AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 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. 7
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8
(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
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
on (specify date) pursuant to paragraph (b) of Rule 485
/X/ 75 days after filing pursuant to paragraph (a) of Rule 485
on (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 February
28, 1996.
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
ITEM NO.
OF FORM N-1A CAPTION IN PROSPECTUS
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1 Cover Page
2 Fees and Expenses
3 Not Applicable
4 The Fund; 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 Fund
14 Board Members and Executive Officers of the Fund
15 Board Members and Executive Officers of the Fund;
Additional Information
16 Board Members and Executive Officers of the Fund; 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 Not applicable
MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
[GRAPHIC OMITTED]
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VOYAGEUR MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
VOYAGEUR FUNDS (NOT PART OF PROSPECTUS)
Table of Contents
3 Fees and Expenses
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4 The Fund
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4 Investment Objectives and Policies
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12 Risks and Special Investment Considerations
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15 Investment Restrictions
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16 How to Purchase Shares
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21 How to Sell Shares
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23 Reinstatement Privilege
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24 Exchange Privilege
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24 Management
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27 Determination of Net Asset Value
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27 Distributions to Shareholders and Taxes
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29 Investment Performance
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30 General Information
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VOYAGEUR FUNDS (NOT PART OF PROSPECTUS)
PROSPECTUS
Dated __________, 1996
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Voyageur Minnesota High Yield Municipal Bond Fund (the "Fund" is a series of an
open end management investment company, commonly referred to as a mutual fund.
The investment objective of Fund is to seek a high level of current income
exempt from federal income tax and from Minnesota personal income tax primarily
through investment in a portfolio of medium and lower grade municipal
securities. The weighted average maturity of the investment portfolio of the
Fund is expected to be approximately 15 to 25 years. There is no assurance that
the Fund will achieve its investment objective.
The Fund may invest in medium and lower grade municipal securities rated
between BBB and B- (inclusive) by Standard & Poor's Ratings Group, Baa and B3
(inclusive) by Moody's Investors Service, Inc., comparably rated short-term
municipal obligations and non-rated municipal securities determined by the
Fund's investment adviser to be of comparable quality. The Fund may also invest
in higher rated securities. Investment in medium and lower grade municipal
securities involves special risks as compared with investment in higher grade
municipal securities, including potentially greater sensitivity to a general
economic downturn or to a significant increase in interest rates, greater market
price volatility and less liquid secondary market trading. See "Risks and
Special Investment Considerations." Investment in the Fund may not be
appropriate for all investors.
The Fund's investment adviser is Voyageur Fund Managers, Inc. ("Voyageur").
The address of Voyageur and the Fund is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
AN INVESTMENT IN THE FUND 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 THE FUND 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 Fund that a
prospective investor ought to know before investing. Investors should read and
retain this Prospectus for future reference. The Fund has filed a Statement of
Additional Information (dated ________, 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.
1 VOYAGEUR FUNDS (PROSPECTUS)
The Fund offers 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 the Fund's average daily net assets attributable to Class B shares.
Class B shares will automatically convert to Class A shares at net asset value
approximately eight years after purchase. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made but until conversion will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares -- Class B Shares."
CLASS C SHARES
Class C shares are sold without an initial sales charge. 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 the 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 FUND COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN ALL STATES.
SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING OFFERED AND
SOLD IN SUCH STATES.
2 VOYAGEUR FUNDS (PROSPECTUS)
FEES AND EXPENSES
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<TABLE>
<CAPTION>
MINNESOTA HIGH YIELD
MUNICIPAL BOND FUND
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Front End Sales Load Imposed
on Purchases 4.75% N/A (2) N/A (2)
Maximum CDSC Imposed on Redemptions 1.001 4.00% None
Annual Fund Operating Expenses as a Percentage
of Average Net Assets After Fee Waivers and
Reimbursement Arrangements:
Management Fee .25 .25 .25
12b-1 Fee .25 1.00 1.00
Other Expenses .25 .25 .25
------- ------- -----
Total Fund Operating Expenses .75% 1.50% 1.50%
====== ===== =====
Total Fund Operating Expenses Without
Voluntary Waiver and Reimbursement 1.25% 2.00% 2.00%
===== ===== =====
Example of Expenses. An Investor in a Voyageur
Fund would pay the following dollar amount of
expenses on a $1,000 investment assuming (1) a
5% annual return and (2) redemption at the end
of each period:
1 Year $55 $55 (3) $15
3 Years 70 77 (3) 47
</TABLE>
1 A contingent deferred sales charge of up to 1.00% is imposed on certain
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more.
2 Class B and Class C shares are sold without a front-end sales charge, but
their Rule 12b-1 fees may cause long term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales charges.
3 Class B share expenses would be lower assuming no redemption at the end of
the period.
THE EXAMPLES CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of the above Fees and Expenses table is to
assist the investor in understanding the various costs and expenses that
investors in the Fund will bear directly or indirectly. Such information has
been restated to reflect anticipated voluntary Rule 12b-1 waivers and expense
reimbursements during fiscal 1996. After December 31, 1996, such expense waivers
and reimbursements may be discontinued or modified by Voyageur and the
Underwriter in their sole discretion. The Fund's 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 Fund."
3 VOYAGEUR FUNDS (PROSPECTUS)
THE FUND
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The Fund is a separate series of a parent corporate entity described herein
under the heading "General Information." The Fund is non-diversified, as such
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act"). As a non-diversified investment company, the 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
the 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 the Fund are described below.
INVESTMENT OBJECTIVES AND POLICIES
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The investment objective of the Fund is to seek a high level of current income
exempt from federal income tax and from Minnesota personal income tax primarily
through investment in a portfolio of medium and lower grade municipal
securities. In normal circumstances the weighted average maturity of the
investment portfolio of the Fund is expected to be approximately 15 to 25 years.
However, if the Adviser determines that market conditions warrant a shorter
average maturity, the Fund's investments will be adjusted accordingly.
During times of adverse market conditions when a defensive investment
posture is warranted, the Fund may temporarily select investments without regard
to the foregoing policy. There are risks in any investment program, and there is
no assurance that the Fund's investment objective will be achieved. The value of
the Fund's shares will fluctuate with changes in the market value of its
investments. The Fund's investment objective and certain other investment
policies explicitly designated herein as such are fundamental, which means that
they cannot be changed without the vote of its respective shareholders as
provided in the 1940 Act.
The 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 from the Minnesota
personal income tax. The Fund may invest without limit in securities which
generate interest that is an item of tax preference for purposes of federal and
state alternative minimum tax ("AMT").
The Fund may invest without limitation in a portfolio of medium and lower
grade municipal securities. The Fund may invest in medium and lower grade
municipal securities rated, at the time of investment, between BBB and
B-(inclusive) by Standard & Poor's Ratings Group ("S&P"), Baa and B3 (inclusive)
by Moody's Investors Service, Inc. ("Moody's"), and municipal securities
determined by Voyageur to be of comparable quality.
The Fund generally invests its assets in municipal securities, the interest
on which, in the opinion of bond counsel or other counsel to the issuer of such
securities, is exempt from federal income tax. See "Tax Exempt Obligations."
4 VOYAGEUR FUNDS (PROSPECTUS)
Medium grade municipal securities are rated BBB by S&P or Baa by Moody's,
and municipal securities determined by the Adviser to be of comparable quality.
Tax Exempt Obligations rated BBB by S&P generally are regarded by S&P as having
an adequate capacity to pay interest and repay principal; adverse economic
conditions or changing circumstances are, however, more likely in S&P's view to
lead to a weakened capacity to pay interest and repay principal as compared with
higher rated Tax Exempt Obligations. Tax Exempt Obligations rated Baa by Moody's
generally are considered by Moody's as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. In Moody's view, interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. In Moody's view, such securities lack outstanding investment
characteristics and have speculative characteristics as well.
The Fund may invest in lower grade Tax Exempt Obligations rated, at the
time of investment, either not lower than B- by S&P or not lower than B3 by
Moody's, and in municipal securities determined by Voyageur to be of comparable
quality. Tax Exempt Obligations rated B by S&P generally are regarded by S&P, on
balance, as predominantly speculative with respect to capacity to pay interest
or repay principal in accordance with the terms of the obligations. While such
securities will likely have some quality and protective characteristics, in
S&P's view these are outweighed by large uncertainties or major risk exposure to
adverse conditions. Securities rated B by Moody's are viewed by Moody's as
generally lacking characteristics of the desirable investment. In Moody's view,
assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
The Fund will not make initial investments in Tax Exempt Obligations rated,
at the time of investment, below B- by S&P and below B3 by Moody', or in Tax
Exempt Obligations determined by Voyageur to be of comparable quality. The Fund
may retain Tax Exempt Obligations which are downgraded after investment. There
is no minimum rating with respect to securities that are in default or with
respect to which payment of interest and/or repayment of principal is in arrears
after investment.
Investment in medium and lower grade securities involves special risks as
compared with investment in higher grade securities, including potentially
greater sensitivity to a general economic downturn or to a significant increase
in interest rates, greater market price volatility and less liquid secondary
market trading. See "Risks and Special Investment Considerations." There can be
no assurance that the Fund will achieve its investment objective, and the Fund
may not be an appropriate investment for all investors. Furthermore, interest on
certain "private activity" obligations in which the Fund may invest is treated
as a preference item for the purpose of calculating the alternative minimum tax
and, accordingly, a portion of the income produced by the Fund may be taxable
under the alternative minimum tax. The Fund may not be a suitable investment for
investors who are already subject to the federal alternative minimum tax or who
would become subject to the federal alternative minimum tax as a result of an
investment in the Fund. See "Taxation."
At times Voyageur may judge that conditions in the markets for medium and
lower grade Tax Exempt Obligations make pursuing the Fund's basic investment
strategy of investing primarily in such Tax Exempt Obligations inconsistent with
the best interests of shareholders. At such times, the Fund may
5 VOYAGEUR FUNDS (PROSPECTUS)
invest all or a portion of its assets in higher grade Tax Exempt Obligations and
in Tax Exempt Obligations determined by Voyageur to be of comparable quality.
Although such higher grade Tax Exempt Obligations generally entail less credit
risk, such higher grade Tax Exempt Obligations may have a lower yield than
medium and lower grade Tax Exempt Obligations and investment in such higher
grade Tax Exempt Obligations may result in a lower yield to Fund shareholders.
Voyageur may also judge that conditions in the markets for long- and
intermediate-term Tax Exempt Obligations in general make pursuing the Fund's
basic investment strategy inconsistent with the best interests of the Fund's
shareholders. At such times, the Fund may pursue strategies primarily designed
to reduce fluctuations in the value of the Fund's assets, including investing
the Fund's assets in high-quality, short-term municipal securities and in
high-quality, short-term taxable securities. See "Taxation."
The Fund may invest without limitation in short term Tax Exempt Obligations
or in taxable obligations on a temporary, defensive basis due to market
conditions or, with respect to taxable obligations, for liquidity purposes. Such
taxable obligations, whether purchased for liquidity purposes or on a temporary,
defensive basis, may include: obligations of the U.S. Government, its agencies
or instrumentalities; other debt securities rated within the three highest
grades by either Moody's or S&P; commercial paper rated in the highest grade by
either of such rating services (Prime-1 or A-1, respectively); certificates of
deposit and bankers' acceptances of domestic banks which have capital, surplus
and undivided profits of over $100 million; high-grade taxable municipal bonds;
and repurchase agreements with respect to any of the foregoing investments. The
Fund also may hold its assets in cash and in securities of tax exempt money
market mutual funds.
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 from the Minnesota personal income
tax. 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
6 VOYAGEUR FUNDS (PROSPECTUS)
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 Fund 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.
The 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 underwriter of these certificates or
receipts typically purchases and deposits the securities in an irrevocable trust
or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of
a custodial receipt, the Fund typically would be authorized to assert its rights
directly against the issuer of the underlying obligation, the Fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer.
7 VOYAGEUR FUNDS (PROSPECTUS)
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 the Fund would lose their tax exempt
character and become taxable, for federal and state purposes, in the hands of
the Fund and its shareholders. However, the Fund will only invest in custodial
receipts which are accompanied by a tax opinion stating that interest payable on
the receipts is tax exempt. If the Fund invests in custodial receipts, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts. 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. The Fund may enter into such "forward commitments" if it holds, and
maintains until the settlement date in a segregated account, cash or high-grade
liquid debt obligations in an amount sufficient to meet the purchase price.
There is no percentage limitation on the Fund's total assets which may be
invested in forward commitments. Tax Exempt Obligations purchased on a
when-issued basis and the securities held in the Fund's portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Tax Exempt Obligations
purchased on a when-issued basis may expose the Fund to risk because they may
experience such fluctuations prior to their actual delivery. Purchasing Tax
Exempt Obligations on a when-issued basis can involve the additional risk that
the yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Any significant commitment
by the Fund to the purchase of securities on a when-issued basis may increase
the volatility of the Fund's net asset value. Although the Fund will generally
enter into forward commitments with the intention of acquiring securities for
its portfolio, it may dispose of a commitment prior to settlement if the Fund's
investment manager deems it appropriate to do so. The Fund may realize
short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with respect to not more than 10%
of its total assets (taken at current value), except when investing for
defensive purposes during times of adverse market conditions. The Fund may enter
into repurchase agreements with respect to any securities which it may acquire
consistent with its investment policies and restrictions.
A repurchase agreement involves the purchase by the Fund of securities with
the condition that, after a stated period of time, the original seller (a member
8 VOYAGEUR FUNDS (PROSPECTUS)
bank of the Federal Reserve System or a recognized securities dealer) will buy
back the same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities.
In the event the original seller defaults on its obligation to repurchase, as a
result of its bankruptcy or otherwise, the Fund will seek to sell the
collateral, which action could involve costs or delays. In such case, the Fund's
ability to dispose of the collateral to recover such investment may be
restricted or delayed. While collateral will at all times be maintained in an
amount equal to the repurchase price under the agreement (including accrued
interest due thereunder), to the extent proceeds from the sale of collateral
were less than the repurchase price, the Fund could suffer a loss. See
"Investment Policies and Restrictions -- Taxable Obligations" in the Statement
of Additional Information.
REVERSE REPURCHASE AGREEMENTS
The Fund may engage in "reverse repurchase agreements" with banks and securities
dealers with respect to not more than 10% of its total assets. Reverse
repurchase agreements are ordinary repurchase agreements in which the Fund is
the seller of, rather than the investor in, securities and agrees to repurchase
them at an agreed upon time and price. Use of a reverse repurchase agreement may
be preferable to a regular sale and later repurchase of the securities because
it avoids certain market risks and transaction costs. Because certain of the
incidents of ownership of the security are retained by the Fund, reverse
repurchase agreements are considered a form of borrowing by the Fund from the
buyer, collateralized by the security. At the time the Fund enters into a
reverse repurchase agreement, cash, U. S. Government securities or other liquid
high grade debt obligations having a value sufficient to make payments for the
securities to be repurchased will be segregated, and will be marked to market
daily and maintained throughout the period of the obligation. Reverse repurchase
agreements may be used as a means of borrowing for investment purposes subject
to the 10% limitation set forth above. This speculative technique is referred to
as leveraging. Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs which may or may not be
recovered by income from or appreciation of the securities purchased. Because
the Fund does not currently intend to utilize reverse repurchase agreements in
excess of 10% of total assets, the Fund believes the risks of leveraging due to
use of reverse repurchase agreements to principal are reduced. 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
The Fund may utilize put and call transactions and may utilize futures
transactions to hedge against market risk and facilitate portfolio management.
See "Investment Policies and Restrictions -- Options and Futures Transactions"
in the Statement of Additional Information. Options and futures may be used to
attempt to protect against possible declines in the market value of the Fund's
portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), to protect the Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of the Fund's portfolio or to establish a position in the securities markets as
a temporary substitute for purchasing particular securities.
9 VOYAGEUR FUNDS (PROSPECTUS)
The use of options and futures is a function of market conditions. Other
transactions may be used by the Fund in the future for hedging purposes as they
are developed to the extent deemed appropriate by the Board.
OPTIONS ON SECURITIES
The Fund may write (i.e., sell) covered put and call options and purchase put
and call options on the securities in which it may invest and on indices of
securities in which it may invest, to the extent such put and call options are
available.
A put option gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option on
or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date, at
a predetermined price.
In purchasing a call option, the Fund would be in a position to realize a
gain if, during the option period, the price of the security increased by an
amount in excess of the premium paid. It would realize a loss if the price of
the security declined or remained the same or did not increase during the period
by more than the amount of the premium. In purchasing a put option, the Fund
would be in a position to realize a gain if, during the option period, the price
of the security declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained the same or
did not decrease during that period by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the Fund were exercised, the Fund would be obligated to sell
the underlying security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value of the
underlying security caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its current market value. The risk
involved in writing a call option is that there could be an increase in the
market value of the underlying security caused by declining interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction as described in Appendix B to the Statement of Additional
Information. The Fund retains the premium received from writing a put or call
option whether or not the option is exercised.
Over-the-counter options are purchased or written by the Fund in privately
negotiated transactions. Such options are illiquid, and it may not be possible
for the Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when Voyageur believes it
would be advantageous to do so. Over the counter options are subject to the
Fund's 15% illiquid investment limitation. See Appendix B to the Statement of
Additional Information for a further discussion of the general characteristics
and risks of options.
Participation in the options market involves investment risks and
transaction costs to which the Fund would not be subject absent the use of this
strategy. If Voyageur's predictions of movements in the direction of the
securities
10 VOYAGEUR FUNDS (PROSPECTUS)
and interest rate markets are inaccurate, the adverse consequences to the Fund
may leave the Fund in a worse position than if such strategy was not used. Risks
inherent in the use of options include (1) dependence on 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
The 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.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements. To the extent required to
comply with applicable Securities and Exchange Commission releases and staff
positions, when purchasing a futures contract or writing a put option, the Fund
will maintain in a segregated account cash, U. S. Government securities or other
liquid high grade debt securities equal to the value of such contracts, less any
margin on deposit. In addition, the rules and regulations of the Commodity
Futures Trading Commission currently require that, in order to avoid "commodity
pool operator" status, the Fund must use futures and options positions (a) for
"bona fide hedging purposes" (as defined in the regulations) or (b) for other
purposes so long as aggregate initial margins and premiums required in
connection with non hedging positions do not exceed 5% of the liquidation value
of the Fund's portfolio. There are no other numerical limits on the Fund's use
of futures contracts and options on futures contracts. For a discussion of the
tax treatment of futures contracts and options on futures contracts, see "Taxes"
in the Statement of
11 VOYAGEUR FUNDS (PROSPECTUS)
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 the Fund may invest 25% or more of its total assets in revenue bonds,
as a fundamental policy, the Fund will not 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 Fund may invest without
limitation, in circumstances where the Adviser deems appropriate or in which
other appropriate available investments may be in limited supply, in housing,
health care, utility, 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.
The Fund's Board may change any of the foregoing policies that are not
specifically designated fundamental.
RISKS AND SPECIAL INVESTMENT CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The yields on Tax Exempt Obligations are dependent on a variety of factors,
including the financial condition of the issuer or other obligor thereon or the
revenue source from which debt service is payable, general economic and monetary
conditions, conditions in the relevant market, the size of a particular issue,
maturity of the obligation and the rating of the issue. Generally, the value of
Tax Exempt Obligations will tend to fall as interest rates rise and will tend to
increase as interest rates decrease. In addition, Tax Exempt Obligations of
longer maturity produce higher current yields than Tax Exempt Obligations with
shorter maturities but are subject to greater price fluctuation due to changes
in interest rates, tax laws and other general market factors. Lower-rated Tax
Exempt Obligations generally produce a higher yield than higher-rated Tax Exempt
Obligations due to the perception of a greater degree of risk as to the payment
of principal and interest. Certain Tax Exempt Obligations held by the Fund may
permit the issuer at its option to "call," or redeem, its securities. If an
issuer were to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
SPECIAL CONSIDERATIONS REGARDING MEDIUM AND LOWER GRADE TAX EXEMPT OBLIGATIONS
The Fund invests in medium and lower grade Tax Exempt Obligations. Tax Exempt
Obligations which are in the medium and lower grade categories generally offer a
higher current yield than is offered by higher grade Tax Exempt Obligations but
they also generally involve greater price volatility and greater credit and
market risk. Credit risk relates to the issuer's ability to make timely payment
of interest and principal when due. Market risk relates to the changes in market
value that occur as a result of variation in the level of prevailing interest
rates and yield relationships in the municipal securities market. Debt
securities
12 VOYAGEUR FUNDS (PROSPECTUS)
rated BB or below by S&P and BA or below by Moody's are commonly referred to as
"junk bonds." Although the Fund primarily will invest in medium and lower grade
Tax Exempt Obligations, the Fund may invest in higher grade Tax Exempt
Obligations for temporary defensive purposes. Such investments may result in
lower current income than if the Fund were fully invested in medium and lower
grade securities.
The value of the Fund's portfolio securities can be expected to fluctuate
over time. When interest rates decline, the value of a portfolio invested in
fixed income securities generally can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed income
securities generally can be expected to decline. However, the secondary market
prices of medium and lower grade Tax Exempt Obligations are less sensitive to
changes in interest rates and are more sensitive to adverse economic changes or
individual issuer developments than are the secondary market prices of higher
grade debt securities. Such events also could lead to a higher incidence of
defaults by issuers of medium and lower grade Tax Exempt Obligations as compared
with historical default rates. In addition, changes in interest rates and
periods of economic uncertainty can be expected to result in increased
volatility in the market price of the Tax Exempt Obligation in the Fund's
portfolio and thus in the net asset value of the Fund. Also, adverse publicity
and investor perceptions, whether or not based on rational analysis, may affect
the value and liquidity of medium and lower grade Tax Exempt Obligations. The
secondary market value of Tax Exempt Obligations structured as zero coupon
securities and payment-in-kind securities may be more volatile in response to
changes in interest rates than debt securities which pay interest periodically
in cash. Investment in such securities also involves certain tax considerations.
Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of medium and lower grade Tax Exempt Obligations to pay
interest and to repay principal, to meet projected financial goals and to obtain
additional financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal or interest and such
issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the fund may be
unable to obtain full recovery thereof.
To the extent that there is no established retail market for some of the
medium or lower grade Tax Exempt Obligations in which the Fund may invest,
trading in such securities may be relatively inactive. Voyageur has contracted
with Muller Data Corporation as pricing agent and Voyageur is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Directors. During periods of reduced market liquidity and in the
absence of readily available market quotations for medium and lower grade Tax
Exempt Obligations held in the Fund's portfolio, the ability of the pricing
agent to value the Fund's securities become more difficult and the pricing
agent's use of judgment may play a greater role in the valuation of the fund's
securities due to the reduced availability of reliable objective data. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for
13 VOYAGEUR FUNDS (PROSPECTUS)
which such a market does exist. Further, the Fund may have more difficulty
selling such securities in a timely manner and at their stated value than would
be the case for securities for which an established retail market does exist.
The Fund may invest in zero coupon and payment-in-kind Tax Exempt
Obligations. Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. They are issued and traded at
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
Internal Revenue Code of 1986, as amended, requires that regulated investment
companies distribute at least 90% of their net investment income each year,
including tax-exempt and non-cash income. Accordingly, although the Fund will
receive no coupon payments on zero coupon securities prior to their maturity,
the Fund is required, in order to maintain its desired tax treatment, to include
in its distributions to shareholders in each year any income attributable to
zero coupon securities that is in excess of 10% of the Fund's net investment
income in that year. The Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. Payment-in-kind securities are securities that pay
interest through the issuance of additional securities. Such securities
generally are more volatile in response to changes in interest rates and are
more speculative investments than are securities that pay interest periodically
in cash.
Voyageur seeks to minimize the risks involved in investing in medium and
lower grade Tax Exempt Obligations through portfolio diversification, careful
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Fund will rely on Voyageur's
judgement, analysis and experience in evaluating the creditworthiness of an
issue. In its analysis, Voyaguer will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, its operating history, the quality of the issuer's management and
regulator matters. Voyageur may consider the credit ratings of Moody's and S&P
in evaluating Tax Exempt Obligations, although it does not rely primarily on
these ratings. Such ratings evaluate only the safety of principal and interest
payments, not market value risk. Additionally, because the creditworthiness of
an issuer may change more rapidly than is able to be timely reflected in changes
in credit ratings, Voyageur continuously monitors the issuers of Tax Exempt
Obligations held in the Fund's portfolio.
Tax Exempt Obligations generally are not listed for trading on any national
securities exchange, and many issuers of medium and lower grade Tax Exempt
Obligations choose not to have a rating assigned to their obligations by any
nationally recognized statistical rating organization. The amount of information
available about the financial condition of an issuer of unlisted or unrated
securities generally is not as extensive as that which is available with respect
to issuers of listed or rated securities. Because of the nature of medium and
lower rated Tax Exempt Obligations, achievement by the Fund of its investment
objective may be more dependent on the credit analysis of Voyageur than is the
case for an investment company which invests primarily in exchange listed higher
grade securities.
The principal and interest payments on the Derivative Tax Exempt
Obligations underlying custodial receipts may be allocated in a number of ways.
14 VOYAGEUR FUNDS (PROSPECTUS)
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 Fund may also invest in custodial receipts which are "inverse
floating obligations" (also sometimes referred to as "residual interest bonds").
These securities pay interest rates that vary inversely to changes in the
interest rates of specified short term Tax Exempt Obligations or an index of
short term Tax Exempt Obligations. Thus, as market interest rates increase, the
interest rates on inverse floating obligations decrease. Conversely, as market
rates decline, the interest rates on inverse floating obligations increase. Such
securities have the effect of providing a degree of investment leverage, since
the interest rates on such securities will generally change at a rate which is a
multiple of the change in the interest rates of the specified Tax Exempt
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other Tax
Exempt Obligations and investments in these types of obligations will increase
the volatility of the net asset value of shares of the Fund.
STATE CONSIDERATIONS
The value of Tax Exempt Obligations owned by the Fund may be adversely affected
by local political and economic conditions and developments within Minnesota.
Adverse conditions in an industry significant to the 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 description of certain factors
affecting and statistics describing issuers of Tax Exempt Obligations in
Minnesota is set forth below. Such information has been taken from publicly
available offering documents. Neither the Fund nor Voyageur has independently
verified this information and the Fund and Voyageur make no representation
regarding such information. See "Special Factors Affecting the Fund" in the
Statement of Additional Information. MINNESOTA'S economy is based primarily on
agriculture, manufacturing and services. Minnesota projects a balanced general
fund at the end of its 1995 biennium. Currently Minnesota's general obligation
bonds are rated Aa1 by Moody's and AA+ by S&P.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The 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 the Fund may not borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of its total assets (the
Fund may also borrow money in the form of reverse repurchase agreements up to
10% of total assets). Also, the Fund may not, as a matter of fundamental policy
invest more than 15% of its net assets in
15 VOYAGEUR FUNDS (PROSPECTUS)
illiquid securities and pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of net assets. See "Investment Policies and Restrictions
- --Investment Restrictions" in the Statement of Additional Information. The Fund
also has a number of non-fundamental investment restrictions which may be
changed by the Fund's Board without the shareholder approval.
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 Fund offers investors the choice among three classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Page 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 may be made available only to
selected broker-dealers and financial institutions, based on objective standards
developed by the Underwriter, to the exclusion of other broker-dealers and
financial institutions.
GENERAL PURCHASE INFORMATION
The minimum initial investment in the Fund is $1,000, and the minimum additional
investment is $100. The Fund's shares may be purchased at the public offering
price from the Underwriter, from other broker-dealers who are members of the
National Association of Securities Dealers, Inc. and who have selling agreements
with the Underwriter, and from certain financial institutions that have selling
agreements with the Underwriter.
When orders are placed for shares of 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 Fund may be purchased by opening an account either by mail or
by phone. Dividend income begins to accrue as of the opening of the New York
Stock Exchange (the "Exchange") on the day that payment is received. If payment
is made by check, payment is considered received on the day the check is
received if the check is drawn upon a member bank of the Federal Reserve System
within the Ninth Federal Reserve District (Michigan's Upper Peninsula,
Minnesota, Montana, North Dakota, South Dakota and northwestern Wisconsin). In
the case of other checks, payment is considered received when the check is
converted into "Federal Funds," i.e., monies of
16 VOYAGEUR FUNDS (PROSPECTUS)
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 the Fund's Automatic Investment Plan. Additional
information is available from the Underwriter by calling 800-545-3863.
PURCHASES BY MAIL
To open an account by mail, complete the general authorization form attached to
this Prospectus, designate an investment dealer or other financial institution
on the form, and mail it, along with a check payable to the Fund, to:
NW 9369
P.O. BOX 1450
MINNEAPOLIS, MN 55485-9369
PURCHASES BY TELEPHONE
To open an account by telephone, call 612-376-7014 or 800-545-3863 to obtain an
account number and instructions. Information concerning the account will be
taken over the phone. The investor must then request a commercial bank with
which he or she has an account and which is a member of the Federal Reserve
System to transmit Federal Funds by wire to the appropriate Fund as follows:
NORWEST BANK MINNESOTA, N.A., ABA #091000019
FOR CREDIT OF: (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 the Fund is the net asset value
of the Fund's shares plus the applicable front end sales charge ("FESC"), which
will vary with the size of the purchase. The Fund receives the net asset value.
The FESC varies depending on the size of the purchase and is allocated between
the Underwriter and other broker-dealers.
17 VOYAGEUR FUNDS (PROSPECTUS)
The current sales charges are:
<TABLE>
<CAPTION>
DEALER
SALES CHARGE DISCOUNT
AS % OF SALES CHARGE AS % OF
NET ASSET AS % OF OFFERING
AMOUNT OF PURCHASE VALUE OFFERING PRICE PRICE (1)
- --------------------------------------------------------------------------------------------
<S> <C> <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) 1.002
- --------------------------------------------------------------------------------------------
</TABLE>
1 Brokers and dealers who receive 90% or more of the sales charge may be
considered to be underwriters under the Securities Act of 1933, as amended.
2 The Underwriter intends to pay its investment executives and other
broker-dealers and banks that sell Fund shares, out of its own assets, a
fee of up to 1% of the offering price of sales of $1,000,000 or more, other
than on sales not subject to a contingent deferred sales charge.
3 Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "How to Sell Shares --
Contingent Deferred Sales Charge."
In connection with the distribution of the Fund's Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS -- REDUCED SALES CHARGES
Certain investors (or groups of investors) may qualify for reductions in the
sales charges shown above. Investors should contact their broker-dealer or the
Fund for details about the Fund's Combined Purchase Privilege, Cumulative
Quantity Discount and Letter of Intention plans. Descriptions are also included
with the general authorization form and in the Statement of Additional
Information. These special purchase plans may be amended or eliminated at any
time by the Underwriter without notice to existing Fund shareholders.
RULE 12B-1 FEES
Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of .25%
of the average daily net assets of the Fund attributable to Class A shares. All
or a portion of such fees are paid quarterly to financial institutions and
service providers with respect to the average daily net assets attributable to
shares sold or serviced by such institutions and service providers. For
additional information about this fee, see "Management -- Plan of Distribution"
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% of the offering price of such shares. If these shares
are redeemed within a certain period of time after purchase, the redemption
18 VOYAGEUR FUNDS (PROSPECTUS)
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:
CDSC AS A % OF AMOUNT REDEEMED FOR INVESTMENTS OF $1,000,000 OR MORE
CDSC PERIOD CDSC
- ------------------------------------------------
First year after purchase 1.0%
Second year after purchase 0.5
Thereafter 0.0
- ------------------------------------------------
WAIVER OF SALES CHARGES
A limited group of institutional and other investors may qualify to purchase
Class A shares at net asset value, with no front end or deferred sales charges.
The investors qualifying to purchase such shares are: (1) officers and directors
of the Fund; (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 Fund's general counsel; (9) managed account clients of Voyageur, clients
of investment advisers affiliated with Voyageur and other registered investment
advisers and their clients (the Fund may be available through a broker-dealer
which charges a transaction fee for purchases and sales) and (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 the Fund is the net asset value of the
Fund's shares. Class B shares are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. However, a CDSC of
up
19 VOYAGEUR FUNDS (PROSPECTUS)
to 4% will be imposed if shares are redeemed within six years of purchase. For
additional information, see "How to Sell Shares -- Contingent Deferred Sales
Charge." In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below. The CDSC will depend on the number of years since the purchase
was made according to the following table:
CDSC AS A % OF AMOUNT REDEEMED*
CDSC AS A % OF
CDSC PERIOD AMOUNT REDEEMED
- ------------------------------------------------
1st year after purchase 4%
2nd year after purchase 4
3rd year after purchase 3
4th year after purchase 3
5th year after purchase 2
6th year after purchase 1
Thereafter 0
- ------------------------------------------------
* The CDSC will be calculated on an amount equal to the lesser of the net
asset value of the shares at the time of purchase or the net asset value at
the time of redemption.
Proceeds from the CDSC are paid to the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Fund in connection with the sale of Class B shares, such as the payment
of compensation to selected broker dealers, and for selling Class B shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge at the time the
shares are sold, the Underwriter pays a sales commission equal to 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 the Fund attributable to Class B shares. The
higher 12b-1 fee will cause Class B shares to have a higher expense ratio and to
pay lower dividends than Class A shares. For additional information about this
fee, see "Fees and Expenses" above and "Management -- Plan of Distribution"
below.
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.
20 VOYAGEUR FUNDS (PROSPECTUS)
CLASS C SHARES -- LEVEL LOAD ALTERNATIVE
The public offering price of Class C shares of the 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 the Fund attributable to Class C shares. The
higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio
and to pay lower dividends than Class A shares. For additional information about
this fee, see "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 Fund in connection with the sale of Class C shares, such as the
payment of compensation to selected broker-dealers, and for selling Class C
shares. The Rule 12b-1 fee enables the Fund to sell the Class C shares without
deduction of a sales charge at the time of purchase. Although Class C shares are
sold without an initial 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
- --------------------------------------------------------------------------------
The Fund will redeem its shares in cash at the net asset value next determined
after receipt of a shareholder's written request for redemption in good order
(see below). If shares for which payment has been collected are redeemed,
payment must be made within seven days. Shareholders will not earn any income on
redeemed shares on the redemption date. The Fund may suspend this right of
redemption and may postpone payment only when the Exchange is closed for other
than customary weekends or holidays, or if permitted by the rules of the
Securities and Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net assets
or during any other period permitted by order of the Commission for the
protection of investors.
The Fund reserves the right and currently plans to redeem Fund shares and
mail the proceeds to the shareholder if at any time the value of Fund shares in
the account falls below a specified value, currently set at $250. Shareholders
will be notified and will have 60 days to bring the account up to the required
value before any redemption action will be taken by the Fund.
CONTINGENT DEFERRED SALES CHARGE
The CDSC will be calculated on an amount equal to the lesser of the net asset
value of the shares at the time of purchase or their net asset value at the time
of redemption. No charge will be imposed on increases in net asset value above
the initial purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
In determining whether a CDSC is payable with respect to any redemption,
the calculation will be determined in the manner that results in the
21 VOYAGEUR FUNDS (PROSPECTUS)
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, Class B or Class C shares subject to a
CDSC for Class A, Class B or Class C shares, respectively, of a different
Voyageur Fund, the transaction will not be subject to a CDSC. However, when
shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the CDSC.
Fund shares are exchangeable for shares of any money market fund available
through Voyageur. No CDSC will be imposed at the time of any such exchange;
however, the shares acquired in any such exchange will remain subject to the
CDSC and the period during which such shares represent shares of the money
market fund will not be included in determining how long the shares have been
held. Any CDSC due upon a redemption of Fund shares will be reduced by the
amount of any Rule 12b-1 payments made by such money market fund with respect to
such shares.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A 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
The Fund offers several expedited redemption procedures, described below, which
allow a shareholder to redeem Fund shares at net asset value determined on the
same day that the shareholder places the request for redemption of those shares.
Pursuant to these expedited redemption procedures, the Fund will redeem its
shares at their net asset value next determined following the Fund's receipt of
the redemption request. The Fund reserves the right at any time to suspend or
terminate the expedited redemption procedures or to impose a fee for this
service. There is currently no additional charge to the shareholder for use of
the Fund's expedited redemption procedures.
EXPEDITED TELEPHONE REDEMPTION
Shareholders redeeming at least $1,000 and no more than $50,000 (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
22 VOYAGEUR FUNDS (PROSPECTUS)
or, if requested at the time of redemption, by wire to the bank designated on
the general authorization form. The Fund will employ reasonable procedures to
confirm that telephone instructions are genuine, including requiring that
payment be made only to the shareholder's address of record or to the bank
account designated on the authorization form and requiring certain means of
telephonic identification. The Fund's Adviser and Distributor will not be liable
for following instructions which are reasonably believed to be genuine.
EXPEDITED REDEMPTIONS THROUGH CERTAIN BROKER DEALERS
Certain broker-dealers who have sales agreements with the Underwriter may allow
their customers to effect a redemption of shares of 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 the Fund valued at $10,000 or more at the
current offering price may open a Withdrawal Plan and have a designated sum of
money paid monthly to the investor or another person. Deferred sales charges may
apply to monthly redemptions of Class B shares. See "Monthly Cash Withdrawal
Plan" in the Statement of Additional Information.
REINSTATEMENT PRIVILEGE
- --------------------------------------------------------------------------------
An investor in the Fund whose shares have been redeemed and who has not
previously exercised the Reinstatement Privilege as to the Fund may reinvest the
proceeds of such redemption in shares of the same class of any Voyageur Fund
eligible for sale in the shareholder's state of residence. Reinvestment will be
at the net asset value of Fund shares next determined after the Underwriter
receives a check along with a letter requesting reinstatement. The Underwriter
must receive the letter requesting reinstatement
23 VOYAGEUR FUNDS (PROSPECTUS)
within 365 days following the redemption. Investors who desire to exercise the
Privilege should contact their broker-dealer or the Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of shares of the Fund, but to
the extent that any shares are sold at a loss and the proceeds are reinvested
within 30 days in shares of the Fund, some or all of the loss may not be allowed
as a deduction, depending upon the number of shares reacquired.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Except as described below, shareholders may exchange some or all of their 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 Fund is intended for long term investment and not as a trading
vehicle. Voyageur reserves the right to prohibit excessive exchanges (more than
four per quarter). Voyageur also reserves the right, upon 60 days' prior notice,
to restrict the frequency of, or otherwise modify, condition, terminate or
impose charges upon, exchanges. An exchange is considered 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 Voyageur 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,
Voyageur or any of such other broker-dealers for further information about the
exchange privilege.
MANAGEMENT
- --------------------------------------------------------------------------------
The Board of Directors of the Fund is responsible for managing the business and
affairs of the Fund. The names, addresses, principal occupations and other
affiliations of Directors and executive officers of the Fund 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 the Fund's investment adviser, subject to the
24 VOYAGEUR FUNDS (PROSPECTUS)
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 __, 1996,
Voyageur served as the manager to six closed-end and ten open-end investment
companies (comprising 29 separate investment portfolios), administered numerous
private accounts and managed approximately $8.16 billion in assets. Voyageur's
principal business address is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402.
The Fund pays Voyageur a monthly investment advisory and management fee
equivalent on an annual basis to .65% of its average daily net assets.
Elizabeth H. Howell will have day-to-day portfolio management
responsibility for the Fund, as well as, since inception, the Voyageur Idaho,
Iowa, Kansas, Missouri, Oregon, Washington and Wisconsin 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 the Voyageur Funds. Ms.
Howell has over ten years' experience as a securities analyst and portfolio
manager.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution under the 1940 Act (the "Plan") and
has entered into a Distribution Agreement with Voyageur Fund Distributors, Inc.
(the "Underwriter"). Pursuant to the Fund's Plan, the Fund pays the Underwriter
a Rule 12b-1 fee, at an annual rate of .25% of the Fund's average daily net
assets attributable to Class A shares and 1% of the Fund's average daily net
assets attributable to each of Class B and Class C shares for servicing of
shareholder accounts and distribution related services. Payments made under the
Plan are not tied exclusively to expenses actually incurred by the Underwriter
and may exceed or be less than expenses actually incurred by the Underwriter.
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
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Underwriter may use such Rule 12b-1 fee
or portion thereof to make payments to qualifying broker-dealers and financial
institutions that provide such services.
That portion of the Rule 12b-1 fee equal to .75% of the average daily net
assets of the Fund attributable to Class B shares and Class C shares,
respectively, constitutes a distribution fee designed to compensate the
Underwriter for advertising, marketing and distributing the Class B shares and
Class C shares of the Fund. In connection therewith, the Underwriter may provide
initial and ongoing sales compensation to its investment executives and other
broker-dealers for sales of Class B shares and Class C shares and may pay for
other advertising
25 VOYAGEUR FUNDS (PROSPECTUS)
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 the Fund's portfolio
securities and cash.
Voyageur acts as the Fund's dividend disbursing, transfer, administrative
and accounting services agent to perform dividend-paying functions, to calculate
the Fund's daily share price, to maintain shareholder records and to perform
certain regulatory and compliance related services for the Fund. The fees paid
for these services are based on the Fund's assets and include reimbursement of
out-of-pocket expenses. Voyageur receives a monthly fee from the Fund equal to
the sum of (1) $1.33 per shareholder account per month, (2) a monthly fee
ranging from $1,000 to $1,500 based on the average daily net assets of the Fund
and (3) a percentage of average daily net assets which ranges from 0.11% to
0.02% based on the average daily net assets of the Fund. See "The Investment
Adviser and Underwriter -- Expenses of the Fund" in the Statement of Additional
Information.
Certain institutions may act as sub-administrators for the Fund pursuant to
contracts with Voyageur, whereby the institutions will provide shareholder
services to their customers. Voyageur will pay the sub-administrators' fees out
of its own assets. The fee paid by Voyageur to any sub-administrator will be a
matter of negotiation between the institution and Voyageur based on the extent
and quality of the services provided.
EXPENSES OF THE FUND
Voyageur is contractually obligated to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees) of the
Fund which exceed 1% of the Fund's average daily net assets on an annual basis
up to certain limits as set forth in detail in the Statement of Additional
Information. In addition, Voyageur and the Underwriter reserve the right to
voluntarily waive their fees in whole or part and to voluntarily absorb certain
other of the Fund's expenses. Voyageur 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 Fund being charged fees and expenses that
approximate those set forth in the section "Fees and Expenses". After December
31, 1996, such voluntary fee and expense waivers may be discontinued or modified
by Voyageur and the Underwriter in their sole discretion.
The Fund's expenses include, among others, fees of directors, expenses of
directors' and shareholders' meetings, insurance premiums, expenses of
redemption of shares, expenses of the issue and sale of shares (to the extent
not otherwise borne by the Underwriter), expenses of printing and mailing stock
certificates and shareholder statements, association membership dues, charges of
the Fund's custodian, bookkeeping, auditing and legal expenses, the fees and
expenses of registering 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.
26 VOYAGEUR FUNDS (PROSPECTUS)
PORTFOLIO TRANSACTIONS
The Fund will not 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 the Fund will effect any
brokerage transactions with any affiliated broker-dealer, including the
Underwriter, unless such use would be to the Fund's advantage. Voyageur may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's securities transactions.
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 the 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 the 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 the Fund is to declare a distribution from net investment
income on each day that the Fund is open for business. Net investment income
consists of interest accrued on portfolio investments of the Fund, less accrued
expenses. Distributions of net investment income are paid monthly. Short-term
capital gains distributions are taxable to shareholders as ordinary income. Net
realized long term capital gains, if any, are distributed annually, after
utilization of any available capital loss carryovers. Distributions paid by the
Fund, if any, with respect to Class A, Class B and Class C shares will be
calculated in the same manner, at the same time, on the same day and will be in
the same amount, except that the higher Rule 12b-1 fees applicable to Class B
and Class C shares will be borne exclusively by such shares. The per share
distributions on Class
27 VOYAGEUR FUNDS (PROSPECTUS)
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. The Fund
sends to its shareholders no less than quarterly statements with details of any
reinvested dividends.
TAXES
FEDERAL INCOME TAXATION
The Fund is treated as a separate entity for federal income tax purposes. The
Fund intends to qualify during its current taxable year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund also intends to take all other action required to ensure that
no federal income taxes will be payable by the Fund and that the Fund can pay
exempt-interest dividends.
Distributions of net interest income from tax exempt obligations that are
designated by the Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. Distributions paid from other interest
income and from any net realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Distributions paid from long-term capital gains (and designated as such)
are taxable as long-term capital gains for federal income tax purposes, whether
received in cash or shares, regardless of how long a shareholder has held shares
in the Fund.
Exempt-interest dividends attributable to interest income on certain tax
exempt obligations issued after August 7, 1986 to finance private activities are
treated as an item of tax preference for purposes of computing the alternative
minimum tax for individuals, estates and trusts.
The following is a summary of certain information regarding state taxation.
See "Taxes" in the Statement of Additional Information.
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 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 Fund, including exempt-interest dividends, may be subject
to tax in other states. This discussion is not intended as a substitute for
careful tax planning. You are urged to consult your tax adviser with specific
reference to your own tax situation.
28 VOYAGEUR FUNDS (PROSPECTUS)
INVESTMENT PERFORMANCE
- --------------------------------------------------------------------------------
A dvertisements and other sales literature for the Fund may refer to "yield,"
"taxable equivalent yield," "average annual total return" and "cumulative total
return" and may compare such performance quotations with published indices and
comparable quotations of other fund. Performance quotations are computed
separately for Class A, Class B and Class C shares of the Fund. When the 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
the Fund will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
The advertised yield of the Fund will be based on a 30-day period stated in
the advertisement. Yield is calculated by dividing the net investment income per
share deemed earned during the period by the maximum offering price per share on
the last day of the period. The result is then annualized using a formula that
provides for semiannual compounding of income.
Taxable equivalent yield is calculated by applying the stated income tax
rate only to that portion of the yield that is exempt from taxation. The tax
exempt portion of the yield is divided by the number 1 minus the stated income
tax rate (e.g., 1-28% = 72%). The result is then added to that portion of the
yield, if any, that is not tax exempt.
Average annual total return is the average annual compounded rate of return
on a hypothetical $1,000 investment made at the beginning of the advertised
period. In calculating average annual total return, the maximum sales charge is
deducted from the hypothetical investment and all dividends and distributions
are assumed to be reinvested.
Cumulative total return is calculated by subtracting a hypothetical $1,000
payment to the Fund from the ending redeemable value of such payment (at the end
of the relevant advertised period), dividing such difference by $1,000 and
multiplying the quotient by 100. In calculating ending redeemable value, all
income and capital gain distributions are assumed to be reinvested in additional
Fund shares and the maximum sales load is deducted.
In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Fund's shares,
including data from Lipper Analytical Services, Inc. and Morningstar.
For Fund performance information and daily net asset value quotations,
investors may call 612-376-7010 or 800-525-6584. For additional information
regarding the calculation of the Fund's yield, taxable equivalent yield, average
annual total return and cumulative total return, see "Calculation of Performance
Data" in the Statement of Additional Information.
29 VOYAGEUR FUNDS (PROSPECTUS)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund sends to its shareholders six-month unaudited and annual audited
financial statements.
The shares of the Fund constitute separate series of Voyageur Mutual Funds,
Inc. (the "Company"), which is organized as a Minnesota corporation. The shares
of the series thereof are transferable common stock, $.01 par value per share.
All shares of such corporation 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 Directors is
empowered to issue other series of common stock without shareholder approval.
The Fund currently offers its shares in multiple classes, each with
different sales arrangements and bearing different expenses. Class A, Class B
and Class C shares each represent interests in the assets of the Fund and have
identical voting, dividend, liquidation and other rights on the same terms and
conditions except that expenses related to the distribution of each class are
borne solely by such class and each class of shares has exclusive voting rights
with respect to provisions of the Fund's Rule 12b-1 distribution plan which
pertain to a particular class and other matters for which separate class voting
is appropriate under applicable law.
Fund shares are freely transferable, subject to applicable securities laws,
are entitled to dividends as declared by the Board, and, in liquidation of a
Fund, are entitled to receive the net assets, if any, of the Fund. The Fund does
not generally hold annual meetings of shareholders and will do so only when
required by law. Shareholders may remove Board members from office by votes cast
in person or by proxy at a meeting of shareholders or by written consent and, in
accordance with Section 16 of the 1940 Act, the Board shall promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Board member when requested to do so by the record holders of not less
than 10% of the outstanding shares.
Each share of a series has one vote irrespective of the relative net asset
value of the shares. On some issues, such as the election of Board members, all
shares vote together as one series of the Company. 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 the Company for the issue or sale of shares of each
series or class thereof, and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are allocated to such series, and in
the case of a class, allocated to such class, and constitute the underlying
assets of such series or class. The underlying assets of each series or class
thereof, are required to be segregated on the books of account, and are to be
charged with the expenses in respect to such series or class thereof, and with a
share of the general expenses of the Company. Any general expenses of the
Company not readily identifiable as belonging to a particular series or class
are allocated among the series or classes thereof, based upon the relative net
assets of the series or class at the time such expenses were accrued. The
Company's Articles of Incorporation 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.
30 VOYAGEUR FUNDS (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 Fund 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.
31 VOYAGEUR FUNDS (PROSPECTUS)
PART B
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Fund's Prospectus dated _________, 1996. A copy of
the Prospectus or this Statement of Additional Information may be obtained free
of charge by contacting the Fund at 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402. Telephone: (612) 376-7000 or (800) 553-2143.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Investment Policies and Restrictions...................................................................... 2
Special Factors Affecting The Fund........................................................................17
Board Members and Executive Officers of the Fund..........................................................20
The Investment Adviser and Underwriter....................................................................23
Taxes.....................................................................................................30
Special Purchase Plans ...................................................................................32
Net Asset Value and Public Offering Price.................................................................34
Calculation of Performance Data...........................................................................35
Monthly Cash Withdrawal Plan..............................................................................36
Additional Information....................................................................................37
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 ___________, 1996, and, if given or made,
such information or representations may not be relied upon as having been
authorized by the Fund. This Statement of Additional Information does not
constitute an offer to sell securities in any state or jurisdiction in which
such offering may not lawfully be made. The delivery of this Statement of
Additional Information at any time shall not imply that there has been no change
in the affairs of the Fund since the date hereof.
Dated _________, 1996
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives, policies and restrictions of the Voyageur
Minnesota High Yield Municipal Bond Fund (the "Fund") are set forth in the
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 Minnesota personal income
tax. 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 Fund may invest, including Tax Exempt Obligations,
are subject to the provisions of bankruptcy, insolvency, reorganization and
other laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or 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
Fund and the value of the Fund's portfolio. In such event, management of the
Fund may discontinue the issuance of shares to new investors and may reevaluate
the Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") for Tax Exempt Obligations
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for their
investments in accordance with the investment policies contained in the Fund's
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 Fund's investment
manager, will subject these securities to other evaluative criteria prior to
investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. The Fund may purchase floating and
variable rate demand notes. Generally, such notes are secured by letters of
credit or other credit support arrangements provided by banks. Such notes
normally have a stated long-term maturity but permit the holder to tender the
note for purchase and payment of principal and accrued interest upon a specified
number of days' notice. The issuer of floating and variable rate demand notes
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus accrued interest
upon a specified number of days' notice to the noteholders. The interest rate on
a floating rate demand note is based on a specified interest index, such as a
bank's prime rate, and is adjusted automatically each time such index is
adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based upon current market conditions. Voyageur monitors the
creditworthiness of issuers of floating and variable rate demand notes in the
Fund's portfolio.
ESCROW SECURED BONDS OR DEFEASED BONDS. Escrow secured bonds or defeased
bonds are created when an issuer refunds in advance of maturity (or pre-refunds)
some of its outstanding bonds and it becomes necessary or desirable to set aside
funds for redemption or payment of the bonds at a future date or dates. In an
advance refunding, the issuer will use the proceeds of a new bond issue to
purchase high grade interest bearing debt securities which are then deposited in
an irrevocable escrow account held by an escrow agent to secure all future
payments of principal and interest of the advance refunded bond. Escrow secured
bonds will often receive a triple A rating from S&P and Moody's.
STATE OR MUNICIPAL LEASE OBLIGATIONS. Municipal leases may take the form of
a lease with an option to purchase, an installment purchase contract, a
conditional sales contract or a participation certificate in any of the
foregoing. In determining leases in which the Fund 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 Fund's Prospectus, although the
Fund may invest 25% or more of its total assets in limited obligation bonds, the
Fund will not 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 Fund 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. The 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, the Fund's investment policy of investing primarily in obligations of
Minnesota (and the Minnesota's municipalities, other political subdivisions and
public authorities) and of investing primarily in investment grade securities.
HOUSING OBLIGATIONS. The Fund may invest, from time to time, 25% or more of
its total assets in obligations of public bodies, including state and municipal
housing authorities, issued to finance the purchase of single-family mortgage
loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
HEALTH CARE OBLIGATIONS. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
UTILITY OBLIGATIONS. The Fund may invest, from time to time, 25% or more of
its total assets in obligations issued by public bodies, including state and
municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
TRANSPORTATION OBLIGATIONS. The Fund may, from time to time, invest 25% or
more of 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. The Fund may, from time to time, invest 25% or more
of their total assets in obligations of issuers which are, or which govern the
operation of, schools, colleges and universities and whose revenues are derived
mainly from tuition, dormitory revenues, grants and endowments. General problems
of such issuers include the prospect of a declining percentage of the population
consisting of college aged individuals, possible inability to raise tuition and
fees sufficiently to cover increased operating costs, the uncertainty of
continued receipt of federal grants, state funding and alumni support, and
government legislation or regulations which may adversely affect the revenues or
costs of such issuers.
INDUSTRIAL REVENUE OBLIGATIONS. The Fund may, from time to time, invest 25%
or more of their total assets in obligations issued by public bodies, including
state and municipal authorities, to finance the cost of acquiring, constructing
or improving various industrial projects. These projects are usually operated by
corporate entities. Issuers are obligated only to pay amounts due on the bonds
to the extent that funds are available from the unexpended proceeds of the bonds
or receipts or revenues of the issuer under an arrangement between the issuer
and the corporate operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan agreement,
but in each case the payments of the issuer are designed to be sufficient to
meet the payments of amounts due on the bonds. Regardless of the structure,
payment of bonds is solely dependent upon the creditworthiness of the corporate
operator of the project and, if applicable, the corporate guarantor. Corporate
operators or guarantors may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
These include cyclicality of revenues and earnings, regulatory and environmental
restrictions, litigation resulting from accidents or deterioration resulting
from leveraged buy-outs or takeovers. The bonds may be subject to special or
extraordinary redemption provisions which may provide for redemption at par or
accredited value, plus, if applicable, a premium.
OTHER RISKS. The exclusion from gross income for purposes of federal income
taxes and the personal income taxes of Minnesota for certain housing, health
care, utility, transportation, education and industrial revenue bonds depends on
compliance with relevant provisions of the Code. The failure to comply with
these provisions could cause the interest on the bonds to become includable in
gross income, possibly retroactively to the date of issuance, thereby reducing
the value of the bonds, subjecting shareholders to unanticipated tax liabilities
and possibly requiring the Fund to sell the bonds at the reduced value.
Furthermore, such a failure to meet these ongoing requirements may not enable
the holder to accelerate payment of the bond or require the issuer to redeem the
bond.
TAXABLE OBLIGATIONS
As set forth in the Fund's prospectus, the Fund may invest to a limited
extent in obligations and instruments, the interest on which is includable in
gross income for purposes of federal and state income taxation.
GOVERNMENT OBLIGATIONS. The Fund may invest in securities issued or
guaranteed by the U. S. Government or its agencies or instrumentalities. These
securities include a variety of Treasury securities, which differ in their
interest rates, maturities and times of issuance. Treasury Bills generally have
maturities of one year or less; Treasury Notes generally have maturities of one
to ten years; and Treasury Bonds generally have maturities of greater than ten
years. Some obligations issued or guaranteed by U. S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U. S. Treasury;
other obligations, such as those of the Federal Home Loan Banks, are secured by
the right of the issuer to borrow from the Treasury; other obligations, such as
those issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U. S. Government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued by
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U. S. Government provides financial support
to such U. S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Fund will invest in such securities only when Voyageur is satisfied that the
credit risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. The
Fund's custodian will hold the securities underlying any repurchase agreement or
such securities will be part of the Federal Reserve Book Entry System. The
market value of the collateral underlying the repurchase agreement will be
determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the obligor under the agreement will promptly
furnish additional collateral to the Fund's custodian (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
OTHER TAXABLE INVESTMENTS. The Fund also may invest in certificates of
deposit, bankers' acceptances and other time deposits. Certificates of deposit
are certificates representing the obligation of a bank to repay the funds
deposited (plus interest thereon) at a time certain after the deposit. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate.
OPTIONS AND FUTURES TRANSACTIONS
To the extent set forth in the prospectus, the Fund may buy and sell put
and call options on the securities in which it may invest, and the Fund may
enter into futures contracts and options on futures contracts with respect to
fixed-income securities or based on financial indices including any index of
securities in which the Fund may invest. Futures and options will be used to
facilitate allocation of the Fund's investments among asset classes, to generate
income or to hedge against changes in interest rates or declines in securities
prices or increases in prices of securities proposed to be purchased. Different
uses of futures and options have different risk and return characteristics.
Generally, selling futures contracts, purchasing put options and writing (i.e.
selling) call options are strategies designed to protect against falling
securities prices and can limit potential gains if prices rise. Purchasing
futures contracts, purchasing call options and writing put options are
strategies whose returns tend to rise and fall together with securities prices
and can causes losses if prices fall. If securities prices remain unchanged over
time option writing strategies tend to be profitable, while option buying
strategies tend to decline in value.
WRITING OPTIONS. The Fund may write (i.e. sell) covered put and call
options with respect to the securities in which they may invest. By writing a
call option, the Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, the Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by 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 the Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
(or comparable securities satisfying the cover requirements of securities
exchanges). The Fund will be considered "covered" with respect to a put option
it writes if, so long as it is obligated as the writer of a put option, it
deposits and maintains with its custodian cash, U. S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater than
the exercise price of the option.
Through the writing of call or put options, the Fund may obtain a greater
current return than would be realized on the underlying securities alone. The
Fund receives premiums from writing call or put options, which it retains
whether or not the options are exercised. By writing a call option, the Fund
might lose the potential for gain on the underlying security while the option is
open, and by writing a put option, a Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase put options in order to protect
portfolio holdings in an underlying security against a decline in the market
value of such holdings. Such protection is provided during the life of the put
because the Fund may sell the underlying security at the put exercise price,
regardless of a decline in the underlying security's market price. Any loss to
the Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put is sold.
The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. The Fund may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio.
The Fund may also purchase call options. During the life of the call
option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, the Fund will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
SECURITIES INDEX OPTION TRADING. The Fund may purchase and write put and
call options on securities indexes. Options on securities indexes are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on an index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of the option is obligated to make delivery of this
amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in the Fund's
portfolio correlate with price movements of the index selected. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular security, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index depends upon movements
in the level of prices in the relevant underlying securities markets generally
or, in the case of certain indexes, in an industry market segment, rather than
movements in the price of a particular security. Accordingly, successful use by
the Fund of options on security indexes will be subject to 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, the Fund could be in a worse position than had no hedge been
attempted.
Because exercises of index options are settled in cash, the Fund cannot
determine the amount of its settlement obligations in advance and, with respect
to call writing, cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. When the Fund
writes an option on an index, the Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option, cash,
high-grade liquid debt securities or "qualified securities" with a market value
determined on a daily basis of not less than 100% of the current market value of
the option.
Options purchased and written by the Fund may be exchange traded or may be
options entered into by the Fund in negotiated transactions with investment
dealers and other financial institutions (over-the-counter or "OTC" options)
(such as commercial banks or savings and loan associations) deemed creditworthy
by 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. The Fund may enter into
futures contracts and purchase and write options on these contracts, including
but not limited to interest rate and securities index contracts and put and call
options on these futures contracts. These contracts will be entered into on
domestic and foreign exchanges and boards of trade, subject to applicable
regulations of the Commodity Futures Trading Commission. These transactions may
be entered into for bona fide hedging and other permissible risk management
purposes.
In connection with transactions in futures contracts and writing related
options, the Fund will be required to deposit as "initial margin" a specified
amount of cash or short-term, U. S. Government securities. The initial margin
required for a futures contract is set by the exchange on which the contract is
traded. It is expected that the initial margin would be approximately 1- 1/2% to
5% of a contract's face value. Thereafter, subsequent payments (referred to as
"variation margin") are made to and from the broker to reflect changes in the
value of the futures contract. The Fund will not purchase or sell futures
contracts or related options if, as a result, the sum of the initial margin
deposit on the Fund's existing futures and related options positions and
premiums paid for options or futures contracts entered into for other than bona
fide hedging purposes would exceed 5% of the Fund's assets.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS.
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several risks in
using securities index or interest rate futures contracts as hedging devices.
One risk arises because the prices of futures contracts may not correlate
perfectly with movements in the underlying index or financial instrument due to
certain market distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements. Rather than making
additional variation margin payments, investors may close the contracts through
offsetting transactions which could distort the normal relationship between the
index or security and the futures market. Second, the margin requirements in the
futures market are lower than margin requirements in the securities market, and
as a result the futures market may attract more speculators than does the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Because of possible price distortion
in the futures market and because of imperfect correlation between movements in
indexes of securities and movements in the prices of futures contracts, even a
correct forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements in
the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by the Fund is subject to the ability
of Voyageur to predict correctly movements in the direction of interest rates or
the relevant underlying securities market. If the Fund has hedged against the
possibility of an increase in interest rates adversely affecting the value of
fixed-income securities held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its security which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
LIQUIDITY OF FUTURES CONTRACTS. The Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by the Fund. The Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts. Although the
Fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISK OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transactions costs). The
writing of a call option generates a premium, which may partially offset a
decline in the value of the Fund's portfolio assets. By writing a call option,
the Fund becomes obligated to sell an underlying instrument or a futures
contract, which may have a value higher than the exercise price. Conversely, the
writing of a put option generates a premium, but the Fund becomes obligated to
purchase the underlying instrument or futures contract, which may have a value
lower than the exercise price. Thus, the loss incurred by the Fund in writing
options may exceed the amount of the premium received.
The effective use of options strategies is dependent, among other things,
on the Fund's ability to terminate options positions at a time when Voyageur
deems it desirable to do so. Although the Fund will enter into an option
position only if Voyageur believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options 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 the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the value
of their portfolios. By using put options in this way, the Fund will reduce any
profit they might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in price of
securities that the Fund anticipate purchasing in the future. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
As discussed above, options may be traded over-the-counter ("OTC options").
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. OTC options are illiquid and it
may not be possible for the Fund to dispose of options 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 the Fund's limitation that a maximum of 15% of its net assets be
invested in illiquid securities. In the event of the bankruptcy of the writer of
an OTC option, the Fund could experience a loss of all or part of the value of
the option. Voyageur anticipates that options on Tax Exempt Obligations will
consist primarily of OTC options.
ILLIQUID INVESTMENTS
The Fund is permitted to invest up to 15% of its net assets in illiquid
investments. 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 recently
acknowledged that a market exists for certain restricted securities (for
example, securities qualifying for resale to certain "qualified institutional
buyers" pursuant to Rule 144A under the 1933 Act, 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 Fund 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 Fund's. 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 Fund's prospectus, the Fund is 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
The Fund intends to conduct its operations so that it will comply with
diversification requirements and qualify under the Internal Revenue Code of 1986
as a "regulated investment company." In order to qualify as a regulated
investment company, the Fund must limit its investments so that, at the close of
each quarter of the taxable year, with respect to at least 50% of its total
assets, not more than 5% of its total assets will be invested in the securities
of a single issuer. In addition, the Code requires that not more than 25% in
value of the Fund's total assets may be invested in the securities of a single
issuer at the close of each quarter of the taxable year.
For purposes of such diversification, the identification of the issuer of
Tax Exempt Obligations depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the State, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.
Similarly, in the case of an industrial development bond, if that bond is
backed only by certain revenues to be received from the non-governmental user of
the project financed by the bond, then such non-governmental user is deemed to
be the sole issuer. If, however, in any of the above cases, a State, political
subdivision or some other entity guarantees a security and the value of all
securities issued or guaranteed by the guarantor and owned by the Fund exceeds
10% of the value of the Fund's total assets, the guarantee is considered a
separate security and is treated as an issue of the guarantor. Investments in
municipal obligations refunded with escrowed U. S. Government securities will be
treated as investments in U. S. Government securities for purposes of
determining the Fund's compliance with the 1940 Act diversification
requirements.
PORTFOLIO TURNOVER
Portfolio turnover for the Fund is the ratio of the lesser of annual
purchases or sales of portfolio securities by the Fund to the average monthly
value of portfolio securities owned by the Fund, not including securities
maturing in less than 12 months. A 100% portfolio turnover rate would occur, for
example, if the lesser of the value of purchases or sales of the Fund's
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned by the Fund during the year.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions set forth below which,
together with the investment objectives of the Fund and other policies which are
specifically identified as fundamental in the Prospectus or herein cannot be
changed without approval by holders of a majority of the outstanding voting
shares of the Fund. As defined in the 1940 Act, this means the lesser of the
vote of (1) 67% of the shares of the Fund at a meeting where more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of the Fund. The following investment
restrictions apply to the Fund. The Fund will not:
(1) Borrow money (provided that the Fund may enter into reverse
repurchase agreements), except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of the Fund's total
assets, including the amount borrowed. The Fund may not borrow for leverage
purposes, provided that the Fund may enter into reverse repurchase
agreements for such purposes, and securities will not be purchased while
outstanding borrowings exceed 5% of the value of the Fund's total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, the Fund
may be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more of its assets in the securities of issuers in
any 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).
The following non-fundamental investment restrictions may be changed by the
Board of the Fund at any time. The Fund will not:
(1) Invest more than 5% of its total assets in securities of any
single investment company, nor more than 10% of its total assets in
securities of two or more investment companies, except as part of a merger,
consolidation or acquisition of assets.
(2) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(3) The Fund 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) The Fund will not make short sales of securities or maintain a
short position for the account of the Fund, unless at all times when a
short position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short.
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 FUND
The following information is a brief summary of Minnesota factors affecting
the Fund and does not purport to be a complete description of such factors. The
financial condition of Minnesota its public authorities and local governments
could affect the market values and marketability of, and therefore the net asset
value per share and the interest income of the Fund, or result in the default of
existing obligations, including obligations which may be held by the Fund.
Further, Minnesota faces numerous forms of litigation seeking significant
damages which, if awarded, could adversely affect the financial situation of
Minnesota or issuers located in therein. It should be noted that the
creditworthiness of obligations issued by local issuers may be unrelated to the
creditworthiness of Minnesota, and that there is no obligation on the part of
Minnesota to make payment on such local obligations in the event of default in
the absence of a specific guarantee or pledge provided by Minnesota. The
following information is based primarily upon information derived from public
documents relating to securities offerings of issuers of such states and other
historically reliable sources, but has not been independently verified by the
Fund. The Fund makes no representation or warranty regarding the completeness or
accuracy of such information. The market value of the shares of the Fund may
fluctuate due to factors such as changes in interest rates, matters affecting
Minnesota or for other reasons.
FACTORS AFFECTING MINNESOTA FUND
The information contained below, is derived primarily from a State of
Minnesota General Obligation Bonds Official Statement dated September 27, 1994.
Minnesota resident population grew from 4,085,000 in 1980 to 4,386,000 in
1990 or, at an average annual compound rate of .7 percent. In comparison, U.S.
population grew at an annual compound rate of .9 percent during this period.
Minnesota population is currently forecast to grow at an annual compound rate of
.6 percent between 1990 and 2000.
Diversity and a significant natural resource base are two important
characteristics of the State's economy. when viewed in 1993 at a highly
aggregative level of detail, the structure of the State's economy parallels the
structure of the United States economy as a whole. State employment in 10 major
sectors was distributed in approximately the same proportions as national
employment. In all sectors, the share of total State employment was within 2
percentage points of national employment share. Some unique characteristics of
the State's economy are apparent in employment concentrations in industries that
comprise the durable goods and non-durable goods manufacturing categories.
The importance of the State's rich resource base for overall employment is
apparent in the employment mix in non-durable goods industries. In 1993, 29.4
percent of the State's non-durable goods employment was concentrated in food and
kindred industries, and 19.1 percent in paper and allied industries. This
compares to 21.5 percent and 8.9 percent, respectively, for comparable sectors
in the national economy.
In the period 1980 to 1990, overall employment growth in Minnesota lagged
behind national growth. However, manufacturing has been a strong sector, with
Minnesota employment outperforming its U.S. counterpart in both the l980-1990
and 1990-1993 periods. In spite of a strong manufacturing sector, during the
1980 to 1990 period total employment in Minnesota increased 17.9 percent while
increasing 20.1 percent nationally. Most of Minnesota's relatively slower growth
is associated with declining agricultural employment and with the two recessions
in the U.S. economy during the early 1980's which were more severe in Minnesota
than nationwide. In the period 1990 to 1993, employment growth in Minnesota
exceeded national growth. Employment data through 1993 indicate that the
recession that began in July 1990 was less severe in Minnesota than in the
national economy and that Minnesota's recovery has been more rapid than the
nation's.
Since 1980, State per capita personal income has been within three
percentage points of national per capita personal income. The State's per capita
income, which is computed by dividing personal income by total resident
population, has generally remained above the national average in spite of the
early 1980's recessions and some difficult years in agriculture. In 1993,
Minnesota per capita personal income was 101.1 percent of its US. counterpart.
MINNESOTA FISCAL CONDITION. Minnesota's constitutionally prescribed fiscal
period is a biennium, and Minnesota operates on a biennial budget basis.
Legislative appropriations for each biennium are prepared and adopted during the
final legislative session of the immediately preceding biennium. Prior to each
fiscal year of a biennium, Minnesota's Department of Finance allots a portion of
the applicable biennial appropriation to each agency or other entity for which
an appropriation has been made. An agency or other entity may not expend moneys
in excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, Minnesota's Commissioner of Finance, with
the approval of the Governor, is required to reduce allotments to the extent
necessary to balance expenditures and forecasted available resources for the
then current biennium. The Governor may prefer legislative action when a large
reduction in expenditures appears necessary, and if Minnesota's legislature is
not in session the Governor is empowered to convene a special session.
Minnesota relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system that is sensitive
to economic conditions. Frequently in recent years, legislation has been
required to eliminate projected budget deficits by raising additional revenue,
reducing expenditures, including aids to political subdivisions and higher
education, reducing the State's budget reserve, imposing a sales tax on
purchases by local governmental units, and making other budgetary adjustments. A
budget forecast released by the Minnesota Department of Finance on December 6,
1994 projects a General Fund balance of $268 million at the end of the current
biennium, June 30, 1995, plus a budget reserve of $500 million. Total projected
expenditures and transfers for the biennium are $16.9 billion. State law imposes
caps on appropriations for education (including higher education) and human
services in the biennium ending June 30, 1997. It is anticipated as a result of
these caps either that spending in these areas will be reduced below levels
needed to maintain current programs or that other budgetary changes will need to
be made by the State for that biennium. Either approach could result in fiscal
difficulties for other governmental entities in Minnesota. The forecast does not
reflect the effects of a recent decision of the Minnesota Supreme Court that
numerous banks are entitled to refunds of Minnesota bank excise taxes paid for
tax years 1979 through 1983. The taxes and interest to be refunded to banks and
other corporations as a result of this decision are estimated to be
approximately $327 million. The State will be permitted to pay the refunds over
a four-year period, which would increase interest payments by approximately $24
million. The State also is party to a variety of other civil actions that could
adversely affect the State's General Fund.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota. Even with respect to
bonds that are revenue obligations of the issuer and not general obligations of
Minnesota, there can be no assurance that the fiscal problems referred to above
will not adversely affect the market value or marketability of the bonds or the
ability of the respective obligors to pay interest on and principal of the
bonds.
There can be no assurance that Minnesota's economy and fiscal condition
will not materially change in the future or that future difficulties will not
occur. Economic difficulties and the resultant impact on state and local
government finances may adversely affect the market value of obligations in the
portfolio of the Fund or the ability of respective obligors to make timely
payment of the principal and interest on such obligations.
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 Fund is not aware of any decision in
which a court has held that a state's exemption of interest on its own bonds or
those of its political subdivisions or Indian tribes, but not of interest on the
bonds of other states or their political subdivisions or indian tribes,
unlawfully discriminates against interstate commerce or otherwise contravenes
the United States Constitution. Nevertheless, the Fund cannot predict the
likelihood that interest on the Minnesota bonds held by the Fund would become
taxable under this Minnesota statutory provision.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF THE FUND
The Board members and officers of the Fund, their position with the Fund
and their principal occupations during the past five years are set forth below.
In addition to the occupations set forth below, the Directors and officers also
serve as directors and trustees or officers of various other closed-end and
open-end investment companies managed by Voyageur.
PRINCIPAL OCCUPATION(S) DURING
PAST FIVE YEARS AND OTHER
NAME, ADDRESS, AND AGE POSITION AFFILIATIONS
- ---------------------- -------- ----------------------------
Clarence G. Frame, 77 Board Of counsel, Briggs & Morgan
W-875 Member law firm.
First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
Richard F. McNamara, 63 Board Chief Executive Officer of
7808 Creekridge Circle, #200 Member 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 * Board Vice Chairman-Office of the
200 South Fifth Street Member 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 Board Chairman and Chief Executive
81 South Ninth Street Member 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 Board Special Assistant to the
University of Minnesota Member President of the University of
Foundation Minnesota from August 1984 to
1300 South Second Street April 1989 and from May 1990
Minneapolis, Minnesota 55454 to 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 of Voyageur and of
90 South Seventh Street Voyageur Fund Distributors,
Suite 4400 Inc. ("the Underwrite") since
Minneapolis, Minnesota 55402 1991; Director of Voyageur and
the Underwriter since 1993;
Management committee member of
the Adviser from 1991 to 1993;
Managing Director at Piper,
Jaffray & Hopwood Incorporated
in Minneapolis from 1986 to
1991.
Andrew M. McCullagh, Jr., 47 Executive Director of Voyageur and the
90 South Seventh Street Vice Underwriter from 1993 to 1995;
Suite 4400 President Executive Vice President of
Minneapolis, Minnesota 55402 Voyageur since 1990; Executive
Vice President of Colorado
Funds Management Group, Inc.
from 1987 to 1990.
Jane M. Wyatt, 41 Executive Director and Chief Investment
90 South Seventh Street Vice Officer of Voyageur since
Suite 4400 President 1993; Director of the
Minneapolis, Minnesota 55402 Underwriter since 1993;
Executive Vice President and
Portfolio Manager of Voyageur
from 1992 to 1993; Vice
President and Portfolio
Manager from 1989 to 1992.
Elizabeth H. Howell, 34 Vice Vice President of Voyageur and
90 South Seventh Street President Senior Equity Portfolio
Suite 4400 Manager; previously, portfolio
Minneapolis, Minnesota 55402 manager for Windsor Financial
Group, Minneapolis, Minnesota
from 1988 to 1991.
James C. King, 55 Vice Executive Vice President and
90 South Seventh Street President Senior Equity Portfolio
Suite 4400 Manager of Voyageur since
Minneapolis, Minnesota 55402 1990; Director of Voyageur and
the Underwriter from 1993 to
1995.
Steven P. Eldredge, 40 Vice Senior Vice President of
90 South Seventh Street President Voyageur and Senior Tax
Suite 4400 Exempt Portfolio Manager;
Minneapolis, Minnesota 55402 previously portfolio Manager
for ABT Funds.
Kenneth R. Larsen, 33 Treasurer Treasurer of Voyageur and
90 South Seventh Street the Underwriter since 1995;
Suite 4400 Chief Financial Officer of
Minneapolis, Minnesota 55402 Voyageur from 1990 to 1995
Director of Voyageur and the
Underwriter from 1993 to 1995;
Secretary and Treasurer of
Voyageur and the Underwriter
from 1990 to 1993.
Thomas J. Abood, 32 Secretary Senior Vice President and
90 South Seventh Street General Coundel of Voyageur,
Suite 4400 Voyageur Companies, Inc. and
Minneapolis, Minnesota 55402 Dougherty Financial Group
since June 1995; Vice
President and General Counsel
of Voyageur Companies, Inc.
from October 1994 to June
1995; associated with the law
firm of Skadden, Arps, Slate,
Meagher & Flom, Chicago,
Illinois from 1988 to 1994.
_________________________________
* "Interested person" of the Fund as such term is defined in the 1940 Act.
The Fund does not compensate its officers. Each director or trustee
(who is not an employee of Voyageur or any of its affiliates) received a total
annual fee of $24,000 for serving as a director or trustee for each of the
open-end and closed-end investment companies (the "Fund Complex") for which
Voyageur acts as investment adviser, plus a $500 fee for each special in-person
meeting attended by such director. These fees are allocated among each series or
fund in the Fund Complex based on the relative average net asset value of each
series or fund. Currently the Fund Complex consists of ten open-end investment
companies comprising 31 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. The following table sets forth the aggregate compensation
received by each director from the Funds for the most recently ended fiscal year
as well as the total compensation received by each director from the Fund
complex during the calendar year ended December 31, 1995.
<TABLE>
<CAPTION>
PENSION OR ESTIMATED
RETIREMENT ANNUAL TOTAL
AGGREGATE BENEFITS ACCRUED BENEFITS COMPENSATION
COMPENSATION AS PART OF UPON FROM FUND
DIRECTOR FROM THE FUNDS* FUND EXPENSES RETIREMENT COMPLEX
- -------- --------------- ------------- ---------- -------
<S> <C> <C> <C> <C>
Clarence G. Frame $0 None None $24,500
Richard F. McNamara $0 None None $24,500
Thomas F. Madison $0 None None $18,500
James W. Nelson $0 None None $24,500
Robert J. Odegard $0 None None $24,500
* Funds did not have operations in 1995.
</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 the Fund's investment adviser, subject to the authority of the Board
of the Fund.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Fund's shares. With regard to the Underwriter, Mr. Taft is
the Executive Vice President and a director, Mr. Abood is Senior Vice President
and General Counsel, and Ms. Wyatt is a director.
INVESTMENT ADVISORY AGREEMENTS
The Fund does not maintain its own research departments. The Fund 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 the Fund's portfolio and the making and
execution of all investment decisions for the Fund subject to the objectives and
investment policies and restrictions of the Fund and subject to the supervision
of the Fund's Board of Directors. Voyageur also furnishes, at its own expense,
office facilities, equipment and personnel for servicing the investments of the
Fund. Voyageur has agreed to arrange for officers and employees of Voyageur to
serve without compensation from the Fund as directors, officers or employees of
the Fund if duly elected to such positions by the shareholders or directors of
the Fund.
As compensation for Voyageur's services, the Fund is obligated to pay to
Voyageur a monthly investment advisory and management fee equivalent on an
annual basis to .65 of 1% of its average daily net assets, respectively. The fee
is based on the average daily value of the Fund's net assets at the close of
each business day.
The Investment Advisory Agreement on behalf of the 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 the 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 the Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement. Pursuant to the Administrative Services Agreements, Voyageur
provides the Fund all dividend disbursing, transfer agency, administrative and
accounting services required by the Fund including, without limitation, the
following: (i) the calculation of net asset value per share (including the
pricing of the Fund's portfolio of securities) at such times and in such manner
as is specified in the Fund's current Prospectus and Statement of Additional
Information, (ii) upon the receipt of funds for the purchase of the Fund's
shares or the receipt of redemption requests with respect to the Fund's shares
outstanding, the calculation of the number of shares to be purchased or
redeemed, respectively, (iii) upon the Fund's distribution of dividends, the
calculation of the amount of such dividends to be received per share, the
calculation of the number of additional shares of the Fund to be received by
each shareholder of the Fund (other than any shareholder who has elected to
receive such dividends in cash) and the mailing of payments with respect to such
dividends to shareholders who have elected to receive such dividends in cash,
(iv) the provision of transfer agency services, (v) the creation and maintenance
of such records relating to the business of the Fund as the Fund may from time
to time reasonably request, (vi) the preparation of tax forms, reports, notices,
proxy statements, proxies and other shareholder communications, and the mailing
thereof to shareholders of the Fund, and (vii) the provision of such other
dividend disbursing, transfer agency, administrative and accounting services as
the Fund and 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 Fund may reasonably
request.
As compensation for these services, the Fund pays Voyageur a monthly fee
based upon the Fund's average daily net assets and the number of shareholder
accounts then existing. This fee is equal to the sum of (i) $1.33 per
shareholder account per month, (ii) $1,000 per month if the Fund's average daily
net assets do not exceed $50 million, $1,250 per month if the Fund's average
daily net assets are greater than $50 million but do not exceed $100 million,
and $1,500 per month if the Fund's average daily net assets exceed $100 million,
and (iii) 0.11% per annum of the first $50 million of the Fund's average daily
net assets, 0.06% per annum of the next $100 million of the Fund's average daily
net assets, 0.035% per annum of the next $250 million of the Fund's average
daily net assets, 0.03% per annum of the next $300 million of the Fund's average
daily net assets and 0.02% per annum of the Fund's average daily net assets in
excess of $700 million. For purposes of calculating average daily net assets, as
such term is used in the Administrative Services Agreements, the Fund's net
assets equal its total assets minus its total liabilities. The Fund also
reimburses Voyageur for its out-of-pocket expenses in connection with Voyageur's
provision of services under the Fund's Administrative Services Agreement.
The Administrative Services Agreement is renewable from year to year if the
directors approve it in the same way they approve the Investment Advisory
Agreement. The Administrative Services Agreement can be terminated by either
party on 60 days' notice to the other party and the Agreement terminates
automatically upon its assignment. The Administrative Services Agreement also
provides that amendments to the Agreement may be effected if approved by the
Board (including a majority of the board members who are not interested persons
of Voyageur or the Fund), unless the 1940 Act requires that any such amend ment
must be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board (unless the
1940 Act otherwise requires shareholder approval thereof).
EXPENSES OF THE FUND
Voyageur is contractually obligated to pay the operating expenses of the
Fund (excluding interest, taxes, brokerage fees and commissions, Rule 12b-1
fees, if any) which exceed 1% of the Fund's average daily net assets on an
annual basis up to the amount of the investment advisory and management fee,
and, the dividend disbursing, administrative and accounting services fee. In
addition, Voyageur reserves the right to voluntarily waive its fees in whole or
part and to voluntarily absorb certain other of the Fund's expenses. Any such
waiver or absorption, however, is in Voyageur's sole discretion and may be
lifted or reinstated at any time.
All costs and expenses (other than those specifically referred to as being
borne by Voyageur or the Underwriter) incurred in the operation of the Fund are
borne by the Fund. These expenses include, among others, fees of the Board
members who are not employees of 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 expenses of redemption of shares, expenses of issue and sale of
shares (to the extent not borne by the Underwriter under its agreement with the
Fund), expenses of printing and mailing stock certificates representing shares
of the Fund, association membership dues, charges of the Fund's custodian, and
bookkeeping, auditing and legal expenses. The Fund will also pay the fees and
bear the expense of registering and maintaining the registration of the Fund and
its shares with the Securities and Exchange Commission and registering or
qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses, reports and statements to shareholders.
RULE 12B-1 PLANS OF DISTRIBUTION; DISTRIBUTION AGREEMENTS
The Fund has adopted a Plan of Distribution (the "Plan") relating to the
payment of certain expenses pursuant to Rule 12b-1 under the 1940 Act. Rule
12b-1(b) provides that any payments made by a Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing.
Rule 12b-1(b)(1) requires that such plan be approved by a vote of at least
a majority of the Fund's outstanding shares, and Rule 12b-1(b)(2) requires that
such plan, together with any related agreements, be approved by a vote of the
Board of Directors and of the directors who are not interested persons of the
Fund and have no direct or indirect financial interest in the operation of the
plan or in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3)
requires that the plan or agreement provide, in substance:
(1) that it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule 12b-1;
(2) that any person authorized to direct the disposition of monies paid or
payable by a Fund pursuant to its plan or any related agreement shall provide to
the Board of Directors, and the directors shall review, at least quarterly, a
written report of the amount so expended and the purposes for which such
expenditures were made; and
(3) in the case of a plan, that it may be terminated at any time by vote of
a majority of the members of the Board of Directors who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the plan or in any agreements related to the plan or by vote of a
majority of the outstanding voting securities of a Fund.
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1 (c) provides that the
Fund may rely upon Rule 12b-1 only if the selection and nomination of that
Fund's disinterested directors are committed to the discretion of such
disinterested directors. Rule 12b-1(e) provides that the Fund may implement or
continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to
approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under state
law, and under Section 36(a) and (b) of the 1940 Act, that there is a reasonable
likelihood that the plan will benefit the Fund and its shareholders.
The Fund has entered into a Distribution Agreement with the Underwriter,
pursuant to which the Underwriter acts as the principal underwriter of the
Fund's shares. The Distribution Agreement and Plan provide that the Underwriter
agrees to provide, and shall pay costs which it incurs in connection with
providing, administrative or accounting services to shareholders of the Fund
(such costs are referred to as "Shareholder Servicing Expenses") and that the
Underwriter shall also pay all costs of distributing the shares of the Fund
("Distribution Expenses"). Shareholder Servicing Expenses include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of the Fund, including, but not limited to,
an allocation of the Underwriter's overhead and payments made to persons,
including employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other administrative or
accounting services not otherwise required to be provided by the Fund's
investment adviser or dividend disbursing, transfer, administrative and
accounting services agent. Distribution Expenses include, but are not limited
to, initial and ongoing sales compensation (in addition to sales loads) paid to
investment executives of the Underwriter and to other broker-dealers and
participating financial institutions; expenses incurred in the printing of
prospectuses, statements of additional information and reports used for sales
purposes; expenses of preparation and distribution of sales literature; expenses
of advertising of any type; an allocation of the Underwriter's overhead;
payments to and expenses of persons who provide support services in connection
with the distribution of Fund shares; and other distribution-related expenses.
Pursuant to the provisions of the Distribution 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 the Fund's Class A shares, 1.00% of the
average daily net assets attributable to the Fund's Class B shares and 1.00% of
the average daily net assets attributable to the Fund's Class C shares to pay
distribution expenses. As determined from time to time by the Board, a portion
of such fees shall be designated as a "shareholder servicing fee" and a portion
shall be designated as a "distribution fee." The Board has determined that all
of the fee payable with respect to Class A shares shall be designated a
shareholder servicing fee. With respect to fees payable with respect to Class B
shares and Class C shares, that portion of the fee equal to .25% of average
daily net assets attributable to 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 Fund. In addition to being paid shareholder servicing
and distribution fees, the Underwriter also receives for its services the sales
charge on sales of Fund shares set forth in the Prospectus.
The Fund's Distribution Agreement is renewable from year to year if the
Fund's Board approves the Agreement and the Fund's Plan. The Fund or the
Underwriter can terminate its Distribution Agreement on 60 days' notice to the
other party, and the Distribution Agreement terminates automatically upon its
assignment. In the Fund's Distribution Agreement, the Underwriter agrees to
indemnify the Fund against all costs of litigation and other legal proceedings
and against any liability incurred by or imposed on the Fund in any way arising
out of or in connection with the sale or distribution of the Fund's shares,
except to the extent that such liability is the result of information which was
obtainable by the Underwriter only from persons affiliated with the Fund but not
the Underwriter.
PORTFOLIO TRANSACTIONS, ALLOCATION OF BROKERAGE AND TURNOVER RATE
As the Fund's 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 Fund, 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 Fund's 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 Fund. 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 Fund. 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 Fund 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 Fund's 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 Fund's 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 Fund to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if 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 Fund will not 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 the Fund. In the event any transactions are
executed on an agency basis, Voyageur will authorize the Fund to pay an amount
of commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if 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 Fund as to which it exercises investment
discretion. If the Fund 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 Fund that such commissions will, in the
judgment of Voyageur, subject to review by the Board of Directors, be both (a)
at least as favorable as those which would be charged by other qualified brokers
in connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time, and (b) at
least as favorable as commissions contemporaneously charged by such affiliated
broker-dealers on comparable transactions for their most favored comparable
unaffiliated customers. While the Fund does not deem it practicable and in its
best interest to solicit competitive bids for commission rates on each
transaction, consideration will regularly be given to posted commission rates as
well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers.
Pursuant to conditions set forth in rules of the Securities and Exchange
Commission, the Fund may purchase securities from an underwriting syndicate of
which an affiliated broker-dealer is a member (but not directly from such
affiliated broker-dealer itself). Such conditions relate to the price and amount
of the securities purchased, the commission or spread paid and the quality of
the issuer. The rules further require that such purchases take place in
accordance with procedures adopted and reviewed periodically by the Board of
Directors, particularly those Board members who are not interested persons of
the Fund.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Fund's directors may determine,
Voyageur may consider sales of shares of the Fund as a factor in the selection
of broker-dealers to execute the Fund's securities transactions.
OTHER INFORMATION
CONVERSION OF CLASS B SHARES. In addition to information regarding
conversion set forth in the prospectus, the conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that payment of different
dividends by each of the classes of shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the Code
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion will be available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
SIGNATURE GUARANTY. In addition to information regarding redemption of
shares and signature guaranty set forth in the prospectus, 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 Board of Directors.
BANK PURCHASES. Banks, acting as agents for their customers and not for the
Fund or the Underwriter, from time to time may purchase Fund shares for the
accounts of such customers. Generally, the Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. Should the activities of any bank, acting as agent for its customers
in connection with the purchase of any Fund's shares, be deemed to violate the
Glass-Steagall Act, management will take whatever action, if any, is appropriate
in order to provide efficient services for the Fund. Management does not believe
that a termination in the relationship with a bank would result in any material
adverse consequences to the Fund. In addition, state securities laws on this
issue may differ and banks and financial institutions may be required to
register as dealers pursuant to state law. Fund shares are not deposits or
obligations of, or guaranteed or endorsed by, any bank and are not insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other federal agency.
TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), all or a
portion of the interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest dividends, such as
each of the Funds, will not be deductible by a shareholder. Indebtedness may be
allocated to shares of the Fund even though not directly traceable to the
purchase of such shares.
The Fund's present policy is to designate exempt-interest dividends at each
daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
An exchange of shares in one 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.
The Fund will be subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the taxable amount required to be distributed for each
calendar year over the amount actually distributed. In order to avoid this
excise tax, the Fund must declare dividends by the end of the calendar year
representing 98% of the Fund's ordinary income for the calendar year and 98% of
its capital gain net income (both long and short term partial gain) for the
12-month period ending on October 31 of such year. For purposes of the excise
tax, any income on which the Fund has paid corporate-level tax is considered to
have been distributed. The Fund intends to make sufficient distributions each
year to avoid the payment of the excise tax.
Under a special provision of the Revenue Reconciliation Act of 1993, all or
a portion of the gain that the Fund realizes on the sale of a Tax Exempt
Obligation that it purchased at a market discount may have to be treated as
ordinary income rather than capital gain.
For shareholders who are recipients of Social Security benefits, exempt
interest dividends are includable in computing "modified adjusted gross income"
for purposes of determining the amount of Social Security benefits, if any, that
is required to be included in gross income. The maximum amount of Social
Security benefits that may be included in gross income is 85%.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's
regular income tax liability (with certain adjustments). Exempt-interest
dividends attributable to interest income on certain tax-exempt obligations
issued after August 7, 1986 to finance private activities are treated as an item
of tax preference that is included in alternative minimum taxable income for
purposes of computing the federal AMT for all taxpayers and the federal
environmental tax on corporations. In addition, all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be included
in adjusted current earnings for purposes of determining the federal corporate
AMT and the environmental tax imposed on corporations by Section 59A of the
Code. Liability for AMT will depend on each shareholder's individual tax
situation.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
bonds held by the Fund. The Fund will avoid investment in bonds which, in the
opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a bond in the Fund's portfolio lost its exempt status,
the Fund would make every effort to dispose of such investment on terms that are
not detrimental to the Fund.
The Code forbids a regulated investment company from earning 30% or more of
its gross income from the sale or other disposition of securities held less than
three months. This restriction may limit the extent to which any Fund may
purchase options. To the extent the Fund engages in short-term trading and
enters into options transactions, the likelihood of violating this 30%
requirement is increased.
Gain or loss on options is taken into account when realized by entering
into a closing transaction or by exercise. In addition, with respect to many
types of options held at the end of a Fund's taxable year, unrealized gain or
loss on such contracts is taken into account at the then current fair market
value thereof under a special "marked-to-market, 60/40 system," and such gain or
loss is recognized for tax purposes. The gain or loss from such options
(including premiums on certain options that expire unexercised) is treated as
60% long-term and 40% short-term capital gain or loss, regardless of their
holding period. The amount of any capital gain or loss actually realized by the
Fund in a subsequent sale or other disposition of such options will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale under the "marked-to-market, 60/40
system."
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 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.
SPECIAL PURCHASE PLANS
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares may be
purchased through a preauthorized automatic investment plan. Such preauthorized
investments (at least $100) may be used to purchase shares of the Fund at the
public offering price next determined after the Fund receives the investment
(normally the 20th of each month, or the next business day thereafter). Further
information is available from the Underwriter.
COMBINED PURCHASE PRIVILEGE. The following persons (or groups of persons)
may qualify for reductions from the front end sales charge ("FESC") schedule for
Class A shares set forth in the Fund's prospectus by combining purchases of any
class of shares of any one or more of the 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 net asset value (at the close of business on the previous
day) of the shares of FESC classes of the Funds held by the investor; and
(iii) the net asset value 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).
For example, if an investor owned shares worth $35,000 at the then current
net asset value and purchased an additional $15,000 of shares, the sales charge
for the $15,000 purchase would be at the rate applicable to a single $50,000
purchase.
To qualify for the Combined Purchase Privilege or to obtain the Cumulative
Quantity Discount on a purchase through an investment dealer, when each purchase
is made the investor or dealer must provide the Fund whose shares are being
purchased with sufficient information to verify that the purchase qualifies for
the privilege or discount.
LETTER OF INTENTION. Investors may also obtain the reduced front end sales
charges shown in the 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 Fund 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. With respect to the Fund, the cumulative purchase would have to
total at least $50,000 to qualify for a reduced sales charge.
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 Fund as part of such other
investment companies' family of funds. Additionally, the maximum reduction of
the applicable Fund's FESC that may result from the inclusion of shares of such
other investment companies' in a Combined Purchase Privilege, Cumulative
Quantity Discount or Letter of Intention shall be a reduction to the front-end
sales charge applicable to purchases of $500,000 but less than $1,000,000 (as
set forth in the sales charge tables in the prospectus).
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the net asset value of 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
4.75% of the net asset value. The public offering price of Class B and Class C
shares is the net asset value of Fund shares.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may refer to
"yield," "taxable equivalent yield," "average annual total return" and
"cumulative total return." Yield, taxable equivalent yield, average annual total
return and cumulative total return are calculated as follows. Performance data
is provided for Class B or Class C shares to the extent such shares were
outstanding during the periods indicated.
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.
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 income
tax rate and adding the product to that portion, if any, of the yield of the
Fund that is not tax-exempt.
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.
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.
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of the Fund valued at $10,000 or more
at the current offering price may open a Withdrawal Plan and have a designated
sum of money paid monthly to the investor or another person. Shares are
deposited in a Withdrawal Plan account and all distributions are reinvested in
additional shares of 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 B and Class C
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 the Fund would normally be disadvantageous to the investor because
of the FESC payable on such purchases. For this reason, an investor may not
maintain a plan for the accumulation of Class A shares of the Fund (other than
through reinvestment of distributions) and a Withdrawal Plan at the same time.
The cost of administering Withdrawal Plans is borne by the Fund as an expense of
all shareholders. The Fund or the Underwriter may terminate or change the terms
of the Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary and
may be terminated by the shareholder at any time without the imposition of any
penalty.
Since the Withdrawal Plan may involve invasion of capital, investors should
consider carefully with their own financial advisers whether the Withdrawal Plan
and the specified amounts to be withdrawn are appropriate in their
circumstances. The Fund makes no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
Information regarding certain record and beneficial ownership of the Fund
shares which equals or exceeds 5% of a Fund's shares is available 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 the Fund prior to the end of the Fund's 60-month amortization period, the
redemption proceeds will be reduced by its pro rata portion of such Fund's
unamortized organizational costs. If the Fund liquidates prior to the date such
costs are fully amortized, Voyageur will bear all unamortized organizational
costs of the Fund.
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
Norwest Bank Minnesota, N.A., Sixth Street & Marquette Avenue, Minneapolis,
Minnesota 55479, acts as custodian of the Fund's assets and portfolio
securities.
Dorsey & Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota
55402, serves as counsel for the Fund.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
serves as independent auditors for the Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director owes certain fiduciary duties to the
Fund and to its shareholders. Minnesota law provides that a director "shall
discharge the duties of the position of director in good faith, in a manner the
director reasonably believes to be in the best interest of the corporation, and
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances." Fiduciary duties of a director of a Minnesota
corporation include, therefore, both a duty of "loyalty" (to act in good faith
and act in a manner reasonably believed to be in the best interests of the
corporation) and a duty of "care" (to act with the care an ordinarily prudent
person in a like position would exercise under similar circumstances). 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 the Fund limits the liability of the Fund's directors to the
fullest extent permitted by Minnesota statutes, except to the extent that such
liability cannot be limited as provided in the 1940 Act (which Act prohibits any
provisions which purport to limit the liability of directors arising from such
directors' willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted thereunder.
SHAREHOLDER MEETINGS
The Fund is not required under Minnesota law to hold annual or periodically
scheduled regular meetings of shareholders. Regular and special shareholder
meetings are held only at such times and with such frequency as required by law.
Minnesota corporation law provides for the Board of Directors to convene
shareholder meetings when it deems appropriate. In addition, if a regular
meeting of shareholders has not been held during the immediately preceding
fifteen months, a shareholder or shareholders holding three percent or more of
the voting shares of the Fund may demand a regular meeting of shareholders of
the Fund by written notice of demand given to the chief executive officer or the
chief financial officer of the Fund. Within ninety days after receipt of the
demand, a regular meeting of shareholders must be held at the expense of the
Fund. Additionally, the 1940 Act requires shareholder votes for all amendments
to fundamental investment policies and restrictions and for all investment
advisory contracts and amendments thereto.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Description of Standard and Poor's Corporation ("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 com
paratively 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
move ments 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 a mount 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 h older
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 po sitions, 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 Minnesota High Yield Municipal Bond Fund
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements --- Not applicable.
(b) EXHIBITS:
1.1 Articles of Incorporation, dated April 14, 1993, filed as an
Exhibit to Pre-Effective Amendment No. 1 to Form N-1A on August
27, 1993, File Nos. 33-63238 and 811-7742 and incorporated herein
by reference.
1.2 Certification of Designation of Series I, to be filed by
amendment.
2 Bylaws, as amended January 24, 1995, filed as an Exhibit to Post
Effective Amendment Nos. 6 and 7 to Form N-1A on March 1, 1995,
Nos. 33-63238 and 811-7742 respectively, and incorporated herein
by reference.
3 Not applicable.
4 Specimen copy of share certificate, Series I, to be filed by
Amendment.
5 Investment Advisory Agreement, to be filed by amendment.
6 Distribution Agreement, to be filed by amendment.
7 Not applicable
8 Custodian Agreement, to be filed by amendment.
9 Administrative Services Agreement, to be filed by amendment.
10 Opinion and Consent of Dorsey & Whitney, with respect to Series
I, to be filed by amendment.
11 Other opinions, appraisals, or rulings. Not applicable.
12 Financial statements omitted from Item 23. Not applicable.
13 Letter of Investment Intent, filed as an Exhibit to Pre-Effective
Amendment No.1 to Form N-1A on August 27, 1993, File Nos.
33-63238 and 811-7742 and incorporated herein by reference..
14 Not applicable
15 Plan of Distribution, to be filed by amendment.
16 Schedule for Computation of Performance Data - Not applicable.
17.1 Power of Attorney, filed as an Exhibit to Post-Effective
Amendment No. 26 to Form N-1A of Voyageur Tax Free Funds, Inc.,
on March 1, 1995, File Nos. 2-89710 and 811-3910 and incorporated
herein by reference.
17.2 Financial Data Schedule to be filed electronically as Exhibit 27
pursuant to Rule 401 of Regulation S-T. Not applicable.
18 Not Applicable
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Voyageur serves as investment manager to the following closed-end and
open-end management investment companies:
CLOSED-END INVESTMENT COMPANIES
Voyageur Arizona Municipal Income Fund, Inc.
Voyageur Colorado Insured Municipal Income Fund, Inc.
Voyageur Florida Insured Municipal Income Fund
Voyageur Minnesota Municipal Income Fund, Inc.
Voyageur Minnesota Municipal Income Fund II, Inc.
Voyageur Minnesota Municipal Income Fund III, Inc.
OPEN-END INVESTMENT COMPANIES AND SERIES THEREOF
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund
Voyageur Insured Funds, Inc.
Voyageur Minnesota Insured Fund
Voyageur Arizona Insured Tax Free Fund
Voyageur National Insured Tax Free Fund
Voyageur Colorado Insured Tax Free Fund
Voyageur Intermediate Tax Free Funds, Inc.
Voyageur Minnesota Limited Term Tax Free Fund
Voyageur National Limited Term Tax Free Fund
Voyageur Arizona Limited Term Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund
Voyageur California Limited Term Tax Free Fund
Voyageur Investment Trust
Voyageur Florida Insured Tax Free Fund
Voyageur California Insured Tax Free Fund
Voyageur Kansas Tax Free Fund
Voyageur Missouri Insured Tax Free Fund
Voyageur New Mexico Tax Free Fund
Voyageur Oregon Insured Tax Free Fund
Voyageur Utah Tax Free Fund
Voyageur Washington Insured Tax Free Fund
Voyageur Florida Tax Free Fund
Voyageur Investment Trust II
Voyageur Florida Limited Term Tax Free Fund
Voyageur Tax Free Funds, Inc.
Voyageur Minnesota Tax Free Fund
Voyageur North Dakota Tax Free Fund
Voyageur Mutual Funds, Inc.
Voyageur Iowa Tax Free Fund
Voyageur Wisconsin Tax Free Fund
Voyageur Idaho Tax Free Fund
Voyageur Arizona Tax Free Fund
Voyageur California Tax Free Fund
Voyageur National Tax Free Fund
VOYAGEUR MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
Voyageur Mutual Funds II, Inc.
Voyageur Colorado Tax Free Fund
Voyageur Mutual Funds III , Inc.
Voyageur Growth Stock Fund
Voyageur International Equity Fund
Voyageur Aggressive Growth Fund
Voyageur Growth and Income Fund
VAM Institutional Funds, Inc.
VAM Global Fixed Income Fund
VAM Short Duration Government Agency Fund
VAM Intermediate Duration Government Agency Fund
VAM Government Mortgage Fund
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Intermediate Duration Municipal Fund
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
No information is presented for the Funds because they have not yet
commenced operations.
ITEM 27. INDEMNIFICATION
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.
The Registrant may indemnify its officers and directors and other "persons"
acting in an "official capacity" (as such terms are defined in Section 302A.521)
pursuant to a determination by the board of directors or shareholders of the
Registrant as set forth in Section 302A.521, by special legal counsel selected
by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of the Registrant, then such director generally
may not be counted for the purpose of determining either the presence of a
quorum or such director's eligibility to be indemnified.
In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification has (a) not received
indemnification for the same conduct from any other party or organization; (b)
acted in good faith; (c) received no improper personal benefit; (d) in the case
of criminal proceedings, had no reasonable cause to believe the conduct was
unlawful; (e) reasonably believed that the conduct was in the best
interest of the Registrant, or in certain contexts, was not opposed to the best
interest of the Registrant; and (f) had not otherwise engaged in conduct which
precludes indemnification under either Minnesota or Federal law (including, but
not limited to, conduct constituting willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties as set forth in Section 17(h) and
(I) of the Investment Company Act of 1940).
If a person is made or threatened to be made a party to a proceeding, the
person is entitled, upon written request to the Registrant, to payment or
reimbursement by the Registrant of reasonable expenses, including attorneys'
fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding, (a) upon receipt by the Registrant of a written
affirmation by the person of a good faith belief that the criteria for
indemnification set forth in Section 302A.521 have been satisfied and a written
undertaking by the person to repay all amounts so paid or reimbursed by the
Registrant, if it is ultimately determined that the criteria for indemnification
have not been satisfied, and (b) after a determination that the facts then known
to those making the determination would not preclude indemnification under
Section 302A.521. The written undertaking required by clause (a) is an unlimited
general obligation of the person making it, but need not be secured and shall be
accepted without reference to financial ability to make the repayment.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant undertakes to comply with the indemnification requirements
of Investment Company Release 7221 (June 9, 1972) and Investment Company Release
11330 (September 2, 1980).
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The name and principal occupation(s) during the past two fiscal years of
each director and the executive officers of the Adviser are set forth below. The
business address of each is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402, except that the principal business address of Mr. McCullagh is
717 Seventeenth Street, Denver, Colorado 80202.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH ADVISER PRINCIPAL OCCUPATION(S)
- ---------------- --------------------- -----------------------
<S> <C> <C>
Michael E. Dougherty Chairman Chairman of the Board, President and Chief
Executive Officer of Dougherty Financial
Group, Inc. ("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 Senior Vice President; See biographical information in Part B of the
General Counsel 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 Registrant's Adviser is contained in the
section of the Prospectus entitled "Management" and in the section of the
Statement of Additional Information entitled "The Investment Adviser,
Sub-Adviser and Underwriter" filed as part of this Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Voyageur Fund Distributors, Inc., the underwriter of the Registrant's
shares, is principal underwriter for the shares of Voyageur Tax Free Funds,
Inc., Voyageur Insured Funds, Inc., Voyageur Intermediate Tax Free Funds, Inc.,
Voyageur Investment Trust, Voyageur Investment Trust II, Voyageur Mutual Funds,
Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual Funds III, Inc. and VAM
Institutional Funds, Inc., affiliated open-end management investment companies.
(b) The directors of the Underwriter are the same as the directors of the
Adviser as set forth above in Item 28. The executive officers of the Underwriter
and the positions of these individuals with respect to the Registrant are:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- ----------------------- ---------------------
<S> <C> <C>
Michael E. Dougherty Chairman None
Frank C. Tonnemaker President None
Steven B. Johansen Secretary None
Kenneth R. Larsen Treasurer Treasurer
Thomas J. Abood Senior Vice President and
General Counsel Secretary
Jane M. Wyatt Executive Vice President Executive Vice President
John C. Taft Executive Vice President None
</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 Registrant is Norwest Bank Minnesota, N.A., Sixth Street
& Marquette Avenue, Minneapolis, Minnesota 55402. The dividend disbursing,
administrative and accounting services agent of Registrant is Voyageur Fund
Managers, Inc. The address of Voyageur Fund Managers, Inc. and the Registrant is
90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the commencement of operations of each respective series.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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 8th
day of March, 1996.
VOYAGEUR FUNDS, INC.
By /s/ John G. Taft
-----------------------
John G. Taft, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John G. Taft
- -------------------- President (Principal March 8, 1996
John G. Taft Executive Officer)
/s/Kenneth R. Larsen
- -------------------- Treasurer (Principal
Kenneth R. Larsen Financial and March 8, 1996
Accounting Officer)
James W. Nelson* Director
Clarence G. Frame* Director
Robert J. Odegard* Director
Richard F. McNamara* Director
Thomas F. Madison* Director
*/s/ Thomas J. Abood Attorney-in-Fact March 8, 1996
-------------------
Thomas J. Abood
(Pursuant to Powers of Attorney dated January 24, 1995)
