AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
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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. 16 [X]
and/or
REGISTRATIONSTATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17
(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:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b) ofRule 485
/ / on (specify date) pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (specify date) pursuant to paragraph (a)(1) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(2) of Rule 485
/ / on (specify date) pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. A Rule 24f-2 Notice was filed by the Registrant on or about
February 28, 1996.
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CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
ITEM NO.
OF FORM N-1A CAPTION IN PROSPECTUS
1 Cover Page
2 Fees and Expenses
3 Financial Highlights
4 The Fund; Investment Objective and Policies; Risks and Special
Investment Considerations; 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 General Information
Incorporation by Reference
and
Explanatory Note
This post-effective amendment No. 16 to the registration statement of
Voyageur Mutual Funds, Inc. (the "Company") includes Part A (Prospectus), Part B
(Statement of Additional Information),and Part C (Other Information), relating
to the Voyageur New York Tax Free Fund, a recently organized series of the
Company.
The Part A (Prospectus), Part B (Statement of Additional Information) and
Part C (Other Information) relating to the Voyageur Minnesota High Yield
Municipal Bond Fund are hereby incorporated by reference from Post-Effective
Amendment No. 10 to the Registration Statement of the Company (File Nos.
33-63238 and 811-7742) filed on June 3, 1996.
The Part A (Prospectus), Part B (Statement of Additional Information) and
Part C (Other Information) relating to the Voyageur National High Yield
Municipal Bond Fund are hereby incorporated by reference from Post-Effective
Amendment No. 14 to the Registration Statement of the Company (File Nos.
33-63238 and 811-7742) filed on November 12, 1996.
The Part A (Prospectus) and Part B (Statement of Additional Information)
relating to six other series of the Company are hereby incorporated by reference
from a Post-Effective Amendment No. 8 to the Registration Statement of the
Company (File Nos. 33-63238 and 811-7742) filed on April 30, 1996, and the
prospectus included therein, as supplemented on June 3, 1996, and filed pursuant
to Rule 497 under the Securities Act of 1933 on June 3, 1996.
NEW YORK TAX FREE FUND
[GRAPHIC OMITTED]
VOYAGEUR NEW YORK TAX FREE FUND
VOYAGEUR FUNDS (NOT PART OF PROSPECTUS); DATED DECEMBER 5, 1996
Table of Contents
3 Fees and Expenses
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5 Financial Highlights
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7 The Fund
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7 Investment Objective and Policies
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16 Risks and Special Investment Considerations
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17 Investment Restrictions
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18 How to Purchase Shares
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23 How to Sell Shares
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26 Reinstatement Privilege
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26 Exchange Privilege
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27 Management
- --------------------------------------------------------------------------------
30 Determination of Net Asset Value
- --------------------------------------------------------------------------------
30 Distributions to Shareholders and Taxes
- --------------------------------------------------------------------------------
32 Investment Performance
- --------------------------------------------------------------------------------
33 General Information
- --------------------------------------------------------------------------------
VOYAGEUR FUNDS (NOT PART OF PROSPECTUS); DATED DECEMBER 5, 1996
PROSPECTUS
Dated December 5, 1996
Voyageur New York Tax Free Fund (the "Fund") is a series of Voyageur Mutual
Funds, Inc., an open end management investment company, commonly referred to as
a mutual fund. The investment objective of the Fund is to seek as high a level
of current income exempt from federal income tax and from the personal income
tax of the State of New York and the City of New York as is consistent with
preservation of capital. 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 anticipates that, in normal market conditions, it will invest
substantially all of its assets in Tax-Exempt Obligations, the interest on which
is exempt from federal income tax and New York State and New York City personal
income tax. Up to 20% of the Fund's net assets may be invested in securities
which may generate interest that is an item of tax preference for purposes of
the federal, New York State or New York City alternative minimum tax.
The Fund's investment adviser is Voyageur Fund Managers, Inc. ("Voyageur").
The address of Voyageur and the Fund is shown below.
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 December 5, 1996) with the Securities and Exchange
Commission. The Statement of Additional Information is available free of charge
by telephone and at the mailing address below and is incorporated by reference
into this Prospectus in accordance with the Commission's rules.
VOYAGEUR NEW YORK TAX FREE FUND
90 SOUTH SEVENTH STREET, SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
612.376.7000 OR 800.553.2143
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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 which
are subject to a contingent deferred sales charge). The initial sales charge may
be reduced or waived for certain purchases. Class A shares are subject to a Rule
12b-1 fee payable at an annual rate of .25% of the Fund's average daily net
assets attributable to Class A shares. 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 5% if redeemed within six years of
purchase. Class B shares are also subject to a higher Rule 12b-1 fee than Class
A shares. The Rule 12b-1 fee for Class B shares will be paid at an annual rate
of 1% of the Fund's average daily net assets attributable to Class B shares.
Class B shares will automatically convert to Class A shares at net asset value
approximately eight years after purchase. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made but until conversion will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares--Class B Shares."
CLASS C SHARES
Class C shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of 1% if redeemed within one year of purchase.
Class C shares are also subject to a higher Rule 12b-1 fee than Class A shares.
The Rule 12b-1 fee for Class C shares 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.
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. Orders for
Class B shares for $100,000 or more will be treated as orders for Class A shares
or such orders will be declined. Sales personnel may receive different
compensation depending on which class of shares they sell.
SHARES OF THE FUND ARE NOT REGISTERED IN ALL STATES. SHARES THAT ARE NOT
REGISTERED IN ONE OR MORE STATES ARE NOT BEING OFFERED AND SOLD IN SUCH STATES.
<TABLE>
<CAPTION>
FEES AND EXPENSES
NEW YORK TAX FREE FUND CLASS A CLASS B CLASS C
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 3.75% N/A(2) N/A(2)
Maximum Deferred Sales Load
(as a percentage of original purchase price
or redemption proceeds, as applicable) 1.00(1) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee .50 .50 .50
Rule 12b-1 Fee .25 1.00 1.00
Other Expenses
(after voluntary expense reimbursements) .25 .25 .25
----- ----- -----
Total Fund Operating Expenses
(after voluntary expense reimbursements) 1.00% 1.75% 1.75%
===== ===== =====
Total Fund Operating Expenses
(without voluntary expense reimbursements) 1.25% 2.00% 2.00%
===== ===== =====
</TABLE>
EXAMPLE
An investor in the Fund would pay the following expenses on a $1,000 investment
assuming a 5% annual return and:
Redemption at the end of each period
1 Year $47 $68 $28
3 Years $68 $95 $55
5 Years $91 $115 $95
10 Years $155 $186 $206
No redemption
1 Year $47 $18 $18
3 Years $68 $55 $55
5 Years $91 $95 $95
10 Years $155 $186 $206
1 A contingent deferred sales charge of 1% is imposed on certain redemptions
of Class A shares that were purchased without an initial sales charge as
part of an investment of $1 million or more. See "How to Purchase
Shares--Class A Shares."
2 Class B and Class C shares are sold without a front-end sales charge, but
their Rule 12b-1 fees may cause long term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales charges.
THE EXAMPLE 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 reflects anticipated voluntary expense
reimbursements in effect through fiscal 1997. After December 31, 1997, such
expense reimbursements may be discontinued or modified by Voyageur and Voyageur
Fund Distributors, Inc. ("VFD") in their sole discretion. Without such
reimbursements, it is estimated that Other Expenses would be 0.50% for each of
Class A, Class B and Class C shares for the fiscal year ending December 31,
1997. The Fund's investment adviser, Voyageur, is contractually obligated to pay
certain of the operating expenses (excluding rule 12b-1 fees) of the 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."
FINANCIAL HIGHLIGHTS
The following financial highlights show certain per share data and selected
information for a share of capital stock outstanding during the indicated
periods for the Fund. Except for the six months ended March 31, 1996, this
information has been audited by KPMG Peat Marwick LLP, independent auditors. The
financial highlights should be read in conjunction with the financial statements
of the Fund. The independent auditors' report and related financial statements
can be found in the annual report. An annual report of the Fund is available
without charge by contacting the Fund at 800-553-2143 toll free. In addition to
financial statements, the Fund's annual report contains further information
about performance.
Effective with the close of business on November 15, 1996, the Fund
acquired the assets and assumed all identified liabilities of New York
Portfolio, a series of Fortis Tax-Free Portfolios, Inc. ("Fortis Fund"), in a
tax-free exchange by issuing new shares. The Fund offers three classes of
shares--Class A, B and C; prior to the acquisition Fortis Fund offered five
classes of shares. In the acquisition, Fortis Fund Class E shareholders received
Class A Fund shares and Fortis Fund Class H shareholders received Class B Fund
Shares. The Fund had no assets or liabilities prior to the acquisition.
Consequently, the information presented for the Fund represents the financial
history of Fortis Fund.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS H SHARES
-------------- -------------- -------------- --------------
YEAR PERIOD YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30
1996 1995(6) 1996 1995(6) 1996 1995(7) 1996 1995(8)
---- ------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $10.87 $10.34 $10.84 $10.34 $10.85 $10.79 $10.83 $10.89
----- ------ ------ ------ ------ ------ ------ ------
Operations:
Investment income-net............. .55 .50 .47 .43 .47 .21 .48 .16
Net realized and unrealized gains
(losses) on investment......... (.13) .57 (.13) .54 (.13) .06 (.13) (.05)
--- --- --- --- --- -- --- ---
Total from operations............... .42 1.07 .34 .97 .34 .27 .35 .11
--- ---- --- --- --- --- --- ---
Distributions to shareholders:
From investment income-net........ (.55) (.52) (.47) (.45) (.47) (.21) (.47) (.17)
From realized gains............... (.02) (.02) (.02) (.02) (.02) -- (.02) --
--- --- --- --- --- -- --- --
Total distributions to
shareholders...................... (.57) (.54) (.49) (.47) (.49) (.21) (.49) (.17)
--- --- --- --- --- --- --- ---
Net asset value, end of period...... $10.72 $10.87 $10.69 $10.84 $10.70 $10.85 $10.69 $10.83
====== ====== ====== ====== ====== ====== ====== ======
Total return(4)..................... 3.94% 10.51% 3.14% 9.46% 3.14% 2.54% 3.24% 1.00%
Net assets at end of
period (000s omitted)............. $104 $49 $231 $194 $52 $51 $217 $72
Ratio of expenses to average
daily net assets(9)............... 1.34% 1.34%(2) 2.09% 2.09%(2) 2.09% 2.09%(2) 2.09% 2.09%(2)
Ratio of net investment income
to average daily net assets9...... 5.14% 5.41%(2) 4.39% 4.68%(2) 4.39% 4.44%2 4.39% 4.36%(2)
Portfolio turnover rate (excluding
short-term securities)............ 12% 10% 12% 10% 12 10% 12% 10%
</TABLE>
<TABLE>
<CAPTION>
CLASS E SHARES
--------------
THREE NINE
YEAR YEAR MONTHS YEAR YEAR YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED YEAR ENDED
SEPT. 30 SEPT. 30 SEPT. 30 JUNE 30 JUNE 30 JUNE 30 JUNE 30 SEPTEMBER 30
1996 1995 1994(3) 1994 1993 1992 1991 1990 1989 1988(1)
---- ---- ------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............. $10.87 $10.74 $10.81 $11.51 $11.03 $10.57 $10.27 $10.50 $10.30 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operations:
Investment income-net........... .58 .61 .15 .62 .65 .66 .48 .67 .72 .64
Net realized and unrealized gains
(losses) on investment....... (.13) .15 (.06) (.54) .65 .62 .30 (.22) .20 .30
--- --- --- --- --- --- --- --- --- ---
Total from operations.............. .45 .76 .09 .08 1.30 1.28 .78 .45 .92 .94
--- --- --- --- ---- ---- --- --- --- ---
Distributions to shareholders:
From investment income-net...... (.58) (.61) (.16) (.62) (.65) (.66) (.48) (.67) (.72) (.64)
Excess distribution of net
investment income........... -- -- -- -- (.01) -- -- -- -- --
From realized gains............. (.02) (.02) -- (.16) (.16) (.16) -- (.01) -- --
--- --- -- --- --- --- -- --- -- --
Total distributions to shareholders (.60) (.63) (.16) (.78) (.82) (.82) (.48) (.68) (.72) (.64)
--- --- --- --- --- --- --- --- --- ---
Net asset value, end of period..... $10.72 $10.87 $10.74 $10.81 $11.51 $11.03 $10.57 $10.27 $10.50 $10.30
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(4).................... 4.16% 7.31% .79% .63% 12.19% 12.53% 5.49% 4.44% 9.21%10.09%2
Net assets at end of
period (000s omitted)...........$10,444 $11,882 $12,797 $12,851 $13,915 $14,943 $15,952 $27,065 $23,069 $9,260
Ratio of expenses to average
daily net assets(5)............. 1.09% 1.09% 1.09%(2) .99% .99% 1.00% 1.23%(2) 1.09% .60% .45%(2)
Ratio of net investment income
to average daily net assets(5).. 5.39% 5.69% 5.74%(2) 5.55% 5.74% 6.15% 6.08%(2) 6.35% 6.75% 6.87%(2)
Portfolio turnover rate (excluding
short-term securities).......... 12% 10% 0% 4% 17% 19% 18% 31% 11% 18%
</TABLE>
1 For the period November 6, 1987 (commencement of operations) to September
30, 1988.
2 Annualized.
3 Effective September 30, 1994, the Fund changed its fiscal accounting year
end to September 30. Previously, the fiscal year end was June 30 and prior
to June 1991, it was September 30.
4 Total returns during the period, including reinvestment of dividend and
capital gains distributions, without adjustment for sales charges.
5 Fortis Advisers, Inc., the Fund's previous investment adviser, voluntarily
limited annual expenses (exclusive of interest, taxes, brokerage
commissions, 12b-1 fees and non-recurring extraordinary charges and
expenses) to 1.09% of average net assets from July 1, 1994 through
September 30, 1996. From June 1, 1993 to June 30, 1994, such limitation was
.99% of average net assets. Prior to June 1, 1993, the limitation was 1.00%
of average net assets. Prior to June 1, 1991 Empire of American Advisory
Services, Inc., the previous advisor of the Fund, and Empire National
Securities, Incorporated, the previous distributor of the Fund, each agreed
to waive a portion of its fees or reimburse the Fund for certain operating
expenses. For each of the periods presented, had the waivers and
reimbursement of expenses not been in effect, the ratios of expenses and
net investment income to average daily net assets would have been 1.30% and
5.18% for the year ended September 30, 1996; 1.60% and 5.18% for the year
ending September 30, 1995; 1.09% and 5.45% for the year ended June 30,
1994; 1.05% and 5.68% for the year ended June 30, 1993; 1.26% and 5.89% for
the year ended June 30, 1992; 1.48% and 5.83% for the nine-month period
ended June 30, 1991; 1.49% and 5.95% for the year ended September 30, 1990;
1.70% and 5.65% for the year ended September 30, 1989; and 2.04% and 5.28%,
for the period from November 6, 1987 (commencement of operations) to
September 30, 1988.
6 For the period November 14, 1994 (commencement of operations) to September
30, 1995.
7 For the period April 26, 1995 (commencement of operations) to September 30,
1995.
8 For the period May 31, 1995 (commencement of operations) to September 30,
1995.
9 For each of the periods presented, had the waivers and reimbursement of
expenses not been in effect, the ratios of expenses and net investment
income to average daily net assets for the year ended September 30, 1996
and the period ended September 30, 1995 would have been 1.55% and 4.93%,
and 1.85% and 4.90%, respectively, for Class A; 2.30% and 4.18%, and 2.60%
and 4.17%, respectively, for Class B; 2.30% and 4.18%, and 2.60% and 3.93%,
respectively, for Class C; and 2.30% and 4.18% and 2.60% and 3.85%,
respectively, for Class H.
THE FUND
The Fund is a separate series of Voyageur Mutual Funds, Inc., the parent
corporate entity, which was incorporated in the State of Minnesota on April 14,
1993. 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 OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek as high a level of current
income exempt from federal income tax and from the personal income tax of the
State of New York and the City of New York as is consistent with preservation of
capital. 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 New York State and
New York City personal income tax. As a matter of fundamental policy, the Fund
will invest at least 80% of the value of its net assets in such obligations
under normal market conditions (not including obligations subject to the
altnernative minimum tax). Up to 20% of the Fund's net assets may be invested in
securities which generate interest that is an item of tax preference for
purposes of federal, New York State and New York City alternative minimum tax
("AMT"). In normal circumstances the weighted average maturity of the investment
portfolio of the Fund is expected to be approximately 15 to 25 years. However,
if Voyageur determines that market conditions warrant a shorter average
maturity, the Fund's investments will be adjusted accordingly. During times of
adverse market conditions when a defensive investment posture is warranted, the
Fund may temporarily select investments without regard to the foregoing
policies.
There are risks in any investment program, and there is no assurance that
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 the Fund's shareholders as provided in the 1940 Act.
The Fund may invest without limitation in securities rated "investment
grade," i.e., rated within the four highest investment grades, at the time of
investment, by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Services ("S&P") or, if unrated, judged by Voyageur to be of comparable
quality. Bonds included in the lowest investment grade rating category involve
certain speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated bonds. Up to 20% of
Tax-Exempt Obligations purchased by the Fund may be rated lower than investment
grade; however, all bonds must be rated "B" or better by Moody's or S&P (or, if
unrated, judged by Voyageur to be of comparable quality). Such bonds are often
referred to as "junk" bonds or "high yield" bonds. Bonds rated below "BBB" have
a greater vulnerability to default than higher grade bonds. See "Risks and
Special Investment Considerations--General" for a discussion of the risks of
investing in lower grade Tax-Exempt Obligations. A description of the ratings
assigned by Moody's and S&P is set forth in Appendix A to the Statement of
Additional Information.
The foregoing policy as to the credit quality of portfolio investments will
apply only at the time of the purchase of a security, and the Fund is not
required to dispose of securities in the event that Moody's or S&P downgrades
its assessment of the credit characteristics of a particular issuer or, in the
case of unrated securities, in the event Voyageur reassesses its view with
respect to the credit quality of the issuers thereof. In no event, however, will
more than 5% of the Fund's total assets consist of securities that have been
downgraded to a rating lower than the minimum rating in which the Fund is
permitted to invest or, in the case of unrated securities, that Voyageur has
determined to have a quality lower than such minimum rating.
The Fund may invest without limitation in short-term Tax-Exempt Obligations
or 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
any 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 term
"Tax-Exempt Obligations" also includes Derivative Tax-Exempt Obligations as
defined below. In certain instances the interest on Tax-Exempt Obligations may
be an item of tax preference includable in alternative minimum taxable income
depending upon the shareholder's tax status. See "Distributions to Shareholders
and Taxes--Taxes."
Tax-Exempt Obligations are primarily debt obligations issued to obtain
funds for various public purposes such as constructing public facilities and
making loans to public institutions. The two principal classifications of
Tax-Exempt Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Tax-Exempt
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Tax-Exempt Obligations, there is
a variety of types of municipal securities. Certain Tax-Exempt Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indices, such as a
bank prime rate or a tax-exempt money market index. Accordingly, the yield on
such obligations can be expected to fluctuate with changes in prevailing
interest rates. Other Tax-Exempt Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.
Tax-Exempt Obligations also include state or municipal leases and
participation interests therein. The Fund may invest in these types of
obligations without limit. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. Municipal lease obligations,
except in certain circumstances, are considered illiquid by the staff of the
Securities and Exchange Commission. Municipal lease obligations held by the Fund
will be treated as illiquid unless they are determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors. Under these guidelines,
Voyageur will consider factors including, but not limited to (a) whether the
lease can be canceled, (b) what assurance there is that the assets represented
by the lease can be sold, (c) the municipality's general credit strength (e.g.,
its debt, administrative, economic and financial characteristics), (d) 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 (e) 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 trust certificates ("custodial receipts") underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain Tax-Exempt Obligations. The underwriter of
these certificates or receipts typically purchases and deposits the securities
in an irrevocable trust or custodial account with a custodian bank, which then
issues receipts or certificates that evidence ownership of the periodic
unmatured coupon payments and the final principal payment on the obligations.
Although under the terms of a custodial receipt or trust certificate, the Fund
typically would be authorized to assert its rights directly against the issuer
of the underlying obligation, the Fund could be required to assert through the
custodian bank those rights as may exist against the underlying issuer. Thus, in
the event the underlying issuer fails to pay principal and/or interest when due,
the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation of the issuer.
In addition, in the event that the trust or custodial account in which the
underlying security had been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, it would be subject
to state, and potentially New York City, income tax (but not federal income tax)
on the income it earned on the underlying security, and the yield on the
security paid to the Fund and its shareholders would be reduced by the amount of
taxes paid. Furthermore, amounts paid by the trust or custodial account to the
Fund would lose their tax-exempt character and become taxable, for federal,
state, and potentially city, purposes, in the hands of the Fund and its
shareholders. However, the Fund will only invest in custodial receipts or trust
certificates which are accompanied by a tax opinion stating that interest
payable on the receipts is tax-exempt. If the Fund invests in custodial receipts
or trust certificates, it is possible that a portion of the discount at which
the Fund purchases the receipts or certificates might have to be accrued as
taxable income during the period that the Fund holds the receipts.
The principal and interest payments on the Tax-Exempt Obligations
underlying custodial receipts or trust certificates may be allocated in a number
of ways. For example, payments may be allocated such that certain custodial
receipts or trust certificates may have variable or floating interest rates and
others may be stripped securities which pay only the principal or interest due
on the underlying Tax-Exempt Obligations. The Fund may also invest in custodial
receipts or trust certificates 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.
Investments in Derivative Tax-Exempt Obligations, when combined with
investments in below investment grade rated securities, will not exceed 20% of
the Fund's total assets. For a discussion of certain risks involved in
investments in Derivative Tax-Exempt Obligations, see "Risks and Special
Investment Considerations--General."
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities. A
security is considered illiquid if it cannot be sold in the ordinary course of
business within seven days at approximately the price at which it is valued.
Illiquid securities may offer a higher yield than securities which are more
readily marketable, but they may not always be marketable on advantageous terms.
The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. The Fund may be restricted in its ability to sell such securities at a
time when Voyageur deems it advisable to do so. In addition, in order to meet
redemption requests, the Fund may have to sell other assets, rather than such
illiquid securities, at a time which is not advantageous.
Certain securities in which the Fund may invest, including municipal lease
obligations, certain restricted securities and commercial paper issued pursuant
to the private placement exemption of Section 4(2) of the Securities Act of
1933, historically have been considered illiquid by the staff of the Securities
and Exchange Commission. In accordance with more recent staff positions,
however, the Fund will treat such securities as liquid and not subject to the
above 15% limitation when they have been determined to be liquid by Voyageur
subject to the oversight of and pursuant to procedures adopted by the Fund's
Board of Directors. See "Investment Policies and Restrictions--Illiquid
Investments" in the Statement of Additional Information.
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
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. 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
andcall 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 and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (a) dependence on Voyageur's
ability to predict correctly movements in the direction of interest rates and
security prices; (b) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (c) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (d) the possible absence of a liquid secondary market for
any particular instrument at any time; and (e) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences. See
"Investment Policies and Restrictions--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 Additional Information. For a further discussion of the
general characteristics and risks of futures, see Appendix B to the Statement of
Additional Information.
CONCENTRATION POLICY
As a fundamental policy, the Fund may not invest 25% or more of its total assets
in the securities of any industry, although, for purposes of this limitation,
tax-exempt securities and U.S. Government obligations are not considered to be
part of any industry. The Fund may invest 25% or more of its total assets in
industrial development revenue bonds. In addition, it is possible that the Fund
from time to time will invest 25% or more of its total assets in a particular
segment of the municipal bond market, such as housing, health care, utility,
transportation, education or industrial obligations. In such circumstances,
economic, business, political or other changes affecting one bond (such as
proposed legislation affecting the financing of a project; shortages or price
increases of needed materials; or a declining market or need for the project)
might also affect other bonds in the same segment, thereby potentially
increasing market or credit risk. For a discussion of these segments of the
municipal bond market, see "Investment Policies and Restrictions--Concentration
Policy" in the Statement of Additional Information.
The 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.
In normal circumstances, the Fund may invest up to 20% of its total assets
in Tax-Exempt Obligations rated below investment grade (but not rated lower than
B by S&P or Moody's) or in unrated Tax-Exempt Obligations considered by Voyageur
to be of comparable quality to such securities. Investment in such lower-grade
Tax-Exempt Obligations involves special risks as compared with investment in
higher-grade Tax-Exempt Obligations. The market for lower-grade Tax-Exempt
Obligations is considered to be less liquid than the market for investment grade
Tax-Exempt Obligations, which may adversely affect the ability of a Fund to
dispose of such securities in a timely manner at a price which reflects the
value of such securities in Voyageur's judgment. The market price for less
liquid securities tends to be more volatile than the market price for more
liquid securities. The lower liquidity of and the absence of readily available
market quotations for lower-grade Tax-Exempt Obligations may make Voyageur's
valuation of such securities more difficult, and Voyageur's judgment may play a
greater role in the valuation of the Fund's lower-grade Tax-Exempt Obligations.
Periods of economic uncertainty and changes may have a greater impact on the
market price of such bonds and, therefore, the net asset value of the Fund
investing in such obligations.
Lower-grade Tax-Exempt Obligations generally involve greater credit risk
than higher-grade Tax-Exempt Obligations and are more sensitive to adverse
economic changes, significant increases in interest rates and individual issuer
developments. Because issuers of lower-grade Tax-Exempt Obligations frequently
choose not to seek a rating of such securities, the Fund will rely more heavily
on Voyageur's ability to determine the relative investment quality of such
securities than if the Fund invested exclusively in higher-grade Tax-Exempt
Obligations. The Fund may, if deemed appropriate by Voyageur, retain a security
whose rating has been downgraded below B by S&P or Moody's, or whose rating has
been withdrawn. In no event, however, will more than 5% of the Fund's total
assets consist of securities that have been downgraded to a rating lower than
the minimum rating in which the Fund is permitted to invest or, in the case of
unrated securities, that have been determined by Voyageur to be of a quality
lower than such minimum rating. Additional information concerning the risks
associated with investments in lower-grade Tax-Exempt Obligations is included in
the Fund's Statement of Additional Information.
STATE SPECIFIC CONSIDERATIONS
The value of Tax-Exempt Obligations owned by the Fund may be adversely affected
by local political and economic conditions and developments within New York
State and New York City. Because the Fund concentrates its investments in New
York Tax-Exempt Obligations, a default or financial crisis relating to any of
such issuers could adversely affect the market value and marketability of such
Tax-Exempt Obligations and the interest income and repayment of principal to the
Fund. Investors should consider these matters and the financial difficulties
experienced in past years by New York State and certain of its agencies and
subdivisions (particularly New York City), as well as economic trends in New
York State. It should be noted that the creditworthiness of obligations issued
by local issuers (including New York City) may be unrelated to the
creditworthiness of New York State, and that there is no obligation on the part
of New York State to make payment on such local obligations in the event of
default in the absence of a specific guarantee or pledge provided by New York
State. As of September 1995, Moody's rating of the State's general obligation
bonds stood at A, and S&P's rating stood at A-. Moody's lowered its rating to A
on June 6, 1990; its rating having been A1 since May 27, 1986. S&P lowered its
rating from A to A- on January 13, 1992. S&P's previous ratings were A from
March 1990 to January 1992, AA- from August 1987 to March 1990 and A+ from
November 1982 to August 1987.
Adverse conditions in an industry significant to a local economy could have
a correspondingly adverse effect on the financial condition of local issuers.
Other facts that could affect Tax-Exempt Obligations include a change in the
local, state or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). In addition, the Fund's portfolio
securities are affected by general changes in interest rates, which result in
changes in the value of portfolio securities held by the Fund, which can be
expected to vary inversely with changes in prevailing interest rates. See
"Special Factors Affecting the Fund" in the Statement of Additional Information.
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). 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 shareholder approval. These include
restrictions providing that the Fund may not (a) invest more than 5% of its
total assets in securities of any single investment company, (b) invest more
than 10% of its total assets in securities of two or more investment companies,
(c) invest more than 15% of its net assets in illiquid securities or (d) pledge,
hypothecate, mortgage or otherwise encumber its assets in excess of 10% of net
assets. If the Fund invests in securities of other investment companies, the
return on any such investments will be reduced by the operating expenses,
including investment advisory and administrative fees, of such investment
companies.
Except for the Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
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 merchandise to its investment executives and other
broker-dealers and financial institutions in consideration of their sales of
Fund shares. In some instances, the Underwriter pays amounts not to exceed 1.25%
of the Fund's net assets (such as payments related to retention of shares sold
by a particular broker-dealer or financial institution for a specified period of
time) to broker-dealers and financial institutions who meet certain objective
standards developed by the Underwriter.
GENERAL PURCHASE INFORMATION
The minimum initial investment in the Fund is $1,000, and the minimum additional
investment is $100. The Fund's shares may be purchased at the public offering
price from the Underwriter, from other broker-dealers who are members of the
National Association of Securities Dealers, Inc. and who have selling agreements
with the Underwriter, and from certain financial institutions that have selling
agreements with the Underwriter.
When orders are placed for shares of the Fund, the public offering price
used for the purchase will be the net asset value per share next determined
after receipt of the order, plus the applicable sales charge, if any. If an
order is placed with the Underwriter or other broker-dealer, the broker-dealer
is responsible for promptly transmitting the order to the Fund. The Fund
reserves the right, in its absolute discretion, to reject any order for the
purchase of shares.
Shares of the Fund may be purchased by opening an account either by mail or
by phone. Dividend income begins to accrue as of the opening of the New York
Stock Exchange (the "Exchange") on the day that payment is received. If payment
is made by check, payment is considered received on the day the check is
received if the check is drawn upon a member bank of the Federal Reserve System
within the Ninth Federal Reserve District (Michigan's Upper Peninsula,
Minnesota, Montana, North Dakota, South Dakota and northwestern Wisconsin). In
the case of other checks, payment is considered received when the check is
converted into "Federal Funds," i.e., monies of member banks within the Federal
Reserve System that are on deposit at a Federal Reserve Bank, normally within
two days after receipt.
An investor who may be interested in having shares redeemed shortly after
purchase should consider making unconditional payment by certified check or
other means approved in advance by the Underwriter. Payment of redemption
proceeds will be delayed as long as necessary to verify by expeditious means
that the purchase payment has been or will be collected. Such period of time
typically will not exceed 15 days.
AUTOMATIC INVESTMENT PLAN
Investors may make systematic investments in fixed amounts automatically on a
monthly basis through the Fund's Automatic Investment Plan. Additional
information is available from the Underwriter by calling 800-545-3863.
PURCHASES BY MAIL
To open an account by mail, complete the general authorization form attached to
this Prospectus, designate an investment dealer or other financial institution
on the form, and mail it, along with a check payable to the Fund, to:
NW 9369
P.O. BOX 1450
MINNEAPOLIS, MN 55485-9369
PURCHASES BY TELEPHONE
To open an account by telephone, call 612-376-7014 or 800-545-3863 to obtain an
account number and instructions. Information concerning the account will be
taken over the phone. The investor must then request a commercial bank with
which he or she has an account and which is a member of the Federal Reserve
System to transmit Federal Funds by wire to the appropriate Fund as follows:
NORWEST BANK MINNESOTA, N.A., ABA #091000019
FOR CREDIT OF: VOYAGEUR NEW YORK TAX FREE FUND
CHECKING ACCOUNT NO.: 872-458
ACCOUNT NUMBER: (ASSIGNED BY TELEPHONE)
Information on how to transmit Federal Funds by wire is available at any
national bank or any state bank that is a member of the Federal Reserve System.
The bank may charge the shareholder for the wire transfer. If the phone order
and Federal Funds are received before the close of trading on the Exchange, the
order will be deemed to become effective at that time. Otherwise, the order will
be deemed to become effective as of the close of trading on the Exchange on the
next day the Exchange is open for trading. The investor will be required to
complete 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.
The current sales charges are:
<TABLE>
<CAPTION>
DEALER
SALES CHARGE SALES CHARGE DISCOUNT
AS % OF AS % OF AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE OFFERING PRICE OFFERING PRICE(1)
- ------------------ --------------- -------------- -----------------
<S> <C> <C> <C>
Less than $50,000 3.90% 3.75% 3.25%
$50,000 but less than $100,000 3.63 3.50 3.00
$100,000 but less than $250,000 2.83 2.75 2.50
$250,000 but less than $500,000 2.04 2.00 1.75
$500,000 but less than $1,000,000 1.78 1.75 1.75
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
</TABLE>
1 Brokers and dealers who receive 90% or more of the sales charge may be
considered to be underwriters under the Securities Act of 1933, as amended.
2 The Underwriter intends to pay its investment executives and other
broker-dealers and banks that sell Fund shares, out of its own assets, a
fee of 1% of the offering price of sales of $1,000,000 or more, other than
on sales not subject to a contingent deferred sales charge.
3 Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "--Contingent Deferred Sales
Charge."
In connection with the distribution of the Fund's Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS--REDUCED SALES CHARGES
Certain investors (or groups of investors) may qualify for reductions in the
sales charges shown above. Investors should contact their broker-dealer or the
Fund for details about the 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 1% of the offering price of such shares. If these shares are
redeemed within two years after purchase, the redemption proceeds will be
reduced by a contingent deferred sales charge ("CDSC") of 1%. For additional
information, see "How to Sell Shares --Contingent Deferred Sales Charge."
WAIVER OF SALES CHARGES
A limited group of institutional and other investors may qualify to purchase
Class A shares at net asset value, with no front end or deferred sales charges.
The investors qualifying to purchase such shares are: (a) officers and directors
of the Fund; (b) officers, directors and full-time employees of Dougherty
Financial Group, Inc. and Pohlad Companies, and officers, directors and
full-time employees of parents and subsidiaries of the foregoing companies; (c)
officers, directors and full-time employees of investment advisers of other
mutual funds subject to a sales charge and included in any other family of
mutual funds that includes any Voyageur Fund as a member ("Other Load Funds"),
and officers, directors and full-time employees of parents, subsidiaries and
corporate affiliates of such investment advisers; (d) spouses and lineal
ancestors and descendants of the officers, directors/trustees and employees
referenced in clauses (a), (b) and (c), and lineal ancestors and descendants of
their spouses; (e) investment executives and other employees of banks and
dealers that have selling agreements with the Underwriter and parents, spouses
and children under the age of 21 of such investment executives and other
employees; (f) trust companies and bank trust departments for funds held in a
fiduciary, agency, advisory, custodial or similar capacity; (g) any state or any
political subdivision thereof or any instrumentality, department, authority or
agency of any state or political subdivision thereof; (h) partners and full-time
employees of the Fund's counsel; (i) managed account clients of Voyageur,
clients of investment advisers affiliated with Voyageur and other registered
investment advisers and their clients (the Fund may be available through a
broker-dealer which charges a transaction fee for purchases and sales) and (j)
"wrap accounts" for the benefit of clients of financial planners adhering to
certain standards established by Voyageur.
Class A shares will also be issued at net asset value, without a front end
or deferred sales charge, if the purchase of such shares is funded by the
proceeds from the redemption of shares of any unrelated open-end investment
company that charges 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 to 5% will be imposed if shares are redeemed within six years of
purchase. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge." In addition, Class B shares are subject to higher Rule
12b-1 fees as described below. The CDSC will depend on the number of years since
the purchase was made according to the following table:
CDSC AS A
CDSC PERIOD % OF AMOUNT REDEEMED(1)
- ----------- -----------------------
1st year after purchase 5%
2nd year after purchase 4
3rd year after purchase 4
4th year after purchase 3
5th year after purchase 2
6th year after purchase 1
Thereafter 0
1 The CDSC will be calculated on an amount equal to the lesser of the net
asset value of the shares at the time of purchase or the net asset value at
the time of redemption.
Proceeds from the CDSC are paid to the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Fund in connection with the sale of Class B shares, such as the payment
of compensation to selected broker dealers and for selling Class B shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge, the
Underwriter pays to brokers who sell Class B shares a sales commission equal to
4% of the amount invested and an ongoing annual servicing fee of .15% (paid
quarterly) calculated on the net assets attributable to sales made by such
broker-dealers.
RULE 12B-1 FEES
Class B shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of the Fund attributable to Class B shares. The
higher 12b-1 fee will cause Class B shares to have a higher expense ratio and to
pay lower dividends than Class A shares. For additional information about this
fee, see "Fees and Expenses" and "Management--Plan of Distribution."
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." Class B shares acquired through reinvestment of
distributions will convert into Class A shares based on the date of issuance of
such shares.
CLASS C SHARES--LEVEL LOAD ALTERNATIVE
The public offering price of Class C shares of the Fund is the net asset value
of the Fund's shares. Class C shares are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. However, a
CDSC of 1% will be imposed if shares are redeemed within one year of purchase.
For additional information see "How to Sell Shares--Contingent Deferred Sales
Charge." In addition, Class C shares are subject to higher annual Rule 12b-1
fees as described below.
RULE 12B-1 FEES
Class C shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of the Fund attributable to Class C shares. The
higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio
and to pay lower dividends than Class A shares. For additional information about
this fee, see "Fees and Expenses" and "Management--Plan of Distribution."
Proceeds from the CDSC are paid to the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Fund in connection with the sale of Class C shares, such as the payment
of compensation to selected broker-dealers and for selling Class C shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class C shares without deduction of a sales charge at the time of purchase.
Although Class C shares are sold without an initial sales charge, the
Underwriter pays to brokers who sell Class C shares a sales commission equal to
1% of the amount invested and an ongoing annual servicing fee of .90% (paid
quarterly commencing in the thirteenth month after the sale of such shares)
calculated on the net assets attributable to sales made by such broker-dealers.
HOW TO SELL SHARES
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 lowest rate
being charged. Therefore, it will be assumed that shares that are not subject to
the CDSC are redeemed first, shares subject to the lowest level of CDSC are
redeemed next, and so forth. If a shareholder owns Class A and either Class B or
Class C shares, then absent a shareholder choice to the contrary, Class B or
Class C shares not subject to a CDSC will be redeemed in full prior to any
redemption of Class A shares not subject to a CDSC.
The CDSC does not apply to: (a) redemptions of Class B shares in connection
with the automatic conversion to Class A shares; (b) redemptions of shares when
a Fund exercises its right to liquidate accounts which are less than the minimum
account size; and (c) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
If a shareholder exchanges Class A, Class B or Class C shares subject to a
CDSC for Class A, Class B or Class C shares, respectively, of a different
Voyageur Fund, the transaction will not be subject to a CDSC. However, when
shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the CDSC.
Fund shares are exchangeable for shares of any money market fund available
through Voyageur. No CDSC will be imposed at the time of any such exchange;
however, the shares acquired in any such exchange will remain subject to the
CDSC and the period during which such shares represent shares of the money
market fund will not be included in determining how long the shares have been
held. Any CDSC due upon a redemption of Fund shares will be reduced by the
amount of any Rule 12b-1 payments made by such money market fund with respect to
such shares.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A, Class B, or Class C shares of the Fund (by crediting such refunded CDSC
to such shareholder's account) if, within 90 days of 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
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. Voyageur and the Distributor will not be liable for
following instructions which are reasonably believed to be genuine.
EXPEDITED REDEMPTIONS THROUGH CERTAIN BROKER DEALERS Certain broker-dealers who
have sales agreements with the Underwriter may allow their customers to effect a
redemption of shares of the Fund purchased through such broker-dealer by
notifying the broker-dealer of the amount of shares to be redeemed. The
broker-dealer is then responsible for promptly placing the redemption request
with the Fund on the customer's behalf. Payment will be made to the shareholder
by check or wire sent to the broker-dealer. Broker-dealers offering this service
may impose a fee or additional requirements for such redemptions.
GOOD ORDER
"Good order" means that stock certificates, if issued, must accompany the
written request for redemption and must be duly endorsed for transfer, or must
be accompanied by a duly executed stock power. If no stock certificates have
been issued, a written request to redeem must be made. Stock certificates will
not be issued for Class B or Class C shares. In any case, the shareholder must
execute the redemption request exactly as the shares are registered. If the
redemption proceeds are to be paid to the registered holder(s), a signature
guarantee is not normally required. A signature guarantee is required in certain
other circumstances, for example, to redeem more than $50,000 or to have a check
mailed other than to the shareholder's address of record. See "Other
Information" in the Statement of Additional Information. Voyageur may waive
certain of these redemption requirements at its own risk, but also reserves the
right to require signature guarantees on all redemptions, in contexts perceived
by Voyageur to subject the Fund to an unusual degree of risk.
MONTHLY CASH WITHDRAWAL PLAN
An investor who owns or buys shares of the Fund valued at $10,000 or more at the
current offering price may open a Withdrawal Plan and have a designated sum of
money paid monthly to the investor or another person. Deferred sales charges may
apply to monthly redemptions of Class B or Class C shares. See "Monthly Cash
Withdrawal Plan" in the Statement of Additional Information.
REINSTATEMENT PRIVILEGE
An investor in the Fund whose shares have been redeemed and who has not
previously exercised the Reinstatement Privilege as to the Fund may reinvest the
proceeds of such redemption in shares of the same class of any Voyageur Fund
eligible for sale in the shareholder's state of residence. Reinvestment will be
at the net asset value of Fund shares next determined after the Underwriter
receives a check along with a letter requesting reinstatement. The Underwriter
must receive the letter requesting reinstatement within 365 days following the
redemption. Investors who desire to exercise the Privilege should contact their
broker-dealer or the Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of 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. 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 the Fund, 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 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 October 1, 1996, Voyageur served
as the manager to 6 closed-end and 10 open-end investment companies (comprising
33 separate investment portfolios), administered numerous private accounts and
together with its affiliates managed approximately $11.5 billion in assets.
Voyageur's principal business address is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
The Fund pays Voyageur a monthly investment advisory and management fee
equivalent on an annual basis to .50% of its average daily net assets.
Steven P. Eldredge has day-to-day portfolio management responsibility of
the Fund. Since July 1995, Mr. Eldredge has managed Voyageur Florida Insured Tax
Free Fund, Voyageur Florida Limited Term Tax Free Fund, Voyageur National Tax
Free Fund, Voyageur National Limited Term Tax Free Fund, Voyageur Iowa Tax Free
Fund, and Voyageur Wisconsin Tax Free Fund. Mr. Eldredge is a Senior Tax Exempt
Portfolio Manager for Voyageur where he has been employed since 1995. Prior to
joining Voyageur, Mr. Eldredge was a portfolio manager for ABT Mutual Funds,
Palm Beach, Florida, from 1989 through 1995. Mr. Eldredge has over 18 years
experience in portfolio management.
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.
All of the Rule 12b-1 fee attributable to Class A shares, and a portion of
the fee equal to .25% of the average daily net assets of the Fund attributable
to each of Class B shares and Class C shares constitutes a shareholder servicing
fee designed to compensate the Underwriter for the provision of certain services
to the shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Underwriter may use such Rule 12b-1 fee
or portion thereof to make payments to qualifying broker-dealers and financial
institutions that provide such services.
That portion of the Rule 12b-1 fee equal to .75% of the average daily net
assets of the Fund attributable to Class B shares and Class C shares,
respectively, constitutes a distribution fee designed to compensate the
Underwriter for advertising, marketing and distributing the Class B shares and
Class C shares of the Fund. In connection therewith, the Underwriter may provide
initial and ongoing sales compensation to its investment executives and other
broker-dealers for sales of Class B shares and Class C shares and may pay for
other advertising and promotional expenses in connection with the distribution
of Class B shares and Class C shares. The distribution fee attributable to Class
B shares and Class C shares is designed to permit an investor to purchase such
shares through investment executives of the Underwriter and other broker-dealers
without the assessment of an initial sales charge and at the same time to permit
the Underwriter to compensate its investment executives and other broker-dealers
in connection with the sale of such shares.
CUSTODIAN; DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVE AND ACCOUNT SERVICES
AGENT
Norwest Bank Minnesota, N.A. serves as the custodian of 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 (a) $1.33 per shareholder account per month, (b) a monthly fee
ranging from $1,000 to $1,500 based on the average daily net assets of the Fund
and (c) a percentage of average daily net assets which ranges from 0.02% to
0.11% based on the average daily net assets of the Fund. See "The Investment
Adviser and Underwriter--Expenses of the Fund" in the Statement of Additional
Information.
Certain institutions may act as sub-administrators for the Fund pursuant to
contracts with 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 has agreed to absorb expenses through the
fiscal year ending December 31, 1997 in such a manner as will result in the Fund
being charged fees and expenses that approximate those set forth in the section
"Fees and Expenses." After December 31, 1997 such voluntary 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 the Fund and its shares with the Securities and Exchange
Commission and registering or qualifying its shares under state securities laws
and expenses of preparing and mailing prospectuses and reports to existing
shareholders.
PORTFOLIO TRANSACTIONS
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. 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.
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 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 Fund may invest
up to 20% of its total assets in securities which generate interest which is
treated as an item of tax-preference and is subject to federal, New York State
and New York City alternative minimum tax.
The following is a summary of certain information regarding New York State
taxation. See "Taxes" in the Statement of Additional Information.
NEW YORK STATE AND CITY TAXATION
The portion of exempt-interest dividends that is derived from interest income on
New York Tax-Exempt Obligations is excluded from the New York State and New York
City gross income of individuals, estates and trusts; the remaining portion of
such dividends, and dividends that are not tax-exempt interest dividends, are
included in the New York State and New York City gross income of individuals,
estates, and trusts. Exempt-interest dividends are not excluded from the New
York State and New York City gross income of corporations and banks, and
dividends from the Fund will not qualify for the New York State or New York City
dividends-received deduction for corporations and banks.
The foregoing discussion relates to federal, New York State and New York
City 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.
INVESTMENT PERFORMANCE
Advertisements 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 funds. Performance quotations are computed
separately for Class A, Class B and Class C shares of the Fund. All such figures
are based on historical earnings and performance and are not intended to be
indicative of future performance. Additionally, performance information may not
provide a basis for comparison with other investments or other mutual funds
using a different method of calculating performance. The investment return on
and principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The advertised yield of 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 612-376-7014 or 800-545-3863. For additional information
regarding the calculation of the Fund's yield, taxable equivalent yield, average
annual total return and cumulative total return, see "Calculation of Performance
Data" in the Statement of Additional Information.
GENERAL INFORMATION
The Fund sends to its shareholders six-month unaudited and annual audited
financial statements.
The shares of the Fund constitute a separate series of Voyageur Mutual
Funds, Inc. (the "Company"), a Minnesota corporation which issues shares of
common stock with a $.01 par value per share. All shares of the Company are
non-assessable and fully transferable when issued and paid for in accordance
with the terms thereof and 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, are
entitled to receive the net assets, if any, of the Fund. The Fund does not
generally hold annual meetings of shareholders and will do so only when required
by law.
Each share of a series has one vote irrespective of the relative net asset
value of the shares. On some issues, such as the election of Board members, the
shares of all series and classes vote together as one. On an issue affecting
only a particular series or class, the shares of the affected series or class
vote as a separate series or class. An example of such an issue would be a
fundamental investment restriction pertaining to only one series.
The assets received by 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 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.
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.
PART B
VOYAGEUR MUTUAL FUNDS, INC.
(VOYAGEUR NEW YORK TAX FREE FUND)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with each Fund's Prospectus dated December 5, 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 OF CONTENTS
PAGE
Investment Policies and Restrictions.......................................B-2
Special Factors Affecting the Fund.........................................B-16
Board Members and Executive Officers of the Fund...........................B-28
The Investment Adviser and Underwriter.....................................B-31
Taxes ....................................................................B-38
Special Purchase Plans ....................................................B-40
Net Asset Value and Public Offering Price..................................B-42
Calculation of Performance Data............................................B-43
Monthly Cash Withdrawal Plan...............................................B-46
Additional Information.....................................................B-47
Appendix A - Descriptions of Bond Ratings..................................A-1
Appendix B - General Characteristics and Risks of Options and Futures .....B-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated November 20, 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 any of the Funds since the date hereof.
Dated December 5, 1996
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective, policies and restrictions of Voyageur New York
Tax Free 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.
Effective with the close of business on November 15, 1996, the Fund
acquired the assets and assumed all identified liabilities of New York
Portfolio, a series of Fortis Tax-Free Portfolios, Inc. ("Fortis Fund"), in a
tax-free exchange by issuing new shares. The Fund offers three classes of shares
- - Class A, B and C; prior to the acquisition Fortis Fund offered five classes of
shares. In the acquisition, Fortis Fund Class E shareholders received Class A
Fund shares and Fortis Fund Class H shareholders received Class B Fund Shares.
The Fund had no assets or liabilities prior to the acquisition. Consequently,
certain financial information presented for the Fund in this Statement of
Additional Information represents the financial history of Fortis Fund.
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 New York State and New
York City 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 Ratings Services ("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" or "VFM"), the Fund's
investment manager, will subject these securities to other evaluative criteria
prior to investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. 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 note holders. The interest rate
on a floating rate demand note is based on a specified interest index, such as a
bank's prime rate, and is adjusted automatically each time such index is
adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based upon current market conditions. 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 "non-appropriation"
clauses that provide that the public body has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis
(the "non-appropriation" clause); (2) the exclusion of a lease or conditional
sales contract from the definition of indebtedness under relevant state law; or
(3) the lease provides for termination at the option of the public body at the
end of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If the lease is terminated by the public body for non-appropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.
CONCENTRATION POLICY. As a fundamental policy, the Fund may not invest 25%
or more of its total assets in the securities of any industry, although, for
purposes of this limitation, tax-exempt securities and U.S. Government
obligations are not considered to be part of any industry. The Fund may invest
25% or more of its total assets in industrial development revenue bonds. In
addition, it is possible that the Fund from time to time will invest 25% or more
of its total assets in a particular segment of the municipal bond market, such
as housing, health care, utility, transportation, education or industrial
obligations. In such circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation affecting the financing
of a project; shortages or price increases of needed materials; or a declining
market or need for the project) might also affect other bonds in the same
segment, thereby potentially increasing market or credit risk.
HOUSING OBLIGATIONS. The Fund may invest, from time to time, 25% or more of
its total assets in obligations of public bodies, including state and municipal
housing authorities, issued to finance the purchase of single-family mortgage
loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
HEALTH CARE OBLIGATIONS. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
UTILITY OBLIGATIONS. The Fund may invest, from time to time, 25% or more of
its total assets in obligations issued by public bodies, including state and
municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
TRANSPORTATION OBLIGATIONS. The Fund may 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 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 invest, from time to time, 25% or more
of its total assets in obligations of issuers which are, or which govern the
operation of, schools, colleges and universities and whose revenues are derived
mainly from tuition, dormitory revenues, grants and endowments. General problems
of such issuers include the prospect of a declining percentage of the population
consisting of college aged individuals, possible inability to raise tuition and
fees sufficiently to cover increased operating costs, the uncertainty of
continued receipt of federal grants, state funding and alumni support, and
government legislation or regulations which may adversely affect the revenues or
costs of such issuers.
INDUSTRIAL REVENUE OBLIGATIONS. The Fund may 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 the cost of acquiring, constructing
or improving various industrial projects. These projects are usually operated by
corporate entities. Issuers are obligated only to pay amounts due on the bonds
to the extent that funds are available from the unexpended proceeds of the bonds
or receipts or revenues of the issuer under an arrangement between the issuer
and the corporate operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan agreement,
but in each case the payments of the issuer are designed to be sufficient to
meet the payments of amounts due on the bonds. Regardless of the structure,
payment of bonds is solely dependent upon the creditworthiness of the corporate
operator of the project and, if applicable, the corporate guarantor. Corporate
operators or guarantors may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
These include cyclicality of revenues and earnings, regulatory and environmental
restrictions, litigation resulting from accidents or deterioration resulting
from leveraged buy-outs or takeovers. The bonds may be subject to special or
extraordinary redemption provisions which may provide for redemption at par or
accredited value, plus, if applicable, a premium.
OTHER RISKS. The exclusion from gross income for purposes of federal income
taxes for certain housing, health care, utility, transportation, education and
industrial revenue bonds depends on compliance with relevant provisions of the
Code. The failure to comply with these provisions could cause the interest on
the bonds to become includable in gross income, possibly retroactively to the
date of issuance, thereby reducing the value of the bonds, subjecting
shareholders to unanticipated tax liabilities and possibly requiring the Fund to
sell the bonds at the reduced value. Furthermore, such a failure to meet these
ongoing requirements may not enable the holder to accelerate payment of the bond
or require the issuer to redeem the bond.
TAXABLE OBLIGATIONS
As set forth in the prospectus, the Fund may invest to a limited extent in
obligations and instruments, the interest on which may be includable in gross
income for purposes of federal, New York State, and New York City 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 the Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the investment objective of the Fund.
"Covered options" means that so long as the Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
(or comparable securities satisfying the cover requirements of securities
exchanges). The Fund will be considered "covered" with respect to a put option
it writes if, so long as it is obligated as the writer of a put option, it
deposits and maintains with its custodian cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater than
the exercise price of the option.
Through the writing of call or put options, the Fund may obtain a greater
current return than would be realized on the underlying securities alone. The
Fund receives premiums from writing call or put options, which it retains
whether or not the options are exercised. By writing a call option, the Fund
might lose the potential for gain on the underlying security while the option is
open, and by writing a put option, the Fund might become obligated to purchase
the underlying security for more than its current market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase put options in order to protect
portfolio holdings in an underlying security against a decline in the market
value of such holdings. Such protection is provided during the life of the put
because the Fund may sell the underlying security at the put exercise price,
regardless of a decline in the underlying security's market price. Any loss to
the Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put is sold.
The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. The Fund may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio.
The Fund may also purchase call options. During the life of the call
option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, the Fund will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
SECURITIES INDEX OPTION TRADING. The Fund may purchase and write put and
call options on securities indexes. Options on securities indexes are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on an index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of the option is obligated to make delivery of this
amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in the Fund's
portfolio correlate with price movements of the index selected. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular security, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index depends upon movements
in the level of prices in the relevant underlying securities markets generally
or, in the case of certain indexes, in an industry market segment, rather than
movements in the price of a particular security. Accordingly, successful use by
the Fund of options on security indexes will be subject to 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.
RISKS OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transactions costs). The
writing of a call option generates a premium, which may partially offset a
decline in the value of the Fund's portfolio assets. By writing a call option,
the Fund becomes obligated to sell an underlying instrument or a futures
contract, which may have a value higher than the exercise price. Conversely, the
writing of a put option generates a premium, but the Fund becomes obligated to
purchase the underlying instrument or futures contract, which may have a value
lower than the exercise price. Thus, the loss incurred by the Fund in writing
options may exceed the amount of the premium received.
The effective use of options strategies is dependent, among other things,
on the Fund's ability to terminate options positions at a time when 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 Municipal Obligations will
consist primarily of OTC options.
ILLIQUID INVESTMENTS
The Fund is permitted to invest up to 15% of its net assets in illiquid
investments. An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment.
As set forth in the Prospectus, the Fund may invest in certain restricted
securities (securities which were originally sold in private placements and
which have not been registered under Securities Act of 1933 (the "1933 Act")),
commercial paper issued pursuant to Section 4(2) under the 1933 Act, and
municipal lease obligations, and treat such securities as liquid when they have
been determined to be liquid by Voyageur subject to the oversight of and
pursuant to procedures adopted by the Fund's Board of Directors. Under these
procedures, factors taken into account in determining the liquidity of a
security include (a) the frequency of trades and quotes for the security; (b)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (c) dealer undertakings to make a market in the
security; and (d) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). With respect to restricted
securities, the liquidity of such securities increased as a result of the
adoption of Rule 144A under the 1933 Act, which provides a safe harbor exemption
from the registration requirements of the 1933 Act for resales of restricted
securities to "qualified institutional buyers," as defined in the rule.
Investing in such securities could have the effect of increasing the level of
Fund illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
DIVERSIFICATION
Although the Fund is characterized as a non-diversified fund under the 1940
Act, the Fund intends to conduct its operations so that it will qualify under
the Internal Revenue Code of 1986 as a "regulated investment company." In order
to qualify as a regulated investment company, the Fund must limit its
investments so that, at the close of each quarter of the taxable year, with
respect to at least 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer. In addition, the
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. The Fund
estimates its portfolio turnover rate will be 100% or less.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions set forth below which,
together with the investment objectives of the Fund and other policies which are
specifically identified as fundamental in the Prospectus 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 a 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) 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 New York State and New York
City factors affecting Voyageur Fund and does not purport to be a complete
description of such factors. As described above, except during temporary
defensive periods, the Voyageur Fund will invest at least 80% of the value of
its net assets in Tax-Exempt Obligations, the interest on which is exempt from
federal income, New York State and New York City personal income tax (except for
New York State and New York City franchise tax on corporations and financial
institutions, which is measured by income). Therefore, the financial condition
of New York State, its public authorities and local governments could affect the
market values and marketability of, and therefore the net asset value per share
and the interest income of the Fund, or result in the default of existing
obligations, including obligations which may be held by the Fund. Further, New
York State and New York City face numerous forms of litigation seeking
significant damages which, if awarded, could adversely affect the financial
situation of New York State or New York City or issuers located in New York
State. It should be noted that the creditworthiness of obligations issued by
local issuers (including New York City) may be unrelated to the creditworthiness
of New York State, and that there is no obligation on the part of New York State
to make payment on such local obligations in the event of default in the absence
of a specific guarantee or pledge provided by New York State.
Bond ratings received on New York State's and New York City's general
obligation bonds are discussed below. Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's Ratings Services ("S&P") provide an
assessment/rating of the creditworthiness of an obligor. The debt rating is not
a recommendation to purchase, sell, or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor. The ratings
are based on current information furnished by the issuer or obtained by the
rating service from other sources it considers reliable. Each rating service
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstance. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised or
withdrawn entirely by any such rating agencies, if in their respective
judgments, circumstances so warrant. The ratings are based, in varying degrees,
on the following considerations:
(1) Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
(2) Nature of, and provisions of, the obligation.
(3) Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement(s) under
the laws of bankruptcy and other laws affecting creditors rights.
A revision or withdrawal of any such credit rating could have an effect on
the market price of the related debt obligations. An explanation of the
significance and status of such credit ratings may be obtained from the rating
agencies furnishing the same. In addition, a description of Moody's and S&P's
bond ratings is set forth in Appendix A hereto.
The following information provides only a brief summary of the complex
factors affecting the financial situation in New York State and New York City,
is derived from sources that are generally available to investors and is
believed to be accurate. It is based on information drawn from the Annual
Information Statement of the State of New York dated June 23, 1995 and updates
thereto issued on July 28, 1995 and October 26, 1995, and from other official
statements and prospectuses issued by, and other information reported by, the
State of New York (the "State"), by its various public bodies (the "Agencies"),
and other entities located within the State, including the City of New York (the
"City"), in connection with the issuance of their respective securities.
THE FUND MAKES NO REPRESENTATION OR WARRANTY REGARDING THE COMPLETENESS OR
ACCURACY OF SUCH INFORMATION. THE MARKET VALUE OF SHARES OF THE FUND MAY
FLUCTUATE DUE TO FACTORS SUCH AS CHANGES IN INTEREST RATES, MATTERS AFFECTING
NEW YORK STATE OR NEW YORK CITY, OR FOR OTHER REASONS.
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. Travel and tourism constitute an important part of
New York's economy. Relative to the nation, the State has a smaller share of
manufacturing and construction and a larger share of service-related industries.
The State is likely to be less affected than the nation as a whole during an
economic recession that is concentrated in manufacturing and construction, but
likely to be more affected during a recession that is concentrated more in the
service-producing sector.
The State historically has been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
During the calendar years 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation. In the 1990-91 recession,
the economy of the State, and that of the rest of the Northeast, was more
heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State dipped below the
national rate in the second half of 1981 and remained lower until 1991; since
then, it has been higher.
The State has the second highest combined state and local tax burden in the
United States. The burden of state and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State. The State's 1995-96 budget reflects significant actions to
reduce the burden of State taxation, including adoption of a 3-year, 20 percent
reduction in the State's personal income tax.
The State Financial Plan is based on a projection by State's Division of
the Budget ("DOB") of national and State economic activity. The national economy
began the current expansion in 1991 and has added over 7 million jobs since
early 1992. However, the recession lasted longer in the State and the State's
economic recovery has lagged behind the nation's. Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer
and instrument manufacturing, utility, defense, and banking industries. New
York's economic forecast calls for employment growth to slow significantly in
1996 as the pace of national economic growth slackens, entire industries
experience consolidations, and governmental employment continues to shrink.
Personal income is expected to increase more moderately in 1996 than in 1995.
1995-96 FISCAL YEAR. The State's current fiscal year commenced on April 1,
1995, and ends on March 31, 1996 (the "1995-96 fiscal year"). The State's budget
for the 1995-96 fiscal year was enacted by the Legislature on June 7, 1995, more
than two months after the start of the fiscal year. Prior to adoption of the
budget, the Legislature enacted appropriations for disbursements considered to
be necessary for State operations and other purposes, including all necessary
appropriations for debt service. The State Financial Plan for the 1995-96 fiscal
year was formulated on June 20, 1995 and is based on the State's budget as
enacted by the legislature and signed into law by the Governor.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the State Financial Plan, based on then-current law governing spending and
revenues, would be out of balance by almost $4.7 billion. The Governor proposed
additional tax cuts, which were larger than those ultimately adopted, and which
added $240 million to the then projected imbalance or budget gap, bringing the
total to approximately $5 billion. This gap is projected to be closed in the
1995-96 State Financial Plan based on the enacted budget, through a series of
actions, mainly spending reductions and cost containment measures and certain
reestimates that are expected to be recurring, but also through the use of
one-time solutions.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds are projected
to be $33.110 billion, a decrease of $48 million from total receipts in the
prior fiscal year. Total General Fund disbursements and transfers to other funds
are projected to be $33.055 billion, a decrease of $344 million from the total
amount disbursed in the prior fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. As noted, the 1995-96 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
The 1995-96 State Financial Plan includes actions that will have an effect
on the budget outlook for State fiscal year 1996-97 and beyond. The DOB
estimates that the 1995-96 State Financial Plan contains actions that provide
nonrecurring resources or savings totalling approximately $900 million. The
Comptroller believes that the amount of nonrecurring resources or savings
exceeds $1.0 billion. The DOB also estimates that the 1995-96 State Financial
Plan contains nonrecurring expenditures totalling nearly $250 million. The net
amount of nonrecurring resources used in the 1995-96 State Financial Plan,
accordingly, is estimated by the DOB at over $600 million.
In addition to this use of nonrecurring resources, the 1995-96 State
Financial Plan reflects actions that will directly affect the State's 1996-97
fiscal year baseline receipts and disbursements. The three-year plan to reduce
State personal income taxes will decrease State tax receipts by an estimated
$1.7 billion in State fiscal year 1996-97, in addition to the amount of
reduction in State fiscal year 1995-96. Further significant reductions in the
personal income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements in
the State's 1995-96 fiscal year are expected to provide greater reductions in
State fiscal year 1996-97.
The net impact of these and other factors is expected to produce a
potential imbalance in receipts and disbursements in State fiscal year 1996-97.
The Governor has indicated that in the 1996-97 Executive Budget he will propose
to close this potential imbalance primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. On October 2, 1995, the State Comptroller released a report entitled
"Comptroller's Report on the Financial Conditions of New York State 1995" in
which he identified several risks to the State Financial Plan and reaffirmed his
estimate that the State faces a potential imbalance in receipts and
disbursements of at least $2.7 billion for the State's 1996-97 fiscal year and
at least $3.9 billion for the State's 1997-98 fiscal year.
To address a potential imbalance in any given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution, the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursement in future fiscal years. There can
be no assurance, however that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and disbursements
in future fiscal years.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the state. For example, a significant risk to the
1995-96 State Financial Plan arises from tax legislation pending in Congress.
Changes to Federal tax treatment of capital gains are likely to flow through
automatically to the State personal income tax. Such changes, depending upon
their precise character and timing, and upon taxpayer response, could produce
either revenue gains or losses during the balance of the State's fiscal year.
Uncertainties with respect to both the economy and potential decisions at the
Federal level add further pressure on future budget balance in New York State.
Specific budget proposals being discussed at the Federal level but not included
in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states. Because of the uncertainty and
unpredictability of these potential changes, their impact is not included in the
assumptions underlying the State's projections.
The 1995-96 State Financial Plan is based upon forecasts by the DOB of
national and State economic activity. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurances that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the Federal government, and changes in the demand for and use of State
services. There can be no assurance that the State's projections for tax and
other receipts for the 1995-96 fiscal year are not overstated and will not be
revised downward, or that disbursements will not be in excess of the amounts
projected. Such variances could adversely affect the State's cash flow during
the 1995-96 fiscal year or subsequent fiscal years, as well as the State's
ability to achieve a balanced budget on a cash basis for such fiscal year or
subsequent fiscal years.
The DOB believes that its projections of receipts and disbursements
relating to the current State Financial Plan, and the assumptions on which they
are based, are reasonable. Projections and estimates of receipts from taxes have
been subject to variance in recent fiscal years. The personal income tax, the
sales tax, and the corporation franchise tax have been particularly subject to
overestimation as a result of several factors, most recently the significant
slowdown in the national and regional economies and uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax laws. As a
result of the foregoing uncertainties and other factors, actual results could
differ materially and adversely from the projections discussed herein, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address cash flow needs and State Financial Plan shortfall,
and DOB believes it could take similar action should variances from its
projections occur in the current and/or subsequent fiscal years. Those variances
could, however, affect the State's ability to achieve a balanced budget on a
cash basis for the current and/or subsequent fiscal years.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future years, nor can there be any assurance that budgetary
difficulties will not lead to further adverse consequences for the State and its
obligations.
As a result of changing economic conditions and information, public
statements or reports may be released by the Governor, members of the State
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, as reflected in the 1995-96 State Financial Plan, that may
vary materially and adversely from the information provided herein.
INDEBTEDNESS. As of March 31, 1995, the total amount of long-term State
general obligation debt authorized but unissued stood at $1.789 billion. As of
the same date, the State had approximately $5.181 billion in general obligation
debt, including $149.3 million in bond anticipation notes outstanding.
As of March 31, 1995, $17.980 billion of bonds, issued in connection with
lease-purchase and contractual-obligation financings of State capital programs,
were outstanding. The total amount of outstanding State-supported debt as of
March 31, 1995 was $27.913 billion. As of March 31, 1995, total State-related
debt (which includes the State-supported debt, moral obligation and certain
other financings and State-guaranteed debt) was $36.1 billion.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1995-96 fiscal
year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in certificates of participation
during the State's 1995-96 fiscal year for equipment purchases and $14 million
for capital purposes. The projection of the State regarding its borrowings for
the 1995-96 fiscal year may change if circumstances require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7
billion, and has been authorized to issue its bonds to provide net proceeds of
up to $529 million during the State's 1995-96 fiscal year to redeem notes sold
in June 1995.
RATINGS. As of September 1995, Moody's rating of the State's general
obligation bonds stood at A, and S&P's rating stood at A-. Moody's lowered its
rating to A on June 6, 1990, its rating having been A1 since May 27, 1986. S&P
lowered its rating from A to A- on January 13, 1992. S&P's previous ratings were
A from March 1990 to January 1992, AA- from August 1987 to March 1990 and A+
from November 1982 to August 1987.
THE CITY AND THE MUNICIPAL ASSISTANCE CORPORATION ("MAC")
The City accounts for approximately 41% of the State's population and
personal income, and the City's financial health affects the State in numerous
ways.
In February 1975, the New York State Urban Development Corporation ("UDC"),
which had approximately $1 billion of outstanding debt, defaulted on certain of
its short-term notes. Shortly after the UDC default, the City entered a period
of financial crisis. Both the State Legislature and the United States Congress
enacted legislation in response to this crisis. During 1975, the State
Legislature (i) created MAC to assist with long-term financing for the City's
short-term debt and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the City's budgets and
four-year financial plans (the financial plans also apply to certain
City-related public agencies).
The national economic downturn which began in July 1990 adversely affected
the City economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and the City's economy declined in
those two years. Beginning in 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated and the
City's economy improved, boosted by strong wage gains. However, after noticeable
improvements in the City's economy during calendar year 1994, the City's current
four-year financial plan assumes that economic growth will slow in calendar year
1996, with local employment increasing modestly. During the 1995 fiscal year,
the City experienced substantial shortfalls in payments of non-property tax
revenues from those forecasted.
For each of the 1981 through 1993 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
its recent fiscal years in order to maintain balanced operating results. There
can be no assurance that the City will continue to maintain a balanced budget,
or that it can maintain a balanced budget without additional tax or other
revenue increases or reductions in City services, which could adversely affect
the City economic base.
Pursuant to State law the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The current financial plan
extends through the 1999 fiscal year. The City is required to submit its
financial plans to review bodies, including the Control Board. If the City were
to experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood of the occurrence of an annual operating deficit
of more than $100 million or the loss of access to the public credit markets to
satisfy the City's capital and seasonal financial requirements, the Control
Board would be required by State law to exercise certain powers, including prior
approval of City financial plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. The State's 1995-96
Financial Plan projects a balanced General Fund. If the State experiences
revenue shortfalls or spending increases during its 1995-96 fiscal year or
subsequent years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance that State budgets
in future fiscal years will be adopted by the April 1 statutory deadline and
that there will not be adverse effects on the City's cash flow and additional
City expenditures as a result of such delays.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1996 through 1999 fiscal
years. The City projections set forth in its financial plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in such financial plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability to complete revenue generating transactions, provision of State and
Federal aid and mandate relief, State legislative approval of future State
budgets, levels of education expenditures as may be required by State law,
adoption of future City budgets by the New York City Council, approval by the
Governor or the State Legislature and the cooperation of MAC with respect to
various other actions proposed in such financial plan, and the impact on City
revenues of proposals for Federal and State welfare reform.
Implementation of its financial plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $9.7 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The terms and
success of projected public sales of City general obligation bonds and notes
will be subject to prevailing market conditions, and no assurance can be given
that such sales will be completed. If the City were unable to sell its general
obligation bonds and notes, it would be prevented from meeting its planned
capital and operating expenditures. Future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obligation bonds
or notes.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than those
forecast in the financial plan. In addition, the Control Board staff and others
have questioned whether the City has the capacity to generate sufficient
revenues in the future to provide the level of services included in the
financial plan. It is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.
1995 FISCAL YEAR. On July 21, 1995, the City submitted to the Control Board
a fourth quarter modification to the financial plan for the 1995 fiscal year.
The City projects a balanced budget in accordance with GAAP for the 1995 fiscal
year after taking into account a transfer of $75 million.
1996-99 FINANCIAL PLAN. On July 11, 1995, the City submitted to the Control
Board the 1996-99 Financial Plan, which relates to the City, the Board of
Education and the City University of New York. The 1996-99 Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal year,
which were adopted on June 14, 1995, and sets forth proposed actions by the City
for the 1996 fiscal year to close substantial projected budget gaps resulting
from lower than projected tax receipts and other revenues and greater than
projected expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated with
the City's labor unions, the 1996-99 Financial Plan reflects a strategy to
substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years.
The 1996-99 Financial Plan also sets forth projections for the 1997 through
1999 fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $888 million, $1.5 billion and $1.4 billion for the 1997, 1998
and 1999 fiscal years, respectively, after successful implementation of the $3.1
billion gap-closing program for the 1996 fiscal year. The proposed gap-closing
actions, a substantial number of which are not specified in detail, include
various actions which may be subject to State or Federal approval.
On July 24, 1995, the City Comptroller issued a report on the 1996-99
Financial Plan. The report concluded that the 1996-99 Financial Plan includes
total risks of $749 million to $1.034 billion for the 1996 fiscal year. With
respect to the 1997-99 fiscal years, the report noted that the gap-closing
program in the 1996-99 Financial Plan does not include information about how the
City will implement the various gap-closing programs, and that the entitlement
cost containment and revenue initiatives will require approval of the State
legislature. The report estimated that the 1996-99 Financial Plan includes total
risks of $2.0 billion to $2.5 billion in the 1997 fiscal year, $2.8 billion to
$3.3 billion in the 1998 fiscal year, and $2.9 billion to $3.4 billion in the
1999 fiscal year.
In early December 1994, the City Comptroller issued a report which noted
that the City is currently seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.75 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be greatly reduced
in future years due to the decline in value of taxable real property. The report
concluded that the debt incurring power of the City would likely be curtailed
substantially in the 1997 and 1998 fiscal years.
On July 21, 1995, the staff of the Control Board issued a report on the
1996-99 Financial Plan which identified risks of $873 million, $2.1 billion,
$2.8 billion and $2.8 billion for the 1996 through 1999 fiscal years,
respectively.
On June 14, 1995, the staff of the Office of the State Deputy Comptroller
for the City of New York ("OSDC") issued a report on the financial plan with
respect to the 1995 fiscal year. The report noted that, during the 1995 fiscal
year, the City faced adverse financial developments totaling over $2 billion
resulting from the inability to initiate approximately 35% of the City's
gap-closing program, as well as newly-identified spending needs and revenue
shortfalls. The report noted that the City relied heavily on one-time actions to
offset adverse developments, using $2 billion in one-time resources in the 1995
fiscal year, or nearly double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the 1996-99
Financial Plan. The report concluded that there remains a budget gap for the
1996 fiscal year of $392 million, largely because the City and its unions have
yet to reach an agreement on how to achieve $160 million in unspecified labor
savings and the remaining $100 million in recurring health insurance savings
from last year's agreement. The report further noted that growth in City
revenues is being constrained by the weak economy in the City, which is likely
to be compounded by the slowing national economy, and that there is a likelihood
of a national recession during the course of the 1996-99 Financial Plan.
Moreover, the report noted that State and Federal budgets are undergoing
tumultuous changes, and that the potential for far-reaching reductions in
intergovernmental assistance is clearly on the horizon, with greater uncertainty
about the impact on City finances and services.
LITIGATION. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts, and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, of the
proceedings and claims are not currently predictable, adverse determinations in
certain such proceedings and claims might have a material adverse effect upon
the City's ability to carry out its financial plan. As of June 30, 1994, the
City estimated its potential future liability in respect of outstanding claims
to be approximately $2.6 billion. The 1996-99 Financial Plan includes provisions
for judgments and claims of $279 million, $236 million, $251 million and $264
million for the 1996 through 1999 fiscal years, respectively.
RATINGS. On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector." Other
factors identified by S&P in lowering its rating on City bonds included a trend
of using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance financial
plans, optimistic projections of additional Federal and State aid or mandate
relief, a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate the
City general obligations bonds A-. Moody's rating for City general obligation
bonds is Baa1.
On February 11, 1991, Moody's had lowered its rating from A. Previously,
Moody's had raised its rating to A in May 1988, to Baa1 in December 1986, to Baa
in November 1983 and to Ba1 in November 1981. S&P had raised its rating to A- in
November 1987, to BBB+ in July 1985 and to BBB in March 1981.
INDEBTEDNESS. As of June 30, 1995, the City and MAC had, respectively,
$23.258 billion and $4.033 billion of outstanding net long-term indebtedness.
THE STATE AGENCIES: Certain Agencies of the State, including the State
Housing Finance Agency ("HFA") and the UDC, have faced substantial financial
difficulties which could adversely affect the ability of such Agencies to make
payments of interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called "moral
obligation" provisions, which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to appropriate
funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having financial
difficulties to meet their obligations (including HFA and UDC) could result in a
default by one or more of the Agencies. Such default, if it were to occur, would
be likely to have a significant adverse effect on investor confidence in, and
therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal guarantees of City
and MAC obligations and could thus jeopardize the City's long-term financing
plans.
STATE LITIGATION: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal laws.
Included in the State's outstanding litigation are a number of cases challenging
the constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the future.
The State is also engaged in a variety of contract and tort claims wherein
significant monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally taken
from the Indians in violation of various treaties and agreements during the
eighteenth and nineteenth centuries. The claimants seek recovery of
approximately six million acres of land as well as compensatory and punitive
damages.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the 1995-96 fiscal year
or thereafter.
OTHER MUNICIPALITIES: Certain localities in addition to New York City could
have financial problems leading to requests for additional State assistance and
the need to reduce their spending or increase their revenues. The potential
impact on the State of such actions by localities is not included in projections
of State revenues and expenditures in the State's 1995-96 fiscal year
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the Fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1993, the total indebtedness of all localities in
the State other than New York City was approximately $17.7 billion. State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Fifteen localities had outstanding indebtedness for
deficit financing at the close of their fiscal year ending in 1993.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, New York City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State,
including notes or bonds in the Fund, could be adversely affected. Localities
also face anticipated and potential problems resulting from certain pending
litigation, judicial decisions, and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures, and
other economic trends could adversely affect localities and require increasing
State assistance in the future.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF 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.
Unless indicated otherwise, all positions have been held more than five years.
In addition to the occupations set forth below, the Directors and officers also
serve as directors and trustees or officers of various other closed-end and
open-end investment companies managed by Voyageur.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS AND AGE POSITION PAST FIVE YEARS AND OTHER AFFILIATIONS
- ---------------------- -------- --------------------------------------
<S> <C> <C>
Clarence G. Frame, 78 Director Of counsel, Briggs & Morgan law firm; Mr. Frame currently
W-875 serves on the board of directors of Tosco Corporation (an
First National Bank Building oil refining and marketing company), Milwaukee Land Company
332 Minnesota Street and Independence One Mutual Funds.
St. Paul, Minnesota 55101
Richard F. McNamara, 63 Director Chief Executive Officer of Activar, Inc., a
7808 Creekridge Circle #200 Minneapolis-based holding company consisting of seventeen
Minneapolis, Minnesota 55439 companies in industrial plastics, sheet metal, automotive
aftermarket, construction supply, electronics and financial
services. Mr. McNamara currently serves on the board of
directors of Rimage (electronics manufacturing) and
Interbank.
Thomas F. Madison, 60 Director President and CEO of MLM Partners, Inc. since January 1993;
200 South Fifth Street previously, Vice Chairman-Office of the CEO, The Minnesota
Suite 2100 Mutual Life Insurance Company from February 1994 to
Minneapolis, Minnesota 55402 September 1994; President of U.S. WEST
Communications-Markets from 1988 to 1993; Mr. Madison
currently serves on the board of directors of Valmont
Industries, Inc. (metal manufacturing), Eltrax Systems, Inc.
(data communications integration) Minnegasco, Lutheran
Health Systems, Communications Holdings, Inc., Alexander and
Alexander (insurance risk management), Span Link
Communications (telecommunications), Medical Benefits
Administrators, D&D Farms, AetherWorks (software
applications), Digital River (digital data provider) and
various civic and educational organizations.
James W. Nelson, 54 Director Chairman and Chief Executive Officer of Eberhardt Holding
81 South Ninth Street Company and its subsidiaries.
Suite 400
Minneapolis, Minnesota 55440
Robert J. Odegard, 75 Director Special Assistant to the President of the University of
University of Minnesota Minnesota.
Foundation
1300 South Second Street
Minneapolis, Minnesota 55454
John G. Taft, 42 President President and Director (since 1993) of VFM; Director (since
90 South Seventh Street 1993) and Executive Vice President (since 1995) of Voyageur
Suite 4400 Fund Distributors, Inc. ("the Underwriter "); President of
Minneapolis, Minnesota 55402 the Underwriter from 1991 to 1995; Management Committee
member of VFM from 1991 to 1993.
Andrew M. McCullagh, Jr., Executive Portfolio Manager of VFM; previously, Director of VFM and
Age 47 Vice the Underwriter from 1993 to 1995.
717 Seventeenth Street President
Denver, Colorado 80202
Jane M. Wyatt, 41 Executive Chief Investment Officer (since 1993) and portfolio manager
90 South Seventh Street Vice of VFM; Director of VFM and the Underwriter since 1993;
Suite 4400 President previously, Executive Vice President of VFM from 1992 to
Minneapolis, Minnesota 55402 1993 and Vice President of VFM from 1989 to 1992.
Steven Eldredge, 40 Vice Senior Tax-Exempt Portfolio Manager of VFM since 1995;
90 South Seventh Street President previously, portfolio manager for ABT Mutual Funds, Palm
Suite 4400 Beach, Florida from 1989 to 1995.
Minneapolis, Minnesota 55402
Elizabeth H. Howell, 34 Vice Senior Tax-Exempt Portfolio Manager of VFM.
90 South Seventh Street President
Suite 4400
Minneapolis, Minnesota 55402
James C. King, 55 Vice Senior Equity Portfolio Manager of VFM since 1993;
90 South Seventh Street President previously, Director of VFM and the Suite 4400 Underwriter
Minneapolis, Minnesota 55402 from 1993 through 1995.
Kenneth R. Larsen, 33 Treasurer Treasurer of VFM and the Underwriter; previously, Director,
90 South Seventh Street Secretary and Treasurer of VFM and the Underwriter from 1993
Suite 4400 to 1995.
Minneapolis, Minnesota 55402
Thomas J. Abood, 32 Secretary Senior Vice President and General Counsel of Dougherty
90 South Seventh Street Financial Group, Inc. (since 1995) the indirect parent of
Suite 4400 the Adviser; Senior Vice President (since 1995) of VFM, the
Minneapolis, Minnesota 55402 Underwriter and Voyageur Companies, Inc.; previously, Vice
President of VFM and Voyageur Companies, Inc. from 1994 to
1995; associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom, Chicago, Illinois from 1988 to 1994.
</TABLE>
The Fund does not compensate its officers. Each director or trustee (who is
not an employee of Voyageur or any of its affiliates) will receive a total
annual fee of $26,000 for serving as a director or trustee for each of the
open-end and closed-end investment companies (the "Fund Complex") for which
Voyageur acts as investment adviser, plus a $500 fee for each special in-person
meeting attended by such director. These fees are allocated among each series or
fund in the Fund Complex based on the relative average net asset value of each
series or fund. Currently the Fund Complex consists of 10 open-end investment
companies comprising 33 series or funds and 6 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 Fund Complex during the calendar year ended
December 31, 1995. As of the date of this Statement of Additional Information,
the Fund had not paid any compensation to directors.
DIRECTOR TOTAL COMPENSATION FROM FUND COMPLEX
- -------- ------------------------------------
Clarence G. Frame $24,500
Richard F. McNamara $24,500
Thomas F. Madison $24,500
James W. Nelson $24,500
Robert J. Odegard $24,500
THE INVESTMENT ADVISER AND UNDERWRITER
Voyageur Fund Managers, Inc., a Minnesota corporation ( "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 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. Certain key employees of DFG and its subsidiaries
and an employee benefit plan benefitting the employees of such companies have
been offered the opportunity to purchase voting common shares of DFG through
stock options granted with respect thereto, with the shareholdings of Pohlad
Companies and Mr. Dougherty each to be diluted proportionately by any such
purchases. Following any such purchases, Mr. Dougherty and Pohlad Companies
would each continue to own greater than 25% of the outstanding voting common
shares of DFG, and no other person or entity would own greater than 25% of such
shares. The principal executive offices of Voyageur are located at 90 South
Seventh Street, Suite 4400, Minneapolis, Minnesota, 55402.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Fund's shares. With regard to the Underwriter, Mr. Frank
Tonnemaker is the President and a director, Mr. Taft and Ms. Wyatt are each
Executive Vice Presidents and directors, Mr. Abood is Senior Vice President and
Mr. Larsen is Treasurer.
INVESTMENT ADVISORY AGREEMENT
The Fund does not maintain its own research department. The Fund has
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 objective 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 .50 of 1% of its average daily net assets, respectively. The fee
is based on the average daily value of the Fund's net assets at the close of
each business day. During the year ended September 30, 1996, the fiscal year
ended September 30, 1995, the three-month fiscal period ended September 30, 1994
and the fiscal year ended June 30, 1994, the Fund's predecessor paid advisory
and management fees of $93,048 (less $24,580 reimbursed), $99,309 (less $63,096
reimbursed), $26,011 and $111,126 (less $14,541 reimbursed), respectively.
The Investment Advisory Agreement continues from year to year only if
approved annually (a) by the Fund's Board or by vote of a majority of the
outstanding voting securities of the Fund and (b) by vote of a majority of board
members of the Fund who are not parties to such Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting of the Board called for the purpose of voting on such
approval. The Investment Advisory Agreement may be terminated by either party on
60 days' notice to the other party and terminates automatically upon its
assignment. The Investment Advisory Agreement also provides that amendments to
the Agreement may be affected if approved by the Board (including a majority of
the directors who are not interested persons of 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 AGREEMENT
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 Agreement, 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 the
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 amendment
must be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board (unless the
1940 Act otherwise requires shareholder approval thereof).
EXPENSES OF THE FUND
Voyageur is contractually obligated to pay the operating expenses of the
Fund (excluding interest, taxes, brokerage fees and commissions and Rule 12b-1
fees, if any) which exceed 1% of the Fund's average daily net assets on an
annual basis up to the amount of the investment advisory and management fee, and
the dividend disbursing, administrative and accounting services fee. In
addition, 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 PLAN OF DISTRIBUTION; DISTRIBUTION AGREEMENT
The Fund has adopted a Plan of Distribution (the "Plan") relating to the
payment of certain expenses pursuant to Rule 12b-1 under the 1940 Act. Rule
12b-1(b) provides that any payments made by a Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing.
Rule 12b-1(b)(1) requires that such plan be approved by a vote of at least
a majority of the Fund's outstanding shares, and Rule 12b-1(b)(2) requires that
such plan, together with any related agreements, be approved by a vote of the
Board of Directors and of the directors who are not interested persons of the
Fund and have no direct or indirect financial interest in the operation of the
plan or in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3)
requires that the plan or agreement provide, in substance:
(1) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1;
(2) that any person authorized to direct the disposition of monies
paid or payable by a Fund pursuant to its plan or any related agreement
shall provide to the Board of Directors, and the directors shall review, at
least quarterly, a written report of the amount so expended and the
purposes for which such expenditures were made; and
(3) in the case of a plan, that it may be terminated at any time by
vote of a majority of the members of the Board of Directors who are not
interested persons of the Fund and have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the
plan or by vote of a majority of the outstanding voting securities of a
Fund.
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1 (c) provides that the
Fund may rely upon Rule 12b-1 only if the selection and nomination of that
Fund's disinterested directors are committed to the discretion of such
disinterested directors. Rule 12b-1(e) provides that the Fund may implement or
continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to
approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under state
law, and under Section 36(a) and (b) of the 1940 Act, that there is a reasonable
likelihood that the plan will benefit the Fund and its shareholders.
The Fund has entered into a Distribution Agreement with the Underwriter,
pursuant to which the Underwriter acts as the principal underwriter of the
Fund's shares. The Distribution Agreement and Plan provide that the Underwriter
agrees to provide, and shall pay costs which it incurs in connection with
providing, administrative or accounting services to shareholders of the Fund
(such costs are referred to as "Shareholder Servicing Expenses") and that the
Underwriter shall also pay all costs of distributing the shares of the Fund
("Distribution Expenses"). Shareholder Servicing Expenses include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of the Fund, including, but not limited to,
an allocation of the Underwriter's overhead and payments made to persons,
including employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other administrative or
accounting services not otherwise required to be provided by the Fund's
investment adviser or dividend disbursing, transfer, administrative and
accounting services agent. Distribution Expenses include, but are not limited
to, initial and ongoing sales compensation (in addition to sales loads) paid to
investment executives of the Underwriter and to other broker-dealers and
participating financial institutions; expenses incurred in the printing of
prospectuses, statements of additional information and reports used for sales
purposes; expenses of preparation and distribution of sales literature; expenses
of advertising of any type; an allocation of the Underwriter's overhead;
payments to and expenses of persons who provide support services in connection
with the distribution of Fund shares; and other distribution-related expenses.
Pursuant to the provisions of the Distribution Agreement, the Underwriter
is entitled to receive a total fee each quarter at an annual rate of .25% of the
average daily net assets attributable to the Fund's Class A shares, 1.00% of the
average daily net assets attributable to the Fund's Class B shares and 1.00% of
the average daily net assets attributable to the Fund's Class C shares to pay
distribution expenses. As determined from time to time by the Board, a portion
of such fees shall be designated as a "shareholder servicing fee" and a portion
shall be designated as a "distribution fee." The Board has determined that all
of the fee payable with respect to Class A shares shall be designated a
shareholder servicing fee. With respect to fees payable with respect to Class B
shares and Class C shares, that portion of the fee equal to .25% of average
daily net assets attributable to each of the Fund's Class B shares and Class C
shares is designated a shareholder servicing fee and that portion of the fee
equal to .75% of average daily net assets attributable to each of the Fund's
Class B shares and Class C shares is designated a distribution fee. Amounts
payable to the Underwriter under the Distribution Agreement may exceed or be
less than the Underwriter's actual distribution expenses and shareholder
servicing expenses. In the event such distribution expenses and shareholder
servicing expenses exceed amounts payable to the Underwriter under the Plan, the
Underwriter shall not be entitled to reimbursement by the Fund. In addition to
being paid shareholder servicing and distribution fees, the Underwriter also
receives for its services the sales charge on sales of Fund shares set forth in
the Prospectus. For the year ended September 30, 1996 and the fiscal year ended
September 30, 1995, the Fund's predecessor Distributors earned distribution fees
of $3,751 and $1,894, respectively.
The Fund's Distribution Agreement is renewable from year to year if the
Fund's Board approves the Agreement and the Fund's Plan. The Fund or the
Underwriter can terminate its Distribution Agreement on 60 days' notice to the
other party, and the Distribution Agreement terminates automatically upon its
assignment. In the Fund's Distribution Agreement, the Underwriter agrees to
indemnify the Fund against all costs of litigation and other legal proceedings
and against any liability incurred by or imposed on the Fund in any way arising
out of or in connection with the sale or distribution of the Fund's shares,
except to the extent that such liability is the result of information which was
obtainable by the Underwriter only from persons affiliated with the Fund but not
the Underwriter.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
As the Fund's portfolio is composed exclusively of debt, rather than equity
securities, most portfolio transactions are effected with dealers without the
payment of brokerage commissions, but rather at net prices which usually include
a spread or markup. In effecting such portfolio transactions on behalf of the
Fund, 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. 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 accounts
as to which it exercises investment discretion. If the Fund executes any
transactions on an agency basis, it will generally pay higher than the lowest
commission rates available.
The Fund will not effect any brokerage transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with
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 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 Conduct 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 is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
SIGNATURE GUARANTY. In addition to information regarding redemption of
shares and signature guaranty set forth in the Prospectus, 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
the Fund, will not be deductible by a shareholder. Indebtedness may be allocated
to shares of a Fund even though not directly traceable to the purchase of such
shares.
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 capital gain) for the
12-month period ending on October 31 of such year. For purposes of the excise
tax, any income on which the Fund has paid corporate-level tax is considered to
have been distributed. The Fund intends to make sufficient distributions each
year to avoid the payment of the excise tax.
Under a special provision of the Revenue Reconciliation Act of 1993, all or
a portion of the gain that the Fund realizes on the sale of a 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 Funds will avoid investment in bonds which, in the
opinion of the investment adviser, pose a material risk of the loss of
tax-exemption. Further, if a bond in the Fund's portfolio lost its exempt
status, the Fund would make every effort to dispose of such investment on terms
that are not detrimental to the Fund.
The Code forbids a regulated investment company from earning 30% or more of
its gross income from the sale or other disposition of securities held less than
three months. This restriction may limit the extent to which the Fund may
purchase options. To the extent the Fund engages in short-term trading and
enters into options transactions, the likelihood of violating this 30%
requirement is increased.
Gain or loss on options is taken into account when realized by entering
into a closing transaction or by exercise. In addition, with respect to many
types of options held at the end of the Fund's taxable year, unrealized gain or
loss on such contracts is taken into account at the then current fair market
value thereof under a special "marked-to-market, 60/40 system," and such gain or
loss is recognized for tax purposes. The gain or loss from such options
(including premiums on certain options that expire unexercised) is treated as
60% long-term and 40% short-term capital gain or loss, regardless of their
holding period. The amount of any capital gain or loss actually realized by the
Fund in a subsequent sale or other disposition of such options will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale under the "marked-to-market, 60/40
system."
NEW YORK TAXATION. The portion of exempt-interest dividends that is derived
from interest income on New York Tax-Exempt Bonds is excluded from the New York
State and New York City gross income of individuals, estates and trusts. The
remaining portion of such dividends, and dividends that are not exempt-interest
dividends, are included in the New York State and New York City gross income of
individuals, estates and trusts. Exempt-interest dividends are not excluded from
the New York State and New York City gross income of corporations and banks, and
dividends from the Fund will not qualify for the New York State or New York City
dividends-received deduction for corporations and banks.
SPECIAL PURCHASE PLANS
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares may be
purchased through a pre-authorized automatic investment plan. Such
pre-authorized investments (at least $100) may be used to purchase shares of the
Fund at the public offering price next determined after the Fund receives the
investment (normally the 20th of each month, or the next business day
thereafter). Further information is available from the Underwriter.
COMBINED PURCHASE PRIVILEGE. The following persons (or groups of persons)
may qualify for reductions from the front end sales charge ("FESC") schedule for
Class A shares set forth in the Fund's prospectus by combining purchases of any
class of shares of any one or more of the Voyageur funds which bears a FESC
(and, in certain circumstances, purchases of FESC shares of certain other
open-end investment companies) if the combined purchase of all such funds totals
at least $50,000.
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act;
(ii) an individual, his or her spouse and their children under age 21,
purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust) created pursuant to a plan qualified under
Section 401 of the Code;
(iv) tax-exempt organizations enumerated in Section 501(c)(3) of the
Code;
(v) employee benefit plans of a single employer or of affiliated
employers; (vi) any organized group which has been in existence for more
than six months, provided that it is not organized for the purpose of
buying redeemable securities of a registered investment company, and
provided that the purchase is made through a central administration, or
through a single dealer, or by other means which result in economy of sales
effort or expense. An organized group does not include a group of
individuals whose sole organizational connection is participation as credit
cardholders of a company, policyholders of an insurance company, customers
of either a bank or broker-dealer, or clients of an investment adviser.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchase of Class A
shares may qualify for a Cumulative Quantity Discount. The applicable FESC will
then be based on the total of:
(i) the amount of the current purchase; and
(ii) the amount previously invested (valued at the time of investment)
in shares of any class of one or more Voyageur Funds which has a FESC owned
by the investor; and
(iii) the amount previously invested (valued at the time of
investment) in shares of any class of one or more Voyageur Funds which has
a FESC owned by another shareholder eligible to participate with the
investor in a "Combined Purchase Privilege" (see above).
To qualify for the Combined Purchase Privilege or to obtain the Cumulative
Quantity Discount on a purchase through an investment dealer, when each purchase
is made the investor or dealer must provide the Fund with sufficient information
to verify that the purchase qualifies for the privilege or discount.
LETTER OF INTENTION. Investors may also obtain the reduced front end sales
charges shown in the 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 any one or more of the Voyageur funds which has a FESC. Each purchase
of shares under a Letter of Intention will be made at the public offering price
applicable at the time of such purchase to a single transaction of the dollar
amount indicated in the Letter. A Letter of Intention may include purchases of
shares made not more than 90 days prior to the date that an investor signs a
Letter; however, the 13-month period during which the Letter is in effect will
begin on the date of the earliest purchase to be included. Investors qualifying
for the Combined Purchase Privilege described above may purchase shares under a
single Letter of Intention.
If, for example, on the date an investor signs a Letter of Intention to
invest at least $50,000 as set forth above and the investor and the investor's
spouse and children under age 21 have previously invested $20,000 in shares
which are still held by such persons, it will only be necessary to invest a
total of $30,000 during the 13 months following the first date of purchase of
such shares in order to qualify for the sales charges applicable to investments
of $50,000. The cumulative purchase would have to total at least $50,000 to
qualify for a reduced sales charge for the Fund.
The Letter of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intention is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased. When the full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the dollar amount
indicated on the Letter of Intention and qualifies for further reduced sales
charges, the sales charges will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in sales charges will be used to
purchase additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases.
Investors electing to take advantage of the Letter of Intention should
carefully review the appropriate provisions on the authorization form attached
to the Prospectus.
Shares of other open-end investment companies bearing a FESC will be
included with Voyageur Fund shares bearing a FESC in a Combined Purchase
Privilege, Cumulative Quantity Discount or Letter of Intention only if such
shares are owned by customers of dealers that Voyageur or the Underwriter has
engaged to provide administration or accounting services to Fund omnibus
accounts in connection with the offering of the Fund as part of such other
investment companies' family of funds. Additionally, the maximum reduction of
the Fund's FESC that may result from the inclusion of shares of such other
investment companies in a Combined Purchase Privilege, Cumulative Quantity
Discount or Letter of Intention shall be a reduction to the front-end sales
charge applicable to purchases of $500,000 but less than $1,000,000 (as set
forth in the sales charge table in the Prospectus).
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
3.90% of the net asset value. The public offering price of Class B and Class C
shares is the net asset value of Fund shares.
Effective with the close of business on November 15, 1996, the Fund
acquired the assets and assumed all identified liabilities of Fortis Fund, in a
tax-free exchange by issuing new shares. The Fund offers three classes of shares
- - Class A, B and C; prior to the acquisition Fortis Fund offered five classes of
shares. In the acquisition, Fortis Fund Class E shareholders received Class A
Fund shares and Fortis Fund Class H shareholders received Class B Fund Shares.
The Fund had no assets or liabilities prior to the acquisition. Consequently,
the information presented below for the Fund represents the financial history of
Fortis Fund.
On September 30, 1996, the net asset value per share was calculated as
follows:
<TABLE>
<CAPTION>
Class A
<S> <C> <C>
NET ASSETS ($104,213)
---------------------
Shares Outstanding (9,722) = Net Asset Value Per Share ($10.72)
Class B
NET ASSETS ($230,591)
---------------------
Shares Outstanding (21,570) = Net Asset Value Per share ($10.69)
Class C
NET ASSETS ($52,495)
--------------------
Shares Outstanding (4,907) = Net Asset Value Per Share ($10.70)
Class E
NET ASSETS ($10,444,360)
------------------------
Shares Outstanding (974,172) = Net Asset Value Per Share ($10.72)
Class H
NET ASSETS ($217,174)
---------------------
Shares Outstanding (20,307) = Net Asset Value Per Share ($10.69)
</TABLE>
On September 30, 1996, the public offering price per share was calculated
as follows:
<TABLE>
<CAPTION>
Class A
<S> <C> <C> <C> <C>
Maximum Public Offering Price = $10.72
-------
(1-4.5%) = $11.23
Class E
Maximum Public Offering Price = $10.72
------
(1-4.5%) = $11.23
</TABLE>
The public offering price per share for the Class B, Class C and Class H
shares was equal to such shares' net asset value.
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 provided of the Fund is that of the Fortis Fund as of
September 30, 1996.
YIELD
Yield is computed by dividing the net investment income per share deemed
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD = 2[(a-b) + 1) -1]
----
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
The 30-day yield as of September 30, 1996 was 4.79% (4.58% without
voluntary waivers) for Class A, 4.28% (4.06% without voluntary waivers) for
Class B, 4.28% (4.06% without voluntary waivers) for Class C, 5.03% (4.82%
without voluntary waivers) for Class E, and 4.28% (4.06% without voluntary
waivers) for Class H.
TAXABLE EQUIVALENT YIELD
Taxable equivalent yield is computed by dividing that portion of the yield
of the Fund (as computed above) which is tax-exempt by one minus a stated
marginal income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt.
The taxable equivalent yield is based on current Federal marginal income
tax rates for a single taxpayer. The marginal rates do not reflect federal rules
concerning the phase-out of personal exemptions and limitations on the allowance
of itemized deductions for certain high-income taxpayers.
The tax equivalent yield as of September 30, 1996, assuming a combined New
York/Federal tax rate of 43.9%, was 8.54% for Class A, 7.63% for Class B, 7.63%
for Class C, 8.97% for Class E and 7.63% for Class H. The tax equivalent yield
for investors subject to the New York personal income tax as of September 30,
1996, assuming a combined Federal, New York and local rate of 45.96%, was 8.86%
for Class A, 7.92% for Class B, 7.92% for Class C, 9.31% for Class E and 7.92%
for Class H.
The following tables show the yield that taxable investments would have to
earn to equal tax-exempt income earned by an investment in the Fund. The
tax-exempt yields shown are for illustrative purposes only and are not
indicative of the Fund's yield.
<TABLE>
<CAPTION>
STATE OF NEW YORK
-----------------
TAX-EXEMPT YIELDS
APPROXIMATE -----------------
COMBINED 4.00% 5.00% 6.00% 7.00% 8.00%
FEDERAL TAXABLE INCOME BRACKET FEDERAL AND
JOINT RETURNS SINGLE RETURNS STATE TAX RATE TAXABLE EQUIVALENT YIELDS
------------- -------------- -------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$38,000 $0-$22,750 19.25% 4.95% 6.19% 7.43% 8.67% 9.91%
$38,000-$91,850 $22,750-$55,100 33.13% 5.98% 7.48% 8.97% 10.47% 11.96%
$91,850-$140,000 $55,100-$115,000 35.92% 6.24% 7.80% 9.36% 10.92% 12.48%
$140,000-$250,000 $115,000-$250,000 40.56% 6.73% 8.41% 10.09% 11.78% 13.46%
Over $250,000 Over $250,000 43.90% 7.13% 8.91% 10.70% 12.48% 14.26%
CITY OF NEW YORK
----------------
APPROXIMATE TAX-EXEMPT YIELDS
COMBINED -----------------
FEDERAL, STATE 4.00% 5.00% 6.00% 7.00% 8.00%
FEDERAL TAXABLE INCOME BRACKET AND LOCAL
JOINT RETURNS SINGLE RETURNS TAX RATE TAXABLE EQUIVALENT YIELDS
------------- -------------- -------- -------------------------
0-$40,100 0-$24,000 21.72% 5.11% 6.39% 7.66% 8.94% 10.22%
$40,100-$96,900 $24,000-$58,150 35.36% 6.19% 7.74% 9.28% 10.83% 12.38%
$96,900-$147,700 $58,150-$121,300 38.26% 6.48% 8.10% 9.72% 11.34% 12.96%
$147,700-$263,750 $121,300-$263,750 42.74% 6.99% 8.73% 10.48% 12.22% 13.97%
Over $263,750 Over $263,750 45.96% 7.40% 9.25% 11.10% 12.95% 14.80%
</TABLE>
The tax rates shown above are based on federal and New York tax rates in effect
in 1996. (In the case of New York State and New York City rates, certain
brackets with different tax rates have been combined, and the tax rates
applicable to those brackets have been averaged, in order to simplify the
tables.) The combined tax rates assume that state and local income taxes paid
are deducted in calculating federal taxable income. The tables do not reflect
the federal and state rules for the phase-out of personal exemptions and
deductions. For years after 1996, the federal and New York tax bracket amounts
will be adjusted for inflation. If these scheduled changes take effect, they
will result in slightly different taxable equivalent yields for 1997 and later
years from those shown in the tables.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
The following table sets for the average annual total return for the Fund
for the periods indicated and ended September 30, 1996:
AVERAGE ANNUAL TOTAL RETURN
---------------------------
SINCE
1 YEAR 5 YEAR INCEPTION
------ ------ ---------
Class A(1) (inception date 11/14/94) (0.74)% N/A 5.05%
Class B(2) (inception date 11/14/94) (0.46)% N/A 4.84%
Class C(3) (inception date 4/26/95) 2.14% N/A 3.99%
Class E(1) (inception date 11/6/87) (0.52)% 5.59% 6.89%
Class H(2) (inception date 5/31/95) (0.36)% N/A 0.50%
1 Class A and E subject to maximum sales charge of 4.5%.
2 Class B and H subject to CDSC of 4% (with a waiver of 10% of the amount
invested) if redeemed within two years of purchase.
3 Class C has a CDSC of 1% if redeemed within one year of purchase.
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
(ERV-P)
CRT = (-----) 100
( P )
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and
P = initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
The cumulative total return from inception to September 30, 1996, for Class
A, Class B, Class C, Class E and Class H shares was 9.71%, 9.30%, 10.04%, 81.01%
and 0.67%, respectively.
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of the Fund valued at $10,000 or more
at the current offering price may open a Withdrawal Plan and have a designated
sum of money paid monthly to the investor or another person. Shares are
deposited in a Withdrawal Plan account and all distributions are reinvested in
additional shares of the Fund at net asset value or distributed in cash. Shares
in a Withdrawal Plan account are then redeemed to make each withdrawal payment.
Deferred sales charges may apply to monthly redemptions of Class B and Class C
shares (or to redemptions of Class A shares in connection with initial purchases
of $1,000,000 or more which were not subject to a FESC). Redemptions for the
purpose of withdrawal are made on the 25th of the month (or on the preceding
business day if the 25th falls on a weekend or is a holiday) at that day's
closing net asset value and checks are mailed on the next business day. Payments
will be made to the registered shareholder. As withdrawal payments may include a
return on principal, they cannot be considered a guaranteed annuity or actual
yield of income to the investor. The redemption of shares in connection with a
Withdrawal Plan may result in a gain or loss for tax purposes. Continued
withdrawals in excess of income will reduce and possibly exhaust invested
principal, especially in the event of a market decline. The maintenance of a
Withdrawal Plan concurrently with purchases of additional Class A shares of the
Fund would normally be disadvantageous to the investor because of the FESC
payable on such purchases. For this reason, an investor may not maintain a plan
for the accumulation of Class A shares of the Fund (other than through
reinvestment of distributions) and a Withdrawal Plan at the same time. The cost
of administering Withdrawal Plans is borne by the Fund as an expense of all
shareholders. The Fund or the Underwriter may terminate or change the terms of
the Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary and may
be terminated by the shareholder at any time without the imposition of any
penalty.
Since the Withdrawal Plan may involve invasion of capital, investors should
consider carefully with their own financial advisers whether the Withdrawal Plan
and the specified amounts to be withdrawn are appropriate in their
circumstances. The Fund makes no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
Organizational costs in connection with start-up and initial registration
will be amortized over 60 months on a straight-line 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 LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402,
serves as counsel for the Fund.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
serves as independent auditors for the Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director owes certain fiduciary duties to the
Fund and to its shareholders. Minnesota law provides that a director "shall
discharge the duties of the position of director in good faith, in a manner the
director reasonably believes to be in the best interest of the corporation, and
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances." Fiduciary duties of a director of a Minnesota
corporation include, therefore, both a duty of "loyalty" (to act in good faith
and act in a manner reasonably believed to be in the best interests of the
corporation) and a duty of "care" (to act with the care an ordinarily prudent
person in a like position would exercise under similar circumstances). Minnesota
law authorizes corporations to eliminate or limit the personal liability of a
director to the corporation or its shareholders for monetary damages for breach
of the fiduciary duty of "care". Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of directors (i) for any breach
of the directors' duty of "loyalty" to the corporation or its shareholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for authorizing a dividend, stock
repurchase or redemption or other distribution in violation of Minnesota law or
for violation of certain provisions of Minnesota securities law, or (iv) for any
transaction from which the directors derived an improper personal benefit. The
Articles of Incorporation of the Fund limit the liability of the Fund's
directors to the fullest extent permitted by Minnesota statutes, except to the
extent that such liability cannot be limited as provided in the 1940 Act (which
Act prohibits any provisions which purport to limit the liability of directors
arising from such directors' willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their role as
directors).
SHAREHOLDER MEETINGS
The Fund is not required under Minnesota law to hold annual or periodically
scheduled regular meetings of shareholders. Regular and special shareholder
meetings are held only at such times and with such frequency as required by law.
Minnesota corporation law provides for the Board of Directors to convene
shareholder meetings when it deems appropriate. In addition, if a regular
meeting of shareholders has not been held during the immediately preceding
fifteen months, a shareholder or shareholders holding three percent or more of
the voting shares of the Fund may demand a regular meeting of shareholders of
the Fund by written notice of demand given to the chief executive officer or the
chief financial officer of the Fund. Within ninety days after receipt of the
demand, a regular meeting of shareholders must be held at the expense of the
Fund. Additionally, the 1940 Act requires shareholder votes for all amendments
to fundamental investment policies and restrictions and for amendments to
investment advisory contracts and Rule 12b-1 distribution plans.
FINANCIAL INFORMATION
The audited Financial Statements and accompanying report of independent
accountants for the Fund for the fiscal year ended September 30, 1996 are
incorporated herein by reference from the annual report of the Fund for such
period as filed with the Securities and Exchange Commission. No other portion of
the annual report is so incorporated. Please call (800)553- 2143 to obtain a
copy of the most recent annual report of the Fund at no charge. Effective with
the close of business on November 15, 1996, the Fund acquired the assets and
assumed all identified liabilities of the Fortis Fund, in a tax-free exchange by
issuing new shares. The Fund offers three classes of shares - Class A, B and C;
prior to the acquisition Fortis Fund offered five classes of shares. In the
acquisition, Fortis Fund Class E shareholders received Class A Fund shares and
Fortis Fund Class H shareholders received Class B Fund Shares. The Fund had no
assets or liabilities prior to the acquisition. Consequently, the information
incorporated by reference hereby represents the financial history of Fortis
Fund.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Description of Standard and Poor's Ratings Services ("S&P") and Moody's
Investors Service, Inc. ("Moody's") ratings: S&P'S RATINGS FOR MUNICIPAL BONDS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an object with respect to a specific obligation. S&P's
letter ratings may be modified by the addition of a plus or minus sign, which is
used to show relative standing within the major rating categories, except in the
AAA (Prime Grade) category.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
AAA is the highest rating assigned by S&P. An issuer's capacity to pay
interest and repay the principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB and B
Debt rated BB and B (as well as debt rated CCC, C and C) is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation within this category, B represents a somewhat
higher degree of speculation and C represents the highest degree of speculation
of these ratings.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal repayments.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
S&P RATINGS FOR MUNICIPAL NOTES
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. A short-term rating designated VMIG, may also be assigned an issue having
a demand feature. The municipal obligations bearing the designation MIG 1/VMIG 1
are of the best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. The municipal obligations bearing the designation are
ample although not so large as in the preceding group.
Description of S&P A-1+
and
A-1 Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must possess overwhelming safety
characteristics regarding timely payment. Commercial paper rated A-1 must have a
degree of safety that is either overwhelming or very strong.
Description of
Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation and well established access
to a range of financial markets and assured sources of alternate liquidity.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF OPTIONS AND FUTURES
GENERAL. As described in the Prospectus under "Investment Objectives and
Policies --Options and Futures," each Fund may purchase and sell options on the
securities in which it may invest and certain Funds may purchase and sell
options on futures contracts (as defined below) and may purchase and sell
futures contracts. The Funds intend to engage in such transactions if it appears
advantageous to Voyageur to do so in order to pursue the Funds' investment
objectives, to seek to hedge against the effects of market conditions and to
seek to stabilize the value of its assets. The Funds will engage in hedging and
risk management transactions from time to time in Voyageur'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
outstanding futures contract is valued daily in a process known as "marking to
market." If the market value of the futures contract has changed, certain Funds
will be required to make or will be entitled to receive a payment in cash or
specified high quality debt securities in an amount equal to any decline or
increase in the value of the futures contract. These additional deposits or
credits are calculated and required on a daily basis and are known as "variation
margin."
There may be an imperfect correlation between movements in prices of the
futures contract certain Funds purchase or sell and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by Idaho Fund in a hedging
transaction, even if Voyageur correctly forecasts market trends certain Funds'
hedging strategy may not be successful. If this should occur, certain Funds
could lose money on the futures contracts and also on the value of its portfolio
securities.
Although certain Funds believe that the use of futures contracts and
options thereon will benefit it, if Voyageur's judgment about the general
direction of securities prices or interest rates is incorrect, certain Funds'
overall performance may be poorer than if it had not entered into futures
contracts or purchased or sold options thereon. For example, if certain Funds
seek to hedge against the possibility of an increase in interest rates, which
generally would adversely affect the price of fixed-income securities held in
its portfolio, and interest rates decrease instead, certain Funds will lose part
or all of the benefit of the increased value of its assets which it has hedged
due to the decrease in interest rates because it will have offsetting losses in
its futures positions. In addition, particularly in such situations, certain
Funds may have to sell assets from its portfolio to meet daily margin
requirements at a time when it may be disadvantageous to do so.
OPTIONS ON SECURITIES. Each Fund may purchase and sell (write) options on
securities, which options may be either exchange-listed or over-the-counter
options. The Funds may write call options only if the call option is "covered."
A call option written by a Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. The Funds may write put
options only if the put option is "secured." A put option written by a Fund is
secured if the Fund, which is obligated as a writer of a put option, invests an
amount, not less than the exercise price of a put option, in eligible
securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Each Fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
Each Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
Each Fund may purchase and sell options that are exchange-traded or that
are traded over-the counter ("OTC options"). Exchange-traded options in the
United States are issued by a clearing organization affiliated with the exchange
on which the option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when a Fund
purchases OTC options, it must rely on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Although each Fund will enter into OTC options only with dealers that agree
to enter into, and which are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
Until a Fund is able to effect a closing purchase transaction in a covered OTC
call option the Fund has written, it will not be able to liquidate securities
used as cover until the option expires or is exercised or different cover is
substituted. This may impair the Funds' ability to sell a portfolio security at
a time when such a sale might be advantageous. In the event of insolvency of the
counterparty, the Funds may be unable to liquidate an OTC option. In the case of
options written by the Funds, the inability to enter into a closing purchase
transaction may result in material losses to the Funds.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
SEC releases and staff positions, when entering into futures contracts or
certain option transactions, such as writing a put option, the Funds will
maintain, in a segregated account, cash or liquid high-grade securities equal to
the value of such contracts. Compliance with such segregation requirements may
restrict the Funds' ability to invest in intermediate- and long-term Tax-Exempt
Obligations.
The Funds intend to comply with CFTC regulations and avoid "commodity pool
operator" status. These regulations require that futures and options positions
be used (a) for "bona fide hedging purposes" (as defined in the regulations) or
(b) for other purposes so long as aggregate initial margins and premiums
required in connection with non-hedging positions do not exceed 5% of the
liquidation value of the Fund's portfolio. The Funds currently do not intend to
engage in transactions in futures contracts or options thereon for speculation.
ACCOUNTING CONSIDERATIONS. When either Fund writes an option, an amount
equal to the premium received by it is included in the Fund's Statement of
Assets and Liabilities as a liability. The amount of the liability subsequently
is marked to market to reflect the current market value of the option written.
When either Fund purchases an option, the premium paid by the Fund is recorded
as an asset and subsequently is adjusted to the current market value of the
option.
In the case of a regulated futures contract purchased or sold by certain
Funds. an amount equal to the initial margin deposit is recorded as an asset.
The amount of the asset subsequently is adjusted to reflected changes in the
amount of the deposit as well as changes in the value of the contract.
PART C
VOYAGEUR MUTUAL FUNDS, INC.
(VOYAGEUR NEW YORK TAX FREE FUND)
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
Included in Part A:
1. Fees and Expenses
2. Financial Highlights Included in Part B: None
(b) EXHIBITS
1. Articles of Incorporation of Voyageur Mutual Funds, Inc., dated April
14, 1993, filed as an Exhibit to Post-Effective Amendment Nos. 8 and 9
to Form N-1A, on April 30, 1996, File Nos. 33-63238 and 811-7742
respectively, and incorporated herein by reference.
1.2 Certificate of Designation of Series J, filed as an Exhibit to
Post-Effective Amendment Nos. 15 and 16 to Form N-1A, on November 20,
1996, File Nos. 33-63238 and 811-7742, respectively, and incorporated
herein by reference.
2. Bylaws of Voyageur Mutual Funds, Inc as amended by the Board of
Directors on May 14, 1996, filed as an Exhibit to Form N-14 filed on
August 27, 1996, File No. 333-10873 and incorporated herein by
reference.
3. Voting Trust Agreement. Not Applicable
4. Specimen Security for company incorporated under the laws of the State
of Minnesota, filed as an Exhibit to Post-Effective Amendment Nos. 8
and 9 to Form N-1A, on April 30, 1996, File Nos. 33-63238 and
811-7742, respectively, and incorporated herein by reference.
5. Investment Advisory Agreement, filed as an Exhibit to Post Effective
Amendment Nos. 14 and 15 to Form N-1A, on November 12, 1996, File Nos.
33-63238 and 811-7742, respectively, and incorporated herein by
reference
6.1 Distribution Agreement, filed as an Exhibit to Post-Effective
Amendment Nos. 15 and 16 to Form N-1A, on November 20, 1996, File Nos.
33-63238 and 811-7742, respectively, and incorporated herein by
reference.
6.2 Form of Dealer Sales Agreement, filed as an Exhibit to Post-Effective
Amendment Nos. 8 and 9 to Form N-1A, on April 30, 1996, File Nos.
33-63238 and 811-7742, respectively, and incorporated herein by
reference.
6.3 Form of Bank Agreement, filed as an Exhibit to Post-Effective
Amendment Nos. 8 and 9 to Form N-1A, on April 30, 1996, File Nos.
33-63238 and 811-7742, respectively, and incorporated herein by
reference.
7. Bonus, Profit Sharing, or Pension Plans. None.
8. Custodian Agreement filed as an Exhibit to Post Effective Amendment
Nos. 14 and 15 to Form N-1A, on November 12, 1996, File Nos. 33-63238
and 811-7742 respectively, and incorporated herein by reference
9. Administrative Services Agreement dated October 27, 1994, filed as an
Exhibit to Post Effective Amendment Nos. 14 and 15 to Form N-1A, on
November 12, 1996, File Nos. 33- 63238 and 811-7742 respectively, and
incorporated herein by reference
10. Opinion and Consent of Dorsey & Whitney, filed as an Exhibit to
Pre-Effective Amendment No. 1 to Form N-1A on August 27, 1993, File
No. 33-63238, and incorporated herein by reference.
10.1 Opinion and Consent of Dorsey & Whitney LLP, with respect to the
registration of Voyageur New York Tax Free Fund, Series J, Classes A,
B, and C shares, filed as an Exhibit to Post-Effective Amendment Nos.
15 and 16 to Form N-1A, on November 20, 1996, File Nos. 33-63238 and
811-7742, respectively, and incorporated herein by reference.
11. Consent of KPMG Peat Marwick, filed as an Exhibit hereto.
12. All 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 No 33-63238,
respectively, and incorporated herein by reference.
14. Copy of prototype defined contribution plan. Not Applicable. 15. Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, filed
as an Exhibit to Post Effective Amendment Nos. 14 and 15 to Form N-1A,
on November 12, 1996, File Nos. 33-63238 and 811-7742, respectively,
and incorporated herein by reference
16. Schedule for Computation of Performance Data. Not Applicable.
17.1 Power of Attorney, dated January 24, 1995, filed as an Exhibit to
Post-Effective Amendment Nos. 8 and 9 to Form N-1A, File Nos. 33-63238
and 811-7742, respectively, and incorporated herein by reference.
18. Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940,
filed as an Exhibit to Post-Effective Amendment Nos. 8 and 9 to Form
N-1A, File Nos. 33-63238 and 811-7742, respectively, and incorporated
herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Voyageur serves as investment manager to the following closed-end and
open-end management investment companies:
CLOSED-END INVESTMENT COMPANIES
Voyageur Arizona Municipal Income Fund, Inc.
Voyageur Colorado Insured Municipal Income Fund, Inc.
Voyageur Florida Insured Municipal Income Fund
Voyageur Minnesota Municipal Income Fund, Inc.
Voyageur Minnesota Municipal Income Fund II, Inc.
Voyageur Minnesota Municipal Income Fund III, Inc.
OPEN-END INVESTMENT COMPANIES AND SERIES THEREOF
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund
VFI Short Duration Portfolio
VFI Intermediate Duration Portfolio
VFI Core Portfolio
Voyageur Insured Funds, Inc.
Voyageur Minnesota Insured Fund
Voyageur Arizona Insured Tax Free Fund
Voyageur National Insured Tax Free Fund
Voyageur Colorado Insured Tax Free Fund
Voyageur Intermediate Tax Free Funds, Inc.
Voyageur Minnesota Limited Term Tax Free Fund
Voyageur National Limited Term Tax Free Fund
Voyageur Arizona Limited Term Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund
Voyageur California Limited Term Tax Free Fund
Voyageur Investment Trust
Voyageur 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 New York Tax Free Fund
Voyageur National 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
As of November 15 , 1996, there were 541, 15, and 4 shareholders of the
Fund's Class A shares, Class B shares, and Class C shares, respectively.
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.
<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.
("DDI").
John G. Taft Director and President See biographical information in Part B of the Registration
Statement.
Jane M. Wyatt Director and Chief See biographical information in Part B of the Registration
Investment OFficer Statement.
Edward J. Kohler Director and Executive Director and Executive Vice President of the Voyageur and
Vice President 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 since 1993;
Vice President 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 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 DDI; Chief Financial
Financial Officer 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 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 and Director None
John G. Taft Executive Vice President and President
Director
Edward J. Kohler Executive Vice President and None
Director
Jane M. Wyatt Executive Vice President and Executive Vice President
Director
Steven B. Johansen Secretary and Chief Financial None
Officer
Kenneth R. Larsen Treasurer Treasurer
Thomas J. Abood Senior Vice President Secretary
</TABLE>
The address of each of the executive officers is 90 South Seventh Street, Suite
4400, Minneapolis, Minnesota 55402.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The custodian for 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) 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
As required by the Securities Act of 1933 and Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Minneapolis, and State of Minnesota on the 5th day of December, 1996.
VOYAGEUR MUTUAL FUNDS, INC.
By /S/ JOHN G. TAFT
---------------------------
John G. Taft, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ JOHN G. TAFT President
- -------------------- (Principal December 5, 1996
John G. Taft Executive Officer)
/S/ KENNETH R. LARSEN Treasurer
- --------------------- (Principal Financial December 5, 1996
Kenneth R. Larsen and Accounting Officer)
James W. Nelson* Director
Clarence G. Frame* Director
Robert J. Odegard* Director
Richard F. McNamara* Director
Thomas F. Madison* Director
/S/ THOMAS J. ABOOD Attorney-in-Fact December 5, 1996
- --------------------
Thomas J. Abood
(Pursuant to a Power of Attorney dated January 24, 1995)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fortis Tax-Free Portfolios, Inc.
The Board of Directors
Voyageur Mutual Funds, Inc.:
We consent to the use of our report incorporated herein by reference and the
references to our Firm under the headings "FINANCIAL HIGHLIGHTS" in Part A and
"ADDITIONAL INFORMATION - Custodian; Counsel; Independent Auditors" in Part B of
the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 5, 1996
