. The average life of the investment
portfolio of the PMIA as of January 31, 1996 was 233 days.
SPECIAL FUND FOR ECONOMIC UNCERTAINTIES. The Special Fund for Economic
Uncertainties ("SFEU") is funded with General Fund revenues and was established
to protect the State from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the State
Controller as necessary to meet cash needs of the General Fund. The State
Controller is required to return moneys so transferred without payment of
interest as soon as there are sufficient moneys in the General Fund. For
budgeting and accounting purposes, any appropriation made from the SFEU is
deemed an appropriation from the General Fund. For year-end reporting purposes,
the State Controller is required to add the balance in the SFEU to the balance
in the General Fund so as to show the total moneys then available for General
Fund purposes. Inter-fund borrowing has been used for may years to meet
temporary imbalances of receipts and disbursements in the General Fund. As of
June 30, 1995, the General Fund did not have any outstanding loans from Special
Funds (but did have $4 billion of external loans represented by the 1994 Revenue
Anticipation Warrant, Series C and D which mature on April 25, 1996).
PROPOSITION 13. The primary units of local government in California are the
counties. Counties are responsible for the provision of many basic services,
including indigent health care, welfare, courts, jails and public safety in
unincorporated areas. There are also about 480 unincorporated cities, and
thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes, and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. A recent California Supreme Court decision has upheld the
constitutionality of an initiative statute, previously held invalid by lower
courts, which requires voter approval for "general" as well as "special" taxes
at the local level. Counties, in particular, have had fewer options to raise
revenues than many other local government entities, yet have been required to
maintain many services.
In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature has
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.
STATE APPROPRIATIONS LIMIT. The State is subject to an annual
appropriations limit imposed by Article XIII B of the State Constitution (the
"Appropriations Limit"). The Appropriations Limit does not restrict
appropriations to pay debt service on voter-authorized bonds. Article XIII B
prohibits the State from spending "appropriations subject to limitation" in
excess of the Appropriations Limit. "Appropriations subject to limitation," with
respect to the State, are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such proceeds
exceed "the cost reasonably borne by that entity in providing the regulation,
product or service," but "proceeds of taxes" exclude most state subventions to
local governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees and certain other
non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriation of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.
ORANGE COUNTY, CA. On December 6, 1994, Orange County, together with its
pooled investment funds (the "Pools") filed for protection under Chapter 9 of
the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in their investments, causing a liquidity crisis for
the Pools and Orange County. More than 200 other public entities, most of which,
but not all, are located in Orange County, were also depositors in the Pools.
Orange County has reported the Pools' loss at about $1.69 billion, or about 23%
of their initial deposits of approximately $7.5 billion. Many of the entities
which deposited moneys in the Pools, including Orange County, faced interim
and/or extended cash flow difficulties because of the bankruptcy filing and may
be required to reduce programs or capital projects. Orange County has embarked
on a fiscal recovery plan based on sharp reductions in services and personnel,
and rescheduling of outstanding short term debt using certain new revenues
transferred to Orange County from other local governments pursuant to special
legislation enacted in October, 1995. The State has no existing obligation with
respect to any outstanding obligations or securities of Orange County or any of
the other participating entities.
LITIGATION GENERALLY. The State is a party to numerous legal proceedings,
many of which normally occur in governmental operations. In the consolidated
state case of MALIBU VIDEO SYSTEMS, ET AL. V. KATHLEEN BROWN AND ABRAMOVITZ, ET
AL., a stipulated judgment has been entered requiring return of $119 million
plus interest to specified special funds over a period of up to five years
beginning in fiscal year 1996-1997. The lawsuit challenges the transfer of
monies from special fund accounts within the State Treasury to the State's
General Fund pursuant to the Budget Acts of 1991, 1992, 1993, and 1994.
Plaintiffs allege that the monetary transfers violated various statutes and
provisions of the State Constitution.
FISCAL YEAR 1995-1996. The following discussion regarding the 1995-96
fiscal year budget is based on estimates and projections of revenues and
expenditures for the current fiscal year made by the State of California or
branches of its government and must not be construed as statements of fact.
These estimates and projections are based upon various assumptions which may be
affected by numerous factors, including future economic conditions in the State
and the nation, and there can be no assurance that the estimates will be
achieved.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34
days after the start of the fiscal year. The Budget Act projected General Fund
revenues and transfers of $44.1 billion, a 3.5% increase from the prior year.
Expenditures were budgeted at $43.4 billion, a 4% increase. The Department of
Finance projected that, after repaying the last of the carryover budget deficit,
there would be a positive balance of $28 million in the budget reserve, the
SFEU, at June 30, 1996. The Budget Act also projected Special Fund revenues of
$12.7 billion and appropriated Special Fund expenditures of $13 billion.
The Governor's Budget for fiscal year 1995-96, released January 10, 1996,
updated the current year projections, so that revenues and transfers are
estimated to be $45 billion, and expenditures to be $44.2 billion. The SFEU is
projected to have a positive balance of about $50 million at June 30, 1996, and
on that date available internal borrowable resources (available cash, after
payment of all obligations due) will be about $2.2 billion. The Administration
projects it will issue up to $2 billion of revenue anticipation notes in April,
1996 to mature by June 30, 1996, to assist in cash flow management for the final
two months of the year, after repayment of the $4 billion revenue anticipation
warrants issued on April 25, 1996. The following are the principal features of
the 1995-96 Budget Act.
1. Proposition 98 funding for schools and community colleges was originally
budgeted to increase by about $1 billion (General Fund) and $1.2 billion total
above revised 1994-95 levels. Because of higher than projected revenues in
1994-95, an additional $543 million was appropriated to the 1994-95 Proposition
98 entitlement. A large part of this is a block grant of about $54 per pupil for
any one-time purpose. For the first time in several years, a full 2.7% cost of
living allowance was funded. The budget compromise anticipates a settlement of
the CALIFORNIA TEACHERS ASSOCIATION V. GOULD litigation (discussed above). The
Governor's Budget indicates that, with revenues even higher than projected,
Proposition 98 apportionments will exceed the amounts originally budgeted,
reaching a level of $4,500 per ADA.
2. Cuts in health and welfare costs totaling about $0.9 billion. Some of
these cuts (totaling about $500 million) require federal legislative or
administrative approval, which were still pending as of February, 1996.
3. A 3.5% increase in funding for the University of California ($90 million
General Fund) and California State University system ($24 million General Fund),
with no increases in student fees.
4. The Budget, as updated by the 1996-97 Governor's Budget dated January
10, 1996, assumed receipt of $494 million in new federal aid for incarceration
and health care costs of illegal immigrants, above commitments already made by
the federal government.
5. General Fund support for the Department of Corrections is increased by
about 8% over the prior year, reflecting estimates of increased prison
population, but funding is less than proposed in the 1995 Governor's Budget.
1996-97 FISCAL YEAR. On January 10, 1996, the Governor released his
proposed budget for the next fiscal year. The Governor requested total General
Fund appropriations of about $45.2 billion, based on projected revenues and
transfers of about $45.6 billion, which would leave a budget reserve in the SFEU
at June 30, 1997 of about $400 million. The Governor renewed a proposal, which
had been rejected by the Legislature in 1995, for a 15% phased cut in individual
and corporate tax rates over three years (the budget proposal assumes this will
be enacted, reducing revenues in 1996-97 by about $600 million). There was also
a proposal to restructure trial court funding in a way which would result in a
$300 million decrease in General Fund revenues. The Governor requested
legislation to make permanent a moratorium on cost of living increases for
welfare payments, and suspension of a renters tax credit, which otherwise would
go back into effect in the 1996-97 fiscal year. The Governor further proposed
additional cuts in certain health and welfare programs, and assumed that cuts
previously approved by the Legislature will receive federal approval. Other
proposals include an increase in funding for K-12 schools under Proposition 98,
for state higher education systems (with a second year of no student fee
increases), and for corrections. The Governor's Budget projects external cash
flow borrowing of up to $3.2 billion, to mature by June 30, 1997.
DEBT ADMINISTRATION AND LIMITATION. The State Treasurer is responsible for
the sale of debt obligations of the State and its various authorities and
agencies. The State Constitution prohibits the creation of indebtedness of the
State unless a bond law is approved by a majority of the electorate voting at a
general election or a direct primary. General obligation bond acts provide that
debt service on general obligation bonds shall be appropriated annually from the
General Fund and all debt service on general obligation bonds is paid from the
General Fund. Under the State Constitution, debt service on general obligation
bonds is the second charge to the General Fund after the application of moneys
in the General Fund to the support of the public school system and public
institutions of higher education. Certain general obligation bond programs
receive revenues from sources other than the sale of bonds or the investment of
bond proceeds. The State had $18,543,095,000 aggregate principal amount of
general obligation bonds outstanding, and $2,888,864,000 authorized and
unissued, as of February 1, 1996.
From July 1, 1995 to December 15, 1995, the State issued approximately $461
million in general obligation bonds and $44 million in revenue bonds. Refunding
bonds, which are used to refinance existing debt, accounted for $81 million of
the general obligation bonds and the entire $44 million of the revenue bonds.
The Legislature has placed two general obligation bond measures totaling $5
billion on the March, 1996 statewide ballot. Additional bond measures may be
placed on the November 1996, ballot.
The State's general obligation bonds have received ratings of "A1" by
Moody's Investors Service, "A" by Standard & Poor's Ratings Group and "A+" by
Fitch Investors Service, Inc.
FACTORS AFFECTING COLORADO FUNDS
GENERAL ECONOMIC CONDITIONS. Colorado entered the Union on August 1, 1876,
and was called the "Centennial State" in honor of the 100th anniversary of the
Declaration of Independence. It is the eighth largest state in the nation, with
an area of 104,247 square miles. The main feature of the state's geography is
the Continental Divide, extending northeast to southwest and roughly bisecting
Colorado into the Eastern and Western Slopes. The major rivers of Colorado are
the Arkansas, Platte, Rio Grande, and Colorado. Colorado enjoys an average of
nearly 300 days of sunshine per year. Precipitation varies from 8 inches per
year in lower elevations to 23 inches in the mountains, with a yearly statewide
average of 16.5 inches.
The U.S. Bureau of Census estimates Colorado's population as of July 1,
1995 at 3,746,585. This represents a 2.3% increase over the 1994 revised
estimate of 3,661,665. With a growth of 2.3%, Colorado was the fourth most
rapidly growing state in the country during 1994-1995. A large part of
Colorado's current growth is related to growth in the West and to
decentralization trends that emanate from California. As the primary services
center for the Rocky Mountain region, the state suffered a sharp recession in
the mid-to-late 1980s because of retrenchment in the energy sector. Real estate
values dropped sharply, with evidence of overbuilding in commercial and
residential sectors. Office vacancy rates in the Denver area soared, and the
state lost significant jobs in mining and construction.
Colorado's economic vitality returned and was evident through the 1991-1992
national recession and more recent recovery. Wage and salary employment growth
topped 6.1% in 1994, following growth rates of 1.1% and 5.2% in 1992 and 1993,
respectively, while real personal income grew more than 7% each year. The state
has added nearly 231,000 jobs since 1990, mostly in service, trade, and
government. Construction employment has been strong, bolstered by the recently
completed Denver International Airport construction, but activity has shifted to
other public infrastructure projects and single-family homes. Employment is now
diversified among service (27.7%), trade (24.8%), government (16%), and
manufacturing (10.9%). Housing starts have rebounded from a 1989 low, with over
29,000 units permitted in 1993. Conversely, the state's manufacturing sector has
recorded the loss of about 5,000 jobs since 1990, although employment at Martin
Marietta Corp., the state's largest defense contractor, has stabilized. Retail
trade has been strong, growing 7% in 1994. Income levels, while below their
early 1980s peak, are rising, with per capita personal income at 103.6% of the
national average.
Despite current strength, near-term economic problems remain. Lowry Air
Force Base recently closed (a loss of about 6,600 jobs), the Rocky Flats weapons
plant will phase out its nuclear mission, and Fitzsimmons military medical
center recently landed on the base closure list. While construction job losses
at the airport largely have been absorbed into other public infrastructure
projects and residential housing, the construction sector is likely to lose jobs
as population growth slows. Projections of 6.2% growth in personal income for
1996 are still strong by national standards, but represent a slowdown from
recent growth.
SIGNIFICANT LITIGATION. On June 19, 1995, the Colorado Supreme Court
affirmed the December 1993 Arapahoe County District Court decision in favor of
the Littleton School District. The BOLT V. LITTLETON SCHOOL DISTRICT case was a
class action lawsuit brought by three taxpayers residing in the District.
Plaintiffs argued that Littleton School District's 1993 property tax millage
rate increase violated Amendment 1. The Amendment states that all Districts must
obtain voter approval in advance of any new tax, tax rate increase, or mill levy
above that for the prior year, unless annual District revenue is less than
annual payments on G.O. bonds, pensions, and final court judgments, with certain
exceptions. The School District increased its 1993 mill levy to pay debt service
on its Series 1985 G.O. bonds. In affirming the Trial Court's ruling in favor of
the District, the Supreme Court reasoned that the increase in the District's
bond redemption mill levy for 1993 did not violate the provisions of Amendment 1
because the District already received voter approval for the tax rate increase
when the Bonds originally were authorized by voters at an election in 1984. The
ruling has significance for the Colorado municipal bond market because it
upholds the right of Municipalities to increase property tax millage rates to
pay debt service on G.O. bonds issued before Amendment 1.
The Littleton ruling follows another important ruling by the Colorado
Supreme Court last September in the case of BICKEL V. CITY AND COUNTY OF BOULDER
AND BOULDER VALLEY SCHOOL DISTRICT. In that case the court upheld the right of
Municipalities to request and obtain voter approval to issue G.O. bonds after
passage of Amendment 1. Together, the Boulder and Littleton cases settle two of
the most controversial Amendment 1 issues and should lead to a more orderly
primary and secondary market for Colorado municipal bonds.
BUDGETARY PROCESS. The financial operations of the legislative, judicial,
and executive branches of the state's government, with the exception of
custodial funds or federal moneys not requiring matching state funds, are
controlled by annual appropriation made by the General Assembly. The
Transportation Department's portion of the Highway Fund is appropriated to the
State Transportation Commission. Within the legislative appropriation, the
Commission may appropriate the specific projects and other operations of the
Department. In addition, the Commission may appropriate available fund balance
from their portion of the Highway Fund.
The legislative appropriation is constitutionally limited to the
unrestricted funds held at the beginning of the year plus revenues estimated to
be received during the year as determined by the modified accrual basis of
accounting. The Governor has line item veto authority over the Long
Appropriations Bill, but the General Assembly may override each individual line
item veto by a two-thirds majority vote in each house. For budgetary purposes,
cash funds are all funds received by the state that are neither general purpose
revenues, nor revenues received from the federal government. General and cash
fund appropriations, with the exception of capital construction, lapse at
year-end unless executive action is taken to roll-forward all or part of the
remaining unspent budget authority. Appropriations that meet the strict criteria
for roll-forward are reserved at year-end. Capital construction appropriations
are generally available for three years after appropriations.
REVENUES AND EXPENDITURES. Audited GAAP financial statements for the
year-ended June 30, 1994 report an unreserved general fund balance of $320.3
million, or about 6.1% of general fund expenditures, and a total general fund
balance of $579 million, or 11% of expenditures. This is in contrast to the
unreserved general fund balance of just $16.3 million in 1991. In fiscal 1994,
challenged to deliver on a 1988 plan to increase the state's contribution toward
primary and secondary education, the state budget added nearly $200 million to
K-12 education. Further enhancement was limited by a statutory limit on
appropriations. Still, revenue growth exceeded projections in 1994 and 1995,
with sales tax collections growing nearly 12% in fiscal 1994 and an estimated
10.1% in 1995, while individual income taxes are projected to grow 8.1% in 1995.
In addition, the state carried a $226 million balance in its capital projects
fund in 1994, and is expected to transfer $152 million to the fund in 1996, an
increase from prior years.
The Amendment 1 constitutional revenue and spending limit will not affect
the fiscal 1996 budget, because projected revenues and expenditures fall below
limits. With slower population growth, the long-term projections suggest a
convergence of revenues with the amendment's limits.
The State Controller's Office created spending authority of $4,315,000,
based on its interpretation of two Governor's executive orders for disaster
emergencies, without reducing the spending authority for other purposes. As a
result, the State of Colorado, in total, had more spending authority on the
financial records than legally allowable. This also resulted in inflated
reversions at the end of the fiscal year. During the fiscal year, the Governor
issued two executive orders declaring disaster emergencies. In July, 1994, the
Governor declared a disaster emergency due to wildfires. In fiscal year 1995
spending authority of $1,415,000 was recorded and a total of $914,184 was
expended for this disaster. No funds were expended for this purpose after
December 31, 1994. In June 1995, the Governor declared a disaster emergency due
to the spring snow melt flooding and landslides. The Order transferred
$2,900,000 from the state's General Fund into the state Disaster Emergency Fund.
As of November 6, 1995, $661,407 had been expended for this disaster.
The State Controller may allow certain over expenditures of the legal
appropriation with the approval of the Governor. If the State Controller
restricts the subsequent year appropriation, the agency is required to seek a
supplemental appropriation from the General Assembly or reduce their subsequent
year's expenditures. As provided by statute, there is unlimited authority for
Medicaid over expenditures. The Department of Human Services is allowed $1
million in over expenditures not related to Medicaid and unlimited over
expenditures for self-insurance of its workers' compensation plan. An additional
$1 million over expenditure is allowed for the Judicial Branch. State statute
also allows over expenditures up to $1 million in total for the remainder of the
executive branch.
DEBT ADMINISTRATION AND LIMITATION. The Constitution prohibits Colorado
from incurring G.O. debt, and most long-term financing takes the form of lease
purchase obligations. The state relies on general fund appropriations for
pay-as-you-go capital projects, with $120 million transferred to the capital
projects fund in 1994 and $152 million in 1995. Since 1988, the State's master
lease purchase program primarily has been used to finance new correctional
facilities. Lottery revenues are intended for repayment on these obligations,
but deficiencies are appropriated from the general fund. In November 1992,
Colorado voters approved an amendment that redirects lottery revenues to outdoor
recreation. After 1998, alternate general fund resources will need to be
allocated for future lease payments, but the annual lease payment obligation by
then is only about $2.5 million. The State supports affordable housing through
the Colorado Housing Finance Authority, whose G.O.s ultimately are secured by
the State's moral obligation pledge.
The Funds Management Act (the "Act") was enacted to allow the State to
provide for temporary cash flow deficits caused by fluctuations in revenues and
expenditures. Under the Act the State Treasurer is authorized to sell Tax and
Revenue Anticipation Notes which are payable from the future anticipated pledged
revenues. The law directs the State Auditor to review information relating to
the Notes and report this information to the General Assembly. On July 6, 1995,
the State Treasurer issued General Fund Tax Revenue Anticipation Notes (the
"Notes") in the amount of $300 million. These Notes have a maturity date of June
27, 1996 and are not subject to redemption prior to maturity. The amount due at
maturity is $311,015,828, consisting of the Note principal of $300,000,000 and
interest of $11,015,828. To ensure the payment of the Notes, the Treasurer has
agreed to deposit pledged revenues into the Account so that the balance on June
15,1996, will be no less than the amount to be repaid. The Note agreement also
provides remedies for holders of the Notes in the event of default.
Since the State of Colorado does not have G.O. debt, it does not have S&P,
Moody's or Fitch ratings.
FACTORS AFFECTING FLORIDA FUNDS
GENERAL ECONOMIC CONDITIONS. Florida is the twenty-second (22nd) largest
state with an area of 54,136 square miles and a water area of 4,424 square
miles. The State is 447 miles long (St. Marys River to Key West) and 361 miles
wide (Atlantic Ocean to Perdido River) and has tidal shoreline of almost 2,300
miles. Florida has grown dramatically since 1980 and as of April 1, 1994, ranks
fourth among the fifty states with an estimated population of 13.9 million. The
State's strong population growth is one fundamental reason why its economy has
typically performed better than the nation as a whole. Since 1984, the United
States has had an average population increase of about 1.0% annually, while
Florida's average annual rate of increase is around 2.3%. Florida has been, and
continues to be, the fastest growing of the eleven (11) largest states.
While many of the Nation's senior citizens choose Florida as their place of
retirement, the State is also recognized as attracting a significant number of
working age people. Since 1985, the prime working age population (18-44) has
grown at an average annual rate of 2.2%. Florida's economic assets, such as
competitive wages and low per capita taxes, have attracted new businesses and
consequently have created many new job opportunities. The share of Florida's
total working age population (18-59) to total population is approximately 54%.
Over the years, Florida's personal income has grown and has generally
outperformed both the U.S. as a whole and the southeast in particular. The
reasons for this are two fold. First, Florida's population has expanded. Second,
the State's economy since the early seventies has diversified in such a way as
to provide a broader economic base. As a result, Florida's personal income has
tracked closely with the national average and, historically, above that of the
southeast. From 1985 through 1994, Florida's per capita income rose an average
of 5.2% per year, while the national per capita income increased an average of
5.1%. Real personal income is estimated to increase 4.6% in 1995- 1996 and
increase 3.8% in 1996-1997, while real income per capita is projected to grow at
2.7% in 1995-1996 and 1.9 percent in 1996-1997.
Presently, the State's service sector employment constitutes 86.4% of total
non-farm employment. While structurally the southeast and the nation are endowed
with a greater proportion of manufacturing jobs, which tend to pay higher wages,
service jobs, historically, tend to be less sensitive to business cycle swings.
Florida has a concentration of manufacturing jobs in high-tech and high
value-added sectors, such as electrical and electronic equipment, as well as
printing and publishing. The State's manufacturing sector has kept pace with the
U.S., at about 2.7% of total U.S. manufacturing employment since the eighties.
Florida predicts that employment in the service sector should experience an
increase of 5.3% in 1995-1996, while growing 4.5% in 1996-1997. Trade is
expected to expand 3.4% this year and 3.0% next year. However, in recent years,
the State's economic growth has slowed from its previous highs and the
unemployment rate has tracked above the national average. The average rate of
unemployment for Florida since 1985 is 6.3%, while the national average is 6.4%.
Florida's unemployment rate is forecasted at 5.6% in 1995-1996 and 5.7% in
1996-1997.
Tourism is one of Florida's most important industries. Approximately 39.9
million people visited the State in 1994. In terms of business activities and
State tax revenues, tourists in Florida effectively represented additional
residents, spending their dollars predominantly at eating and drinking
establishments, hotels and motels, and amusements and recreation parks. The
State's tourist industry over the years has become more sophisticated,
attracting visitors year-round, thus, to a degree, reducing its seasonality.
Besides a sub-tropical climate and clean beaches that attract people in the
winter months, the State has added, among other attractions, a variety of
amusement and educational theme parks. This diversification has helped to reduce
the seasonal and cyclical character of the industry and has effectively
stabilized tourist related employment as a result. By the end of this fiscal
year, 41.4 million domestic and international tourists are expected to have
visited the State. In 1996-1997, tourist arrival should approximate 43.2
million. The current Florida Economic Consensus Estimating Conference forecast
shows that the Florida economy is expected to decelerate along with the nation,
but will continue to outperform the U.S. as a whole as a result of relatively
rapid population growth.
BUDGETARY PROCESS. The budgetary process is an integrated, continuous
system of planning, evaluation and controls. Individual state agencies prepare
and submit appropriation requests to the Office of Planning and Budgeting,
Executive Office of the Governor, no later than September 1 of the year next
preceding Legislative consideration. After a evaluation of the agencies'
requests, the Office of Planning and Budgeting, Executive Office of the
Governor, makes recommendations to the Governor that are within previously
established policy guidelines of the Governor and revenue estimate. Florida
Statutes provides that financial operations of the State covering all receipts
and expenditures be maintained through the use of three funds - the General
Revenue Fund, Trust Funds, and Working Capital Fund. The General Revenue Fund
receives the majority of State tax revenues. Monies for all funds are expended
pursuant to appropriations acts. The Trust Funds consist of monies received by
the State which under law or trust agreement are segregated for a purpose
authorized by law. Revenues in the General Fund which are in excess of the
amount needed to meet appropriations may be transferred to the Working Capital
Fund. The Florida Constitution adds a fourth fund, the Budget Stabilization
Fund. The Florida Constitution and Statutes mandate that the State budget as a
whole, and each separate fund within the State budget be kept in balance from
currently available revenues each State Fiscal year (July 1-June 30). The
Governor and Comptroller are responsible for insuring that sufficient revenues
are collected to meet appropriations and that no deficit occurs in any State
fund.
REVENUES AND EXPENDITURES. Financial operations of the State of Florida
covering all receipts and expenditures are maintained through the above
described four fund types - General Revenue Fund, Trust Funds, Working Capital
Fund, and Budget Stabilization Fund. In fiscal year 1994-1995, an estimated 66%
of total direct revenues to these funds were derived from State taxes and fees.
Federal funds and other special revenues accounted for the remaining revenues.
Major sources of tax revenues to the General Revenue Fund are the sales and use
tax, corporate income tax, intangible personal property tax, and beverage tax,
which amount to 67%, 7%, 4%, and 4%, respectively, of total General Revenue
funds available.
State expenditures are categorized for budget and appropriation purposes by
type of fund and spending unit, which are further subdivided by line item. In
fiscal year 1994-1995, appropriations from the General Revenue Fund for
education, health and welfare, and public safety amounted to approximately 49%,
32%, and 11%, respectively, of total General Revenue funds available.
Revenues for governmental funds increased 7.6% over the previous year,
while expenditures for governmental fund types totaled $29.7 billion in fiscal
year 1995, a 7.6% increase from the previous year. Total fund balance at June
30, 1995, for all governmental fund types was $6.83 billion compared to $5.78
billion at June 30, 1994. Of this total, $4.61 billion represents unreserved
fund balance which is $1.37 billion more than the $3.24 billion last year.
The Department of Lottery is the largest enterprise fund in the State. In
comparison to the year ended June 30, 1994, combined enterprise fund operating
revenues increased from $2.5 billion to $2.7 billion in 1995 and operating
expenses increased from $1.5 billion to $1.6 billion. In addition to the
Lottery, other major enterprise funds account for the operations of the toll and
turnpike facilities and the Florida Housing Finance Agency.
Combined internal service fund operating revenues increased from $845
million in 1994 to $896 million in 1995, while operating expenses decreased to
$840 million in 1995 from $849 million in 1994. Principal services provided to
the agencies by these funds are the consolidated equipment financing program,
facilities management, data processing, motor pool, self-insurance, and
telephone communications.
The State Treasurer is responsible for investing the General Revenue Fund
and trust fund monies. Authorized investments include certificates of deposits
in Florida banks and savings and loan associations, direct obligations of the
United States Treasury, commercial paper and banker's acceptances, medium-term
corporate notes and co-mingled and mutual funds. Among other functions, the
Treasurer also serves as administrator of the Florida Security for Public
Deposit Program. This program encompasses all governmental entities in the
State. Participating banks and savings and loan associations guarantee
government deposits and pledge collateral at levels varying between 50% and
125%. Acceptable collateral includes obligations of the United States Government
and its agencies, obligations of the State of Florida and its political
subdivisions, and obligations of several states.
DEBT ADMINISTRATION. By law, the State of Florida is not authorized to
issue obligations to fund governmental operations. State bonds, pledging the
full faith and credit of the State of Florida may be issued only to finance or
refinance the cost of State fixed capital outlay projects upon approval by a
vote of the electors. Article III, Section 11(d) of the Florida Constitution
provides that revenue bonds may be issued by the State of Florida or its
agencies without a vote of the electors only to finance or refinance the cost of
State fixed capital outlay projects which shall be payable solely from funds
derived directly from sources other than State tax revenues.
Florida maintains a bond rating from Moody's Investors Services (Aa),
Standard and Poor's Corporation (AA) and Fitch Investors Service, Inc. (AA) on
all of its general obligation bonds. Outstanding general obligation bonds at
June 30, 1995, totaled almost $6.8 billion and were issued to finance capital
outlay for educational projects of local school districts, community colleges
and state universities, environmental protection and highway construction.
FACTORS AFFECTING IDAHO FUND
GENERAL ECONOMIC CONDITIONS. State Government in Idaho originates from the
State Constitution adopted at the constitutional convention of August 6, 1889,
and ratified by the people in November of the same year. Congress approved the
Constitution and admitted Idaho to the Union on July 3, 1890. Idaho, located in
the northwestern portion of the United States, is bordered by Washington,
Oregon, Nevada, Utah, Wyoming, Montana and Canada. Idaho's land area consists of
83,557 square miles of varied terrain including prairies, rolling hills and
mountains with altitudes ranging from 736 feet to 12,662 feet.
With close of 1994, Idaho completed the eighth consecutive year of economic
expansion, maintaining one of the fastest annual growth rates of employment and
income among all states; employment expanded 5.5% and personal income increased
8.1% during 1994. However, it is anticipated that the rapid employment increases
enjoyed by the state for the last eight years will slow to the 2.5% range. The
unemployment rate is expected to rise from 5.2% in 1994 to 5.7% in 1995, partly
due to an average annual population growth rate of 2.5% for 1995 through 1997.
Personal income increased at an 8.1% rate in 1994 and will continue to grow at
rates exceeding 7% during 1995 and 1996.
EXPORTS. Exports of agricultural and manufactured goods played an ever
increasingly important role in Idaho's economic performance. With Japan, the
United Kingdom, Canada, Singapore, and Taiwan as the state's biggest customers,
Idaho's export value rose from $1.9 billion in 1993 to $2.3 billion in 1994, a
21% increase; non-farm exports rose 20% in that period to $1.32 billion,
creating an estimated 5,000 new jobs; exports climbed 187% from 1987 to 1993.
Idaho ranked thirty-second among the states in the total value of goods and
services exported in 1994. Japan was Idaho's best customer importing $263
million worth of goods and services; the United Kingdom increased its imports
from Idaho 31% to $183 million and Canada came in third at $161 million for a
34% increase over 1993.
The jobs supported by Idaho's recent experiences in exports markets are
relatively evenly distributed between farm and manufacturing jobs. The return to
the state government from its investment in promoting Idaho products abroad is
elevated tax revenues. In 1994, the state tax revenues increased 12.1% to $1.17
billion, the largest gain in five years; taxable sales rose 10.5% in 1994 to
$10.5 billion, the third year of double digit growth. With taxable sales and
personal income increasing in the neighborhood of 7.5%, budget estimates place
the growth rate for tax revenues at 9.5% for 1995. The revenue increases
provided the state with the opportunity of providing $40 million in property tax
relief, further improving the state's business climate.
IMPORTANCE OF WATER. Although located in the arid West, Idaho has large
water resources which have dominated its history and development and may prove
equally important to its future. There are 26,000 miles of rivers and streams
and more than 2,000 natural lakes. Three of Idaho's rivers--Clearwater, the
Kootenai and the Salmon--are more than half as large as the Colorado. The Snake
Plain Aquifer is one of the largest fractured basalt aquifers in the world.
Equally important to quantity is the quality of Idaho's waters, which remains
outstanding. The drop in elevation of rivers like the Snake allow valuable
hydropower production, allowing the State some of the lowest electricity rates
in the nation.
AGRICULTURE. Idaho has traditionally been an agriculture state. Livestock,
beef, dairy cattle, and sheep are important to the economy, while the major
crops of Idaho's farmers include potatoes, wheat, barley, sugar beets, peas,
lentils, seed crops and fruit. According to recent estimates, agricultural
related products make up 16% of Idaho's Gross State Product, making them key
elements in Idaho's economic performance. The improvement in water conditions
will help Idaho farmers on the supply side of the market; the third wheat crop
of over 100 million bushels is predicted for 1995. The combination of improved
demand and supply conditions pushed wheat prices to well above the $4.00 level
during 1994. In Idaho's most famous agricultural market, potatoes, 1994
production rose 6.4% to 134.3 million cwt and for Idaho's largest cash crop,
beef, production rose 7%. When all market factors are taken into consideration,
including an expected reduction of 2% in the nation's wheat production, the
outlook for Idaho's agricultural industry improves in 1995, with the state's
beef production increasing at least 3% and wheat production matching or
exceeding previous records. The net result is growth in farm proprietor income
and agricultural employment. From December 1993 to December 1994 agricultural
employment increased 18.1% to 25,240 driven by a 39.2% increase in hired
workers.
SERVICE PRODUCING SECTOR. By the most important economic measures, the
service producing sector is the heart of Idaho's economy; it accounts for 68% of
Gross State Product and 78% of all nonagricultural jobs. For 1995, and the next
three years, employment growth in the service producing sector is expected to
slow from its 1994 rate of 5.4% to around 4% per year. Within the service
producing sector, the weakest performer is expected to be the federal
government, which will have stable employment. State and local governments,
including public education, are expected to expand at an average of 4% per year
over the forecast period in response to population pressures. The remaining
components of the service producing sector, including the finance, insurance,
transportation, communication and public utility industries, are expected to
continue to have mixed experiences with employment; growth partly offset by
right-sizing. The net result is that these industries are expected to average
around 2.5% per year employment growth through 1997.
GOODS PRODUCING SECTOR. The goods producing sector, composed of
manufacturing, mining, and construction, had two of the star performers in the
state's eight years of economic expansion; electronics and construction. Both of
these industries are expected to have substantially slower growth rates in 1995;
the goods producing sector will be a consistent rather than spectacular
performer. Overall, this sector's employment gains are expected to decline from
the 5.8% level for 1994 to just above a 1% level for 1995 and 1996. The causes
of the dramatic shifts are the problems being experienced by Morrison-Knudsen,
some restructuring in microelectronics, the economic hardships suffered in
resource based industries and a slowing in residential construction. Even with
offsetting job creation at some electronic firms in other goods producing
industries, this sector will have to wait until 1997 for employment to recover a
3% growth rate.
BUDGETARY PROCESS. In the fall of each year, all agencies of the State
submit requests for appropriations to the Governor's Office, Division of
Financial Management, so a budget may be prepared for the upcoming legislative
session. The budget is generally prepared by agency, fund, program, and object.
The budget presentation includes information on the past year, current year
estimates, and requested appropriations for the next fiscal year.
The Governor's proposed budget is presented to the legislature for review,
change, and preparation of the annual appropriation acts for the various
agencies. The legislature enacts annual appropriations for the majority of funds
held in the state treasury. These budgets are adopted in accordance with State
statutes. Both houses of the legislature must pass the appropriation acts by a
simple majority vote. The appropriation acts become law upon the Governor's
signature, or 10 days after the end of the session if not signed by the
Governor.
For funds that are annually appropriated, the State's central accounting
and reporting system controls expenditures by appropriation line-item. At no
time can expenditures exceed appropriations, and financially related legal
compliance is assured. At fiscal year end, unexpended appropriation balances
may: (1) revert to unreserved fund equity balances and be available for future
appropriations; (2) be reappropriated as part of the spending authority for the
future year; or, (3) may be carried forward to subsequent years as outstanding
encumbrances with the approval of the Division of Financial Management.
REVENUES AND EXPENDITURES. FISCAL YEAR 1994. General Fund revenue in fiscal
year 1994 was $1,173,071,300. There was an additional $10,880,000 due to
carryover from the prior fiscal year. Fund transfers reduced funds availably by
$38,867,600 and adjustments to cash reduced funds available by $281,800. Net
General Funds available in fiscal year 1994 totaled $1,145,997,700. Total
General Fund revenue growth was $129.6 million, or 12.4% in fiscal year 1994.
Strongest growth was in the corporate income tax, which increased by 25.2%.
Miscellaneous revenues grew by 21.3%, sales tax grew by 12.4%, individual income
tax grew by 10.1%, and product taxes grew by 4.7%
Expenditures in fiscal year 1994 consisted of $1,084,561,400 in original
appropriations, plus $25,039,400 in supplementals and reappropriations, less
$1,551,300 in reversions and ending year reappropriations. Net expenditures in
fiscal year 1994 were $1,108,049,500. An ending balance of $37,948,200 was
carried over into fiscal year 1995.
FISCAL YEAR 1995. Total funds available to the General Fund in fiscal year
1995 are estimated to be $1,330,423,400. This consists of an estimated
$37,948,200 carryover from fiscal year 1994, plus $1,330,423,440 in base
revenues, less $1,009800 in revenue adjustments. General Fund expenditures and
fund transfers authorized for fiscal year 1995 are $1,329,395,700. This leaves a
projected General Fund carryover of $1,027,700 in fiscal year 1996.
The revised fiscal year 1995 Executive revenue forecast of $1,293,485,000
reflects 10.5% growth over fiscal year 1994. The revised base General Fund
revenue forecast for fiscal year 1995 consists primarily of sales and income tax
receipts. Product taxes account for a little over 1% of General Fund revenues,
and miscellaneous receipts account for slightly less than 5% of General Fund
revenues. Individual income tax revenues are expected to grow by 10.3% in fiscal
year 1995, while corporate income tax revenues are projected to grow by 28.8%.
Sales tax revenues are expected to grow by 7.7%. Product taxes are forecast to
decline by 2.2% and miscellaneous revenues are projected to increase by 5.3%.
General Fund expenditures in fiscal year 1995 consist of $1,264,200,400
in original appropriations, plus $1,252,100 in reappropriations, less $163,800
in reversions, plus $6,012,600 in net supplementals. The supplementals consist
of $23,155,200 in positive supplementals and $17,142,600 in negative
supplementals. Approximately half of the positive supplemental ($11,977,400) is
for Catastrophic Health Care medical claims in the fiscal years 1994 and 1995.
Other large supplemental went to the Department of Health and Welfare
($6,116,000) and the Department of Corrections ($4,167,100). The remaining
$894,700 in positive supplemental is spread over all other agencies. Almost 90%
of the negative supplemental ($14,943,100) is attributable to Medicaid cost
containment. The bulk of the remainder is associated with elimination of vacant
positions.
FISCAL YEAR 1996. The amount of total funds available to the General Fund
in fiscal year 1996 is estimated to be $1,349,969,400. This consists of an
estimated $1,027,700 beginning unobligated balance plus $1,348,941,700 in
revenue in fiscal year 1996. General Fund expenditures authorized for fiscal
year 1996 are $1,348,714,000 plus $1,050,000 in transfers. This leaves an
estimated free-fund balance of $205,400 in General Fund at the end of fiscal
year 1996.
The original Executive revenue forecast of $1,390,995,000 for fiscal year
1996 reflects 7.5% growth over fiscal year 1995. It has been adjusted to reflect
a net reduction of $42,053,300. General Fund revenues consist primarily of sales
tax and income tax. The net growth rate for total General Fund revenue in fiscal
year 1996 is 7.5% before adjustments for legislative changes. After adjusting
for legislation, General Fund revenue growth is projected to be 4.3%.
The largest revenue adjustment is $40,000,000 in reduced General Fund
revenue from the sales tax as a result of House Bill 156. This measure was
proposed by the Governor, and essentially replaces 25% of the existing maximum
school district maintenance and operation levy with funds from the sales tax
revenue stream. Three other bills that reduce expected revenue in fiscal year
1996 are House Bill 216, a $739,000 increase in the investment tax credit;
Senate Bill 1153a, a $900,000 income tax revenue reduction associated with
medical savings accounts; and House Bill 301, a $500,000 sales tax exemption for
ski area purchases of lifts, snow groomers and snow making equipment.
Expenditures in fiscal year 1996 consist of $1,225,099,900 in base spending
plus $123,614,100 in salary increases, inflation adjustments, replacement
capital outlays, annualizations, fund shifts and enhancements. Above base
increases in public school expenditures are the largest item of increase, with
$58,560,000 provided as a lump sum. A state worker salary increase of 5%
accounts for $18,661,700 of increase above the base. Replacement capital outlay
is $5,754,600 and fund shifts are $6,162,600. Personnel benefit increases,
operating expenditure inflation, annualizations and other nonstandard
adjustments total $11,807,500. Program increases total $22,667,700.
DEBT ADMINISTRATION AND LIMITATION. The State has no outstanding general
obligation bond debt. By law, if the General Fund cash flow shortages exist for
more than 30 days, the State Treasurer must issue a tax anticipation note to
correct the shortfall. The State Treasurer has issued internal tax anticipation
notes which are notes issued by the General Fund to borrow monies from other
available State funds or accounts. Internal tax anticipation notes were not
issued in fiscal years 1988 through 1994. In the past ten fiscal years the State
Treasurer has issued "External" tax anticipation notes which were sold in the
open market. All Notes issued by the State must mature not later than the end of
the then current fiscal year. Each Note when duly issued and paid for will
constitute a valid and binding obligation of the State of Idaho. The faith and
credit of the State of Idaho are solemnly pledged for the payment of the Notes.
SERIES 1994 NOTES. The State issued $200 million in Tax Anticipation Notes
("TANs") on July 5, 1994, which mature on June 29, 1995. The 1994 Notes were
issued in anticipation of the income and revenues and taxes to be received by
the General Fund during the fourth quarter of the 1995 fiscal year. As required
by law, all income and revenues from the taxes collected during the fourth
quarter of the 1995 fiscal year shall be deposited into the Note Payment Account
as received until the monies therein together with investment earnings shall be
sufficient to pay principal and interest on the Notes at maturity. Sufficient
monies to redeem the Series 1994 Notes with full payment of interest at maturity
have been deposited into the Note Payment Account held by an escrow agent. These
monies will be transferred to the paying agent on June 29, 1995, for payment of
the Series 1994 Notes.
SERIES 1995 NOTES. The $200 million TANs are being issued to fund the
State's anticipated cash flow shortfalls during the fiscal year ending June 30,
1996. The 1996 fiscal year General Fund cash flow (before borrowing) is
estimated to have a negative balance at the end of the months of July through
March and May with the greatest ending month cash deficit estimated to be
$244,670,000 at the end of November. However, each month's mid-month cash
deficit is estimated to be greater than the end-of-the-month deficit balance.
This situation occurs because only approximately 20% of the month's revenues are
received during the same period. The majority of taxes are received during the
second half of the month because of statutorily established dates for tax
payments. A primary factor in the heavy percentage of first half expenditures
are the required dates for General Fund transfers to the public schools. The
greatest projected mid-month deficit for the 1996 fiscal year is $296,613,000
occurring on November 15, 1995. Moody's Investors Service and Standard and
Poor's corporation have assigned the 1995 Notes the rating of MIG-1 and SP-1+
respectively.
FACTORS AFFECTING IOWA FUND
GENERAL ECONOMIC CONDITIONS. For Iowans, 1995 was a year of slow growth and
economic consolidation following several years of substantial growth. Iowa's
seasonally adjusted unemployment rate increased from 3.3% in December 1995, to
3.4% in January 1996, according to a report released by the Iowa Department of
Employment Services (DES). Comparatively, the statewide jobless rate was
reported at 3.3% in January 1995. The State's Department of Employment Services
measures the number of individuals in non-farm payroll jobs from state
unemployment tax records. In January 1996, 32,200 more Iowans were working at
payroll jobs than one year earlier. Of this increase, 2,700 were new
construction jobs, 2,600 were new factory jobs, 6,700 new jobs were added by the
retail sector, 900 of the new jobs were in insurance firms and 16,100 of the new
jobs were added by service firms. For the first nine months of 1995, the average
employment in manufacturing topped the 1994 average by 5,000 jobs (2.0%), 2,900
of which were in the interest-sensitive durable goods sector (2.1%). The
University of Iowa's Institute for Economic Research is currently expecting the
state's payroll job count to average 1,354,300 for 1995, a 37,043 increase
(2.8%). The Institute's models forecast growth slowing to 1.9% in 1996 and 2.0%
in 1997. If that were to occur, the payrolls would have increased by 25,420 and
27,240 in those two years, respectively.
During the late-1980's and early 1990's Iowa became a major exporting
state. Despite its inland location, Iowa has been a major supplier to the
world's markets for industrial machinery, instruments and measurement devices,
electronics, consumer appliances, specialized transportation equipment,
chemicals and pharmaceutical, processed food products, farm commodities and
livestock. During the years 1991-1993, the value of Iowa's factory exports
increased a compounded rate of 9% per year. In 1994, factory exports increased
14% to $3.4 billion while farm exports fell to $2.4 billion. The drop in farm
exports in 1994 was tied to the flood in 1993 and the diminished size of the
crop that went into storage. Even though the circumstances were unique, the
facts were clear: factory exports surpassed farm exports for the first time in
Iowa's history. For the first half of 1995, the value of factory exports, at $2
billion, grew by 29% over the value exported during the same period in 1994. At
this rate of growth, 1995 factory exports can now be projected at $4 billion
added to an estimated $3.2 billion in farm exports.
One of the issues addressed by the Governor and the General Assembly during
Fiscal Year 1995, was the increasing amount of property taxes levied to support
expenditures for mental health. Legislation was passed which provides
significant property tax relief through a process of managed care and through
increased State assistance which will ultimately finance 50% of the mental
health expenditures funded by property taxes. This legislation established a new
Mental Health/Developmental Disabilities Fund at the county level and provided
State appropriations for mental health property tax relief in the amount of $61
million, $78 million and $95 million for fiscal years 1996, 1997, and 1998
respectively. The amount of property taxes that may be levied in this fund is
limited and the property taxes must be reduced dollar for dollar for each dollar
of mental health property tax relief the counties receive.
The second item of property tax relief was the elimination of property
taxes on industrial machinery, equipment and computers acquired after January 1,
1994, and a phase-out of the property taxes on existing industrial machinery,
equipment and computers. For fiscal years 1997 through 2006, county auditors may
file claims with the State for partial replacement of lost taxes.
BUDGETARY PROCESS. The current statewide accounting system was implemented
in 1983 and has been periodically upgraded and modified. As part of that
implementation, and on an ongoing basis, emphasis has been placed on the
adequacy of internal and budgetary controls. Internal controls are in place to
provide reasonable, but not absolute, assurance that assets are safeguarded
against unauthorized use or disposition, and that financial records from all
appropriate sources are reliable for preparing financial statements and
maintaining accountability. All claims presented for payment must be certified
by the appropriate department that the expenditure is for a purpose intended by
law and a sufficient unexpended appropriation balance is available. The
automated statewide accounting system also performs various edits to assure
appropriation authorizations are not exceeded. For programs supported totally or
in part with federal or other funds, expenditures can not exceed the sum of
appropriations and additional dedicated revenue that is received. If dedicated
revenue is not received as expected, expenditures must be reduced in a like
manner.
REVENUES AND EXPENDITURES. Most State operations are accounted for through
the following Governmental fund types: General, Special Revenue, and Capital
Projects. Governmental Revenues and Other Financing Sources totaled $6,946.5
million for fiscal year 1995. Taxes had the largest increase of $382.3 million
which was a 10% increase over the previous year, while Receipts From Other
Entities increased $66.2 million which was a 3.5% increase from the previous
year. Governmental revenues and other financing sources for 1995 included: Taxes
(61%); Receipts from other Entities (28%); Fees, Licenses and Permits (5%); and,
Other Financing Sources (6%).
Governmental Expenditures and Other Financing Uses totaled $6,459.9 million
for fiscal year 1995. Health and Human Services had the largest increase of
$126.2 million which was a 7% increase over the previous year, while Education
experienced an increase of $67.1 million which was a 3.8% increase over the
previous year. Changes in expenditures from fiscal year 1994 levels are as
follows: Health and Human Services, 30%; Education, 29%; Transportation, 11%;
General Government, 10%; and Other Financing Uses, 20%.
DEBT ADMINISTRATION AND LIMITATION. The Constitution of the State of Iowa
prohibits the State from exceeding a maximum of $250 thousand in general
obligation debt without voter approval. However, State law authorizes the
issuance of Tax and Revenue Anticipation Notes (TRANS), provided that the total
issuance does not exceed anticipated revenue receipts for the fiscal year and
that the total issuance matures during the fiscal year. For the first time in
the last ten years, it was not necessary this year for the State to issue TRANS.
Revenue bonds issued by various authorities of the State totaled $1,255.9
million outstanding at fiscal year-end. This amount consisted of $7.8 million of
internal service revenue bonds, $559.9 million of component unit proprietary
funds revenue bonds (housing and higher education), $519.1 million in revenue
bonds issued by the three State universities (for facilities), and $106.5
million and $62.5 million in various bonds issued by the Iowa Finance Authority
for the Underground Storage Tank Program and the Department of Corrections,
respectively.
Certificates of Participation (COPS), issued by the State and outstanding
at fiscal year-end, amounted to $135.2 million. COPS represents an ownership
interest of the certificate holder in a lease purchase agreement. Other
financing arrangements payable, excluding COPS, totaled $3.8 million at June 30,
1995. State agencies, including the universities, have also entered into capital
leases and installment purchase agreements for various purposes. Total long-term
capital leases and installment purchases outstanding on June 30, 1995, was $38.2
million.
Since the State of Iowa does not have G.O. debt, it does not have S&P,
Moody's or Fitch ratings.
FACTORS AFFECTING KANSAS FUND
GENERAL ECONOMIC CONDITIONS. Kansas is the 14th largest state in terms of
size with an area in excess of 82,000 square miles. It is rectangular in shape
and is 411 miles long from east to west and 208 miles wide. The geographic
center of the 48 contiguous states lies within its borders. Kansas became the
34th state in 1861 and Topeka was chosen to be the capitol later that year. The
population of the State of Kansas has grown from 2,477,588 in 1990 to 2,554,047
in 1994. This represents a percentage increase of 3.1%. In comparison, the
growth in population of the United States was 4.7%.
Relatively strong growth in manufacturing and construction employment
propelled the state's 1995 employment growth. Employment growth exceeded the
national rate of increase, a rarity in recent years. In only three of the prior
13 years had Kansas employment growth exceeded that of the nation. All but one
of the state's major labor markets (finance, insurance and real estate) had
employment gain between 1994 and 1995. There are two measures of employment in
Kansas: place-of-residence data and place-of-work data. The former are based on
a sample survey of Kansas households, while the latter are based on data
primarily obtained directly from firms as part of the unemployment insurance
program. In 1995, place-of-residence data indicated that Kansas employment grew
2.8%,while place-of-work data showed a 5.4% increase. The growth rates exceeded
the corresponding national growth rates of 1.6% and 2.3%. Average monthly
unemployment fell from 70,000 in 1994 to 56,200 in 1995. Likewise the average
monthly unemployment rate fell from 5.3% to 4.2% from 1994 to 1995.
BUDGETARY PROCESS. The Governor is statutorily mandated to present spending
recommendations to the Legislature. "The Governor's Budget Report" reflects
expenditures for both the current and upcoming fiscal years and identifies the
sources of financing for those expenditures. The Legislature uses "The
Governor's Budget Report" as a guide as it appropriates the money necessary for
state agencies to operate. Only the Legislature can authorize expenditures by
the State of Kansas. The Governor recommends spending levels, while the
Legislature chooses whether to accept or modify those recommendations. The
Governor may veto legislative appropriations, although the Legislature may
override any veto by two-thirds majority vote.
The state "fiscal year" runs from July 1 to the following June 30 and is
numbered for the calendar year in which it ends. The "current fiscal year" is
the one which ends the coming June. The "actual fiscal year" is the year which
concluded the previous June. The "budget year" refers to the next fiscal year,
which begins the July following the Legislature's adjournment. In "The FY 1997
Governor's Budget Report," the actual fiscal year is fiscal year 1995, the
current fiscal year is fiscal year 1996, and the budget year is fiscal year
1997. By law, "The Governor's Budget Report" must reflect actual year spending,
the Governor's revised spending recommendations for the current fiscal year,
state agency spending requests for the budget year, and the Governor's spending
recommendations for the budget year. The budget recommendations cannot include
the expenditure of anticipated income attributable to proposed legislation.
REVENUES AND EXPENDITURES. The State General Fund is the largest of the
"uncommitted" revenue sources available to the state. It is also the fund to
which most general tax receipts are credited. The Legislature may spend State
General Fund dollars for any purpose. All revenues coming into the state
treasury not specifically authorized by statute or the constitution to be placed
in a separate fund are deposited in the State General Fund.
FISCAL YEAR 1996. The Governor's fiscal year 1996 budget recommendations
total $7.9 billion from all funding sources and approximately $3.47 billion from
the State General Fund. The budget includes a total of 44,697.9 state employees,
a reduction of 118.7 from the amount approved by the 1995 Legislature. These
recommendations reflect significant changes to the budget approved by the 1995
Legislature. In September 1995, the Governor announced the need for a 1.5%
across-the-board reduction to the budgets of most agencies funded through the
State General Fund. This action was necessary because of a shortfall of
approximately $25 million in estimated fiscal year 1995 receipts and resulting
downward revisions to the consensus revenue estimate made for fiscal year 1996.
In addition to the 1.5% reduction, significant savings were available in agency
budgets because of a reduction in the funding requirements for group health
insurance rates for state employees and in the funding necessary for the state
share of local option school budgets. In total, these adjustments allow the
Governor to recommend a budget which maintains the targeted 7.5% ending balance
for fiscal year 1996 while providing only necessary supplemental appropriations
to maintain commitments to higher education and public schools. In addition, the
Governor directed all agencies under his supervision to reduce their workforce
by 2% in fiscal year 1996 through attrition and retirements. The salary savings
attributable to those reductions will be identified at the end of the fiscal
year.
FISCAL YEAR 1997. The fiscal year 1997 budget recommendations include all
funding source expenditures of $7.8 billion, a reduction of almost $100 million
from fiscal year 1996. The largest single source of fiscal year 1997 receipts is
the State General Fund, with 46.6% of the total receipts. Individual income
taxes account for the largest source of State General Fund revenue, totaling
$1.410 billion (39.9%) in fiscal year 1997. The next largest category, sales and
use taxes, is projected to generate $1.392 billion (39.5%) for the State General
Fund during fiscal year 1997. State General Fund expenditure recommendations for
fiscal year 1997 are $3.52 billion, an increase of 1.4%. The Governor recommends
that $1,923.7 million, or 54.6% of State General Fund expenditures be used for
aid to local units of government.
Federal grants represent 21.9% of total receipts from all funding sources,
with 42 state agencies receiving $1.7 billion in fiscal year 1997. Of the $1.7
billion, 50.4% will go to the Department of Social and Rehabilitation Services.
This is followed by the Department of Transportation, 15.4%, the Department of
Education, 12%, the Regents institutions, 5.8%, and the Department of Health and
Environment, 4.3%. The remaining 12.1% is distributed to 29 other agencies.
Agency service charges include revenues received for services provided by state
agencies. This includes charges for inspections, examinations, and audits; fees
collected for tuition and fees at the Regents institutions; and admissions to
the Kansas State Fair. This revenue category represents 6.6% of total receipts
for fiscal year 1997.
Dedicated sales tax receipts represent revenues from four taxes that are
collected for a specific purpose and are deposited in special revenue funds,
rather than the State General Fund. Taxes on motor fuels and vehicle
registrations as well as a dedicated sales tax of one-quarter of a cent are
credited to the State Highway Fund. A statewide property tax of 1.5 mills is
assessed for construction and maintenance of state buildings at Regents
institutions and state hospitals. This revenue category represents 5.1% of total
receipts for fiscal year 1997.
Other special revenue receipts include license fees, interest earnings on
special revenue funds, non-federal grants, the sale of state property, and
numerous other miscellaneous revenue sources. This revenue category represents
8.9% of total receipts for fiscal year 1997. Non revenue receipts are
collections and reimbursements not considered revenue. Examples include
collections by the Department of Human Resources for the payment of unemployment
benefits and collections by KPERSS for payment of retirement benefits.
Collections made by SRS from absent parents for child support are also included
in this category. This category represents 8.5% of total receipts for fiscal
year 1997. Lottery ticket sales account for the remaining 2.4% of total receipts
for fiscal year 1997 from all funding sources.
It was clear from the beginning of the fiscal year 1997 budget process that
the revenues available to state government could not support continuation of
existing levels of service for all agencies. A variety of factors contributed to
the austerity of the fiscal year 1997 budget. First and most important, for the
past two fiscal years, the State General Fund ending balance was significantly
above the 7.5% ending balance target, allowing expenditures to exceed receipts
in both fiscal years 1995 and 1996. In simple terms, fiscal year 1997 cannot
exceed receipts while complying with the ending balance requirements. The
expenditures in fiscal year exceeded receipts by $106.6 million. In effect, the
first claim on projected increases in State General Fund receipts for fiscal
year 1997 will be to correct this imbalance. Second, a variety of factors
required significant additional funding for the school finance formula including
enrollment growth, the second year of increased aid requirements to offset motor
vehicle tax reductions passed by the 1995 Legislature, the remainder of the Real
Estate Settlement Procedures Act (RESPA) adjustment, and growth in capital
improvement aid. In addition, growth in inmate populations required additional
staff and funding for correctional institutions. Further, caseload and cost
increases in various populations served by SRS seriously affected the fiscal
year 1997 budget.
DEBT ADMINISTRATION AND LIMITATION. The State of Kansas finances a portion
of its capital expenditures with various debt instruments. Of capital
expenditures that are debt-financed, revenue bonds and loans from the Pooled
Money Investment Board finance most capital improvements for buildings, and
certificates of participation and "third-party" financing pay for most capital
equipment. The Kansas Constitution makes provision for the issuance of general
obligation bonds subject to certain restrictions; however, no bonds have been
issued under this provision for may years. No other provision of the
Constitution or state statute limits the amount of debt that can be issued. As
of June 30, 1995, the state had authorized but unissued debt of $27,230,000.
Although, the state has no General Obligation debt rating, it seeks an
underlying rating on specific issues of at least "AA-" from Standard & Poor's
and "A1" from Moodys. The ratings for the most recently issued fixed rate bonds
issued by the Kansas Department of Transportation were "Aa" and "AA" from Moody
and Standard & Poor's respectively. The Kansas Development Finance Authority is
currently working with the rating agencies to obtain a rating indicator for the
State of Kansas.
The Kansas Department of Transportation issues debt to finance highway
projects. The Comprehensive Highway Program began during fiscal year 1989. The
20-year bonds will be retired with motor fuel taxes, motor vehicle registration
fees, retail sales and compensating use taxes, and accrued interest. During
fiscal years 1994 and 1995, the state sold bonds totaling approximately $151
million and $167.1 million. respectively. Again, the largest use of the bond
proceeds was $125 million and $140 million for the Comprehensive Highway Program
for these two years, respectively.
Other State of Kansas debt is issued by the Kansas Development Finance
Authority (KDFA), an independent instrumentality of the state which was created
in 1987 for this purpose. The Governor's budget recommendations for Regents
institutions are a significant departure from the traditional way revenues from
the Educational Building Fund (EBF) have been used for construction projects at
the state's universities. Based on concerns for the aging buildings on the
state's campuses, the Governor recommends that KDFA issue bonds in fiscal year
1997 in the amount of $156.5 million to address a wide variety of rehabilitation
and repair projects at the universities. With interest earnings, the total
project costs would be an estimated $163.6 million. Debt service over the
15-year period will total $228.4 million, with each year's debt service payment
over the next 15 years totaling $15 million. No project paid with bond proceeds
will have a life-expectancy of less than 20 years, so as to "keep ahead" of the
bonded indebtedness. Because the current cost of borrowing money is less than
the projected cost of inflation for construction, it is more cost-effective to
perform the repairs now and leverage the EBF, rather than incurring higher
annual repair costs in the future. Rehabilitation and repair projects at the
campuses include compliance with the Americans with Disability Act Accessibility
Guidelines and life safety codes, energy conservation projects, and improvements
to classrooms, in addition to the typical repairs made to aging buildings.
Bonds totaling $4.4 million were issued by KDFA in November 1990 to begin
Energy Conservation Improvements Program authorized by the 1990 Legislature. The
bonds are retired by utility cost savings from the energy conservation
improvements undertaken. Projects financed with the bond proceeds consist of
improvements at many of the state universities, the Department of
Administration, the Department of Social and Rehabilitation Services, the
Highway Patrol, and the Department of Corrections. An amount of $5,000 was
appropriated from the State General Fund to the Department of Administration,
the paying agent, for fiscal year 1992 to begin retirement of the debt service.
The second series of bonds, issued in June 1992, totaled $3.6 million. On
October 1, 1993, a third series of bonds totaling $4,370,000 under the Energy
Conservation Improvements Program was issued. In August 1995, the fourth series
of bond, totaling $2,734,000 was issued. For fiscal year 1997, the debt service
totals $1,785,007 from the State General Fund, $1,340,000 for principal and
$445,007 for interest. To date, $15.1 million in bonds has been issued by the
Kansas Development Finance Authority for these projects. A fifth bond issue
estimated to total $4.8 million is scheduled for early 1996.
FACTORS AFFECTING MINNESOTA FUNDS
GENERAL ECONOMIC CONDITIONS. Diversity and a significant natural resource
base are two important characteristics of the Minnesota economy. Generally, the
structure of the State's economy parallels the structure of the United States
economy as a whole. There are, however, employment concentrations in durable
goods and non-durable goods manufacturing, particularly industrial machinery,
instruments and miscellaneous, food, paper and related industries, and printing
and publishing. During the period from 1980 to 1990, overall employment growth
in Minnesota lagged behind national employment growth, in large part due to
declining agricultural employment. The rate of non-farm employment growth in
Minnesota exceeded the rate of national growth, however, in the period of 1990
to 1994. Since 1980, Minnesota per capita income generally has remained above
the national average, but tightness in local labor markets may reduce the rate
of personal income growth below that of the national average in the future.
During 1993, 1994 and 1995, the State's monthly unemployment rate generally has
been less than the national unemployment rate.
REVENUE AND EXPENDITURES. The State 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. Frequently in recent
years, legislation has been required to eliminate projected budget deficits by
raising additional revenue, reducing expenditures, including aids to political
subdivisions and higher education, reducing the State's budget reserve, imposing
a sales tax on purchases by local governmental units, and making other budgetary
adjustment. The Minnesota Department of Finance February 1996 Forecast has
projected that, under current laws, the State will complete its current biennium
June 30, 1997 with a $15 million surplus, plus a $350 million cash flow account
balance, plus a $220 million budget reserve. Total General Fund expenditures and
transfers for the biennium are projected to be $18.8 billion. State expenditures
for education finance (K-12), post-secondary education, and human services in
the biennium ending June 30, 1997 are not anticipated to be sufficient to
maintain program levels of the previous biennium. The State is party to a
variety of civil actions that could adversely affect the State's General Fund.
In addition, substantial portions of State and local revenues are derived from
federal expenditures, and reductions in federal aid to the State and its
political subdivisions and other federal spending cuts may have substantial
adverse effects on the economic and fiscal condition of the State and its local
governmental units. The February 1996 Forecast states that pending federal
legislation could reduce federal aid to Minnesota's state and local governments
by a total of $3.2 billion over seven years. Risks are inherent in making
revenue and expenditure forecasts. Economic or fiscal conditions less favorable
than those reflected in State budget forecasts and planning estimates may create
additional budgetary pressures.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficulties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota Tax Exempt Obligations that are held by a Fund or the value or
marketability of such obligations.
Recent Minnesota tax legislation and possible future change sin federal and
State income tax laws, including rate reductions, could adversely affect the
value and marketability of Minnesota Municipal Tax Exempt Obligations that are
held by a Fund. See "Distributions to Shareholders and Taxes; Minnesota State
Taxation" in the Prospectus.
The most recent ratings applicable to General Obligation bonds issued by
the State of Minnesota are as follows: "Aa1" by Moody's; "AA+ by S&P and "AAA"
by Fitch Investors Service.
FACTORS AFFECTING MISSOURI FUND
GENERAL ECONOMIC CONDITIONS. Missouri was organized as a territory in 1812
and was admitted to the Union as the 24th state on August 10, 1821. The State
ranks 19th in size with a total area of approximately 69,697 square miles.
Missouri is a central mid-western state located near the geographic center of
the United States. Bordered by Iowa on the north, Arkansas on the south,
Illinois, Kentucky and Tennessee across the Mississippi River on the east, and
Nebraska, Kansas and Oklahoma on the west, Missouri is one of only two states
which shares it boundaries with as many as eight states.
As a major manufacturing, financial, and agricultural state, Missouri's
economic health is tied closely to that of the nation. The economic outlook is
for continued improvement in fiscal year 1996. Missouri's personal income, which
directly impacts individual income tax and sales tax, rose at a 6.3% rate during
calendar year 1994. Missouri's employment stood at 2,698,900 at the end of June,
up 107,700 from one year ago. Manufacturing employment is up significantly,
particularly in automobile manufacturing. At the end of June 1995, the state
unemployment rate was 5.0% and county unemployment rates were below the national
unemployment rate of 5.8% in 70 of Missouri's 115 counties.
BUDGETARY PROCESS. Annually, all State agencies submit budget requests for
the following appropriation year to the Division of Budget and Planning of the
Office of Administration. The Division Budget and Planning prepares the
Executive Budget and an estimate of general revenues. The Executive Budget
contains the budget amount which is recommended and submitted to the General
Assembly by the Governor within thirty days after the General Assembly convenes
in each regular session.
The General Assembly appropriates money after consideration of both the
Executive Budget and the revenue estimate. The legislative appropriations are
subject to the Governor's approval or veto, except for the funding of public
debt and public education which the Governor is prohibited by the Constitution
of Missouri from vetoing. The Governor may control the rate at which an
appropriation is expended by allotment or other means and may limit the
expenditures for any State agencies below their appropriations, whenever actual
revenues are less than the revenue estimated upon which the appropriations were
based. The Governor has line-item veto power, except for appropriations for
public debt and public education.
REVENUES AND EXPENDITURES. Balancing Missouri's budget in fiscal year 1995
was achieved through sound financial management. The growing economy produced
general revenues that were better than projected. The Governor and General
Assembly adopted a conservative State budget meeting mandated expenditure
increases and providing limited funding for new and expanded program. In future
years, Missouri will focus on controlling the growth of mandatory programs
though welfare reform, managed care, and cost-effective alternatives. Major
funding priorities include education, corrections, economic development, mental
health, children's services, and repairs and upgrades to existing state
facilities.
The State of Missouri completed fiscal year 1995 in excellent financial
condition due to strong revenue collections and efficient management of State
programs. Net general revenue collections increased over fiscal year 1994 due to
a strong national and state economy. Revenues exceeded expenditures for the
General Revenue Fund an all funds in total. General revenue collections in
fiscal year 1995 were below $5,390.3 million, 15.7% above fiscal year 1994
collections. The fiscal year 1996 budget is conservatively based upon general
revenue collections of $5,455.6 million.
The State ended fiscal year 1995 with an unreserved fund balance (surplus)
of $1,586,4 million for the governmental funds. The unreserved fund balance of
the General Fund improved due to revenue collection which were slightly better
than projections. In comparison, the 1994 fiscal year unreserved fund balanced
totaled $940,304.
Federal court-ordered payments for the St. Louis and Kansas City
desegregation plans were $314.4 million in fiscal year 1995 which is about 6% of
the State's general revenue budget. Desegregation expenditures, court orders,
and other developments are continually monitored to provide the best possible
anticipation and forecast of future costs.
DEBT ADMINISTRATION AND LIMITATION. Pursuant to the Missouri State
Constitution, the General Assembly may issue general obligation bonds solely for
the purpose of (1) refunding outstanding bonds; or, (2) upon the recommendation
of the Governor, for a temporary liability by reason of unforeseen emergency or
of deficiency in revenue in an amount not to exceed $1 million for any one year
and to be paid in not more than five years or as otherwise specifically
provided. When the liability exceeds $1 million, the General Assembly, or the
people by initiative, may submit the proposition to incur indebtedness to the
voters of the State, and the bonds may be issued if approved by a majority of
those voting. Before any bonds so authorized are issued, the General Assembly
shall make adequate provisions for the payment of the principal and interest and
shall provide for an annual tax on all taxable property in an amount sufficient
for that purpose.
The State has had a clear debt payment record since 1869 when it arranged
for payment of railroad bond interest which had been in default from 1861 to
1867. Missouri did no other significant borrowing until 1922, after which the
debt climbed to $124,700,000 in 1936. Thereafter, the State's debt declined
through 1956. In 1956, the voters approved a constitutional amendment
authorizing $75 million principal amount of bonds for the purpose of repairing
existing buildings or constructing new buildings at the State's correctional
institutions, the State training schools, State hospitals and State schools and
other eleemosynary institutions and institutions of higher education. Missouri
voters have, subsequently, approved constitutional amendments providing for the
issuance of general obligation bonds used for a number of purposes.
The amount of general obligation debt that can be issued by the State is
limited to the amount approved by popular vote plus the amount of $1 million.
The State's debt limits at June 30, 1995, was $1,476,000,000 of which $396,505
was unissued. The general obligation debt position of the State at June 30, 1995
was: general obligation bonded debt (net of amount available in governmental
funds), $896,935,000; and, Debt per capita, $169.30. During fiscal year 1995,
$33,690,000 of the bonds were retired and $105 billion new bonds were issued. At
year end, the total general obligation debt outstanding was $933,745,000. The
interest rate range was .05-9.25%.
In fiscal year 1995 Missouri invested a total of $470 million in its
capital assets with appropriations for maintenance and construction projects
throughout the State. Included in this total were capital appropriations of $250
million funded out of voter-approved Fourth State Building Bond Funds. A total
of $115.8 million of the bond funds were used to provide for an aggressive
attack on both juvenile and adult crime through construction of major Your
Services and Department of Corrections facilities. The facilities will greatly
expand the state's ability to deal with crime. In addition, the bond issue
provided $134.2 million for high priority construction and renovation of
buildings at the State's higher education institutions. Missouri also invested
$845 million in road and bridge construction and maintenance as part of a
15-year plan to improve highways using State gasoline tax revenues and matching
federal dollars.
The State's general obligation bond issues received triple "A" ratings from
Moody's Investors Service, Inc., Standard & Poor's Rating Group, and Fitch
Investors Service, Inc.
FACTORS AFFECTING NEW MEXICO FUND
GENERAL ECONOMIC CONDITIONS. The State of New Mexico, admitted as the
forty-seventh state on January 6, 1912, is the fifth largest state, containing
approximately 121,593 square miles. The State's climate is characterized by
sunshine and warm bright skies in both winter and summer. New Mexico has a
semiarid subtropical climate with light precipitation. At the time of the
official 1990 United States Census, the State's population was 1,515,069. In
1994, the population had increased to 1,654,000, or 2.4%.
Major industries in the State are energy resources, tourism, services, arts
and crafts, agriculture-agribusiness, government, manufacturing, and mining. In
1993, the value of energy resources production (crude petroleum, natural gas,
uranium, and coal) was approximately $4.28 billion. Other mineral production was
$788 million. The mining industry employed about 16,683 New Mexicans in 1994.
Major federally funded scientific research facilities at Los Alamos, Albuquerque
and White Sands are also a notable part of the State's economy.
The State has a thriving tourist industry. In 1994, there were
approximately 2.29 million visits to national parks and about 4.9 million visits
to State parks, in the State. According to a 1991 estimate by the U.S. Travel
Data Center, the State's tourist industry generated about $2.3 billion in
revenue and more than 38,370 jobs. One of the State's most famous attractions is
Carlsbad Cavern, which was made a national monument in 1923 and designated a
national park in 1930.
Agriculture is a major part of the State's economy, with crop and livestock
sales in excess of $1.6 billion in 1993. As a high, relatively dry region with
extensive grasslands, the State is ideal for raising cattle, sheep, and other
livestock. Because of irrigation and a variety of climatic conditions, the
State's farmers are able to produce a diverse assortment of quality products.
The State's farmers are major producers of alfalfa hay, wheat, chile peppers,
cotton, fruits and pecans. Agricultural businesses include chile canneries,
wineries, alfalfa pellets, chemical and fertilizer plants, farm machinery, feed
lots, and commercial slaughter plants.
BUDGETARY PROCESS. The State's government consists of the three branches
characteristic of the American political system: executive, legislative and
judicial. The executive branch is headed by the Governor who is elected for a
four-year term and may succeed him(her)self in office once. Following a
reorganization plan implemented in 1978 to reduce and consolidate some 390
agencies, boards and commissions, the primary functions of the executive branch
are now carried out by sixteen cabinet departments, each headed by a cabinet
secretary appointed by the Governor.
The Board, in addition to other powers and duties provided by law, has
general supervisory authority over the fiscal affairs of the State and over the
safekeeping and depositing of all money and securities belonging to, or in the
custody of, the State. The Board has seven members consisting of the Governor,
the Lieutenant Governor, the Treasurer and four members appointed by the
Governor with the advice and consent of the Senate; no more than two such
appointed members may be from the same political party.
The Department of Finance and Administration, created in 1957 as part of
governmental reorganization measures of that year, is the principal financial
organization of State government and performs through its divisions the duties
and functions relating to State and local government financing and general
administration. On July 1, 1983, the Department of Finance and Administration
was reorganized into the DFA, which retained the prior name and handles the
State's financial functions, and the General Services Department, which now
handles the administrative functions. The executive and administrative head of
the DFA is the Secretary, who is appointed by the Governor with the advice and
consent of the Senate, and who also serves as Executive Officer of the Board. In
1983, a Board of Finance Division was created in the DFA, to staff and
coordinate the functions of the Board.
The Legislature convenes in regular session annually on the third Tuesday
in January. Regular sessions are constitutionally limited in length to sixty
calendar days in odd-numbered years and thirty calendar days in even-numbered
years. In addition, special sessions of the Legislature may be convened by the
Governor under certain limited circumstances.
All State agencies are required to submit their budget requests to the
Budget Division of the DFA by September 1 of each year. Budget hearings are
scheduled for the purpose of examining the merits of budget requests through the
fall and are usually completed by the middle of December. Statutes require the
Budget Division to present comprehensive budget recommendations to the Governor
annually by January 2.
By statute, the Governor is required to submit a budget for the upcoming
fiscal year to the Legislature by the 25th legislative day. The State budget is
contained in a General Appropriation Bill which is first referred to the House
Appropriations and Finance Committee for consideration. The General
Appropriation Act may also contain proposals for supplemental and deficiency
appropriations for the current fiscal year. The Senate and the Senate Finance
Committee consider the General Appropriation Act after its approval by the House
of Representatives. Upon Senate passage, the Governor may sign the General
Appropriation Act, veto it, veto line items or veto parts of it. After the
Governor has signed the General Appropriation Act, the Budget Division of the
DFA approves the agency budgets and monitors the expenditure of the funds
beginning on July 1, the fist day of the fiscal year.
REVENUES AND EXPENDITURES. The State derives the bulk of its recurring
General Fund revenues from five major sources: general and selective sales
taxes, income taxes, the emergency school tax on oil and gas production, rents
and royalties from State and federal land, and interest earnings from its two
Permanent Funds. Effective July 1, 1981, the Legislature abolished all property
taxes for State operating purposes.
Declines in oil and gas prices and in gas production have contributed to a
major restructuring of the State's tax base by the 1986, 1987, 1988, 1990, and
1993 Legislatures. Sales and income taxes were increased to offset declines in
severance tax and royalty revenue. However, economic growth in 1993 and 1994 was
substantially greater than expected and large surpluses became available. The
1994 Legislature rolled back approximately one-half of the 1993 increases.
FISCAL YEAR 1993-1994. Revenues for fiscal year 1993-1994 were $2.557
billion, up 12.7% from the prior fiscal year. The 1993 Legislature increased
revenues by $114 million including $76.5 million of tax increases, $20 million
from elimination of food and medical rebates, and $10 million from
de-earmarking. Tax changes included a 6 cents per gallon increase in gasoline
taxes (with 1 cent per gallon to the Road Fund), cigarette and alcohol tax
increases, and a 0.85% increase in the emergency school tax rate on natural gas.
Reflecting the substantial increase in revenues and reserves, non-recurring
appropriations for fiscal year 1994, including spending from reserves, totaled
$220 million. Most of this was for capital projects. General Fund balances for
fiscal year 1994 were $156 million, or almost 6% of fiscal year 1995
appropriations.
FISCAL YEAR 1994-1995. Reflecting strength in the economy and sufficient
revenues, the 1994 Legislature cut General Fund revenues for fiscal year 1995 by
almost $60 million by restoring low income/personal income tax rebates, lowering
personal income tax rates, especially for married filers, suspending 2 cents of
the gasoline tax for a 3-year period and diverting the governmental gross
receipts tax to an infrastructure fund. Scheduled personal income tax rate cuts
in 1995 and 1996 will reduce personal income tax revenues an additional $25
million by fiscal year 1997. The current estimate of fiscal year 1995 revenues
is $2.676 billion. Recurring appropriations for fiscal year 1995 total $2.606
billion, up 8.6% from fiscal year 1994. Estimated fiscal year 1995 ending
balances are $185 million, but the Governor is recommending approximately $40
million of additional fiscal year 1995 appropriations to bring the General Fund
reserve level to approximately 5%.
FISCAL YEAR 1995-1996. Estimated fiscal year 1996 revenues total $2.824
billion; estimated recurring revenues are up 5%.
DEBT ADMINISTRATION. The principal sources of funding for capital projects
by the State are surplus general fund balances, general obligation bonds, and
Severance Tax Bonds. Total funding of such capital projects for the period 1983
to 1985 ranged from $170 million to $210 million per year. For the period 1986
to 1990, capital appropriations were approximately $100 million per year (except
in 1987 when fund dropped to $57 million). The 1994 Legislature authorized the
largest capital program in the State's history, $383 million. These
authorizations fund a broad range of State and local capital needs for various
public school and higher education acquisitions as well as correction
facilities, museum and cultural facilities, health facilities, State building
repairs, water rights, wastewater and water systems, State parks, local roads,
and senior citizens facilities projects.
GENERAL OBLIGATION BONDS. General obligation bonds of the State are issued
and the proceeds thereof appropriated to various purposes pursuant to an act of
the Legislature of the State. The State Constitution requires that any law which
authorizes general obligation debt of the State shall provide for an annual tax
levy sufficient to pay the interest and to provide a sinking fund to pay the
principal of the debts. General obligation bonds are general obligations of the
State for the payment of which the full faith and credit of the State are
pledged. The general obligation bonds are payable from "ad valorem" taxes levied
without limit as to rate or amount on all property in the State subject to
taxation for State purposes. For the fiscal year ended June 30, 1994, there was
an unpaid balance of $24,235,000 and a total debt service requirements of
$159,852,000 for all outstanding General Obligation Bonds.
The State of New Mexico General Obligation Capital Projects Improvements
Bonds Series 1995 in the principal amount of $66,265,000 are authorized by the
1994 Capital Projects General Obligation Bond Act (the "Act") passed by the
State Legislature in 1994, have been approved by the voters in a statewide
election in November 1994 and will be issued pursuant to a resolution of the
State Board of Finance adopted on March 7, 1995. The proceeds of the general
obligation bonds will be used to pay the expenses incurred in the preparation
and sale of the general obligation bonds and to provide for certain capital
expenditures described in the Act. Proceeds will be distributed for the
following amounts and purposes: $3,674,732, certain senior citizen facility
improvements, equipment and vehicles; $59,851,200, certain State public
educational capital improvements and acquisitions; and, $2,500,000 for public
library acquisitions.
SEVERANCE TAX BONDS. Severance Tax Bonds are not general obligations of the
State and the State is prohibited by law from using the proceeds of property
taxes as a source of payment of revenue bonds, including Severance Tax Bonds.
The State Treasurer keeps separate accounts for all money collected as Severance
Taxes, and is directed by State statute to pay Severance Tax Bonds from monies
on deposit in the Bonding Fund. Most of the 1994 authorizations were issued in a
$16.8 million sale in 1994 to the New Mexico State Treasurer and $92.1 million
in a bond sale in August, 1994. For the fiscal year ended June 30, 1994, there
was an unpaid balance of $56,048,000 and total debt service requirements of
$345,693,000 for all outstanding Severance Tax Bonds.
The Severance Tax Bonds, Series 1995A funds 55 projects for schools, local
governments, universities, and State agencies, including $1 million for
University of New Mexico medical equipment; $525,000 for Department of Health
laboratories; $400,000 for an overpass in Albuquerque; $800,000 for a local
water system; and, $250,000 for a wastewater treatment plant in Anthony, New
Mexico. Following the issuance of the Severance Tax Bonds, Series 1995A,
Severance Tax Bonds in the principal amount of $7.8 million remain authorized
but unissued (including pre- 1994 legislative authorizations).
Severance taxes have been collected by the State since the adoption of the
Severance Tax Act in 1937. Since 1959, certain severance tax receipts and
certain other monies determined by the Legislature have been deposited into the
Bonding Fund and used, in part, to retire bond issues which have funded a
variety of capital improvements in the State. The principle minerals extracted
from the State which contribute the largest portion of Severance Tax revenues
are natural gas, oil and coal. Severance Tax Collections on these three mineral
resources produced 98% of total fiscal year 1993-1994 Severance Tax Bonding Fund
tax collections. Severance Taxes from natural gas and oil together represent
approximately 80% of total fiscal year 1993-1994 Bonding Fund tax receipt.
Moody's Investors Service, Inc. and Standard & Poors Corporation have
assigned the bond ratings of "Aa1" and "AA+," respectively to General Obligation
Bonds and "Aa" and "AA," respectively, to the Severance Tax Bonds, Series 1995A.
FACTORS AFFECTING NORTH DAKOTA FUND
GENERAL ECONOMIC CONDITIONS. North Dakota lies in the central portion of
the Northern Plains with a land area of 70,665 square miles. Elevation in the
northeast corner of the State is 750 feet above sea level and in the southwest
corner of the State is 3,506 feet. The North Dakota economy continues to grow at
a slow and steady pace. The production-based economy, which provides the basis
for this stable, slow growth, while sensitive to change, is not as susceptible
to recessionary impacts as the rest of the nation. Taxable sales and purchases
for the second quarter of 1995 increased 4.6% over the second quarter of 1994.
Retail trade, the state's largest sector, grew by more than $30 million in
taxable sales and purchases, or 4.08% during the quarter. Construction showed
the largest increase of 13.63%.
Agriculture is an important segment of the state's economy. As a major
producer of durum wheat, North Dakota is expected to benefit from high wheat
prices while cattle prices are expected to remain low. NAFTA and GATT are
expected to increase agricultural exports. In recent years, the state's farmers
have formed cooperatives that combine production and processing to create
manufacturing jobs and new markets for their goods. An example of North Dakota's
commitment to agriculture-related economic development is its recent success in
attracting the Pro-Gold corn processing plant which is under construction near
Wahpeton, North Dakota. The plant is expected to process 72,000 bushels of corn
per day, expanding to 320,000 bushels per day, raising corn prices in the area
by approximately one dollar per bushel.
Oil production was expected to decline in the current biennium. However,
new oil and gas discoveries in North Dakota have been significant and may boost
production. Oil production in this state is currently averaging approximately
80,600 barrels per day, up 5% from last years production level of 76,700 barrels
per day. With the closure of Gascoyne mine, the historical upward trend in
lignite coal production will decline this biennium. The forecasted production of
twenty-nine million tons of lignite per year is a decrease of approximately one
million tons per year compared to the production during the past two years.
The labor force and employment situation for the state appears healthy.
Employment in the state has grown by 6,700 wage and salary jobs over the same
period last year and 18,000 more than in August 1993. Seven of the nine major
employment sectors showed increases: construction showed an increase of 7.1%
followed by wholesale trade at 3.9%. The mining sector had no change and the
government sector dropped by 0.9%. Unemployment is significantly below national
levels. North Dakota's unemployment rate in August was 2.7%, its lowest level
for the month of August since 1978. This is significantly lower than the
national unemployment rate.
The 1995 Legislative Assembly funded the design, development and
implementation of a Welfare Reform Computer System. The demonstration, known as
the Training, Education, Employment, and Management (TEEM) Project, is
progressing with numerous waivers received from the federal government in
September, 1995. The TEEM demonstration provides for a uniform treatment of
income and assets, a uniform budget methodology, standard certification periods
and reporting requirements, and employment and training with adequate child care
as a means of helping participants to become self-sufficient, and incorporates
child support enforcement issues. Ten counties will be included in the TEEM
demonstration.
The 54th Legislative Assemble contained substantial workers compensation
reform. Legislators passed a number of bills which dealt directly with the North
Dakota Workers Compensation Bureau. Among the list of issues addressed in the
legislation were: fraud prevention; designated providers; first report of
injury; retirement; claims closure; rehabilitation; permanent partial injury;
worker adviser/ombudsman program; and, litigation/attorney fees. Additionally,
the North Dakota Workers Compensation Bureau is implementing a number of other
changes to improve customer service. The Fund is also expanding its
employer-based programs to get more employers actively involved in risk
management. These programs focus on intense communication between the injured
worker, medical providers and the employer.
BUDGETARY PROCESS. The State operates through a biennial appropriation
which represents departmental appropriations recommended by the Governor and
presented to the General Assembly at the beginning of each legislative session.
The General Assembly enacts the budgets of the various State departments through
passage of specific appropriation bills. The Governor has line item veto powers
over all legislation subject to legislative override. Session laws that were
passed by the Legislature in 1993 authorize directors of various state agencies
to transfer appropriation authority among the various divisions of their
specific agency, subject to the Budget Section of the North Dakota Legislative
Council's approval. Unexpended appropriations lapse at the end of each biennium,
except certain capital expenditures covered under the North Dakota Code and
except for all unexpended general funds appropriation authority which must be
deposited in special revenue funds of the institutions in the University System
according to law. During the 1993-1995 biennium there were supplemental
appropriations of $105,573,249. The general fund appropriation authority was
increased by approximately $6.5 million. Of this amount $3.7 million was
carryover from the 1991-1993 biennium, $2.0 million was approved by the 54th
Legislative Assembly for Risk Management and $.8 million was for deficiencies
also approved by the 54th Legislative Assembly.
The GAAP General Fund undesignated balance decreased from $72.1 million on
June 30, 1994 to $64.6 million as of June 30, 1995. The primary reason for the
decrease was increased expenditure levels for education ($9.4 million) and
health and human services program ($9.6 million). The 1995 general fund reserved
fund balance includes a $31.9 million appropriation receivable from the Bank of
North Dakota.
North Dakota implemented a new accounting standard, GASB Statement No 22
"Accounting for Taxpayer Assessed Tax Revenues in Governmental Funds." This
created a one time acceleration of revenue recognition for the State's major tax
types. The change resulted in a restatement of the general fund's 1994 balance,
increasing it from $64.3 million to $94.4 million. In fiscal year 1995 an
additional $75.6 million was recognized for taxes receivable in the general
fund. The increase in taxes receivable resulted in an additional $36 million
being recognized as revenue and $39.6 million as deferred revenue in fiscal year
1995 in the general fund. The general fund also had an $11 million increase in
accrued tax refunds payable which decreased revenues in the general fund for
fiscal year 1995.
REVENUES AND EXPENDITURES. General governmental activities are accounted
for in four governmental fund types: general (GAAP) basis; special revenue;
capital projects; and, debt service funds. Revenues for general governmental
functions totaled approximately $1.4 billion for the fiscal year ended June 30,
1995. Of the total revenues, taxes accounted for $680,620,000. The largest
increase in taxes on a budgetary basis comes from sales and use taxes with an
increase of $24.5 million for the fiscal year. Twelve million of the increase is
attributed to the acceleration of sales tax collected and reported as required
by North Dakota Code in each odd-numbered year. The remaining $12.5 million is
due to economic growth. The second largest source of general fund revenue, the
individual income tax, increase approximately $4 million due to economic growth.
On the other hand, corporate income taxes decreased approximately $6.7 million
as a result of an unusually high corporate audit collection of $13.6 million in
fiscal year 1994.
Expenditures for GAAP general government functions totaled approximately
$1.3 billion for the fiscal year ended June 30, 1995. The three leading
expenditures were: health and human services, $528,052,000; education, $329,249;
and, highways, $226,626,000. Overall, general government expenditures increased
by 30%. The increase is the result of higher federal funding because of the
Presidential Flood Declaration of 1993. The Office of Intergovernmental
Assistance passed on to local political subdivisions approximately $9.8 million
for flood disaster and community block grants.
Claims/Judgments Payable are primarily Workers Compensation Claims Incurred
But Not Yet Reported (IBNR) by the claimants as well as claims related to
various litigation matters. Claims and judgments for governmental funds are
reflected entirely in the general long-term debt account group and not in
individual funds as the liability is not expected to be liquidated with
expendable available financial resources.
DEBT ADMINISTRATION. The Constitution of North Dakota provides that the
State may issue or guarantee the payment of bonds provided that all bonds in
excess of $2 million are: secured by first mortgage upon property and no further
indebtedness may be incurred by the State unless evidenced by a bond issue;
authorized by law, for a certain purpose; provisioned to pay the interest
semiannually, and pay the principal within 30 years. The law authorizing the
bond issue must specifically appropriate the provisions to the payment of the
principal and interest of the bond. The State is currently in compliance with
the constitutional debt limitation. At June 30, 1995, the state had a number of
debt issues outstanding. These issued include:
GENERAL OBLIGATION BONDS. General obligation bonds have been authorized and
issued to provide funds to the Bank of North Dakota. General obligation bonds
issued according to the constitution and enabling statutes are backed by the
full faith, credit and taxing power of the State of North Dakota. Debt service
requirements are provided by repayment of the real estate loans and transfers
from the Bank of North Dakota. The State's net general obligation debt per
capita is $36. General obligation bonds currently outstanding are the 1984 and
1986 Real Estate Series. At June 30, 1995, the balance was $39,046,000.
REVENUE BONDS. Current State statutes empower certain State agencies to
issue bonds as part of their activities. This debt is not backed by the full
faith and credit of the State of North Dakota. The principal and interest on
such bonds shall be payable only from the applicable agencies' program income.
On June 30, 1995, total Revenue Bonds outstanding totaled $825,439. The Bonds
and balance were as follows: State Fair, $3,421,000; Student Loan Trust,
$199,320,000; Building Authority, $65,613,000; Housing Finance, $425,149,000;
University System, $65,571,000; and Municipal Bond Bank, $66,365,000.
LONG-TERM NOTES. The Bank of North Dakota has long-term notes in the amount
of $53.5 million. The Fuji Bank, Ltd. Notes ($50 million) were issued in
December, 1986 and are due December, 1996. The rate of interest in 7.875% with
an effective interest rate of 7.94%. The bank has two advances from the Federal
Home Loan Bank in the amounts of $2.5 million and $1 million. The rates of
interest are 7.99% and 8.34%, respectively.
North Dakota continues to receive bond ratings from both Moody's Investors
Service (Aa) and Standard and Poor's Corporation (AA-) on general obligation
bond issues.
FACTORS AFFECTING OREGON FUND
GENERAL ECONOMIC CONDITIONS. Oregon's economy clearly slowed in the first
half of 1995, but growth remains stronger than the national average. As they
have since 1993, the state's electronics manufacturing and construction sectors
led economic growth in the second quarter. Strong job growth also occurred in
the service sector. However, lumber and wood products turned sharply negative in
the second quarter. Second only to the lumber and wood products industry, Oregon
agriculture had gross farm sales over $3 billion in 1994. Oregon's diversified
agricultural base reported 84 commodities with sales of $1 million or more in
1994. The top ten cash commodities for 1994 were: farm forest products, $521
million; cattle and calves, $385 million; nursery crops, $269 million; dairy,
$218 million; wheat, $214 million; potatoes, $124 million; alfalfa hay, $82
million; perennial rye grass seed, $78 million; Christmas Trees, $72 million;
and dry onions, $72 million.
Employment is expected to grow 3.8% in 1995 down only slightly from the
4.3% pace recorded in 1994. Job growth is expected to slow further to 2.2% in
1996 as the construction boom winds down and a shortage of available labor
limits net job creation.
BUDGETARY PROCESS. The Oregon budget is approved on a biennial basis by
separate appropriation measures. a biennium begins July 1 and ends June 30 of
odd-numbered years. Measures are passed for the approaching biennium during each
regular Legislative session, held beginning in January of odd-numbered years.
Because the Oregon Legislative Assembly meets in regular session for
approximately six months of each biennium, provision is made for interim funding
through the Legislative Emergency Board. The Emergency Board is authorized to
make allocations of General Fund monies to State agencies from the State
Emergency Fund. The Emergency Board may also authorize increases in expenditure
limitations from Other or Federal Funds (dedicated or continuously appropriated
funds), and may take other actions to meet emergency needs when the Legislative
Assembly is not in session. The most significant feature of the budgeting
process in Oregon is the constitutional requirement that the budget be in
balance at the end of each biennium. Because of this provision, Oregon may not
budget a deficit and is required to alleviate any revenue shortfalls within each
biennium.
REVENUE AND EXPENDITURES. The Oregon Biennial budget is a two-year fiscal
plan balancing proposed spending against expected revenues. The total budget
consists of three segments distinguished by source of revenues: program
supported by General Fund revenues; programs supported by Other Funds (dedicated
fund) revenues, including lottery funds; and, Federal Funds. In its 1995 Regular
Session, the Oregon Legislative Assembly approved General Fund appropriations
totaling $7,372.6 million for the 1995-1997 biennium. This is a 15.2% increase
compared to estimated 1993-1995 expenditures.
General Fund revenue totaled $6,536.1 million for the 1993-1995 biennium.
Revenue exceeded the May estimate by $16.7 million in the 1993 Close of Session
(COS) estimate by $330.6 million or 5.3%. Expenditures are estimated to be
$6,402.6 million for the biennium leaving a 1993-1995 ending balance of $499.9
million.
The 1995-1997 Close of Legislative Session estimate (COS) is based on the
May estimate adjusted for actions taken by the 1995 Legislative Assembly. The
COS revenue estimate is $6,961.5 million. The May forecast called for revenue of
$6,853.8 million. Actions taken during the 1995 regular session are expected to
lead to an additional $107.7 million for the 1995-1997 biennium. The COS ending
balance estimate for the 1995-1997 biennium is $72.1 million.
The September forecast for the 1995-1997 General Fund revenue is $7,000.4
million, an increase of $38.9 million form the COS estimate. The beginning
balance is now estimated to be $499.9 million leaving total General Fund
resources available for the 1995-1997 biennium of $7,500.3 million. The General
Fund resources estimate is $55.6 million higher than the COS estimate.
The State is involved in certain legal proceedings that, if decided against
the State, may require the State to make significant future expenditures or may
impair future revenue sources. Because of the prospective nature of these legal
proceedings, no provision for these potential liabilities has been recorded in
the publicly disclosed financial statements. Additionally, 1,229 notices of tort
claims filed against the State. Of those claims, 544 also have been filed as
court actions, and are pending against the State. These cases are pending in
State courts and are subject to the liability limitations stated in the Tort
Claims Act of $500,000 per occurrence, $200,000 per individual for physical
injuries, and $50,000 per occurrence for property damage. The likelihood of an
unfavorable outcome in these cases ranges from probable to remote, but it is
certain that these cases do not involve real exposure of $25 million in the
aggregate.
In the November 1994 general election, Oregonians approved a ballot
measure, introduced through the initiative process, that will have, or may have,
a material financial impact on the State. "Measure 11" amends Oregon statutes to
require mandated minimum sentences for certain felonies, effective April 1,
1995. "Measure 11" creates a need for an estimated 6,085 new prison beds by the
year 2001 and calls for State correction facility construction costs of
approximately $462 million in the next five years. The State also estimates
increases in State expenditures for correctional operations, beginning with an
increase of $3.2 million in fiscal year 1996, with accelerating costs that
should peak at an annual increase of up to $101.6 million by fiscal year 2001.
Because these demands will be made by on the State General Fund, they will
reduce amounts that otherwise would be available in the future for the Oregon
Legislative Assembly to appropriate for other purposes.
DEBT ADMINISTRATION AND LIMITATION. Oregon statutes give the State
Treasurer authority to review and approve the terms and conditions of sale for
State agency bonds. The Governor, by statute, seeks the advice of the State
Treasurer when recommending the total biennial bonding level for State programs.
Agencies may not request that the Treasurer issue bonds or certificates of
requirements for state agencies on proposed and outstanding debt. Statutes
contain management and reporting requirements for state agencies on proposed and
outstanding debt.
A variety of general obligation and revenue bond programs have been
approved in Oregon to finance public purpose programs and projects. General
obligation bond authority requires voter approval or a constitutional amendment,
while revenue bonds may be issued under statutory authority. However, under the
Oregon Constitution the state may issue up to $50,000 of general obligation debt
without specific voter approval. The State Legislative Assembly has the right to
place limits on general obligation bond programs which are more restrictive than
those approved by the voters. General obligation authorizations are normally
expressed as a percentage of statewide True Cash Value (TCV) of taxable
property. Revenue bonds usually are limited by the Legislative Assembly to a
specific dollar amount.
The State's constitution authorizes the issuance of general obligation
bonds for financing community colleges, highway construction, and pollution
control facilities. Higher education institutions and activities and community
colleges are financed through an appropriation from the General Fund. Facilities
acquired under the pollution control program are required to conservatively
appear to be at least 70% self-supporting and self-liquidating from revenues,
gifts, federal government grants, user charges, assessments, and other fees.
Additionally, the State's constitution authorizes the issuance of general
obligation bonds to make farm and home loans to veterans, provide loans for
state residents to construct water development projects, provide credit for
multi-family housing for elderly and disabled persons, and for small scale local
energy projects. These bonds are self-supporting and are accounted for as
enterprise funds. Certain provisions of the Water Resources general obligation
bond indenture conflict with State statutes. Upon the advice of the Attorney
General, the method of handling investment interest is in compliance with the
statutes rather than the bond indenture. Currently there is litigation pending
against the State concerning this treatment of the investment interest.
The State's constitution further authorizes the issuance of general
obligation bonds for financing higher education building projects, facilities,
institutions, and activities. For the year ending June 30, 1994, the total
balance of general obligation bonds was $4.6 billion. The debt service
requirements for general obligation bonds, including interest of approximately
$3.734 million, as of June 30, 1994, was $8.3 billion.
In addition to general obligation and direct revenue bonds, the State of
Oregon issues industrial development revenue bonds ("IDBs"), Oregon Mass
Transportation Financing Authority revenue bonds and Health, Housing,
Educational and Cultural Facilities Authority ("HHECFA") revenue bonds. The IDBs
are issued to finance the expansion, enhancement or relocation of private
industry in the State. Before such bonds are issued, the project application
must be reviewed and approved by both the Oregon State Treasury and the Oregon
Economic Development Commission. Strict guidelines for eligibility have been
developed to ensure that the program meets clearly defined development
objective. IDBs issued by the State are secured solely by payments from the
private company and there is no obligation, either actual or implied, to provide
state funds to secure the bonds. The Oregon Mass Transportation Financing
Authority ("OMTFA") reviews financing request from local mass transit districts
and my authorize issuance of revenue bonds to finance eligible projects. The
State has no financial obligation for these bonds, which are secured solely by
payments from local transit districts.
The State is statutorily authorized to enter into financing agreements
through the issuance of certificates of participation. Certificates of
participation have been used for the acquisition of computer systems by the
Department of Transportation, Department of Administrative Services, and the
Department of Higher Education. Also, certificates of participation have been
used for the acquisition or construction of buildings by the Department of
Administrative Services, Department of Fish and Wildlife, Department of
Corrections, State Police, and Department of Higher Education. Further,
certificates of participation were used in the acquisition of telecommunication
system by the Department of Administrative Services and the Adult & Family
Services Division. For the year ending June 30, 1994, the certificates of
participation debt totaled $174.3 million. The debt service requirements for
certificates of participation, including interest of approximately $105.1
million, as of June 30, 1994, totaled $281.3 million.
HHECFA is a public corporation created in 1989, and modified in 1991, to
assist with the assembling and financing of lands for health care, housing,
educational and cultural uses and for the construction and financing of
facilities for such uses. The Authority reviews proposed projects and makes
recommendations to the State Treasurer as to the issuance of bonds to finance
proposed projects. The State has no financial obligation for these bonds, which
are secured solely by payments from the entities for which the projects were
financed.
The Treasurer on behalf of the State may also issue federally taxable bonds
in those situations where securing a federal tax exemption is unlikely or
undesirable; regulate "current" as well as "advance" refunding bonds; enter into
financing agreements, including lease purchase agreements, installment sales
agreements and loan agreements to finance real or personal property and approve
certificates of participation with respect to the financing agreements. Amounts
payable by the State under a financing agreement are limited to funds
appropriated or otherwise made available by the Legislative Assembly for such
payment. The principal amount of such financing agreements are treated as bonds
subject to maximum annual bonding levels established by the Legislative Assembly
under Oregon statute.
Each of Fitch Investors Service, Moody's Investors Service and Standard &
Poor's Ratings Group has assigned their municipal bond ratings of "AA," "Aa,"
and AA-" respectively.
FACTORS AFFECTING PUERTO RICO
GENERAL ECONOMIC CONDITIONS. Puerto Rico, the fourth largest of the
Caribbean islands, is located approximately 1,600 miles southeast of New City
and 1,000 miles east-southeast of Miami, Florida. It is approximately 100 miles
long and 35 miles wide. According to estimates of the Planning Board, the
population of Puerto Rico increased to 3,653,000 during fiscal 1994.
Puerto Rico came under United States sovereignty by the Treaty of Paris,
signed on December 10, 1898, terminating the Spanish-American War. Puerto Ricans
have been citizens of the United States since 1917. Puerto Rico's constitutional
status is that of a territory of the United States and the ultimate source of
power over Puerto Rico, pursuant to the Territories Clause of the Federal
Constitution, is the United States Congress. The Commonwealth exercises
virtually the same control over its internal affairs as do the fifty states;
however, it differs from the states in its relationship with the federal
government. The people of Puerto Rico are citizens of the United States but do
not vote in national elections. They are represented in Congress by a Resident
Commissioner who has a voice in the House of Representatives and limited voting
powers. Most federal taxes, except those such as social security taxes, are not
levied in Puerto Rico. No federal income tax is collected from Commonwealth
residents on ordinary income earned from sources in Puerto Rico, except for
certain federal employees who are subject to taxes on their salaries and for
income earned from sources outside Puerto Rico.
The Commonwealth has established policies and programs directed at the
development of manufacturing and the expansion and modernization of the island's
infrastructure. The investment of mainland United States, foreign and local
funds in new factories has been stimulated by selective tax exemption,
development loans, and other financial and tax incentives. Infrastructure
expansion and modernization have bee to a large extent financed by bonds and
notes issued by the Commonwealth, its public corporations and municipalities.
Economic progress has been aided by significant increases in the levels of
education and occupational skills of the island's population.
The economy of Puerto Rico is closely integrated with that of the mainland
United States. During fiscal 1994 approximately 87% of Puerto Rico's exports
went to the United States mainland, which was also the source of approximately
67% of Puerto Rico's imports. In fiscal 1994, Puerto Rico experienced a $4.3
billion positive adjusted merchandise trade balance. Gross product in fiscal
1991 was $22.8 billion and gross product in fiscal 1995 was $28.4 billion. This
represents an increase in gross product of 24.4% from fiscal 1991 to 1995.
Puerto Rico's more than decade-long economic expansion continued throughout
the five-year period from fiscal 1991 through fiscal 1995. Almost every sector
of the economy was affected and record levels of employment were achieved.
Average employment in creased from 977,000 in fiscal 1991 to 1,051,300 in fiscal
1995. Average unemployment decreased from 15.2% in fiscal 1991 to 13.8% in
fiscal 1995.
Puerto Rico has a diversified economy. During the fiscal years 1990-1994,
the manufacturing and service sectors generated the largest portion of gross
domestic product. Three sectors of the economy provide the most employment:
Manufacturing, services, and government.
Gross product in fiscal 1991 was $22.8 billion and gross product in fiscal
1995 was $28.4 billion. This represents an increase in gross product of 24.4%
from fiscal 1991 to 1995. Since fiscal 1985, personal income, both aggregate and
per capita, has increased consistently each fiscal year. In fiscal 1994,
aggregate personal income was $25.7 billion and personal income per capita was
$7,047. Personal income includes transfer payments to individuals in Puerto Rico
under various social program. Transfer payments to individual in fiscal 1994
were $5.7 billion, of which $3.9 billion, or 68.9% represent entitlements to
individuals who had previously performed services or made contributions under
programs such as Social Security, Veterans' Benefits, and Medicare.
BUDGETARY PROCESS. The fiscal year of the Commonwealth begins on July 1.
The Governor is constitutionally required to submit to the Legislature an annual
balanced budget of capital improvements and operating expenses of the
Commonwealth for the ensuing fiscal year. Section 7 of Article VI of the
Constitution provides that, "The appropriations made for any fiscal year shall
not exceed the total revenues, including available surplus, estimated for said
fiscal year unless the imposition of taxes sufficient to cover said
appropriations as provided by law."
REVENUES AND EXPENDITURES. In the fiscal 1995 budget revenues and other
resources of all budgetary funds total $8,381,444,000, excluding balances from
the previous fiscal year and general obligation bonds authorized. Current
expenses and capital improvements, other than those financed by bonds, of all
budgetary funds total $8,673,845,000, an increase of $1,160,550,000 from fiscal
1994. The general obligation bond authorization for the fiscal 1995 budget is
$325,000,000.
In the fiscal 1996 budget proposal revenues and other resources of all
budgetary funds total $8,269,848,000 excluding balances from the previous fiscal
year and general obligation bonds authorized. Current expenses and capital
improvements other than those financed by bonds, of all budgetary funds total
$8,546,543,000, a decrease of $127,303,000 from fiscal 1995. The general
obligation bond authorization for the fiscal 1996 budget is $355,000,000.
TAX INCENTIVES. Much of the development of the manufacturing sector in
Puerto Rico can be attributed to various federal and Commonwealth tax incentive,
particularly Section 936 of the Internal Revenue Code, as amended (the "Code")
and the Commonwealth's Industrial Incentives Program.
SECTION 936. Under Section 936 of the Code, United States corporations that
meet certain requirements and elect its application ("Section 936 Corporations")
are entitled to credit against their United States corporate income tax the
portion of such tax attributable to (I) income derived from the active conduct
of a trade or business within Puerto Rico ("active business income") or from the
sale of exchange of substantially all assets used in the active conduct of such
trade or business; and, (ii) qualified possession source investment income
("passive income"). To qualify under Section 936 in any given taxable year a
corporation must derive (I) for the three-year period immediately preceding the
end of such taxable year 80% or more of its gross income from sources within
Puerto Rico; and, (ii) for taxable years beginning after December 31, 1986, 75%
or more of its gross income from the active conduct of a trade or business in
Puerto Rico. A Section 936 Corporation may elect to compute its active business
income eligible for the Section 936 credit under one of three formulas.
On November 17, 1995 the United States Congress adopted, as part of its
larger federal income tax legislative package, a ten-year phase out of the
current 936 credit for companies that are existing credit claimants and the
elimination of the credit for companies establishing new operation in Puerto
Rico and for existing companies that add a substantial new lime of business. The
credit based on the economic limitation will continue as under current law
without change until tax years beginning in 2002, during which years the
possession business income will be subject to a cap based on the corporation's
possession income for an average adjusted base period. The credit based on the
percentage limitation will continue as under current law until tax years
beginning in 1998. In that year and thereafter, the credit based on the
percentage limitation will be 40%, but the possession business income will be
subject to a cap based on the corporation's possession income for an average
adjusted base period. The 936 credit is eliminated for taxable years beginning
in 2006. However, the credit granted to passive income (QPSII) is eliminated for
taxable years beginning after December 31, 1995.
The President vetoed the legislation submitted by the United States
Congress on December 7, 1995. The Administration has proposed a modification to
the 936 credit that would phase out the credit based upon the percentage
limitation over a five year period beginning in 1997, retain the credit based
upon the economic limitation under current law, allow a five year carry forward
of excess credit based upon the economic limitation and retain the credit
granted to passive income (QPSII) under current law.
It is not possible at this time to determine the final legislative changes
that may be made to Section 936, or the effect on the long-term outlook on the
economy of Puerto Rico. The government of Puerto Rico does not believe there
will be short-term or medium-term material adverse effects on Puerto Rico's
economy as a result of the changes to Section 936 currently proposed by Congress
or the Administration. The Government of Puerto Rico further believes that even
if the Congressional proposal became law, sufficient time exists to put
additional incentive programs in place to safeguard Puerto Rico's competitive
position.
INDUSTRIAL INCENTIVES PROGRAM. Since 1948 Puerto Rico has had various
industrial incentives laws designed to stimulate industrial investment in the
island. On January 24, 1987, the Governor of Puerto Rico signed into law the
most recent industrial incentives law, known as the Puerto Rico Tax Incentive
Act (the "1987 Act"). The tax exemption benefits provided by the 1987 Act are
generally more favorable than those provided by its predecessor, the Industrial
Incentives Act of 1978 (the "1978 Act"). The activities eligible for exemption
under the 1987 Act include manufacturing, certain designated services for
markets outside Puerto Rico, the production of energy from local renewable
sources for consumption in Puerto Rico, and laboratories for scientific and
industrial research.
The 1987 Act provides a fixed 90% exemption from income and property taxes
and a 60% exemption from municipal license taxes during a 10, 15, 20 or 25 year
period, depending on the zone where the operations are located. The 1987 Act
also provides a special deduction equal to 15% of the production payroll for
companies whose net income from operations is less than $20,000 per production
job. This special benefit is designed to attract and maintain labor intensive
operations in Puerto Rico. The passive income from certain qualified investment
in Puerto Rico and the instruments evidencing such investments are fully exempt
from income tax. In addition, companies making such investments for fixed
periods of not less than five years are eligible to reduce the tollgate tax
imposed on dividend and liquidating distributions from a maximum rate of 10% to
5%, depending on the amount and term of the investment.
The bottom limit of 5% was approved in a recent amendment (December 1993)
of the 1987 Act (the "1993 amendments"). The 1993 amendments also impose a new
5% estimated tax on annual industrial development income, subject to reduction
in the event certain long-term qualified investments with such income are made.
The Department of Treasury is collecting an additional amount annually as a
result of the implementation of the bottom limit. As a result of the 1993
amendments, the Department of the Treasury has increased its ability to predict
tax revenues from corporations with greater accuracy. The 1993 amendments also
contain an option to pay a flat 14% tax on annual industrial development income,
which would allow eligible companies to repatriate profits free of tollgate
taxes. Under this option, if a company invests 25% or 50% of its profits in
qualified industrial development investments, the 14% rate drops to 11% or 9%,
respectively. The 1987 Act applies to newly established operations as well as to
existing operations that elect to convert their tax exemption grants to the
provision of the 1987 Act.
Since 1983 hotel operations have been covered by a special incentives law,
the Tourism Incentives Act of 1983, which provides exemptions from income,
property and municipal license taxes for a period of 10 years. In 1993,
legislation was enacted providing for an additional set of tax incentives for
new hotel development projects. In addition to providing for exemptions from
income, property and municipal license taxes for a period of up to 10 years, it
provides certain tax credits for qualifying investments in such projects.
CARIBBEAN BASIN INITIATIVE. In August, 1983, the President of the United
States signed into law the Caribbean Basin Economic Recovery Act. The Tax Reform
Act of 1986 amended Section 936 to allow Puerto Rico financial institutions to
invest funds representing earnings accumulated under Section 936, in active
business assets or development projects in a qualified Caribbean Basin country.
As of December 1994, 167 projects under the Puerto Rico Caribbean Development
Program have been promoted in fourteen Caribbean Basin countries, representing
36,115 jobs and over $1,989 million in loan commitments, of which $1,217 million
of Section 936 funds have been disbursed.
DEBT ADMINISTRATION AND LIMITATION. Public sector debt comprises bonds and
notes of the Commonwealth and its municipalities and public corporations. Direct
debt of the Commonwealth is supported by Commonwealth taxes. Debt of
municipalities, other than bond anticipation notes, is supported by real and
personal property taxes and municipal license taxes. Debt of public
corporations, other than bond anticipation notes is generally supported by the
revenues of such corporations from charges for services or products. However,
certain debt of public corporations is supported, in whole or in part, directly
or indirectly, by Commonwealth appropriations or taxes.
COMMONWEALTH GUARANTEED DEBT. Annual debt service on outstanding
Commonwealth guaranteed bonds issued by Urban Renewal and Housing Corporation
and assumed in fiscal year 1992 by Housing Bank and Finance Agency is
$13,254,048 in the fiscal year ending September 30, 1996, which constitutes the
maximum annual debt service on such bonds. The final maturity of such bonds is
October 1, 2001. As of September 30, 1995, $74,755,000 of Commonwealth
guaranteed bonds of Housing Bank and Finance Agency were outstanding. Annual
debt service on Commonwealth guaranteed bonds of Public Buildings Authority is
$114,777,000 in fiscal year ending June 30, 1996 with the final maturity on July
1, 2025. As of September 30, 1995, $1,335,611,000 of Commonwealth guaranteed
bonds of Public Buildings Authority were outstanding. No payments under the
Commonwealth guaranty have been required to date for bonds of Housing Bank and
Finance Agency or Public Buildings Authority.
As of September 30, 1995, $267,000,000 of Commonwealth guaranteed
obligations of Government Development Bank were outstanding. No payments under
the Commonwealth guaranty have been required for any obligations of Government
Development Bank to date.
PUBLIC SECTOR Debt. In Puerto Rico, many governmental or quasi-governmental
functions are performed by public corporations. These are governmental entities
of the Commonwealth created by the Legislature but with varying degrees of
independence from the central government. Most public corporations obtain
revenues from charges for services or products, but many are subsidized to some
extent by the central governments. Capital improvements of most of the larger
public corporations are financed by revenue bonds under trust notes of certain
of the public corporations as of September 30, 1995. Debt of certain other
public corporations is payable primarily from the Federal Government or is
payable from sources other than Commonwealth appropriations or taxes or revenues
of public corporations derived from services or products.
Historically, the Commonwealth has maintained a fiscal policy which
provides for a prudent relationship between the growth of public sector debt and
the growth of the economic base required to service that the debt. The
Commonwealth has also sought opportunities to realize debt service savings by
refunding outstanding debt with obligations bearing lower interest rates. Over
fiscal years 1991 to 1995, public sector debt increased by 24.7% while gross
product rose 24.4%. This slightly greater increase in the rate of public sector
debt relative to the rate of increase in gross product over the subject period
was principally the result of refinancing to achieve debt service savings. Short
term debt outstanding relative to total debt was 7.7% as of September 30, 1995.
GOVERNMENT DEVELOPMENT BANK. The principal functions of Government
Development Bank are to act as financial advisor to, and fiscal agent for, the
Commonwealth, its municipalities and public corporations in connection with the
issuance of bonds and notes, to make loans and advances to public corporations
and municipalities, and to make loans to private enterprises to aid in the
economic development of Puerto Rico.
As of September 30, 1995, $1,540,948,000 of bonds and notes of Government
Development Bank were outstanding. Government Development Bank has loaned
$1,901,578,894 to Commonwealth public corporations and municipalities. Act No.
12, approved May 9, 1975, as amended, provides that the payment of principal of
and interest on specified notes and other obligations of Government Development
Bank, not exceeding $550,000,000, may be guaranteed by the Commonwealth, of
which $267,000,000 were outstanding as of September 30, 1995. Government
Development Bank has the following principal subsidiaries: Higher Education
Assistance Corporation, Housing Finance Corporation, Tourism Development Fund,
Development Fund, Capital Fund, and Public Finance Corporation.
FACTORS AFFECTING UTAH FUND
GENERAL ECONOMIC CONDITIONS. On January 4, 1896, the State became the
forty-fifth state of the United States of America. Ranking eleventh among the
states in total area, the State contains approximately 82,168 square miles. It
ranges in elevation from a low of 2,500 feet above sea level in the south, to a
high of 13,500 feet above sea level in the north. The State is located in an
arid region (precipitation ranks as the forty-ninth lowest in the nation, ahead
of Nevada) and in the center of the Rocky Mountain region with excellent access
to major national and international markets. Home to deserts, plateaus, the
Great Basin and the Rocky Mountains, the State is known for its scenic beauty
and the diversity of its outdoor recreation areas. Approximately 20% of the
State is national park and forest land, 42% is Bureau of Land Management land
and 7% is State park land. Transportation infrastructure in the form of
interstate highways, railroad lines, and an international airport is in place to
provide efficient transportation for business and tourism.
The population forecast for 1995 is 1,964,000, indicating continued growth.
As of July 1, 1994, Utah's population was approximately 1,916,000, a 2.7%
increase over 1993. This is the highest rate in the last twelve years. Net
in-migrations were approximately 22,800 people in 1994. This is the fourth
consecutive year Utah experienced strong net in-migrations. This net
in-migration trend is projected to continue for at least the next three year.
The State's population continues to be concentrated in the metropolitan area
along the Wasatch mountains, with Salt Lake City as the hub. Growth in the rural
areas has picked up in the last few years and in 1994 over half of the net
in-migration was attributed to non-metropolitan counties. The State continues to
face the challenge of bringing more economic development to the rural areas of
the State.
Utah's economy continues to experience sustained growth rates greater than
that of the national economy. Employment growth, an important economic
indicator, continues to look strong. Utah consistently ranked near the top of
the nation in job growth. From September 1993 to September 1994, Utah led the
nation in job growth at 6.2%. From August 1994 through August 1995, Utah created
54,200 new jobs. The job growth rates for 1995 are projected to be around 5.8%.
Projected job growth for 1996 is about 4.8%.
The strength of the State's economy over the past several years has
occurred at the same time that it has become more diversified. That is, the
distribution of the State's employment has become less specialized across
industries while the level of total employment has increased. The result of this
restructuring in the midst of economic growth is that sectors in which the
State's employment has been disproportionately concentrated in the past (such as
the federal government and extractive industries) have lost in employment share,
while sectors other than these (notably those affected by the expansion of
tourism, computer software, financial services, and biomedical technologies)
have increased in shares. The service industries continue to generate the
largest number of jobs in the State. During 1994, services created 13,400 new
jobs. The major contributors to rapid expansion were the high-tech computer
services, business services, engineering/management services, and
personal/amusement services.
In light of Utah's economic growth and positive financial position, the
State continues to face many significant issues. The State must deal with the
increased demand for services associated with this growth. Education, economic
development, transportation, corrections, health, and human service needs
continue to be the major demands on state resources.
BUDGETARY PROCESS. The Governor is required to submit a balanced budget to
the Legislature for each fiscal year. The budget is required to describe, among
other things, (I) a complete plan of proposed expenditures and estimated
revenues for the ensuing year, (ii) the revenues and expenditures for the next
preceding fiscal year, and (iii) current assets, liabilities and reserves, any
surplus or deficit and the debts and funds of the State. The budget is required
to include an itemized estimate of appropriations for payment and discharge of
the principal and interest of the indebtedness of the State, among other things.
Deficits or anticipated deficits must be included in the budget.
The State Constitution requires that budgeted expenditures should not
exceed estimated revenues and other sources of funding, including beginning fund
balances. The Legislature authorizes expenditures in annual state
"Appropriations Acts." The Acts also identify the sources of funding for
budgeted expenditures. In the event actual revenues are insufficient to cover
budgeted expenditures, the Governor must order budget reductions. Adjustments to
the budget may be made throughout the year for changes in department revenues or
fund revenues so that departments and funds will not end the fiscal year in a
deficit positions.
The State also has an appropriation limitation statute which limits the
growth in state appropriations. The law provides three basic limitations. First,
as population, personal income, and inflation increase, appropriations are
allowed to increase only at the same relative rate. Second, it limits
outstanding state general obligation debt to 20% of the appropriations limit.
Third, it freezes the state-mandated property tax rate, which funds a portion of
public education at the local level. These statutory limitations can be exceeded
only if a fiscal emergency is declared and approved by more than two-thirds of
both houses of the Legislature, or if approved by a vote of the people. However,
the spending limit statute may be amended by a majority in both houses of the
Legislature.
Using 1985 as the base year, the State was $4 million below the
appropriation limitation for the fiscal year ended June 30, 1995. The State is
currently below the fiscal year 1996 appropriation limitation by $3 million.
Also, the Sate is currently $145 million below the statutory debt limit and is
$743 million below the debt limit established in the Constitution.
REVENUES AND EXPENDITURES. The General Fund is the principal fund from
which appropriations are made for State operations. It is specifically
maintained to account for all financial resources and transactions not accounted
for in another fund. The General Fund receives all State sales taxes, which
comprise the largest source of this Fund's revenues. Other principal sources of
revenues include Federal contracts, grants and mineral lease payments, State
department collections and miscellaneous licenses, fees and taxes.
Each fund of the State maintains an equity position which is either
restricted by state law, restricted by contract, or is unreserved and available
for future appropriation. The equity position of the State' General Fund and
Special Revenue Funds are:
1. General Revenue Fund. Departments lapsed unexpended appropriations of $3
million to the unrestricted fund balance. The General Fund ended the year with
an unreserved fund balance of $15 million and a reserved and designated fund
balance of $372 million, including $66 million designation for the Rainy Day
Reserve Account.
2. Special Revenue Funds. These funds are the Uniform School Fund, the
Transportation Fund, the Sports Authority Fund, the Consumer Education Fund, and
the Federal Retirees Settlement Fund. The Department of Transportation returned
$25 million of unexpended appropriations to the unrestricted fund balance of the
Transportation Fund. The Transportation Fund ended the year with an unreserved
fund balance of $16 million and a reserved and designated fund balance of $48
million.
The Minimum School Program lapsed $5 million to the Uniform School Fund
Building Loan. The Uniform School Fund ended the year with a $46 million
unreserved fund balance and a reserved and designated fund balance of $167
million. The Sports authority Fund was created in 1989 to account for sales tax
revenue restricted for Winter Olympic facilities. The Fund ended the year with a
negative unreserved fund balance of $13 million and a reserved fund balance of
$10 million. The negative fund balance developed because construction
commitments for facilities have exceeded initial collection of revenues. The
ten-year budget of the Sports Authority Fund, ending December 31, 1999, is
balanced. The Federal Retirees Settlement Fund was created in 1993 to record
liabilities due federal retirees for income taxes collected by the State in
error. The courts have authorized a settlement which was funded with transfers
from the General Fund and the Rainy Day Reserve Account. The Fund has assets
equal to liabilities.
Revenues for general government functions totaled $4.2 billion in 1995, an
increase of 8.4% over 1994. The amounts of revenue from various sources are as
follows: Sales Taxes, $1.062 billion; Individual Income Taxes, $1.027 billion;
Corporate Income Taxes, $158 million; Motor and Special Fuel Tax, $196 million;
Licenses, Permits, and Fees, $65.5 million; Interest on Investments, 34.9
million; Federal Revenues, $1.193 billion; and, Other Taxes and Revenue, $485.5
million.
Sales and Use Taxes are the largest unrestricted sources of state tax
revenues. The increase of $78 million or 7.9% over the previous year, was the
result of increase consumer spending caused by economic growth, net
in-migration, and new housing and commercial construction. This economic growth
was evident in statistics through the end of 1994. During 1994 retail sales
increased 10%, residential housing permit values increased 13.8%, nonresidential
permit values increased 64.7%, and new auto and truck sales increased 10.3%.
Statistics for 1995 continue to reflect strong growth but at lower rates.
Individual Income taxes increased $102 million, or 11%. The growth was
mainly attributed to the increased growth in jobs of approximately 6.2% and
personal income growth of about 7.7% in 1994. The Corporate Income Taxes
increase of $33 million, or 26.1%, was attributable to the previously discussed
economic growth. Motor and Special Fuel Taxes increased $9 million or 4.8%. This
was caused by population growth from in-migration and strong employment. The
Licenses, Permits, and Fees increase of $3 million, or 4.7%, was mainly the
result of an increase of $2.7 million for vehicle registration and control fees
and for transportation permits. The Interest on Investments increase of $14
million, or 66.1%, was a result of the average cash balances doubling and an
increase in the average yield on investments in the State Treasurer pools, which
increased to 5.44% in fiscal year 1995 from 3.61% in fiscal year 1994. The
increase in cash balanced occurred because of the strong growth in tax revenues
and increases in fund balances. The Federal Revenues net increase of $51
million, or 4.5% was most attributable to increased federal revenue for Medicaid
off $25 million, Family Services program of $6 million, Environmental Quality
programs of $5 million, Loan Program increases over $6 million, and various
other increases and decreases in federal program.
The Other Taxes and Revenues increase of $37 million, or 8.2%, included a
$17 million increase in accrued taxes; and $18 million increase in miscellaneous
taxes; a $6 million increase in department collections for regulatory fees,
service fees and grants; and a $13 million increase in aeronautic revenue used
for airport maintenance and expansion. These increases were offset by a decrease
of $11 million in revenue from other governments for capital projects managed by
the State; a decrease of $4 million in federal mineral lease revenues; and a $2
million decrease in miscellaneous collections.
Expenditures and other uses for total general governmental functions were
$4.2 billion, an increase of 7.6% over 1994. This does not include transfers
made to other funds except General Fund appropriated and transfers to the
colleges and universities, which are included as higher education expenditures.
State government expenditures and other uses by function are as follows: General
Government, $252.3 million; Education (Public and Higher), $1.85 billion; Human
Services, Corrections, Health, and Environmental Quality, $1.3 billion;
Transportation and Public Safety, $503 million; Natural Resource, $78 million;
Community and Economic Development, $72 million; Business, Labor, and
Agriculture, $34.5 million; Debt Service, $86.6 million; and , Capital Projects,
$177.9 million.
The increase in General Government expenditures of $17 million, or 7.3%, is
mainly due to a $21 million increase in leave/post-employment benefits, increase
in courts of $8 million, and a $4 million increase in the Attorney General's
Office. The increase was offset by an $18 million reduction in expenditures for
one-time income tax refunds paid to federal retirees. The settlement of a class
action suit filed against the State by federal retirees for income taxes paid on
retirement income for 1986 through 1989 was substantially completed in fiscal
year 1994. Expenditures for the income tax refunds to federal retirees were
expended over two fiscal years and amounted to $50 million in 1993 and $18
million in 1994.
Expenditures for Public and Higher Education are the largest use of state
revenues. The increase of $83 million, or 6.9%, in Public Education and $34
million, or 9.2%, in Higher Education reflect additional funding for the
continued growth in school age population and efforts to reduce class size, and
to increase teachers compensation.
Human services, Corrections, Health, and Environmental Quality expenditures
increased $90 million, or $7.5%. Expenditures in the Department of Human
Services, Health, and Environmental Quality increased by $79 million. The
largest expenditures increases occurred in the following areas: Medical
assistance, $45 million; family support and human assistance programs, $20
million; and environmental quality, $9 million. Food stamps and food commodities
distributions deceased by $5 million. Federal revenues provided the majority of
the funding for the increases in the Departments of Human Services, Health, and
Environmental Quality. Expenditures in the Department of Corrections increased
$12 million due to expanding prison facilities and population. Transportation
and Public Safety expenditures increased by $22 million, or 4.6%. This was
mainly due to a $3 million increase in public safety, a $13 million increase in
aeronautics for the expansion of airports, and an increase of $5 million in
leave/post-employment benefits.
The Debt Service expenditures increase of 12% was due to the increase in
debt retirement related to the increase in previous debt issuances. The Capital
Project expenditures' increases of $29 million are related to increased building
construction funded from capital facilities bonds issued in 1987 through 1995.
This is a result of the Legislatures willingness to increase bonded debt to take
advantage of historically low interest cost and increased building demands
mostly at colleges and universities.
DEBT ADMINISTRATION AND LIMITATION. Utah's Constitution limits the State to
a total general obligation debt not to exceed, in the aggregate any one time, an
amount equal to 1.5% of the value of the taxable property of the State, as shown
by the last assessment for state purposes. Using the latest December 1994 value,
the debt limit of the State is $1.156 billion. Revenue bonds and certificates of
participation issued by the State are legally excluded from the debt
limitations.
During the fiscal year, the State issued $95 million in general obligation
bonds and $31 million in lease revenue bonds for construction and renovation of
various capital facilities. Shortly after fiscal year end, the State issued
general obligation bonds totaling $45 million for buildings construction and
purchases. The State also issued $93 million in lease revenue bonds on August
15, 1995, to be used to purchase and construct state buildings. The State is
authorized to issue an additional $15 million in general obligation bonds for
construction and renovation of various capital facilities. The bonds are not
likely to be issued before July 1996.
The State issued $8.4 million in water revenue refunding notes on
October 4, 1995. The note proceeds and original bond reserve funds were used to
defease the 1989 Revolving Loan Recapitalization Program Revenue Bond of $7.7
million. The notes also provided an additional $2 million in capital for
revolving water loan programs.
As of June 30, 1995, the State's total general obligation debt outstanding
was $431 million, leaving available to the Sate $725 million of additional
general obligation borrowing capacity. As of October 31, 1995, the outstanding
debt was $413 million, with a remaining constitutional limit of $743 million. a
statutory debt limit is established in the Utah Code Annotated. It sets the
maximum general obligation bonding authority at 20% of the appropriation
limitation. Under this limitation, the State may have total outstanding general
obligation debt of approximately $558 million. As of October 31, 1995, the
remaining borrowing capacity of the State under this limitation is $145 million.
Funding for debt service on the State's general obligation bonds is usually
appropriated from the General Fund and transferred to the various bond sinking
funds within the Debt Service Fund. All State general obligation bond and
certain revenue bond principal and interest payments are made from individual
sinking funds within the Debt Service Fund. Investment earnings on moneys held
in the sinking funds (except as may be required by the proceedings authorizing
the issuance of particular series of bonds), transfers from the General Fund or
Special Revenue Funds and certain pledged revenues are the only sources of
funding for this fund.
The outstanding general obligation bonds of the State were rated "Aaa by
Moody's, "AAA" by Standard & Poor's, and "AAA" by Fitch as of July 1, 1995.
FACTORS AFFECTING WASHINGTON FUND
GENERAL ECONOMIC CONDITIONS. The state of Washington was created by an
enabling act of Congress in 1889. The state is located on the Pacific Coast in
the northwestern corner of the continental United States. Washington comprises
68,139 square miles. On the west side of the state, high mountains rise above
coastal waters. The mild moist climate in western Washington makes this region
excellent for dairy farming and the production of flower bulbs. The forests of
the Olympic Peninsula are among the rainiest places in the world. Washington's
location makes it a gateway for land, sea, and air travel to Alaska and the
Pacific Rim countries. Its coastline has hundreds of bays and inlets that make
excellent harbors. East of the Cascade Mountain Range, farmers raise livestock
and wheat on large ranches. Washington leads the nation in apple production and
the state produces large amounts of lumber, pulp, paper, and other wood
products.
The State's population reached an estimated 5,429,900 in April 1995, with
an annual growth rate of more than 2% despite slower economic growth since 1990.
In fiscal year 1995, Washington's population growth remained relatively strong,
with an estimated net migration of 57,400 people between April 1, 1994 and April
1, 1995. This was only slightly higher than the 55,7000 increase recorded in the
previous fiscal year, but still substantially above the 30- year historical
average of approximately 40,000 net migrants per year.
The City of Seattle, located in northwestern Washington, is the largest
city in the Pacific Northwest and serves as the King County seat. King County
and the adjacent counties to the north, Snohomish and Island Counties, comprise
the Seattle Primary Metropolitan Statistical Area ("PMSA"), which is the fourth
largest metropolitan center on the Pacific Coast and biggest single component of
the State's economy. The population in Seattle declined gradually to 488,200 in
1986 and since that time has increased to 531,400 in 1994. The percent of State
residents living east of the Cascades, which had remained stable at 25%
throughout the 1970's, declined to nearly 20% by 1990. Since 1990 the pace of
growth picked up in several eastern cities, including Spokane, as growth began
to slow in the Puget Sound area.
The economic base of the State includes manufacturing and service
industries as well as agricultural and timber production. As the State's largest
employer, the Boeing Company, is preeminent in aircraft manufacture and is
headquartered in Seattle. Boeing exerts a significant impact on overall State
production, employment and labor earnings. Workforce reductions at Boeing and
other aerospace companies claimed 7,100 jobs in Fiscal Year 1995, bringing total
employment loss in aerospace to almost 28,000 since the Boeing Company began
reducing the size of its work force in the second quarter of Fiscal Year 1990.
As of December, 1995, Boeing employed approximately 70,000 people state-wide.
While the primary activity of Boeing is the manufacture of commercial aircraft,
Boeing has played leading roles in aerospace and military missile programs for
the United States and has undertaken a broad program of diversification
activities including Boeing Information and Support Services. In 1995, Boeing
had $19.515 billion in sales and net earnings of $329 million, and a backlog of
orders totaling $72.3 billion. While Boeing has dominated manufacturing
employment, other manufacturers have experienced growth, thus reducing Boeing's
percentage of total manufacturing jobs in the State. The most significant growth
in manufacturing jobs, exclusive of aerospace, has occurred in high
technology-based companies.
The highest employment growth in the State between 1981 and the present
occurred in the services sector, although rate of growth has shown small but
consistent decline since 1990 from 7% to 3.5% forecast for 1994. As the
business, legal, and financial center of the State, Seattle ranks ninth in the
country in the number of downtown hotel rooms. The Washington State Convention
and Trade Center, occupying 370,000 square feet at an investment of $152 million
opened in June 1988. The convention facility has the capacity for events
involving as many as 11,000 people. The State's natural attractions include the
Olympic and Cascade Mountain Ranges, Mt. Rainier, Mt. St. Helens National
Volcanic Monument, Puget Sound and the ocean beaches. Tourists also enjoy the
State's wineries. Seven of the ten largest wine producers in the Pacific
Northwest are located in the State.
Natural forests cover more than 40% of the State's land area. Forest
products rank second behind aerospace in value of total production. 2.6% of
non-farm employment is in the forest products industry, with The Weyerhaeuser
Company being the largest employer. Productivity in the State's forest products
industry increased steadily from 1980 to 1990; however, since 1991 recessionary
influences have resulted in a production decline, although a leveling and slight
increase in employment was projected for 1994. A continued decline in overall
production during the next few years is expected due to federally imposed
limitations on the harvest of old-growth timber and the inability to maintain
the recent record levels of production increases. Although continued decline in
unemployment may be anticipated in certain regions, the impact is not expected
to significantly affect the State's overall economic performance.
Agriculture, combined with food processing, is the State's most important
industry. The State's major products, wheat, milk, apples and cattle, comprise
55% of total production. The value of agricultural production was $2.6 billion
in 1992. Growth in agricultural production, including potatoes and hay, was an
integral factor in the State's economic growth in the late 1980's and early
1990's.
On a combined basis, employment in the government sector represents
approximately 19% of all wage and salary employment in the State. Seattle is the
regional headquarters of a number of federal government agencies, and the State
receives an above-average share of defense expenditures. Major federal
installations include Navy bases at Bremerton, Whidbey Island and Bangor;
Everett is the site of a new Naval home port; an Air Force base (McChord) and an
Army base (Fort Lewis) are located in the Tacoma area. As part of the
President's plan to reduce the federal deficit, the Secretary of Defense has
proposed spending cuts that would include the Puget Sound Naval Shipyard and the
Bangor Trident Submarine Base in Kitsap County. None of the military
installations in the State are included among those bases proposed for closure
in 1995. Recent declines of naval and civilian personnel in Kitsap County have
been offset by increases in army personnel in Pierce County. During 1994, Army
unit reassignments to Fort Lewis from Europe and parts of the United States
increased troop strength by more than 5,000. At present no major additions or
reductions to troop strength at Fort Lewis have been made. The long term outlook
is for relative stability.
BUDGETARY PROCESS. The Governor is required to submit a budget to the state
Legislature no later than December 20 of the year preceding odd-numbered year
sessions of the Legislature. The budget is a proposal for expenditures in the
ensuing biennial period based upon anticipated revenues from the sources and
rates existing by law at the time of submission of the budget. The appropriated
budget and any necessary supplemental budgets are legally required to be adopted
through the passage of biennial appropriation bills by the Legislature and
approved by the Governor. Biennial operating appropriations are generally made
at the fund/account and agency level, however, in a few cases, biennial
appropriations are made at the fund/account and agency/program level. Biennial
capital appropriations are generally made at the fund/account, agency, and
project level.
Biennial legislative appropriations are strict legal limits on
expenditures/expenses, and over expenditures are prohibited. All appropriated
and non-appropriated/allotted funds are further controlled by the executive
branch through the allotment process. This process allocates the
expenditure/expense plan into monthly allotments by program, source of funds,
and object of expenditures. According to statutes, except under limited
circumstances, the original biennial allotments are approved by the Governor and
may be revised only at the beginning of the second year of the biennium and must
be initiated by the Governor.
Proprietary funds earn revenues and incur expenses not covered by the
allotment process. Budget estimates are generally made outside the allotment
process according to prepared business plans. These proprietary fund business
plan estimates are adjusted only at the beginning of each fiscal year.
Additional fiscal control is exercised through various means. OFM is
authorized to make expenditure/expenses allotments based on availability of
unanticipated receipts, mainly federal government grant increases made during a
fiscal year. State law does not preclude the over expenditure of allotments
although, the statute requires that the Legislature be provided an explanation
of major variances.
REVENUES AND EXPENDITURES. The General Fund accounts for all general
government financial resources and expenditures not required to be accounted for
in other funds. Fiscal Year 1995 revenues in the General Fund increased by $670
million or 5.9%. Based on the November 1995 forecast by the ERFC, General
Fund-State revenues for the 1995-1997 Biennium are forecast to be about $17.669
billion, an increase of 6.7% over the previous biennium in nominal terms. In
real terms and on a constant rate and base, the revenue growth will be about
4.9%. Tax changes enacted during the 1994 legislative session reduced revenues
for the 1995-1997 Biennium by $192 million; additional changes during the 1995
legislative session and the special session further reduced revenues for the
1995 Biennium by $252 million. Without these legislative reductions, the revenue
growth for the 1995-1997 Biennium would have been 9.6%
Governmental activities are accounted for in four governmental fund types:
the general, special revenue, debt service, and capital projects funds. Revenues
for all governmental funds totaled $15.5 billion for the fiscal year ended June
30, 1995. This represents an increase of 6.2% over revenue for the fiscal year
ended June 30, 1994. Taxes, the largest source of governmental revenue, produced
61% of revenues. Although this percentage is a slight decrease from Fiscal Year
1994, actual tax revenues increased by $447 million. This increase was
attributable to growth in the state's population and personal income during
Fiscal Year 1995 which increased retail sales and use tax collections by $93
million or 2.2%. Also, during Fiscal Year 1995, the federal government
grants-in-aid increased by $291 million or 7.8%.
Claims and judgments payable is materially comprised of three activities:
workers' compensation, risk management, and state employees' insurance. The
Workers' Compensation Fund, an enterprise fund, establishes a liability for both
reported and incurred but not reported insured events, which includes estimates
of both future payments of losses and related claim adjustment expenses. At June
30, 1995, $23.4 billion of unpaid claims and claim adjustment expenses are
presented at their net present value of $10.4 billions. The $10.4 billion claims
and claim adjustment liabilities as of June 30, 1995, includes $4.7 billion for
supplemental pension cost of living adjustments (COLA) that by statute are not
to be fully funded. The remaining $5.7 billion in claims liabilities is fully
funded by $6.7 billion in assets, including $6.2 billion of long-term
investments, held for payment of the claims.
The Risk Management Fund, an internal service fund, reports claims and
judgment liabilities when it becomes probable that a loss has occurred and the
amount of that loss can be reasonably estimated. The state and its component
public authorities are defendants in a significant number of lawsuits pertaining
to property and casualty matters. As of June 30, 1995, outstanding and
actuarially determined claims against the state and its public authorities were
$113.8 million for which the state has recorded a liability. At June 30, 1995,
the Risk Management Fund held $69.3 million in cash equivalents designated for
payment of these claims. Of this amount, $52.6 million has been accumulated
under the state's Self Insurance Liability Program initiated in 1990. This Self
Insurance Liability Program is intended to provide funds for the payment of all
claims resulting from accidents after June 30, 1990. The state is restricted by
law from accumulating funds in the Self Insurance Liability Program in excess of
50% of total outstanding and actuarially determined claims. Current projections
indicate that the state will reach this limit by June 30, 1996.
The State Employees' Insurance Fund, an internal service fund, establishes
a liability when it becomes probable that a loss has occurred and the amount of
that loss can be reasonably estimated. Liabilities include an actuarially
determined amount for claims that have been incurred but not reported. Because
actual claims liabilities depend on various complex factors, the process used in
computing claims liabilities does not necessarily result in an exact amount. At
June 30, 1995, the state held $31.1 million in investments designated for
payment of state employees' insurance claims.
DEBT ADMINISTRATION. The State Constitution and enabling statutes authorize
the incurrence of state general obligation debt, to which the state's full
faith, credit, and taxing power are pledged, either by the Legislature or by a
body designated by statute (presently the State Finance Committee). Bonds
payable at June 30, 1995 consisted of bonds issued by the state of Washington
and accounted for in the General Long-Term Obligations Account Group, and
certain state agency bonds accounted for in proprietary funds. During Fiscal
Year 1995, the state of Washington maintained its "AA" rating from Fitch
Investors Service and Standard & Poor's Corporation, and its "Aa" rating from
Moody's Investors Service.
GENERAL OBLIGATION BONDS. General obligation bonds have been authorized and
issued primarily to provide funds for acquisition and construction of capital
facilities for public and common schools, higher education, public and mental
health, corrections, conservation, and maintenance and construction of highways,
roads, and bridges. The state also issued bonds for assistance to municipalities
for construction of water and sewage treatment facilities and corrections
facilities. Additionally, bonds are authorized and issued to provide for the
advance refunding of general obligation bonds outstanding.
ZERO INTEREST RATE GENERAL OBLIGATION BONDS. Zero interest rate general
obligation bonds have been authorized and issued primarily to provide funds for
acquisition and construction of public administrative buildings and facilities,
and capital facilities for public and common schools and higher education. Total
debt service (principal and interest) requirements for zero interest rate
general obligation bonds to maturity as of June 30, 1995 was approximately $492
million. As of June 30, 1995, zero interest rate general obligation bonds
outstanding totaled $208 million while bonds authorized but unissued equaled
zero.
LIMITED OBLIGATION BOND. Limited obligation bonds have been authorized and
issued to provide funds for public school plant facilities; state, county, and
city arterials; and state capital buildings and facilities. These bonds are
payable primarily from dedicated revenue of the state's motor vehicle fuel
excise tax and other miscellaneous dedicated revenue generated from assets such
as harbors and tidelands, park, and land grants. Total debt service (principal
and interest) requirements for limited obligation bonds to maturity at June 30,
1995 was approximately $8.1 million. As of June 30, 1995, limited obligation
bonds outstanding totaled $7 million while bonds authorized but unissued equaled
zero.
REVENUE BONDS. Current state statutes empower certain state agencies to
issue bonds that are not supported, or are not intended to be supported, by the
full faith and credit of the state. These bonds pledge income derived from
acquired or constructed assets for retirement of the debt and payment of the
related interest. Revenue bonds issued by individual agencies are supported by
fees, rentals, and tolls assessed to users. Primary issuing agencies are the
State's Public Universities and various Community Colleges. Total debt service
(principal and interest) for revenue bonds to maturity at June 30, 1995 was
approximately $310 million. As of June 30, 1995, revenue bonds outstanding
totaled $162 million while bonds authorized but unissued equaled zero.
CERTIFICATES OF PARTICIPATION. The office of the State Treasurer continued
its administration of the state certificates of participation program
("COPs")which has been in existence since Fiscal Year 1990. This program enables
state agencies to finance the acquisition of real and personal property at tax
exempt interest rates realizing substantial savings over vendor financing. The
state's publicly-offered equipment certificates of participation have been rated
"A" by both rating agencies which rely on the centralized oversight of the State
Treasurer and the Office of Financial Management as a strong credit element in
the rating. In the real estate component of the financing program, certain
projects have been rated "A1" by Moody's Investors Service as a reflection of
their essentialness to state government operations. As of June 30, 1995, there
were outstanding $193 million in certificates of participation. Underlying this
amount were agency certificates originating from 73 agencies amounting to $178.5
million with the balance on deposit with the trustee either for use in the
program (unissued proceeds) or to satisfy reserve requirements. These programs
are currently funded using a combination of publicly offered securities and bank
financial services master installment agreements.
FACTORS AFFECTING WISCONSIN FUND
GENERAL ECONOMIC CONDITIONS. Wisconsin provides a full range of services
which include education, health and social services, transportation, law,
justice, public safety, recreation and resource development, public improvements
and general administrative services. The State's economy remains strong.
Unemployment fell to 3.7% for all of 1995, the lowest rate since 1969. This is
well below the national rate of 5.6% and is the ninth lowest unemployment rate
in the country. Manufacturing jobs set an all-time high in 1995 at 596,000
eclipsing the old mark of 591,000 set in 1979. Construction employment increased
to 102,800 in 1995, breaking the record set in 1994, while total non-farm
employment increased to 2,555,000, also a new record. In 1995, Wisconsin's jobs
increased 2.6% compared to 2.3% growth nationally. However, looking ahead,
continued strong gains in employment will be more difficult. Employment growth
is expected to slow in 1995. Manufacturing payrolls are expected to shrink in
early 1995, as high credit costs dampen spending on new homes, cars, and other
consumer goods. Losses in durable manufacturing, most notably the elimination of
2,000 jobs from engine manufacturer Briggs and Stratton Co. in Milwaukee, will
contribute to slowing overall employment growth to a projected 1.6% in 1995.
Unemployment should remain below 4% for the year but employment growth will slow
to about 1%. The strongest gains in employment will be construction, trade and
services.
Wisconsin's personal income growth will be affected by the slowdown in
employment growth. Personal income increased 5.7% in 1995 and should increase by
3.7%, faster than inflation. However, the slowdown in job growth will restrain
income gains to increases below the rest of the country for 1996, 4.9%. By 1997,
income gains should match the pace of national income growth, about 4.5%.
In 1995, the State continued its efforts to expand existing State business
and attract new businesses to Wisconsin. In 1995, $11.4 million was awarded in
grants and loans from the Wisconsin Development Fund for major economic
development projects, customized labor training and technology development. In
addition, the State operates a variety of programs that target minority business
development, development zones and community-based economic development. The
State expended $8.2 million in 1995 to market Wisconsin as a tourism
destination. In Calendar Year 1994, the tourism industry created directly and
indirectly 147,149 jobs and $5.6 billion in expenditures.
Wisconsin's Clean Water Fund program provides financial assistance to
municipalities for the planning, design and construction of pollution abatement
facilities - primarily for wastewater treatment. Funding is provided from the
federal state revolving fund grant authorized through the Water Quality Act, and
through four State programs backed by State revenue and general obligation
bonds. In fiscal year 1995, the Clean Water Fund reached agreements with
municipalities amounting to $116.7 million, bringing the total amount of loans
and grants awarded by the program to $761.7 million since its inception in 1991.
Welfare reform initiatives moved forward in Wisconsin in fiscal year 1995
with the implementation of the Parental and Family Responsibility program and
the Two-Tier Demonstration project, each in four counties on July 1, 1994. In
addition, the Work Not Welfare initiative, one of the first programs in the
nation to test time-limited benefits, began in January 1995 in two counties. As
a result of ongoing welfare reform efforts and a strong economy the AFDC
caseload dropped from 76,457 in June 1994 to 71,485 in June 1995, a reduction of
6.5% and the lowest level since the early 1980's. Wisconsin continued its
commitment to care in the community for those with long term care needs by
increasing the Community Options Program by an additional 1,901 slots, bringing
the total to 15,543 slots, and increasing the GPR commitment by $8.7 million,
bringing the total to $70.9 million GPR annually.
In fiscal year 1995, the legislature and Governor acted to fulfill their
commitment to increase the State's share of school costs to 66.7% in fiscal year
1997. To facilitate reaching this goal, $171 million was added to the $103
million fiscal year 1995 school aid increase originally approved in the 1993-95
biennial budget, bringing the total fiscal year 1995 State school aid increase
to $274 million. This $274 million increase is the largest dollar increase in
school aid in the State's history and resulted in a statewide 1994 school
property tax increase of only 0.3%, the smallest levy increase since 1973. Full
implementation of the two-thirds State funding commitment in Fiscal Year 1997
will result in the largest reduction in the school property tax levy in the
State's history.
BUDGETARY PROCESS. The State Constitution requires the Legislature to enact
a balanced budget. The State's fiscal year runs from July 1 through June 30 of
the following year. State law establishes procedures for the budget's enactment.
The Secretary of Administration, under the direction of the Governor, compiles
all budget information and prepares an executive budget consisting of the
planned operating expenditures and revenues of all State agencies. The
Department of Revenue furnishes forecasts of tax revenues to the Department of
Administration. The budget is submitted to the Legislature on or about February
15 of each odd-numbered year. Upon concurrence by both houses of the Legislature
in the appropriations and revenue measures embodied in the budget bill, the
entire bill is submitted to the Governor. The Governor is empowered to sign the
bill into law or to veto all or part of the bill. If the Governor vetoes any
portions, those items may be reconsidered in accordance with the rules of each
house and, if approved by two-thirds of the members of each house, will become
law notwithstanding the Governor's veto. In the event that a budget is not in
effect at the start of a fiscal year, the prior year's budget serves as the
budget until such time a new one is enacted.
State law prohibits the enactment of legislation which would cause the
estimated General Fund balance to be less than 1% of the general purpose revenue
appropriations for that fiscal year. For the 1995-1996 fiscal year and 1996-1997
fiscal year, the statutorily required reserves are $83 million and $92 million
respectively. The effect of the State law provision is to divide the year-ending
General Fund balance into two components: the statutorily required reserve and
the amount above such reserve.
The Statutes provide that if, following the enactment of the budget, the
Secretary of Administration determines that budgeted expenditures will exceed
revenues by more than one-half of one percent of general purpose revenues, no
action can be taken regarding approval of expenditure estimates. Further, the
Secretary of Administration must notify the Governor, the Legislature and its
Joint Committee on Finance, and the Governor must submit a bill correcting the
imbalance. If the Legislature is not in session, the Governor must call a
special session to take up the matter.
The Secretary of Administration also has statutory power to order
reductions in the appropriations of state agencies (which represent less than
one-third of the General Fund budget). The Secretary of Administration may also
temporarily reallocate free balances of certain funds to other funds which have
insufficient balances and, further, may prorate or defer certain payments in the
event current or projected balances are insufficient to meet current
obligations. In such an event, the Department of Administration may also request
the issuance of operating notes by the Building Commission.
The 1995-1997 State budget provides for a reorganization of State
government that occurs between July 29, 1995 and July 1, 1996. This
reorganization is intended to improve accountability, consolidate similar
functions, provide a better framework to administer policy changes and improve
government efficiency and effectiveness. The reorganization creates two
departments. The Department of Tourism initiates operations on January 1, 1996,
and will perform various duties previously conducted within parts of the
Department of Development and Department of Natural Resources. The Department of
Financial Institutions commences operations on July 1, 1996 and will perform
duties currently conducted within the Offices of the Commissioners of Banking,
Savings and Loan, Securities, and Credit Unions.
This reorganization renames the Department of Public Instruction the
Department of Education and transfers revised duties of the State Superintendent
of Public Instruction to the new Office of the State Superintendent of Public
Instruction. These actions were to go into effect on January 1, 1996; however,
the State Supreme Court issued a temporary injunction on December 27, 1995 that
delays the renaming of the Department of Public Instruction and transfer of
revised duties of the State Superintendent of Public Instruction. Effective July
1, 1996, this reorganization also renames other State Departments and includes
other components for reorganization in eight other functions groupings as well.
REVENUES AND EXPENDITURES. The State has an extremely diverse
revenue-raising structure. Approximately forty-four percent of the total revenue
is derived from the various taxes levied by the State. The remainder comes from
the federal government and from various kinds of fees, licenses, permits and
service charges paid by users of specific services, privileges or facilities.
State expenditures are categorized under eight functional categories and
three distinct types of expenditures within each. The eight functional
categories are: Commerce, Education, Environmental Resources, Human Relations
and Resources, General Executive, Judicial, Legislative, and General
Appropriations.
As of June 30, 1995, the State ended the fiscal year on a statutory and
unaudited basis with an unreserved, undesignated balance of $401 million. On an
all-funds basis, the total amount available was $23.319 billion consisting of
(I) a beginning balance of $235 million, (ii) tax revenues of $8.577 billion and
(iii) nontax revenues of $14.507 billion. Total disbursements and reserves were
$22.918 billion, resulting in the balance stated previously. On a general-fund
basis the total amount available was $13.495 billion consisting of (I) the same
beginning balance, (ii) tax revenues of $7.816 billion and (iii) nontax revenues
of $5.444 billion. Total disbursements and reserves were approximately $13.94
billion, resulting in the same balance as described on an all-fund basis.
For fiscal year ending June 30, 1996, the budget on an all-funds basis
projects a balance of $442 million. Total available revenues are estimated to be
$20.686 billion consisting of (I) a beginning balance of $337 million, (ii) tax
revenues of $8.218 billion and (iii) nontax revenues of $12.131 billion. Total
disbursements and reserves are estimated to be $20.327 billion, consisting of
net disbursements of $20.187 billion and reserves of $140 million. This results
in an estimated balance of $359 million which, when combined with statutorily
required balance of $83 million, results in a balance at June 30, 1996 of $442
million.
Since 1984 the State has issued operating notes each year in anticipation
of cash-flow imbalances, primarily experienced in November and December. These
operating notes eliminated the need to prorate or defer large local assistance
payments or to reallocate balances in other State funds. During the fiscal year
ending June 30, 1995 the State issued $350 million of operating notes. The
operating notes were issued on July 7, 1994 and matured on June 15, 1995.
Operating notes are not general obligations of the State and are not on a parity
with State general obligations.
The Dane County Circuit Court has specified the remedies resulting form its
1991 decision regarding the source of payment for certain additional pension
amounts. One part of the remedy required a lump-sum payment from the General
Fund to the Employee Trust Fund to be made by August 1994. The payment is
estimated to be $95.3 million. In addition, the State is expected to incur other
costs of about $0.5 million to implement the remedy and an amount yet to be
determined to pay plaintiffs' attorneys fees. The monetary remedy has been
stayed by the Dane Count Circuit Court pending entry of a final, nonappealable
judgment. All parties have filed appeals or cross-appeals. It is possible that
the amount of the remedy may be increased or decreased, perhaps substantially,
or eliminated. The 1995-1996 and 1996-1997 budgets do not specifically provide
for this payment.
DEBT ADMINISTRATION AND LIMITATION. At the inception of statehood,
constitutional limitations severely restricted the issuance of direct State
debt. Prior to 1969, independent nonstock, nonprofit corporations were
established to issue debt on behalf of the State. In April 1969, the voters of
the State, by referendum, adopted an amendment to the Constitution that
authorized the State to borrow money directly and simultaneously terminated the
use of the corporations for financing State construction. Legislation that
established specific implementation powers was subsequently passed in December
1969, whereupon the State first issued general obligation bonds. To date, the
Legislature has authorized the issuance of general obligations for 59 distinct
purposes and has limited the amount of general obligations which may be issued
for each purpose. The purposes for which State general obligations may be issued
are set forth in the Wisconsin Constitution, which provides the basis for the
State's general obligation borrowing program. It permits three types of
borrowing: (1) to acquire, construct, develop, extend, enlarge or improve land,
waters, property, highways, railways, buildings, equipment or facilities for
public purposes; (2) make funds available for veterans housing loans; and, (3)
fund or refund any outstanding State general obligations. There is no
constitutional requirement that the issuance of general obligations receive the
direct approval of the electorate.
The Wisconsin Constitution and State Statutes limits the amount of debt the
State can contract in total and in any calendar year. In total, debt cannot
exceed five percent of the value of all taxable property in the State. The
amount of debt contracted in any calendar year is limited to the lesser of
three-quarters of one percent of aggregate value of taxable property or 5
percent of aggregate value of taxable property less net indebtedness at January
1. Currently, the annual limit is $1,511,535,818 and the cumulative debt limits
is $10,076,905,450 (of which the amount available is 46,832,826,001). The lesser
amount is $1,511,535,818. A refunding bond issue is not taken into account for
purposes of the annual debt limit, and a refunded bond issue is not taken into
account for purposes of the cumulative debt limits. Interest scheduled to accrue
on any obligation that is not payable during the current fiscal year is treated
as debt and taken into account for purposes of the debt limitations.
The $158,080,000 State of Wisconsin General Obligation Bonds of 1996,
Series A, are the State's first publicly offered general obligation bond issue
in 1996. The State anticipates several competitive sales of general obligations
for governmental purposes. The State anticipates the competitive sale of at
least one general obligation issue for the veterans housing loan program and
several private sales of general obligations for the Clean Water Fund program.
The amounts will be based on cash needs and market conditions. The State is
currently considering a general obligation refunding issue which the State would
undertake to achieve debt service savings. The size of this transaction is
estimated to be $75-$125 million.
Although all general obligation bonds and notes issued by the State are
supported by its full faith, credit and taxing power, a substantial amount of
the indebtedness of the State is issued with the expectation that debt service
payments will not impose a direct burden on the State's taxpayers and its
general revenue sources. Similarly, a portion of the indebtedness issued by
nonstock, nonprofit corporations on behalf of the State prior to 1970 and backed
by lease-rental obligations of various State agencies was issued with the
expectation that the rental obligations of the State would not be discharged
from General Fund revenues. At June 30, 1995, State of Wisconsin bonds had a
rating of Aa from Moody's Investors Services and a rating of AA from Standard
and Poor's Corporation.
INSURANCE
Voyageur anticipates that substantially all of the insured Tax-Exempt
Obligations in each Insured Fund's investment portfolio will be covered by
either Primary Insurance or Secondary Market Insurance. However, as a
non-fundamental policy, the Insured Tax Free Funds must obtain Portfolio
Insurance on all Tax-Exempt Obligations requiring insurance that are not covered
by either Primary Insurance or Secondary Market Insurance. Both Primary
Insurance and Secondary Market Insurance are non-cancelable and continue in
force so long as the insured security is outstanding and the respective insurer
remains in business. Premiums for Portfolio Insurance, if any, would be paid
from Fund assets and would reduce the current yield on its investment portfolio
by the amount of such premiums.
Because Portfolio Insurance coverage terminates upon the sale of an insured
security from a Fund's portfolio, such insurance does not have an effect on the
resale value of the security. Therefore, unless a Fund elects to purchase
Secondary Market Insurance with respect to such securities or such securities
are already covered by Primary Insurance, it generally will retain any such
securities insured by Portfolio Insurance which are in default or in significant
risk of default, and will place a value on the insurance equal to the difference
between the market value of the defaulted security and the market value of
similar securities which are not in default.
The Insured Tax Free Funds are authorized to obtain Portfolio Insurance
from insurers that have obtained a claims-paying ability rating of "AAA" from
S&P or "Aaa" (or a short-term rating of "MIG-1") from Moody's, including AMBAC
Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ("FGIC") and Financial Security
Assurance, Inc. ("FSA").
A Moody's insurance claims-paying ability rating is an opinion of the
ability of an insurance company to repay punctually senior policyholder
obligations and claims. An insurer with an insurance claims-paying ability
rating of Aaa is adjudged by Moody's to be of the best quality. In the opinion
of Moody's, the policy obligations of an insurance company with an insurance
claims-paying ability rating of Aaa carry the smallest degree of credit risk
and, while the financial strength of these companies is likely to change, such
changes as can be visualized are most unlikely to impair the company's
fundamentally strong position. An S&P insurance claims-paying ability rating is
an assessment of an operating insurance company's financial capacity to meet
obligations under an insurance policy in accordance with its terms. An insurer
with an insurance claims-paying ability rating of AAA has the highest rating
assigned by S&P. The capacity of an insurer so rated to honor insurance
contracts is adjudged by S&P to be extremely strong and highly likely to remain
so over a long period of time.
An insurance claims-paying ability rating by Moody's or S&P does not
constitute an opinion on any specific insurance contract in that such an opinion
can only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or cancellation penalties or the timeliness of
payment; nor does it address the ability of a company to meet non-policy
obligations (i.e., debt contracts).
The assignment of ratings by Moody's or S&P to debt issues that are fully
or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of insurance claims-paying ability
ratings. The likelihood of a timely flow of funds from the insurer to the
trustee for the bondholders is a likely element in the rating determination for
such debt issues.
Each of AMBAC, MBIA, FGIC, and FSA has a insurance claims-paying ability
rating of Aaa from Moody's and AAA from S&P.
AMBAC has received a letter ruling from the Internal Revenue Service which
holds in effect that insurance proceeds representing maturing interest on
defaulted municipal obligations paid by AMBAC to municipal bond funds
substantially similar to the Insured Tax Free Funds, under policy provisions
substantially identical to those contained in its municipal bond insurance
policy, will excludable from federal gross income under Section 103(a) of the
Internal Revenue Code.
As of December 31, 1995, the total admitted assets (unaudited) of AMBAC
were approximately $3.8 billion with statutory capital (unaudited) of
approximately $1.2 billion. Statutory capital consists of the AMBAC's statutory
contingency reserve and policyholders' surplus.
As of December 31, 1995, the total admitted assets (unaudited) of MBIA were
approximately $2.4 billion with total liabilities (unaudited) of approximately
$2.2 billion and total capital and surplus (unaudited) of approximately $860
million.
As of December 31, 1995, the total admitted assets (unaudited) of FGIC were
approximately 2.2 billion total capital and surplus (unaudited) approximately
$1.3 billion.
As of December 31, 1995, admitted assets (unaudited) of FSA were
approximately $1 billion with statutory capital (unaudited) of approximately
$644 million.
None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has any
material business relationship, direct or indirect, with the Funds.
AMBAC, MBIA, FGIC and FSA are subject to regulation by the department of
insurance in each state in which they are qualified to do business. Such
regulation however, is not a guarantee that any of AMBAC, MBIA, FGIC and FSA
will be able to perform on its contractual insurance in the event a claim should
be made thereunder at some time in the future.
The information relating to AMBAC, MBIA, FGIC and FSA set forth above,
including the financial information, has been furnished by such corporations or
has been obtained from publicly available sources. Financial information with
respect to AMBAC, MBIA, FGIC and FSA appears in reports filed by AMBAC, MBIA,
FGIC and FSA with insurance regulatory authorities and is subject to audit and
review by such authorities. No representation is made herein as to the accuracy
or adequacy of such information with respect to AMBAC, MBIA, FGIC and FSA or as
to the absence of material adverse changes in such information subsequent to the
date thereof.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF THE FUNDS
The Board members and officers of the Funds, their position with the Funds
and their principal occupations during the past five years are set forth below.
In addition to the occupations set forth below, the Directors and officers also
serve as directors and trustees or officers of various other closed-end and
open-end investment companies managed
by Voyageur.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
PAST FIVE YEARS AND OTHER
NAME, ADDRESS, AND AGE POSITION AFFILIATIONS
- ---------------------- -------- ----------------------------
<S> <C> <C> <C>
Clarence G. Frame, 77 Director Of counsel, Briggs & Morgan
W-875 law firm since 1984.
First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
Richard F. McNamara, 63 Director Chief Executive Officer of
7808 Creekridge Circle, #200 Activar, Inc., a Minneapolis-
Minneapolis, Minnesota 55439 based holding company consist-
ing of seventeen companies in
industrial plastics, sheet
metal, automotive aftermarket,
construction supply, electron-
ics and financial services,
since 1966.
Thomas F. Madison*, 60 Director Vice Chairman-Office of the
200 South Fifth Street CEO, Minnesota Mutual Life
Suite 2100 Insurance Company since
Minnepolis, Minnesota 55402 February 1994; President and
CEO of MLM Partners, Inc.
since January 1993; previous-
ly, President of U.S. WEST
Communications-Markets from
1988 to 1993; Mr. Madison
currently serves on the board
of directors of Minnesota
Mutual Life Insurance Company,
Valmont Industries, Inc.,
Eltrax Systems, Inc and vari-
ous civic and educational
organizations.
James W. Nelson, 54 Director Chairman and Chief Executive
81 South Ninth Street Officer of Eberhardt Holding
Suite 4400 Company and its subsidiaries
Minneapolis, Minnesota 55402 since 1990; prior to which he
had been President since 1976.
Robert J. Odegard, 75 Director Special Assistant to the
University of Minnesota President of the University of
Foundation Minnesota since from August 1984 to
1300 South Second Street April 1989 and from May 1990 to
Minneapolis, Minnesota 55454 present; Associate Vice President
for Alumni Relations and Development
of the University of Minnesota from
1970 to August 1984 and from April 1989
to May 1990.
John G. Taft, 41 President President (since 1991) and
90 South Seventh Street (Executive Director (since 1993) of the
Suite 4400 Vice- Voyageur; Director (since 1993)
Minneapolis, Minnesota 55402 President- and Executive Vice President
Colorado of Voyageur Fund Distributors
Tax Free ("the Underwriter) Management
Fund only) committee member of Voyageur
from 1991 to 1993.
Andrew M. McCullagh, Jr., 47 Executive Portfolio Manager of
717 Seventeenth Street Vice Voyageur since 1990; previous-
Denver, Colorado 80202 President ly, Director of the Voyageur
Minneapolis, Minnesota 55402 (President and the Underwriter from 1993
Colorado to 1995; Executive Vice President
Tax Free of Voyageur since 1990.
Fund only)
Jane M. Wyatt, 41 Executive Director and Chief Investment Officer
90 South Seventh Street Vice of Voyageur since 1993; Director of
Suite 4400 President the Underwriter since 1993; Executive
Minneapolis, Minnesota 55402 Vice President and Portfolio Manager
of Voyageur from 1992 to 1993; Vice
Preside and Portfolio Manager from
1989 to 1992.
Elizabeth H. Howell, 34 Vice Vice President of Voyageur and Senior
90 South Seventh Street President Tax Exempt Portfolio Manager since 1991.
Suite 4400
Minneapolis, Minnesota 55402
Steven P. Eldredge, 40 Vice Senior Vice President and Senior
90 South Seventh Street President Tax Exempt Portfolio Manager of
Suite 4400 Voyageur since 1995; previously
Minneapolis, Minnesota 55402 portfolio manager for ABT Mutual
Funds from 1989.
James C. King, 55 Vice Director of Voyageur and the Underwriter
90 South Seventh Street President since 1993; Executive Vice Presidentr and
Suite 4400 Senior Equity Portfolio Manager of
Minneapolis, Minnesota 55402 Voyageur since 1993
Kenneth R. Larsen, 33 Treasurer Treasurer of Voyageur and
90 South Seventh Street the Underwriter from 1990 to 1993;
Suite 4400 Secretary and Treasurer of Voyageur
Minneapolis, Minnesota 55402 and the Underwriter from 1990 to 1993.
Thomas J. Abood, 32 Secretary Senior Vice President (since 1995) and
90 South Seventh Street General Counsel (since October 1994) of
Suite 4400 Voyageur and Voyageur Companies, Inc.
Minneapolis, Minnesota 55402 from October 1994 to 1995; previously
associated with the law firm of Skadden,
Arps, Slate, Meagher & Flom, Chicago,
Illinois from September 1988 to October
1994.
</TABLE>
_________________
*"Interested person" of the Funds as such term is defined in the 1940 Act.
The Funds do not compensate their officers. Each director or trustee (who
is not an employee of Voyageur or any of its affiliates) currently receives a
total annual fee of $26,000 for serving as a director or trustee for all of the
open-end and closed-end investment companies (the "Fund Complex") for which
Voyageur acts as investment adviser, plus a $500 fee for each special in-person
meeting attended by such director. These fees are allocated among each series or
fund in the Fund Complex based on the relative average net asset value of each
series or fund. Currently the Fund Complex consists of ten open-end investment
companies comprising 32 series or funds and six closed-end investment companies.
In addition, each director or trustee who is not an employee of Voyageur or any
of its affiliates is reimbursed for expenses incurred in connection with
attending meetings. Mr. Harley Danforth received $10,000 for services as a
consultant. The following table sets forth the aggregate compensation received
by each director from each parent entity as well as the total compensation
received by each director from the Fund Complex during the fiscal and calendar
year ended December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM EACH REGISTRANT
-------------------------------------------
VOYAGEUR VOYAGEUR VOYAGEUR VOYAGEUR VOYAGEUR VOYAGEUR VOYAGEUR TOTAL
TAX FREE INSURED INVEST- INTER. TAX INVEST- MUTUAL MUTUAL COMPENSATION
FUNDS FUNDS MENT FREE FUNDS MENT FUNDS FUNDS II FROM FUND
DIRECTOR INC. INC. TRUST INC. TRUST II INC. INC. COMPLEX
- --------- ---- ---- ----- ---- -------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clarence G. Frame $4,989 $6,143 $4,056 $ 799 $ 7 $ 708 $4,329 $24,500
Richard F. McNamara $4,989 $6,143 $4,056 $ 799 $ 7 $ 708 $4,329 $24,500
Thomas F. Madison $4,989 $6,143 $4,056 $ 799 $ 7 $ 708 $4,329 $24,500
James W. Nelson $4,989 $6,143 $4,056 $ 799 $ 7 $ 708 $4,329 $24,500
Robert J. Odegard $4,989 $6,143 $4,056 $ 799 $ 7 $ 708 $4,329 $24,500
</TABLE>
THE INVESTMENT ADVISER AND UNDERWRITER
Voyageur Fund Managers, Inc., a Minnesota corporation ( "Voyageur"), has
been retained under an investment advisory agreement (the "Advisory Agreement")
to act as each Fund's investment adviser, subject to the authority of the Board
of each Fund. Voyageur and the Underwriter are each indirect wholly-owned
subsidiaries of Dougherty Financial Group Inc. ("DFG"), which is owned 50% by
Michael E. Dougherty and 50% by Pohlad Companies. 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 Voyageur are located at 90 South Seventh Street, Suite
4400, Minneapolis, Minnesota 55402.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Funds' 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 AGREEMENTS
The Funds do not maintain their own research departments. The Funds have
contracted with Voyageur for investment advice and management. Pursuant to an
Investment Advisory Agreement, Voyageur has the sole and exclusive
responsibility for the management of each Fund's portfolio and the making and
execution of all investment decisions for each Fund subject to the objectives
and investment policies and restrictions of each Fund and subject to the
supervision of each Fund's Board of Directors. Voyageur also furnishes, at its
own expense, office facilities, equipment and personnel for servicing the
investments of each Fund. Voyageur has agreed to arrange for officers and
employees of Voyageur to serve without compensation from the Funds as directors,
officers or employees of each Fund if duly elected to such positions by the
shareholders or directors of the Funds.
As compensation for Voyageur's services, each Fund is obligated to pay to
Voyageur a monthly investment advisory and management fee equivalent on an
annual basis to .50 of 1% (.40 of 1% for the Limited Term Tax Free Funds) of its
average daily net assets, respectively. The fee is based on the average daily
value of each Fund's net assets at the close of each business day.
The Investment Advisory Agreement on behalf of each Fund 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 on behalf of each
Fund 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 Voyageur or the Fund), unless the 1940 Act requires that any such amendment
must be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board of Directors
(unless the 1940 Act otherwise requires shareholder approval).
ADMINISTRATIVE SERVICES AGREEMENTS
Voyageur also acts as each Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement. Pursuant to the Administrative Services Agreements, Voyageur
provides each Fund all dividend disbursing, transfer agency, administrative and
accounting services required by such Fund including, without limitation, the
following: (i) the calculation of net asset value per share (including the
pricing of each Fund's portfolio of securities) at such times and in such manner
as is specified in the Fund's current Prospectus and Statement of Additional
Information, (ii) upon the receipt of funds for the purchase of the Fund's
shares or the receipt of redemption requests with respect to the Fund's shares
outstanding, the calculation of the number of shares to be purchased or
redeemed, respectively, (iii) upon the Fund's distribution of dividends, the
calculation of the amount of such dividends to be received per share, the
calculation of the number of additional shares of the Fund to be received by
each shareholder of the Fund (other than any shareholder who has elected to
receive such dividends in cash) and the mailing of payments with respect to such
dividends to shareholders who have elected to receive such dividends in cash,
(iv) the provision of transfer agency services, (v) the creation and maintenance
of such records relating to the business of the Fund as the Fund may from time
to time reasonably request, (vi) the preparation of tax forms, reports, notices,
proxy statements, proxies and other shareholder communications, and the mailing
thereof to shareholders of the Fund, and (vii) the provision of such other
dividend disbursing, transfer agency, administrative and accounting services as
the Fund and Voyageur may from time to time agree upon. Pursuant to each
Administrative Services Agreement, Voyageur also provides such regulatory,
reporting and compliance related services and tasks as the Funds may reasonably
request.
As compensation for these services, each Fund pays Voyageur a monthly fee
based upon each 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,
(iii) with respect to each of Colorado Tax Free Fund, Minnesota Tax Free Fund,
Minnesota Insured Tax Free Fund, Minnesota Limited Term Tax Free Fund, Florida
Limited Term Tax Free Fund, Iowa Tax Free Fund, Idaho Tax Free Fund, and
Wisconsin Tax Free Fund; 0.11% per annum of the first $20 million of the Fund's
average daily net assets, 0.06% per annum of the next $20 million of the Fund's
average daily net assets, 0.035% per annum of the next $60 million of the Fund's
average daily net assets, 0.03% per annum of the next $400 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 $500 million and (iv) with respect to each of Arizona
Limited Term Tax Free Fund, Arizona Tax Free Fund, Arizona Insured Tax Free
Fund, California Limited Term Tax Free Fund, California Tax Free Fund,
California Insured Tax Free Fund, Colorado Limited Term Tax Free Fund, Colorado
Insured Tax Free Fund, Florida Tax Free Fund, Florida Insured Tax Free Fund,
Kansas Tax Free Fund, Missouri Insured Tax Free Fund, New Mexico Tax Free Fund,
Oregon Insured Tax Free Fund, Utah Tax Free Fund, Washington Insured Tax Free
Fund, National Limited Term Fund, National Tax Free Fund, National Insured Tax
Free Fund and North Dakota Tax Free Fund, 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, each Fund's net assets equal its total assets minus its
total liabilities. Each Fund also reimburses Voyageur for its out-of-pocket
expenses in connection with Voyageur's provision of services under the Fund's
Administrative Services Agreement.
Each Administrative Services Agreement is renewable from year to year if
the directors approve it in the same way they approve the Investment Advisory
Agreements. The Administrative Services Agreements can be terminated by either
party on 60 days' notice to the other party and the Agreements terminate
automatically upon their assignment. The Administrative Services Agreements also
provide that amendments to the Agreement may be effected if approved by the
Board (including a majority of the board members who are not interested persons
of Voyageur or the Fund), unless the 1940 Act requires that any such amendment
must be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board (unless the
1940 Act otherwise requires shareholder approval thereof).
EXPENSES OF THE FUNDS
Voyageur is contractually obligated to pay the operating expenses of each
Fund (excluding interest, taxes, brokerage fees and commissions, Rule 12b-1
fees, if any, and, with respect to the Insured Funds, insurance premiums on
portfolio securities) 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, with respect to the Insured Tax Free Funds up to the combined amount of the
investment advisory and management fee and the dividend disbursing,
administrative and accounting services fee. In addition, Voyageur reserves the
right to voluntarily waive its fees in whole or part and to voluntarily absorb
certain other of the Funds' expenses. Any such waiver or absorption, however, is
in Voyageur's sole discretion and may be lifted or reinstated at any time. In
order to comply with requirements of California law, the California Funds and
National Funds have undertaken to limit expenses in certain circumstances such
that aggregate annual expenses will not exceed 2-1/2% of the first $30 million
of the average net assets, 2% of the next $70 million of the average net assets
and 1-1/2% of the remaining average net assets for any fiscal year. Set forth
below is certain information regarding the investment advisory and
administrative services fees paid by each Fund to Voyageur during the indicated
fiscal periods.
<TABLE>
<CAPTION>
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
Arizona Insured Tax Free Fund
<S> <C> <C> <C>
1/1/95-12/31/95 $ 1,223,121 $ 299,757 $ 60,000
1/1/94-12/31/94 $ 1,298,673 $ 289,690 None
1/1/93-12/31/93 $ 990,603 $ 291,426 $ 389,913
Arizona Tax Free Fund
1/1/95-12/31/95(4) $ 14,301 $ 15,541 $ 29,842
California Insured Tax Free Fund
1/1/95-12/31/95 $ 184,315 $ 67,135 $ 90,000
11/1/94-12/31/94(1) $ 23,717 $ 9,550 $ 33,267
11/1/93-10/31/94 $ 111,570 $ 52,328 $ 163,898
11/1/92-10/31/93 $ 28,388 $ 24,463 $ 52,851
California Tax Free Fund
1/1/95-12/31/95(5) $ 4,468 $ 13,974 $ 18,442
Colorado Tax Free Fund
1/1/95-12/31/95 $ 1,944,802 $ 441,178 None
1/1/94-12/31/94 $ 2,039,009 $ 409,511 None
1/1/93-12/31/93 $ 1,539,825 $ 344,565 None
Florida Limited Term Tax Free Fund
1/1/95-12/31/95 $ 2,665 $ 10,995 $ 13,660
1/1/94-12/31/94 (3) $ 956 $ 11,264 $ 12,220
Florida Insured Tax Free Fund
1/1/95-12/31/95 $ 1,235,118 $ 325,819 $ 480,000
11/1/94-12/31/93 (1) $ 204,833 $ 76,709 $ 250,000
11/1/93-10/31/94 $ 1,481,786 $ 350,992 $ 805,000
11/1/92-10/31/93 $ 794,887 $ 261,534 $ 1,056,421
Florida Tax Free Fund
1/1/95-12/31/95(6) $ 10,974 $ 15,010 $ 25,984
Idaho Tax Free Fund
1/1/95-12/31/95(7) $ 38,282 $ 29,996 $ 68,278
Iowa Tax Free Fund
1/1/95-12/31/95 $ 193,451 $ 85,579 $ 45,000
9/1/94-12/31/94 (1) $ 56,650 $ 34,707 $ 91,357
9/1/93-8/31/94 $ 127,361 $ 70,832 $ 198,193
Kansas Tax Free Fund
1/1/95-12/31/95 $ 47,512 $ 14,005 $ 50,000
11/1/94-12/31/94 (1) $ 5,550 $ 5,993 $ 11,543
11/1/93-10/31/94 $ 22,132 $ 18,251 $ 40,383
11/1/92-10/31/93 $ 4,534 $ 15,024 $ 19,558
Minnesota Limited Term Tax Free Fund
1/1/95-12/31/95 $ 298,529 $ 114,999 None
3/1/94-12/31/94 (2) $ 272,884 $ 104,431 None
1/1/94-2/28/94 (2) $ 49,861 $ 16,471 None
1/1/93-12/31/93 $ 250,315 $ 95,608 None
Minnesota Insured Fund
1/1/95-12/31/95 $ 1,541,687 $ 329,546 $ 25,000
1/1/94-12/31/94 $ 1,561,406 $ 366,842 $ 925,000
1/1/93-12/31/93 $ 1,175,742 $ 258,060 $ 442,000
Minnesota Tax Free Fund
1/1/95-12/31/95 $ 2,229,862 $ 499,083 None
1/1/94-12/31/94 $ 2,241,071 $ 460,255 None
1/1/93-12/31/93 $ 2,015,440 $ 470,493 None
Missouri Insured Tax Free Fund
1/1/95-12/31/95 $ 250,578 $ 111,588 $ 170,000
11/1/94-12/31/94 (1) $ 32,651 $ 20,078 $ 50,000
11/1/93-10/31/94 $ 173,907 $ 79,615 $ 253,522
11/1/92-10/31/93 $ 79,101 $ 48,736 $ 127,837
National Limited Term Tax Free Fund
1/1/95-12/31/95 (8) $ 1,389 $ 7,315 $ 8,704
National Insured Tax Free Fund
1/1/95-12/31/95 $ 179,363 $ 70,870 $ 175,000
1/1/94-12/31/94 $ 154,949 $ 68,996 $ 223,945
1/1/93-12/31/93 $ 66,604 $ 38,036 $ 104,640
National Tax Free Fund
1/1/95-12/31/95 (9) $ 1,882 $ 6,361 $ 8,243
New Mexico Tax Free Fund
1/1/95-12/31/95 $ 108,209 $ 46,835 None
11/1/94-12/31/94 (1) $ 17,494 $ 12,232 $ 29,726
11/1/93-10/31/94 $ 108,865 $ 47,287 $ 135,000
11/1/92-10/31/93 $ 42,112 $ 31,103 $ 73,215
North Dakota Tax Free Fund
1/1/95-12/31/95 $ 179,121 $ 75,910 None
1/1/94-12/31/94 $ 180,617 $ 80,745 $ 157,087
1/1/93-12/31/93 $ 135,899 $ 72,879 $ 119,913
Oregon Insured Tax Free Fund
1/1/95-12/31/95 $ 103,343 $ 42,931 $ 75,000
11/1/94-12/31/94 (1) $ 12,840 $ 6,649 $ 19,489
11/1/93-10/31/94 $ 49,537 $ 33,740 $ 83,277
11/1/92-10/31/93 $ 2,080 $ 3,422 $ 5,502
Utah Tax Free Fund
1/1/95-12/31/95 $ 20,769 $ 18,829 $ 35,000
11/1/94-12/31/94 (1) $ 3,184 $ 1,757 $ 4,941
11/1/93-10/31/94 $ 20,384 $ 17,294 $ 37,678
11/1/92-10/31/93 $ 9,477 $ 18,569 $ 28,046
Washington Insured Tax Free Fund
1/1/95-12/31/95 $ 10,374 $ 12,752 $ 23,126
11/1/94-12/31/94 (1) $ 1,422 $ 2,369 $ 3,791
11/1/93-10/31/94 $ 7,561 $ 13,824 $ 21,385
11/1/92-10/31/93 $ 1,001 $ 3,702 $ 4,703
Wisconsin Tax Free Fund
1/1/95-12/31/95 $ 123,548 $ 49,595 None
9/1/94-12/31/94 (1) $ 31,634 $ 22,386 $ 54,020
9/1/94-8/31/94 $ 46,460 $ 31,486 $ 77,946
</TABLE>
(1) Effective December 31, 1994, the Fund changed its fiscal year end to
December 31.
(2) Effective February 28, 1994, Minnesota Limited Term Tax Free Fund changed
its fiscal year end to February 28 and, effective December 31, 1994,
changed back to December 31.
(3) Period from May 1, 1994 (commencement of operations) to December 31, 1994.
(4) Period from March 2, 1995 (commencement of operations) to December 31,
1995.
(5) Period from March 3, 1995 (commencement of operations) to December 31,
1995.
(6) Period from March 2, 1995 (commencement of operations) to December 31,
1995.
(7) Period from January 4, 1995 (commencement of operations) to December 31,
1995.
(8) Period from September 7, 1995 (commencement of operations) to December 31,
1995.
(9) Period from September 8, 1995 (commencement of operations) to December 31,
1995.
All costs and expenses (other than those specifically referred to as being
borne by Voyageur or the Underwriter) incurred in the operation of each Fund are
borne by the Fund. These expenses include, among others, fees of the Board
members who are not employees of Voyageur or any of its affiliates, expenses of
directors' and shareholders' meetings, including the cost of printing and
mailing proxies, expenses of insurance premiums for fidelity bond and other
coverage and, with respect to the Insured Tax Free Funds, insurance premiums for
portfolio securities, expenses of redemption of shares, expenses of issue and
sale of shares (to the extent not borne by the Underwriter under its agreement
with such Fund), expenses of printing and mailing stock certificates
representing shares of such Fund, association membership dues, charges of such
Fund's custodian, and bookkeeping, auditing and legal expenses. Each Fund will
also pay the fees and bear the expense of registering and maintaining the
registration of such Fund and its shares with the Securities and Exchange
Commission and registering or qualifying its shares under state or other
securities laws and the expense of preparing and mailing prospectuses, reports
and statements to shareholders.
RULE 12B-1 PLANS OF DISTRIBUTION; DISTRIBUTION AGREEMENTS
Each 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 each
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 each 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.
Each Fund has entered into a Distribution Agreement with the Underwriter,
pursuant to which the Underwriter acts as the principal underwriter of each
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 each Fund
(such costs are referred to as "Shareholder Servicing Expenses") and that the
Underwriter shall also pay all costs of distributing the shares of each 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 Funds, 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 Funds'
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 Agreements, 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 each Fund's Class A shares, 1.00% of
the average daily net assets attributable to each Fund's Class B shares and
1.00% of the average daily net assets attributable to each 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 a Fund's Class B shares or Class C shares is
designated a shareholder servicing fee and that portion of the fee equal to .75%
of average daily net assets attributable to a Fund's Class B shares or Class C
shares is designated a distribution fee. Amounts payable to the Underwriter
under the Distribution Agreement may exceed or be less than the Underwriter's
actual distribution expenses and shareholder servicing expenses. In the event
such distribution expenses and shareholder servicing expenses exceed amounts
payable to the Underwriter under the Plan, the Underwriter shall not be entitled
to reimbursement by the Funds. In addition to being paid shareholder servicing
and distribution fees, the Underwriter also receives for its services the sales
charge on sales of Fund shares set forth in each Prospectus.
Each Fund's Distribution Agreement is renewable from year to year if such
Fund's Board approves the Agreement and the Fund's Plan. Each Fund or the
Underwriter can terminate its Distribution Agreement on 60 days' notice to the
other party, and each Distribution Agreement terminates automatically upon its
assignment. In each 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.
For the fiscal years (or portions thereof, as indicated) ended December 31,
1995, 1994, and 1993, Rule 12b-1 fees and the amount waived for each Fund are
set forth below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
12B-1 AMOUNT 12B-1 AMOUNT 12B-1 AMOUNT
FEE WAIVED FEE WAIVED FEE WAIVED
--- ------ --- ------ --- ------
Arizona Insured Tax Free Fund
<S> <C> <C> <C> <C> <C> <C>
Class A $608,790 $582,768 $648,615 $493,491 $495,302 $ 495,302
Class B 7,062 1,807 N/A N/A N/A N/A
Class C 4,263 561 1,609 333 N/A N/A
Arizona Tax Free Fund
Class A 6,184 0 N/A N/A N/A N/A
Class B 3,765 975 N/A N/A N/A N/A
Class C 121 0 N/A N/A N/A N/A
California Insured Tax Free Fund
12/31/95 - Class A 80,709 23,803 11,176 8,495 N/A N/A
12/31/95 - Class B 44,275 17,904 2,774 1,260 N/A N/A
12/31/95 - Class C 1,792 0 N/A N/A N/A N/A
10/31/94 - Class A N/A N/A 54,720 44,074 14,194 14,194
10/31/94 - Class B N/A N/A 4,534 1,869 N/A N/A
California Tax Free Fund
Class A 2,145 0 N/A N/A N/A N/A
Class B 390 177 N/A N/A N/A N/A
Colorado Tax Free Fund
Class A 969,424 642,447 265,096 265,096 N/A N/A
Class B 5,460 1,113 N/A N/A N/A N/A
Class C 7.874 0 2,161 14 N/A N/A
Florida Limited Term Tax Free Fund
Class A 1,536 1,389 602 602 N/A N/A
Class B 120 30 N/A N/A N/A N/A
Class C 402 0 N/A N/A N/A N/A
Florida Insured Tax Free Fund
12/31/95 - Class A 611,873 595,950 101,760 101,760 N/A N/A
12/31/95 - Class B 22,840 13,701 2,101 1,265 N/A N/A
10/31/94 - Class A N/A N/A 739,775 739,775 397,444 397,444
10/31/94 - Class B N/A N/A 4,452 1,761 N/A N/A
Florida Tax Free Fund
Class A 5,427 0 N/A N/A N/A N/A
Class B 195 99 N/A N/A N/A N/A
Class C 48 0 N/A N/A N/A N/A
Idaho Tax Free Fund
Class A 16,620 3,224 N/A N/A N/A N/A
Class B 6,034 1,549 N/A N/A N/A N/A
Class C 4,499 93 N/A N/A N/A N/A
Iowa Tax Free Fund
12/31/95 - Class A 95,497 86,503 28,296 28,296 N/A N/A
12/31/95 - Class B 2,753 704 N/A N/A N/A N/A
12/31/95 - Class C 2,373 0 N/A N/A N/A N/A
8/31/94 - Class A N/A N/A 63,681 63,681 N/A N/A
Kansas Tax Free Fund
12/31/95 - Class A 23,138 19,960 2,775 2,775 N/A N/A
12/31/95 - Class B 2,445 601 N/A N/A N/A N/A
12/31/95 - Class C 136 0 N/A N/A N/A N/A
10/31/94 - Class A N/A N/A 11,078 11,078 2,267 2,267
Minnesota Limited Term Tax Free Fund
12/31/95 - Class A 185,286 0 171,101 0 125,158 0
12/31/95 - Class B 83 21 N/A N/A N/A N/A
12/31/95 - Class C 5,099 0 1,385 0 N/A N/A
2/28/94 Class A N/A N/A 31,163 0 N/A N/A
2/28/94 - Class C N/A N/A N/A N/A N/A N/A
Minnesota Insured Fund
Class A 759,866 126,114 778,913 119,759 587,871 311,980
Class B 19,425 5,515 N/A N/A N/A N/A
Class C 25,345 453 6,399 0 N/A N/A
Minnesota Tax Free Fund
Class A 1,108,235 0 1,118,958 0 1,007,720 0
Class B 8,871 2,274 N/A N/A N/A N/A
Class C 17,906 0 4,020 0 N/A N/A
Missouri Insured Tax Free Fund
12/31/95 - Class A 113,879 103,135 15,539 15,539 N/A N/A
12/31/95 - Class B 44,885 22,490 3,190 1,609 N/A N/A
12/31/95 - Class C 28 0 N/A N/A N/A N/A
10/31/94 - Class A N/A N/A 85,866 85,866 39,551 39,551
10/31/94 - Class B N/A N/A 4,486 2,119 N/A N/A
National Insured Tax Free Fund
Class A 87,384 21,418 76,958 47,420 33,302 33,302
Class B 9,212 3,702 2,238 903 N/A N/A
Class C 19 0 N/A N/A N/A N/A
National Limited Term Tax Free Fund
Class A 876 332 N/A N/A N/A N/A
National Tax Free Fund
Class A 874 0 N/A N/A N/A N/A
Class B 211 77 N/A N/A N/A N/A
Class C 62 0 N/A N/A N/A N/A
New Mexico Tax Free Fund
12/31/95 - Class A 52,868 48,466 8,619 8,619 N/A N/A
12/31/95 - Class B 5,003 1,508 446 134 N/A N/A
10/31/94 - Class A N/A N/A 54,411 54,411 21,056 21,056
10/31/94 - Class B N/A N/A 1,441 310 N/A N/A
North Dakota Tax Free Fund
Class A 88,956 85,447 90,095 90,095 67,950 67,950
Class B 2,317 1,161 622 310 N/A N/A
Class C 168 0 N/A N/A N/A N/A
Oregon Insured Tax Free Fund
12/31/95 - Class A 46,075 39,592 5,914 5,914 N/A N/A
12/31/95 - Class B 21,913 9,883 2,045 923 N/A N/A
12/31/95 - Class C 708 0 N/A N/A N/A N/A
10/31/94 - Class A N/A N/A 23,890 23,890 1,040 1,040
10/31/94 - Class B N/A N/A 3,762 1,507 N/A N/A
Utah Tax Free Fund
12/31/95 - Class A 10,086 9,556 1,590 1,590 N/A N/A
12/31/95 - Class B 1,209 305 N/A N/A N/A N/A
10/31/94 - Class A N/A N/A 10,190 10,190 4,739 4,739
Washington Insured Tax Free Fund
12/31/95 - Class A 5,154 4,717 710 710 N/A N/A
12/31/95 - Class B 29 8 N/A N/A N/A N/A
12/31/95 - Class C 123 0 N/A N/A N/A N/A
10/31/94 - Class A N/A N/A 3,782 3,782 501 501
Wisconsin Tax Free Fund
12/31/95 - Class A 60,960 50,749 15,845 14,603 N/A N/A
12/31/95 - Class B 3,151 803 N/A N/A N/A N/A
12/31/95 - Class C 308 0 N/A N/A N/A N/A
8/31/94 - Class A N/A N/A 23,230 23,230 N/A N/A
</TABLE>
The following table sets forth the aggregate dollar amount of underwriting
commissions paid by each Fund for the fiscal periods indicated and the amount of
such commissions retained by the Underwriter.
<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS
TOTAL UNDERWRITING COMMISSIONS RETAINED BY UNDERWRITER
------------------------------ -----------------------
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93 12/31/95 12/31/94 12/31/93
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arizona Insured Tax Free Fund $804,383 $2,007,707 $ 5,870,964 $103,168 $272,585 $ 789,394
Arizona Tax Free Fund 20,987 N/A N/A 2,901 N/A N/A
California Insured Tax Free Fund
12/31/95 (1) 231,679 61,913 N/A 34,177 8,043 N/A
10/31/94 N/A 434,743 434,394 N/A 58,732 58,855
California Tax Free Fund 19,639 N/A N/A 2,554 N/A N/A
Colorado Tax Free Fund 721,452 2,513,880 6,056,629 117,743 346,636 835,738
Florida Limited Term Tax Free Fund 3,866 0 N/A 741 0 N/A
Florida Insured Tax Free Fund
12/31/95 (1) 357,154 39,051 N/A 48,112 5,589 N/A
10/31/94 N/A 1,497,591 9,639,186 N/A 207,722 1,350,713
Florida Tax Free Fund 42,789 N/A N/A 6,121 N/A N/A
Idaho Tax Free Fund 338,974 N/A N/A 62,968 N/A N/A
Iowa Tax Free Fund
12/31/95 (1) 223,046 101,383 N/A 40,943 18,061 N/A
8/31/94 N/A 1,352,653 N/A N/A 249,929 N/A
Kansas Tax Free Fund
12/31/95 (1) 104,287 9,935 N/A 14,394 1,572 N/A
10/31/94 N/A 175,196 98,488 N/A 24,852 14,245
Minnesota Limited Term
Tax Free Fund
12/31/95 (1) 47,098 126,433 457,090 8,399 22,538 79,125
2/28/94 N/A 67,700 N/A N/A 12,408 N/A
Minnesota Tax Free Fund 812,687 1,781,640 3,572,923 114,391 246,291 496,962
Minnesota Insured Fund 658,955 1,938,352 5,068,046 86,858 269,910 690,609
Missouri Insured Tax Free Fund
12/31/95 (1) 316,387 37,792 N/A 53,274 5,375 N/A
10/31/94 N/A 467,540 528,375 N/A 65,646 74,660
National Insured Tax Free Fund 85,169 406,397 720,463 16,952 54,878 98,702
National Limited Term Free Fund 5,775 N/A N/A 1,275 N/A N/A
National Tax Free Fund 293 N/A N/A 45 N/A N/A
New Mexico Tax Free Fund
12/31/95 (1) 77,084 7,174 N/A 15,700 1,424 N/A
10/31/94 N/A 302,834 669,386 N/A 50,348 92,055
North Dakota Tax Free Fund 65,566 188,974 663,051 10,960 27,132 95,206
Oregon Insured Tax Free Fund
12/31/95 (1) 265,488 30,428 N/A 42,930 4,107 N/A
10/31/94 N/A 398,064 126,674 N/A 55,282 18,509
Utah Tax Free Fund
12/31/95 (1) 10,693 1,003 N/A 1,782 201 N/A
10/31/94 N/A 75,407 120,641 N/A 12,223 16,878
Washington Insured Tax
Free Fund
12/31/95 (1) 26,941 3,265 N/A 3,915 380 N/A
10/31/94 N/A 26,890 13,308 N/A 3,895 1,743
Wisconsin Tax Free Fund
12/31/95 (1) 139,886 101,720 N/A 25,338 18,121 N/A
8/31/94 N/A 487,555 N/A N/A 71,314 N/A
(1) Effective 12/31/94, the fund changed its fiscal year end to 12/31.
</TABLE>
PORTFOLIO TRANSACTIONS, ALLOCATION OF BROKERAGE AND TURNOVER RATE
As the Funds' portfolios are 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 Funds, Voyageur seeks the most favorable net price consistent with the
best execution. However, frequently, Voyageur 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 Voyageur 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 Funds' portfolio transactions
are made by Voyageur. The primary consideration in making these decisions is
efficiency in the execution of orders and obtaining the most favorable net
prices for the Funds. When consistent with these objectives, business may be
placed with broker-dealers who furnish investment research services to Voyageur.
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 Voyageur to supplement its own investment research
activities and enables Voyageur to obtain the views and information of
individuals and research staffs 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 Voyageur,
Voyageur receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Funds from these
transactions.
Voyageur 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 Funds' portfolio transactions in exchange
for research services provided Voyageur, except as noted below. However,
Voyageur does maintain an informal list of broker-dealers, which is used from
time to time as a general guide in the placement of the Funds' business, in
order to encourage certain broker-dealers to provide Voyageur with research
services which Voyageur 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. Voyageur
will authorize the Funds to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if Voyageur 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 Voyageur's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
The Funds will not effect any brokerage transactions in their portfolio
securities with any broker-dealer affiliated directly or indirectly with
Voyageur, unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Funds. In the event any transactions are
executed on an agency basis, Voyageur will authorize the Funds to pay an amount
of commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Voyageur 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 Voyageur's overall
responsibilities with respect to the Funds as to which it exercises investment
discretion. If the Funds execute any transactions on an agency basis, they will
generally pay higher than the lowest commission rates available.
In determining the commissions to be paid to a broker-dealer affiliated
with Voyageur, it is the policy of the Funds that such commissions will, in the
judgment of Voyageur, subject to review by the Board, be both (a) at least as
favorable as those which would be charged by other qualified brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time, and (b) at
least as favorable as commissions contemporaneously charged by such affiliated
broker-dealers on comparable transactions for their most favored comparable
unaffiliated customers. While each 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.
None of the Funds in existence during the fiscal periods ended December 31,
1994, 1993 and 1992, paid any brokerage commissions, directed portfolio
transactions to broker-dealers because of research services provided to Voyageur
or executed brokerage transactions with an affiliated broker-dealer.
Pursuant to conditions set forth in rules of the Securities and Exchange
Commission, the Funds may purchase securities from an underwriting syndicate of
which an affiliated broker-dealer is a member (but not directly from such
affiliated broker-dealer itself). Such conditions relate to the price and amount
of the securities purchased, the commission or spread paid and the quality of
the issuer. The rules further require that such purchases take place in
accordance with procedures adopted and reviewed periodically by the Board of the
Funds, particularly those Board members who are not interested persons of the
Funds.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Funds' directors may determine,
Voyageur may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute the Funds' securities transactions.
OTHER INFORMATION
CONVERSION OF CLASS B SHARES. In addition to information regarding
conversion set forth in the prospectus, the conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that payment of different
dividends by each of the classes of shares does not result in the Funds'
dividends or distributions constituting "preferential dividends" under the Code
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion will be available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
SIGNATURE GUARANTY. In addition to information regarding redemption of
shares and signature guaranty set forth in the prospectus, a signature guaranty
will be required when redemption proceeds: (1) exceed $50,000 (unless it is
being wired to a pre-authorized bank account, in which case a guarantee is not
required), (2) are to be paid to someone other than the registered shareholder
or (3) are to be mailed to an address other than the address of record or wired
to an account other than the pre-authorized bank or brokerage account. On joint
account redemptions of the type previously listed, each signature must be
guaranteed. A signature guarantee may not be provided by a notary public. Please
contact your investment executive for instructions as to what institutions
constitute eligible signature guarantors.
VALUATION OF PORTFOLIO SECURITIES. Generally, trading in certain securities
such as tax exempt securities, corporate bonds, U.S. Government securities and
money market instruments is substantially completed each day at various times
prior to the primary close of trading on the Exchange. The values of such
securities used in determining the net asset value of Fund shares are computed
as of such times. Occasionally events affecting the value of such securities may
occur between such times and the primary close of trading on the Exchange which
are not reflected in the computation of net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities are valued at their fair market value as determined in good faith by
Voyageur in accordance with procedures adopted by the Boards.
BANK PURCHASES. Banks, acting as agents for their customers and not for the
Funds or the Underwriter, from time to time may purchase Fund shares for the
accounts of such customers. Generally, the Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. Should the activities of any bank, acting as agent for its customers
in connection with the purchase of any Fund's shares, be deemed to violate the
Glass-Steagall Act, management will take whatever action, if any, is appropriate
in order to provide efficient services for the Funds. Management does not
believe that a termination in the relationship with a bank would result in any
material adverse consequences to the Funds. In addition, state securities laws
on this issue may differ and banks and financial institutions may be required to
register as dealers pursuant to state law. Fund shares are not deposits or
obligations of, or guaranteed or endorsed by, any bank and are not insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other federal agency.
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
each of the Funds, will not be deductible by a shareholder. Indebtedness may be
allocated to shares of a Fund even though not directly traceable to the purchase
of such shares.
Each 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 Voyageur 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 Voyageur 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.
Each 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, each Fund must declare dividends by the end of the calendar year
representing 98% of such 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 a Fund has paid corporate-level tax is considered to
have been distributed. Each 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 a Fund realizes on the sale of a Tax Exempt
Obligation that it purchased at a market discount may have to be treated as
ordinary income rather than capital gain.
For shareholders who are recipients of Social Security benefits,
exempt-interest dividends are includable in computing "modified adjusted gross
income" for purposes of determining the amount of Social Security benefits, if
any, that is required to be included in gross income. The maximum amount of
Social Security benefits that may be included in gross income is 85%.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's
regular income tax liability (with certain adjustments). Exempt-interest
dividends attributable to interest income on certain tax-exempt obligations
issued after August 7, 1986 to finance private activities are treated as an item
of tax preference that is included in alternative minimum taxable income for
purposes of computing the federal AMT for all taxpayers and the federal
environmental tax on corporations. In addition, all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be included
in adjusted current earnings for purposes of determining the federal corporate
AMT and the environmental tax imposed on corporations by Section 59A of the
Code. Liability for AMT will depend on each shareholder's individual tax
situation.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
bonds held by the Funds. The Funds 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 any Fund's portfolio lost its exempt status,
such 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 any Fund may
purchase options. To the extent a 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 a
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."
ARIZONA STATE TAXATION The portion of exempt-interest dividends that is
derived from interest income on Arizona Tax Exempt Obligations is excluded from
the Arizona taxable income of individuals, estates, trusts, and corporations.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains under Arizona law.
CALIFORNIA STATE TAXATION. Individual shareholders of a California Fund who
are subject to California personal income taxation will not be required to
include in their California gross income that portion of their federally tax
exempt dividends which the Fund clearly identifies as directly attributable to
interest earned on California state or municipal obligations, and dividends
which the Fund clearly identifies as directly attributable to interest earned on
obligations of the United States, the interest on which is exempt from
California personal income tax pursuant to federal law, provided that at least
50% of the value of the Fund's total assets consists of obligations the interest
on which is exempt from California personal income taxation pursuant to federal
or California law. Distributions to individual shareholders derived from
interest on state or municipal obligations issued by governmental authorities in
states other than California, short-term capital gains and other taxable income
will be taxed as dividends for purposes of California personal income taxation.
Each Fund's long-term capital gains for federal income tax purposes will be
taxed as long-term capital gains to individual shareholders of the Fund for
purposes of California personal income taxation. Gain or loss, if any, resulting
from an exchange or redemption of shares will be recognized in the year of the
change or redemption. Present California law taxes both long-term and short-term
capital gains at the rates applicable to ordinary income. Interest on
indebtedness incurred or continued by a shareholder in connection with the
purchase of shares of California Fund will not be deductible for California
personal income tax purposes. California has an alternative minimum tax similar
to the federal alternative minimum tax described above. However, the California
alternative minimum tax does not include interest from private activity bonds as
an item of tax preference. Generally, corporate shareholders of a California
Fund subject to the California franchise tax will be required to include any
gain on an exchange or redemption of shares and all distributions of exempt
interest, capital gains and other taxable income, if any, as income subject to
such tax. The California Funds will not be subject to California franchise or
corporate income tax on interest income or net capital gain distributed to the
shareholders. Shares of the California Funds will be exempt from local property
taxes in California.
COLORADO STATE TAXATION. To the extent that dividends are derived from
interest income on Colorado Tax Exempt Obligations, such dividends will also be
exempt from Colorado income taxes for individuals, trusts, estates, and
corporations. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains
under Colorado law.
FLORIDA STATE TAXATION. Florida does not currently impose a tax on the
income of individuals, and individual shareholders of the Florida Fund will thus
not be subject to income tax in Florida on distributions from the Florida Fund
or upon the sale of shares held in such Fund. Florida does, however, impose a
tax on intangible personal property held by individuals as of the first day of
each calendar year. Under a rule promulgated by the Florida Department of
Revenue, shares in the Florida Fund will not be subject to the intangible
property tax so long as, on the last business day of each calendar year, all of
the assets of each Fund consist of obligations of the U. S. government and its
agencies, instrumentalities and territories, and the State of Florida and its
political subdivisions and agencies. If any Florida Fund holds any other types
of assets on that date, then the entire value of the shares in such Fund (except
for the portion of the value of the shares attributable to U. S. government
obligations) will be subject to the intangible property tax.
In order to take advantage of the exemption from the intangibles tax in any
year, each Florida Fund must sell any non-exempt assets held in its portfolio
during the year and reinvest the proceeds in exempt assets prior to December 31.
Transaction costs involved in converting the portfolio's assets to such exempt
assets would likely reduce a Florida Fund's investment return and might, in
extraordinary circumstances, exceed any increased investment return such Fund
achieved by investing in non-exempt assets during the year.
Corporate shareholders in a Florida Fund may be subject to the Florida
income tax imposed on corporations, depending upon the domicile of the
corporation and upon the extent to which income received from such Fund
constitutes "nonbusiness income" as defined by applicable Florida law.
IOWA STATE TAXATION. The Fund has received a ruling from the Iowa
Department of Revenue and Finance dated May 21, 1993 to the effect that
dividends paid by the Iowa Fund that are attributable to (1) interest earned on
bonds issued by the State of Iowa, its political subdivisions, agencies and
instrumentalities, the interest on which is exempt from taxation by Iowa
statute, and (2) interest earned on obligations of the U. S. government or its
territories and possessions, will not be included in the income of the Fund
shareholders subject to either the Iowa personal or the Iowa corporate income
tax, except in the case of shareholders that are financial institutions subject
to the tax imposed by Iowa Code ss. 422.60. All other dividends paid by the Iowa
Fund will be subject to the Iowa personal or corporate income tax. Capital gain
dividends qualifying as long-term capital gains for federal tax purposes will be
treated as long-term capital gains for Iowa income tax purposes. Iowa taxes
long-term capital gains at the same rates as ordinary income, while imposing
limitations on the deductibility of capital losses similar to those under
federal law.
Iowa imposes an alternative minimum tax on individuals and corporations to
the extent that such tax exceeds the taxpayer's regular tax liability. Iowa AMT
is based on federal alternative minimum taxable income, with
certain adjustments. The Fund has received a ruling to the effect that dividends
paid by the Iowa Fund that are attributable to interest paid on obligations
issued by the State of Iowa, its political subdivisions, agencies and
instrumentalities, the interest on which is exempt under Iowa statute, and on
obligations of U. S. territories and possessions will not be subject to the AMT
that Iowa imposes on individuals and corporations.
KANSAS STATE TAXATION. Individuals, trusts, estates and corporations will
not be subject to Kansas income tax on the portion of dividends derived from
interest on obligations of Kansas and its political subdivisions issued after
December 31, 1987, and interest on specified obligations of Kansas and its
political subdivisions issued before January 1, 1988. The Fund intends to invest
only in Kansas obligations the interest on which is excludable from Kansas
taxable income. All remaining dividends (except for dividends, if any, derived
from interest paid on obligations of the United States, its territories and
possessions), including dividends derived from capital gains, will be includable
in the taxable income of individuals, trusts, estates and corporations.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains. Kansas taxes
long-term capital gains at the same rates as ordinary income, while restricting
the deductibility of capital losses. Dividends received by shareholders will be
exempt from the tax on intangibles imposed by certain counties, cities and
townships.
MINNESOTA STATE TAXATION. Minnesota taxable net income is based generally
on federal taxable income. The portion of exempt-interest dividends that is
derived from interest income on Minnesota Tax Exempt Obligations is excluded
from the Minnesota taxable net income of individuals, estates and trusts,
provided that the portion of the exempt-interest dividends from such Minnesota
sources paid to all shareholders represents 95 percent or more of the
exempt-interest dividends paid by the respective Fund. 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 as long-term capital gains.
Minnesota has repealed the favorable treatment of long term capital gains, while
retaining restrictions on the deductibility of capital losses. Exempt interest
dividends subject to the federal alternative minimum tax will also be subject to
the Minnesota alternative minimum tax imposed on individuals, estates and
trusts.
MISSOURI STATE TAXATION. The portion of exempt-interest dividends that is
derived from interest on Missouri Tax Exempt Obligations is excluded from the
taxable income of individuals, trusts, and estates and corporations subject to
the Missouri corporate income tax. All remaining dividends (except dividends
attributable to interest on obligations of the United States, its territories
and possessions), including dividends derived from capital gains, will be
includable in the taxable income of individuals, trusts, estates and
corporations. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains.
Missouri taxes long-term capital gains at the same rates as ordinary income,
while restricting the deductibility of capital losses.
NEW MEXICO STATE TAXATION. The portion of exempt-interest dividends that is
derived from interest on New Mexico Tax Exempt Obligations is excluded from the
taxable income of individuals, trusts, and estates, and of corporations subject
to the New Mexico corporate income tax. The Fund will provide shareholders with
an annual statement identifying income paid to shareholders by source. All
remaining dividends (except for dividends, if any, derived from interest paid on
obligations of the United States, its territories and possessions), including
dividends derived from capital gains, will be includable in the taxable income
of individuals, trusts, estates and corporations. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. New Mexico taxes long-term capital
gains at the same rates as ordinary income, while restricting the deductibility
of capital losses.
NORTH DAKOTA STATE TAXATION. North Dakota taxable income is based generally
on federal taxable income. The portion of exempt-interest dividends that is
derived from interest income on North Dakota Tax Exempt Obligations is excluded
from the North Dakota taxable income of individuals, estates, trusts and
corporations. Exempt-interest dividends are not excluded from the North Dakota
taxable income of banks. Dividends qualifying for federal income tax purposes as
capital gain dividends are to be treated by shareholders as long-term capital
gains under North Dakota law.
OREGON STATE TAXATION. The portion of exempt-interest dividends that is
derived from interest on Oregon Tax Exempt Obligations is excluded from the
taxable income of individuals, trusts, and estates. All remaining dividends
(except for dividends, if any, derived from interest paid on obligations of the
United States, its territories and possessions), including dividends derived
from capital gains, will be includable in the taxable income of individuals,
trusts and estates. Furthermore, all dividends, including exempt-interest
dividends, will be includable in the taxable income of corporations subject to
the Oregon corporation excise tax. Dividends qualifying for federal income tax
purposes as capital gain dividends are to be treated by shareholders as
long-term capital gains. Oregon taxes long-term capital gains at the same rates
as ordinary income, while restricting the deductibility of capital losses.
UTAH STATE TAXATION. All exempt-interest dividends, whether derived from
interest on Utah Tax Exempt Obligations or the Tax Exempt Obligations of any
other state, are excluded from the taxable income of individuals, trusts and
estates. Any remaining dividends (except for dividends, if any, derived from
interest paid on obligations of the United States, its territories and
possessions), including dividends derived from capital gains, will be includable
in the taxable income of individuals, trusts and estates. Furthermore, all
dividends, including exempt-interest dividends, will be includable in the
taxable income of corporations subject to the Utah corporate franchise tax.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains. Utah taxes
long-term capital gains at the same rates as ordinary income, while restricting
the deductibility of capital losses.
WASHINGTON STATE TAXATION. Washington does not currently impose an income
tax on individuals or corporations. Therefore, dividends paid to shareholders
will not be subject to tax in Washington.
WISCONSIN STATE TAXATION. The Wisconsin Fund has received a ruling from the
Wisconsin Department of Revenue dated July 7, 1993 to the effect that dividends
paid by the Wisconsin Fund that are attributable to (1) interest earned on
certain higher education bonds issued by the State of Wisconsin, certain bonds
issued by the Wisconsin Housing and Economic Development authority, Wisconsin
Housing Finance Authority bonds, and public housing authority bonds and
redevelopment authority bonds issued by Wisconsin municipalities, the interest
on which is exempt from taxation by Wisconsin statute, and (2) interest earned
on obligations of the U. S. government or its territories and possessions will
not be included in the income of the Fund shareholders subject to the Wisconsin
personal income tax. Capital gain dividends qualifying as long-term capital
gains for federal tax purposes will be treated as long-term capital gains for
Wisconsin income tax purposes. Wisconsin taxes long-term capital gains at the
same rates as ordinary income, while imposing limitations on the deductibility
of capital losses similar to those under federal law.
Wisconsin imposes an alternative minimum tax on individuals, trusts and
estates to the extent that such tax exceeds a taxpayer's regular tax liability.
Wisconsin's AMT is based on federal alternative minimum taxable income, with
certain adjustments. The Fund has received a ruling to the effect that dividends
paid by the Wisconsin Fund that are attributable to interest paid on obligations
issued by the State of Wisconsin or its agencies, the interest on which is
exempt from Wisconsin personal income tax under Wisconsin statute, and on
obligations of U. S. territories and possessions will not be subject to the
Wisconsin AMT when received by shareholders subject to the Wisconsin personal
income tax.
SPECIAL PURCHASE PLANS
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares may be
purchased through a preauthorized automatic investment plan. Such preauthorized
investments (at least $100) may be used to purchase shares of any Fund at the
public offering price next determined after such 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 each Fund's prospectus by combining purchases of any
class of shares of any one or more of the Funds which bear a FESC (and, in
certain circumstances, purchases of FESC shares of certain other open end
investment companies) if the combined purchase of all such funds totals at least
$50,000.
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act;
(ii) an individual, his or her spouse and their children under
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust) created pursuant to a plan qualified under
Section 401 of the Code;
(iv) tax-exempt organizations enumerated in Section 501(c)(3) of the
Code; (v) employee benefit plans of a single employer or of affiliated
employers;
(vi) any organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying
redeemable securities of a registered investment company, and provided that
the purchase is made through a central administration, or through a single
dealer, or by other means which result in economy of sales effort or
expense. An organized group does not include a group of individuals whose
sole organizational connection is participation as credit cardholders of a
company, policyholders of an insurance company, customers of either a bank
or broker-dealer, or clients of an investment adviser.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchase of Class A
shares may qualify for a Cumulative Quantity Discount. The applicable FESC will
then be based on the total of:
(i) the investor's current purchase; and
(ii) the investor's gross amount previously invested of the shares of
FESC classes of the Funds held by the investor; and
(iii) the investor's gross amount previously invested of shares of
FESC classes of the Funds 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 whose shares are being
purchased 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 each Fund's prospectus 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 the Funds bearing 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 twenty-one 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 Letter of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intention is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased. When the full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the dollar amount
indicated on the Letter of Intention and qualifies for further reduced sales
charges, the sales charges will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in sales charges will be used to
purchase additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases.
Investors electing to take advantage of the Letter of Intention should
carefully review the appropriate provisions on the authorization form attached
to each Prospectus.
Shares of other open end investment companies bearing a FESC will be
included with Voyageur Fund shares bearing a FESC in a Combined Purchase
Privilege, Cumulative Quantity Discount or Letter of Intention only if such
shares are owned by customers of dealers that Voyageur or the Underwriter has
engaged to provide administration or accounting services to Fund omnibus
accounts in connection with the offering of the Funds as part of such other
investment companies' family of funds. Additionally, the maximum reduction of
the applicable Fund's FESC that may result from the inclusion of shares of such
other investment companies' in a Combined Purchase Privilege, Cumulative
Quantity Discount or Letter of Intention shall be a reduction to the front-end
sales charge applicable to pur chases of $500,000 but less than $1,000,000 (as
set forth in the sales charge tables in the prospectus).
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the net asset value of Fund shares is summarized
in the prospectus in "Determination of Net Asset Value." The public offering
price of Class A shares is the net asset value of Fund shares plus the
applicable front end sales charge, if any. The maximum front end sales charge is
4.99% of the net asset value (certain Funds have lower maximum sales charges).
The public offering price of Class B and Class C shares is the net asset value
of Fund shares.
The portfolio securities in which each Fund invests fluctuate in value, and
therefore, the net asset value per share of each Fund also fluctuates. As of
December 31, 1995, the net asset value per share of each Fund which had
commenced investment operations was calculated as follows:
<TABLE>
<CAPTION>
ARIZONA INSURED TAX FREE FUND
<S> <C> <C>
CLASS A NET ASSETS ($238,113,646) = NET ASSET VALUE PER SHARE ($11.15)
------------------------------------
SHARES OUTSTANDING (21,351,620)
CLASS B NET ASSETS ($2,047,794) = NET ASSET VALUE PER SHARE ($11.14)
------------------------------------
SHARES OUTSTANDING (183,744)
CLASS C NET ASSETS ($541,104) = NET ASSET VALUE PER SHARE ($11.15)
------------------------------------
SHARES OUTSTANDING (48,524)
ARIZONA TAX FREE FUND
CLASS A NET ASSETS ($6,225,483) = NET ASSET VALUE PER SHARE ($10.75)
------------------------------------
SHARES OUTSTANDING (578,894)
CLASS B NET ASSETS ($1,628,962) = NET ASSET VALUE PER SHARE ($10.74)
------------------------------------
SHARES OUTSTANDING (151,607)
CLASS C NET ASSETS ($26,946) = NET ASSET VALUE PER SHARE ($10.76)
------------------------------------
SHARES OUTSTANDING (2,505)
CALIFORNIA INSURED TAX FREE FUND
CLASS A NET ASSETS ($33,860,198) = NET ASSET VALUE PER SHARE ($10.65)
------------------------------------
SHARES OUTSTANDING (3,179,418)
CLASS B NET ASSETS ($6,028,655) = NET ASSET VALUE PER SHARE ($10.65)
------------------------------------
SHARES OUTSTANDING (566,073)
CLASS C NET ASSETS ($53,471) = NET ASSET VALUE PER SHARE ($10.65)
------------------------------------
SHARES OUTSTANDING (5,020)
CALIFORNIA TAX FREE FUND
CLASS A NET ASSETS ($1,012,062) = NET ASSET VALUE PER SHARE ($10.64)
------------------------------------
SHARES OUTSTANDING (95,115)
CLASS B NET ASSETS ($127,958) = NET ASSET VALUE PER SHARE ($10.65)
------------------------------------
SHARES OUTSTANDING (12,019)
COLORADO TAX FREE FUND
CLASS A NET ASSETS ($392,815,381) = NET ASSET VALUE PER SHARE ($10.90)
------------------------------------
SHARES OUTSTANDING (36,030,584)
CLASS B NET ASSETS ($1,643,379) = NET ASSET VALUE PER SHARE ($10.90)
------------------------------------
SHARES OUTSTANDING (150,774)
CLASS C NET ASSETS ($1,042,277) = NET ASSET VALUE PER SHARE ($10.90)
------------------------------------
SHARES OUTSTANDING (95,610)
FLORIDA INSURED TAX FREE FUND
CLASS A NET ASSETS ($242,425,038) = NET ASSET VALUE PER SHARE ($10.94)
------------------------------------
SHARES OUTSTANDING (22,159,712)
CLASS B NET ASSETS ($2,814,292) = NET ASSET VALUE PER SHARE ($10.94)
------------------------------------
SHARES OUTSTANDING (257,299)
FLORIDA LIMITED TERM TAX FREE FUND
CLASS A NET ASSETS ($859,162) = NET ASSET VALUE PER SHARE ($10.56)
------------------------------------
SHARES OUTSTANDING (81,392)
CLASS B NET ASSETS ($40,907) = NET ASSET VALUE PER SHARE ($10.56)
------------------------------------
SHARES OUTSTANDING (3,875)
CLASS C NET ASSETS ($53,645) = NET ASSET VALUE PER SHARE ($10.55)
------------------------------------
SHARES OUTSTANDING (5,083)
FLORIDA TAX FREE FUND
CLASS A NET ASSETS ($4,421,203) = NET ASSET VALUE PER SHARE ($10.73)
------------------------------------
SHARES OUTSTANDING (412,140)
CLASS B NET ASSETS ($101,114) = NET ASSET VALUE PER SHARE ($10.73)
------------------------------------
SHARES OUTSTANDING (9,424)
CLASS C NET ASSETS ($8,645) = NET ASSET VALUE PER SHARE ($10.73)
------------------------------------
SHARES OUTSTANDING (806)
IDAHO TAX FREE FUND
CLASS A NET ASSETS ($13,540,265) = NET ASSET VALUE PER SHARE ($11.02)
------------------------------------
SHARES OUTSTANDING (1,228,727)
CLASS B NET ASSETS ($1,977,479) = NET ASSET VALUE PER SHARE ($11.01)
------------------------------------
SHARES OUTSTANDING (179,651)
CLASS C NET ASSETS ($789,300) = NET ASSET VALUE PER SHARE ($11.02)
------------------------------------
SHARES OUTSTANDING (71,649)
IOWA TAX FREE FUND
CLASS A NET ASSETS ($42,374,064) = NET ASSET VALUE PER SHARE ($9.83)
------------------------------------
SHARES OUTSTANDING (4,308,823)
CLASS B NET ASSETS ($818,943) = NET ASSET VALUE PER SHARE ($9.83)
------------------------------------
SHARES OUTSTANDING (83,299)
CLASS C NET ASSETS ($461,722) = NET ASSET VALUE PER SHARE ($9.83)
------------------------------------
SHARES OUTSTANDING (46,987)
KANSAS TAX FREE FUND
CLASS A NET ASSETS ($10,677,403) = NET ASSET VALUE PER SHARE ($10.73)
------------------------------------
SHARES OUTSTANDING (995,218)
CLASS B NET ASSETS ($676,949) = NET ASSET VALUE PER SHARE ($10.74)
------------------------------------
SHARES OUTSTANDING (63,056)
CLASS C NET ASSETS ($39,591) = NET ASSET VALUE PER SHARE ($10.72)
------------------------------------
SHARES OUTSTANDING (3,692)
MINNESOTA INSURED FUND
CLASS A NET ASSETS ($307,734,067) = NET ASSET VALUE PER SHARE ($10.73)
------------------------------------
SHARES OUTSTANDING (28,669,968)
CLASS B NET ASSETS ($4,654,955) = NET ASSET VALUE PER SHARE ($10.72)
------------------------------------
SHARES OUTSTANDING (434,121)
CLASS C NET ASSETS ($3,166,049) = NET ASSET VALUE PER SHARE ($10.73)
------------------------------------
SHARES OUTSTANDING (294,967)
MINNESOTA LIMITED TERM TAX FREE FUND
CLASS A NET ASSETS ($72,404,842) = NET ASSET VALUE PER SHARE ($11.14)
------------------------------------
SHARES OUTSTANDING (6,502,237)
CLASS B NET ASSETS ($27,222) = NET ASSET VALUE PER SHARE ($11.14)
------------------------------------
SHARES OUTSTANDING (2,444)
CLASS C NET ASSETS ($694,146) = NET ASSET VALUE PER SHARE ($11.13)
------------------------------------
SHARES OUTSTANDING (62,344)
MINNESOTA TAX FREE FUND
CLASS A NET ASSETS ($455,219,758) = NET ASSET VALUE PER SHARE ($12.63)
------------------------------------
SHARES OUTSTANDING (36,054,473)
CLASS B NET ASSETS ($2,700,598) = NET ASSET VALUE PER SHARE (12.62)
------------------------------------
SHARES OUTSTANDING (213,915)
CLASS C NET ASSETS ($2,318,788) = NET ASSET VALUE PER SHARE ($12.63)
------------------------------------
SHARES OUTSTANDING (183,600)
MISSOURI INSURED TAX FREE FUND
CLASS A NET ASSETS ($50,211,155) = NET ASSET VALUE PER SHARE ($10.54)
------------------------------------
SHARES OUTSTANDING (4,764,581)
CLASS B NET ASSETS ($6,194,756) = NET ASSET VALUE PER SHARE ($10.54)
------------------------------------
SHARES OUTSTANDING (587,970)
CLASS C NET ASSETS ($20,366) = NET ASSET VALUE PER SHARE ($10.54)
------------------------------------
SHARES OUTSTANDING (1,932)
NATIONAL INSURED TAX FREE FUND
CLASS A NET ASSETS ($35,661,544) = NET ASSET VALUE PER SHARE ($10.64)
------------------------------------
SHARES OUTSTANDING (3,351,541)
CLASS B NET ASSETS ($1,545,191) = NET ASSET VALUE PER SHARE ($10.64)
------------------------------------
SHARES OUTSTANDING (145,243)
CLASS C NET ASSETS ($10,373) = NET ASSET VALUE PER SHARE ($10.63)
------------------------------------
SHARES OUTSTANDING (976)
NATIONAL LIMITED TERM TAX FREE FUND
CLASS A NET ASSETS ($1,229,925) = NET ASSET VALUE PER SHARE ($10.16)
------------------------------------
SHARES OUTSTANDING (121,093)
NATIONAL TAX FREE FUND
CLASS A NET ASSETS ($1,274,041) = NET ASSET VALUE PER SHARE ($10.48)
------------------------------------
SHARES OUTSTANDING (121,591)
CLASS B NET ASSETS ($157,382) = NET ASSET VALUE PER SHARE ($10.48)
------------------------------------
SHARES OUTSTANDING (15,014)
CLASS C NET ASSETS ($48,218) = NET ASSET VALUE PER SHARE ($10.48)
------------------------------------
SHARES OUTSTANDING (4,600)
NEW MEXICO TAX FREE FUND
CLASS A NET ASSETS ($21,402,272) = NET ASSET VALUE PER SHARE ($10.89)
------------------------------------
SHARES OUTSTANDING (1,965,764)
CLASS B NET ASSETS ($605,465) = NET ASSET VALUE PER SHARE ($10.89)
------------------------------------
SHARES OUTSTANDING (55,604)
NORTH DAKOTA TAX FREE FUND
CLASS A NET ASSETS ($36,096,088) = NET ASSET VALUE PER SHARE ($11.00)
------------------------------------
SHARES OUTSTANDING (3,281,055)
CLASS B NET ASSETS ($374,954) = NET ASSET VALUE PER SHARE ($11.00)
------------------------------------
SHARES OUTSTANDING (34,078)
CLASS C NET ASSETS ($20,301) = NET ASSET VALUE PER SHARE ($11.00)
------------------------------------
SHARES OUTSTANDING (1,846)
OREGON INSURED TAX FREE FUND
CLASS A NET ASSETS ($21,590,287) = NET ASSET VALUE PER SHARE ($10.05)
------------------------------------
SHARES OUTSTANDING (2,148,469)
CLASS B NET ASSETS ($2,785,629) = NET ASSET VALUE PER SHARE ($10.05)
------------------------------------
SHARES OUTSTANDING (277,200)
CLASS C NET ASSETS ($249,786) = NET ASSET VALUE PER SHARE ($10.05)
------------------------------------
SHARES OUTSTANDING (24,849)
UTAH TAX FREE FUND
CLASS A NET ASSETS ($4,141,500) = NET ASSET VALUE PER SHARE ($11.04)
------------------------------------
SHARES OUTSTANDING (375,260)
CLASS B NET ASSETS ($362,605) = NET ASSET VALUE PER SHARE ($11.04)
------------------------------------
SHARES OUTSTANDING (32,858)
WASHINGTON INSURED TAX FREE FUND
CLASS A NET ASSETS ($2,099,207) = NET ASSET VALUE PER SHARE ($10.44)
------------------------------------
SHARES OUTSTANDING (201,131)
CLASS B NET ASSETS ($15,441) = NET ASSET VALUE PER SHARE ($10.44)
------------------------------------
SHARES OUTSTANDING (1,479)
CLASS C NET ASSETS ($18,747) = NET ASSET VALUE PER SHARE ($10.43)
------------------------------------
SHARES OUTSTANDING (1,797)
WISCONSIN TAX FREE FUND
CLASS A NET ASSETS ($26,448,679) = NET ASSET VALUE PER SHARE ($9.78)
------------------------------------
SHARES OUTSTANDING (2,704,667)
CLASS B NET ASSETS ($724,828) = NET ASSET VALUE PER SHARE ($9.77)
------------------------------------
SHARES OUTSTANDING (74,167)
CLASS C NET ASSETS ($72,979) = NET ASSET VALUE PER SHARE ($9.79)
------------------------------------
SHARES OUTSTANDING (7,451)
</TABLE>
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
"yield," "average annual total return," "cumulative total return" and "current
distribution rate." These amounts are calculated as described below. No
performance information is provided for the Funds because none of the Funds had
commenced operations as of the date of this Statement of Additional Information.
YIELD
Yield is computed by dividing the net investment income per share deemed
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
SEC 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.
The yields for the Funds for the 30-day period ended December 31, 1995 are
as set forth below:
<TABLE>
<CAPTION>
30-DAY YIELD
------------
ABSENT
ACTUAL VOLUNTARY FEE WAIVERS
------ ---------------------
<S> <C> <C>
Arizona Insured Tax Free Fund - Class A 4.54% 4.33%
Arizona Insured Tax Free Fund - Class B 4.02% 3.76%
Arizona Insured Tax Free Fund - Class C 3.87% 3.74%
Arizona Tax Free Fund - Class A 5.13% 4.50%
Arizona Tax Free Fund - Class B 4.89% 3.93%
Arizona Tax Free Fund - Class C 4.65% 4.04%
California Insured Tax Free Fund - Class A 5.03% 4.75%
California Insured Tax Free Fund - Class B 4.91% 4.33%
California Insured Tax Free Fund - Class C 4.51% 4.27%
California Tax Free Fund - Class A 5.68% 5.02%
California Tax Free Fund - Class B 5.72% 4.58%
Colorado Tax Free Fund - Class A 4.68% 4.54%
Colorado Tax Free Fund - Class B 4.08% 3.88%
Colorado Tax Free Fund - Class C 3.95% 3.94%
Florida Insured Tax Free Fund - Class A 5.01% 4.67%
Florida Insured Tax Free Fund - Class B 4.86% 4.20%
Florida Limited Term Tax Free Fund - Class A 4.19% 3.68%
Florida Limited Term Tax Free Fund - Class B 3.52% 3.08%
Florida Limited Term Tax Free Fund - Class C 3.27% 2.93%
Florida Tax Free Fund - Class A 5.51% 4.71%
Florida Tax Free Fund - Class B 5.53% 3.97%
Florida Tax Free Fund - Class C 5.03% 4.24%
Idaho Tax Free Fund - Class A 5.40% 4.54%
Idaho Tax Free Fund - Class B 5.00% 3.98%
Idaho Tax Free Fund - Class C 4.74% 3.91%
Iowa Tax Free Fund - Class A 5.18% 4.90%
Iowa Tax Free Fund - Class B 4.71% 4.35%
Iowa Tax Free Fund - Class C 4.45% 4.33%
Kansas Tax Free Fund - Class A 5.18% 4.52%
Kansas Tax Free Fund - Class B 4.80% 4.02%
Kansas Tax Free Fund - Class C 4.58% 4.02%
Minnesota Insured Tax Free Fund - Class A 4.44% 4.40%
Minnesota Insured Tax Free Fund - Class B 4.12% 3.86%
Minnesota Insured Tax Free Fund - Class C 3.88% 3.86%
Minnesota Limited Term Tax Free Fund - Class A 3.82% 3.81%
Minnesota Limited Term Tax Free Fund - Class B 3.43% 3.19%
Minnesota Limited Term Tax Free Fund - Class C 3.17% 3.16%
Minnesota Tax Free Fund - Class A 4.56% 4.56%
Minnesota Tax Free Fund - Class B 4.28% 4.05%
Minnesota Tax Free Fund - Class C 4.04% 4.04%
Missouri Insured Tax Free Fund - Class A 5.05% 4.59%
Missouri Insured Tax Free Fund - Class B 4.88% 4.15%
Missouri Insured Tax Free Fund - Class C 4.37% 3.99%
National Insured Tax Free Fund - Class A 5.59% 5.13%
National Insured Tax Free Fund - Class B 5.49% 4.70%
National Insured Tax Free Fund - Class C 5.09% 4.55%
National Limited Term Tax Free Fund - Class A 5.00% 4.25%
National Tax Free Fund - Class A 5.40% 4.60%
National Tax Free Fund - Class B 5.19% 4.07%
National Tax Free Fund - Class C 4.82% 4.08%
New Mexico Tax Free Fund - Class A 5.31% 5.10%
New Mexico Tax Free Fund - Class B 4.88% 4.60%
North Dakota Tax Free Fund - Class A 4.61% 4.41%
North Dakota Tax Free Fund - Class B 4.38% 3.94%
North Dakota Tax Free Fund - Class C 3.85% 3.83%
Oregon Insured Tax Free Fund - Class A 4.81% 4.30%
Oregon Insured Tax Free Fund - Class B 4.60% 3.85%
Oregon Insured Tax Free Fund - Class C 4.15% 3.75%
Utah Tax Free Fund - Class A 5.66% 4.97%
Utah Tax Free Fund - Class B 5.18% 4.42%
Washington Insured Tax Free Fund - Class A 4.87% 4.03%
Washington Insured Tax Free Fund - Class B 4.41% 3.30%
Washington Insured Tax Free Fund - Class C 4.14% 3.42%
Wisconsin Tax Free Fund - Class A 4.64% 4.41%
Wisconsin Tax Free Fund - Class B 4.19% 3.89%
Wisconsin Tax Free Fund - Class C 3.88% 3.81%
</TABLE>
TAXABLE EQUIVALENT YIELD
Taxable equivalent yield is computed by dividing that portion of the yield
of a 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 yields for the Funds for the 30-day period ended
December 31, 1995 are set forth below. These taxable equivalent yields are based
on current Federal marginal income tax rates combined with state marginal income
tax rates, if applicable. Each combined marginal rate assumes a single taxpayer
and that state income taxes paid are fully deductible for purposes of computing
federal taxable income. The combined 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. The highest state
marginal tax rate was used for each Federal taxable income bracket. State
marginal tax rates are those currently scheduled to be in effect for 1996. As of
the date of this Statement of Additional Information, many state legislatures
are in session and it is possible that tax rates in those states will be
changed. If tax rates were lowered, this would have the effect of reducing the
taxable equivalent yields shown below.
<TABLE>
<CAPTION>
ACTUAL
------
ARIZONA(1)
----------
<S> <C> <C> <C> <C>
31.74% 34.59% 39.58% 42.98%
------ ------ ------ ------
Arizona Insured Tax Free Fund - Class A 6.65% 6.94% 7.51% 7.96%
Arizona Insured Tax Free Fund - Class B 5.89% 6.15% 6.65% 7.05%
Arizona Insured Tax Free Fund - Class C 5.67% 5.92% 6.41% 6.79%
Arizona Tax Free Fund - Class A 7.52% 7.84% 8.49% 9.00%
Arizona Tax Free Fund - Class B 7.16% 7.48% 8.09% 8.58%
Arizona Tax Free Fund - Class C 6.81% 7.11% 7.70% 8.16%
CALIFORNIA(2)
-------------
34.70% 37.42% 41.95% 45.22%
California Insured Tax Free Fund - Class A 7.70% 8.04% 8.66% 9.18%
California Insured Tax Free Fund - Class B 7.52% 7.85% 8.46% 8.96%
California Insured Tax Free Fund - Class C 6.91% 7.21% 7.77% 8.23%
California Tax Free Fund - Class A 8.70% 9.08% 9.78% 10.37%
California Tax Free Fund - Class B 8.76% 9.14% 9.85% 10.44%
COLORADO (3)
------------
31.60% 34.45% 39.20% 42.62%
Colorado Tax Free Fund - Class A 6.84% 7.14% 7.70% 8.16%
Colorado Tax Free Fund - Class B 5.96% 6.22% 6.71% 7.11%
Colorado Tax Free Fund - Class C 5.77% 6.03% 6.50% 6.88%
FLORIDA
-------
28% 31% 36% 39.6%
--- --- --- -----
Florida Insured Tax Free Fund - Class A 6.96% 7.26% 7.83% 8.29%
Florida Insured Tax Free Fund - Class B 6.75% 7.04% 7.59% 8.05%
Florida Limited Term Tax Free Fund - Class A 5.82% 6.07% 6.55% 6.94%
Florida Limited Term Tax Free Fund - Class B 4.89% 5.10% 5.50% 5.83%
Florida Limited Term Tax Free Fund - Class C 4.54% 4.74% 5.11% 5.41%
Florida Tax Free Fund - Class A 7.65% 7.99% 8.61% 9.12%
Florida Tax Free Fund - Class B 7.68% 8.01% 8.64% 9.16%
Florida Tax Free Fund - Class C 6.99% 7.29% 7.86% 8.33%
IDAHO(4)
--------
33.90% 36.66% 41.25% 44.55%
------ ------ ------ ------
Idaho Tax Free Fund - Class A 8.17% 8.53% 9.19% 9.74%
Idaho Tax Free Fund - Class B 7.56% 7.89% 8.51% 9.02%
Idaho Tax Free Fund - Class C 7.17% 7.48% 8.07% 8.55%
IOWA (5)
--------
33.32% 35.90% 40.24% 43.39%
------ ------ ------ ------
Iowa Tax Free Fund - Class A 7.77% 8.08% 8.67% 9.15%
Iowa Tax Free Fund - Class B 7.06% 7.35% 7.88% 8.32%
Iowa Tax Free Fund - Class C 6.67% 6.94% 7.45% 7.86%
KANSAS (6)
----------
33.58% 36.35% 40.96% 44.28%
------ ------ ------ ------
Kansas Tax Free Fund - Class A 7.80% 8.14% 8.77% 9.30%
Kansas Tax Free Fund - Class B 7.23% 7.54% 8.13% 8.61%
Kansas Tax Free Fund - Class C 6.90% 7.20% 7.76% 8.22%
MINNESOTA (7)
-------------
34.12% 36.87% 41.44% 44.73%
------ ------ ------ ------
Minnesota Insured Fund - Class A 6.74% 7.03% 7.58% 8.03%
Minnesota Insured Fund - Class B 6.25% 6.53% 7.04% 7.45%
Minnesota Insured Fund - Class C 5.89% 6.15% 6.63% 7.02%
Minnesota Limited Term Tax Free Fund - Class A 5.80% 6.05% 6.52% 6.91%
Minnesota Limited Term Tax Free Fund - Class B 5.21% 5.43% 5.86% 6.21%
Minnesota Limited Term Tax Free Fund - Class C 4.81% 5.02% 5.41% 5.74%
Minnesota Tax Free Fund - Class A 6.92% 7.22% 7.79% 8.25%
Minnesota Tax Free Fund - Class B 6.50% 6.78% 7.31% 7.74%
Minnesota Tax Free Fund - Class C 6.13% 6.40% 6.90% 7.31%
MISSOURI(8)
-----------
31.16% 33.91% 38.51% 41.84%
------ ------ ------ ------
Missouri Insured Tax Free Fund - Class A 7.34% 7.64% 8.21% 8.68%
Missouri Insured Tax Free Fund - Class B 7.09% 7.38% 7.94% 8.39%
Missouri Insured Tax Free Fund - Class C 6.35% 6.61% 7.11% 7.51%
NEW MEXICO(9)
-------------
33.69% 36.87% 41.44% 44.73%
------ ------ ------ ------
New Mexico Tax Free Fund - Class A 8.01% 8.41% 9.07% 9.61%
New Mexico Tax Free Fund - Class B 7.36% 7.73% 8.33% 8.83%
NORTH DAKOTA(10)
----------------
30.72% 33.87% 39.07% 42.77%
------ ------ ------ ------
North Dakota Tax Free Fund - Class A 6.65% 6.97% 7.57% 8.06%
North Dakota Tax Free Fund - Class B 6.32% 6.62% 7.19% 7.65%
North Dakota Tax Free Fund - Class C 5.56% 5.82% 6.32% 6.73%
OREGON(11)
----------
34.48% 37.21% 41.76% 45.04%
------ ------ ------ ------
Oregon Insured Tax Free Fund - Class A 7.34% 7.66% 8.26% 8.75%
Oregon Insured Tax Free Fund - Class B 7.02% 7.33% 7.90% 8.37%
Oregon Insured Tax Free Fund - Class C 6.33% 6.61% 7.13% 7.55%
UTAH(12)
--------
32.38% 35.13% 39.72% 43.04%
------ ------ ------ ------
Utah Tax Free Fund - Class A 8.37% 8.73% 9.39% 9.94%
Utah Tax Free Fund - Class B 7.66% 7.99% 8.59% 9.09%
WASHINGTON
----------
28% 31% 36% 39.6%
--- --- --- -----
Washington Insured Tax Free Fund - Class A 6.76% 7.06% 7.61% 8.06%
Washington Insured Tax Free Fund - Class B 6.13% 6.39% 6.89% 7.30%
Washington Insured Tax Free Fund - Class C 6.13% 6.39% 6.89% 7.30%
WISCONSIN(13)
-------------
32.99% 35.78% 40.44% 43.79%
------ ------ ------ ------
Wisconsin Tax Free Fund - Class A 6.92% 7.23% 7.79% 8.25%
Wisconsin Tax Free Fund - Class B 6.25% 6.52% 7.03% 7.45%
Wisconsin Tax Free Fund - Class C 5.79% 6.04% 6.51% 6.90%
NATIONAL
--------
28% 31% 36% 39.6%
--- --- --- -----
National Insured Tax Free Fund - Class A 7.76% 8.10% 8.73% 9.25%
National Insured Tax Free Fund - Class B 7.63% 7.96% 8.58% 9.09%
National Insured Tax Free Fund - Class C 7.07% 7.38% 7.95% 8.43%
National Limited Term Tax Free Fund - Class A 6.94% 7.25% 7.81% 8.28%
National Tax Free Fund - Class A 7.50% 7.83% 8.44% 8.94%
National Tax Free Fund - Class B 7.21% 7.52% 8.11% 8.59%
National Tax Free Fund - Class C 6.69% 6.99% 7.53% 7.98%
ABSENT VOLUNTARY FEE WAIVERS
----------------------------
ARIZONA(1)
----------
31.74% 34.59% 39.58% 42.98%
------ ------ ------ ------
Arizona Insured Tax Free Fund - Class A 6.34% 6.62% 7.17% 7.59%
Arizona Insured Tax Free Fund - Class B 5.51% 5.75% 6.22% 6.59%
Arizona Insured Tax Free Fund - Class C 5.48% 5.72% 6.19% 6.56%
Arizona Tax Free Fund - Class A 6.59% 6.88% 7.45% 7.89%
Arizona Tax Free Fund - Class B 5.76% 6.01% 6.50% 6.89%
Arizona Tax Free Fund - Class C 5.92% 6.18% 6.69% 7.09%
CALIFORNIA(2)
-------------
34.70% 37.42% 41.95% 45.22%
------ ------ ------ ------
California Insured Tax Free Fund - Class A 7.27% 7.59% 8.18% 8.67%
California Insured Tax Free Fund - Class B 6.63% 6.92% 7.46% 7.91%
California Insured Tax Free Fund - Class C 6.54% 6.82% 7.36% 7.80%
California Tax Free Fund - Class A 7.69% 8.02% 8.65% 9.17%
California Tax Free Fund - Class B 7.01% 7.32% 7.89% 8.36%
COLORADO (3)
------------
31.60% 34.45% 39.20% 42.62%
------ ------ ------ ------
Colorado Tax Free Fund - Class A 6.64% 6.93% 7.47% 7.91%
Colorado Tax Free Fund - Class B 5.67% 5.92% 6.38% 6.76%
Colorado Tax Free Fund - Class C 5.76% 6.01% 6.48% 6.87%
FLORIDA
-------
28% 31% 36% 39.6%
--- --- --- -----
Florida Insured Tax Free Fund - Class A 6.49% 6.77% 7.30% 7.73%
Florida Insured Tax Free Fund - Class B 5.83% 6.09% 6.56% 6.95%
Florida Limited Term Tax Free Fund - Class A 5.11% 5.33% 5.75% 6.09%
Florida Limited Term Tax Free Fund - Class B 4.28% 4.46% 4.81% 5.10%
Florida Limited Term Tax Free Fund - Class C 4.07% 4.25% 4.58% 4.85%
Florida Tax Free Fund - Class A 6.54% 6.83% 7.36% 7.80%
Florida Tax Free Fund - Class B 5.51% 5.75% 6.20% 6.57%
Florida Tax Free Fund - Class C 5.89% 6.14% 6.63% 7.02%
IDAHO (4 )
----------
33.90% 36.66% 41.25% 44.55%
------ ------ ------ ------
Idaho Tax Free Fund - Class A 6.87% 7.17% 7.73% 8.19%
Idaho Tax Free Fund - Class B 6.02% 6.28% 6.77% 7.18%
Idaho Tax Free Fund - Class C 5.92% 6.17% 6.66% 7.05%
IOWA(5)
-------
33.32% 35.90% 40.24% 43.39%
------ ------ ------ ------
Iowa Tax Free Fund - Class A 7.35% 7.64% 8.20% 8.66%
Iowa Tax Free Fund - Class B 6.52% 6.79% 7.28% 7.68%
Iowa Tax Free Fund - Class C 6.49% 6.76% 7.25% 7.65%
KANSAS (6)
----------
33.58% 36.35% 40.96% 44.28%
------ ------ ------ ------
Kansas Tax Free Fund - Class A 6.81% 7.10% 7.66% 8.11%
Kansas Tax Free Fund - Class B 6.05% 6.32% 6.81% 7.21%
Kansas Tax Free Fund - Class C 6.05% 6.32% 6.81% 7.21%
MINNESOTA (7)
-------------
34.12% 36.87% 41.44% 44.73%
------ ------ ------ ------
Minnesota Insured Fund - Class A 6.68% 6.97% 7.51% 7.96%
Minnesota Insured Fund - Class B 5.86% 6.11% 6.59% 6.98%
Minnesota Insured Fund - Class C 5.86% 6.11% 6.59% 6.98%
Minnesota Limited Term Tax Free Fund - Class A 5.78% 6.03% 6.51% 6.89%
Minnesota Limited Term Tax Free Fund - Class B 4.84% 5.05% 5.45% 5.77%
Minnesota Limited Term Tax Free Fund - Class C 4.80% 5.01% 5.40% 5.72%
Minnesota Tax Free Fund - Class A 6.92% 7.22% 7.79% 8.25%
Minnesota Tax Free Fund - Class B 6.15% 6.41% 6.92% 7.33%
Minnesota Tax Free Fund - Class C 6.13% 6.40% 6.90% 7.31%
MISSOURI(8)
-----------
31.16% 33.91 38.51% 41.84%
------ ----- ------ ------
Missouri Insured Tax Free Fund - Class A 6.67% 6.95% 7.46% 7.89%
Missouri Insured Tax Free Fund - Class B 6.03% 6.28% 6.75% 7.14%
Missouri Insured Tax Free Fund - Class C 5.80% 6.04% 6.49% 6.86%
NEW MEXICO(9)
-------------
33.69% 36.87% 41.44% 44.73%
------ ------ ------ ------
New Mexico Tax Free Fund - Class A 7.69% 8.08% 8.71% 9.23%
New Mexico Tax Free Fund - Class B 6.94% 7.29% 7.86% 8.32%
NORTH DAKOTA(10)
----------------
30.72% 33.87% 39.07% 42.77%
------ ------ ------ ------
North Dakota Tax Free Fund - Class A 6.37% 6.67% 7.24% 7.71%
North Dakota Tax Free Fund - Class B 5.69% 5.96% 6.47% 7.00%
North Dakota Tax Free Fund - Class C 5.53% 5.79% 6.29% 6.69%
OREGON(11)
----------
34.48% 37.21% 41.76% 45.04%
------ ------ ------ ------
Oregon Insured Tax Free Fund - Class A 6.56% 6.85% 7.38% 7.82%
Oregon Insured Tax Free Fund - Class B 5.88% 6.13% 6.61% 7.00%
Oregon Insured Tax Free Fund - Class C 5.72% 5.97% 6.44% 6.82%
UTAH(12)
--------
32.38% 35.13% 39.72% 43.04%
------ ------ ------ ------
Utah Tax Free Fund - Class A 7.35% 7.66% 8.24% 8.73%
Utah Tax Free Fund - Class B 6.54% 6.81% 7.33% 7.76%
WASHINGTON
----------
28% 31% 36% 39.6%
--- --- --- -----
Washington Insured Tax Free Fund - Class A 5.60% 5.84% 6.30% 6.67%
Washington Insured Tax Free Fund - Class B 4.58% 4.78% 5.16% 5.46%
Washington Insured Tax Free Fund - Class C 5.13% 5.35% 5.77% 6.11%
WISCONSIN(13)
-------------
32.99% 35.78% 40.44% 43.79%
------ ------ ------ ------
Wisconsin Tax Free Fund - Class A 6.58% 6.87% 7.40% 7.84%
Wisconsin Tax Free Fund - Class B 5.81% 6.06% 6.53% 6.92%
Wisconsin Tax Free Fund - Class C 5.69% 5.93% 6.40% 6.78%
NATIONAL
--------
28% 31% 36% 39.6%
--- --- --- -----
National Insured Tax Free Fund - Class A 7.13% 7.43% 8.02% 8.49%
National Insured Tax Free Fund - Class B 6.53% 6.81% 7.34% 7.78%
National Insured Tax Free Fund - Class C 6.32% 6.59% 7.11% 7.53%
National Limited Term Tax Free Fund - Class A 5.90% 6.16% 6.64% 7.04%
National Tax Free Fund - Class A 6.39% 6.67% 7.19% 7.62%
National Tax Free Fund - Class B 5.65% 5.90% 6.36% 6.74%
National Tax Free Fund - Class C 5.67% 5.91% 6.38% 6.75%
</TABLE>
(1) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 5.2% Arizona marginal rate and a 26.54%
federal marginal rate, (b) a 5.2% Arizona marginal rate and a 29.39%
federal marginal rate, (c) a 5.6% Arizona marginal rate and a 33.98%
federal marginal rate, and (d) a 5.6%Arizona marginal rate and a 37.38%
federal marginal rate.
(2) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 9.3% California marginal rate and (a) a 25.4%
federal marginal rate, (b) a 28.12% federal marginal rate, (c) a 32.65%
federal marginal rate, and (d) a 35.92% federal marginal rate.
(3) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 5% Colorado rate and (a) a 26.6% federal marginal
rate, (b) a 29.45% federal marginal rate, (c) a 34.20% federal marginal
rate, and (d) 37.62% federal marginal rate.
(4) The four combined rates listed above assume, respectively, that the
taxpayer is subject to an 8.20% Idaho tax rate and (a) a 25.70% federal
marginal rate, (b) a 28.46% federal marginal rate, (c) a 33.05% federal
marginal rate, and (d) a 36.35% federal marginal rate.
(5) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 7.39% Iowa marginal rate and a 25.93% federal
marginal rate, (b) a 7.11% Iowa marginal rate and a 28.8% federal marginal
rate, (c) a 6.63% Iowa marginal rate and a 33.61% federal marginal rate,
and (d) a 6.28% Iowa marginal rate and a 37.11% federal marginal rate.
(6) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 7.75 Kansas marginal rate and (a) a 25.83% federal
marginal rate, (b)a 28.60% federal marginal rate, (c) a 33.21% federal
marginal rate, and (d) a 36.53% federal marginal rate.
(7) The four combined rates listed above assume, respectively, that the
taxpayer is subject to an 8.5% Minnesota marginal rate and (a) a 25.62%
federal marginal rate, (b) a 28.37% federal marginal rate, (c) a 32.94%
federal marginal rate, and (d) a 36.23% federal marginal rate.
(8) The four combined rates listed above assume that the taxpayer is subject to
(a) a 4.39% Missouri marginal rate and a 26.77% federal marginal rate, (b)
a 4.22% Missouri marginal rate and a 29.69% federal marginal rate, (c) a
3.92% Missouri marginal rate and a 34.59% federal marginal rate, and (d) a
3.71% Missouri marginal rate and a 38.13% federal marginal rate.
(9) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 7.9% New Mexico marginal rate and a 25.79%
federal marginal rate, (b) a 8.5% New Mexico marginal rate and a 28.37%
federal marginal rate, (c) a 8.5% New Mexico marginal rate and a 32.94%
federal marginal rate, and (d) a 8.5% New Mexico marginal rate and a 36.23%
federal marginal rate.
(10) The four combined rates listed above assume that the taxpayer is subject to
(a) 26.94%, (b) 29.71%, (c) 34.27%% and (d) 37.52% federal marginal rates
and elects to determine his or her North Dakota income tax liability as an
amount equal to 14% of his or her adjusted federal income tax liability.
(11) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 9% Oregon tax rate and (a) a 25.48% federal
marginal rate, (b) a 28.21% federal marginal rate, (c) a 32.76% federal
marginal rate, and (d) a 36.04% federal marginal rate.
(12) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 6.08% Utah marginal rate and a 26.30% federal
marginal rate, (b) a 5.98% Utah marginal rate and a 29.15% federal marginal
rate, (c) a 5.81% Utah marginal rate and a 33.91% federal marginal rate,
and (d) a 5.69% Utah marginal rate and a 37.35% federal marginal rate.
(13) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 6.93% Wisconsin marginal rate and (a) a 26.06%
federal marginal rate, (b) a 28.85% federal marginal rate, (c) a 33.51%
federal marginal rate, and (d) a 36.86% federal marginal rate.
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, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
The following table sets forth the average annual total return for each
Fund for the periods indicated and ended December 31, 1995:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
ABSENT VOLUNTARY
ACTUAL FEE WAIVERS
------ -----------
SINCE SINCE
1 YEAR 5 YEAR INCEPTION 1 YEAR 5 YEAR INCEPTION
------ ------ --------- ------ ------ ---------
Arizona Insured Tax Free Fund
<S> <C> <C> <C> <C> <C> <C>
Class A (Inception 4/1/91) 13.44% ** 7.80% 13.12% ** 7.18%
Class B (Inception 3/10/95) ** ** 10.36% ** ** 10.08%
Class C (Inception 5/26/94) 18.10% ** 8.96% 17.90% ** 8.75%
Arizona Tax Free Fund
Class A (Inception 3/2/95) ** ** 7.89% ** ** 7.20%
Class B (Inception 6/29/95) ** ** 7.74% ** ** 7.14%
Class C (Inception 5/13/95) ** ** 9.43% ** ** 8.95%
California Tax Free Fund
Class A (Inception 3/2/95) ** ** 6.65% ** ** 5.96%
Class B (Inception 8/23/95) ** ** 9.52% ** ** 9.01%
California Insured Tax Free Fund
Class A (Inception 10/15/92) 14.79% ** 6.33% 14.36% ** 5.46%
Class B (Inception 3/1/94) 20.01% ** 5.05% 19.15% ** 4.03%
Class C (Inception 4/12/95) ** ** 7.77% ** ** 7.56%
Colorado Tax Free Fund
Class A (Inception 4/23/87) 16.02% 7.96% 8.18% 15.81% 7.91% 8.14%
Class B (Inception 3/22/95) ** ** 9.96% ** ** 9.68%
Class C (Inception 5/6/94) 19.44% ** 8.78% 19.44% ** 8.77%
Florida Tax Free Fund
Class A (Inception 3/2/95) ** ** 7.15% ** ** 6.29%
Class B (Inception 9/15/95) ** ** 5.10% ** ** 4.61%
Class C (Inception 4/22/95) ** ** 8.88% ** ** 8.20%
Florida Limited Term Tax Free Fund
Class A (Inception 5/1/94) 11.97% ** 6.01% 11.25% ** 5.23%
Class B (Inception 9/15/95) ** ** 1.13% ** ** 0.99%
Class C (Inception 3/23/95) ** ** 7.95% ** ** 7.62%
Florida Insured Tax Free Fund
Class A (Inception 1/1/92) 15.46% ** 7.24% 14.99% ** 6.59%
Class B (Inception 3/11/94) 20.76% ** 6.80% 19.77% ** 5.92%
Idaho Tax Free Fund
Class A (Inception 1/4/95) ** ** 13.08% ** ** 11.86%
Class B (Inception 3/16/95) ** ** 9.86% ** ** 8.81%
Class C (Inception 1/11/95) ** ** 15.81% ** ** 14.69%
Iowa Tax Free Fund
Class A (Inception 9/1/93) 16.27% ** 2.75% 15.84% ** 1.90%
Class B (Inception 3/24/95) ** ** 10.62% ** ** 10.25%
Class C (Inception 1/14/95) ** ** 19.66% ** ** 19.48%
Kansas Tax Free Fund
Class A (Inception 11/30/92) 13.47% ** 6.51% 12.49% ** 5.37%
Class B (Inception 4/8/95) ** ** 8.76% ** ** 8.06%
Class C (Inception 4/12/95) ** ** 8.29% ** ** 7.77%
Minnesota Limited Term Tax Free Fund
Class A (Inception 10/27/85) 7.95% 5.88% 5.96%# 7.94% 5.88% 5.96%#
Class B (Inception 8/15/95) ** ** 3.26% ** ** 3.15%
Class C (Inception 5/4//94) 10.18% ** 5.99% 10.17% ** 5.98%
Minnesota Tax Free Fund
Class A (Inception 2/27/84) 11.91% 7.12% 7.77%# + + 7.77%#
Class B (Inception 3/11/95) ** ** 9.95% ** ** 9.71%
Class C (Inception 5/4//94) 16.62% ** 8.14% + ** +
Minnesota Insured Fund
Class A (Inception 5/1/87) 11.94% 7.29% 7.39% 11.88% 6.98% 7.04%
Class B (Inception 3/7/95) ** ** 9.59% ** ** 9.31%
Class C (Inception 5/4//94) 16.63% ** 7.61% 16.59% ** 7.45%
Missouri Insured Tax Free Fund
Class A (Inception 11/2/92) 14.26% ** 5.98% 13.88% ** 5.11%
Class B (Inception 3/12/94) 19.18% ** 6.30% 18.14% ** 5.13%
Class C (Inception 11/11/95) ** ** 2.24% ** ** 2.15%
National Tax Free Fund
Class A (Inception 9/8/95) ** ** 2.46% ** ** 2.16%
Class B (Inception 9/15/95) ** ** 6.39% ** ** 6.01%
Class C (Inception 9/12/95) ** ** 7.37% ** ** 7.10%
National Insured Tax Free Fund
Class A (Inception 1/10/92) 14.90% ** 6.42% 14.22% ** 5.22%
Class B (Inception 5/26/94) 20.10% ** 10.33% 18.95% ** 9.02%
Class C (Inception 10/20/95) ** ** 3.21% ** ** 3.05%
National Limited Term Tax Free Fund
Class A (Inception 9/7/95) ** ** 0.71% ** ** 0.12%
New Mexico Tax Free Fund
Class A (Inception 10/5/92) 15.15% ** 7.07% 14.85% ** 6.28%
Class B (Inception 3/3/94) 18.84% ** 5.76% 18.42% ** 5.08%
North Dakota Tax Free Fund
Class A (Inception 4/1/91) 12.21% ** 7.55% 11.91% ** 6.88%
Class B (Inception 5/10/94) 17.24% ** 10.17% 16.60% ** 9.42%
Class C (Inception 7/29/95) ** ** 6.47% ** ** 6.46%
Oregon Insured Tax Free Fund
Class A (Inception 8/1/93) 13.07% ** 3.48% 12.32% ** 2.47%
Class B (Inception 3/12/94) 18.10% ** 6.00% 17.02% ** 4.82%
Class C (Inception 7/7/95) ** ** 6.35% ** ** 6.12%
Utah Tax Free Fund
Class A (Inception 10/5/92) 14.59% ** 7.94% 13.58% ** 6.85%
Class B (Inception 5/27/95) ** ** 6.60% ** ** 6.05%
Washington Insured Tax Free Fund
Class A (Inception 8/1/93) 14.25% ** 5.64% 13.00% ** 4.48%
Class B (Inception 10/24/95) ** ** 3.30% ** ** 3.09%
Class C (Inception 4/21/95) ** ** 8.13% ** ** 7.51%
Wisconsin Tax Free Fund
Class A (Inception 9/1/93) 13.33% ** 2.55% 13.00% ** 1.70%
Class B (Inception 4/22/95) ** ** 7.08% ** ** 6.83%
Class C (Inception 3/28/95) ** ** 8.06% ** ** 7.99%
** Not in existence for the period.
+ There were no voluntary fee waivers during the period.
# Return is for the 10 year period ended December 31, 1995.
</TABLE>
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = ERV - P
------- 100
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000.
This calculation 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 following table sets forth the cumulative total return for shares
of each Fund for the period from inception to December 31, 1995:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN SINCE INCEPTION
---------------------------------------
ABSENT VOLUNTARY
ACTUAL FEE WAIVERS
------ -----------
Arizona Tax Free Fund
<S> <C> <C>
Class A (Inception 3/2/95) 7.89% 7.20%
Class B (Inception 6/29/95) 7.74% 7.14%
Class C (Inception 5/13/95) 9.43% 8.95%
Arizona Insured Tax Free Fund
Class A (Inception 4/1/91) 42.93% 39.01%
Class B (Inception 3/10/95) 10.36% 10.08%
Class C (Inception 5/26/94) 14.75% 14.40%
California Tax Free Fund
Class A (Inception 3/2/95) 6.65% 5.96%
Class B (Inception 8/23/95) 9.52% 9.01%
California Insured Tax Free Fund
Class A (Inception 10/15/92) 21.79% 18.64%
Class B (Inception 3/1/94) 9.47% 7.53%
Class C (Inception 4/12/95) 7.77% 7.56%
Colorado Tax Free Fund
Class A (Inception 4/23/87) 98.01% 97.52%
Class B (Inception 3/22/95) 9.96% 9.68%
Class C (Inception 5/6/94) 14.96% 14.96%
Florida Tax Free Fund
Class A (Inception 3/2/95) 7.15% 6.29%
Class B (Inception 9/15/95) 5.10% 4.61%
Class C (Inception 4/22/95) 8.88% 8.20%
Florida Insured Tax Free Fund
Class A (Inception 1/1/92) 32.28% 29.08%
Class B (Inception 3/1/94) 12.64% 10.98%
Florida Limited Term Tax Free Fund
Class A (Inception 5/1/94) 10.24% 8.89%
Class B (Inception 9/15/95) 1.13% 0.99%
Class C (Inception 3/23/95) 7.95% 7.62%
Idaho Tax Free Fund
Class A (Inception 1/4/95) 13.08% 11.86%
Class B (Inception 3/16/95) 9.86% 8.81%
Class C (Inception 1/11/95) 15.81% 14.69%
Iowa Tax Free Fund
Class A (Inception 9/1/93) 6.53% 4.49%
Class B (Inception 3/24/95) 10.62% 10.25%
Class C (Inception 1/4/95) 19.66% 19.48%
Kansas Tax Free Fund
Class A (Inception 11/30/92) 21.51% 17.53%
Class B (Inception 4/8/95) 8.76% 8.06%
Class C (Inception 4/12/95) 8.29% 7.77%
Minnesota Limited Term Tax Free Fund
Class A (Inception 10/27/85) 84.16% 84.14%
Class B (Inception 8/15/95) 3.26% 3.15%
Class C (Inception 4/30/94) 10.15% 10.14%
Minnesota Insured Fund
Class A (Inception 5/1/87) 85.64% 80.39%
Class B (Inception 3/7/95) 9.59% 9.31%
Class C ((Inception 5/4/94) 12.97% 12.69%
Minnesota Tax Free Fund
Class A (Inception 2/27/84) 179.93% 179.57%
Class B (Inception 3/11/95) 9.95% 9.71%
Class C (Inception 5/4/94) 13.91% 13.91%
Missouri Insured Tax Free Fund
Class A (Inception 11/2/92) 20.16% 17.09%
Class B (Inception 3/12/94) 11.68% 9.47%
Class C (Inception 11/11/95) 2.24% 2.15%
National Tax Free Fund
Class A (Inception 9/8/95) 2.46% 2.16%
Class B (Inception 9/15/95) 6.39% 6.01%
Class C (Inception 9/12/95) 7.37% 7.10%
National Insured Tax Free Fund
Class A (Inception 1/10/92) 28.08% 22.41%
Class B (Inception 5/26/94) 17.06% 14.85%
Class C (Inception 10/20/95) 3.21% 3.05%
National Limited Term Tax Free Fund
Class A (Inception 9/7/95) 0.71% 0.12%
New Mexico Tax Free Fund
Class A (Inception 10/5/92) 24.77% 21.82%
Class B (Inception 3/3/94) 10.80% 9.50%
North Dakota Tax Free Fund
Class A (Inception 4/1/91) 41.31% 37.21%
Class B (Inception 5/10/94) 17.29% 15.98%
Class C (Inception 7/29/95) 6.47% 6.46%
Oregon Insured Tax Free Fund
Class A (Inception 8/1/93) 8.64% 6.09%
Class B (Inception 3/12/94) 11.10% 8.89%
Class C (Inception 7/7/95) 6.35% 6.12%
Utah Tax Free Fund
Class A (Inception 10/5/92) 28.09% 23.97%
Class B (Inception 5/27/95) 6.60% 6.05%
Washington Insured Tax Free Fund
Class A (Inception 8/1/93) 14.20% 11.17%
Class B (Inception 10/24/95) 3.30% 3.09%
Class C (Inception 4/21/95) 8.13% 7.51%
Wisconsin Tax Free Fund
Class A (Inception 9/1/93) 6.05% 4.01%
Class B (Inception 4/22/95) 7.08% 6.83%
Class C (Inception 3/28/95) 8.06% 7.99%
</TABLE>
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of any Fund valued at $10,000 or more
at the current offering price may open a Withdrawal Plan and have a designated
sum of money paid monthly to the investor or another person. Shares are
deposited in a Withdrawal Plan account and all distributions are reinvested in
additional shares of such Fund at net asset value 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 A and Class B
shares. Redemptions for the purpose of withdrawal are made on the 25th of the
month (or on the preceding business day if the 25th falls on a weekend or is a
holiday) at that day's closing net asset value and checks are mailed on the next
business day. Payments will be made to the registered shareholder. As withdrawal
payments may include a return on principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The redemption of
shares in connection with a Withdrawal Plan may result in a gain or loss for tax
purposes. Continued withdrawals in excess of income will reduce and possibly
exhaust invested principal, especially in the event of a market decline. The
maintenance of a Withdrawal Plan concurrently with purchases of additional Class
A shares of a 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 a Fund (other than
through reinvestment of distributions) and a Withdrawal Plan at the same time.
The cost of administering Withdrawal Plans is borne by each Fund as an expense
of all shareholders. Each Fund or the Underwriter may terminate or change the
terms of the Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary
and may be terminated by the shareholder at any time without the imposition of
any penalty.
Since the Withdrawal Plan may involve invasion of capital, investors should
consider carefully with their own financial advisers whether the Withdrawal Plan
and the specified amounts to be withdrawn are appropriate in their
circumstances. The Funds make no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
Information regarding certain record and beneficial ownership of the Fund
shares as of March 31, 1996 which equals or exceeds 5% of a Fund's shares is
available without charge by calling 800-553-2143.
Organizational costs in connection with start-up and initial registration
are being amortized over 60 months on an inverse acceleration
(sum-of-the-year's-digits) basis. If Voyageur redeems any or all of its shares
of any Fund prior to the end of such Fund's 60-month amortization period, the
redemption proceeds will be reduced by its pro rata portion of such Fund's
unamortized organizational costs. If a Fund liquidates prior to the date such
costs are fully amortized, Voyageur will bear all unamortized organizational
costs of such Fund.
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
Norwest Bank Minnesota, N.A., Sixth Street & Marquette Avenue, Minneapolis,
Minnesota 55479, acts as custodian of the Funds' assets and portfolio
securities.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402,
serves as counsel for the Funds.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
serves as independent auditors for the Funds. The Financial Statements and
Financial Highlights for the Funds as of December 31, 1995, incorporated by
reference or included in this Registration Statement have been so incorporated
or included herein in reliance upon the report of the independent auditors and
upon the authority of said firm as experts in accounting and auditing.
LIMITATION OF DIRECTOR LIABILITY
CORPORATE ENTITIES. Under Minnesota law, each director owes certain
fiduciary duties to each Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in good
faith, in a manner the director reasonably believes to be in the best interest
of the corporation, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances." Fiduciary duties of a
director of a Minnesota corporation include, therefore, both a duty of "loyalty"
(to act in good faith and act in a manner reasonably believed to be in the best
interests of the corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances). In February 1987, Minnesota enacted legislation which 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 each of the Funds limits the liability of such Funds' 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.
TRUST ENTITIES. As described in the prospectus following the caption
"General Information," shares of the Funds are entitled to one vote per share
(with proportional voting for fractional shares) on such matters as shareholders
are entitled to vote. There will normally be no meetings of shareholders for the
purpose of electing Trustees, except insofar as elections are required under the
1940 Act in the event that (i) less than a majority of the Trustees have been
elected by shareholders, or (ii) if, as a result of a vacancy, less than
two-thirds of the Trustees have been elected by the shareholders, the vacancy
will be filled only by a vote of the shareholders. In addition, the Trustees may
be removed from office by a written consent signed by the holders of two-thirds
of the outstanding shares of the Funds and filed with the Funds' custodian or by
a vote of the holders of two-thirds of the outstanding shares of the Funds at a
meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders, who have been such for at
least six months, and who in the aggregate hold shares having a net asset value
of at least $25,000 or constituting 1% of the outstanding shares, stating that
such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a Trustee, the Funds have undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, each Trustee shall continue
to hold office and may appoint a successor.
Under Massachusetts law, shareholders could, under certain circumstances,
be held liable for the obligations of the Funds. However, the Funds' Agreement
and Declaration of Trust disclaims shareholder liability for acts or obligations
of the Funds and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by a Fund or the
Trustees. The Agreement and Declaration of Trust provides for indemnification
out of each Fund's property for all loss and expense of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which such Fund would be unable to meet
its obligations.
SHAREHOLDER MEETINGS
None of the Funds is 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. Similar discretion is
vested in the Boards of Trustees of parent entities organized as Massachusetts
Business Trusts. 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 certain Funds
may demand a regular meeting of shareholders of the Fund by written notice of
demand given to the chief executive officer or the chief financial officer of
the Fund. Within ninety days after receipt of the demand, a regular meeting of
shareholders must be held at the expense of the Fund. Additionally, the 1940 Act
requires shareholder votes for all amendments to fundamental investment policies
and restrictions and for all investment advisory contracts and amendments
thereto.
The audited Financial Statements and Financial Highlights for the Funds for
the fiscal year ended December 31, 1995 are incorporated herein by reference
from the annual report of each Fund as filed with the Securities and Exchange
Commission. Please call (800) 553-2143 to obtain a copy of the most recent
annual report of a Fund at no
charge.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Description of Standard and Poor's Ratings Services ("S&P") and Moody's
Investors Service, Inc. ("Moody's") ratings:
S&P'S RATINGS FOR MUNICIPAL BONDS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an object with respect to a specific obligation. S&P's
letter ratings may be modified by the addition of a plus or minus sign, which is
used to show relative standing within the major rating categories, except in the
AAA (Prime Grade) category.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
AAA is the highest rating assigned by S&P. An issuer's capacity to pay
interest and repay the principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB and B
Debt rated BB and B (as well as debt rated CCC, C and C) is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation within this category, B represents a somewhat
higher degree of speculation and C represents the highest degree of speculation
of these ratings.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal repayments.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
S&P RATINGS FOR MUNICIPAL NOTES
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. A short-term rating designated VMIG, may also be assigned an issue having
a demand feature. The municipal obligations bearing the designation MIG 1/VMIG 1
are of the best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. The municipal obligations bearing the designation are
ample although not so large as in the preceding group.
Description of S&P A-1+
and
A-1 Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must possess overwhelming safety
characteristics regarding timely payment. Commercial paper rated A-1 must have a
degree of safety that is either overwhelming or very strong.
Description of
Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation and well established access
to a range of financial markets and assured sources of alternate liquidity.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF OPTIONS AND FUTURES
GENERAL. As described in the Prospectus under "Investment Objectives and
Policies -- Options and Futures," each Fund may purchase and sell options on the
securities in which it may invest and certain Funds may purchase and sell
options on futures contracts (as defined below) and may purchase and sell
futures contracts. The Funds intend to engage in such transactions if it appears
advantageous to Voyageur to do so in order to pursue the Funds' investment
objectives, to seek to hedge against the effects of market conditions and to
seek to stabilize the value of its assets. The Funds will engage in hedging and
risk management transactions from time to time in V oyageur'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 Funds occur.
Conditions in the securities, futures and options markets will determine
whether and in what circumstances the Funds will employ any of the techniques or
strategies described below. The Funds' 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 Funds do not intend to engage in such
practices to a significant extent.
The use of futures and options, and the possible benefits and attendant
risks, are discussed below.
FUTURES CONTRACTS AND RELATED OPTIONS. Certain Funds 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 certain Funds 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. certain Funds 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. Certain Funds 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. Certain
Funds' 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 certain Funds 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, certain Funds would have to make or take delivery under the
futures contract, or, in the case of a purchased option, exercise the option.
Idaho Fund would be required to maintain initial margin deposits with respect to
the futures contract and to make variation margin payments until the contract is
closed. Certain Funds will incur brokerage fees when it purchases or sells
futures contracts.
At the time a futures contract is purchased or sold, certain Funds 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 certain Funds may purchase or sell may range from
approximately 3% to approximately 15% of the value of the securities (or the
securities index) underlying the contract. In certain circumstances, however,
such as during periods of high volatility, certain Funds 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
out standing futures contract is valued daily in a process known as "marking to
market." If the market value of the futures contract has changed, certain Funds
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 certain Funds purchase or sell and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by Idaho Fund in a hedging
transaction, even if Voyageur correctly forecasts market trends certain Funds'
hedging strategy may not be successful. If this should occur, certain Funds
could lose money on the futures contracts and also on the value of its portfolio
securities.
Although certain Funds believe that the use of futures contracts and
options thereon will benefit it, if V oyageur's judgment about the general
direction of securities prices or interest rates is incorrect, certain Funds'
overall performance may be poorer than if it had not entered into futures
contracts or purchased or sold options thereon. For example, if certain Funds
seek 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, certain Funds 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, certain
Funds 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. Each Fund may purchase and sell (write) options on
securities, which options may be either exchange-listed or over-the-counter
options. The Funds may write call options only if the call option is "covered."
A call option written by a 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 Funds may write put
options only if the put option is "secured." A put option written by a 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 a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If 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.
Each 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.
Each 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.
Each 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 a 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 each 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 a 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 Funds' 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 Funds may be unable to liquidate an OTC option. In the case of
options written by the Funds, the inability to enter into a closing purchase
transaction may result in material losses to the Funds.
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 Funds 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 Tax Exempt
Obligations.
The Funds intend 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 Funds currently do not intend to
engage in transactions in futures contracts or options thereon for speculation.
ACCOUNTING CONSIDERATIONS. When either 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 either 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 certain
Funds. 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.
PART C
VOYAGEUR MUTUAL FUNDS, INC.
(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)
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
Included in Part A:
1. Fees and Expenses
2. Financial Highlights
Included in Part B: None
(b) EXHIBITS
1.1 Articles of Incorporation of Voyageur Mutual Funds, Inc., dated April
14, 1993, filed as an Exhibit hereto.
1.2 Certificate of Designation of Class B Common Shares of Series B and
Class B Common Shares of Series C and Class B Common Shares of Series
E and Series F Common Shares and Series G Common Shares and Series H
Common Shares of Voyageur Mutual Funds, Inc., dated February 27, 1995,
filed as an Exhibit hereto.
1.3 Certificate of Designation of Class A and C Common Shares of Series B
and Class A and C Common Shares of Series C of Voyageur Mutual Funds,
Inc., dated November 30, 1994, filed as an Exhibit hereto.
1.4 Certificate of Designation of Series E Common Shares of Voyageur
Mutual Funds, Inc., dated November 30, 1994, filed as an Exhibit
hereto.
2. Bylaws of Voyageur Mutual Funds, Inc as amended by the Board of
Directors on January 24, 1995, filed as an Exhibit hereto.
3. Voting Trust Agreement. Not Applicable
4. Specimen Security for company incorporated under the laws of the State
of Minnesota, filed as an Exhibit hereto.
5. Investment Advisory Agreement , dated November 1, 1993, filed as an
Exhibit hereto.
6.1 Distribution Agreement dated March 1, 1995, filed as an Exhibit
hereto.
6.2 Form of Dealer Sales Agreement, filed as an Exhibit hereto.
6.3 Form of Bank Agreement, filed as an Exhibit hereto.
7. Bonus, Profit Sharing, or Pension Plans. None.
8. Custodian Agreement dated August 27, 1993, filed as an Exhibit hereto.
9. Administrative Services Agreement dated October 27, 1994, filed as an
Exhibit hereto.
10. Opinion and Consent of Dorsey & Whitney, filed as an Exhibit to
Pre-Effective Amendment No.1 to Form N-1A on August 27, 1993, File
No.33-63238, and incorporated herein by reference.
11. Consent of KPMG Peat Marwick, dated April 26, 1996, filed as an
Exhibit hereto.
12. Financial Statements contained in the Annual Report to Shareholders
for fiscal year end December 31, 1995, filed pursuant to Rule 30d-1 of
the Investment Company Act of 1940, incorporated herein by reference.
13. Letter of Investment Intent, filed as an Exhibit to Pre-Effective
Amendment No. 1 to Form N-1A on August 27, 1993, File No 33-63238, and
incorporated herein by reference.
14. Copy of prototype defined contribution plan. Not Applicable.
15. Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940,
filed as an Exhibit hereto.
16. Schedule for Computation of Performance Data - 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,
and Voyageur Wisconsin Tax Free Fund, Class A, B, and C Shares, filed
as an Exhibit hereto.
17.1 Power of Attorney, dated January 24, 1995, filed as an Exhibit hereto.
17.2 Financial Data Schedule, Voyageur Iowa Tax Free Fund filed hereto
electronically as Exhibit 27.1 pursuant to Rule 401 of Regulation S-T.
17.3 Financial Data Schedule, Voyageur Wisconsin Tax Free Fund filed hereto
electronically as Exhibit 27.2 pursuant to Rule 401 of Regulation S-T.
17.4 Financial Data Schedule, Voyageur Idaho Tax Free Fund filed hereto
electronically as Exhibit 27.3 pursuant to Rule 401 of Regulation S-T.
17.5 Financial Data Schedule, Voyageur Arizona Tax Free Fund filed hereto
electronically as Exhibit 27.4 pursuant to Rule 401 of Regulation S-T.
17.6 Financial Data Schedule, Voyageur California Tax Free Fund filed
hereto electronically as Exhibit 27.5 pursuant to Rule 401 of
Regulation S-T.
17.7 Financial Data Schedule, Voyageur National Tax Free Fund filed hereto
electronically as Exhibit 27.6 pursuant to Rule 401 of Regulation S-T.
18. Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940,
dated December 29, 1995, filed as an Exhibit hereto.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Voyageur serves as investment manager to the following closed-end and
open-end management investment companies:
CLOSED-END INVESTMENT COMPANIES
Voyageur Arizona Municipal Income Fund, Inc.
Voyageur Colorado Insured Municipal Income Fund, Inc.
Voyageur Florida Insured Municipal Income Fund
Voyageur Minnesota Municipal Income Fund, Inc.
Voyageur Minnesota Municipal Income Fund II, Inc.
Voyageur Minnesota Municipal Income Fund III, Inc.
OPEN-END INVESTMENT COMPANIES AND SERIES THEREOF
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund
Voyageur Financial Institutions Short Duration Portfolio
Voyageur Financial Institutions Intermediate Duration
Portfolio
Voyageur Financial Institutions Core Portfolio
Voyageur Insured Funds, Inc.
Voyageur Minnesota Insured Fund
Voyageur Arizona Insured Tax Free Fund
Voyageur National Insured Tax Free Fund
Voyageur Colorado Insured Tax Free Fund
Voyageur Intermediate Tax Free Funds, Inc.
Voyageur Minnesota Limited Term Tax Free Fund
Voyageur National Limited Term Tax Free Fund
Voyageur Arizona Limited Term Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund
Voyageur California Limited Term Tax Free Fund
Voyageur Investment Trust
Voyageur California Insured Tax Free Fund
Voyageur Florida Insured Tax Free Fund
Voyageur Kansas Tax Free Fund
Voyageur Missouri Insured Tax Free Fund
Voyageur New Mexico Tax Free Fund
Voyageur Oregon Insured Tax Free Fund
Voyageur Utah Tax Free Fund
Voyageur Washington Insured Tax Free Fund
Voyageur Florida Tax Free Fund
Voyageur Investment Trust II
Voyageur Florida Limited Term Tax Free Fund
Voyageur Tax Free Funds, Inc.
Voyageur Minnesota Tax Free Fund
Voyageur North Dakota Tax Free Fund
Voyageur Mutual Funds, Inc.
Voyageur Iowa Tax Free Fund
Voyageur Wisconsin Tax Free Fund
Voyageur Idaho Tax Free Fund
Voyageur Arizona Tax Free Fund
Voyageur California Tax Free Fund
Voyageur National Tax Free Fund
Voyageur Mutual Funds II, Inc.
Voyageur Colorado Tax Free Fund
Voyageur Mutual Funds III , Inc.
Voyageur Growth Stock Fund
Voyageur International Equity Fund
Voyageur Aggressive Growth Fund
Voyageur Growth and Income Fund
VAM Institutional Funds, Inc.
Short Government Agency Fund
Intermediate Government Agency Fund
Government Mortgage Fund
Short Duration Total Return Fund
Intermediate Duration Total Return Fund
Intermediate Municipal Fund
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following sets forth the number of holders of shares of each class and
series (then in existence) of each Registrant as of March 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON COMMON COMMON
NAME OF FUND SHARES SHARES SHARES
------------ ------ ------ ------
<S> <C> <C> <C>
Voyageur Minnesota Insured Fund 8,132 142 146
Voyageur Arizona Insured Tax Free Fund 5,259 44 17
Voyageur National Insured Tax Free Fund 866 46 3
Voyageur Minnesota Limited Term Tax Free Fund 1,867 6 39
Voyageur National Limited Term Tax Free Fund 4 1 **
Voyageur Florida Insured Tax Free Fund 6,460 88 **
Voyageur California Insured Tax Free Fund 794 137 2
Voyageur Missouri Insured Tax Free Fund 1,699 245 3
Voyageur Oregon Insured Tax Free Fund 650 117 6
Voyageur Washington Insured Tax Free Fund 69 2 1
Voyageur Kansas Tax Free Fund 338 38 3
Voyageur New Mexico Tax Free Fund 557 20 **
Voyageur Utah Tax Free Fund 130 4 **
Voyageur Florida Tax Free Fund 88 10 **
Voyageur Florida Limited Term Tax Free Fund 17 1 1
Voyageur Minnesota Tax Free Fund 12,299 134 150
Voyageur North Dakota Tax Free Fund 1,175 36 3
Voyageur Iowa Tax Free Fund 2,166 24 27
Voyageur Wisconsin Tax Free Fund 1,003 24 9
Voyageur Idaho Tax Free Fund 576 97 33
Voyageur California Tax Free Fund 23 2 **
Voyageur Arizona Tax Free Fund 96 45 3
Voyageur National Tax Free Fund 31 5 3
Voyageur Colorado Tax Free Fund 10,376 73 65
** Not in existence
</TABLE>
ITEM 27. INDEMNIFICATION
(a) Voyageur Investment Trust and Voyageur Investment Trust II:
Article VIII of each Registrant's Agreement and Declaration of Trust
provides in effect that the Registrant will indemnify its officers and Trustees
under certain circumstances. However, in accordance with Section 17(h) and 17(i)
of the Investment Company Act of 1940, as amended (the "1940 Act"), and its own
terms, said Agreement and Declaration of Trust does not protect any person
against any liability to the Registrant or its shareholders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers, and controlling persons of each
Registrant pursuant to the foregoing provisions (or otherwise), the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
No indemnification will be made in violation of the 1940 Act and the rules,
regulations and releases thereunder.
(b) All corporate registrants:
The Articles of Incorporation and Bylaws of each Registrant provide that
the Registrant shall indemnify such persons, for such expenses and liabilities,
in such manner, under such circumstances, and to the full extent permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended,
provided 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 hereafter
amended. Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding against judgments, penalties, fines, settlements and
reasonable expenses, including attorneys' fees and disbursements, incurred by
the person in connection with the proceeding, if, with respect to the acts or
omissions of the person complained of in the proceeding, the person: (i) has not
been indemnified by another organization for the same judgments, penalties,
fines, settlements and reasonable expenses incurred by the person in connection
with the proceeding with respect to the same acts or omissions; (ii) acted in
good faith; (iii) received no improper personal benefit; (iv) complied with the
Minnesota Statute dealing with directors' conflicts of interest, if applicable;
(v) in the case of a criminal proceeding, had no reasonable cause to believe the
conduct was unlawful; and (vi) reasonably believed that the conduct was in the
best interests of the corporation or, in certain circumstances, reasonably
believed that the conduct was not opposed to the best interests of the
corporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of each
Registrant pursuant to the foregoing provisions (or otherwise), the Registrants
have been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a Registrant
of expenses incurred or paid by a director, officer or controlling person of a
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
No indemnification will be made in violation of the 1940 Act and the rules,
regulations and releases thereunder.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The name and principal occupations(s) during the past two fiscal years of
each director and the executive officer of the Adviser are set forth below. The
business address of each is 90 South SeventhStreet, Suite 4400, Minneapolis,
Minnesota 55402.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH ADVISER PRINCIPAL OCCUPATION(S)
- ---------------- --------------------- -----------------------
<S> <C> <C>
Michael E. Dougherty Chairman Chairman of the Board, President and Chief
Executive Officer of Dougherty Financial
Group, Inc. ("DFG") and Chairman of
Voyageur, the Underwriter and Dougherty
Dawkins, Inc.
John G. Taft President and Director See biographical information in Part B of the
Registration Statement.
Jane M. Wyatt Director and Chief See biographical information in Part B of the
Investment Officer Registration Statement.
Edward J. Kohler Director and Executive Director and Executive Vice President of the Adviser
Vice President and Director of the Underwriter since 1995;
previously, President and Director of Piper Capital
Management Incorporated from 1985 to 1995.
Frank C. Tonnemaker Director and Executive Director of Voyageur and the Underwriter
Vice President since 1993; Executive Vice President of
Voyageur since 1994; Vice President of
Voyageur from 1990 to 1994.
Thomas J. Abood General Counsel See biographical information in Part B of the
Registration Statement.
Kenneth R. Larsen Treasurer See biographical information in Part B of the
Registration Statement.
Steven B. Johansen Secretary and Chief Secretary of DFG, the Underwriter and
Financial Officer Dougherty Dawkins, Incorporated ("DDI");
Chief Financial Officer of DFG, the
Underwriter and DDI since 1995; previously,
Treasurer of DFG and DDI from 1990 to 1995
</TABLE>
Information on the business of Registrants' Adviser is contained in the
section of the Prospectus entitled "Management" and in the section of the
Statement of Additional Information entitled "The Investment Adviser and
Underwriter" filed as part of this Registration
Statement.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Voyageur Fund Distributors, Inc., the underwriter of each Registrant's
shares, is principal underwriter for the shares of Voyageur Tax Free Funds,
Inc., Voyageur Insured Funds, Inc., Voyageur Intermediate Tax Free Funds, Inc.,
Voyageur Investment Trust, Voyageur Investment Trust II, Voyageur Mutual Funds,
Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual Funds III, Inc. and VAM
Institutional Funds, Inc., affiliated open-end management investment companies.
(b) The directors of the Underwriter are the same as the directors of the
Adviser as set forth above in Item 28. The executive officers of the Underwriter
and the positions of these individuals with respect to each Registrant are:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH REGISTRANTS WITH UNDERWRITER
- ---- ---------------- ----------------
<S> <C> <C>
Michael E. Dougherty Chairman None
Frank C. Tonnemaker President & Director None
John G. Taft President & Director President
Jane M. Wyatt Director Executive Vice President
Steven B. Johansen Secretary None
Kenneth R. Larsen Treasurer Treasurer
Thomas J. Abood General Counsel Secretary
</TABLE>
The address of each of the executive officers is 90 South Seventh Street, Suite
4400, Minneapolis, Minnesota 55402.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The custodian for each Registrant is Norwest Bank Minnesota, N.A., Sixth
Street & Marquette Avenue, Minneapolis, Minnesota 55402. The dividend
disbursing, administrative and accounting services agent of each Registrant is
Voyageur Fund Managers, Inc. The address of Voyageur Fund Managers, Inc. and
each Registrant is 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota
55402.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Each recipient of a prospectus of any series of any Registrant may
request the latest Annual Report of such series, and such Annual Report will be
furnished by such Registrant without charge.
NOTICE
Copies of the Agreement and Declaration of Trust for each of Voyageur
Investment Trust and Voyageur Investment Trust II are on file with the Secretary
of State of the Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of each such Registrant by an officer of
the Registrant as an officer and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis and State of
Minnesota on the /s/30th day of April 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 dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John G. Taft President (Principal April /s/30, 1996
- --------------------- Executive Officer)
John G. Taft
/s/Kenneth R. Larsen Treasurer (Princiapl April /s/30, 1996
- -------------------- Financial and Accounting
Kenneth R. Larsen 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 April /s/30, 1996
- --------------------
Thomas J. Abood
ARTICLES OF INCORPORATION
OF
VOYAGEUR MUTUAL FUNDS, INC.
For the purpose of forming a corporation pursuant to the provisions of
Minnesota Statutes, Chapter 302A, the following Articles of Incorporation are
adopted:
1. The name of the corporation (the "Corporation") is Voyageur Mutual
Funds, Inc.
2. The Corporation shall have general business purposes and shall have
unlimited power to engage in and do any lawful act concerning any and all lawful
businesses for which corporations may be organized under the Minnesota Statutes,
Chapter 302A. Without limiting the generality of the foregoing, the Corporation
shall have specific power:
(a) To conduct, operate and carry on the business of a so-called
"open-end" management investment company pursuant to applicable state and
federal regulatory statutes, and exercise all the powers necessary and
appropriate to the conduct of such operations.
(b) To purchase, subscribe for, invest in or otherwise acquire, and to
own, hold, pledge, mortgage, hypothecate, sell, possess, transfer or
otherwise dispose of, or turn to account or realize upon, and generally
deal in, all forms of securities of every kind, nature, character, type and
form, and other financial instruments which may not be deemed to be
securities, including but not limited to futures contracts and options
thereon. Such securities and other financial instruments may include but
are not 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, 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.
(c) In the above provisions of this Article 2, purposes shall also be
construed as powers and powers shall also be construed as purposes, and the
enumeration of specific purposes or powers shall not be construed to limit
other statements of purposes or to limit purposes or powers which the
Corporation may otherwise have under applicable law, all of the same being
separate and cumulative, and all of the same may be carried on, promoted
and pursued, transacted or exercised in any place whatsoever.
3. The Corporation shall have perpetual existence.
4. The location and post office address of the registered office in
Minnesota is 100 South Fifth Street, Suite 2200, Minneapolis, Minnesota 55402.
5. The total authorized number of shares of the Corporation is 10 trillion
(10,000,000,000,000), all of which shall be common shares of the par value of
$.01 per share (individually, a "Share" and collectively, the "Shares"). The
Corporation may issue and sell any of its Shares in fractional denominations to
the same extent as its whole Shares, and Shares and fractional denominations
shall have, in proportion to the relative fractions represented thereby, all the
rights of whole Shares, including, without limitation, the right to vote, the
right to receive dividends and distributions, and the right to participate upon
liquidation of the Corporation.
(a) One hundred billion (100,000,000,000) of the Shares may be issued
by the Corporation in a series designated "Series A Common Shares;" one
hundred billion (100,000,000,000) of the Shares may be issued by the
Corporation in a series designated "Series B Common Shares;" and the
remaining nine trillion, eight hundred billion (9,800,000,000,000) Shares
authorized by this Article 5 shall initially be undesignated Shares (the
"Undesignated Shares"). Any series of the Shares shall be referred to
herein individually as a "Series" and collectively herein, together with
any further series from time to time created by the Board of Directors, as
"Series." The Undesignated Shares may be issued in such Series 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 as may be adopted from time to time by the Board of
Directors of the Corporation pursuant to the authority hereby vested in the
Board of Directors. Each Series of Shares which the Board of Directors may
establish, as provided herein, may evidence, if the Board of Directors
shall so determine by resolution, an interest in 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.
Authority to establish such separate portfolios is hereby vested in the
Board of Directors of the Corporation, and such separate portfolios may be
established by the Board of Directors without the authorization or approval
of the holders of any Series of Shares of the Corporation. Such investment
portfolios in which Shares of the Series represent interests are also
hereinafter referred to as "Series."
(b) The Shares of each Series may be classified by the Board of
Directors in one or more classes (individually, a "Class" and,
collectively, together with any other class or classes within any Series,
the "Classes") with such relative rights and preferences as shall be stated
or expressed in a resolution or resolutions providing for the issue of any
such Class or Classes as may be adopted from time to time by the Board of
Directors of the Corporation pursuant to the authority hereby vested in the
Board of Directors and Minnesota Statutes, Section 302A.401, Subd. 3, or
any successor provision. The Shares of each Class within a Series may be
subject to such charges and expenses (including by way of example, but not
by way of limitation, front-end and deferred sales charges, expenses under
Rule 12b-1 plans, administration plans, service plans, or other plans or
arrangements, however designated) adopted from time to time by the Board of
Directors in accordance, to the extent applicable, with the Investment
Company Act of 1940, as amended (together with the rules and regulations
promulgated thereunder, 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 the manner determined
by the Board of Directors in the resolution or resolutions providing for
the issue of such Class) in determining the net asset value and the amounts
payable with respect to dividends and distributions on and redemptions or
liquidations of, such Class. Subject to compliance with the requirements of
the 1940 Act, the Board of Directors shall have the authority to provide
that Shares of any Class shall be convertible (automatically, optionally or
otherwise) into Shares of one or more other Classes in accordance with such
requirements and procedures as may be established by the Board of
Directors.
6. The shareholders of each Series (or Class thereof) of common shares of
the Corporation:
(a) shall not have the right to cumulate votes for the election of
directors; and
(b) shall have no preemptive right to subscribe to any issue of shares
of any Series (or Class thereof) of the Corporation now or hereafter
created, designated or classified.
7. A description of the relative rights and preferences of all Series of
Shares (and Classes thereof) is as follows, unless otherwise set forth in one or
more amendments to these Articles of Incorporation or in the resolution
providing for the issue of such Series (and Classes thereof):
(a) On any matter submitted to a vote of shareholders of the
Corporation, all Shares of the Corporation then issued and outstanding and
entitled to vote, irrespective of Series or Class, shall be voted in the
aggregate and not by Series or Class, except: (i) when otherwise required
by Minnesota Statutes, Chapter 302A, in which case shares will be voted by
individual Series or Class, as applicable; (ii) when otherwise required by
the 1940 Act or the rules adopted thereunder, in which case shares shall be
voted by individual Series or Class, as applicable; and (iii) when the
matter does not affect the interests of a particular Series or Class
thereof, in which case only shareholders of the Series or Class thereof
affected shall be entitled to vote thereon and shall vote by individual
Series or Class, as applicable.
(b) All consideration received by the Corporation for the issue or
sale of Shares of any Series, together with all assets, income, earnings,
profits and proceeds derived therefrom (including all proceeds derived from
the sale, exchange or liquidation thereof and, if applicable, any assets
derived from any reinvestment of such proceeds in whatever form the same
may be) shall become part of the assets of the portfolio to which the
Shares of that Series relate, for all purposes, subject only to the rights
of creditors, and shall be so treated upon the books of account of the
Corporation. Such assets, income, earnings, profits and proceeds (including
any proceeds derived from the sale, exchange or liquidation thereof and, if
applicable, any assets derived from any reinvestment of such proceeds in
whatever form the same may be) are herein referred to as "assets belonging
to" such Series of Shares of the Corporation.
(c) Assets of the Corporation not belonging to any particular Series
are referred to herein as "General Assets." General Assets shall be
allocated to each Series in proportion to the respective net assets
belonging to such Series. The determination of the Board of Directors shall
be conclusive as to the amount of assets, as to the characterization of
assets as those belonging to a Series or as General Assets, and as to the
allocation of General Assets.
(d) The assets belonging to a particular Series of Shares shall be
charged with the liabilities incurred specifically on behalf of such Series
of Shares ("Special Liabilities"). Such assets shall also be charged with a
share of the general liabilities of the Corporation ("General Liabilities")
in proportion to the respective net assets belonging to such Series of
common shares. The determination of the Board of Directors shall be
conclusive as to the amount of liabilities, including accrued expenses and
reserves, as to the characterization of any liability as a Special
Liability or General Liability, and as to the allocation of General
Liabilities among Series.
(e) The Board of Directors may, to the extent permitted by Minnesota
Statutes, Chapter 302A or any successor provision thereto, declare and pay
dividends or distributions in Shares, cash or other property on any or all
Series (or Classes thereof) of Shares, the amount of such dividends and the
payment thereof being wholly in the discretion of the Board of Directors.
(f) In the event of the liquidation or dissolution of the Corporation,
holders of the Shares of any Series shall have priority over the holders of
any other Series with respect to, and shall be entitled to receive, out of
the assets of the Corporation available for distribution to holders of
shares, the assets belonging to such Series of Shares and the General
Assets allocated to such Series of Shares, and the assets so distributable
to the holders of the Shares of any Series shall be distributed among such
holders in proportion to the number of Shares of such Series held by each
such shareholder and recorded on the books of the Corporation, except that,
in the case of a Series with more than one Class of Shares, such
distributions shall be adjusted to appropriately reflect any charges and
expenses borne by each individual Class.
(g) With the approval of a majority of the shareholders of each of the
affected Series of Shares present in person or by proxy at a meeting called
for the following purpose (provided that at least 10% of the issued and
outstanding Shares of the affected Series is present at such meeting in
person or by proxy), the Board of Directors may transfer the assets of any
Series to any other Series. Upon such a transfer, the Corporation shall
issue Shares representing interests in the Series to which the assets were
transferred in exchange for all Shares representing interests in the Series
from which the assets were transferred. Such Shares shall be exchanged at
their respective net asset values.
8. The following additional provisions, when consistent with law, are
hereby established for the management of the business, for the conduct of the
affairs of the Corporation, and for the purpose of describing certain specific
powers of the Corporation and of its directors and shareholders.
(a) In furtherance and not in limitation of the powers conferred by
statute and pursuant to these Articles of Incorporation, the Board of
Directors is expressly authorized to do the following:
(i) to make, adopt, alter, amend and repeal Bylaws of the
Corporation unless reserved to the shareholders by the Bylaws or by
the laws of the State of Minnesota, subject to the power of the
shareholders to change or repeal such Bylaws;
(ii) to distribute, in its discretion, for any fiscal year (in
the year or in the next fiscal year) as ordinary dividends and as
capital gains distributions, respectively, amounts sufficient to
enable each Series to qualify under the Internal Revenue Code as a
regulated investment company to avoid any liability for federal income
tax in respect of such year. Any distribution or dividend paid to
shareholders from any capital source shall be accompanied by a written
statement showing the source or sources of such payment;
(iii) to authorize, subject to such vote, consent, or approval of
shareholders and other conditions, if any, as may be required by any
applicable statute, rule or regulation, the execution and performance
by the Corporation of any agreement or agreements with any person,
corporation, association, company, trust, partnership (limited or
general) or other organization whereby, subject to the supervision and
control of the Board of Directors, any such other person, corporation,
association, company, trust, partnership (limited or general), or
other organization shall render managerial, investment advisory,
distribution, transfer agent, accounting and/or other services to the
Corporation (including, if deemed advisable, the management or
supervision of the investment portfolios of the Corporation) upon such
terms and conditions as may be provided in such agreement or
agreements;
(iv) to authorize any agreement of the character described in
subparagraph 3 of this paragraph (a) with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization, although one or more of the members of the Board of
Directors or officers of the Corporation may be the other party to any
such agreement or an officer, director, employee, shareholder, or
member of such other party, and no such agreement shall be invalidated
or rendered voidable by reason of the existence of any such
relationship;
(v) to allot and authorize the issuance of the authorized but
unissued Shares of any Series, or Class thereof, of the Corporation;
(vi) to accept or reject subscriptions for Shares of any Series,
or Class thereof, made after incorporation;
(vii) to fix the terms, conditions and provisions of and
authorize the issuance of options to purchase or subscribe for Shares
of any Series, or Class thereof, including the option price or prices
at which Shares may be purchased or subscribed for;
(viii) to take any action which might be taken at a meeting of
the Board of Directors, or any duly constituted committee thereof,
without a meeting pursuant to a writing signed by that number of
directors or committee members that would be required to taken the
same action at a meeting of the Board of Directors or committee
thereof at which all directors or committee members were present;
provided, however, that, if such action also requires shareholder
approval, such writing must be signed by all of the directors or
committee members entitled to vote on such matter; and
(ix) to determine what constitutes net income, total assets and
the net asset value of the Shares of each Series (or Class thereof) of
the Corporation. Any such determination made in good faith shall be
final and conclusive, and shall be binding upon the Corporation, and
all holders (past, present and future) of Shares of each Series and
Class thereof.
(b) Except as provided in the next sentence of this paragraph (b),
Shares of any Series, or Class thereof, hereafter issued which are
redeemed, exchanged, or otherwise acquired by the Corporation shall return
to the status of authorized and unissued Shares of such Series or Class.
Upon the redemption, exchange, or other acquisition by the Corporation of
all outstanding Shares of any Series (or Class thereof), hereafter issued,
such Shares shall return to the status of authorized and unissued Shares
without designation as to series (if no Shares of the Series remain
outstanding) or with the same designation as to Series, but no designation
as to class within such Series (if Shares of such Series remain
outstanding, but no Shares of such Class thereof remain outstanding), and
all provisions of these articles of incorporation relating to such Series,
or Class thereof (including, without limitation, any statement establishing
or fixing the rights and preferences of such Series, or Class thereof),
shall cease to be of further effect and shall cease to be a part of these
articles. Upon the occurrence of such events, the Board of Directors of the
Corporation shall have the power, pursuant to Minnesota Statutes Section
302A.135, Subdivision 5 or any successor provision and without shareholder
action, to cause restated articles of incorporation of the Corporation to
be prepared and filed with the Secretary of State of the State of Minnesota
which reflect such removal from these articles of all such provisions
relating to such Series, or Class thereof.
(c) The determination as to any of the following matters made by or
pursuant to the direction of the Board of Directors consistent with these
Articles of Incorporation and in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties, shall be final and
conclusive and shall be binding upon the Corporation and every holder of
shares of its capital stock: namely, the amount of the assets, obligations,
liabilities and expenses of each Series (or Class thereof) of the
Corporation; the amount of the net income of each Series (or Class thereof)
of the Corporation from dividends and interest for any period and the
amount of assets at any time legally available for the payment of dividends
in each Series (or Class thereof); the amount of paid-in surplus, other
surplus, annual or other net profits, or net assets in excess of capital,
undivided profits, or excess of profits over losses on sales of securities
of each Series (or Class thereof); the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges
and the propriety thereof (whether or not any obligation or liability for
which such reserves or charges shall have been created shall have been paid
or discharged); the market value, or any sale, bid or asked price to be
applied in determining the market value, of any security owned or held by
or in each Series of the Corporation; the fair value of any other asset
owned by or in each Series of the Corporation; the number of Shares of each
Series (or Class thereof) of the Corporation issued or issuable; any matter
relating to the acquisition, holding and disposition of securities and
other assets by each Series of the Corporation; and any question as to
whether any transaction constitutes a purchase of securities on margin, a
short sale of securities, or an underwriting of the sale of, or
participation in any underwriting or selling group in connection with the
public distribution of any securities.
(d) The Board of Directors or the shareholders of the Corporation may
adopt, amend, affirm or reject investment policies and restrictions upon
investment or the use of assets of each Series of the Corporation and may
designate some such policies as fundamental and not subject to change other
than by a vote of a majority of the outstanding voting securities, as such
phrase is defined in the 1940 Act, of the affected Series of the
Corporation.
9. The Corporation shall indemnify such persons for such expenses and
liabilities, in such manner, under such circumstances, and to the full extent
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 1940 Act, as now enacted or
hereafter amended.
10. To the fullest extent permitted by the Minnesota Statutes, Chapter
302A, as the same exists or may hereafter be amended (except as prohibited by
the 1940 Act, as the same exists or may hereafter be amended), a director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
11. The members of the initial Board of Directors of the corporation are as
follows:
Harley L. Danforth James W. Nelson
Kenneth E. Dawkins Robert J. Odegard
Clarance G. Frame
12. The name and address of the incorporator, who is a natural person of
full age is:
Amy E. Lange
220 South Sixth Street
Minneapolis, MN 55402
Dated: April /s/14, 1993 /s/Amy E. Lange
--------------------
Amy E. Lange
[STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
APRIL 14 1993
/s/ Joan Anderson Growe
Secretary of State]
CERTIFICATE OF DESIGNATION
OF
CLASS B COMMON SHARES OF SERIES B
AND
CLASS B COMMON SHARES OF SERIES C
AND
CLASS B COMMON SHARES OF SERIES E
AND
SERIES F COMMON SHARES
AND
SERIES G COMMON SHARES
AND
SERIES H 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 January 24,
1995:
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 each of such shares have been designated
in the Articles as Series A, Series B, Series C, Series D and Series E
Common Shares;
WHEREAS, of the one hundred billion shares designated as Series B
Common Shares, the Board of Directors previously has designated ten billion
as Series B, Class A Common Shares and ten billion as Series B, Class C
Common Shares; of the one hundred billion shares designated as Series C
Common Shares, the Board of Directors previously has designated ten billion
as Series C, Class A Common Shares and ten billion as Series C, Class C
Common Shares; and of the one hundred billion shares designated as Series E
Common Shares, the Board of Directors previously has designated ten billion
as Series E, Class A Common Shares and ten billion as Series E, Class C
Common Shares;
WHEREAS, pursuant to Section 5(b) of the Articles, the shares of each
Series may be classified by the Board of Directors in one or more classes
with such relative rights and preferences as shall be stated or expressed
in a resolution or resolutions providing for the issue of any such class or
classes as may be adopted from time to time by the Board of Directors of
the Corporation; and
WHEREAS, the Articles set forth that the balance of nine trillion,
five hundred billion shares may be issued in such series and classes and
with such designations, preferences and relative, participating, optional
or other special rights, or qualifications, limitations or restrictions
thereof, as shall be stated or expressed in a resolution or resolutions
providing for the issue of any series or class of common shares as may be
adopted from time to time by the Board of Directors of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that of the eighty billion Series B
Common Shares remaining undesignated as to class, ten billion are hereby
designated as Series B, Class B Common Shares and the remaining seventy
billion Series B Common Shares shall remain undesignated as to class; of
the eighty billion Series C Common Shares remaining undesignated as to
class, ten billion are hereby designated as Series C, Class B Common Shares
and the remaining seventy billion Series C Common Shares shall remain
undesignated as to class; and of the eighty billion Series E Common Shares
remaining undesignated as to class, ten billion are hereby designated as
Series E, Class B Common Shares and the remaining seventy billion Series E
Common Shares shall remain undesignated as to class;
FURTHER RESOLVED, that of the remaining authorized common shares of
the Corporation, (a) one hundred billion are hereby designated as Series F
Common Shares, ten billion of which are hereby designated as Series F,
Class A Common Shares, ten billion of which are hereby designated as Series
F, Class B Common Shares, ten billion of which are hereby designated as
Series F, Class C Common Shares and the remaining seventy billion Series F
Common Shares shall remain undesignated as to class and Series F 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, (b) one hundred billion are hereby designated as Series G
Common Shares, ten billion of which are hereby designated as Series G,
Class A Common Shares, ten billion of which are hereby designated as Series
G, Class B Common Shares, ten billion of which are hereby designated as
Series G, Class C Common Shares and the remaining seventy billion Series G
Common Shares shall remain undesignated as to class and Series G 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, and (c) one hundred billion are hereby designated as
Series H Common Shares, ten billion of which are hereby designated as
Series H, Class A Common Shares, ten billion of which are hereby designated
as Series H, Class B Common Shares, ten billion of which are hereby
designated as Series H, Class C Common Shares and the remaining seventy
billion Series H Common Shares shall remain undesignated as to class and
Series H 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.
FURTHER RESOLVED, that the Series and Classes of 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. As
provided in the Articles, any Class of a Series of Common Shares designated
by these resolutions may be subject to such charges and expenses
(including, by way of example but not by way of limitation, such front-end
and deferred sales charges as may be permitted under the Investment Company
Act of 1940 (the "1940 Act") and the rules of the National Association of
Securities Dealers, Inc., and expenses under Rule 12b-1 plans,
administration 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, 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 B, Class B Common Shares, Series C, Class B
Common Shares, Series E, Class B Common Shares, Series F, Classes A, B and
C Common Shares, Series G, Classes A, B and C Common Shares and Series H,
Classes A, B and C Common Shares designated hereby, as required by Section
302A.401, Subd. 3(b) of the Minnesota Statutes.
N WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of the Corporation this 27th day of February 1995.
/s/Thomas J. Abood
--------------------------
Thomas J. Abood, Secretary
[STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
FEB 28 1995
/s/Joan Anderson Growe
Secretary of State]
CERTIFICATE OF DESIGNATION
OF
CLASS A AND C COMMON SHARES OF SERIES B
AND
CLASS A AND C COMMON SHARES OF SERIES C
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 July 26, 1994:
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 such shares have been designated in
the Articles as Series B Common Shares and one hundred billion of such
shares have been designated as Series C Common Shares; and
WHEREAS, pursuant to Section 5(b) of the Articles, the shares of each
Series may be classified by the Board of Directors in one or more classes
with such relative rights and preferences as shall be stated or expressed
in a resolution or resolutions providing for the issue of any such class or
classes as may be adopted from time to time by the Board of Directors of
the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that of the one hundred billion shares
designated in the Articles as Series B Common Shares, ten billion are
hereby designated as Series B, Class A Common Shares, ten billion are
hereby designated as Series B, Class C Common Shares, the remaining eighty
billion Series B Common Shares shall remain undesignated as to class, and
the Series B Common Shares which are outstanding on the date hereof are
hereby redesignated as Series B, Class A Common Shares.
FURTHER RESOLVED, that of the one hundred billion shares designated in
the Articles as Series C Common Shares, ten billion are hereby designated
as Series C, Class A Common Shares, ten billion are hereby designated as
Series C, Class C Common Shares, the remaining eighty billion Series C
Common Shares shall remain undesignated as to class, and the Series C
Common Shares which are outstanding on the date hereof are hereby
redesignated as Series C, Class A Common Shares.
FURTHER RESOLVED, that the Class A and Class C Common Shares
designated by these resolutions shall have the relative rights and
preferences set forth in the Articles. As provided in Section 5(b) of the
Articles, each Class of Common Shares designated by these resolutions may
be subject to such charges and expenses (including, by way of example but
not by way of limitation, such front-end and deferred sales charges as may
be permitted under the Investment Company Act of 1940 (the "1940 Act") and
the rules of the National Association of Securities Dealers, Inc., and
expenses under Rule 12b-1 plans, administration 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, 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 Class A and Class C Common Shares designated hereby,
as required by Section 302A.401, Subd. 3(b) of the Minnesota Statutes.
[I]N WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of the Corporation this 30th day of November, 1994.
/s/Thomas J. Abood
--------------------------
Thomas J. Abood, Secretary
CERTIFICATE OF DESIGNATION
OF
SERIES E 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 October 27,
1994:
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, four hundred billion of such shares have been designated in
the Articles as Series A through Series D Common Shares; and
WHEREAS, the Articles set forth that the balance of nine trillion, six
hundred billion shares may be issued in such series and classes and with
such designations, preferences and relative, participating, optional or
other special rights, or qualifications, limitations or restrictions
thereof, as shall be stated or expressed in a resolution or resolutions
providing for the issue of any series or class of common shares as may be
adopted from time to time by the Board of Directors of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that of the remaining authorized
common shares of the Corporation, one hundred billion are hereby designated
as Series E Common Shares, ten billion of which are hereby designated as
Series E, Class A Common Shares, ten billion of which are hereby designated
as Series E, Class C Common Shares and the remaining eighty billion Series
E Common Shares shall remain undesignated as to class; and Series E 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.
FURTHER RESOLVED, that the Common Shares designated by these
resolutions shall have the preferences and relative, participating,
optional or other special rights, and qualifications, limitations and
restrictions thereof, set forth in the Articles. Any Class of a Series of
Common Shares designated by these resolutions may be subject to such
charges and expenses (including, by way of example but not by way of
limitation, such front-end and deferred sales charges as may be permitted
under the 1940 Act and the rules of the National Association of Securities
Dealers, Inc., and expenses under Rule 12b-1 plans, administrative plans,
service plans or other plans or arrangements, however designated) adopted
from time to time by the Board of Directors of the Corporation in
accordance, to the extent applicable, with the 1940 Act, which charges and
expenses may differ from those applicable to another Class within such
Series, and all of the charges and expenses to which a Class is subject
shall be borne by such Class and shall be appropriately reflected in
determining the net asset value and the amounts payable with respect to
dividends and distributions on, and redemptions or liquidation of, such
Class.
FURTHER RESOLVED, that the officers of the Corporation are hereby
authorized and directed to file with the office of the Secretary of State
of Minnesota a Certificate of Designation setting forth the relative rights
and preferences of the Series E, Classes A 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 30th day of November, 1994.
/s/Thomas J. Abood
--------------------------
Thomas J. Abood, Secretary
BYLAWS
OF
VOYAGEUR MUTUAL FUNDS, INC.
(AS AMENDED BY THE BOARD OF DIRECTORS ON JANUARY 24, 1995)
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."
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.
[The following is a prototype of the Registrant's share certificate. It is a
"two-sided" document. The facing page is in a "landscaped" position and bordered
with intricate, detailed graphics. This similar graphical detail is found
bordering boxes for the number and type of shares.]
VOYAGEUR
NUMBER SHARES
[VOID] [VOID]
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES THAT
VOID
is the owner and
registered holder of
------- -------
- -------------------- --------------------
------- -------
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this certificate to be
signed by its duly authorized officers.
Dated:
SECRETARY [VOID] PRESIDENT [VOID]
(REVERSE SIDE)
________________________________________________________________________________
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UTMA - ________Custodian________
(Cust) (Minor)
TEN ENT - as tenants by entireties under Uniform Transfer to Minors
JT TEN - as joint tenants with right of survivorship Act _____________________
and not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
FOR VALUE RECEIVED______HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(Box to insert information)
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE,
AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
___________________________________________________________________ATTORNEY TO
TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________________________________________
________________________________________________
NOTICE: The signature to this assignment must
correspond to the name as written upon the face
of the certificate in every particular without
alteration or enlargement or any change whatever
SIGNATURE GUARANTEED
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
-------------------------
Its /s/
-----------------------
VOYAGEUR FUND MANAGERS, INC.
By /s/
-------------------------
Its /s/
-----------------------
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)
</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 1st day of March 1995,
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 ClassesA, 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 R. Larsen
----------------------------
Kenneth R. Larsen
Its /s/Treasurer
----------------------------
Treasurer
VOYAGEUR FUND DISTRIBUTORS, INC.
By /s/Kenneth R. Larsen
-----------------------------
Kenneth R. Larsen
Its /s/CFO
----------------------------
CFO
VOYAGEUR FUND DISTRIBUTORS, INC.
90 South Seventh Street
Minneapolis, MN 55402
DEALER SALES AGREEMENT
Dear Sir or Madam:
This Dealer Sales Agreement (the "Agreement") made as of the date set forth
below, by and between Voyageur Fund Distributors, Inc., (the "Underwriter"), and
you (the "Dealer"), sets forth the terms of selling arrangements between the
Underwriter and you as Dealer.
WHEREAS, the Underwriter has entered into Distribution Agreements with
certain investment companies, including open-end investment companies and unit
investment trusts (the "Funds"), under which the Underwriter was engaged and
agreed to act as principal underwriter of the securities of such Funds to the
public, either through dealers or otherwise; and
WHEREAS, the parties hereto desire that the Dealer be a member of a selling
group to sell and distribute shares or units of the Funds' securities to the
public;
NOW, THEREFORE, the Dealer hereby offers to become a member in a selling
group to sell and distribute the Funds' securities to the public and to render
certain shareholder services, subject to the following terms and conditions.
1. ACCEPTANCE OF SUBSCRIPTIONS. Subscriptions solicited by you will be
accepted only at the price, in the amounts, and on the terms which are set forth
in the then current Prospectuses (the term "Prospectus" shall also include any
Statement of Additional Information incorporated therein by reference) of the
Funds.
2. DEALER DISCOUNT AND OTHER COMPENSATION. The Dealer shall receive, for
sales of the Funds' shares or units, the applicable Dealer Discount or other
compensation as set forth in the then current prospectus of the relevant Fund.
Additionally, with respect to certain of the Funds, the Dealer may be entitled
to receive additional compensation upon such terms and conditions and in such
amounts as set forth in such Prospectus (and on Schedule A attached hereto with
respect to sales of money market Funds) for providing to Fund shareholders
certain personal and account maintenance services (including, but not limited
to, responding to shareholder inquiries and providing information on their
investments) not otherwise required to be provided by the applicable Funds'
investment adviser or transfer agent ("Service Fees") or (in addition to the
aforementioned Dealer Discount) for sales of the applicable Fund's securities("
Distribution Fees"). These additional amounts may be amended in the Prospectus
or Schedule A in whole or in part without notice from time to time by the
Underwriter.
3. ORDERS. Orders to purchase shares or units of any Fund shall be placed
as described in the then current Prospectus of the applicable Fund and as
instructed from time to time by the Underwriter. Orders shall be placed promptly
upon receipt, and there shall be no postponement of orders received so as to
profit the Dealer by reason of such postponement. Each order shall be confirmed
by the Dealer in writing on the day such order was placed. Payment for shares or
units ordered from us shall be in New York or Boston clearinghouse funds
received by us by the later of: (i) the end of the fifth business day following
your receipt of the customer's order to purchase such shares or units or (ii)
the end of one business day following your receipt of the customer's payment for
such shares or units, but in no event later than the end of the eighth business
day following your receipt of the customer's order; PROVIDED, HOWEVER, that
commencing as of June 1, 1995 and in accordance with Rule 15c6-1 under the
Securities Exchange Act of 1934, as amended, payment for such shares or units
must be received by us not later than the end of the third business day
following your receipt of the customer's order. If such payment is not received
by us, we reserve the right, without notice, forthwith to cancel the sale, or,
in the case of shares, at our option, to sell the shares ordered back to the
issuer, in which case we may hold you responsible for any loss, including loss
of profit, suffered by us resulting from your failure to make payment as
aforesaid.
4. GENERAL. In soliciting purchases of shares or units of any Fund, the
Dealer shall act as an independent contractor and not as an agent of the
Underwriter or the Fund. The Dealer agrees that neither the Underwriter nor any
other dealer nor any of the Funds shall be deemed an agent of the Dealer.
Nothing herein shall constitute the Dealer as a partner of the Underwriter, any
other dealer or any of the Funds, or render any such entity liable for
obligations of the Dealer. The Dealer understands and agrees that each
shareholder account which includes shares or units of any Fund subject to the
Fund's contingent deferred sales charge (as described in the applicable Fund's
current Prospectus) shall not be included the Dealer's omnibus or house account,
if any, but shall be established as a separate shareholder account in which
purchase and redemption transactions are reported separately to the Underwriter.
5. DEALER'S UNDERTAKINGS. No person is authorized to make any
representation concerning shares or units of any Fund except those contained in
the then current Prospectus of the applicable Fund. The Dealer shall not sell
shares or units of any Fund pursuant to this Agreement unless the then current
Prospectus of the applicable Fund is furnished to the purchaser prior to the
offer and sale. The Dealer shall not use any supplemental sales literature of
any kind without prior written approval of the Underwriter unless it is
furnished by the Underwriter for such purpose. In offering and selling shares or
units of any Fund, the Dealer will rely solely on the representations contained
in the then current Prospectus of the applicable Fund. With respect to any Fund
offering multiple classes of shares, the Dealer shall disclose to prospective
investors the existence of all available classes of such Fund and shall
determine the suitability of each available class as an investment for each such
prospective investor. Notwithstanding Paragraph 8 of this Agreement, the Dealer
agrees to indemnify and to hold harmless the Funds and/or the Underwriter from
and against any and all claims, liability, expense or loss in any way arising
out of or in any way connected with (i) any violation of this Paragraph 5, (ii)
any account established by the Dealer, or for which the Dealer is broker-dealer
of record, with a "transfer on death", "payable on death" or other similar
restriction or (iii) arising out of or in any way connected with the Dealer's
willful, reckless or negligent violation of any law, regulation, contract or
other arrangement; provided that the notice provisions set forth in Paragraph 9
with respect to the Underwriter shall apply equally under this Agreement with
respect to the Dealer.
6. REPRESENTATIONS AND AGREEMENTS OF THE DEALER. By accepting this
Agreement, the Dealer represents that it: (i) is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended; (ii) is qualified to act
as a dealer in each jurisdiction in which it will offer shares of any Fund;
(iii) is a member in good standing of the National Association of Securities
Dealers, Inc.; and (iv) will maintain such registrations, qualifications and
memberships throughout the term of this Agreement. The Dealer shall comply with
all applicable federal laws, the laws of each jurisdiction in which it will
offer shares of any Fund, and the rules and regulations of the National
Association of Securities Dealers, Inc. The Dealer shall not be entitled to any
compensation during any period in which it has been suspended or expelled from
membership in the National Association of Securities Dealers, Inc.
7. DEALER'S EMPLOYEES. By accepting this Agreement, the Dealer assumes full
responsibility for thorough and prior training of its representatives concerning
the selling methods to be used in connection with the offer and sale of shares
of the Fund, giving special emphasis to the principles of full and fair
disclosure to prospective investors.
8. INDEMNIFICATION. Except as otherwise provided in this Agreement, the
Underwriter hereby agrees to indemnify and to hold harmless the Dealer and each
person, if any, who controls the Dealer within the meaning of Section 15 of the
Securities Act of 1933 (the "Act") and their respective successors and assigns
(hereinafter in this paragraph separately and collectively referred to as the
"Defendants") from and against any and all losses, claims, demands or
liabilities, joint or several, to which the Defendants may become subject under
the Act, at common law or otherwise (including any legal or other expense
reasonably incurred in connection therewith), insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of a material fact contained in the then current
Prospectuses (and/or Statements of Additional Information) of the Funds or arise
out of or are based upon the omission or alleged omission to state therein a
material fact that is required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that this indemnity agreement is subject to the
condition that notice be given as provided in paragraph 9.
9. NOTICE. Upon the presentation in writing of any claim or the
commencement of any suit against any Defendant in respect of which
indemnification may be sought from the Underwriter on account of its agreement
contained in the preceding sentence, such Defendant shall with reasonable
promptness give notice in writing of such suit to the Underwriter, but failure
so to give such notice shall not relieve the Underwriter from any liability that
it may have to the Defendants otherwise than on account of said indemnity
agreement. The Underwriter shall be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any such claim or
suit, but if the Underwriter elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Defendants who are
parties to such suit or against whom such claim is presented. If the Underwriter
elects to assume the defense and retain such counsel as herein provided, such
Defendant shall bear the fees and expenses subsequently incurred of any
additional counsel retained by them. The Underwriter agrees to notify the Dealer
promptly, as soon as it has knowledge thereof, of the commencement of any
litigation or proceedings against the Underwriter or any of the Funds or any of
their directors or officers, in connection with the offer or sale of shares of
the Funds' common stock to the public. The Underwriter's obligation under this
paragraph shall survive the termination of this Agreement.
10. ASSIGNMENT. The Underwriter may assign this Agreement to an affiliate
upon notice to the Dealer. This Agreement may not be assigned by the Dealer.
11. TERMINATION. Either party may terminate this Agreement at any time upon
giving written notice to the other party hereto. This Agreement shall terminate
automatically upon an "assignment" as defined in the Investment Company Act of
1940.
12. WAIVER. No failure, neglect or forbearance on the part of the
Underwriter to require strict performance of this Agreement shall be construed
as a waiver of the rights or remedies of the Underwriter hereunder.
13. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Minnesota without reference to the choice of laws or
conflicts principles of such state.
14. SUSPENDING SALES, AMENDING OR CANCELING THIS AGREEMENT. The Underwriter
may, at any time, without notice, suspend sales or withdraw any offering of
shares entirely. The Underwriter reserves the right to amend or cancel this
Agreement upon notice to you. The Dealer agrees that any order to purchase
shares of Funds placed after notice of any amendment to this Agreement has been
sent to the Dealer shall constitute the Dealer's agreement to any such
amendment.
DEALER:
_____________________________ __________________________
(Name) (NSCC Clearing Number)
_____________________________ __________________________
(Tax Identification Number) (NSCC Executing Broker Symbol)
_____________________________ __________________________
(Street Address) (Telephone Number)
_____________________________
(City) (State) (Zip)
Date of offer:__________________, 19___
By________________________________________________
(Signature)
Please Print Name_________________________________
Its_______________________________________________
(Title)
VOYAGEUR FUND DISTRIBUTORS, INC.
By:_____________________________
Name: Frank C. Tonnemaker
Title : President
SCHEDULE A
<TABLE>
<CAPTION>
MONEY MARKET SHARES
A. For money market shares sold by a dealer participating in the Voyageur Cash Advantage Program*:
Average Annual
Fund Aggregate Balance Annual Fee
---- ----------------- ----------
<S> <C> <C>
Voyageur Cash Trust Series $0 - $5 million.............. .40%
Voyageur Minnesota Municipal Cash Trust over $5 million - $10 million .45%
over $10 million............. .50%
Voyageur California Municipal Cash Trust not applicable............... .25%
Voyageur Florida Municipal Cash Trust not applicable............... .25%
B. For money market shares sold by a dealer not participating in the Voyageur Cash Advantage Program*:
Average Annual
Fund Aggregate Balance Annual Fee
---- ----------------- -----------
Voyageur Cash Trust Series not applicable............... .30%
Voyageur Minnesota Cash Trust Series not applicable .............. .25%
Voyageur California Cash Trust Series not applicable .............. .25%
Voyageur Florida Cash Trust Series not applicable............... .25%
</TABLE>
* The Voyageur Cash Advantage Program permits broker/dealers to use the Voyageur
Cash Trust Series of Money Market Funds and additional selected money market
funds as a "proprietary" money market fund family. In order to participate in
the Program, broker/dealers must communicate purchase and sell orders to
Voyageur through electronic or telephonic media, must maintain a single omnibus
account for each applicable Cash Trust Series and must perform all necessary
subaccounting and record keeping for individual client accounts.
FORM OF VOYAGEUR
BANK SALES AGREEMENT
THIS AGREEMENT, made this ________ day of __________, 1995, by and between
Voyageur Fund Distributors, Inc. ("Voyageur"), having its principal office at 90
South Seventh Street, Suite 4300, Minneapolis, Minnesota 55402, and
_______________________ (the "Bank"), having its principal office at
_______________________________________________________________________________.
WHEREAS, Voyageur is engaged in certain distribution and marketing
activities for certain registered investment companies including open-end
investment companies and unit investment trusts (the "Funds"); and
WHEREAS, the parties hereto desire that the Bank be enabled to purchase
shares or units of the Funds' securities solely upon the order of, and for the
account of, customers of the Bank, as agent for such customers;
NOW, THEREFORE, the Bank hereby offers to purchase shares or units of the
Funds' securities and to render certain shareholder services, subject to the
following terms and conditions.
1. CUSTOMERS. The customers referred to in this Agreement are the Bank's
customers and not customers of Voyageur. Voyageur shall execute
transactions for the Bank's customers only upon the Bank's authorization,
it being understood in all cases that (a) the Bank is at all times acting
as the agent of the customer and not of the funds or Voyageur; (b) the
transactions are without recourse against the Bank by the customer; (c) as
between the Bank and the customer, the customer will have full beneficial
ownership of the securities; (d) each transaction is initiated solely upon
the order of the customer without any investment discretion by the Bank;
and (e) each transaction is for the account of the customer and not for the
Bank's account. It is understood and agreed that whether securities are
registered in the purchaser's name, in the Bank's name, or in the name of
the Bank's nominee, the customer will have full beneficial ownership of the
securities. The Bank agrees that it will not withhold placing orders
received from its customers so as to profit itself as a result of such
withholding, and the Bank will place orders for purchases and redemptions
promptly upon receipt from its clients.
2. ACCEPTANCE OF SUBSCRIPTIONS. Purchases made by the Bank on behalf of its
customers will be accepted only at the price, in the amounts, and on the
terms which are set forth in the then current Prospectus (and/or Statement
of Additional Information) of the respective Fund.
3. BANK DISCOUNT AND OTHER COMPENSATION. The Bank shall receive, for each
purchase of shares or units of any of the Funds for customers of the Bank,
as agent for such customers, the applicable Dealer Discount or other
compensation as set forth in the relevant Prospectus (and on Schedule A
hereto with respect to sales of money market funds). Additionally, with
respect to certain of the Funds, the Bank may be entitled to receive
additional compensation upon such terms and conditions and in such amounts
as set forth in the Prospectus providing to Fund shareholders certain
personal and account maintenance services (including, but not limited to,
responding to shareholder inquiries and providing information on their
investments) not otherwise required to be provided by the applicable Fund's
investment adviser or transfer agent ("Service Fees") or (in addition to
the aforementioned Dealer Discount) for sales of shares or units of the
applicable Funds' securities ("Distribution Fee"). Schedule A may be
amended in whole or in part without notice from time to time by Voyageur.
4. ORDERS. Orders to purchase shares or units of the Funds shall be placed as
described in the then current Prospectus (and/or Statement of Additional
Information) of the respective Fund and as instructed from time to time by
Voyageur. Orders shall be placed promptly upon receipt, and there shall be
no postponement of orders received so as to profit the Bank by reason of
such postponement. Each order shall be confirmed by the Bank in writing on
the day such order was placed.
5. GENERAL. In purchasing shares or units of the Funds for customers of the
Bank, as agent for such customers, the Bank shall act as an independent
contractor and not as an agent of Voyageur or the Funds. The Bank
understands and agrees that each shareholder account which includes shares
or units of any Fund subject to the Fund's contingent deferred sales charge
(as described in the applicable Fund's current Prospectus and Statement of
Additional Information) shall not be included in the Bank's omnibus or
house account, if any, but shall be established as a separate shareholder
account in which purchase and redemption transactions are reported
separately to Voyageur.
6. BANK'S UNDERTAKINGS. No person is authorized to make any representation
concerning shares or units of the Funds except those contained in the then
current Prospectus (and/or Statement of Additional Information) of the
respective Fund; provided that all prospective purchasers of Fund shares or
units, prior to the Bank's submission of an order for Fund shares or units
on behalf of such person, shall be informed that an investment in Fund
shares or units is not an obligation of the Bank, and such an investment is
not protected or covered by any deposit insurance. The Bank shall not
purchase shares or units of the Funds for customers of the Bank, as agent
for such customers, pursuant to this Agreement unless the then current
Prospectus of the respective Fund is furnished to the customer prior to the
offer and sale. The Bank shall not use any supplemental sales literature of
any kind without prior written approval of Voyageur unless it is furnished
by Voyageur for such purpose. In purchasing shares or units of the Funds
for customers of the Bank, as agent for such customers, the Bank will rely
solely on the representations contained in the then current Prospectus
(and/or Statement of Additional Information) of the respective Fund. With
respect to any Fund offering multiple classes of shares, the Bank shall
disclose to prospective investors the existence of all available classes of
such Fund and shall determine the suitability of each available class as an
investment for each such prospective investor.
7. REPRESENTATIONS AND AGREEMENTS OF THE BANK. By accepting this Agreement,
the Bank (i) represents that it is a national bank or State bank or trust
company (whether or not a member of the Federal Reserve System) or other
financial institution or private banker (all as defined in Chapter 3 of
Title 12 of United States Code) and (ii) agrees that it will comply with
all applicable federal laws, rules and regulations including, but not
limited to, the Glass- Steagall Act (codified at 12 U.S.C.Sec. 24(7), 78,
377 and 378) and all laws, rules and regulations of any jurisdiction
applicable to the Bank's provision of services hereunder. The Bank shall
promptly answer all written complaints and other correspondence relating to
accounts or forward such complaints to Voyageur.
8. BANK'S EMPLOYEES. By accepting this Agreement, the Bank assumes full
responsibility for thorough and prior training of its representatives
concerning the methods to be used in connection with purchasing shares or
units of the Funds for customers of the Bank, as agent for such customers,
giving special emphasis to the principles of full and fair disclosure to
prospective investors.
9. BANK'S INDEMNIFICATION. The Bank hereby agrees to indemnify and to hold
harmless the Funds and Voyageur and each person, if any, who controls the
Funds or Voyageur within the meaning of Section 15 of the Securities Act of
1933 (the "Act"), from and against any and all losses, claims, demands or
liabilities to which the Funds or Voyageur may become subject under the
Act, or otherwise, insofar as such losses, claims, demands or liabilities
(or actions in respect thereof) arise out of or are based upon any
unauthorized use of sales materials by the Bank or its representatives or
upon alleged misrepresentations or omission to state material facts in
connection with statements made by the Bank or its representatives orally
or by other means; and the Bank will reimburse the Funds and Voyageur for
any legal or other expenses reasonably incurred in connection with the
investigation or defense or any such action or claim. Voyageur shall, after
receiving the first summons or other legal process disclosing the nature of
the action being served upon Voyageur or the Funds, in any proceeding in
respect of which indemnity may be sought by the Funds or Voyageur
hereunder, notify the Bank in writing of the commencement thereof within a
reasonable time. In case any such litigation be brought against the Funds
or Voyageur, Voyageur shall notify the Bank of the commencement thereof and
the Bank shall be entitled to participate in (and to the extent the Bank
shall wish, to direct) the defense thereof at the Bank's expense, but such
defense shall be conducted by counsel of good-standing satisfactory to the
Funds and Voyageur. If the Bank shall fail to provide such defense,
Voyageur or the Funds may defend such action at the Bank's cost and
expense. The Bank's obligation under this paragraph shall survive the
termination of this Agreement.
10. ASSIGNMENT. This Agreement may not be assigned by the Bank without consent
of Voyageur.
11. TERMINATION. Either party may terminate this Agreement at any time upon
giving written notice to the other party hereto.
12. WAIVER. No failure, neglect or forbearance on the part of Voyageur to
require strict performance of this Agreement shall be construed as a waiver
of the rights or remedies of Voyageur hereunder.
13. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Minnesota without reference to its choice of laws
principles.
14. SUSPENDING SALES, amending or canceling this Agreement. The Underwriter
may, at any time, without notice, suspend sales or withdraw any offering of
shares or units entirely. The Underwriter reserves the right to amend or
cancel this Agreement upon notice to you. The Bank agrees that any order to
purchase shares or units of funds placed after notice of any amendment to
this Agreement has been sent to the Bank shall constitute the Bank's
agreement to any such amendment.
BANK:
________________________ __________________________
(Name) (NSCC Clearing Number)
________________________ __________________________
(Tax Identification Number) (NSCC Executing Broker Symbol)
________________________ __________________________
(Street Address) (Telephone Number)
________________________
(City) (State) (Zip)
Date of offer: _____________, 19___
By ___________________________________________
(Signature)
Please Print Name ____________________________
Its __________________________________________
(Title)
Accepted by
VOYAGEUR FUND DISTRIBUTORS, INC.
Date of acceptance: _____________, 19__
By ___________________________________________
(Signature)
Its __________________________________________
(Title)
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.
/s/Theodore E. Jessen By /s/John G. Taft
- ----------------------- ---------------------------
Secretary Its /s/President
-------------------------
ATTEST: NORWEST BANK MINNESOTA, N.A.
Holly J. Kirschman 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
EXHIBIT B
TO
CUSTODIAN AGREEMENT
BETWEEN
VOYAGEUR MUTUAL FUNDS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
(as amended through AUGUST 17,1995)
COMPENSATION SCHEDULE
NORWEST BANK MINNESOTA
CUSTODY FEE SCHEDULE
VOYAGEUR MUTUAL FUNDS
DOMESTIC FEE SCHEDULE
ISSUE CHARGE - ANNUALLY
All Issue Types.............................................$17.50
ASSET CHARGES - ANNUALLY
Bonds at Par Value.......................................$0.000065
Stocks at Market Value...................................$0.000065
TRANSACTION CHARGES
DTC Buy/Sell/Maturity.......................................$10.00
Fed Buy/Sell/Maturity.......................................$12.50
PTC Buy/Sell/Maturity.......................................$20.00
Principal Payments..........................................$10.00
Interest Payments........................................no charge
Cash Movements...............................................$3.00
Asset Transfers.............................................$15.00
Corporate Actions
(calls/reorg/split/tender)................................$23.00
Non-Trade Wires.............................................$10.00
Norwest ACCESS........................$10.00 per month/per account
EXTRAORDINARY SERVICES
For any service other than those covered by the aforementioned, a special charge
may be made according to the service provided, time required and responsibility
involved. Such services include, but are not limited to excessive administrative
time, unusual reports, certifications, audits, etc.
ADDITIONAL CHARGES
Reimbursement may be requested for out-of-pocket expenses such as postage,
insurance, shipping, telephone, supplies, etc.
This fee schedule shall remain effective subject to periodic review by all
concerned parties.
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made and entered into this 27th day of October 1994, by
and between Voyageur Mutual Funds, Inc., a Minnesota corporation (the
"Company"), on behalf of each Fund of the Company represented by a series of
shares of common stock of the Company that adopts this Agreement (each, a "Fund"
and, collectively, the "Funds") (the Funds, together with the date each Fund
adopts this Agreement, are set forth in EXHIBIT A hereto, which shall be updated
from time to time to reflect additions, deletions or other changes thereto), and
Voyageur Fund Managers, Inc., a Minnesota corporation ("Voyageur").
1. DIVIDEND DISBURSING, ADMINISTRATIVE, ACCOUNTING AND TRANSFER AGENCY
SERVICES; COMPLIANCE SERVICES.
(a) The Company on behalf of each Fund hereby engages Voyageur, and
Voyageur hereby agrees, to provide to each Fund all dividend disbursing,
administrative and accounting services required by each Fund, including, without
limitation, the following:
(i) The calculation of net asset value per share at such times and in
such manner as specified in each Fund's current Prospectus and Statement of
Additional Information and at such other times as the parties hereto may
from time to time agree upon;
(ii) Upon the receipt of funds for the purchase of Fund shares or the
receipt of redemption requests with respect to Fund shares outstanding, the
calculation of the number of shares to be purchased or redeemed,
respectively;
(iii) Upon the Fund's distribution of dividends, (A) the calculation
of the amount of such dividends to be received per Fund share, (B) the
calculation of the number of additional Fund shares to be received by each
Fund shareholder, other than any shareholder who has elected to receive
such dividends in cash and (C) the mailing of payments with respect to such
dividends to shareholders who have elected to receive such dividends in
cash;
(iv) The provision of transfer agency services as described below:
(1) Voyageur shall make original issues of shares of each Fund in
accordance with each Fund's current Prospectus and Statement of
Additional Information and with instructions from the Company.
(2) Prior to the daily determination of net asset value of each
Fund in accordance with the each Fund's current Prospectus and
Statement of Additional Information, Voyageur shall process all
purchase orders received since the last determination of each Fund's
net asset value.
(3) Transfers of shares shall be registered and new Fund share
certificates shall be issued by Voyageur upon surrender of properly
endorsed outstanding Fund share certificates with all necessary
signature guarantees and satisfactory evidence of compliance with all
applicable laws relating to the payment or collection of taxes.
(4) Voyageur may issue new Fund share certificates in place of
Fund share certificates represented to have been lost, destroyed or
stolen, upon receiving indemnity satisfactory to Voyageur and may
issue new Fund share certificates in exchange for, and upon surrender
of, mutilated Fund share certificates.
(5) Voyageur will maintain stock registry records in the usual
form in which it will note the issuance, transfer and redemption of
Fund shares and the issuance and transfer of Fund share certificates,
and is also authorized to maintain an account in which it will record
the Fund shares and fractions issued and outstanding from time to time
for which issuance of Fund share certificates is deferred.
(6) Voyageur will, in addition to the duties and functions
above-mentioned, perform the usual duties and functions of a stock
transfer agent for a registered investment company.
(v) The creation and maintenance of such records relating to the
business of each Fund as each Fund may from time to time reasonably
request;
(vi) The preparation of tax forms, reports, notices, proxy statements,
proxies and other Fund shareholder communications, and the mailing thereof
to Fund shareholders; and
(vii) The provision of such other dividend disbursing, administrative
and accounting services as the parties hereto may from time to time agree
upon.
(b) The Company also hereby engages Voyageur to perform, and Voyageur
hereby agrees to perform, such regulatory reporting and compliance related
services and tasks for the Company or any Fund as the Company may reasonably
request. Without limiting the generality of the foregoing, Voyageur shall:
(i) Prepare or assist in the preparation of prospectuses, statements
of additional information and registration statements for the Funds, and
assure the timely filing of all required amendments thereto.
(ii) Prepare such reports, applications and documents as may be
necessary to register the Funds' shares with state securities authorities;
monitor sales of Fund shares for compliance with state securities laws; and
file with the appropriate state securities authorities the registration
statement for each Fund and all amendments thereto, required reports
regarding sales and redemptions of Fund shares and such other reports as
may be necessary to register each Fund and its shares with state securities
authorities and keep such registrations effective.
(iii) Develop and prepare communications to shareholders, including
each Fund's annual and semi-annual report to shareholders.
(iv) Obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Funds in
accordance with the requirements of Rules 17g-1 and 17d-1(7) under the
Investment Company Act of 1940 as such bonds and policies are approved by
the Funds' Board of Directors.
(v) Prepare and file with the Securities and Exchange Commission each
Fund's semi-annual reports on Form N-SAR and all required notices pursuant
to Rule 24f-2 under the Investment Company Act of 1940.
(vi) Prepare materials (including, but not limited to, agendas,
proposed resolutions and supporting materials) in connection with meetings
of the Company's Board of Directors;
(vii) Prepare or assist in the preparation of proxy and other
materials in connection with meetings of the shareholders of the Company or
any Fund;
(viii) Prepare and file tax returns for the Funds;
(ix) Concur with Fund counsel in connection with the development and
preparation of any of the foregoing; and
(x) Perform such other compliance related services and tasks upon
which the parties hereto may from time to time agree.
(c) Voyageur hereby acknowledges that all records necessary in the
operation of the Fund are the property of the Company, and in the event that a
transfer of any of the responsibilities set forth herein to someone other than
Voyageur should ever occur, Voyageur will promptly, and at its own cost, take
all steps necessary to segregate such records and deliver them to the Company.
2. COMPENSATION
(a) As compensation for the dividend disbursing, administrative, accounting
and compliance services to be provided by Voyageur hereunder, each Fund shall
pay to Voyageur a monthly fee as set forth in EXHIBIT A hereto, which fee shall
be paid to Voyageur not later than the fifth business day following the end of
each month in which said services were rendered. For purposes of calculating
each Fund's average daily net assets, as such term is used in this Agreement,
the Fund's net assets shall equal its total assets minus (i) its total
liabilities and (ii) its net orders receivable from dealers.
(b) In addition to the compensation provided for in Section 2(a) hereof and
as set forth in EXHIBIT A hereto, each Fund shall reimburse Voyageur for all
out-of-pocket expenses incurred by Voyageur in connection with its provision of
services hereunder, including, without limitation, postage, stationery and
mailing expenses. Said reimbursement shall be paid to Voyageur not later than
the fifth business day following the end of each month in which said expenses
were incurred.
(c) For purposes of calculating the compensation to be paid to Voyageur
pursuant to Section 2(a) above, "house accounts" with brokerage firms which hold
shares in a Fund will be treated as separate accounts for fee calculation
purposes (based upon the number of shareholder accounts within the "house
account"), where Voyageur's work in connection with servicing such house
accounts is substantially the same as if such accounts did not exist, and
Voyageur had to directly service the shareholder accounts underlying such house
accounts.
3. FREEDOM TO DEAL WITH THIRD PARTIES.
Voyageur shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
4. EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF AGREEMENT.
(a) The effective date of this Agreement with respect to each Fund shall be
the date set forth on EXHIBIT A hereto.
(b) Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect with respect to each Fund for a period more than two years
from the date of its execution but only as long as such continuance is
specifically approved at least annually by (i) the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
applicable Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons", as
defined in the Investment Company Act of 1940 (as amended, the "Act"), of the
Adviser or of the Company cast in person at a meeting called for the purpose of
voting on such approval.
(c) This Agreement may be terminated with respect to any Fund at any time,
without the payment of any penalty, by the Board of Directors of the Company or
by the vote of a majority of the outstanding voting securities of such Fund, or
by Voyageur, upon 60 days' written notice to the other party.
(d) This agreement shall terminate automatically in the event of its
"assignment" (as defined in the Act) unless such assignment is approved in
advance by the Board of Directors, including a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of the Adviser or of the Company, and, if and to the extent
required by the Act, the approval of the shareholders of each Fund.
(e) No amendment to this Agreement shall be effective with respect to any
Fund until approved by the vote of a majority of the directors of the Company
who are not parties to this Agreement or "interested persons" (as defined in the
Act) of the Adviser or of the Company cast in person at a meeting called for the
purpose of voting on such approval and, if and to the extent required by the
Act, a majority of the outstanding voting securities of the applicable Fund.
5. NOTICES.
Any notice under this Agreement shall be in writing, addressed, delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate in writing for receipt of such notice.
6. INTERPRETATION; GOVERNING LAW.
This Agreement shall be subject to and interpreted in accordance with all
applicable provisions of law including, but not limited to, the Act and the
rules and regulations promulgated thereunder. To the extent that the provisions
herein contained conflict with any such applicable provisions of law, the latter
shall control. The laws of the State of Minnesota shall otherwise govern the
construction, validity and effect of this Agreement.
IN WITNESS WHEREOF, the Company and Voyageur have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
VOYAGEUR MUTUAL FUNDS, INC.
By /s/John G. Taft
------------------------
Its /s/President
-----------------------
VOYAGEUR FUND MANAGERS, INC.
By /s/John G. Taft
------------------------
Its /s/President
-----------------------
EXHIBIT A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
VOYAGEUR FUND MANAGERS, INC.
AND
VOYAGEUR MUTUAL FUNDS, INC.
FUND EFFECTIVE DATE
---- --------------
Series B--Voyageur Iowa Tax Free Fund October 27, 1994
Series C--Voyageur Wisconsin Tax Free Fund October 27, 1994
Series E--Voyageur Idaho Tax Free Fund December 1, 1994
Series F--Voyageur Arizona Tax Free Fund March 1, 1995
Series G--Voyageur California Tax Free Fund March 1, 1995
Series H--Voyageur National Tax Free Fund March 1, 1995
COMPENSATION
SERIES B, SERIES C AND SERIES E
The sum of (i) $1.33 per shareholder account per month; (ii) $1,000 per month if
the Fund's average daily net assets do not exceed $50 million, $1,250 per month
if the Fund"s average daily net assets are greater than $50 million but do not
exceed $100 million, and $1,500 per month if the Fund's average daily net assets
are greater than $100 million; and (iii) 0.11% per annum of the first $20
million of the Fund's average daily net assets, .06% per annum of the next $20
million of the Fund's average daily net assets, .035% per annum of the next $60
million of the Fund's average daily net assets, .03% per annum of the next $400
million of the Fund's average daily net assets, and .02% per annum of the Fund's
average daily net assets in excess of $500 million. **
SERIES F, SERIES G AND SERIES H
The sum of (i) $1.33 per shareholder account per month; (ii) $1,000 per month if
the Fund's average daily net assets do not exceed $50 million, $1,250 per month
if the Fund"s average daily net assets are greater than $50 million but do not
exceed $100 million, and $1,500 per month if the Fund's average daily net assets
are greater than $100 million; and (iii) 0.11% per annum of the first $50
million of the Fund's average daily net assets, .06% per annum of the next $100
million of the Fund's average daily net assets, .035% per annum of the next $250
million of the Fund's average daily net assets, .03% per annum of the next $300
million of the Fund's average daily net assets, and .02% per annum of the Fund's
average daily net assets in excess of $700 million. **
** Voyageur shall reimburse each Fund, in an amount not in excess of the
advisory and management fee payable under the Investment Advisory Agreement and
the administrative services fee payable hereunder, if, and to the extent that,
the aggregate operating expenses of the Fund (including the advisory and
management fee, the administrative services fee and deferred organizational
costs, but excluding Rule 12b-1 fees, interest expense, taxes, brokerage fees
and commissions and extraordinary charges and expenses) are in excess of 1.00%
of the average daily net assets of the Fund on an annual basis (the "Expense
Limit"). Voyageur shall first reimburse the Fund the advisory and management fee
payable and then, to the extent necessary to reduce the Fund's expenses to the
Expense Limit, shall reimburse the administrative services fee payable
hereunder.
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Voyageur Tax Free Funds, Inc.
Voyageur Intermediate Tax Free Funds, Inc.
Voyageur Insured Funds, Inc.
Voyageur Investment Trust
Voyageur Investment Trust II
Voyageur Mutual Funds, Inc.
Voyageur Mutual Funds II, Inc.
We consent to the use of our report incorporated herein by reference and to the
references to our Firm under the headings "FINANCIAL HIGHLIGHTS" in Part A and
"ADDITIONAL INFORMATION - Custodian; Counsel; Independent Auditors" in Part B of
the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 26, 1996
Member Firm of
Klynveld Peat Marwick Goerdeler
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:
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
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 16
COMPUTATION OF PERFORMANCE QUOTATIONS
VOYAGEUR MUTUAL FUNDS, INC.
Average annual total return figures for the current one year period, five year
period, and life of fund ending December 31, 1995, are calculated as follows:
1/n
Formula: P(1+T) = ERV or T = ERV/P -1
Where: P = hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
Class A
One year period
(includes 4.75% (3.75% for
Idaho Tax Free) sales charge):
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Five year period:
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Life of Class A
(since March 2, 1995, March 3, 1995 and January 4, 1995):
ERV = 1,078.86 1,066.50 1,130.81
n = 1 1 1
T = 7.89 6.65 13.08
P = 1,000 1,000 1,000
</TABLE>
<TABLE>
<CAPTION>
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
One year period
(includes 4.75% (3.75% for
Iowa and Wisconsin) sales charge):
ERV = N/A 1,162.68 1,133.26
n = N/A 1 1
T = N/A 16.27 13.33
P = N/A 1,000 1,000
Five year period:
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Life of Class A
(since September 8, 1995, September 1, 1993 and September 1, 1993):
ERV = 1,024.60 1,065.27 1,060.49
n = 1 2.3342 2.3342
T = 2.46 2.75 2.55
P = 1,000 1,000 1,000
</TABLE>
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
Class B
One year period
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Five year period:
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Life of Class B
(since June 29, 1995, August 23, 1995 and March 16, 1995):
ERV = 1,077.41 1,095.17 1,098.60
n = 1 1 1
T = 7.74 9.52 9.86
P = 1,000 1,000 1,000
</TABLE>
<TABLE>
<CAPTION>
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
One year period
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Five year period:
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Life of Class B
(since September 15, 1995, March 24, 1995 and April 22, 1995):
ERV = 1,063.93 1,106.21 1,070.77
n = 1 1 1
T = 6.39 10.62 7.08
P = 1,000 1,000 1,000
</TABLE>
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
Class C
One year period
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Five year period:
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Life of Class C
(since May 13, 1995, N/A and January 11, 1995):
ERV = 1,094.28 N/A 1,158.10
n = 1 N/A 1
T = 9.43 N/A 15.81
P = 1,000 N/A 1,000
</TABLE>
<TABLE>
<CAPTION>
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
Class C
One year period
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Five year period:
ERV = N/A N/A N/A
n = N/A N/A N/A
T = N/A N/A N/A
P = N/A N/A N/A
Life of Class C
(since September 12, 1995, January 14, 1995 and March 28, 1995):
ERV = 1,073.71 1,196.56 1,080.59
n = 1 1 1
T = 7.37 19.66 8.06
P = 1,000 1,000 1,000
</TABLE>
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
VOYAGEUR MUTUAL FUNDS, INC.
Cumulative total return figures for the periods ending December 31, 1995 are
calculated as follows:
Formula: CTR = ERV - P * 100
------
P
Where: CTR = cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
the period
P = initial payment of $1,000
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
Class A
(since March 2, 1995, March 3, 1995 and January 4, 1995)
P = 1,000 1,000 1,000
ERV = 1,078.86 1,066.50 1,130.81
CTR = 7.89 6.65 13.08
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
(since September 8, 1995, September 1, 1993 and September 1, 1993)
P = 1,000 1,000 1,000
ERV = 1,024.60 1,065.27 1,060.49
CTR = 2.46 6.53 6.05
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
Class B
(since June 29, 1995, August 23, 1995 and March 16, 1995)
P = 1,000 1,000 1,000
ERV = 1,077.41 1,095.17 1,098.60
CTR = 7.74 9.52 9.86
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
(since September 15, 1995, March 24, 1995 and April 22, 1995)
P = 1,000 1,000 1,000
ERV = 1,063.93 1,106.21 1,070.77
CTR = 6.39 10.62 7.08
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
Class C
(since May 13, 1995, N/A and January 11, 1995))
P = 1,000 1,000 1,000
ERV = 1,094.28 1,158.10
CTR = 9.43 15.81
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
(since September 12, 1995, January 14, 1995 and March 28, 1995)
P = 1,000 1,000 1,000
ERV = 1,073.71 1,196.56 1,080.59
CTR = 7.37 19.66 8.06
</TABLE>
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
VOYAGEUR MUTUAL FUNDS, INC.
The 30 day SEC yield for the period ending December 31, 1995 is calculated as
follows:
Formula: 2(((a-b)+1)6 -1)
---
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
<S> <C> <C> <C> <C>
Class A
a = 27,667.20 5,155.43 59,850
b = 2,026.20 (97.32) (667.99)
c = 537,314.5113 100,576.6695 1,188,325.2028
d = 11.29 11.17 11.45
SEC Yield = 5.13 5.68 5.40
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
a = 6,160 190,500.00 120,750.00
b = 594.21 2,790.07 15,947.45
c = 113,678.1669 4,304,122.289 2,694,205.3556
d = 11.00 10.21 10.16
SEC Yield = 5.40 5.18 4.64
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
Class B
a = 7,518.48 603.68 8,325.00
b = 1,191.55 17.61 802.11
c = 146,003.3944 11,689.031 165,611.8386
d = 10.74 10.65 11.01
SEC Yield = 4.89 5.72 5.00
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
a = 674.00 3,680.00 3,290.00
b = 122.16 499.90 806.27
c = 12,310.6409 83,220.3977 73,473.994
d = 10.48 9.83 9.77
SEC Yield = 5.19 4.71 4.19
ARIZONA CALIFORNIA IDAHO
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
Class C
a = 105.25 N/A 3,595.00
b = 1.83 N/A 511.68
c = 2,504.506 N/A 71,560.5932
d = 10.76 N/A 11.02
SEC Yield = 4.65 N/A 4.74
NATIONAL IOWA WISCONSIN
TAX FREE FUND TAX FREE FUND TAX FREE FUND
------------- ------------- -------------
a = 205.60 2,025.00 269.00
b = 49.16 370.66 80.76
c = 3,757.1099 45,791.563 5,992.0725
d = 10.48 9.83 9.79
SEC Yield = 4.82 4.45 3.88
</TABLE>
VOYAGEUR FUNDS, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR MUTUAL FUNDS IV, INC.
POWER OF ATTORNEY
The undersigned, duly elected directors, trustees and/or officers of
Voyageur Funds, Inc., Voyageur Tax Free Funds, Inc., Voyageur Insured Funds,
Inc., Voyageur Intermediate Tax Free Funds, Inc., Voyageur Investment Trust,
Voyageur Investment Trust II, Voyageur Mutual Funds, Inc., Voyageur Mutual Funds
II, Inc., Voyageur Mutual Funds III, Inc. and Voyageur Mutual Funds IV, Inc.
(collectively, the "Funds") appoint John G. Taft, Kenneth R. Larsen, Theodore E.
Jessen and Thomas J. Abood, or any one of them, on their behalf as directors,
trustees and/or officers of the Funds, as attorney-in-fact for the purpose of
signing their names and filing with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary, notifications,
registration statements and other filings, and any and all amendments to said
notifications, registration statements and other filings, and all exhibits
thereto and other documents, for the purpose of registering the Funds under the
Investment Company Act of 1940, registering shares of common stock of the Funds
under the Securities Act of 1933 and filing all other documents as may be
required by any federal or state securities commission or otherwise.
REGISTRANT FILE NO.
Voyageur Funds, Inc. 33-16270
Voyageur Tax Free Funds, Inc. 2-87910
Voyageur Insured Funds, Inc. 33-11235
Voyageur Intermediate Tax Free Funds, Inc. 2-99266
Voyageur Investment Trust 33-42827
REGISTRANT FILE NO.
Voyageur Investment Trust II 33-75112
Voyageur Mutual Funds, Inc. 33-63238
Voyageur Mutual Funds II, Inc. 33-11495
Voyageur Mutual Funds III, Inc. 2-95928
Voyageur Mutual Funds IV, Inc. 2-95930
/s/ John G. Taft
- ----------------------
John G. Taft
President of all Funds
(except Voyageur Mutual Funds II, Inc.)
/s/ Kenneth R. Larsen
- ----------------------
Kenneth R. Larsen
Treasurer (Principal Financial and
Accounting Officer of all Funds)
/s/ Andrew M. McCullagh, Jr.
- ----------------------------
Andrew M. McCullagh, Jr.
President of Voyageur Mutual Funds II, Inc.
/s/ Thomas F. Madison
- ----------------------
Thomas F. Madison
Director/Trustee of all Funds
/s/ Clarence G. Frame
- ----------------------
Clarence G. Frame
Director/Trustee of all Funds
/s/ James W. Nelson
- ----------------------
James W. Nelson
Director/Trustee of all Funds
/s/ Robert J. Odegard
- ----------------------
Robert J. Odegard
Director/Trustee of all Funds
/s/ Richard F. McNamara
- -----------------------
Richard F. McNamara
Director/Trustee of all Funds
Dated: January 24, 1995
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VAM INSTITUTIONAL FUNDS, INC.
Multiple Class Plan Pursuant to Rule 18f-3
Adopted as of December 1, 1995
I. PREAMBLE.
Each of the funds listed below (each a "Fund", and collectively the
"Funds"), is a separate series of one of the above-captioned registrants (each,
a "Company"). Each Fund has elected to rely on Rule 18f-3 under the Investment
Company Act of 1940, as amended (the "1940 Act") in offering multiple classes of
shares in such Fund:
<TABLE>
<CAPTION>
<S> <C>
Voyageur Minnesota Tax Free Fund Voyageur Washington Insured Tax Free Fund
Voyageur North Dakota Tax Free Fund Voyageur Florida Tax Free Fund
Voyageur Minnesota Limited Term Tax Free Fund Voyageur Florida Limited Term Tax Free Fund
Voyageur National Limited Term Tax Free Fund Voyageur Iowa Tax Free Fund
Voyageur Arizona Limited Term Tax Free Fund Voyageur Wisconsin Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund Voyageur Idaho Tax Free Fund
Voyageur California Limited Term Tax Free Fund Voyageur Arizona Tax Free Fund
Voyageur Minnesota Insured Fund Voyageur California Tax Free Fund
Voyageur Arizona Insured Tax Free Fund Voyageur National Tax Free Fund
Voyageur National Insured Tax Free Fund Voyageur Colorado Tax Free Fund
Voyageur Colorado Insured Tax Free Fund Voyageur Growth Stock Fund
Voyageur U.S. Government Securities Fund Voyageur International Equity Fund
Voyageur Florida Insured Tax Free Fund Voyageur Aggressive Growth Fund
Voyageur California Insured Tax Free Fund Voyageur Growth and Income Fund
Voyageur Kansas Tax Free Fund VAM Global Fixed Income Fund
Voyageur Missouri Insured Tax Free Fund VAM Short Duration Government Agency Fund
Voyageur New Mexico Tax Free Fund VAM Intermediate Duration Government Agency Fund
Voyageur Oregon Insured Tax Free Fund VAM Government Mortgage Fund
Voyageur Utah Tax Free Fund VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund VAM Intermediate Duration Municipal Fund
</TABLE>
This Plan sets forth the differences among classes of shares of the Funds,
including distribution arrangements, shareholder services, expense allocations,
conversion and exchange options, and voting rights.
II. ATTRIBUTES OF SHARE CLASSES.
The attributes of each existing class of the existing Funds with respect to
distribution arrangements, shareholder services, and conversion and exchange
options shall be as set forth in the following materials:
A. Prospectus and Statement of Additional Information of each respective
Fund dated March 1, 1995 (with respect to the
Funds which invest primarily in municipal bonds).
B. Prospectus and Statement of Additional Information of the VAM
Institutional Funds dated August 1, 1995.
C. Prospectus and Statement of Additional Information of each respective
Fund dated September 1, 1995 with respect to the Funds which invest primarily in
equity securities.
D. Prospectus and Statement of Additional Information of U.S. Government
Securities Fund dated November 1, 1995.
E. Plan of Distribution for each Company and Fund in the form reapproved by
the Board of Directors on April 21, 1995. Expenses of such existing classes of
the Funds shall continue to be allocated in the manner set forth in III below.
Each such existing class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement for shareholder
services and the distribution of shares and shall have separate voting rights on
any matter submitted to shareholders in which the interests of one class differ
from the interest of any other class, and shall have in all other respects the
same rights and obligations as each other class.
III. EXPENSE ALLOCATIONS.
Expenses of the existing classes of the existing Funds shall be allocated
as follows:
A. Distribution fees and service fees relating to the respective classes of
shares, as set forth in the materials referred to in II above, shall be borne
exclusively by the classes of shares to which they relate.
B. Except as set forth in A above, expenses of the Funds shall be borne at
the Fund level and shall not be allocated on a class basis.
Unless and until this Plan is amended to provide otherwise, the methodology
and procedures for calculating the net asset value of the respective classes of
shares of the Funds and the allocation of income and expenses among the
respective classes shall be as set forth in the "Multi-Class Accounting
Methodology" and "Report" dated October 4, 1993 rendered by KPMG Peat Marwick.
The foregoing allocations shall in all cases be made in a manner consistent
with each Company's private letter ruling from the Internal Revenue Service with
respect to multiple classes of shares.
IV. AMENDMENT OF PLAN; PERIODIC REVIEW.
A. NEW FUNDS AND NEW CLASSES. With respect to any new portfolio of a
Company created after the date of this Plan and any new class of shares of the
existing Funds created after the date of this Plan, the Board of
Directors/Trustees of such Company shall approve amendments to this Plan setting
forth the attributes of the classes of shares of such new portfolio or of such
new class of shares.
B. MATERIAL AMENDMENTS AND PERIODIC REVIEWS. The Board of
Directors/Trustees of each Company, including a majority of the independent
directors/trustees, shall periodically review this Plan for its continued
appropriateness and shall approve any material amendment of this Plan as it
relates to any class of any Fund covered by this Plan.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906236
<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> VOYAGEUR IOWA TAX FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 41,327,946
<INVESTMENTS-AT-VALUE> 42,987,966
<RECEIVABLES> 1,297,331
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 17,729
<TOTAL-ASSETS> 44,303,026
<PAYABLE-FOR-SECURITIES> 360,569
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 287,728
<TOTAL-LIABILITIES> 648,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,577,696
<SHARES-COMMON-STOCK> 4,439,109
<SHARES-COMMON-PRIOR> 3,779,718
<ACCUMULATED-NII-CURRENT> 5,656
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,588,643)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,660,020
<NET-ASSETS> 43,654,729
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,154,409
<OTHER-INCOME> 0
<EXPENSES-NET> 270,996
<NET-INVESTMENT-INCOME> 1,883,413
<REALIZED-GAINS-CURRENT> (210,045)
<APPREC-INCREASE-CURRENT> 5,476,857
<NET-CHANGE-FROM-OPS> 7,150,225
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,950,240
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,051,721
<NUMBER-OF-SHARES-REDEEMED> 530,160
<SHARES-REINVESTED> 137,830
<NET-CHANGE-IN-ASSETS> 11,281,895
<ACCUMULATED-NII-PRIOR> 69,633
<ACCUMULATED-GAINS-PRIOR> (1,378,598)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 193,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 413,849
<AVERAGE-NET-ASSETS> 38,713,007
<PER-SHARE-NAV-BEGIN> 8.56
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906236
<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> VOYAGEUR WISCONSIN TAX FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 25,707,189
<INVESTMENTS-AT-VALUE> 27,093,408
<RECEIVABLES> 455,085
<ASSETS-OTHER> 534
<OTHER-ITEMS-ASSETS> 8,063
<TOTAL-ASSETS> 27,557,090
<PAYABLE-FOR-SECURITIES> 142,085
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 168,519
<TOTAL-LIABILITIES> 310,604
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,549,841
<SHARES-COMMON-STOCK> 2,786,285
<SHARES-COMMON-PRIOR> 2,306,975
<ACCUMULATED-NII-CURRENT> 28,230
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (717,804)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,386,219
<NET-ASSETS> 27,246,486
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,445,610
<OTHER-INCOME> 0
<EXPENSES-NET> 199,550
<NET-INVESTMENT-INCOME> 1,246,060
<REALIZED-GAINS-CURRENT> (183,524)
<APPREC-INCREASE-CURRENT> 2,806,731
<NET-CHANGE-FROM-OPS> 3,869,267
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,252,501
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 713,411
<NUMBER-OF-SHARES-REDEEMED> 311,299
<SHARES-REINVESTED> 77,198
<NET-CHANGE-IN-ASSETS> 7,079,709
<ACCUMULATED-NII-PRIOR> 32,899
<ACCUMULATED-GAINS-PRIOR> (534,280)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 123,548
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270,637
<AVERAGE-NET-ASSETS> 24,729,830
<PER-SHARE-NAV-BEGIN> 8.74
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 1.04
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906236
<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> VOYAGEUR IDAHO TAX FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 17,946,075
<INVESTMENTS-AT-VALUE> 18,487,982
<RECEIVABLES> 522,963
<ASSETS-OTHER> 403
<OTHER-ITEMS-ASSETS> 7,334
<TOTAL-ASSETS> 19,018,682
<PAYABLE-FOR-SECURITIES> 2,494,731
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,907
<TOTAL-LIABILITIES> 2,711,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,764,731
<SHARES-COMMON-STOCK> 1,480,027
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 406
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 541,907
<NET-ASSETS> 16,307,044
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 422,021
<OTHER-INCOME> 0
<EXPENSES-NET> 25,272
<NET-INVESTMENT-INCOME> 396,749
<REALIZED-GAINS-CURRENT> 120,997
<APPREC-INCREASE-CURRENT> 541,907
<NET-CHANGE-FROM-OPS> 1,059,653
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 398,176
<DISTRIBUTIONS-OF-GAINS> 120,997
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,553,909
<NUMBER-OF-SHARES-REDEEMED> 92,647
<SHARES-REINVESTED> 18,765
<NET-CHANGE-IN-ASSETS> 16,307,044
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38,282
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 121,707
<AVERAGE-NET-ASSETS> 7,765,255
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.02
<EXPENSE-RATIO> 0.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906236
<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> VOYAGEUR ARIZONA TAX FREE FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-02-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 7,557,641
<INVESTMENTS-AT-VALUE> 7,814,635
<RECEIVABLES> 176,137
<ASSETS-OTHER> 76
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,990,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109,457
<TOTAL-LIABILITIES> 109,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,623,683
<SHARES-COMMON-STOCK> 733,006
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 714
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 256,994
<NET-ASSETS> 7,881,391
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 163,327
<OTHER-INCOME> 0
<EXPENSES-NET> 16,185
<NET-INVESTMENT-INCOME> 147,142
<REALIZED-GAINS-CURRENT> 63,613
<APPREC-INCREASE-CURRENT> 256,994
<NET-CHANGE-FROM-OPS> 467,749
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 146,428
<DISTRIBUTIONS-OF-GAINS> 63,613
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,023,028
<NUMBER-OF-SHARES-REDEEMED> 296,439
<SHARES-REINVESTED> 6,417
<NET-CHANGE-IN-ASSETS> 7,881,391
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,301
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 52,685
<AVERAGE-NET-ASSETS> 3,445,164
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0.09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906236
<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> VOYAGEUR CALIFORNIA TAX FREE FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-03-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,074,590
<INVESTMENTS-AT-VALUE> 1,138,111
<RECEIVABLES> 20,150
<ASSETS-OTHER> 1,799
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,160,060
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,040
<TOTAL-LIABILITIES> 20,040
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,076,124
<SHARES-COMMON-STOCK> 107,134
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 375
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,521
<NET-ASSETS> 1,140,020
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 53,865
<OTHER-INCOME> 0
<EXPENSES-NET> 3,991
<NET-INVESTMENT-INCOME> 49,874
<REALIZED-GAINS-CURRENT> 6,156
<APPREC-INCREASE-CURRENT> 63,521
<NET-CHANGE-FROM-OPS> 119,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 49,499
<DISTRIBUTIONS-OF-GAINS> 6,156
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 311,431
<NUMBER-OF-SHARES-REDEEMED> 208,152
<SHARES-REINVESTED> 3,855
<NET-CHANGE-IN-ASSETS> 1,140,020
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,468
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,260
<AVERAGE-NET-ASSETS> 1,058,025
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.70
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.64
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906236
<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> VOYAGEUR NATIONAL TAX FREE FUND
<S> <C>
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</TABLE>
