AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 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. 10
and/or
REGISTRATIONSTATEMENT UNDER THE INVESTMENT COMPANY ACT OF1940 [X]
Amendment No. 11
(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):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on JUNE 3, 1996 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 (b)(1)(v) of Rule 485
/ / 75 days after filing pursuant to paragraph (a) of Rule 485
/ / on (specify date) pursuant to paragraph (a) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
The Registrant has registered an indefinite number of shares of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. A Rule 24f-2 Notice was filed by the Registrant on or about
February 23, 1996.
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Incorporation by Reference
and
Explanatory Note
This Post-Effective Amendment Nos. 10 and 11 to the registration statement
of Voyageur Mutual Funds, Inc. (the "Company") includes the Prospectus and
Statement of Additional Information relating to the Voyageur Minnesota High
Yield 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 six existing series of the Company are
hereby incorporated by reference from Post Effective Amendment Nos. 8 and 9 to
Form N-1A, filed on April 30, 1996, File Nos. 33-63238 and 811-7742
respectively.
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
ITEM NO.
OF FORM N-1A CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objective and Policies; Investment
Restrictions; Risks and Special Investment Considerations
General Information
5 Management; General Information
6 Distributions to Shareholders and Taxes; General Information
7 How to Purchase Shares; Management; Determination of Net Asset
Value; Exchange Privilege
8 How to Sell Shares; Reinstatement Privilege
9 Not Applicable
CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Restrictions; Special Factors Affecting
the Funds
14 Board Members and Executive Officers of the Funds
15 Board Members and Executive Officers of the Funds; Additional
Information
16 Board Members and Executive Officers of the Funds; The Investment
Adviser and Underwriter
17 The Investment Adviser and Underwriter
18 Not Applicable
19 Special Purchase Plans; Monthly Cash Withdrawal Plan; Net Asset
Value and Public Offering Price
20 Taxes
21 The Investment Adviser and Underwriter
22 Calculation of Performance Data
23 Not applicable
</TABLE>
MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
[GRAPHIC OMITTED]
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VOYAGEUR MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
VOYAGEUR FUNDS (NOT PART OF PROSPECTUS)
TABLE OF CONTENTS
3 Fees and Expenses
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4 The Fund
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4 Investment Objective and Policies
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13 Risks and Special Investment Considerations
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16 Investment Restrictions
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16 How to Purchase Shares
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22 How to Sell Shares
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24 Reinstatement Privilege
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24 Exchange Privilege
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25 Management
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27 Determination of Net Asset Value
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28 Distributions to Shareholders and Taxes
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30 Investment Performance
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30 General Information
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VOYAGEUR FUNDS (NOT PART OF PROSPECTUS)
PROSPECTUS
Dated June 3, 1996
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V oyageur Minnesota High Yield Municipal Bond 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 a high level of current income exempt from federal income tax and from
Minnesota personal income tax primarily through investment in a portfolio of
medium- and lower-grade Municipal Obligations. The Fund will not purchase
insurance on its portfolio securities. The weighted average maturity of the
investment portfolio of the Fund is expected to be approximately 15 to 25 years.
There is no assurance that the Fund will achieve its investment objective.
The Fund may invest in medium- and lower-grade Municipal Obligations rated
between BBB and B- (inclusive) by Standard & Poor's Ratings Group or Fitch
Investors Service, LP, Baa and B3 (inclusive) by Moody's Investors Service,
Inc., comparably rated short-term Municipal Obligations and non-rated Municipal
Obligations determined by the Fund's investment adviser to be of comparable
quality. The Fund may also invest in higher rated securities. Investment in
medium- and lower-grade Municipal Obligations involves special risks as compared
with investment in higher-grade municipal securities, including potentially
greater sensitivity to a general economic downturn or to a significant increase
in interest rates, greater market price volatility and less liquid secondary
market trading. See "Risks and Special Investment Considerations." Investment in
the Fund may not be appropriate for all investors.
The Fund's investment adviser is Voyageur Fund Managers, Inc. ("Voyageur").
The address of Voyageur and the Fund is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND IS NOT INSURED OR GUARANTEED BY THE UNITED STATES
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER FEDERAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL DUE TO FLUCTUATIONS IN THE 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 June 3, 1996) with the Securities and Exchange
Commission. The Statement of Additional Information is available free of charge
by telephone (800-553-2143) and is incorporated by reference herein in its
entirety.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Fund offers investors a choice among classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.
CLASS A SHARES
An investor who purchases Class A shares pays a sales charge at the time of
purchase. As a result, Class A shares are not subject to any charges when they
are redeemed (except for sales at net asset value in excess of $1 million or
sales subject to special promotions identified from time to time by Voyageur
which in either case are subject to a contingent deferred sales charge). The
initial sales charge may be reduced or waived for certain purchases. Class A
shares 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 up to 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.
The decision as to which class of shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
and intended length of the investment. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Other investors might
consider Class B or Class C shares because all of the purchase price is invested
immediately. Voyageur will treat orders for Class B shares for $250,000 or more
as orders for Class A shares or such orders will be declined. Sales personnel
may receive different compensation depending on which class of shares they sell.
SHARES OF THE FUND COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN ALL STATES.
SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING OFFERED AND
SOLD IN SUCH STATES.
<TABLE>
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MINNESOTA HIGH YIELD
MUNICIPAL BOND FUND
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Shareholder transaction expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 3.75% N/A2 N/A2
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable) 1.001 5.00% 1.00%
Annual fund operating expenses (as a
percentage of average net assets)
Management Fee (after voluntary fee waiver) .25 .25 .25
12b-1 Fee .25 1.00 1.00
Other Expenses (after voluntary expense
reimbursement) .25 .25 .25
----- ----- -----
Total Fund Operating Expenses (after voluntary
fee waivers and expense reimbursements) .75% 1.50% 1.50%
===== ===== =====
Total Fund Operating Expenses (without
voluntary waiver and reimbursement) 3 1.25% 2.00% 2.00%
===== ===== =====
EXAMPLE OF EXPENSES. 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 $45 65 $25
3 Years 61 87 47
No redemption:
1 Year $45 $15 $14
3 Years 61 47 47
</TABLE>
1 A contingent deferred sales charge of up to 1.00% is imposed on certain
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more.
2 Class B and Class C shares are sold without a front-end sales charge, but
their Rule 12b-1 fees may cause long term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales charges.
3 The Fund's management fee without waivers would be 0.65%.
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 management fee
waivers and expense reimbursements during fiscal 1996. After December 31, 1996,
such expense waivers and reimbursements may be discontinued or modified by
Voyageur and the Underwriter in their sole discretion. The Fund's investment
adviser, Voyageur, is contractually obligated to pay certain of the operating
expenses (excluding rule 12b-1 fees) of 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."
THE FUND
T he Fund is a separate series of Voyageur Mutual Funds, Inc., a 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 objective and policies of
the Fund are described below.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek a high level of current income
exempt from federal income tax and from Minnesota personal income tax primarily
through investment in a portfolio of medium and lower grade Municipal
Obligations. The Fund does not purchase insurance on its portfolio securities.
The Fund will attempt to invest 100% (and as a matter of fundamental policy
during normal circumstances will invest at least 80%) of the value of its net
assets in Municipal Obligations the interest on which is exempt from regular
federal income tax and from Minnesota personal income tax. The Fund may invest
without limit in securities that generate interest that is an item of tax
preference for purposes of federal and state 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 the
Adviser determines that market conditions warrant a shorter average maturity,
the Fund's investments will be adjusted accordingly. During times of adverse
market conditions when a defensive investment posture is warranted, the Fund may
temporarily select investments without regard to the foregoing 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 will invest at least 65% of its total assets, except under
abnormal market or economic situations, in medium- and lower-grade Municipal
Obligations rated, at the time of investment, between BBB and B-(inclusive) by
Standard & Poor's Ratings Group ("S&P"), Baa and B3 (inclusive) by Moody's
Investors Service, Inc. ("Moody's"), and BBB and B- (inclusive) by Fitch
Investors Service, LP ("Fitch"), and Municipal Obligations determined by
Voyageur to be of comparable quality.
Medium-grade Municipal Obligations are rated BBB by S&P or Fitch, Baa by
Moody's or determined by the Adviser to be of comparable quality. Municipal
Obligations rated BBB by S&P or Fitch generally are regarded by S&P or Fitch as
having an adequate capacity to pay interest and repay principal; adverse
economic conditions or changing circumstances are, however, more likely in S&P's
or Fitch's view to lead to a weakened capacity to pay interest and repay
principal as compared with higher rated Tax Exempt Obligations. Municipal
Obligations rated Baa by Moody's generally are considered by Moody's as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. In Moody's view, interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. In Moody's view,
such securities lack outstanding investment characteristics and have speculative
characteristics as well.
The Fund may invest in lower-grade Municipal Obligations rated, at the time
of investment, no lower than B- by S&P or Fitch or B3 by Moody's, and in
municipal securities determined by Voyageur to be of comparable quality.
Municipal Obligations rated B by S&P or Fitch generally are regarded by S&P or
Fitch, on balance, as predominantly speculative with respect to capacity to pay
interest or repay principal in accordance with the terms of the obligations.
While such securities will likely have some quality and protective
characteristics, in S&P's or Fitch's view these are outweighed by large
uncertainties or major risk exposure to adverse conditions. Securities rated B
by Moody's are viewed by Moody's as generally lacking characteristics of the
desirable investment. In Moody's view, assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
The Fund will not make initial investments in Municipal Obligations rated,
at the time of investment, below B- by S&P or Fitch or below B3 by Moody's, or
in Municipal Obligations determined by Voyageur to be of comparable quality. The
Fund may retain Municipal Obligations which are downgraded after investment.
There is no minimum rating with respect to securities that the Fund may hold if
downgraded after investment. See Appendix A to the Statement of Additional
Information for a description of Municipal Obligations ratings.
Investment in medium- and lower-grade securities involves special risks as
compared with investment in higher-grade securities, including potentially
greater sensitivity to a general economic downturn or to a significant increase
in interest rates, greater market price volatility and less liquid secondary
market trading. See "Risks and Special Investment Considerations." There can be
no assurance that the Fund will achieve its investment objective, and the Fund
may not be an appropriate investment for all investors. Furthermore, interest on
certain "private activity" obligations in which the Fund may invest is treated
as a preference item for the purpose of calculating the federal and state
alternative minimum tax and, accordingly, a portion of the income produced by
the Fund may be taxable under the federal and state alternative minimum tax. The
Fund may not be a suitable investment for investors who are already subject to
the alternative minimum tax or who would become subject to the alternative
minimum tax as a result of an investment in the Fund. See "Taxation."
At times Voyageur may judge that conditions in the markets for medium and
lower grade Municipal Obligations make pursuing the Fund's basic investment
strategy of investing primarily in such Municipal Obligations inconsistent with
the best interests of shareholders. At such times, the Fund may invest all or a
portion of its assets in higher grade Municipal Obligations and in Municipal
Obligations determined by Voyageur to be of comparable quality. Although such
higher grade Municipal Obligations generally entail less credit risk, such
higher grade Municipal Obligations may have a lower yield than medium and lower
grade Municipal Obligations and investment in such higher grade Municipal
Obligations may result in a lower yield to Fund shareholders. Voyageur may also
judge that conditions in the markets for long- and intermediate-term Municipal
Obligations in general make pursuing the Fund's basic investment strategy
inconsistent with the best interests of the Fund's shareholders. At such times,
the Fund may pursue strategies primarily designed to reduce fluctuations in the
value of the Fund's assets, including investing the Fund's assets in
high-quality, short-term Municipal Obligations and in high-quality, short-term
taxable securities. See "Taxation."
The Fund may invest without limitation in short term Municipal Obligations
or in taxable obligations on a temporary, defensive basis due to market
conditions or, with respect to taxable obligations, for liquidity purposes. Such
taxable obligations, whether purchased for liquidity purposes or on a temporary,
defensive basis, may include: obligations of the U.S. Government, its agencies
or instrumentalities; other debt securities rated within the three highest
grades by either Moody's, Fitch or S&P; commercial paper rated in the highest
grade by any of such rating services (Prime-1, F-1+ or A-1, respectively);
certificates of deposit and bankers' acceptances of domestic banks which have
capital, surplus and undivided profits of over $100 million; high-grade taxable
municipal bonds; and repurchase agreements with respect to any of the foregoing
investments. The Fund also may hold its assets in cash and in securities of
tax-exempt money market mutual funds.
MUNICIPAL OBLIGATIONS
As used in this Prospectus, the term "Municipal Obligations" refers to debt
obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions. The term
"Municipal Obligations" also includes Derivative Municipal Obligations as
defined below.
Municipal Obligations are primarily debt obligations issued to obtain funds
for various public purposes such as constructing public facilities and making
loans to public institutions. The two principal classifications of Municipal
Obligations are general obligation bonds and revenue bonds. General obligation
bonds are generally secured by the full faith and credit of an issuer possessing
general taxing power and are payable from the issuer's general unrestricted
revenues and not from any particular fund or revenue source. Revenue bonds are
payable only from the revenues derived from a particular source or facility,
such as a tax on particular property or revenues derived from, for example, a
municipal water or sewer utility or an airport. Municipal Obligations that
benefit private parties in a manner different than members of the public
generally (so-called private activity bonds or industrial development bonds) are
in most cases revenue bonds, payable solely from specific revenues of the
project to be financed. The credit quality of private activity bonds is usually
directly related to the creditworthiness of the user of the facilities (or the
creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Municipal Obligations, there is a
variety of types of municipal securities. Certain Municipal Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indexes, such as a
bank prime rate or a tax-exempt money market index. Accordingly, the yield on
such obligations can be expected to fluctuate with changes in prevailing
interest rates. Other Municipal Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.
Municipal Obligations also include state or municipal leases and
participation interests therein. 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 (1) whether the
lease can be canceled, (2) what assurance there is that the assets represented
by the lease can be sold, (3) the municipality's general credit strength (e.g.,
its debt, administrative, economic and financial characteristics), (4) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
non-appropriation"), and (5) the legal recourse in the event of failure to
appropriate. Additionally, the lack of an established trading market for
municipal lease obligations may make the determination of fair market value more
difficult. See "Investment Policies and Restrictions--Municipal Obligations" in
the Statement of Additional Information.
The Fund may also acquire Derivative Municipal Obligations, which are
custodial receipts or certificates underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain Municipal Obligations. The underwriter of these certificates or
receipts typically purchases and deposits the securities in an irrevocable trust
or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of
a custodial receipt, the Fund typically would be authorized to assert its rights
directly against the issuer of the underlying obligation, the Fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which the
underlying security had been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, it would be subject
to state income tax (but not federal income tax) on the income it earned on the
underlying security, and the yield on the security paid to the Fund and its
shareholders would be reduced by the amount of taxes paid. Furthermore, amounts
paid by the trust or custodial account to the Fund would lose their tax-exempt
character and become taxable, for federal and state purposes, in the hands of
the Fund and its shareholders. However, the Fund will only invest in custodial
receipts which are accompanied by a tax opinion stating that interest payable on
the receipts is tax-exempt. If the Fund invests in custodial receipts, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.
The principal and interest payments on the Derivative Municipal Obligations
underlying custodial receipts may be allocated in a number of ways. For example,
payments may be allocated such that certain custodial receipts may have variable
or floating interest rates and others may be stripped securities which pay only
the principal or interest due on the underlying Municipal Obligations. The Fund
may also invest in custodial receipts which are "inverse floating obligations"
(also sometimes referred to as "residual interest bonds"). These securities pay
interest rates that vary inversely to changes in the interest rates of specified
short term Municipal Obligations or an index of short-term Municipal
Obligations. Thus, as market interest rates increase, the interest rates on
inverse floating obligations decrease. Conversely, as market rates decline, the
interest rates on inverse floating obligations increase. Such securities have
the effect of providing a degree of investment leverage, since the interest
rates on such securities will generally change at a rate which is a multiple of
the change in the interest rates of the specified Municipal Obligations or
index. As a result, the market values of inverse floating obligations will
generally be more volatile than the market values of other Municipal Obligations
and investments in these types of obligations will increase the volatility of
the net asset value of shares of the Fund.
ILLIQUID SECURITIES
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 Trustees. See "Investment Policies and Restrictions--Illiquid
Investments" in the Statement of Additional Information.
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS
New issues of Municipal Obligations and other securities are often purchased on
a "when issued" or delayed delivery basis, with delivery and payment for the
securities normally taking place 15 to 45 days after the date of the
transaction. The payment obligation and the interest rate that will be received
on the securities are each fixed at the time the buyer enters into the
commitment. 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. Municipal Obligations purchased on a
when-issued basis and the securities held in the Fund's portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Municipal Obligations
purchased on a when-issued basis may expose the Fund to risk because they may
experience such fluctuations prior to their actual delivery. Purchasing
Municipal Obligations on a when-issued basis can involve the additional risk
that the yield available in the market when the delivery takes place actually
may be higher than that obtained in the transaction itself. Any significant
commitment by the Fund to the purchase of securities on a when-issued basis may
increase the volatility of the Fund's net asset value. Although 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
high current income.
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
and call options on the securities in which it may invest and on indices of
securities in which it may invest, to the extent such put and call options are
available.
A put option gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option on
or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date, at
a predetermined price.
In purchasing a call option, the Fund would be in a position to realize a
gain if, during the option period, the price of the security increased by an
amount in excess of the premium paid. It would realize a loss if the price of
the security declined or remained the same or did not increase during the period
by more than the amount of the premium. In purchasing a put option, the Fund
would be in a position to realize a gain if, during the option period, the price
of the security declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained the same or
did not decrease during that period by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the Fund were exercised, the Fund would be obligated to sell
the underlying security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value of the
underlying security caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its current market value. The risk
involved in writing a call option is that there could be an increase in the
market value of the underlying security caused by declining interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction as described in Appendix B to the Statement of Additional
Information. The Fund retains the premium received from writing a put or call
option whether or not the option is exercised.
Over-the-counter options are purchased or written by the Fund in privately
negotiated transactions. Such options are illiquid, and it may not be possible
for the Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when Voyageur believes it
would be advantageous to do so. Over-the-counter options are subject to the
Fund's 15% illiquid investment limitation. See Appendix B to the Statement of
Additional Information for a further discussion of the general characteristics
and risks of options.
Participation in the options market involves investment risks and
transaction costs to which the Fund would not be subject absent the use of this
strategy. If Voyageur's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (1) dependence on Voyageur's
ability to predict correctly movements in the direction of interest rates and
securities prices; (2) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (3) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences. See
"Investment Policies and Restrictions--Risks of Transactions in Futures
Contracts and Options" in the Statement of Additional Information for further
discussion and see Appendix B for a discussion of closing transactions and other
risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may enter into contracts for the purchase or sale for future delivery
of fixed income securities or contracts based on financial indices including any
index of securities in which the Fund may invest ("futures contracts") and may
purchase and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. The purchaser of a
futures contract on an index agrees to take or make delivery of an amount of
cash equal to the difference between a specified dollar multiple of the value of
the index on the expiration date of the contract ("current contract value") and
the price at which the contract was originally struck. Options on futures
contracts to be written or purchased by the Fund will be traded on exchanges or
over the counter. The successful use of such instruments draws upon Voyageur's
experience with respect to such instruments and usually depends upon Voyageur's
ability to forecast interest rate movements correctly. Should interest rates
move in an unexpected manner, the Fund may not achieve the anticipated benefits
of futures contracts or options on futures contracts or may realize losses and
would thus be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the prices of the securities
hedged or used for cover will not be perfect.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements. To the extent required to
comply with applicable Securities and Exchange Commission releases and staff
positions, when purchasing a futures contract or writing a put option, the Fund
will maintain in a segregated account cash, U. S. Government securities or other
liquid high grade debt securities equal to the value of such contracts, less any
margin on deposit. In addition, the rules and regulations of the Commodity
Futures Trading Commission currently require that, in order to avoid "commodity
pool operator" status, the Fund must use futures and options positions (a) for
"bona fide hedging purposes" (as defined in the regulations) or (b) for other
purposes so long as aggregate initial margins and premiums required in
connection with non-hedging positions do not exceed 5% of the liquidation value
of the Fund's portfolio. There are no other numerical limits on the Fund's use
of futures contracts and options on futures contracts. For a discussion of the
tax treatment of futures contracts and options on futures contracts, see "Taxes"
in the Statement of 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
T he yields on Municipal Obligations are dependent on a variety of factors,
including the financial condition of the issuer or other obligor thereon or the
revenue source from which debt service is payable, general economic and monetary
conditions, conditions in the relevant market, the size of a particular issue,
maturity of the obligation and the rating of the issue. Generally, the value of
Municipal Obligations will tend to fall as interest rates rise and will tend to
increase as interest rates decrease. In addition, Municipal Obligations of
longer maturity generally produce higher current yields than Municipal
Obligations with shorter maturities but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general market factors.
Lower rated Municipal Obligations generally produce a higher yield than higher
rated Municipal Obligations due to the perception of a greater degree of risk as
to the payment of principal and interest. Certain Municipal Obligations held by
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 might not be able to reinvest the
proceeds in securities providing the same investment return as the securities
redeemed.
SPECIAL RISK CONSIDERATIONS REGARDING MEDIUM- AND LOWER-GRADE MUNICIPAL
OBLIGATIONS
The Fund invests in medium- and lower-grade Municipal Obligations. Municipal
Obligations which are in the medium and lower grade categories generally offer a
higher current yield than is offered by higher-grade Municipal Obligations but
they also generally involve greater price volatility and greater credit and
market risk. Credit risk relates to the issuer's ability to make timely payment
of interest and principal when due. Market risk relates to the changes in market
value that occur as a result of variation in the level of prevailing interest
rates and yield relationships in the municipal securities market. Debt
securities rated BB or below by S&P or Fitch and B or below by Moody's are
commonly referred to as "junk bonds." Although the Fund primarily will invest in
medium- and lower-grade Municipal Obligations, the Fund may invest in
higher-grade Municipal Obligations for temporary defensive purposes. Such
investments may result in lower current income than if the Fund were fully
invested in medium and lower-grade securities.
The value of the Fund's portfolio securities can be expected to fluctuate
over time. When interest rates decline, the value of a portfolio invested in
fixed-income securities generally can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed-income
securities generally can be expected to decline. However, the secondary market
prices of medium-and lower-grade Municipal Obligations are less sensitive to
changes in interest rates and are more sensitive to adverse economic changes or
individual issuer developments than are the secondary market prices of
higher-grade debt securities. Such events also could lead to a higher incidence
of defaults by issuers of medium- and lower-grade Municipal Obligations as
compared with historical default rates. In addition, changes in interest rates
and periods of economic uncertainty can be expected to result in increased
volatility in the market price of the Municipal Obligation in the Fund's
portfolio and thus in the net asset value of the Fund. Also, adverse publicity
and investor perceptions, whether or not based on rational analysis, may affect
the value and liquidity of medium- and lower-grade Municipal Obligations. The
secondary market value of Municipal Obligations structured as zero coupon
securities and payment-in-kind securities may be more volatile in response to
changes in interest rates than debt securities which pay interest periodically
in cash. Investment in such securities also involves certain tax considerations.
Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of medium- and lower-grade Municipal Obligations to pay
interest and to repay principal, to meet projected financial goals and to obtain
additional financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal or interest and such
issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the fund may be
unable to obtain full recovery thereof.
To the extent that there is no established retail market for some of the
medium- or lower-grade Municipal Obligations in which the Fund may invest,
trading in such securities may be relatively inactive. Voyageur has contracted
with Muller Data Corporation as pricing agent and Voyageur is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Directors. During periods of reduced market liquidity and in the
absence of readily available market quotations for medium- and lower-grade
Municipal Obligations held in the Fund's portfolio, the ability of the pricing
agent to value the Fund's securities becomes more difficult and the pricing
agent's use of judgment may play a greater role in the valuation of the Fund's
securities due to the reduced availability of reliable objective data. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Fund may invest in zero-coupon and payment-in-kind Municipal
Obligations. Zero-coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. They are issued and traded at
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
Internal Revenue Code of 1986, as amended, requires that regulated investment
companies distribute at least 90% of their net investment income each year,
including tax-exempt and non-cash income. Accordingly, although the Fund will
receive no coupon payments on zero-coupon securities prior to their maturity,
the Fund is required, in order to maintain its desired tax treatment, to include
in its distributions to shareholders in each year any income attributable to
zero-coupon securities that is in excess of 10% of the Fund's net investment
income in that year. The Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. Payment-in-kind securities are securities that pay
interest through the issuance of additional securities. Such securities
generally are more volatile in response to changes in interest rates and are
more speculative investments than are securities that pay interest periodically
in cash.
Voyageur seeks to minimize the risks involved in investing in medium-and
lower-grade Municipal Obligations through multiple portfolio holdings, careful
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Fund will rely on Voyageur's
judgement, analysis and experience in evaluating the creditworthiness of an
issue. In its analysis, Voyaguer will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, its operating history, the quality of the issuer's management and
regulator matters. Voyageur may consider the credit ratings of Moody's, Fitch,
and S&P in evaluating Municipal Obligations, although it does not rely primarily
on these ratings. Such ratings evaluate only the safety of principal and
interest payments, not market value risk. Additionally, because the
creditworthiness of an issuer may change more rapidly than is able to be timely
reflected in changes in credit ratings, Voyageur continuously monitors the
issuers of Municipal Obligations held in the Fund's portfolio.
Municipal Obligations generally are not listed for trading on any national
securities exchange, and many issuers of medium-and lower-grade Municipal
Obligations choose not to have a rating assigned to their obligations by any
nationally recognized statistical rating organization. The amount of information
available about the financial condition of an issuer of unlisted or unrated
securities generally is not as extensive as that which is available with respect
to issuers of listed or rated securities. Because of the nature of medium- and
lower-rated Municipal Obligations, achievement by the Fund of its investment
objective may be more dependent on the credit analysis of Voyageur than is the
case for an investment company which invests primarily in exchange listed
higher-grade securities.
STATE CONSIDERATIONS
The value of Municipal Obligations owned by the Fund may be adversely affected
by local political and economic conditions and developments within Minnesota.
Adverse conditions in an industry significant to the local economy could have a
correspondingly adverse effect on the financial condition of local issuers.
Other factors that could affect Municipal Obligations include a change in the
local, state or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). A description of certain factors
affecting and statistics describing issuers of Municipal Obligations in
Minnesota is set forth in the Statement of Additional Information. Generally,
the structure of the State's economy parallels the structure of the United
States economy as a whole. There are, however, employment concentrations in
durable goods and non-durable goods manufacturing, particularly industrial
machinery, instruments and miscellaneous, food, paper and related industries,
and printing and publishing. The Minnesota Department of Finance February 1996
Forecast has projected that, under current laws, the State will complete its
current biennium June 30, 1997 with a $15 million surplus, plus a $350 million
cash flow account balance, plus a $220 million budget reserve. Currently
Minnesota's general obligation bonds are rated Aaa by Moody's, AA+ by S&P and
AAA by Fitch. See "Special Factors Affecting the Fund" in the Statement of
Additional Information.
INVESTMENT RESTRICTIONS
T he 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 (i) invest more than 5% of its
total assets in securities of any single investment company, (ii) invest more
than 10% of its total assets in securities of two or more investment companies
or (iii) invest more than 15% of its net assets in illiquid securities and (iv)
pledge, hypothecate, mortgage or otherwise encumber its assets in excess of 10%
of net assets. If the Fund invests in the securities of other investment
companies, the return on any such investments will be reduced by the operating
expenses, including investment advisory and administrative fees, of such
investment companies.
Except for 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
T he Fund offers investors the choice among three classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Page 2 of the Prospectus contains a
summary of these alternative purchase arrangements.
A broker-dealer may receive different levels of compensation depending on
which class of shares is sold. In addition, the Underwriter from time to time
pays certain additional cash incentives of up to $100 and/or non cash incentives
such as vacations or other prizes to its investment executives and other
broker-dealers and financial institutions in consideration of their sales of
Fund shares. In some instances, other incentives may be made available only to
broker-dealers and financial institutions, who meet certain objective standards
developed by the Underwriter, to the exclusion of other broker-dealers and
financial institutions who do not meet such criteria.
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 MINNESOTA HIGH YIELD MUNICIPAL BOND FUND
CHECKING ACCOUNT NO.: 872-458
ACCOUNT NUMBER: (ASSIGNED BY TELEPHONE)
Information on how to transmit Federal Funds by wire is available at any
national bank or any state bank that is a member of the Federal Reserve System.
The bank may charge the shareholder for the wire transfer. If the phone order
and Federal Funds are received before the close of trading on the Exchange, the
order will be deemed to become effective at that time. Otherwise, the order will
be deemed to become effective as of the close of trading on the Exchange on the
next day the Exchange is open for trading. The investor will be required to
complete 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 DISCOUNT
AS % OF SALES CHARGE AS % OF
NET ASSET AS % OF OFFERING
AMOUNT OF PURCHASE VALUE OFFERING PRICE PRICE(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.90% 3.75% 3.25%
$50,000 but less than $100,000 3.63 3.50 3.00
$100,000 but less than $250,000 2.83 2.75 2.50
$250,000 but less than $500,000 2.04 2.00 1.75
$500,000 but less than $1,000,000 1.78 1.75 1.75
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
- -----------------------------------------------------------------------------------------------
</TABLE>
1 Brokers and dealers who receive 90% or more of the sales charge may be
considered to be underwriters under the Securities Act of 1933, as amended.
2 The Underwriter intends to pay its investment executives and other
broker-dealers and banks that sell Fund shares, out of its own assets, a
fee of up to 1% of the offering price of sales of $1,000,000 or more, other
than on sales not subject to a contingent deferred sales charge.
3 Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "How to Sell Shares--Contingent
Deferred Sales Charge."
In connection with the distribution of the Fund's Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS--REDUCED SALES CHARGES
Certain investors (or groups of investors) may qualify for reductions in the
sales charges shown above. Investors should contact their broker-dealer or the
Fund for details about the Fund's Combined Purchase Privilege, Cumulative
Quantity Discount and Letter of Intention plans. Descriptions are also included
with the general authorization form and in the Statement of Additional
Information. These special purchase plans may be amended or eliminated at any
time by the Underwriter without notice to existing Fund shareholders.
RULE 12B-1 FEES
Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of .25%
of the average daily net assets of the Fund attributable to Class A shares. All
or a portion of such fees are paid quarterly to financial institutions and
service providers with respect to the average daily net assets attributable to
shares sold or serviced by such institutions and service providers. For
additional information about this fee, see "Management--Plan of Distribution"
below.
CONTINGENT DEFERRED SALES CHARGE
Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, the Underwriter pays investment dealers, out of its own
assets, a fee of up to 1% of the offering price of such shares. If these shares
are redeemed within a certain period of time after purchase, the redemption
proceeds will be reduced by a contingent deferred sales charge ("CDSC"). For
additional information, see "How to Sell Shares--Contingent Deferred Sales
Charge." The CDSC will depend on the number of years since the purchase was made
according to the following table:
CDSC AS A % OF AMOUNT REDEEMED FOR INVESTMENTS OF $1,000,000 OR MORE
CDSC Period CDSC
- ------------------------------------------------
First year after purchase 1.0%
Second year after purchase 1.0
Thereafter 0.0
- ------------------------------------------------
WAIVER OF SALES CHARGES
A limited group of institutional and other investors may qualify to purchase
Class A shares at net asset value, with no front end or deferred sales charges.
The investors qualifying to purchase such shares are: (1) officers and directors
of the Fund; (2) officers, directors and full-time employees of Voyageur
Companies, Inc., Voyageur, Voyageur Asset Management Group, Inc., the
Underwriter and Pohlad Companies, and officers, directors and full-time
employees of parents and subsidiaries of the foregoing companies; (3) officers,
directors and full-time employees of investment advisers of other mutual funds
subject to a sales charge and included in any other family of mutual funds that
includes any Voyageur Fund as a member ("Other Load Funds"), and officers,
directors and full-time employees of parents, subsidiaries and corporate
affiliates of such investment advisers; (4) spouses and lineal ancestors and
descendants of the officers, directors/trustees and employees referenced in
clauses (1), (2) and (3), and lineal ancestors and descendants of their spouses;
(5) investment executives and other employees of banks and dealers that have
selling agreements with the Underwriter and parents, spouses and children under
the age of 21 of such investment executives and other employees; (6) trust
companies and bank trust departments for funds held in a fiduciary, agency,
advisory, custodial or similar capacity; (7) any state or any political
subdivision thereof or any instrumentality, department, authority or agency of
any state or political subdivision thereof; (8) partners and full-time employees
of the Fund's general counsel; (9) managed account clients of Voyageur, clients
of investment advisers affiliated with Voyageur and other registered investment
advisers and their clients (the Fund may be available through a broker-dealer
which charges a transaction fee for purchases and sales) and (10) "wrap
accounts" for the benefit of clients of financial planners adhering to certain
standards established by Voyageur.
Class A shares will also be issued at net asset value, without a front end
or deferred sales charge, if the purchase of such shares is funded by the
proceeds from the redemption of shares of any unrelated open-end investment
company that charges a front end sales charge, and, in certain circumstances, a
contingent deferred sales charge. In order to exercise this privilege, the
purchase order must be received by the Fund within 60 days after the redemption
of shares of the unrelated investment company.
CLASS B SHARES--CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE
The public offering price of Class B shares of the Fund is the net asset value
of the Fund's shares. Class B shares are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. However, a
CDSC of up to 5% will be imposed if shares are redeemed within six years of
purchase. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge." In addition, Class B shares are subject to higher Rule
12b-1 fees as described below. The CDSC will depend on the number of years since
the purchase was made according to the following table:
CDSC AS A % OF AMOUNT REDEEMED*
CDSC AS A % OF
CDSC PERIOD AMOUNT REDEEMED
- -----------------------------------------------------
1st year after purchase 5%
2nd year after purchase 4
3rd year after purchase 4
4th year after purchase 3
5th year after purchase 2
6th year after purchase 1
Thereafter 0
- -----------------------------------------------------
* The CDSC will be calculated on an amount equal to the lesser of the net asset
value of the shares at the time of purchase or the net asset value at the time
of redemption.
Proceeds from the CDSC are paid to the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Fund in connection with the sale of Class B shares, such as the payment
of compensation to selected broker dealers and for selling Class B shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge at the time the
shares are sold, the Underwriter pays a sales commission equal to 4% of the
amount invested to broker-dealers who sell Class B shares and pays an ongoing
annual servicing fee of .15% (paid quarterly) calculated on the net assets
attributable to sales made by such broker-dealers.
RULE 12B-1 FEES
Class B shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of the Fund attributable to Class B shares. The
higher 12b-1 fee will cause Class B shares to have a higher expense ratio and to
pay lower dividends than Class A shares. For additional information about this
fee, see "Fees and Expenses" 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" below. Class B shares acquired through reinvestment of
distributions will convert into Class A shares based on the date of issuance of
such shares.
CLASS C SHARES--LEVEL LOAD ALTERNATIVE
The public offering price of Class C shares of 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 an annual 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
T he Fund will redeem its shares in cash at the net asset value next determined
after receipt of a shareholder's written request for redemption in good order
(see below). If shares for which payment has been collected are redeemed,
payment must be made within seven days. Shareholders will not earn any income on
redeemed shares on the redemption date. The Fund may suspend this right of
redemption and may postpone payment only when the Exchange is closed for other
than customary weekends or holidays, or if permitted by the rules of the
Securities and Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net assets
or during any other period permitted by order of the Commission for the
protection of investors.
The Fund reserves the right and currently plans to redeem Fund shares and
mail the proceeds to the shareholder if at any time the value of Fund shares in
the account falls below a specified value, currently set at $250. Shareholders
will be notified and will have 60 days to bring the account up to the required
value before any redemption action will be taken by the Fund.
CONTINGENT DEFERRED SALES CHARGE The CDSC will be calculated on an amount equal
to the lesser of the net asset value of the shares at the time of purchase or
their net asset value at the time of redemption. No charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
charge will be assessed on shares derived from reinvestment of dividends or
capital gains distributions.
In determining whether a CDSC is payable with respect to any redemption,
the calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, it will be assumed that shares that are not subject to
the CDSC are redeemed first, shares subject to the lowest level of CDSC are
redeemed next, and so forth. If a shareholder owns Class A and either Class B or
Class C shares, then absent a shareholder choice to the contrary, Class B or
Class C shares not subject to a CDSC will be redeemed in full prior to any
redemption of Class A shares not subject to a CDSC.
The CDSC does not apply to: (1) redemptions of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemptions of shares when
a Fund exercises its right to liquidate accounts which are less than the minimum
account size; and (3) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
If a shareholder exchanges Class A, Class B or Class C shares subject to a
CDSC for Class A, Class B or Class C shares, respectively, of a different
Voyageur Fund, the transaction will not be subject to a CDSC. However, when
shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the CDSC.
Fund shares are exchangeable for shares of any money market fund available
through Voyageur. No CDSC will be imposed at the time of any such exchange;
however, the shares acquired in any such exchange will remain subject to the
CDSC and the period during which such shares represent shares of the money
market fund will not be included in determining how long the shares have been
held. Any CDSC due upon a redemption of Fund shares will be reduced by the
amount of any Rule 12b-1 payments made by such money market fund with respect to
such shares.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A, Class B, or Class C shares of any Fund (by crediting such refunded CDSC
to such shareholder's account) if, within 90 days of such redemption, all or any
portion of the redemption proceeds are reinvested in shares of the same class in
any of the Voyageur Funds. Any reinvestment within 90 days of a redemption to
which the CDSC was paid will be made without the imposition of a FESC but will
be subject to the same CDSC to which such amount was subject prior to the
redemption. The amount of the CDSC will be calculated from the original
investment date.
EXPEDITED REDEMPTIONS
The Fund offers several expedited redemption procedures, described below, which
allow a shareholder to redeem Fund shares at net asset value determined on the
same day that the shareholder places the request for redemption of those shares.
Pursuant to these expedited redemption procedures, the Fund will redeem its
shares at their net asset value next determined following the Fund's receipt of
the redemption request. The Fund reserves the right at any time to suspend or
terminate the expedited redemption procedures or to impose a fee for this
service. There is currently no additional charge to the shareholder for use of
the Fund's expedited redemption procedures.
EXPEDITED TELEPHONE REDEMPTION
Shareholders redeeming at least $1,000 and no more than $50,000 (for which
certificates have not been issued) may redeem by telephoning the Fund directly
at 612-376-7014 or 800-545-3863. The applicable section of the general
authorization form must have been completed by the shareholder and filed with
the Fund before the telephone request is received. The proceeds of the
redemption will be paid by check mailed to the shareholder's address of record
or, if requested at the time of redemption, by wire to the bank designated on
the general authorization form. The Fund will employ reasonable procedures to
confirm that telephone instructions are genuine, including requiring that
payment be made only to the shareholder's address of record or to the bank
account designated on the authorization form and requiring certain means of
telephonic identification. The Fund's Adviser and Distributor will not be liable
for following instructions which are reasonably believed to be genuine.
EXPEDITED REDEMPTIONS THROUGH CERTAIN BROKER DEALERS
Certain broker-dealers who have sales agreements with the Underwriter may allow
their customers to effect a redemption of shares of a Fund purchased through
such broker-dealer by notifying the broker-dealer of the amount of shares to be
redeemed. The broker-dealer is then responsible for promptly placing the
redemption request with the Fund on the customer's behalf. Payment will be made
to the shareholder by check or wire sent to the broker-dealer. Broker-dealers
offering this service may impose a fee or additional requirements for such
redemptions.
GOOD ORDER
"Good order" means that stock certificates, if issued, must accompany the
written request for redemption and must be duly endorsed for transfer, or must
be accompanied by a duly executed stock power. If no stock certificates have
been issued, a written request to redeem must be made. Stock certificates will
not be issued for Class B or Class C shares. In any case, the shareholder must
execute the redemption request exactly as the shares are registered. If the
redemption proceeds are to be paid to the registered holder(s), a signature
guarantee is not normally required. A signature guarantee is required in certain
other circumstances, for example, to redeem more than $50,000 or to have a check
mailed other than to the shareholder's address of record. See "Other
Information" in the Statement of Additional Information. The Adviser may waive
certain of these redemption requirements at its own risk, but also reserves the
right to require signature guarantees on all redemptions, in contexts perceived
by the Adviser to subject the Fund to an unusual degree of risk.
MONTHLY CASH WITHDRAWAL PLAN
An investor who owns or buys shares of the Fund
valued at $10,000 or more at the current offering price may open a Withdrawal
Plan and have a designated sum of money paid monthly to the investor or another
person. Deferred sales charges may apply to monthly redemptions of Class B 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, plus the amount, if any, by which the applicable sales
charge exceeds the sum of all sales charges previously paid in connection with
the prior investment. For a discussion of issues relating to the contingent
deferred sales charge upon such exchanges, see "How to Sell Shares--Contingent
Deferred Sales Charge." There is no specific limitation on exchange frequency;
however, the Fund is intended for long term investment and not as a trading
vehicle. Voyageur reserves the right to prohibit excessive exchanges (more than
four per quarter). Voyageur also reserves the right, upon 60 days' prior notice,
to restrict the frequency of, or otherwise modify, condition, terminate or
impose charges upon, exchanges. An exchange is considered to be a sale of shares
on which the investor may realize a capital gain or loss for income tax
purposes. Exchange requests may be placed directly with the Fund in which the
investor owns shares, through Voyageur or through other broker-dealers. An
investor considering an exchange should obtain a prospectus of the Fund to be
acquired and should read such prospectus carefully. Contact 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 March 31, 1996, Voyageur served as
the manager to six closed-end and ten open-end investment companies (comprising
32 separate investment portfolios), administered numerous private accounts and
managed approximately $9 billion in assets. Voyageur's principal business
address is 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
The Fund pays Voyageur a monthly investment advisory and management fee
equivalent on an annual basis to .65% of its average daily net assets.
Elizabeth H. Howell will have day-to-day portfolio management
responsibility for the Fund. Since 1991, Ms. Howell has had day-to-day portfolio
management responsibility for the Voyageur Minnesota Tax Free Fund, Voyageur
Minnesota Limited Term Tax Free Fund, and Voyageur Minnesota Insured Fund, as
well as, since inception, the Voyageur Idaho Tax Free Fund, Voyageur Kansas Tax
Free Fund, Voyageur Missouri Insured Tax Free Fund, Voyageur Oregon Insured Tax
Free Fund, and Voyageur Washington Insured Tax Free Fund. Ms. Howell is a Vice
President and Senior Tax-Exempt Portfolio Manager for Voyageur, where she has
been employed since 1991 and is a Vice President of each of the Voyageur Funds.
Ms. Howell has over ten years experience as a securities analyst and portfolio
manager.
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 (1) $1.33 per shareholder account per month, (2) a monthly fee
ranging from $1,000 to $1,500 based on the average daily net assets of the Fund
and (3) a percentage of average daily net assets which ranges from 0.11% to
0.02% based on the average daily net assets of the Fund. See "The Investment
Adviser and Underwriter--Expenses of the Fund" in the Statement of Additional
Information.
Certain institutions may act as sub-administrators for the Fund pursuant to
contracts with Voyageur, whereby the institutions will provide shareholder
services to their customers. Voyageur will pay the sub-administrators' fees out
of its own assets. The fee paid by Voyageur to any sub-administrator will be a
matter of negotiation between the institution and Voyageur based on the extent
and quality of the services provided.
EXPENSES OF THE FUND
Voyageur is contractually obligated to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees) of the
Fund which exceed 1% of the Fund's average daily net assets on an annual basis
up to certain limits as set forth in detail in the Statement of Additional
Information. In addition, Voyageur and the Underwriter reserve the right to
voluntarily waive their fees in whole or part and to voluntarily absorb certain
other of the Fund's expenses. Voyageur and the Underwriter have agreed to waive
fees or absorb expenses for the fiscal year ending December 31, 1996 in such a
manner as will result in the Fund being charged fees and expenses that
approximate those set forth in the section "Fees and Expenses." After December
31, 1996, such voluntary fee and expense waivers may be discontinued or modified
by Voyageur and the Underwriter in their sole discretion.
The Fund's expenses include, among others, fees of directors, expenses of
directors' and shareholders' meetings, insurance premiums, expenses of
redemption of shares, expenses of the issue and sale of shares (to the extent
not otherwise borne by the Underwriter), expenses of printing and mailing stock
certificates and shareholder statements, association membership dues, charges of
the Fund's custodian, bookkeeping, auditing and legal expenses, the fees and
expenses of registering 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 class of the Fund owned by such shareholders at net
asset value, without any sales charge, unless they elect otherwise. The Fund
sends to its shareholders no less than quarterly statements with details of any
reinvested dividends.
TAXES
FEDERAL INCOME TAXATION
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.
MINNESOTA STATE TAXATION
Minnesota taxable net income is based generally on federal taxable income. The
portion of exempt-interest dividends that is derived from interest income on
Minnesota Municipal Obligations is excluded from the Minnesota taxable net
income of individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from such Minnesota sources paid to all shareholders
represents 95 percent or more of the exempt-interest dividends paid by the Fund.
Exempt-interest dividends are not excluded from the Minnesota taxable income of
corporations and financial institutions. Dividends qualifying for federal income
tax purposes as capital gain dividends are to be treated by shareholders as
long-term capital gains. Minnesota has repealed the favorable treatment of
long-term capital gains, while retaining restrictions on the deductibility of
capital losses. Exempt-interest dividends subject to the federal alternative
minimum tax will also be subject to the Minnesota alternative minimum tax
imposed on individuals, estates and trusts.
The 1995 Minnesota Legislature enacted a statement of intent that interest
on obligations of Minnesota governmental units and Indian tribes be included in
net income of individuals, estates and trusts for Minnesota income tax purposes
if a court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. The Fund is not aware of any decision in which a court
has held that a state's exemption of interest on its own bonds or those of its
political subdivisions or Indian tribes, but not of interest on the bonds of
other states or their political subdivisions or Indian tribes, unlawfully
discriminates against interstate commerce or otherwise contravenes the United
States Constitution. Nevertheless, the Fund cannot predict the likelihood that
interest on the Minnesota Municipal Obligations held by the Fund would become
taxable under this Minnesota statutory provision.
The foregoing discussion relates to federal and state taxation as of the
date of the Prospectus. See "Taxes" in the Statement of Additional Information.
This discussion is not intended as a substitute for careful tax planning. You
are urged to consult your tax adviser with specific reference to your own tax
situation.
INVESTMENT PERFORMANCE
A dvertisements and other sales literature for the Fund may refer to "yield,"
"taxable equivalent yield," "average annual total return" and "cumulative total
return" and may compare such performance quotations with published indices and
comparable quotations of other 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 612-376-7010 or 800-525-6584. For additional information
regarding the calculation of the Fund's yield, taxable equivalent yield, average
annual total return and cumulative total return, see "Calculation of Performance
Data" in the Statement of Additional Information.
GENERAL INFORMATION
T he 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. Shareholders may remove Board members from office by votes cast in
person or by proxy at a meeting of shareholders or by written consent and, in
accordance with Section 16 of the 1940 Act, the Board shall promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Board member when requested to do so by the record holders of not less
than 10% of the outstanding shares.
Each share of a series has one vote irrespective of the relative net asset
value of the shares. On some issues, such as the election of Board members, all
shares vote together as one series of the Company. On an issue affecting only a
particular series or class, the shares of the affected series or class vote as a
separate series or class. An example of such an issue would be a fundamental
investment restriction pertaining to only one series.
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 MINNESOTA HIGH YIELD MUNICIPAL BOND FUND)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Fund's Prospectus dated June 3, 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
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Investment Policies and Restrictions..................2
Special Factors Affecting the Fund....................17
Board Members and Executive Officers of the Fund......19
The Investment Adviser and Underwriter................21
Taxes.................................................29
Special Purchase Plans ...............................31
Net Asset Value and Public Offering Price.............33
Calculation of Performance Data.......................33
Monthly Cash Withdrawal Plan..........................35
Additional Information................................36
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 June 3, 1996, and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made. The delivery of this Statement of Additional Information
at any time shall not imply that there has been no change in the affairs of the
Fund since the date hereof.
Dated June 3, 1996
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives, policies and restrictions of the Voyageur
Minnesota High Yield Municipal Bond Fund (the "Fund") are set forth in the
Prospectus. Certain additional investment information is set forth below. All
capitalized terms not defined herein have the same meanings as set forth in the
Prospectus.
MUNICIPAL OBLIGATIONS
Municipal Obligations are generally issued to obtain funds for various
public purposes, including the construction or improvement of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
Municipal Obligations may be issued by or on behalf of public bodies to obtain
funds to provide for the construction, equipping, repair or improvement of
housing facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities and certain local facilities for water
supply, gas, electricity, sewage or solid waste disposal.
Securities in which the Fund may invest, including Municipal Obligations,
are subject to the provisions of bankruptcy, insolvency, reorganization and
other laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or a State's
legislature extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations within
constitutional limitations. There is also the possibility that, as a result of
litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest on and principal of their Municipal
Obligations may be materially affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Municipal Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Municipal Obligations for investment by the
Fund and the value of the Fund's portfolio. In such event, management of the
Fund may discontinue the issuance of shares to new investors and may reevaluate
the Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service ("Fitch"), or Standard & Poor's Ratings
Services ("S&P") for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for their investments in accordance with the
investment policies contained in the Fund's Prospectus and this Statement of
Additional Information. The ratings of Moody's, Fitch and S&P represent their
opinions as to the quality of the Municipal Obligations which they undertake to
rate. It should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings provide an
initial criterion for selection of portfolio investments, Voyageur Fund
Managers, Inc. ("Voyageur"), the Fund's investment manager, will subject these
securities to other evaluative criteria prior to investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. The Fund may purchase floating and
variable rate demand notes. Generally, such notes are secured by letters of
credit or other credit support arrangements provided by banks. Such notes
normally have a stated long-term maturity but permit the holder to tender the
note for purchase and payment of principal and accrued interest upon a specified
number of days' notice. The issuer of floating and variable rate demand notes
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus accrued interest
upon a specified number of days' notice to the noteholders. The interest rate on
a floating rate demand note is based on a specified interest index, such as a
bank's prime rate, and is adjusted automatically each time such index is
adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based upon current market conditions. Voyageur monitors the
creditworthiness of issuers of floating and variable rate demand notes in the
Fund's portfolio.
ESCROW SECURED BONDS OR DEFEASED BONDS. Escrow secured bonds or defeased
bonds are created when an issuer refunds in advance of maturity (or pre-refunds)
some of its outstanding bonds and it becomes necessary or desirable to set aside
funds for redemption or payment of the bonds at a future date or dates. In an
advance refunding, the issuer will use the proceeds of a new bond issue to
purchase high grade interest bearing debt securities which are then deposited in
an irrevocable escrow account held by an escrow agent to secure all future
payments of principal and interest of the advance refunded bond. Escrow secured
bonds will often receive a triple A rating from S&P, Moody's and Fitch.
STATE OR MUNICIPAL LEASE OBLIGATIONS. Municipal leases may take the form of
a lease with an option to purchase, an installment purchase contract, a
conditional sales contract or a participation certificate in any of the
foregoing. In determining leases in which the Fund will invest, Voyageur will
evaluate the credit rating of the lessee and the terms of the lease.
Additionally, Voyageur may require that certain municipal leases be secured by a
letter of credit or put arrangement with an independent financial institution.
State or municipal lease obligations frequently have the special risks described
below which are not associated with general obligation or revenue bonds issued
by public bodies.
The Constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits, interest rate
limits and public sale requirements. Leases have evolved as a means for public
bodies to acquire property and equipment without needing to comply with all of
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations may be inapplicable for one or more of the following
reasons: (1) the inclusion in many leases or contracts of "nonappropriation"
clauses that provide that the public body has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis
(the "nonappropriation" clause); (2) the exclusion of a lease or conditional
sales contract from the definition of indebtedness under relevant state law; or
(3) the lease provides for termination at the option of the public body at the
end of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If the lease is terminated by the public body for nonappropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.
CONCENTRATION POLICY. As a fundamental policy, the Fund may not invest 25%
or more of its total assets in the securities of any industry, although, for
purposes of this limitation, tax-exempt securities and U.S. Government
obligations are not considered to be part of any industry. The Fund may invest
25% or more of its total assets in industrial development revenue bonds. In
addition, it is possible that the Fund from time to time will invest 25% or more
of its total assets in a particular segment of the municipal bond market, such
as housing, health care, utility, transportation, education or industrial
obligations. In such circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation affecting the financing
of a project; shortages or price increases of needed materials; or a declining
market or need for the project) might also affect other bonds in the same
segment, thereby potentially increasing market or credit risk.
HOUSING OBLIGATIONS. The Fund may invest, from time to time, 25% or more of
its total assets in obligations of public bodies, including state and municipal
housing authorities, issued to finance the purchase of single-family mortgage
loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
HEALTH CARE OBLIGATIONS. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
UTILITY OBLIGATIONS. The Fund may invest, from time to time, 25% or more of
its total assets in obligations issued by public bodies, including state and
municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
TRANSPORTATION OBLIGATIONS. The Fund may, from time to time, invest 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance airports and highway, bridge and toll road
facilities. The major portion of an airport's gross operating income is
generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for airport use, occupancy of
certain terminal space, service fees and leases. Airport operating income may
therefore be affected by the ability of the airlines to meet their obligations
under the use agreements. The air transport industry is experiencing significant
variations in earnings and traffic, due to increased competition, excess
capacity, increased costs, deregulation, traffic constraints and other factors,
and several airlines are experiencing severe financial difficulties. The
revenues of issuers which derive their payments from bridge, road or tunnel toll
revenues could be adversely affected by competition from toll-free vehicular
bridges and roads and alternative modes of transportation. Such revenues could
also be adversely affected by a reduction in the availability of fuel to
motorists or significant increases in the costs thereof.
EDUCATION OBLIGATIONS. The Fund may, from time to time, invest 25% or more
of its total assets in obligations of issuers which are, or which govern the
operation of, schools, colleges and universities and whose revenues are derived
mainly from tuition, dormitory revenues, grants and endowments. General problems
of such issuers include the prospect of a declining percentage of the population
consisting of college aged individuals, possible inability to raise tuition and
fees sufficiently to cover increased operating costs, the uncertainty of
continued receipt of federal grants, state funding and alumni support, and
government legislation or regulations which may adversely affect the revenues or
costs of such issuers.
INDUSTRIAL REVENUE OBLIGATIONS. The Fund may, from time to time, invest 25%
or more of its total assets in obligations issued by public bodies, including
state and municipal authorities, to finance the cost of acquiring, constructing
or improving various industrial projects. These projects are usually operated by
corporate entities. Issuers are obligated only to pay amounts due on the bonds
to the extent that funds are available from the unexpended proceeds of the bonds
or receipts or revenues of the issuer under an arrangement between the issuer
and the corporate operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan agreement,
but in each case the payments of the issuer are designed to be sufficient to
meet the payments of amounts due on the bonds. Regardless of the structure,
payment of bonds is solely dependent upon the creditworthiness of the corporate
operator of the project and, if applicable, the corporate guarantor. Corporate
operators or guarantors may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
These include cyclicality of revenues and earnings, regulatory and environmental
restrictions, litigation resulting from accidents or deterioration resulting
from leveraged buy-outs or takeovers. The bonds may be subject to special or
extraordinary redemption provisions which may provide for redemption at par or
accredited value, plus, if applicable, a premium.
OTHER RISKS. The exclusion from gross income for purposes of federal income
taxes and the personal income taxes of Minnesota for certain housing, health
care, utility, transportation, education and industrial revenue bonds depends on
compliance with relevant provisions of the Code. The failure to comply with
these provisions could cause the interest on the bonds to become includable in
gross income, possibly retroactively to the date of issuance, thereby reducing
the value of the bonds, subjecting shareholders to unanticipated tax liabilities
and possibly requiring the Fund to sell the bonds at the reduced value.
Furthermore, such a failure to meet these ongoing requirements may not enable
the holder to accelerate payment of the bond or require the issuer to redeem the
bond.
TAXABLE OBLIGATIONS
As set forth in the Fund's Prospectus, the Fund may invest to a limited
extent in obligations and instruments, the interest on which is includable in
gross income for purposes of federal and Minnesota state income taxation.
GOVERNMENT OBLIGATIONS. The Fund may invest in securities issued or
guaranteed by the U. S. Government or its agencies or instrumentalities. These
securities include a variety of Treasury securities, which differ in their
interest rates, maturities and times of issuance. Treasury Bills generally have
maturities of one year or less; Treasury Notes generally have maturities of one
to ten years; and Treasury Bonds generally have maturities of greater than ten
years. Some obligations issued or guaranteed by U. S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U. S. Treasury;
other obligations, such as those of the Federal Home Loan Banks, are secured by
the right of the issuer to borrow from the Treasury; other obligations, such as
those issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U. S. Government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued by
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U. S. Government provides financial support
to such U. S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Fund will invest in such securities only when Voyageur is satisfied that the
credit risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. The
Fund's custodian will hold the securities underlying any repurchase agreement or
such securities will be part of the Federal Reserve Book Entry System. The
market value of the collateral underlying the repurchase agreement will be
determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the obligor under the agreement will promptly
furnish additional collateral to the Fund's custodian (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
OTHER TAXABLE INVESTMENTS. The Fund also may invest in certificates of
deposit, bankers' acceptances and other time deposits. Certificates of deposit
are certificates representing the obligation of a bank to repay the funds
deposited (plus interest thereon) at a time certain after the deposit. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate.
OPTIONS AND FUTURES TRANSACTIONS
To the extent set forth in the Prospectus, the Fund may buy and sell put
and call options on the securities in which it may invest, and the Fund may
enter into futures contracts and options on futures contracts with respect to
fixed-income securities or based on financial indices including any index of
securities in which the Fund may invest. Futures and options will be used to
facilitate allocation of the Fund's investments among asset classes, to generate
income or to hedge against changes in interest rates or declines in securities
prices or increases in prices of securities proposed to be purchased. Different
uses of futures and options have different risk and return characteristics.
Generally, selling futures contracts, purchasing put options and writing (i.e.
selling) call options are strategies designed to protect against falling
securities prices and can limit potential gains if prices rise. Purchasing
futures contracts, purchasing call options and writing put options are
strategies whose returns tend to rise and fall together with securities prices
and can causes losses if prices fall. If securities prices remain unchanged over
time option writing strategies tend to be profitable, while option buying
strategies tend to decline in value.
WRITING OPTIONS. The Fund may write (i.e. sell) covered put and call
options with respect to the securities in which they may invest. By writing a
call option, the Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, the Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by 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.
RISK OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transactions costs). The
writing of a call option generates a premium, which may partially offset a
decline in the value of the Fund's portfolio assets. By writing a call option,
the Fund becomes obligated to sell an underlying instrument or a futures
contract, which may have a value higher than the exercise price. Conversely, the
writing of a put option generates a premium, but the Fund becomes obligated to
purchase the underlying instrument or futures contract, which may have a value
lower than the exercise price. Thus, the loss incurred by the Fund in writing
options may exceed the amount of the premium received.
The effective use of options strategies is dependent, among other things,
on the Fund's ability to terminate options positions at a time when Voyageur
deems it desirable to do so. Although the Fund will enter into an option
position only if Voyageur believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by Voyageur, which
could prove to be inaccurate. Even if the expectations of Voyageur are correct,
there may be an imperfect correlation between the change in the value of the
options and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security.
If a put option is exercised, the writer must fulfill the obligation to
purchase the underlying security at the exercise price which will usually exceed
the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of a purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the value
of their portfolios. By using put options in this way, the Fund will reduce any
profit they might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in price of
securities that the Fund anticipate purchasing in the future. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
As discussed above, options may be traded over-the-counter ("OTC options").
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. OTC options are illiquid and it
may not be possible for the Fund to dispose of options they have purchased or
terminate their obligations under an option they have written at a time when
Voyageur believes it would be advantageous to do so. Accordingly, OTC options
are subject to the Fund's limitation that a maximum of 15% of its net assets be
invested in illiquid securities. In the event of the bankruptcy of the writer of
an OTC option, the Fund could experience a loss of all or part of the value of
the option. Voyageur anticipates that options on 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 Trustees. 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
Municipal Obligations depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the State, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.
Similarly, in the case of an industrial development bond, if that bond is
backed only by certain revenues to be received from the non-governmental user of
the project financed by the bond, then such non-governmental user is deemed to
be the sole issuer. If, however, in any of the above cases, a State, political
subdivision or some other entity guarantees a security and the value of all
securities issued or guaranteed by the guarantor and owned by the Fund exceeds
10% of the value of the Fund's total assets, the guarantee is considered a
separate security and is treated as an issue of the guarantor. 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 less than 100%.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions set forth below which,
together with the investment objectives of the Fund and other policies which are
specifically identified as fundamental in the Prospectus or herein cannot be
changed without approval by holders of a majority of the outstanding voting
shares of the Fund. As defined in the 1940 Act, this means the lesser of the
vote of (1) 67% of the shares of the Fund at a meeting where more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of the Fund. The following investment
restrictions apply to the Fund. The Fund will not:
(1)Borrow money (provided that the Fund may enter into reverse
repurchase agreements with respect to not more than 10% of its total
assets), except from banks for temporary or emergency purposes in an amount
not exceeding 20% of the value of the Fund's total assets, including the
amount borrowed. The Fund may not borrow for leverage purposes, provided
that the Fund may enter into reverse repurchase agreements for such
purposes, and securities will not be purchased while outstanding borrowings
exceed 5% of the value of the Fund's total assets.
(2)Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, the Fund
may be deemed to be an underwriter under federal securities laws.
(3)Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4)Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more if its total assets in the securities of any
industry, although, for purposes of this limitation, tax-exempt securities
and U.S. Government obligations are not considered to be part of any
industry.
(6)Issue any senior securities (as defined in the 1940 Act), except as
set forth in investment restriction number (1) above, and except to the
extent that using options, futures contracts and options on futures
contracts, purchasing or selling on a when-issued or forward commitment
basis or using similar investment strategies may be deemed to constitute
issuing a senior security.
(7)Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the
Fund from purchasing or selling, on a basis consistent with any
restrictions contained in its then-current Prospectus, any financial
contracts or instruments which may be deemed commodities (including, by way
of example and not by way of limitation, options, futures, and options on
futures with respect, in each case, to interest rates, currencies, stock
indices, bond indices or interest rate indices).
The following non-fundamental investment restrictions may be changed by the
Board of the Fund at any time. The Fund will not:
(1)Invest more than 5% of its total assets in securities of any single
investment company, nor more than 10% of its total assets in securities of
two or more investment companies, except as part of a merger, consolidation
or acquisition of assets.
(2)Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(3)The Fund will not write puts if, as a result, more than 50% of the
Fund's assets would be required to be segregated to cover such puts.
(4)The Fund will not make short sales of securities or maintain a
short position for the account of the Fund, unless at all times when a
short position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short.
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.
SPECIAL FACTORS AFFECTING THE FUND
The following information is a brief summary of Minnesota factors affecting
the Fund and does not purport to be a complete description of such factors. The
financial condition of Minnesota, its public authorities and local governments
could affect the market values and marketability of, and therefore the net asset
value per share and the interest income of the Fund, or result in the default of
existing obligations, including obligations which may be held by the Fund.
Further, Minnesota faces numerous forms of litigation seeking significant
damages which, if awarded, could adversely affect the financial situation of
Minnesota or issuers located in therein. It should be noted that the
creditworthiness of obligations issued by local issuers may be unrelated to the
creditworthiness of Minnesota, and that there is no obligation on the part of
Minnesota to make payment on such local obligations in the event of default in
the absence of a specific guarantee or pledge provided by Minnesota. The
following information is based primarily upon information derived from public
documents relating to securities offerings of issuers of such states and other
historically reliable sources, but has not been independently verified by the
Fund. The Fund makes no representation or warranty regarding the completeness or
accuracy of such information. The market value of the shares of the Fund may
fluctuate due to factors such as changes in interest rates, matters affecting
Minnesota or for other reasons.
GENERAL ECONOMIC CONDITIONS. Diversity and a significant natural resource
base are two important characteristics of the Minnesota economy. Generally, the
structure of the State's economy parallels the structure of the United States
economy as a whole. There are, however, employment concentrations in durable
goods and non-durable goods manufacturing, particularly industrial machinery,
instruments and miscellaneous, food, paper and related industries, and printing
and publishing. During the period from 1980 to 1990, overall employment growth
in Minnesota lagged behind national employment growth, in large part due to
declining agricultural employment. The rate of non-farm employment growth in
Minnesota exceeded the rate of national growth, however, in the period of 1990
to 1994. Since 1980, Minnesota per capita income generally has remained above
the national average, but tightness in local labor markets may reduce the rate
of personal income growth below that of the national average in the future.
During 1993, 1994 and 1995, the State's monthly unemployment rate generally was
less than the national unemployment rate.
REVENUE AND EXPENDITURES. The State relies heavily on a progressive
individual income tax and a retail sales tax for revenue, which results in a
fiscal system that is sensitive to economic conditions. Frequently in recent
years, legislation has been required to eliminate projected budget deficits by
raising additional revenue, reducing expenditures, including aids to political
subdivisions and higher education, reducing the State's budget reserve, imposing
a sales tax on purchases by local governmental units, and making other budgetary
adjustment. The Minnesota Department of Finance February 1996 Forecast has
projected that, under current laws, the State will complete its current biennium
June 30, 1997 with a $15 million surplus, plus a $350 million cash flow account
balance, plus a $220 million budget reserve. Total General Fund expenditures and
transfers for the biennium are projected to be $18.8 billion. State expenditures
for education finance (K-12), post-secondary education, and human services in
the biennium ending June 30, 1997 are not anticipated to be sufficient to
maintain program levels of the previous biennium. The State is party to a
variety of civil actions that could adversely affect the State's General Fund.
In addition, substantial portions of State and local revenues are derived from
federal expenditures, and reductions in federal aid to the State and its
political subdivisions and other federal spending cuts may have substantial
adverse effects on the economic and fiscal condition of the State and its local
governmental units. The February 1996 Forecast states that pending federal
legislation could reduce federal aid to Minnesota's state and local governments
by a total of $3.2 billion over seven years. Risks are inherent in making
revenue and expenditure forecasts. Economic or fiscal conditions less favorable
than those reflected in State budget forecasts and planning estimates may create
additional budgetary pressures.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficulties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota Municipal Obligations that are held by the Fund or the value or
marketability of such obligations.
Recent Minnesota tax legislation and possible future changes in federal and
State income tax laws, including rate reductions, could adversely affect the
value and marketability of Minnesota Municipal Obligations that are held by the
Fund. See "Distributions to Shareholders and Taxes--Minnesota State Taxation" in
the Prospectus.
As of May 1996, ratings applicable to General Obligation bonds issued by
the State of Minnesota are as follows: "Aaa" by Moody's; "AA+" by S&P and "AAA"
by Fitch Investors Service.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF THE FUND
The Board members and officers of the Fund, their position with the Fund
and their principal occupations during the past five years are set forth below.
In addition to the occupations set forth below, the Directors and officers also
serve as directors and trustees or officers of various other closed-end and
open-end investment companies managed by Voyageur.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
PAST FIVE YEARS AND OTHER
NAME, ADDRESS, AND AGE POSITION AFFILIATIONS
- ---------------------- -------- ----------------------------
<S> <C> <C>
Clarence G. Frame, 77 Director Of counsel, Briggs & Morgan
W-875 law firm.
First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
Richard F. McNamara, 63 Director Chief Executive Officer of
7808 Creekridge Circle, #200 Activar, Inc., a Minneapolis-
Minneapolis, Minnesota 55439 based holding company consist-
ing of seventeen companies in
industrial plastics, sheet
metal, automotive aftermarket,
construction supply, electron-
ics and financial services,
since 1966.
Thomas F. Madison, 60 Director President and
200 South Fifth Street CEO of MLM Partners, Inc.
Suite 2100 since January 1993; Vice Chairman-
Minnepolis, Minnesota 55402 Office of the CEO
Minnesota Mutual Life
Insurance Company since
February 1994 to September
1994; previously
President of U.S. WEST
Communications-Markets from
1988 to 1993; Mr. Madison
currently serves on the board
of directors of
Valmont Industries, Inc., (a
manufacturing company),
Eltrax Systems, Inc (a data
communications company) and
various civic and educational
organizations.
James W. Nelson, 54 Director Chairman and Chief Executive
81 South Ninth Street Officer of Eberhardt Holding
Suite 4400 Company and its subsidiaries
Minneapolis, Minnesota 55402 since 1990.
Robert J. Odegard, 75 Director Special Assistant to the
University of Minnesota President of the University of
Foundation Minnesota from August 1984 to
1300 South Second Street April 1989 and from May 1990 to
Minneapolis, Minnesota 55454 present.
John G. Taft, 41 President President (since 1991) and
90 South Seventh Street Director (since 1993) of
Suite 4400 Voyageur; Director (since 1993)
Minneapolis, Minnesota 55402 and Executive Vice President
of Voyageur Fund Distributors
("the Underwriter); Management
committee member of Voyageur
from 1991 to 1993.
Andrew M. McCullagh, Jr., 47 Executive Portfolio Manager of
717 Seventeenth Street Vice Voyageur since 1990; previous-
Denver, Colorado 80202 President ly, Director of the Voyageur
Minneapolis, Minnesota 55402 and the Underwriter from 1993
to 1995; Executive Vice President
of Voyageur since 1990.
Jane M. Wyatt, 41 Executive Director and Chief Investment Officer
90 South Seventh Street Vice of Voyageur since 1993; Director and of
Suite 4400 President Executive Vice President the Underwriter
Minneapolis, Minnesota 55402 since 1993; Executive Vice President and
Portfolio Managerof Voyageur from 1992 to 1993;
Vice President and Portfolio Manager from
1989 to 1992.
Steven P. Eldredge, 40 Vice Senior Vice President and Senior
90 South Seventh Street President Tax Exempt Portfolio Manager of
Suite 4400 Voyageur since 1995; previously
Minneapolis, Minnesota 55402 portfolio manager for ABT Mutual
Funds from 1989.
Elizabeth H. Howell, 34 Vice Vice President of Voyageur and Senior
90 South Seventh Street President Tax Exempt Portfolio Manager since 1991.
Suite 4400
Minneapolis, Minnesota 55402
James C. King, 55 Vice Director of Voyageur and the Underwriter
90 South Seventh Street President from 1993 through 1995; and
Suite 4400 Senior Equity Portfolio Manager of
Minneapolis, Minnesota 55402 Voyageur since 1993.
Kenneth R. Larsen, 33 Treasurer Treasurer of Voyageur and
90 South Seventh Street the Underwriter since 1990;
Suite 4400 Secretary and Treasurer of Voyageur
Minneapolis, Minnesota 55402 and the Underwriter from 1990 to 1993.
Thomas J. Abood, 32 Secretary Senior Vice President (since 1995) and
90 South Seventh Street General Counsel (since October 1994) of Voyageur
Suite 4400 the Underwriter and Voyageur Companies, Inc.
Minneapolis, Minnesota 55402 from October 1994 to 1995; previously
associated with the law firm of Skadden,
Arps, Slate, Meagher & Flom, Chicago,
Illinois from September 1988 to October
1994.
</TABLE>
_________________
*"Interested person" of the Funds as such term is defined in the 1940 Act.
The 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 ten open-end investment
companies comprising 32 series or funds and six closed-end investment companies.
In addition, each director or trustee who is not an employee of Voyageur or any
of its affiliates is reimbursed for expenses incurred in connection with
attending meetings. 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 $18,500
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 the Fund. Voyageur and the Underwriter are each indirect wholly-owned
subsidiaries of Dougherty Financial Group Inc. ("DFG"), which is owned 50% by
Michael E. Dougherty and 50% by Pohlad Companies. Mr. Dougherty co-founded the
predecessor of DFG in 1977 and has served as DFG's Chairman of the Board and
Chief Executive Officer since inception. Pohlad Companies is a holding company
owned in equal parts by each of James O. Pohlad, Robert C. Pohlad and William M.
Pohlad. Certain key employees of DFG and its subsidiaries and an employee
benefit plan benefitting the employees of such companies have been offered the
opportunity to purchase voting common shares of DFG through stock options
granted with respect thereto, with the shareholdings of Pohlad Companies and Mr.
Dougherty each to be diluted proportionately by any such purchases. Following
any such purchases, Mr. Dougherty and Pohlad Companies would each continue to
own greater than 25% of the outstanding voting common shares of DFG, and no
other person or entity would own greater than 25% of such shares. The principal
executive offices of Voyageur are located at 90 South Seventh Street, Suite
4400, Minneapolis, Minnesota, 55402.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Fund's shares. With regard to the Underwriter, Mr. Taft and
Ms. Wyatt are Executive Vice Presidents and directors, Mr. Abood is Senior Vice
President and General Counsel, and Mr. Larsen is Treasurer.
INVESTMENT ADVISORY AGREEMENT
The Fund does not maintain its own research department. The Fund has
contracted with 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 .65 of 1% of its average daily net assets, respectively. The fee
is based on the average daily value of the Fund's net assets at the close of
each business day.
The Investment Advisory Agreement 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 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 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.
The Fund's Distribution Agreement is renewable from year to year if the
Fund's Board approves the Agreement and the Fund's Plan. The Fund or the
Underwriter can terminate its Distribution Agreement on 60 days' notice to the
other party, and the Distribution Agreement terminates automatically upon its
assignment. In the Fund's Distribution Agreement, the Underwriter agrees to
indemnify the Fund against all costs of litigation and other legal proceedings
and against any liability incurred by or imposed on the Fund in any way arising
out of or in connection with the sale or distribution of the Fund's shares,
except to the extent that such liability is the result of information which was
obtainable by the Underwriter only from persons affiliated with the Fund but not
the Underwriter.
PORTFOLIO TRANSACTIONS, ALLOCATION OF BROKERAGE AND TURNOVER RATE
As the Fund's 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 Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Fund's directors may determine,
Voyageur may consider sales of shares of the Fund as a factor in the selection
of broker-dealers to execute the Fund's securities transactions.
OTHER INFORMATION
CONVERSION OF CLASS B SHARES. In addition to information regarding
conversion set forth in the Prospectus, the conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that payment of different
dividends by each of the classes of shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the Code
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion 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 the Fund even though not directly traceable to the purchase of such
shares.
The Fund's present policy is to designate exempt-interest dividends at each
daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
An exchange of shares in one Voyageur fund for shares in another fund
pursuant to exercise of the Exchange Privilege is considered to be a sale of the
shares for federal tax purposes that may result in a taxable gain or loss. If a
shareholder incurs a sales charge in acquiring shares and then, after holding
those shares not more than 90 days, exchanges them pursuant to the Exchange
Privilege for shares of another Voyageur fund, the shareholder may not take into
account the initial sales charge (to the extent that the otherwise applicable
sales charge on the later-acquired shares is reduced) for purposes of
determining the shareholder's gain or loss on the exchange of the first held
shares. To the extent that the sales charge is disregarded upon the exchange of
the first shares, however, it may be taken into account in determining gain or
loss on the eventual sale or exchange of the later-acquired shares.
The Fund will be subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the taxable amount required to be distributed for each
calendar year over the amount actually distributed. In order to avoid this
excise tax, the Fund must declare dividends by the end of the calendar year
representing 98% of the Fund's ordinary income for the calendar year and 98% of
its capital gain net income (both long and short term capital gain) for the
12-month period ending on October 31 of such year. For purposes of the excise
tax, any income on which the Fund has paid corporate-level tax is considered to
have been distributed. The Fund intends to make sufficient distributions each
year to avoid the payment of the excise tax.
Under a special provision of the Revenue Reconciliation Act of 1993, all or
a portion of the gain that the Fund realizes on the sale of a Municipal
Obligation that it purchased at a market discount may have to be treated as
ordinary income rather than capital gain.
For shareholders who are recipients of Social Security benefits,
exempt-interest dividends are includable in computing "modified adjusted gross
income" for purposes of determining the amount of Social Security benefits, if
any, that is required to be included in gross income. The maximum amount of
Social Security benefits that may be included in gross income is 85%.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's
regular income tax liability (with certain adjustments). Exempt-interest
dividends attributable to interest income on certain tax-exempt obligations
issued after August 7, 1986 to finance private activities are treated as an item
of tax preference that is included in alternative minimum taxable income for
purposes of computing the federal AMT for all taxpayers and the federal
environmental tax on corporations. In addition, all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be included
in adjusted current earnings for purposes of determining the federal corporate
AMT and the environmental tax imposed on corporations by Section 59A of the
Code. Liability for AMT will depend on each shareholder's individual tax
situation.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
bonds held by the Fund. The Fund will avoid investment in bonds which, in the
opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a bond in the Fund's portfolio lost its exempt status,
the Fund would make every effort to dispose of such investment on terms that are
not detrimental to the Fund.
The Code forbids a regulated investment company from earning 30% or more of
its gross income from the sale or other disposition of securities held less than
three months. This restriction may limit the extent to which the Fund may
purchase options. To the extent the Fund engages in short-term trading and
enters into options transactions, the likelihood of violating this 30%
requirement is increased.
Gain or loss on options is taken into account when realized by entering
into a closing transaction or by exercise. In addition, with respect to many
types of options held at the end of a Fund's taxable year, unrealized gain or
loss on such contracts is taken into account at the then current fair market
value thereof under a special "marked-to-market, 60/40 system," and such gain or
loss is recognized for tax purposes. The gain or loss from such options
(including premiums on certain options that expire unexercised) is treated as
60% long-term and 40% short-term capital gain or loss, regardless of their
holding period. The amount of any capital gain or loss actually realized by the
Fund in a subsequent sale or other disposition of such options will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale under the "marked-to-market, 60/40
system."
SPECIAL PURCHASE PLANS
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares may be
purchased through a preauthorized automatic investment plan. Such preauthorized
investments (at least $100) may be used to purchase shares of the Fund at the
public offering price next determined after the Fund receives the investment
(normally the 20th of each month, or the next business day thereafter). Further
information is available from the Underwriter.
COMBINED PURCHASE PRIVILEGE. The following persons (or groups of persons)
may qualify for reductions from the front end sales charge ("FESC") schedule for
Class A shares set forth in the Fund's prospectus by combining purchases of any
class of shares of any one or more of the 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
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust) created pursuant to a plan qualified under
Section 401 of the Code;
(iv) tax-exempt organizations enumerated in Section 501(c)(3) of the
Code;
(v) employee benefit plans of a single employer or of affiliated
employers;
(vi) any organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying
redeemable securities of a registered investment company, and provided that
the purchase is made through a central administration, or through a single
dealer, or by other means which result in economy of sales effort or
expense. An organized group does not include a group of individuals whose
sole organizational connection is participation as credit cardholders of a
company, policyholders of an insurance company, customers of either a bank
or broker-dealer, or clients of an investment adviser.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchase of Class A
shares may qualify for a Cumulative Quantity Discount. The applicable FESC will
then be based on the total of:
(i) the 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 held
by the investor; and
(iii) the amount previously invested (valued at the time of
investment) in shares of any class of one or more 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.
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.
YIELD
Yield is computed by dividing the net investment income per share deemed
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
SEC YIELD = 2(((a-b) + 1) -1)
---
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
TAXABLE EQUIVALENT YIELD
Taxable equivalent yield is computed by dividing that portion of the yield
of 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 combined with Minnesota marginal income tax rates. Each combined
marginal rate assumes a single taxpayer and that state income taxes paid are
fully deductible for purposes of computing federal taxable income. The combined
marginal rates do not reflect federal rules concerning the phase-out of personal
exemptions and limitations on the allowance of itemized deductions for certain
high-income taxpayers.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = ERV - P
------- 100
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of the Fund valued at $10,000 or more
at the current offering price may open a Withdrawal Plan and have a designated
sum of money paid monthly to the investor or another person. Shares are
deposited in a Withdrawal Plan account and all distributions are reinvested in
additional shares of the Fund at net asset value or distributed in cash. Shares
in a Withdrawal Plan account are then redeemed to make each withdrawal payment.
Deferred sales charges may apply to monthly redemptions of Class B and Class C
shares (or to redemptions of Class A shares in connection with initial purchases
of $1,000,000 or more which were not subject to a FESC). Redemptions for the
purpose of withdrawal are made on the 25th of the month (or on the preceding
business day if the 25th falls on a weekend or is a holiday) at that day's
closing net asset value and checks are mailed on the next business day. Payments
will be made to the registered shareholder. As withdrawal payments may include a
return on principal, they cannot be considered a guaranteed annuity or actual
yield of income to the investor. The redemption of shares in connection with a
Withdrawal Plan may result in a gain or loss for tax purposes. Continued
withdrawals in excess of income will reduce and possibly exhaust invested
principal, especially in the event of a market decline. The maintenance of a
Withdrawal Plan concurrently with purchases of additional Class A shares of the
Fund would normally be disadvantageous to the investor because of the FESC
payable on such purchases. For this reason, an investor may not maintain a plan
for the accumulation of Class A shares of the Fund (other than through
reinvestment of distributions) and a Withdrawal Plan at the same time. The cost
of administering Withdrawal Plans is borne by the Fund as an expense of all
shareholders. The Fund or the Underwriter may terminate or change the terms of
the Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary and may
be terminated by the shareholder at any time without the imposition of any
penalty.
Since the Withdrawal Plan may involve invasion of capital, investors should
consider carefully with their own financial advisers whether the Withdrawal Plan
and the specified amounts to be withdrawn are appropriate in their
circumstances. The Fund makes no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
As of June 3, 1996, there were no public shareholders of the Fund's shares.
Organizational costs in connection with start-up and initial registration
are being 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).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted thereunder.
SHAREHOLDER MEETINGS
The Fund is not required under Minnesota law to hold annual or periodically
scheduled regular meetings of shareholders. Regular and special shareholder
meetings are held only at such times and with such frequency as required by law.
Minnesota corporation law provides for the Board of Directors to convene
shareholder meetings when it deems appropriate. In addition, if a regular
meeting of shareholders has not been held during the immediately preceding
fifteen months, a shareholder or shareholders holding three percent or more of
the voting shares of the Fund may demand a regular meeting of shareholders of
the Fund by written notice of demand given to the chief executive officer or the
chief financial officer of the Fund. Within ninety days after receipt of the
demand, a regular meeting of shareholders must be held at the expense of the
Fund. Additionally, the 1940 Act requires shareholder votes for all amendments
to fundamental investment policies and restrictions and for amendments to
investment advisory contracts and Rule 12b-1 distribution plans.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Description of Standard and Poor's Ratings Services ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and Fitch Investors Service LP ("Fitch")
ratings:
S&P'S RATINGS FOR MUNICIPAL BONDS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. S&P's
letter ratings may be modified by the addition of a plus or minus sign, which is
used to show relative standing within the major rating categories, except in the
AAA (Prime Grade) category.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
AAA is the highest rating assigned by S&P. An issuer's capacity to pay
interest and repay the principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB and B
Debt rated BB and B (as well as debt rated CCC, C and C) is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation within this category, B represents a somewhat
higher degree of speculation and C represents the highest degree of speculation
of these ratings.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal repayments.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
C1
The rating C1 is reserved for income bonds on which no interest is being
paid.
D
Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-)
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
NR
Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
S&P RATINGS FOR MUNICIPAL NOTES
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are considered of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Unrated
When no rating has been assigned or when a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. A short-term rating designated VMIG, may also be assigned an issue having
a demand feature. The municipal obligations bearing the designation MIG 1/VMIG 1
are of the best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. The municipal obligations bearing the designation are
ample although not so large as in the preceding group.
Description of S&P A-1+
and
A-1 Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest, commercial paper
rating assigned by S&P. Paper rated A-1+ must possess overwhelming safety
characteristics regarding timely payment. Commercial paper rated A-1 must have a
degree of safety that is either overwhelming or very strong.
Description of
Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation and well established access
to a range of financial markets and assured sources of alternate liquidity.
FITCH'S RATINGS FOR MUNICIPAL BONDS
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
AAA
Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA
Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A
Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB
Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.
BB
Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B
Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirement, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC
Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC
Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C
Bonds are in imminent default in payment of interest or principal.
DDD, DD and D
Bonds are in default on interest and/or principal payments. Such bonds are
extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. 'DDD' represents
the highest potential for recovery on these bonds, and 'D' represents the lowest
potential for recovery.
Plus(+) Minus(-)
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
NR
Indicates that Fitch does not rate the specific issue.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS OF OPTIONS AND FUTURES
GENERAL. As described in the Prospectus under "Investment Objectives and
Policies -- Options and Futures," the Fund may purchase and sell options on the
securities in which it may invest and the Fund may purchase and sell options on
futures contracts (as defined below) and may purchase and sell futures
contracts. The Fund intends to engage in such transactions if it appears
advantageous to Voyageur to do so in order to pursue the Fund's investment
objective, to seek to hedge against the effects of market conditions and to seek
to stabilize the value of its assets. The Fund will engage in hedging and risk
management transactions from time to time in 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 Fund occur.
Conditions in the securities, futures and options markets will determine
whether and in what circumstances the Fund will employ any of the techniques or
strategies described below. The Fund's ability to pursue certain of these
strategies may be limited by applicable regulations of the Commodity Futures
Trading Commission (the "CFTC") and the federal tax requirements applicable to
regulated investment companies. Transactions in options and futures contracts
may give rise to income that is subject to regular federal income tax and,
accordingly, in normal circumstances the Fund does not intend to engage in such
practices to a significant extent.
The use of futures and options, and the possible benefits and attendant
risks, are discussed below.
FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may enter into contracts
for the purchase or sale for future delivery (a "futures contract") of
fixed-income securities or contracts based on financial indices including any
index of securities in which the Fund may invest. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the securities, or
the cash value of an index, called for by the contract at a specified price
during a specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities, or cash value
of an index, at a specified price during a specified delivery period. The Fund
may also purchase and sell (write) call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during, or at the termination of, the
period specified in the terms of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. The
Fund would be required to deposit with its custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. The Fund's
ability to establish and close out positions in futures contracts and options on
futures contracts will be subject to the liquidity of the market. Although the
Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance
that a liquid market on an exchange will exist for any particular futures
contract or option thereon at any particular time. Where it is not possible to
effect a closing transaction in a contract or to do so at a satisfactory price,
the Fund will have to make or take delivery under the futures contract, or, in
the case of a purchased option, exercise the option. The Fund may incur
brokerage fees when it purchases or sells futures contracts.
At the time a futures contract is purchased or sold, the Fund must deposit
in a custodial account cash or securities as a good faith deposit payment (known
as "initial margin"). It is expected that the initial margin on futures
contracts the Fund may purchase or sell may range from approximately 1.5% to
approximately 5% of the value of the securities (or the securities index)
underlying the contract. In certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily in a process known as "marking to market." If the
market value of the futures contract has changed, the Fund will be required to
make or will be entitled to receive a payment in cash or specified high quality
debt securities in an amount equal to any decline or increase in the value of
the futures contract. These additional deposits or credits are calculated and
required on a daily basis and are known as "variation margin."
There may be an imperfect correlation between movements in prices of the
futures contract the Fund purchases or sells and the portfolio securities being
hedged. In addition, the ordinary market price relationships between securities
and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts, even if Voyageur correctly forecasts market
trends the Fund's hedging strategy may not be successful. If this should occur,
the Fund could lose money on the futures contracts and also on the value of its
portfolio securities.
Although the Fund believes 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, the Fund's overall performance
may be poorer than if it had not entered into futures contracts or purchased or
sold options thereon. For example, if the Fund seeks to hedge against the
possibility of an increase in interest rates, which generally would adversely
affect the price of fixed-income securities held in its portfolio, and interest
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of its assets which it has hedged due to the decrease in
interest rates because it will have offsetting losses in its futures positions.
In addition, particularly in such situations, the Fund may have to sell assets
from its portfolio to meet daily margin requirements at a time when it may be
disadvantageous to do so.
OPTIONS ON SECURITIES. The Fund may purchase and sell (write) options on
securities, which options may be either exchange-listed or over-the-counter
options. The Fund may write call options only if the call option is "covered." A
call option written by the Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. The Fund may write put
options only if the put option is "secured." A put option written by the Fund is
secured if the Fund, which is obligated as a writer of a put option, invests an
amount, not less than the exercise price of a put option, in eligible
securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
The Fund may purchase and sell options that are exchange-traded or that are
traded over-the counter ("OTC options"). Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when the Fund
purchases OTC options, it must rely on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Although the Fund will enter into OTC options only with dealers that agree
to enter into, and which are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
Until the Fund is able to effect a closing purchase transaction in a covered OTC
call option the Fund has written, it will not be able to liquidate securities
used as cover until the option expires or is exercised or different cover is
substituted. This may impair the Fund's ability to sell a portfolio security at
a time when such a sale might be advantageous. In the event of insolvency of the
counterparty, the Fund may be unable to liquidate an OTC option. In the case of
options written by the Fund, the inability to enter into a closing purchase
transaction may result in material losses to the Fund.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
SEC releases and staff positions, when entering into futures contracts or
certain option transactions, such as writing a put option, the Fund will
maintain, in a segregated account, cash or liquid high-grade securities equal to
the value of such contracts. Compliance with such segregation requirements may
restrict the Funds' ability to invest in intermediate- and long-term Municipal
Obligations.
The Fund intends to comply with CFTC regulations and avoid "commodity pool
operator" status. These regulations require that futures and options positions
be used (a) for "bona fide hedging purposes" (as defined in the regulations) or
(b) for other purposes so long as aggregate initial margins and premiums
required in connection with non-hedging positions do not exceed 5% of the
liquidation value of the Fund's portfolio. The Fund currently does not intend to
engage in transactions in futures contracts or options thereon for speculation.
ACCOUNTING CONSIDERATIONS. When the Fund writes an option, an amount equal
to the premium received by it is included in the Fund's Statement of Assets and
Liabilities as a liability. The amount of the liability subsequently is marked
to market to reflect the current market value of the option written. When the
Fund purchases an option, the premium paid by the Fund is recorded as an asset
and subsequently is adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the Fund.
an amount equal to the initial margin deposit is recorded as an asset. The
amount of the asset subsequently is adjusted to reflected changes in the amount
of the deposit as well as changes in the value of the contract.
PART C
VOYAGEUR MUTUAL FUNDS, INC.
(VOYAGEUR MINNESOTA HIGH YIELD MUNICIPAL BOND FUND)
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
Included in Part A: Not Applicable
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 I, filed as an Exhibit
hereto.
2. Bylaws of Voyageur Mutual Funds, Inc as amended by the Board of
Directors on May 14, 1996, filed as an Exhibit hereto.
3. Voting Trust Agreement. Not Applicable
4. 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 , dated November 1, 1993, filed as
an Exhibit hereto.
6.1 Distribution Agreement effective, effective June 3, 1996, filed
as an Exhibit hereto.
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 effective August 27, 1993, filed as an
Exhibit hereto.
9. Administrative Services Agreement dated October 27, 1994, filed
as an Exhibit hereto.
10. Opinion and Consent of Dorsey & Whitney, filed as an Exhibit to
Pre-Effective Amendment No.1 to Form N-1A on August 27, 1993,
File No.33-63238, and incorporated herein by reference.
10.1 Opinion and Consent of Dorsey & Whitney LLP, with respect to the
registration of Voyageur Minnesota High Yield Municipal Bond
Fund, Series I, Class A, B, and C shares, filed as an Exhibit
hereto.
11. Consent of KPMG Peat Marwick. Not Applicable.
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, and incorporated herein by reference.
14. Copy of prototype defined contribution plan. Not Applicable.
15. Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940, filed as an Exhibit hereto.
16. Schedule for Computation of Performance Data - Voyageur Minnesota
High Yield Fund Municipal Bond Fund. 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.
17.2 Financial Data Schedule - Voyageur Minnesota High Yield Municipal
Bond Fund, required to be filed electronically as Exhibit 27
pursuant to Rule 401 of Regulation S-T. Not Applicable.
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 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 Short Government Agency Fund
VAM Intermediate Government Agency Fund
VAM Government Mortgage Fund
VAM Short Duration Total Return Fund
VAM Intermediate Duration Total Return Fund
VAM Intermediate Municipal Fund
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of June 3, 1996, there were no shareholders of the Fund's shares.
ITEM 27. INDEMNIFICATION
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.
The Registrant may indemnify its officers and directors and other "persons"
acting in an "official capacity" (as such terms are defined in Section 302A.521)
pursuant to a determination by the board of directors or shareholders of the
Registrant as set forth in Section 302A.521, by special legal counsel selected
by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of the Registrant, then such director generally
may not be counted for the purpose of determining either the presence of a
quorum or such director's eligibility to be indemnified.
In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification has (a) not received
indemnification for the same conduct from any other party or organization; (b)
acted in good faith; (c) received no improper personal benefit; (d) in the case
of criminal proceedings, had no reasonable cause to believe the conduct was
unlawful; (e) reasonably believed that the conduct was in the best interest of
the Registrant, or in certain contexts, was not opposed to the best interest of
the Registrant; and (f) had not otherwise engaged in conduct which precludes
indemnification under either Minnesota or Federal law (including, but not
limited to, conduct constituting willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties as set forth in Section 17(h) and
(I) of the Investment Company Act of 1940).
If a person is made or threatened to be made a party to a proceeding, the
person is entitled, upon written request to the Registrant, to payment or
reimbursement by the Registrant of reasonable expenses, including attorneys'
fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding, (a) upon receipt by the Registrant of a written
affirmation by the person of a good faith belief that the criteria for
indemnification set forth in Section 302A.521 have been satisfied and a written
undertaking by the person to repay all amounts so paid or reimbursed by the
Registrant, if it is ultimately determined that the criteria for indemnification
have not been satisfied, and (b) after a determination that the facts then known
to those making the determination would not preclude indemnification under
Section 302A.521. The written undertaking required by clause (a) is an unlimited
general obligation of the person making it, but need not be secured and shall be
accepted without reference to financial ability to make the repayment.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant undertakes to comply with the indemnification requirements
of Investment Company Release 7221 (June 9, 1972) and Investment Company Release
11330 (September 2, 1980).
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The name and principal occupation(s) during the past two fiscal years of
each director and the executive officers of the Adviser are set forth below. The
business address of each is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402, except that the principal business address of Mr. McCullagh is
717 Seventeenth Street, Denver, Colorado 80202.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH ADVISER PRINCIPAL OCCUPATION(S)
- ---------------- --------------------- -----------------------
<S> <C> <C>
Michael E. Dougherty Chairman Chairman of the Board, President and Chief
Executive Officer of Dougherty Financial
Group, Inc. ("DFG") and Chairman of
Voyageur, the Underwriter and Dougherty
Dawkins, Inc.
John G. Taft President and Director See biographical information in Part B of the
Registration Statement.
Jane M. Wyatt Director and Chief See biographical information in Part B of the
Investment Officer Registration Statement.
Edward J. Kohler Director and Executive Director and Executive Vice President of the Adviser
Vice President and Director of the Underwriter since 1995;
previously, President and Director of Piper Capital
Management Incorporated from 1985 to 1995.
Frank C. Tonnemaker Director and Executive Director of Voyageur and the Underwriter
Vice President since 1993; Executive Vice President of
Voyageur since 1994; Vice President of
Voyageur from 1990 to 1994.
Thomas J. Abood Senior Vice President See biographical information in Part B of the
and General Counsel Registration Statement.
Kenneth R. Larsen Treasurer See biographical information in Part B of the
Registration Statement.
Steven B. Johansen Secretary and Chief Secretary of DFG, the Underwriter and
Financial Officer Dougherty Dawkins, Incorporated ("DDI");
Chief Financial Officer of DFG, the
Underwriter and DDI since 1995; previously,
Treasurer of DFG and DDI from 1990 to 1995
</TABLE>
Information on the business of Registrant's Adviser is contained in the
section of the Prospectus entitled "Management" and in the section of the
Statement of Additional Information entitled "The Investment Adviser 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
Steven B. Johansen Secretary and None
Chief Financial Officer
Kenneth R. Larsen Treasurer Treasurer
Thomas J. Abood Senior Vice President and Secretary
General Counsel
Jane M. Wyatt Executive Vice President and Executive Vice President
Director
John G. Taft Executive Vice President and President
Director
Edward J. Kohler Executive Vice President and None
Director
</TABLE>
The address of each of the executive officers is 90 South Seventh Street, Suite
4400, Minneapolis, Minnesota
55402.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The custodian for Registrant is Norwest Bank Minnesota, N.A., Sixth Street
& Marquette Avenue, Minneapolis, Minnesota 55402. The dividend disbursing,
administrative and accounting services agent of Registrant is Voyageur Fund
Managers, Inc. The address of Voyageur Fund Managers, Inc. and the Registrant is
90 South Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the commencement of the Fund operations.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant 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 /s/31st day of /s/May,
1996.
VOYAGEUR MUTUAL FUNDS, INC.
By/s/John G. Taft
--------------------------
John G. Taft, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/John G. Taft
- -------------------- President (Principal /s/May 31, 1996
John G. Taft Executive Officer)
/s/Kenneth R. Larsen
- -------------------- Treasurer (Principal /s/May 31, 1996
Kenneth R. Larsen Financial 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 /s/May 31, 1996
---------------
Thomas J. Abood
(Pursuant to Powers of Attorney dated January 24, 1995)
</TABLE>
CERTIFICATE OF DESIGNATION
OF
SERIES I COMMON SHARES
OF
VOYAGEUR MUTUAL FUNDS, INC.
The undersigned duly elected Secretary of Voyageur Mutual Funds, Inc., a
Minnesota corporation (the "Corporation"), hereby certifies that the following
is a true, complete and correct copy of resolutions duly adopted by a majority
of the directors of the Board of Directors of the Corporation on March 1, 1996:
WHEREAS, the total authorized number of shares of the Corporation is
ten trillion, all of which shares are common shares, par value $.01 per
share, as set forth in the Corporation's Articles of Incorporation (the
"Articles");
WHEREAS, one hundred billion of each of such shares have been
designated as Series A, Series B, Series C, Series D, Series E, Series F,
Series G and Series H Common Shares; and
WHEREAS, the Articles set forth that the balance of the Corporation's
authorized common shares may be issued in such series and classes and with
such designations, preferences and relative, participating, optional or
other special rights, or qualifications, limitations or restrictions
thereof, as shall be stated or expressed in a resolution or resolutions
providing for the issue of any series or class of common shares as may be
adopted from time to time by the Board of Directors of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that of the remaining authorized
common shares of the Corporation, one hundred billion are hereby designated
as Series I Common Shares, ten billion of which are hereby designated as
Series I, Class A Common Shares, ten billion of which are hereby designated
as Series I, Class B Common Shares and ten billion of which are hereby
designated Series I, Class C Common Shares and seventy billion of which
shall remain undesignated as to class.
FURTHER RESOLVED, that the Series I common shares designated by these
resolutions shall have the preferences and relative, participating,
optional or other special rights, and qualifications, limitations and
restrictions thereof, set forth in the Articles. Such Series shall
represent a separate and distinct portion of the Corporation's assets which
shall take the form of a separate portfolio of investment securities, cash
and other assets. Any Class of the Series I Common Shares designated by
these resolutions may be subject to such charges and expenses (including,
by way of example but not by way of limitation, such front-end and deferred
sales charges as may be permitted under the 1940 Act and the rules of the
National Association of Securities Dealers, Inc., and expenses under Rule
12b-1 plans, administrative plans, service plans or other plans or
arrangements, however designated) adopted from time to time by the Board of
Directors of the Corporation in accordance, to the extent applicable, with
the 1940 Act, which charges and expenses may differ from those applicable
to another Class within such Series, and all of the charges and expenses to
which a Class is subject shall be borne by such Class and shall be
appropriately reflected in determining the net asset value and the amounts
payable with respect to dividends and distributions on, and redemptions or
liquidation of, such Class.
FURTHER RESOLVED, that the officers of the Corporation are hereby
authorized and directed to file with the office of the Secretary of State
of Minnesota a Certificate of Designation setting forth the relative rights
and preferences of the Series I, Classes A, B and C Common Shares
designated hereby, as required by Section 302A.401, Subd. 3(b) of the
Minnesota Statutes.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of the Corporation this day of May 1996.
/s/Thomas J. Abood
-----------------------------
Thomas J. Abood, Secretary
BYLAWS
OF
VOYAGEUR MUTUAL FUNDS, INC.
(AS AMENDED BY THE BOARD OF DIRECTORS ON MAY 14, 1996)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. NAME. The name of the corporation is "Voyageur Mutual Funds,
Inc." The name of the series represented by the corporation's Series A Common
Shares is "Voyageur Arkansas Tax Free Fund." The name of the series represented
by the corporation's Series B Common Shares is "Voyageur Iowa Tax Free Fund."
The name of the series represented by the corporation's Series C Common Shares
is "Voyageur Wisconsin Tax Free Fund." The name of the series represented by the
corporation's Series D Common Shares is "Voyageur Montana Tax Free Fund." The
name of the series represented by the corporation's Series E Common Shares is
"Voyageur Idaho Tax Free Fund." The name of the series represented by the
corporation's Series F Common Shares is "Voyageur Arizona Tax Free Fund." The
name of the series represented by the corporation's Series G Common Shares is
"Voyageur California Tax Free Fund." The name of the series represented by the
corporation's Series H Common Shares is "Voyageur National Tax Free Fund." The
name of the series represented by the corporation's Series I Common Shares is
"Voyageur Minnesota High Yield Municipal Bond Fund." The name of the series
represented by the corporation's Series J Common Shares is "Voyageur New York
Tax Free Fund." The name of the series represented by the corporation's Series K
Common Shares is "Voyageur National High Yield Muncipal Bond Fund."
Section 1.02. REGISTERED OFFICE. The registered office of the corporation
in Minnesota shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or resolution of the
directors filed with the Secretary of State of Minnesota changing the registered
office.
Section 1.03. OTHER OFFICES. The corporation may have such other offices,
within or without the State of Minnesota, as the directors shall, from time to
time, determine.
Section 1.04. NO CORPORATE SEAL. The corporation shall have no corporate
seal.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETING. Except as provided otherwise by
Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at any
place, within or without the State of Minnesota, designated by the directors
and, in the absence of such designation, shall be held at the registered office
of the corporation in the State of Minnesota. The directors shall designate the
time of day for each meeting and, in the absence of such designation, every
meeting of shareholders shall be held at ten o'clock a.m.
Section 2.02. REGULAR MEETINGS. The corporation shall not be required to
hold annual meetings of shareholders. Regular meetings shall be held only with
such frequency and at such times and places as provided in and required by
Minnesota Statutes Section 302A.431.
Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders may be
held at any time and for any purpose and may be called by the Chairman of the
Board, the President, any two directors, or by one or more shareholders holding
ten percent (10%) or more of the shares entitled to vote on the matters to be
presented to the meeting.
Section 2.04. QUORUM, ADJOURNED MEETINGS. The holders of ten percent (10%)
of the shares outstanding and entitled to vote shall constitute a quorum for the
transaction of business at any regular or special meeting. In case a quorum
shall not be present at a meeting, those present in person or by proxy shall
adjourn the meeting to such day as they shall, by majority vote, agree upon
without further notice other than by announcement at the meeting at which such
adjournment is taken. If a quorum is present, a meeting may be adjourned from
time to time without notice other than announcement at the meeting. At adjourned
meetings at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum is
present, the shareholders may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 2.05. VOTING. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the Articles of Incorporation provide
otherwise, shall have one vote for each share having voting power registered in
such shareholder's name on the books of the corporation. Except as otherwise
specifically provided by these Bylaws or as required by provisions of the
Investment Company Act of 1940 or other applicable laws, all questions shall be
decided by a majority vote of the number of shares entitled to vote and
represented at the meeting at the time of the vote. If the matter(s) to be
presented at a regular or special meeting relates only to particular classes or
series of the corporation, then only the shareholders of such classes or series
are entitled to vote on such matter(s).
Section 2.06. VOTING - PROXIES. The right to vote by proxy shall exist only
if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder or by such shareholder's attorney thereunto duly
authorized in writing. No proxy shall be voted after eleven months from its date
unless it provides for a longer period.
Section 2.07. CLOSING OF BOOKS. The Board of Directors may fix a time, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of,
and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. The Board of Directors
may close the books of the corporation against the transfer of shares during the
whole or any part of such period. If the Board of Directors fails to fix a
record date for determination of the shareholders entitled to notice of, and to
vote at, any meeting of shareholders, the record date shall be the thirtieth
(30th) day preceding the date of such meeting.
Section 2.08. NOTICE OF MEETINGS. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at such shareholder's address as shown by the books of the
corporation, a notice setting out the date, time and place of each regular
meeting and each special meeting, except where the meeting is an adjourned
meeting and the date, time and place of the meeting were announced at the time
of adjournment, which notice shall be mailed within the period required by law.
Every notice of any special meeting shall state the purpose or purposes for
which the meeting has been called, pursuant to Section 2.03, and the business
transacted at all special meetings shall be confined to the purpose stated in
such notice.
Section 2.09. WAIVER OF NOTICE. Notice of any regular or special meeting
may be waived either before, at or after such meeting orally or in a writing
signed by each shareholder or representative thereof entitled to vote the shares
so represented. A shareholder by his or her attendance at any meeting of
shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.
Section 2.10. WRITTEN ACTION. Any action which might be taken at a meeting
of the shareholders may be taken without a meeting if done in writing and signed
by all of the shareholders entitled to vote on that action. If the action to be
taken relates to particular classes or series of the corporation, then only
shareholders of such classes or series are entitled to vote on such action.
ARTICLE III
DIRECTORS
Section 3.01. NUMBER, QUALIFICATION AND TERM OF OFFICE. Until the first
meeting of shareholders, the number of directors shall be the number named in
the Articles of Incorporation. Thereafter, the number of directors shall be
established by resolution of the shareholders (subject to the authority of the
Board of Directors to increase or decrease the number of directors as permitted
by law). In the absence of such shareholder resolution, the number of directors
shall be the number last fixed by the shareholders, the Board of Directors or
the Articles of Incorporation. Directors need not be shareholders. Each of the
directors shall hold office until the regular meeting of shareholders next held
after his or her election and until his or her successor shall have been elected
and shall qualify, or until the earlier death, resignation, removal or
disqualification of such director.
Section 3.02. ELECTION OF DIRECTORS. Except as otherwise provided in
Sections 3.11 and 3.12 hereof, the directors shall be elected at the regular
shareholders' meeting. In the event that directors are not elected at a regular
shareholders' meeting, then directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. Each holder of shares of each class or series of stock of the
corporation shall be entitled to vote for directors and shall have equal voting
power for each share of each class or series of the corporation.
Section 3.03. GENERAL POWERS.
(a) Except as otherwise permitted by statute, the property, affairs and
business of the corporation shall be managed by the Board of Directors, which
may exercise all the powers of the corporation except those powers vested solely
in the shareholders of the corporation by statute, the Articles of Incorporation
or these Bylaws, as amended.
(b) All acts done by any meeting of the Directors or by any person acting
as a director, so long as his or her successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.04. POWER TO DECLARE DIVIDENDS.
(a) The Board of Directors, from time to time as they may deem advisable,
may declare and pay dividends in cash or other property of the corporation, out
of any source available for dividends, to the shareholders of each class or
series of stock of the corporation according to their respective rights and
interests in the investment portfolio of the corporation issuing such class or
series of stock.
(b) Notwithstanding the above provisions of this Section 3.04, the Board of
Directors may at any time declare and distribute pro rata among the shareholders
of each class or series of stock a "stock dividend" out of the authorized but
unissued shares of stock of each class or series, including any shares
previously purchased by a class or series of the corporation.
Section 3.05. BOARD MEETINGS. Meetings of the Board of Directors may be
held from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
Section 3.06. CALLING MEETINGS, NOTICE. A director may call a board meeting
by giving ten (10) days notice to all directors of the date, time and place of
the meeting; provided that if the day or date, time and place of a board meeting
have been announced at a previous meeting of the board, no notice is required.
Section 3.07. WAIVER OF NOTICE. Notice of any meeting of the Board of
Directors may be waived by any director either before, at or after such meeting
orally or in a writing signed by such director. A director, by his or her
attendance and participation in the action taken at any meeting of the Board of
Directors, shall be deemed to have waived notice of such meeting, except where
the director objects at the beginning of the meeting to the transaction of
business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.
Section 3.08. QUORUM. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting; provided however,
notwithstanding the above, if the Board of Directors is taking action pursuant
to the Investment Company Act of 1940, as now enacted or hereafter amended, a
majority of directors who are not "interested persons" (as defined by the
Investment Company Act of 1940, as now enacted or hereafter amended) of the
corporation shall constitute a quorum for taking such action.
Section 3.09. ADVANCE CONSENT OR OPPOSITION. A director may give advance
written consent or opposition to a proposal to be acted on at a meeting of the
Board of Directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected. This procedure
shall not be used to act on any investment advisory agreement or plan of
distribution adopted under Rule 12b-1 of the Investment Company Act of 1940, as
amended.
Section 3.10. CONFERENCE COMMUNICATIONS. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.10 shall be deemed present in person at
the meeting, and the place of the meeting shall be the place of origination of
the conference communication. This procedure shall not be used to act on any
investment advisory agreement or plan of distribution adopted under Rule 12b-1
of the Investment Company Act of 1940, as amended.
Section 3.11. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in the
Board of Directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as permitted by Section
3.01 may be filled by a two-thirds (2/3) vote of the directors serving at the
time of such increase; and each person so elected shall be a director until his
or her successor is elected by the shareholders at their next regular or special
meeting; provided, however, that no vacancy can be filled as provided above if
prohibited by the provisions of the Investment Company Act of 1940.
Section 3.12. REMOVAL. The entire Board of Directors or an individual
director may be removed from office, with or without cause, by a vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors. In the event that the entire Board or any one or more directors be so
removed, new directors shall be elected at the same meeting, or the remaining
directors may, to the extent vacancies are not filled at such meeting, fill any
vacancy or vacancies created by such removal. A director named by the Board of
Directors to fill a vacancy may be removed from office at any time, with or
without cause, by the affirmative vote of the remaining directors if the
shareholders have not elected directors in the interim between the time of the
appointment to fill such vacancy and the time of the removal.
Section 3.13. COMMITTEES. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors.
A majority of the members of the committee present at a meeting is a quorum
for the transaction of business, unless a larger or smaller proportion or number
is provided in a resolution approved by the affirmative vote of a majority of
the directors present.
Section 3.14. WRITTEN ACTION. Except as provided in the Investment Company
Act of 1940, as amended, any action which might be taken at a meeting of the
Board of Directors, or any duly constituted committee thereof, may be taken
without a meeting if done in writing and signed by that number of directors or
committee members that would be required to take the same action at a meeting of
the board or committee thereof at which all directors or committee members were
present; provided, however, that any action which also requires shareholder
approval may be taken by written action only if such writing is signed by all of
the directors or committee members entitled to vote on such matter .
Section 3.15. COMPENSATION. Directors who are not salaried officers of this
corporation or affiliated with its investment adviser shall receive such fixed
sum per meeting attended and/or such fixed annual sum as shall be determined,
from time to time, by resolution of the Board of Directors. All directors shall
receive their expenses, if any, of attendance at meetings of the Board of
Directors or any committee thereof. Nothing herein contained shall be construed
to preclude any director from serving this corporation in any other capacity and
receiving proper compensation therefor.
Section 3.16. RESIGNATION. A director may resign by giving written notice
to the corporation, and the resignation is effective without acceptance when
given, unless a later effective time is specified in the notice.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the corporation shall consist of a
Chairman of the Board (if one is elected by the Board), the President, one or
more Vice Presidents (if desired by the Board), a Secretary, a Treasurer and
such other officers and agents as may, from time to time, be elected by the
Board of Directors. Any number of offices may be held by the same person.
Section 4.02. ELECTION, TERM OF OFFICE AND Qualifications. The Board of
Directors shall elect, from within or without their number, the officers
referred to in Section 4.01 of these Bylaws, each of whom shall have the powers,
rights, duties, responsibilities and terms in office provided for in these
Bylaws or a resolution of the Board not inconsistent therewith. The President
and all other officers who may be directors shall continue to hold office until
the election and qualification of their successors, notwithstanding an earlier
termination of their directorship.
Section 4.03. RESIGNATION. Any officer may resign his or her office at any
time by delivering a written resignation to the corporation. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 4.04. REMOVAL AND VACANCIES. Any officer may be removed from office
by a majority of the Board of Directors with or without cause. Such removal,
however, shall be without prejudice to the contract rights of the person so
removed. If there be a vacancy among the officers of the corporation by reason
of death, resignation or otherwise, such vacancy shall be filled for the
unexpired term by the Board of Directors.
Section 4.05. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.06. PRESIDENT. The President shall have general active management
of the business of the corporation. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the shareholders and directors.
The President shall be the chief executive officer of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall be ex officio a member of all standing committees.
The President may execute and deliver, in the name of the corporation, any
deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation and, in general, shall perform all duties usually
incident to the office of the President. The President shall have such other
duties as may, from time to time, be prescribed by the Board of Directors.
Section 4.07. VICE PRESIDENT. Each Vice President shall have such powers
and shall perform such duties as may be specified in the Bylaws or prescribed by
the Board of Directors or by the President. In the event of absence or
disability of the President, Vice Presidents shall succeed to the President's
power and duties in the order designated by the Board of Directors.
Section 4.08. SECRETARY. The Secretary shall be secretary of, and shall
attend, all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. The
Secretary shall give proper notice of meetings of shareholders and directors.
The Secretary shall perform such other duties as may, from time to time, be
prescribed by the Board of Directors or by the President.
Section 4.09. TREASURER. The Treasurer shall be the chief financial officer
and shall keep accurate accounts of all money of the corporation received or
disbursed. The Treasurer shall deposit all moneys, drafts and checks in the name
of, and to the credit of, the corporation in such banks and depositories as a
majority of the Board of Directors shall, from time to time, designate. The
Treasurer shall have power to endorse, for deposit, all notes, checks and drafts
received by the corporation. The Treasurer shall disburse the funds of the
corporation, as ordered by the Board of Directors, making proper vouchers
therefor. The Treasurer shall render to the President and the directors,
whenever required, an account of all his or her transactions as Treasurer and of
the financial condition of the corporation, and shall perform such other duties
as may, from time to time, be prescribed by the Board of Directors or by the
President.
Section 4.10. ASSISTANT SECRETARIES. At the request of the Secretary, or in
the Secretary's absence or disability, any Assistant Secretary shall have power
to perform all the duties of the Secretary, and, when so acting, shall have all
the powers of, and be subject to all restrictions upon, the Secretary. The
Assistant Secretaries shall perform such other duties as from time to time may
be assigned to them by the Board of Directors or the President.
Section 4.11. ASSISTANT TREASURERS. At the request of the Treasurer, or in
the Treasurer's absence or disability, any Assistant Treasurer shall have power
to perform all the duties of the Treasurer, and when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such other duties as from time to time may be
assigned to them by the Board of Directors or the President.
Section 4.12. COMPENSATION. The officers of this corporation shall receive
such compensation for their services as may be determined, from time to time, by
resolution of the Board of Directors.
Section 4.13. SURETY BONDS. The Board of Directors may require any officer
or agent of the corporation to execute a bond (including, without limitation,
any bond required by the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission) to the corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his or her duties to the
corporation, including responsibility for negligence and for the accounting of
any of the corporation's property, funds or securities that may come into his or
her hands. In any such case, a new bond of like character shall be given at
least every six years, so that the dates of the new bond shall not be more than
six years subsequent to the date of the bond immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. CERTIFICATES FOR SHARES.
(a) The corporation may have certificated or uncertificated shares, or
both, as designated by resolution of the Board of Directors. Every owner of
certificated shares of the corporation shall be entitled to a certificate,
to be in such form as shall be prescribed by the Board of Directors,
certifying the number of shares of the corporation owned by him or her.
Within a reasonable time after the issuance or transfer of uncertificated
shares, the corporation shall send to the new shareholder the information
required to be stated on certificates. Certificated shares shall be
numbered in the order in which they shall be issued and shall be signed, in
the name of the corporation, by the President or a Vice President and by
the Treasurer or Secretary or by such officers as the Board of Directors
may designate. Such signatures may be by facsimile if authorized by the
Board of Directors. Every certificate surrendered to the corporation for
exchange or transfer shall be cancelled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases
provided for in Section 5.08.
(b) In case any officer, transfer agent or registrar who shall have
signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer (because of death, resignation
or otherwise) before such certificate is issued, such certificate may be
issued and delivered by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is authorized to
cause to be issued shares of the corporation up to the full amount authorized by
the Articles of Incorporation in such classes or series and in such amounts as
may be determined by the Board of Directors and as may be permitted by law. No
shares shall be allotted except in consideration of cash or other property,
tangible or intangible, received or to be received by the corporation under a
written agreement, of services rendered or to be rendered to the corporation
under a written agreement, or of an amount transferred from surplus to stated
capital upon a share dividend. At the time of such allotment of shares, the
Board of Directors making such allotments shall state, by resolution, their
determination of the fair value to the corporation in monetary terms of any
consideration other than cash for which shares are allotted. No shares of stock
issued by the corporation shall be issued, sold or exchanged by or on behalf of
the corporation for any amount less than the net asset value per share of the
shares outstanding as determined pursuant to Article X hereunder.
Section 5.03. REDEMPTION OF SHARES. Upon the demand of any shareholder,
this corporation shall redeem any share of stock issued by it held and owned by
such shareholder at the net asset value thereof as determined pursuant to
Article X hereunder. The Board of Directors may suspend the right of redemption
or postpone the date of payment during any period as may be permitted by law.
If following a redemption request by any shareholder of this corporation,
the value of such shareholder's interest in the corporation falls below the
required minimum investment, as may be set from time to time by the Board of
Directors, the corporation's officers are authorized, in their discretion and on
behalf of the corporation, to redeem such shareholder's entire interest and
remit such amount, provided that such a redemption will only be effected by the
corporation following: (a) a redemption by a shareholder, which causes the value
of such shareholder's interest in the corporation to fall below the required
minimum investment; (b) the mailing by the corporation to such shareholder of a
"notice of intention to redeem"; and (c) the passage of at least sixty (60) days
from the date of such mailing, during which time the shareholder will have the
opportunity to make an additional investment in the corporation to increase the
value of such shareholder's account to at least the required minimum investment.
Section 5.04. TRANSFER OF SHARES. Transfer of shares on the books of the
corporation may be authorized only by the shareholder, or the shareholder's
legal representative, or the shareholder's duly authorized attorney-in-fact, and
upon the surrender of the certificate or the certificates for such shares or a
duly executed assignment covering shares held in unissued form. The corporation
may treat, as the absolute owner of shares of the corporation, the person or
persons in whose name shares are registered on the books of the corporation.
Section 5.05. REGISTERED SHAREHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by the laws of Minnesota.
Section 5.06. TRANSFER OF AGENTS AND REGISTRARS. The Board of Directors may
from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. TRANSFER REGULATIONS. The shares of stock of the corporation
may be freely transferred, and the Board of Directors may from time to time
adopt rules and regulations with reference to the method of transfer of shares
of stock of the corporation.
Section 5.08. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
holder of any stock of the corporation shall immediately notify the corporation
of any loss, theft, destruction or mutilation of any certificate therefor, and
the Board of Directors may, in its discretion, cause to be issued to such holder
a new certificate or certificates of stock, upon the surrender of the mutilated
certificate or in case of loss, theft or destruction of the certificate upon
satisfactory proof of such loss, theft, or destruction. A new certificate or
certificates of stock will be issued to the owner of the lost, stolen or
destroyed certificate only after such owner, or his or her legal
representatives, gives to the corporation and to such registrar or transfer
agent as may be authorized or required to countersign such new certificate or
certificates a bond, in such sum as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be made
against them or any of them on account of or in connection with the alleged
loss, theft, or destruction of any such certificate.
ARTICLE VI
DIVIDENDS
Section 6.01. The net investment income of each class or series of the
corporation will be determined, and its dividends shall be declared and made
payable at such time(s) as the Board of Directors shall determine. Dividends
shall be payable to shareholders of record as of the date of declaration.
It shall be the policy of each series of the corporation to qualify for and
elect the tax treatment applicable to regulated investment companies under the
Internal Revenue Code, so that such series will not be subjected to federal
income tax on such part of its income or capital gains as it distributes to
shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. SHARE REGISTER. The Board of Directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
(1) a share register not more than one year old, containing the names and
addresses of the shareholders and the number and classes or series of
shares held by each shareholder; and
(2) a record of the dates on which transaction statements representing
shares were issued.
Section 7.02. OTHER BOOKS AND RECORDS. The Board of Directors shall cause
to be kept at its principal executive office, or, if its principal executive
office is not in Minnesota, shall make available at its registered office within
ten days after receipt by an officer of the corporation of a written demand for
them made by a shareholder or other person authorized by Minnesota Statutes
Section 302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the last three years;
(2) records of all proceedings of the Board of Directors for the last
three years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes Section 302A.463
and the financial statement for the most recent interim period
prepared in the course of the operation of the corporation for
distribution to the shareholders or to a governmental agency as a
matter of public record;
(6) reports made to shareholders generally within the last three years;
(7) a statement of the names and usual business addresses of its directors
and principal officers;
(8) any shareholder voting or control agreements of which the corporation
is aware; and
(9) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
Section 7.03. AUDIT; ACCOUNTANT.
(a) The Board of Directors shall cause the records and books of account of
the corporation to be audited at least once in each fiscal year and at such
other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent public accountant or firm
of independent public accountants to examine the accounts of the corporation and
to sign and certify financial statements filed by the corporation.
Section 7.04. FISCAL YEAR. The fiscal year of the corporation shall be
determined by the Board of Directors.
ARTICLE VIII
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to such
extent as permitted by Section 302A.521 of the Minnesota Statutes, as now
enacted or hereafter amended, provided, however, that no such indemnification
may be made if it would be in violation of Section 17(h) of the Investment
Company Act of 1940, as now enacted or hereinafter amended.
ARTICLE IX
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such other corporation or association, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on behalf
of the corporation, such written proxies, consents, waivers or other instruments
as it may deem necessary or proper; or any of such officers may themselves
attend any meeting of the holders of stock or other securities of any such
corporation or association and thereat vote or exercise any or all other rights
of the corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.
ARTICLE X
VALUATION OF NET ASSET VALUE
10.01. The net asset value per share of each class or series of stock of
the corporation shall be determined in good faith by or under supervision of the
officers of the corporation as authorized by the Board of Directors as often and
on such days and at such time(s) as the Board of Directors shall determine, or
as otherwise may be required by law, rule, regulation or order of the Securities
and Exchange Commission.
ARTICLE XI
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this corporation shall, as
hereinafter provided, be held by or deposited with a bank or trust company
having (according to its last published report) not less than Two Million
Dollars ($2,000,000) aggregate capital, surplus and undivided profits (the
"Custodian").
This corporation shall enter into a written contract with the custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of this corporation held by the Custodian. Said contract
and all amendments thereto shall be approved by the Board of Directors of this
corporation. In the event of the Custodian's resignation or termination, the
corporation shall use its best efforts promptly to obtain a successor Custodian
and shall require that the cash and securities owned by this corporation held by
the Custodian be delivered directly to such successor Custodian.
ARTICLE XII
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a vote of the
majority of the Board of Directors at any meeting provided that notice of such
proposed amendment shall have been given in the notice given to the directors of
such meeting. Such authority in the Board of Directors is subject to the power
of the shareholders to change or repeal such bylaws by a majority vote of the
shareholders present or represented at any regular or special meeting of
shareholders called for such purpose, and the Board of Directors shall not make
or alter any Bylaws fixing a quorum for meetings of shareholders, prescribing
procedures for removing directors or filling vacancies in the Board of
Directors, or fixing the number of directors or their classifications,
qualifications or terms of office, except that the Board of Directors may adopt
or amend any Bylaw to increase or decrease their number.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. INTERPRETATION. When the context in which words are used in
these Bylaws indicates that such is the intent, singular words will include the
plural and vice versa, and masculine words will include the feminine and neuter
genders and vice versa.
Section 13.02. ARTICLE AND SECTION TITLES. The titles of Sections and
Articles in these Bylaws are for descriptive purposes only and will not control
or alter the meaning of any of these Bylaws as set forth in the text.
INVESTMENT ADVISORY AGREEMENT
This Agreement, made this 1st day of November, l993, by and between
Voyageur Mutual Funds, Inc., a Minnesota corporation (the "Company"), on behalf
of each Fund represented by a series of shares of common stock of the Fund that
adopts this Agreement (each a "Fund" and, collectively, the "Funds") (the Funds,
together with the date each Fund adopts this Agreement, are set forth in EXHIBIT
A hereto, which shall be updated from time to time to reflect additions,
deletions or other changes thereto), and Voyageur Fund Managers, Inc., a
Minnesota corporation ("Voyageur"),
WITNESSETH:
1. INVESTMENT ADVISORY SERVICES.
(a) The Company hereby engages Voyageur on behalf of the Funds, and
Voyageur hereby agrees to act, as investment adviser for, and to manage the
investment of the assets of, the Funds.
(b) The investment of the assets of each Fund shall at all times be subject
to the applicable provisions of the Articles of Incorporation, the Bylaws, the
Registration Statement, and the current Prospectus and the Statement of
Additional Information, if any, of the Company and each Fund and shall conform
to the policies and purposes of each Fund as set forth in such documents and as
interpreted from time to time by the Board of Directors of the Company. Within
the framework of the investment policies of each Fund, and except as otherwise
permitted by this Agreement, Voyageur shall have the sole and exclusive
responsibility for the management of each Fund's investment portfolio and for
making and executing all investment decisions for each Fund. Voyageur shall
report to the Board of Directors regularly at such times and in such detail as
the Board may from time to time determine appropriate, in order to permit the
Board to determine the adherence of Voyageur to the investment policies of the
Funds.
(c) Voyageur shall, at its own expense, furnish all office facilities,
equipment and personnel necessary to discharge its responsibilities and duties
hereunder. Voyageur shall arrange, if requested by the Company, for officers or
employees of Voyageur to serve without compensation from any Fund as directors,
officers, or employees of the Company if duly elected to such positions by the
shareholders or directors of the Company (as required by law).
(d) Voyageur hereby acknowledges that all records pertaining to each Fund's
investments are the property of the Company, and in the event that a transfer of
investment advisory services to someone other than Voyageur should ever occur,
Voyageur will promptly, and at its own cost, take all steps necessary to
segregate such records and deliver them to the Company.
2. COMPENSATION FOR SERVICES.
In payment for the investment advisory and management services to be
rendered by Voyageur hereunder, each Fund shall pay to Voyageur a monthly fee,
which fee shall be paid to Voyageur not later than the fifth business day of the
month following the month in which said services were rendered. The monthly fee
payable by each Fund shall be as set forth in EXHIBIT A hereto, which may be
updated from time to time to reflect amendments, if any, to EXHIBIT A. The
monthly fee payable by each Fund shall be based on the average of the net asset
values of all of the issued and outstanding shares of the Fund as determined as
of the close of each business day of the month pursuant to the Articles of
Incorporation, Bylaws, and currently effective Prospectus and Statement of
Additional Information of the Company and the Fund. For purposes of calculating
each Fund's average daily net assets, as such term is used in this Agreement,
each Fund's net assets shall equal its total assets minus (a) its total
liabilities and (b) its net orders receivable from dealers.
3. ALLOCATION OF EXPENSES.
(a) In addition to the fee described in Section 2 hereof, each Fund shall
pay all its costs and expenses which are not assumed by Voyageur. These Fund
expenses include, by way of example, but not by way of limitation, all expenses
incurred in the operation of the Fund and any public offering of its shares,
including, among others, Rule 12b-1 plan of distribution fees (if any),
interest, taxes, brokerage fees and commissions, fees of the directors who are
not employees of Voyageur or the principal underwriter of the Fund's shares (the
"Underwriter"), or any of their affiliates, expenses of directors' and
shareholders' meetings, including the cost of printing and mailing proxies,
expenses of insurance premiums for fidelity and other coverage, expenses of
redemption of shares, expenses of issue and sale of shares (to the extent not
borne by the Underwriter under its agreement with the Fund), expenses of
printing and mailing stock certificates representing shares of the Fund,
association membership dues, charges of custodians, transfer agents, dividend
disbursing agents, accounting services agents, investor servicing agents, and
bookkeeping, auditing, and legal expenses. Each Fund will also pay the fees and
bear the expense of registering and maintaining the registration of the Fund and
its shares with the Securities and Exchange Commission and registering or
qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders.
(b) The Underwriter shall bear all advertising and promotional expenses in
connection with the distribution of each Fund's shares, including paying for
prospectuses for new shareholders, except as provided in the following sentence.
No Fund shall use any of its assets to finance costs incurred in connection with
the distribution of its shares except pursuant to a Plan of Distribution, if
any, adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as
amended, the "Act").
4. LIMIT ON EXPENSES.
Voyageur shall reimburse each Fund, in an amount not in excess of the
investment advisory and management fee payable by such Fund, if, and to the
extent that, the aggregate operating expenses of the Company, including the
investment advisory and management fee, administrative services fees, and
deferred organizational costs but excluding Rule 12b-1 fees (if any), interest
expense, taxes, brokerage fees and commissions and extraordinary charges and
expenses, are in excess of the expense limit applicable to such Fund, which is
set forth in EXHIBIT A hereto.
5. FREEDOM TO DEAL WITH THIRD PARTIES.
Voyageur shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
6. REPORTS TO DIRECTORS OF THE FUND.
Appropriate officers of Voyageur shall provide the directors of the Company
with such information as is required by any plan of distribution adopted by the
Company on behalf of any Fund pursuant to Rule 12b-1 under the Act.
7. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
(a) The effective date of this Agreement with respect to each Fund shall be
the date set forth on EXHIBIT A hereto.
(b) Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect with respect to each Fund for a period more than two years
from the date of its execution but only as long as such continuance is
specifically approved at least annually by (i) the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
applicable Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons", as
defined in the Act, of Voyageur or of the Company cast in person at a meeting
called for the purpose of voting on such approval.
(c) This Agreement may be terminated with respect to any Fund at any time,
without the payment of any penalty, by the Board of Directors of the Company or
by the vote of a majority of the outstanding voting securities of such Fund, or
by Voyageur, upon 60 days' written notice to the other party.
(d) This agreement shall terminate automatically in the event of its
"assignment" (as defined in the Act).
(e) No amendment to this Agreement shall be effective with respect to any
Fund until approved by the vote of: (i) a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of Voyageur or of the Company cast in person at a meeting
called for the purpose of voting on such approval; and (ii) a majority of the
outstanding voting securities of the applicable Fund.
(f) Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities or shares of a Fund
shall mean the lesser of (i) the vote of 67% or more of the voting securities of
such Fund present at a regular or special meeting of shareholders duly called,
if more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (ii) the vote of more than 50% of the outstanding
voting securities of such Fund.
8. NOTICES.
Any notice under this Agreement shall be in writing, addressed, delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and Voyageur have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
VOYAGEUR MUTUAL FUNDS, INC.
By/s/John Taft
----------------------
John Taft
Its________________________
VOYAGEUR FUND MANAGERS, INC.
By/sTheodore Jessen
------------------------
Theodore Jessen
Its/s/Vice President
----------------------
Vice President
Exhibit A
to
Investment Advisory Agreement
between
Voyageur Fund Managers, Inc.
and
Voyageur Mutual Funds, Inc.
<TABLE>
<CAPTION>
MONTHLY
ADVISORY FEE
(AS %OF AVERAGE
FUND EFFECTIVE DATE DAILY NET ASSETS)
---- -------------- -----------------
<S> <C> <C>
Series B--Voyageur Iowa Tax Free Fund November 1, 1993 .041667% (1)
Series C--Voyageur Wisconsin Tax Free Fund November 1, 1993 .041667% (1)
Series E--Voyageur Idaho Tax Free Fund December 1, 1994 .041667% (1)
Series F--Voyageur Arizona Tax Free Fund March 1, 1995 .041667% (1)
Series G--Voyageur California Tax Free Fund March 1, 1995 .041667% (1)
Series H--Voyageur National Tax Free Fund March 1, 1995 .041667% (1)
Series I--Voyageur Minnesota High Yield June 3, 1996 .054167% (1)
Municipal Bond Fund
</TABLE>
(1) Voyageur shall reimburse the Fund, in an amount not in excess of the
administrative services fee payable under the Administrative Services
Agreement and the advisory and management fee payable hereunder, if, and to
the extent that, the aggregate operating expenses of the Fund-- including
the advisory and management fee, the administrative services fee and
deferred organizational costs, but excluding Rule 12b-1 fees (if any),
interest expense, taxes, brokerage fees and commissions and extraordinary
charges and expenses -- are in excess of 1.00% (on an annual basis) of the
average daily net assets of the Fund (the "Expense Limit"). Voyageur shall
first reimburse the advisory and management fee payable hereunder and then,
to the extent necessary to reduce the Fund's expenses to the Expense Limit,
shall reimburse the administrative services fee payable under the
Administrative Services Agreement.
VOYAGEUR MUTUAL FUNDS, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 3rd day of June 1996, by
and between Voyageur Mutual Funds, Inc., a Minnesota corporation (the
"Company"), for and on behalf of each series of the Company (each series is
referred to hereinafter as a "Fund"), and Voyageur Fund Distributors, Inc., a
Minnesota corporation (the "Underwriter"). This Agreement shall apply to each
class of shares offered by the following Funds:
Voyageur Iowa Tax Free Fund (currently offering shares of Classes A, B and
C)
Voyageur Wisconsin Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur Idaho Tax Free Fund (currently offering shares of Classes A, B and
C)
Voyageur Arizona Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur California Tax Free Fund (currently offering shares of Classes A,
B and C)
Voyageur National Tax Free Fund (currently offering shares of Classes A, B
and C)
Voyageur Minnesota High Yield Muncicipal Bond Fund (currently offering
shares of Classes A, B and C)
WITNESSETH:
1. UNDERWRITING SERVICES
The Company, on behalf of each Fund, hereby engages the Underwriter, and
the Underwriter hereby agrees to act, as principal underwriter for each Fund in
the sale and distribution of the shares of each class of such Fund to the
public, either through dealers or otherwise. The Underwriter agrees to offer
such shares for sale at all times when such shares are available for sale and
may lawfully be offered for sale and sold.
2. SALE OF SHARES
The shares of each Fund are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to acceptance or
rejection by the Company. Any offer for or sale of shares shall be
conclusively presumed to have been accepted by the Company if the
Company shall fail to notify the Underwriter of the rejection of such
offer or sale prior to the computation of the net asset value of such
shares next following receipt by the Company of notice of such offer
or sale.
(b) No share of a Fund shall be sold by the Underwriter (i) for any
consideration other than cash or, pursuant to any exchange privilege
provided for by the applicable currently effective Prospectus or
Statement of Additional Information (hereinafter referred to
collectively as the "Prospectus"), shares of any other investment
company for which the Underwriter acts as an underwriter, or (ii)
except in instances otherwise provided for by the applicable currently
effective Prospectus, for any amount less than the public offering
price per share, which shall be determined in accordance with the
applicable currently effective Prospectus.
(c) In connection with certain sales of shares, a contingent deferred
sales charge will be imposed in the event of a redemption transaction
occurring within a certain period of time following such a purchase,
as described in the applicable currently effective Prospectus.
(d) The front-end sales charge, if any, for any class of shares of a Fund
may, at the discretion of the Company and the Underwriter, be reduced
or eliminated as permitted by the Investment Company Act of 1940, and
the rules and regulations thereunder, as they may be amended from time
to time (the "1940 Act"), provided that such reduction or elimination
shall be set forth in the Prospectus for such class, and provided that
the Company shall in no event receive for any shares sold an amount
less than the net asset value thereof. In addition, any contingent
deferred sales charge for any class of shares of a Fund may, at the
discretion of the Company and the Underwriter, be reduced or
eliminated in accordance with the terms of an exemptive order received
from, or any applicable rule or rules promulgated by, the Securities
and Exchange Commission, provided that such reduction or elimination
shall be set forth in the Prospectus for such class of shares.
(e) The Underwriter shall require any securities dealer entering into a
selected dealer agreement with the Underwriter to disclose to
prospective investors the existence of all available classes of shares
of a Fund and to determine the suitability of each available class as
an investment for each such prospective investor.
3. REGISTRATION OF SHARES
The Company agrees to make prompt and reasonable efforts to effect and keep
in effect, at its expense, the registration or qualification of each Fund's
shares for sale in such jurisdictions as the Company may designate.
4. INFORMATION TO BE FURNISHED TO THE UNDERWRITER
The Company agrees that it will furnish the Underwriter with such
information with respect to the affairs and accounts of the Company (and each
Fund or class thereof) as the Underwriter may from time to time reasonably
require, and further agrees that the Underwriter, at all reasonable times, shall
be permitted to inspect the books and records of the Company.
5. ALLOCATION OF EXPENSES
During the period of this Agreement, the Company shall pay or cause to be
paid all expenses, costs and fees incurred by the Company which are not assumed
by the Underwriter. The Underwriter agrees to provide, and shall pay costs which
it incurs in connection with providing, administrative or accounting services to
shareholders of each Fund (such costs are referred to as "Shareholder Servicing
Costs"). Shareholder Servicing Costs include all expenses of the Underwriter
incurred in connection with providing administrative or accounting services to
shareholders of each Fund, including, but not limited to, an allocation of the
Underwriter's overhead and payments made to persons, including employees of the
Underwriter, who respond to inquiries of shareholders regarding their ownership
of Fund shares, or who provide other administrative or accounting services not
otherwise required to be provided by the applicable Fund's investment adviser or
transfer agent. The Underwriter shall also pay all costs of distributing the
shares of each Fund ("Distribution Expenses"). Distribution Expenses include,
but are not limited to, initial and ongoing sales compensation (in addition to
sales loads) paid to investment executives of the Underwriter and to other
broker-dealers and participating financial institutions; expenses incurred in
the printing of prospectuses, statements of additional information and reports
used for sales purposes; expenses of preparation and distribution of sales
literature; expenses of advertising of any type; an allocation of the
Underwriter's overhead; payments to and expenses of persons who provide support
services in connection with the distribution of Fund shares; and other
distribution-related expenses.
6. COMPENSATION TO THE UNDERWRITER
As compensation for all of its services provided and its costs assumed
under this Agreement, the Underwriter shall receive the following forms and
amounts of compensation:
(a) The Underwriter shall be entitled to receive or retain any front-end
sales charge imposed in connection with sales of shares of each Fund, as set
forth in the applicable current Prospectus. Up to the entire amount of such
front-end sales charge may be reallowed by the Underwriter to broker-dealers and
participating financial institutions in connection with their sale of Fund
shares. The amount of the front-end sales charge (if any) may be retained or
deducted by the Underwriter from any sums received by it in payment for shares
so sold. If such amount is not deducted by the Underwriter from such payments,
such amount shall be paid to the Underwriter by the Company not later than five
business days after the close of any calendar quarter during which any such
sales were made by the Underwriter and payment received by the Company.
(b) The Underwriter shall be entitled to receive or retain any contingent
deferred sales charge imposed in connection with any redemption of shares of
each Fund, as set forth in the applicable current Prospectus.
(c) Pursuant to the Company's Plan of Distribution adopted in accordance
with Rule 12b-1 under the 1940 Act (the "Plan"):
(i) Class A of each Fund is obligated to pay the Underwriter a total
fee in connection with the servicing of shareholder accounts of such class
and in connection with distribution-related services provided in respect of
such class, calculated and payable quarterly, at the annual rate of .25% of
the value of the average daily net assets of such class. All or any portion
of such total fee may be payable as a Shareholder Servicing Fee, and all or
any portion of such total fee may be payable as a Distribution Fee, as
determined from time to time by the Company's Board of Directors. Until
further action by the Board of Directors, all of such fee shall be
designated and payable as a Shareholder Servicing Fee.
(ii) Class B of each Fund offering shares of such Class is obligated
to pay the Underwriter a total fee in connection with the servicing of
shareholder accounts of such Class and in connection with
distribution-related services provided in respect of such Class, calculated
and payable quarterly, at the annual rate of 1.00% of the value of the
average daily net assets of such Class. All or any portion of such total
fee may be payable as a Shareholder Servicing Fee, and all or any portion
of such total fee may be payable as a Distribution Fee, as determined from
time to time by the Trust's Board of Trustees. Until further action by the
Board of Trustees, a portion of such total fee equal to .25% per annum of
Class B's average net assets shall be designated and payable as a
Shareholder Servicing Fee and the remainder of such fee shall be designated
as a Distribution Fee.
(iii) Class C of each Fund is obligated to pay the Underwriter a total
fee in connection with the servicing of shareholder accounts of such class
and in connection with distribution-related services provided in respect of
such class, calculated and payable quarterly, at the annual rate of 1.00%
of the value of the average daily net assets of such class. All or any
portion of such total fee may be payable as a Shareholder Servicing Fee,
and all or any portion of such total fee may be payable as a Distribution
Fee, as determined from time to time by the Company's Board of Directors.
Until further action by the Board of Directors, a portion of such total fee
equal to .25% per annum of the average daily net assets of such class shall
be designated and payable as a Shareholder Servicing Fee and the remainder
of such fee shall be designated as a Distribution Fee.
Average daily net assets shall be computed in accordance with the
applicable currently effective Prospectus. Amounts payable to the Underwriter
under the Plan may exceed or be less than the Underwriter's actual Distribution
Expenses and Shareholder Servicing Costs. In the event such Distribution
Expenses and Shareholder Servicing Costs exceed amounts payable to the
Underwriter under the Plan, the Underwriter shall not be entitled to
reimbursement by the Company.
(d) In each year during which this Agreement remains in effect, the
Underwriter will prepare and furnish to the Board of Directors of the Company,
and the Board will review, on a quarterly basis, written reports complying with
the requirements of Rule 12b-1 under the 1940 Act that set forth the amounts
expended under this Agreement and the Plan, on a class by class basis as
applicable, and the purposes for which those expenditures were made.
7. LIMITATION OF THE UNDERWRITER'S AUTHORITY
The Underwriter shall be deemed to be an independent contractor and, except
as specifically provided or authorized herein, shall have no authority to act
for or represent any Fund or the Company.
8. SUBSCRIPTION FOR SHARES--REFUND FOR CANCELLED ORDERS
The Underwriter shall subscribe for the shares of a Fund only for the
purpose of covering purchase orders already received by it or for the purpose of
investment for its own account. In the event that an order for the purchase of
shares of a Fund is placed with the Underwriter by a customer or dealer and
subsequently cancelled, the Underwriter shall forthwith cancel the subscription
for such shares entered on the books of the Fund, and, if the Underwriter has
paid the Fund for such shares, shall be entitled to receive from the Fund in
refund of such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of cancellation by the
Underwriter.
9. INDEMNIFICATION OF THE COMPANY
The Underwriter agrees to indemnify each Fund and the Company against any
and all litigation and other legal proceedings of any kind or nature and against
any liability, judgment, cost, or penalty imposed as a result of such litigation
or proceedings in any way arising out of or in connection with the sale or
distribution of the shares of such Fund by the Underwriter. In the event of the
threat or institution of any such litigation or legal proceedings against any
Fund, the Underwriter shall defend such action on behalf of the Fund or the
Company at the Underwriter's own expense, and shall pay any such liability,
judgment, cost, or penalty resulting therefrom, whether imposed by legal
authority or agreed upon by way of compromise and settlement; provided, however,
the Underwriter shall not be required to pay or reimburse a Fund for any
liability, judgment, cost, or penalty incurred as a result of information
supplied by, or as the result of the omission to supply information by, the
Company to the Underwriter, or to the Underwriter by a director, officer, or
employee of the Company who is not an "interested person," as defined in the
provisions of the 1940 Act, of the Underwriter, unless the information so
supplied or omitted was available to the Underwriter or the Fund's investment
adviser without recourse to the Fund or the Company or any such person referred
to above.
10. FREEDOM TO DEAL WITH THIRD PARTIES
The Underwriter shall be free to render to others services of a nature
either similar to or different from those rendered under this contract, except
such as may impair its performance of the services and duties to be rendered by
it hereunder.
11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
(a) The effective date of this Agreement is set forth in the first
paragraph of this Agreement. Unless sooner terminated as hereinafter provided,
this Agreement shall continue in effect for a period of one year after the date
of its execution, and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by a vote of the Board of
Directors of the Company, and of the directors who are not "interested persons"
(as defined in the provisions of the 1940 Act) of the Company and have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (including, without limitation, this Agreement), cast in
person at a meeting called for the purpose of voting on this Agreement.
(b) This Agreement may be terminated at any time with respect to any Fund
or class thereof, without the payment of any penalty, by the vote of a majority
of the members of the Board of Directors of the Company who are not "interested
persons" (as defined in the provisions of the 1940 Act) of the Company and have
no direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (including, without limitation, this Agreement),
or by the vote of a majority of the outstanding voting securities of such Fund
(or class thereof), or by the Underwriter, upon 60 days' written notice to the
other party.
(c) This Agreement shall automatically terminate in the event of its
"assignment" (as defined by the provisions of the 1940 Act).
(d) Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities of a Fund (or class
thereof) shall mean the lesser of (i) the vote of 67% or more of the voting
securities of such Fund (or class thereof) present at a regular or special
meeting of shareholders duly called, if more than 50% of the Fund's (or class's,
as applicable) outstanding voting securities are present or represented by
proxy, or (ii) the vote of more than 50% of the outstanding voting securities of
such Fund (or class thereof).
12. AMENDMENTS TO AGREEMENT
No material amendment to this Agreement shall be effective until approved
by the Underwriter and by vote of a majority of the Board of Directors of the
Company who are not interested persons of the Underwriter.
13. NOTICES
Any notice under this Agreement shall be in writing, addressed, delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and the Underwriter have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
VOYAGEUR MUTUAL FUNDS, INC.
By /s/Kenneth R. Larsen
----------------------
Kenneth R. Larsen
Its /s/Treasurer
-------------------
Treasurer
VOYAGEUR FUND DISTRIBUTORS, INC.
By /s/Frank C. Tonnemaker
---------------------------
Frank C. Tonnemaker
Its /s/President
-----------------------
President
CUSTODIAN AGREEMENT
THIS AGREEMENT, made as of the 27th day of August, 1993, by and between
Voyageur Mutual Funds, Inc., a Minnesota corporation (the "Fund"), for and on
behalf of each series of the Fund that adopts this Agreement (said series being
hereinafter referred to, individually, as a "Series" and, collectively, as the
"Series"), and Norwest Bank Minnesota N.A., a national banking association
organized and existing under the laws of the United States of America (the
"Custodian"). The name of each Series that adopts this Agreement and the
effective date of this Agreement with respect to each such Series are set forth
in EXHIBIT A hereto.
WITNESSETH:
WHEREAS, the Fund desires to appoint the Custodian as the custodian for the
assets of each Series, and the Custodian desires to accept such appointment,
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein made, the Fund and the Custodian agree as follows:
ARTICLE 1. DEFINITIONS
The word "Securities" as used herein shall be construed to include, without
being limited to, shares, stocks, bonds, debentures, notes, scrip, participation
certificates, rights to subscribe, warrants, options, certificates of deposit,
bankers' acceptances, repurchase agreements, commercial paper, choses in action,
evidences of indebtedness, investment contracts, voting trust certificates,
certificates of indebtedness and certificates of interest of any and every kind
and nature whatsoever, secured and unsecured, issued or to be issued, by any
corporation, company, partnership (limited or general), association, trust,
entity or person, public or private, whether organized under the laws of the
United States, or any state, commonwealth, territory or possession thereof, or
organized under the laws of any foreign country, or any state, province,
territory or possession thereof, or issued or to be issued by the United States
government or any agency or instrumentality thereof, options on stock indexes,
stock index and interest rate futures contracts and options thereon, and other
futures contracts and options thereon.
The words "Written Order from the Fund" shall mean a writing signed or
initialed by one or more person or persons designated in the current certified
list referred to in Article 2, provided that if said writing is signed by only
one person, that person shall be an officer of the Fund designated in said
current certified list. "Written Order from the Fund" also may include a
communication effected directly between electro-mechanical or electronic devices
(including, but not limited to, facsimile transceivers) provided that management
of the Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the assets of each Series.
ARTICLE 2. NAMES, TITLES AND SIGNATURES OF FUND'S OFFICERS
The Fund shall certify to the Custodian the names, titles and signatures of
officers and other persons who are authorized to give any Written Order from the
Fund on behalf of each Series. The Fund agrees that, whenever any change in such
authorization occurs, it will file with the Custodian a new certified list of
names, titles and signatures which shall be signed by at least one officer
previously certified to the Custodian if any such officer still holds an office
in the Fund. The Custodian is authorized to rely and act upon the names, titles
and signatures of the individuals as they appear in the most recent such
certified list which has been delivered to the Custodian as hereinbefore
provided.
ARTICLE 3. SUB-CUSTODIANS AND DEPOSITORIES
Notwithstanding any other provision in this Agreement to the contrary, all
or any of the cash and Securities of each Series may be held in the Custodian's
own custody or in the custody of one or more other banks or trust companies
selected by the Custodian or as directed in one or more Written Orders from the
Fund. Any such sub-custodian must have the qualifications required for
custodians under the Investment Company Act of 1940, as amended. The Custodian
or sub-custodian, as the case may be, may participate directly or indirectly in
one or more "securities depositories" (as defined in Rule 17f-4 under the
Investment Company Act of 1940, as amended, or in any successor provisions or
rules thereto). Any references in this Agreement to the delivery of Securities
by or to the Custodian shall, with respect to Securities custodied with one of
the aforementioned "securities depositories," be interpreted to mean that the
Custodian shall cause a bookkeeping entry to be made by the applicable
securities depository to indicate the transfer of ownership of the applicable
Security to or from the Fund, all as set forth in one or more Written Orders
from the Fund. Additionally, any references in this Agreement to the receipt of
proceeds or payments with respect to Securities transactions shall, with respect
to Securities custodied with one of the aforementioned "securities
depositories," be interpreted to mean that the Custodian shall have received an
advice from such securities depository that said proceeds or payments have been
received by such depository and deposited in the Custodian's account.
ARTICLE 4. RECEIPT AND DISBURSING OF MONEY
SECTION (1). The Fund shall from time to time cause cash owned by the Fund
to be delivered or paid to the Custodian for the account of any Series, but the
Custodian shall not be under any obligation or duty to determine whether all
cash of the Fund is being so deposited or to take any action or to give any
notice with respect to cash not so deposited. The Custodian agrees to hold such
cash, together with any other sum collected or received by it for or on behalf
of each Series of the Fund, in the account of such Series in conformity with the
terms of this Agreement. The Custodian shall be authorized to disburse cash from
the account of each Series only:
(a) upon receipt of and in accordance with Written Orders from the
Fund stating that such cash is being used for one or more of the following
purposes, and specifying such purpose or purposes, provided, however, that
a reference in such Written Order from the Fund to the pertinent paragraph
or paragraphs of this Article shall be sufficient compliance with this
provision:
(i) the payment of interest;
(ii) the payment of dividends;
(iii) the payment of taxes;
(iv) the payment of the fees or charges to any investment adviser
of any Series;
(v) the payment of fees to a Custodian, stock registrar,
transfer agent or dividend disbursing agent for any Series;
(vi) the payment of distribution fees and commissions;
(vii)the payment of any operating expenses, which shall be deemed
to include legal and accounting fees and all other expenses
not specifically referred to in this paragraph (a);
(viii) payments to be made in connection with the conversion,
exchange or surrender of Securities owned by any Series;
(ix) payments on loans that may from time to time be due;
(x) payment to a recognized and reputable broker for Securities
purchased by the Fund through said broker (whether or not
including any regular brokerage fees, charges or commissions
on the transaction) upon receipt by the Custodian of such
Securities in proper form for transfer and after the receipt
of a confirmation from the broker or dealer with respect to
the transaction;
(xi) payment to an issuer or its agent on a subscription for
Securities of such issuer upon the exercise of rights so to
subscribe, against a receipt from such issuer or agent for
the cash so paid;
(b) as provided in Article 5 hereof; and
(c) upon the termination of this Agreement.
SECTION (2). The Custodian is hereby appointed the attorney-in-fact of the
Fund to use reasonable efforts to enforce and collect all checks, drafts or
other orders for the payment of money received by the Custodian for the account
of each Series and drawn to or to the order of the Fund and to deposit them in
the account of the applicable Series.
ARTICLE 5. RECEIPT OF SECURITIES
The Fund agrees to place all of the Securities of each Series in its
account with the Custodian, but the Custodian shall not be under any obligation
or duty to determine whether all Securities of any Series are being so
deposited, or to require that such Securities be so deposited, or to take any
action or give any notice with respect to the Securities not so deposited. The
Custodian agrees to hold such Securities in the account of the Series designated
by the Fund, in the name of the Fund or of bearer or of a nominee of the
Custodian, and in conformity with the terms of this Agreement. The Custodian
also agrees, upon Written Order from the Fund, to receive from persons other
than the Fund and to hold in the account of the Series designated by the Fund
Securities specified in said Written Order of the Fund, and, if the same are in
proper form, to cause payment to be made therefor to the persons from whom such
Securities were received, from the funds of the applicable Series held by the
Custodian in said account in the amounts provided and in the manner directed by
the Written Order from the Fund.
The Custodian agrees that all Securities of each Series placed in its
custody shall be kept physically segregated at all times from those of any other
Series, person, firm or corporation, and shall be held by the Custodian with all
reasonable precautions for the safekeeping thereof. Upon delivery of any
Securities of any Series to a subcustodian pursuant to Article 3 of this
Agreement, the Custodian will create and maintain records identifying those
assets which have been delivered to the subcustodian as belonging to the
applicable Series.
ARTICLE 6. DELIVERY OF SECURITIES
The Custodian agrees to transfer, exchange or deliver Securities as
provided in Article 7, or on receipt by it of, and in accordance with, a Written
Order from the Fund in which the Fund shall state specifically which of the
following cases is covered thereby:
(a) in the case of deliveries of Securities sold by the Fund, against
receipt by the Custodian of the proceeds of sale and after receipt of a
confirmation from a broker or dealer (or, in accordance with industry practice
with respect to "same day trades," acceptance of delivery of such securities by
the broker or dealer, which acceptance is followed up by confirmation thereof
within the normal settlement period) with respect to the transaction;
(b) in the case of deliveries of Securities which may mature or be called,
redeemed, retired or otherwise become payable, against receipt by the Custodian
of the sums payable thereon or against interim receipts or other proper delivery
receipts;
(c) in the case of deliveries of Securities which are to be transferred to
and registered in the name of the Fund or of a nominee of the Custodian and
delivered to the Custodian for the account of the Series, against receipt by the
Custodian of interim receipts or other proper delivery receipts;
(d) in the case of deliveries of Securities to the issuer thereof, its
transfer agent or other proper agent, or to any committee or other organization
for exchange for other Securities to be delivered to the Custodian in connection
with a reorganization or recapitalization of the issuer or any split-up or
similar transaction involving such Securities, against receipt by the Custodian
of such other Securities or against interim receipts or other proper delivery
receipts;
(e) in the case of deliveries of temporary certificates in exchange for
permanent certificates, against receipt by the Custodian of such permanent
certificates or against interim receipts or other proper delivery receipts;
(f) in the case of deliveries of Securities upon conversion thereof into
other Securities, against receipt by the Custodian of such other Securities or
against interim receipts or other proper delivery receipts;
(g) in the case of deliveries of Securities in exchange for other
Securities (whether or not such transactions also involve the receipt or payment
of cash), against receipt by the Custodian of such other Securities or against
interim receipts or other proper delivery receipts;
(h) in the case of warrants, rights or similar Securities, the surrender
thereof in the exercise of such warrants, rights or similar Securities or the
surrender of interim receipts or temporary Securities for definitive Securities;
(i) for delivery in connection with any loans of securities made by the
Fund for the benefit of any Series, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and the Fund;
(j) for delivery as security in connection with any borrowings by the Fund
for the benefit of any Series requiring a pledge of assets from the applicable
Series, but only against receipt of amounts borrowed;
(k) for delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a bank, broker-dealer or futures commission merchant
relating to compliance with applicable rules and regulations regarding account
deposits, escrow or other arrangements in connection with transactions by the
Fund for the benefit of any Series;
(l) in a case not covered by the preceding paragraphs of this Article, upon
receipt of a resolution adopted by the Board of Directors of the Fund, signed by
an officer of the Fund and certified to by the Secretary, specifying the
Securities and assets to be transferred, exchanged or delivered, the purposes
for which such delivery is being made, declaring such purposes to be proper
corporate purposes, and naming a person or persons (each of whom shall be a
properly bonded officer or employee of the Fund) to whom such transfer, exchange
or delivery is to be made; and
(m) in the case of deliveries pursuant to paragraphs (a) through (k) above,
the Written Order from the Fund shall direct that the proceeds of any Securities
delivered, or Securities or other assets exchanged for or in lieu of Securities
so delivered, are to be delivered to the Custodian.
ARTICLE 7. CUSTODIAN'S ACTS WITHOUT WRITTEN ORDERS FROM THE FUND
Unless and until the Custodian receives contrary Written Orders from the
Fund, the Custodian shall without order from the Fund:
(a) present for payment all bills, notes, checks, drafts and similar items,
and all coupons or other income items (except stock dividends), held or received
for the account of any Series, and which require presentation in the ordinary
course of business, and credit such items to the account of the applicable
Series conditionally, subject to final payment;
(b) present for payment all Securities which may mature or be called,
redeemed, retired or otherwise become payable and credit such items to the
account of the applicable Series conditionally, subject to final payment;
(c) hold for and credit to the account of any Series all shares of stock
and other Securities received as stock dividends or as the result of a stock
split or otherwise from or on account of Securities of the Series, and notify
the Fund, in the Custodian's monthly reports to the Fund, of the receipt of such
items;
(d) deposit or invest (as instructed from time to time by the Fund) any
cash received by it from, for or on behalf of any Series to the credit of the
account of the applicable Series;
(e) charge against the account for any Series disbursements authorized to
be made by the Custodian hereunder and actually made by it, and notify the Fund
of such charges at least once a month;
(f) deliver Securities which are to be transferred to and reissued in the
name of any Series, or of a nominee of the Custodian for the account of any
Series, and temporary certificates which are to be exchanged for permanent
certificates, to a proper transfer agent for such purpose against interim
receipts or other proper delivery receipts; and
(g) hold for disposition in accordance with Written Orders from the Fund
hereunder all options, rights and similar Securities which may be received by
the Custodian and which are issued with respect to any securities held by it
hereunder, and notify the Fund promptly of the receipt of such items.
ARTICLE 8. SEGREGATED ACCOUNTS
Upon receipt of a Written Order from the Fund, the Custodian shall
establish and maintain one or more segregated accounts for and on behalf of the
Series specified in said Written Order from the Fund for purposes of segregating
cash and/or Securities (of the type agreed upon from time to time by the
Custodian and the Fund) for the purpose or purposes specified in said Written
Order from the Fund.
ARTICLE 9. DELIVERY OF PROXIES
The Custodian shall deliver promptly to the Fund all proxies, notices and
communications with relation to Securities held by it which it may receive from
sources other than the Fund.
ARTICLE 10. TRANSFER
The Fund shall furnish to the Custodian appropriate instruments to enable
the Custodian to hold or deliver in proper form for transfer any Securities
which it may hold for the account of any Series of the Fund. For the purpose of
facilitating the handling of Securities, unless otherwise directed by Written
Order from the Fund, the Custodian is authorized to hold Securities deposited
with it under this Agreement in the name of its registered nominee or nominees
(as defined in the Internal Revenue Code and any regulations of the United
States Treasury Department issued thereunder or in any provision of any
subsequent federal tax law exempting such transaction from liability for stock
transfer taxes) and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. The Custodian shall, if requested by the Fund, advise the
Fund of the certificate number of each certificate so presented for transfer and
that of the certificate received in exchange therefor, and shall use its best
efforts to the end that the specific Securities held by it hereunder shall be at
all times identifiable.
ARTICLE 11. TRANSFER TAXES AND OTHER DISBURSEMENTS
The Fund, for and on behalf of each Series, shall pay or reimburse the
Custodian for any transfer taxes payable upon transfers of Securities made
hereunder, including transfers incident to the termination of this Agreement,
and for all other necessary and proper disbursements and expenses made or
incurred by the Custodian in the performance or incident to the termination of
this Agreement, and the Custodian shall have a lien upon any cash or Securities
held by it for the account of each applicable Series of the Fund for all such
items, enforceable, after thirty days' written notice by registered mail from
the Custodian to the Fund, by the sale of sufficient Securities to satisfy such
lien. The Custodian may reimburse itself by deducting from the proceeds of any
sale of Securities an amount sufficient to pay any transfer taxes payable upon
the transfer of Securities sold. The Custodian shall execute such certificates
in connection with Securities delivered to it under this Agreement as may be
required, under the provisions of any federal revenue act and any regulations of
the Treasury Department issued thereunder or any state laws, to exempt from
taxation any transfers and/or deliveries of any such Securities as may qualify
for such exemption.
ARTICLE 12. CUSTODIAN'S LIABILITY FOR
PROCEEDS OF SECURITIES SOLD
If the mode of payment for Securities to be delivered by the Custodian is
not specified in the Written Order from the Fund directing such delivery, the
Custodian shall make delivery of such Securities against receipt by it of cash,
a postal money order or a check drawn by a bank, trust company or other banking
institution, or by a broker named in such Written Order from the Fund, for the
amount the Custodian is directed to receive. The Custodian shall be liable for
the proceeds of any delivery of Securities made pursuant to this Article, but
provided that it has complied with the provisions of this Article, only to the
extent that such proceeds are actually received.
ARTICLE 13. CUSTODIAN'S REPORT
The Custodian shall furnish the Fund, as of the close of business on the
last business day of each month, a statement showing all cash transactions and
entries for the account of each Series of the Fund. The books and records of the
Custodian pertaining to its actions as Custodian under this Agreement shall be
open to inspection and audit, at reasonable times, by officers of, and auditors
employed by, the Fund. The Custodian shall furnish the Fund with a list of the
Securities held by it in custody for the account of each Series of the Fund as
of the close of business on the last business day of each quarter of the Fund's
fiscal year.
ARTICLE 14. CUSTODIAN'S COMPENSATION
The Custodian shall be paid compensation at such rates and at such times as
may from time to time be agreed on in writing by the parties hereto (as set
forth with respect to each Series in EXHIBIT B hereto), and the Custodian shall
have a lien for unpaid compensation, to the date of termination of this
Agreement, upon any cash or Securities held by it for the Series accounts of the
Fund, enforceable in the manner specified in Article 11 hereof.
ARTICLE 15. DURATION, TERMINATION AND AMENDMENT OF AGREEMENT
This Agreement shall remain in effect with respect to each Series, as it
may from time to time be amended, until it shall have been terminated as
hereinafter provided, but no such amendment or termination shall affect or
impair any rights or liabilities arising out of any acts or omissions to act
occurring prior to such amendment or termination.
The Custodian may terminate this Agreement by giving the Fund ninety days'
written notice of such termination by registered mail addressed to the Fund at
its principal place of business.
The Fund may terminate this Agreement by giving ninety days' written notice
thereof delivered by registered mail to the Custodian at its principal place of
business. Additionally, this Agreement may be terminated with respect to any
Series of the Fund pursuant to the same procedures, in which case this Agreement
shall continue in full effect with respect to all other Series of the Fund.
Upon termination of this Agreement, the assets of the Fund, or Series
thereof, held by the Custodian shall be delivered by the Custodian to a
successor custodian upon receipt by the Custodian of a Written Order from the
Fund designating the successor custodian; and if no successor custodian is
designated in said Written Order from the Fund, the Custodian shall, upon such
termination, deliver all such assets to the Fund.
This Agreement may be amended or terminated at any time by the mutual
agreement of the Fund and the Custodian. Additionally, this Agreement may be
amended or terminated with respect to any Series of the Fund at any time by the
mutual agreement of the Fund and the Custodian, in which case such amendment or
termination would apply to such Series amending or terminating this Agreement
but not to the other Series of the Fund.
This Agreement may not be assigned by the Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
ARTICLE 16. SUCCESSOR CUSTODIAN
Any bank or trust company into which the Custodian or any successor
custodian may be merged or converted or with which it or any successor custodian
may be consolidated, or any bank or trust company resulting from any merger,
conversion or consolidation to which the Custodian or any successor custodian
shall be a party, or any bank or trust company succeeding to the business of the
Custodian, shall be and become the successor custodian without the execution of
any instrument or any further act on the part of the Fund or the Custodian or
any successor custodian.
Any successor custodian shall have all the power, duties and obligations of
the preceding custodian under this Agreement and any amendments thereof and
shall succeed to all the exemptions and privileges of the preceding custodian
under this Agreement and any amendments thereof.
ARTICLE 17. GENERAL
Nothing expressed or mentioned in or to be implied from any provisions of
this Agreement is intended to give or shall be construed to give any person or
corporation other than the parties hereto any legal or equitable right, remedy
or claim under or in respect of this Agreement or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be, and being, for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns.
It is the purpose and intention of the parties hereto that the Fund shall
retain all the power, rights and responsibilities of determining policy,
exercising discretion and making decisions with respect to the purchase, or
other acquisition, and the sale, or other disposition, of all of its Securities,
and that the duties and responsibilities of the Custodian hereunder shall be
limited to receiving and safeguarding the assets and Securities of each Series
of the Fund and to delivering or disposing of them pursuant to the Written Order
from the Fund as aforesaid, and the Custodian shall have no authority, duty or
responsibility for the investment policy of the Fund or for any acts of the Fund
in buying or otherwise acquiring, or in selling or otherwise disposing of, any
Securities, except as hereinbefore specifically set forth.
The Custodian shall in no case or event permit the withdrawal of any money
or Securities of the Fund upon the mere receipt of any director, officer,
employee or agent of the Fund, but shall hold such money and Securities for
disposition under the procedures herein set forth.
ARTICLE 18. STANDARD OF CARE; INDEMNIFICATION
In connection with the performance of its duties and responsibilities
hereunder, the Custodian (and each officer, employee, agent, sub-custodian and
depository of or engaged by the Custodian) shall at all times be held to the
standard of reasonable care. The Custodian shall be fully responsible for any
action taken or omitted by any officer, employee, agent, sub-custodian or
depository of or engaged by the Custodian to the same extent as if the Custodian
were to take or omit to take such action directly. The Custodian agrees to
indemnify and hold the Fund and each Series of the Fund harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the Custodian's own negligence, misfeasance, bad
faith or willful misconduct or that of any officer, employee, agent,
sub-custodian and depository of or engaged by the Custodian in the performance
of the Custodian's duties and obligations under this Agreement; PROVIDED,
HOWEVER, that, notwithstanding any other provision in this Agreement, the
Custodian shall not be responsible for the following:
(a) any action taken or omitted in accordance with any Written Order
from the Fund reasonably believed by the Custodian to be genuine and to be
signed by the proper party or parties; or
(b) any action taken or omitted in reasonable reliance on the advice
of counsel of or reasonably acceptable to the Fund relating to any of its
duties and responsibilities hereunder.
The Fund agrees to indemnify and hold the Custodian harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the performance by the Custodian (and each officer,
employee, agent, sub-custodian and depository of or engaged by the Custodian) of
its duties and responsibilities under this Agreement PROVIDED THAT the Custodian
(or any officer, employee, agent, sub-custodian or depository of or engaged by
the Custodian, as applicable) exercised reasonable care in the performance of
its duties and responsibilities under this Agreement.
ARTICLE 19. EFFECTIVE DATE
This Agreement shall become effective with respect to each Series that
adopts this Agreement when this Agreement shall have been approved with respect
to such Series by the Board of Directors of the Fund. The effective date with
respect to each Series shall be set forth on EXHIBIT A hereto. The Fund shall
transmit to the Custodian promptly after such approval by said Board of
Directors a copy of its resolution embodying such approval, certified by the
Secretary of the Fund.
ARTICLE 20. GOVERNING LAW
This Agreement is executed and delivered in Minneapolis, Minnesota, and the
laws of the State of Minnesota shall be controlling and shall govern the
construction, validity and effect of this contract.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement
to be executed in duplicate as of the date first above written by their duly
authorized officers.
ATTEST: VOYAGEUR MUTUAL FUNDS, INC.
/s/Theodore E. Jessen By/s/John C. Taft
- --------------------- -------------------------
Secretary John C. Taft
Its/s/President & CEO
----------------------
President & CEO
ATTEST: NORWEST BANK MINNESOTA, N.A.
/s/Sally J. Kirschman By/s/Brent Siegel
- --------------------- --------------------------
Trust Officer Brent Siegel
Its/s/Assistant Vice President
---------------------------
Assistant Vice President
EXHIBIT A
TO
CUSTODIAN AGREEMENT
BETWEEN
VOYAGEUR MUTUAL FUNDS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
NAME OF SERIES EFFECTIVE DATE
- -------------- --------------
Series B--Voyageur Iowa Tax Free Fund August 27, 1993
Series C--Voyageur Wisconsin Tax Free Fund August 27, 1993
Series E--Voyageur Idaho Tax Free Fund December 1, 1994
Series F--Voyageur Arizona Tax Free Fund March 1, 1995
Series G--Voyageur California Tax Free Fund March 1, 1995
Series H--Voyageur National Tax Free Fund March 1, 1995
Series I--Voyageur Minnesota High Yield
Municipal Bond Fund June 3, 1996
EXHIBIT B
TO
CUSTODIAN AGREEMENT
BETWEEN
VOYAGEUR MUTUAL FUNDS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
COMPENSATION SCHEDULE
NORWEST BANK MINNESOTA
CUSTODY FEE SCHEDULE
VOYAGEUR MUTUAL FUNDS
DOMESTIC FEE SCHEDULE
ISSUE CHARGE - ANNUALLY
All Issue Types.............................................$17.50
ASSET CHARGES - ANNUALLY
Bonds at Par Value.......................................$0.000065
Stocks at Market Value...................................$0.000065
TRANSACTION CHARGES
DTC Buy/Sell/Maturity.......................................$10.00
Fed Buy/Sell/Maturity.......................................$12.50
PTC Buy/Sell/Maturity.......................................$20.00
Principal Payments..........................................$10.00
Interest Payments........................................no charge
Cash Movements...............................................$3.00
Asset Transfers.............................................$15.00
Corporate Actions
(calls/reorg/split/tender)................................$23.00
Non-Trade Wires.............................................$10.00
Norwest ACCESS........................$10.00 per month/per account
EXTRAORDINARY SERVICES
For any service other than those covered by the aforementioned, a special charge
may be made according to the service provided, time required and responsibility
involved. Such services include, but are not limited to excessive administrative
time, unusual reports, certifications, audits, etc.
ADDITIONAL CHARGES
Reimbursement may be requested for out-of-pocket expenses such as postage,
insurance, shipping, telephone, supplies, etc.
This fee schedule shall remain effective subject to periodic review by all
concerned parties.
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made and entered into this 27th day of October 1994, by
and between Voyageur Mutual Funds, Inc., a Minnesota corporation (the
"Company"), on behalf of each Fund of the Company represented by a series of
shares of common stock of the Company that adopts this Agreement (each, a "Fund"
and, collectively, the "Funds") (the Funds, together with the date each Fund
adopts this Agreement, are set forth in EXHIBIT A hereto, which shall be updated
from time to time to reflect additions, deletions or other changes thereto), and
Voyageur Fund Managers, Inc., a Minnesota corporation ("Voyageur").
1. DIVIDEND DISBURSING, ADMINISTRATIVE, ACCOUNTING AND TRANSFER AGENCY
SERVICES; COMPLIANCE SERVICES.
(a) The Company on behalf of each Fund hereby engages Voyageur, and
Voyageur hereby agrees, to provide to each Fund all dividend disbursing,
administrative and accounting services required by each Fund, including, without
limitation, the following:
(i) The calculation of net asset value per share at such times and in
such manner as specified in each Fund's current Prospectus and Statement of
Additional Information and at such other times as the parties hereto may
from time to time agree upon;
(ii) Upon the receipt of funds for the purchase of Fund shares or the
receipt of redemption requests with respect to Fund shares outstanding, the
calculation of the number of shares to be purchased or redeemed,
respectively;
(iii) Upon the Fund's distribution of dividends, (A) the calculation
of the amount of such dividends to be received per Fund share, (B) the
calculation of the number of additional Fund shares to be received by each
Fund shareholder, other than any shareholder who has elected to receive
such dividends in cash and (C) the mailing of payments with respect to such
dividends to shareholders who have elected to receive such dividends in
cash;
(iv) The provision of transfer agency services as described below:
(1) Voyageur shall make original issues of shares of each Fund in
accordance with each Fund's current Prospectus and Statement of
Additional Information and with instructions from the Company.
(2) Prior to the daily determination of net asset value of each
Fund in accordance with the each Fund's current Prospectus and
Statement of Additional Information, Voyageur shall process all
purchase orders received since the last determination of each Fund's
net asset value.
(3) Transfers of shares shall be registered and new Fund share
certificates shall be issued by Voyageur upon surrender of properly
endorsed outstanding Fund share certificates with all necessary
signature guarantees and satisfactory evidence of compliance with all
applicable laws relating to the payment or collection of taxes.
(4) Voyageur may issue new Fund share certificates in place of
Fund share certificates represented to have been lost, destroyed or
stolen, upon receiving indemnity satisfactory to Voyageur and may
issue new Fund share certificates in exchange for, and upon surrender
of, mutilated Fund share certificates.
(5) Voyageur will maintain stock registry records in the usual
form in which it will note the issuance, transfer and redemption of
Fund shares and the issuance and transfer of Fund share certificates,
and is also authorized to maintain an account in which it will record
the Fund shares and fractions issued and outstanding from time to time
for which issuance of Fund share certificates is deferred.
(6) Voyageur will, in addition to the duties and functions
above-mentioned, perform the usual duties and functions of a stock
transfer agent for a registered investment company.
(v) The creation and maintenance of such records relating to the
business of each Fund as each Fund may from time to time reasonably
request;
(vi) The preparation of tax forms, reports, notices, proxy statements,
proxies and other Fund shareholder communications, and the mailing thereof
to Fund shareholders; and
(vii) The provision of such other dividend disbursing, administrative
and accounting services as the parties hereto may from time to time agree
upon.
(b) The Company also hereby engages Voyageur to perform, and Voyageur
hereby agrees to perform, such regulatory reporting and compliance related
services and tasks for the Company or any Fund as the Company may reasonably
request. Without limiting the generality of the foregoing, Voyageur shall:
(i) Prepare or assist in the preparation of prospectuses, statements
of additional information and registration statements for the Funds, and
assure the timely filing of all required amendments thereto.
(ii) Prepare such reports, applications and documents as may be
necessary to register the Funds' shares with state securities authorities;
monitor sales of Fund shares for compliance with state securities laws; and
file with the appropriate state securities authorities the registration
statement for each Fund and all amendments thereto, required reports
regarding sales and redemptions of Fund shares and such other reports as
may be necessary to register each Fund and its shares with state securities
authorities and keep such registrations effective.
(iii) Develop and prepare communications to shareholders, including
each Fund's annual and semi-annual report to shareholders.
(iv) Obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Funds in
accordance with the requirements of Rules 17g-1 and 17d-1(7) under the
Investment Company Act of 1940 as such bonds and policies are approved by
the Funds' Board of Directors.
(v) Prepare and file with the Securities and Exchange Commission each
Fund's semi-annual reports on Form N-SAR and all required notices pursuant
to Rule 24f-2 under the Investment Company Act of 1940.
(vi) Prepare materials (including, but not limited to, agendas,
proposed resolutions and supporting materials) in connection with meetings
of the Company's Board of Directors;
(vii) Prepare or assist in the preparation of proxy and other
materials in connection with meetings of the shareholders of the Company or
any Fund;
(viii) Prepare and file tax returns for the Funds;
(ix) Concur with Fund counsel in connection with the development and
preparation of any of the foregoing; and
(x) Perform such other compliance related services and tasks upon
which the parties hereto may from time to time agree.
(c) Voyageur hereby acknowledges that all records necessary in the
operation of the Fund are the property of the Company, and in the event that a
transfer of any of the responsibilities set forth herein to someone other than
Voyageur should ever occur, Voyageur will promptly, and at its own cost, take
all steps necessary to segregate such records and deliver them to the Company.
2. COMPENSATION
(a) As compensation for the dividend disbursing, administrative, accounting
and compliance services to be provided by Voyageur hereunder, each Fund shall
pay to Voyageur a monthly fee as set forth in EXHIBIT A hereto, which fee shall
be paid to Voyageur not later than the fifth business day following the end of
each month in which said services were rendered. For purposes of calculating
each Fund's average daily net assets, as such term is used in this Agreement,
the Fund's net assets shall equal its total assets minus (i) its total
liabilities and (ii) its net orders receivable from dealers.
(b) In addition to the compensation provided for in Section 2(a) hereof and
as set forth in EXHIBIT A hereto, each Fund shall reimburse Voyageur for all
out-of-pocket expenses incurred by Voyageur in connection with its provision of
services hereunder, including, without limitation, postage, stationery and
mailing expenses. Said reimbursement shall be paid to Voyageur not later than
the fifth business day following the end of each month in which said expenses
were incurred.
(c) For purposes of calculating the compensation to be paid to Voyageur
pursuant to Section 2(a) above, "house accounts" with brokerage firms which hold
shares in a Fund will be treated as separate accounts for fee calculation
purposes (based upon the number of shareholder accounts within the "house
account"), where Voyageur's work in connection with servicing such house
accounts is substantially the same as if such accounts did not exist, and
Voyageur had to directly service the shareholder accounts underlying such house
accounts.
3. FREEDOM TO DEAL WITH THIRD PARTIES.
Voyageur shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
4. EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF AGREEMENT.
(a) The effective date of this Agreement with respect to each Fund shall be
the date set forth on EXHIBIT A hereto.
(b) Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect with respect to each Fund for a period more than two years
from the date of its execution but only as long as such continuance is
specifically approved at least annually by (i) the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
applicable Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons", as
defined in the Investment Company Act of 1940 (as amended, the "Act"), of the
Adviser or of the Company cast in person at a meeting called for the purpose of
voting on such approval.
(c) This Agreement may be terminated with respect to any Fund at any time,
without the payment of any penalty, by the Board of Directors of the Company or
by the vote of a majority of the outstanding voting securities of such Fund, or
by Voyageur, upon 60 days' written notice to the other party.
(d) This agreement shall terminate automatically in the event of its
"assignment" (as defined in the Act) unless such assignment is approved in
advance by the Board of Directors, including a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of the Adviser or of the Company, and, if and to the extent
required by the Act, the approval of the shareholders of each Fund.
(e) No amendment to this Agreement shall be effective with respect to any
Fund until approved by the vote of a majority of the directors of the Company
who are not parties to this Agreement or "interested persons" (as defined in the
Act) of the Adviser or of the Company cast in person at a meeting called for the
purpose of voting on such approval and, if and to the extent required by the
Act, a majority of the outstanding voting securities of the applicable Fund.
5. NOTICES.
Any notice under this Agreement shall be in writing, addressed, delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate in writing for receipt of such notice.
6. INTERPRETATION; GOVERNING LAW.
This Agreement shall be subject to and interpreted in accordance with all
applicable provisions of law including, but not limited to, the Act and the
rules and regulations promulgated thereunder. To the extent that the provisions
herein contained conflict with any such applicable provisions of law, the latter
shall control. The laws of the State of Minnesota shall otherwise govern the
construction, validity and effect of this Agreement.
IN WITNESS WHEREOF, the Company and Voyageur have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
VOYAGEUR MUTUAL FUNDS, INC.
By/s/John G. Taft
--------------------------
John G. Taft
Its/s/President
-------------------------
President
VOYAGEUR FUND MANAGERS, INC.
By/s/John G. Taft
--------------------------
John G. Taft
Its/s/President
-------------------------
President
EXHIBIT A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
VOYAGEUR FUND MANAGERS, INC.
AND
VOYAGEUR MUTUAL FUNDS, INC.
FUND EFFECTIVE DATE
Series B--Voyageur Iowa Tax Free Fund October 27, 1994
Series C--Voyageur Wisconsin Tax Free Fund October 27, 1994
Series E--Voyageur Idaho Tax Free Fund December 1, 1994
Series F--Voyageur Arizona Tax Free Fund March 1, 1995
Series G--Voyageur California Tax Free Fund March 1, 1995
Series H--Voyageur National Tax Free Fund March 1, 1995
Series I--Voyageur Minnesota High Yield Municipal June 3, 1996
Bond Fund
COMPENSATION
SERIES B, SERIES C AND SERIES E
The sum of (i) $1.33 per shareholder account per month; (ii) $1,000 per month if
the Fund's average daily net assets do not exceed $50 million, $1,250 per month
if the Fund"s average daily net assets are greater than $50 million but do not
exceed $100 million, and $1,500 per month if the Fund's average daily net assets
are greater than $100 million; and (iii) 0.11% per annum of the first $20
million of the Fund's average daily net assets, .06% per annum of the next $20
million of the Fund's average daily net assets, .035% per annum of the next $60
million of the Fund's average daily net assets, .03% per annum of the next $400
million of the Fund's average daily net assets, and .02% per annum of the Fund's
average daily net assets in excess of $500 million. **
SERIES F, SERIES G, SERIES H AND SERIES I
The sum of (i) $1.33 per shareholder account per month; (ii) $1,000 per month if
the Fund's average daily net assets do not exceed $50 million, $1,250 per month
if the Fund"s average daily net assets are greater than $50 million but do not
exceed $100 million, and $1,500 per month if the Fund's average daily net assets
are greater than $100 million; and (iii) 0.11% per annum of the first $50
million of the Fund's average daily net assets, .06% per annum of the next $100
million of the Fund's average daily net assets, .035% per annum of the next $250
million of the Fund's average daily net assets, .03% per annum of the next $300
million of the Fund's average daily net assets, and .02% per annum of the Fund's
average daily net assets in excess of $700 million. **
** Voyageur shall reimburse each Fund, in an amount not in excess of the
advisory and management fee payable under the Investment Advisory Agreement and
the administrative services fee payable hereunder, if, and to the extent that,
the aggregate operating expenses of the Fund (including the advisory and
management fee, the administrative services fee and deferred organizational
costs, but excluding Rule 12b-1 fees, interest expense, taxes, brokerage fees
and commissions and extraordinary charges and expenses) are in excess of 1.00%
of the average daily net assets of the Fund on an annual basis (the "Expense
Limit"). Voyageur shall first reimburse the Fund the advisory and management fee
payable and then, to the extent necessary to reduce the Fund's expenses to the
Expense Limit, shall reimburse the administrative services fee payable
hereunder.
DORSEY & WHITNEY LLP
Attorneys at Law
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
May 29, 1996
Voyageur Mutual Funds, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
We have acted as counsel to Voyageur Mutual Funds, Inc., a Minnesota
corporation (the "Fund"), in connection with a Registration Statement on Form
N-1A (File No. 33-63238) (the "Registration Statement") relating to the sale by
the Fund of an indefinite number of Class A, Class B and Class C shares of the
Fund's Series I common stock, each with a par value of $.01 per share
(collectively, the "Shares").
We have examined such documents and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Fund, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefore as described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Counsel" on the back cover of the Prospectus constituting part of the
Registration Statement.
Dated: May 24, 1996
Very truly yours,
KLP
VOYAGEUR MUTUAL FUNDS, INC.
PLAN OF DISTRIBUTION
This Plan of Distribution (the "Plan") is adopted pursuant to Rule 12b-1
(the "Rule") under the Investment Company Act of 1940 (as amended, the "1940
Act") by Voyageur Mutual Funds, Inc., a Minnesota corporation (the "Company"),
for and on behalf of each series (each series is referred to hereinafter as a
"Fund") and, if applicable, each class thereof (each such class is referred to
hereinafter as a "Class"). The Funds and, if applicable, Classes thereof that
currently have adopted this Plan, and the effective dates of such adoptions, are
as follow:
<TABLE>
<CAPTION>
<S> <C>
Voyageur Iowa Tax Free Fund, Class A November 1, 1993
Voyageur Iowa Tax Free Fund, Class B March 1, 1995
Voyageur Iowa Tax Free Fund, Class C December 1, 1994
Voyageur Wisconsin Tax Free Fund, Class A November 1, 1993
Voyageur Wisconsin Tax Free Fund, Class B March 1, 1995
Voyageur Wisconsin Tax Free Fund, Class C December 1, 1994
Voyageur Idaho Tax Free Fund, Class A December 1, 1994
Voyageur Idaho Tax Free Fund, Class B March 1, 1995
Voyageur Idaho Tax Free Fund, Class C December 1, 1994
Voyageur Arizona Tax Free Fund, Class A March 1, 1995
Voyageur Arizona Tax Free Fund, Class B March 1, 1995
Voyageur Arizona Tax Free Fund, Class C March 1, 1995
Voyageur California Tax Free Fund, Class A March 1, 1995
Voyageur California Tax Free Fund, Class B March 1, 1995
Voyageur California Tax Free Fund, Class C March 1, 1995
Voyageur National Tax Free Fund, Class A March 1, 1995
Voyageur National Tax Free Fund, Class B March 1, 1995
Voyageur National Tax Free Fund, Class C March 1, 1995
Voyageur Minnesota High Yield Municipal Bond Fund, Class A June 3, 1996
Voyageur Minnesota High Yield Municipal Bond Fund, Class B June 3, 1996
Voyageur Minnesota High Yield Municipal Bond Fund, Class C June 3, 1996
</TABLE>
1. COMPENSATION
Class A of each Fund offering shares of such Class is obligated to pay the
Underwriter a total fee in connection with the servicing of shareholder accounts
of such Class and in connection with distribution-related services provided in
respect of such Class, calculated and payable quarterly, at the annual rate of
.25% of the value of the average daily net assets of such Class. All or any
portion of such total fee may be payable as a Shareholder Servicing Fee, and all
or any portion of such total fee may be payable as a Distribution Fee, as
determined from time to time by the Company's Board of Directors. Until further
action by the Board of Directors, all of such fee shall be designated and
payable as a Shareholder Servicing Fee.
Class B of each Fund offering shares of such Class is obligated to pay the
Underwriter a total fee in connection with the servicing of shareholder accounts
of such Class and in connection with distribution-related services provided in
respect of such Class, calculated and payable quarterly, at the annual rate of
1.00% of the value of the average daily net assets of such Class. All or any
portion of such total fee may be payable as a Shareholder Servicing Fee, and all
or any portion of such total fee may be payable as a Distribution Fee, as
determined from time to time by the Trust's Board of Trustees. Until further
action by the Board of Trustees, a portion of such total fee equal to .25% per
annum of Class B's average net assets shall be designated and payable as a
Shareholder Servicing Fee and the remainder of such fee shall be designated as a
Distribution Fee.
Class C each Fund offering shares of such Class is obligated to pay the
Underwriter a total fee in connection with the servicing of shareholder accounts
of such Class and in connection with distribution-related services provided in
respect of such Class, calculated and payable quarterly, at the annual rate of
1.00% of the value of the average daily net assets of such Class. All or any
portion of such total fee may be payable as a Shareholder Servicing Fee, and all
or any portion of such total fee may be payable as a Distribution Fee, as
determined from time to time by the Company's Board of Directors. Until further
action by the Board of Directors, a portion of such total fee equal to .25% per
annum of the average daily net assets of such Class shall be designated and
payable as a Shareholder Servicing Fee and the remainder of such fee shall be
designated as a Distribution Fee.
2. EXPENSES COVERED BY THE PLAN
(a) The Shareholder Servicing Fee may be used by the Underwriter to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts.
Compensation may be paid by the Underwriter to persons, including employees of
the Underwriter, and institutions who respond to inquiries of Fund shareholders
regarding their ownership of shares or their accounts with the Company or who
provide other administrative or accounting services not otherwise required to be
provided by the Company's investment adviser, transfer agent or other agent of
the Company.
(b) The Distribution Fee may be used by the Underwriter to provide initial
and ongoing sales compensation to its investment executives and to other
broker-dealers in respect of sales of Fund shares and to pay for other
advertising and promotional expenses in connection with the distribution of Fund
shares. These advertising and promotional expenses include, by way of example
but not by way of limitation, costs of printing and mailing prospectuses,
statements of additional information and shareholder reports to prospective
investors; preparation and distribution of sales literature; advertising of any
type; an allocation of overhead and other expenses of the Underwriter related to
the distribution of Fund shares; and payments to, and expenses of, officers,
employees or representatives of the Underwriter, of other broker-dealers, banks
or other financial institutions, and of any other persons who provide support
services in connection with the distribution of Fund shares, including travel,
entertainment, and telephone expenses.
(c) Payments under the Plan are not tied exclusively to the expenses for
shareholder servicing and distribution related activities actually incurred by
the Underwriter, so that such payments may exceed expenses actually incurred by
the Underwriter. The Company's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so will consider all relevant factors, including expenses borne by the
Underwriter and amounts it receives under the Plan.
3. ADDITIONAL PAYMENTS BY ADVISER AND THE UNDERWRITER
The Company's investment adviser and the Underwriter may, at their option
and in their sole discretion, make payments from their own resources to cover
the costs of additional distribution and shareholder servicing activities.
4. APPROVAL BY SHAREHOLDERS
The Plan will not take effect with respect to any Class of a Fund offering
multiple classes of shares or, if a Fund offers only one class of shares, with
respect to such Fund, and no fee will be payable in accordance with Section 1 of
the Plan, until the Plan has been approved by a vote of at least a majority of
the outstanding voting securities of such Class or Fund.
5. APPROVAL BY DIRECTORS
Neither the Plan nor any related agreements will take effect until approved
by a majority vote of both (a) the full Board of Directors of the Company and
(b) those Directors who are not interested persons of the Company and who have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related agreements.
6. CONTINUANCE OF THE PLAN
The Plan will continue in effect from year to year so long as its
continuance is specifically approved annually by vote of the Company's Board of
Directors in the manner described in Section 5 above.
7. TERMINATION
The Plan may be terminated at any time with respect to any Fund or, if
applicable, Class thereof, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of such Fund or Class.
8. AMENDMENTS
The Plan may not be amended with respect to any Fund or, if applicable,
Class thereof, to increase materially the amount of the fees payable pursuant to
the Plan, as described in Section 1 above, unless the amendment is approved by a
vote of at least a majority of the outstanding voting securities of that Fund or
Class (and, if applicable, of any other affected Class or Classes), and all
material amendments to the Plan must also be approved by the Company's Board of
Directors in the manner described in Section 5 above.
9. SELECTION OF CERTAIN DIRECTORS
While the Plan is in effect, the selection and nomination of the Company's
Directors who are not interested persons of the Company will be committed to the
discretion of the Directors then in office who are not interested persons of the
Company.
10. WRITTEN REPORTS
In each year during which the Plan remains in effect, the Underwriter and
any person authorized to direct the disposition of monies paid or payable by the
Company pursuant to the Plan or any related agreement will prepare and furnish
to the Company's Board of Directors, and the Board will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under the Plan, on a Class by Class basis if
applicable, and the purposes for which those expenditures were made.
11. PRESERVATION OF MATERIALS
The Company will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 10 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement or report.
12. MEANING OF CERTAIN TERMS
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Company under the 1940
Act by the Securities and Exchange Commission.
