<PAGE>
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
[GRAPHIC OMITTED]
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Voyageur National High Yield Municipal Bond Fund
Voyageur Funds (Not part of prospectus); dated May 1, 1997
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Table of Contents
3 Fees and Expenses
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5 Financial Highlights
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6 The Fund
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6 Investment Objective and Policies
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15 Risks and Special Investment Considerations
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18 Investment Restrictions
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18 How to Purchase Shares
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23 How to Sell Shares
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26 Reinstatement Privilege
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26 Exchange Privilege
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27 Management
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29 Determination of Net Asset Value
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30 Distributions to Shareholders and Taxes
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31 Investment Performance
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31 General Information
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Voyageur Funds (Not part of prospectus); dated May 1, 1997
<PAGE>
Prospectus
Dated May 1, 1997
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Voyageur National 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 primarily through
investment in a portfolio of medium- and lower-grade Municipal Obligations. 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 Services 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 Delaware Management Company, Inc. (the
"Adviser"). The address of the Adviser is One Commerce Square, 2005 Market
Street, Philadelphia, Pennsylvania 19103, and the Fund's address is 1818 Market
Street, Philadelphia, Pennsylvania 19103.
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 April 28, 1997) with the Securities and Exchange
Commission. The Statement of Additional Information is available free of charge
by telephone (800-523-1918) and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
1 Voyageur Funds (Prospectus)
<PAGE>
The Fund offers investors a choice among classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.
Class A Shares
An investor who purchases Class A shares pays a sales charge at the time of
purchase. As a result, Class A shares are not subject to any charges when they
are redeemed (except for sales at net asset value in excess of $1 million which
are subject to a contingent deferred sales charge). The initial sales charge may
be reduced or waived for certain purchases. Class A shares are subject to a Rule
12b-1 fee payable at an annual rate of .25% of the Fund's average daily net
assets attributable to Class A shares. See "How to Purchase Shares--Class A
Shares."
Class B Shares
Class B shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5% if redeemed within six years of
purchase. Class B shares are also subject to a higher Rule 12b-1 fee than Class
A shares. The Rule 12b-1 fee for Class B shares will be paid at an annual rate
of 1% of the Fund's average daily net assets attributable to Class B shares.
Class B shares will automatically convert to Class A shares at net asset value
approximately eight years after purchase. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made but until conversion will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares--Class B Shares."
Class C Shares
Class C shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of 1% if redeemed within one year of purchase.
Class C shares are also subject to a higher Rule 12b-1 fee than Class A shares.
The Rule 12b-1 fee for Class C shares of the Fund will be paid at an annual rate
of 1% of the Fund's average daily net assets attributable to Class C shares.
Class C shares provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made, but will have a higher
expense ratio and pay lower dividends than Class A shares due to the higher Rule
12b-1 fee. See "How to Purchase Shares--Class C Shares." Class C shares do not
convert to any other class of shares.
Investors making investments that qualify for reduced sales charges
might consider Class A shares. Other investors might consider Class B or Class C
shares because all of the purchase price is invested immediately. Orders for
Class B shares for $250,000 or more will be treated as orders for Class A shares
or such orders will be declined. Sales personnel may receive different
compensation depending on which class of shares they sell.
Shares of the Fund are not registered in all states. Shares that are not
registered in one or more states are not being offered and sold in such states.
2 Voyageur Funds (Prospectus)
<PAGE>
Fees and Expenses
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<TABLE>
<CAPTION>
National 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/A(2) N/A(2)
Maximum Deferred Sales Load
(as a percentage of original purchase price
or redemption proceeds, as applicable) 1.00(1) 5.00% 1.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee
(after voluntary fee waiver)(3) .36 .36 .36
Rule 12b-1 Fees .21 1.00 1.00
Other Expenses .30 .30 .30
------- ------- -----
Total Fund Operating Expenses
(after voluntary fee waivers and expense reimbursements) .87% 1.66% 1.66%
====== ===== =====
Total Fund Operating Expenses
(without voluntary fee waivers
and expense reimbursement)(3) 1.07% 1.66% 1.80%
===== ===== =====
Example
An investor in the Fund would pay the following expenses on a $1,000 investment
assuming a 5% annual return and:
Redemption at the end of each period
1 Year $46 $65 $27
3 Years 64 86 52
5 Years 84 99 90
10 Years 141 158 197
No redemption
1 Year $46 $15 $17
3 Years 64 46 52
5 Years 84 79 90
10 Years 141 150 197
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</TABLE>
1 A contingent deferred sales charge of 1% is imposed on certain redemptions
of Class A shares that were purchased without an initial sales charge as
part of an investment of $1 million or more. See "How to Purchase
Shares--Class A Shares."
2 Class B and Class C shares are sold without a front-end sales charge, but
their Rule 12b-1 fees may cause long term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales charges.
3 The Fund's management fee without voluntary fee waivers would have been 0.65%.
3 Voyageur Funds (Prospectus)
<PAGE>
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. The information set forth above under the heading "Total Fund
Operating Expenses (after voluntary fee waivers and expense reimbursements)"
reflects expenses incurred during the period ended December 31, 1996, after
voluntary fee waivers and expense reimbursements ("Voluntary Waivers"). In
connection with a merger transaction whereby Voyageur became a subsidiary of
Delaware Management Holdings, Inc., Voyageur and its new parent companies have
agreed, until April 30, 1999, to pay certain operating expenses of the Fund
which exceed 1% (excluding Rule 12b-1 fees) of the Fund's average daily net
assets on an annual basis ("Additional Waivers"), as further described in
"Management - Expenses of the Fund." It is not anticipated that the Additional
Waivers will be required during the fiscal year ending December 31, 1997. Absent
Voluntary Waivers, Total Fund Operating Expenses for such period would be
equivalent to the corresponding percentages disclosed above in "Total Fund
Operating Expenses (without voluntary fee waivers and expense reimbursement)."
The example has been calculated based on "Total Fund Operating Expenses (after
voluntary fee waiver and expense reimbursements)." To the extent that there are
any voluntary fee waivers or expense reimbursements for the Fund's current
fiscal year, under no circumstances will the Fund's total operating expenses be
higher than what appears in the line labeled "Total Operating Expenses (without
voluntary fee waivers and expense reimbursements)."
4 Voyageur Funds (Prospectus)
<PAGE>
Financial Highlights
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The following financial highlights show certain per share data for Class A
Shares and selected information for a share of capital stock of Class A shares
outstanding during the indicated periods for the Fund. This information has been
audited by KPMG Peat Marwick LLP, independent auditors, and should be read in
conjunction with the financial statements of the Fund contained in its annual
report. An annual report of the Fund is available without charge by contacting
the Fund at 1-800-523-4640 toll free. In addition to financial statements, the
Fund's annual and semi-annual reports contain further information about
performance. Per share data is not presented for all classes since not all
classes of shares were outstanding during the periods presented below.
Effective with the close of business on November 8, 1996, the Fund
acquired the assets and assumed all identified liabilities of Great Hall
National Tax-Exempt Fund, in a tax-free exchange by issuing new shares. The Fund
had no assets or liabilities prior to the acquisition. Consequently, the
information presented for the Fund represents the financial history of Great
Hall National Tax-Exempt Fund.
<TABLE>
<CAPTION>
Class A
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Year Ended July 31,
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Period
from
Aug 1,
to
Dec 31,
1996(7) 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begining of year $10.19 $10.17 $10.17 $10.50 $10.22 $9.65
------- ------- ------- ------- ------- -------
Operations:
Net investment income 0.260 0.625 0.648 0.624 0.652 0.703
Realized and unrealized gains
(losses) on investments, net 0.210 0.148 0.045 (0.313) 0.280 0.570
------- ------- ------- ------- ------- -------
Total from operations 0.470 0.773 0.693 0.311 0.932 1.273
------- ------- ------- ------- ------- -------
Distributions to shareholders:
From investment income (0.260) (0.625) (0.648) (0.624) (0.652) (0.703)
From net realized gains -- (0.128) (0.045) (0.017) -- --
------- ------- ------- ------- ------- -------
Net asset value, end of year $10.40 $10.19 $10.17 $10.17 $10.50 $10.22
======= ======= ======= ======= ======= =======
Total return(3) 4.52% 7.78% 7.16% 2.99% 9.45% 13.84%
Net assets at end of
year (000s omitted) $59,105 $63,460 $66,357 $72,172 $58,048 $43,166
Ratio of expenses to average
daily net assets(2),(6) 0.87%(4) 0.85% 0.79% 0.91% 1.01% 0.84%
Ratio of net investment income
to average daily net assets(2) 6.06%(4) 6.10% 6.45% 5.98% 6.32% 7.15%
Portfolio turnover rate 7.51% 0.00% 8.45% 27.88% 16.36% 14.50%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A
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Year Ended July 31,
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Class B
1991 1990 1989 1988 1987(1) 1996(5)
----- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begining of year $9.63 $9.68 $9.25 $9.31 $9.60 $10.37
------ ------ ------ ------ ------ -------
Operations:
Net investment income 0.697 0.669 0.692 0.714 0.653 0.010
Realized and unrealized gains
(losses) on investments, net 0.020 (0.050) 0.430 (0.060) (0.290) 0.030
------ ------ ------ ------ ------ -------
Total from operations 0.717 0.619 1.122 0.654 0.363 0.040
------ ------ ------ ------ ------ -------
Distributions to shareholders:
From investment income (0.697) (0.669) (0.692) (0.714) (0.653) (0.01)
From net realized gains -- -- -- -- -- --
------ ------ ------ ------ ------ -------
Net asset value, end of year $9.65 $9.63 $9.68 $9.25 $9.31 $10.40
====== ====== ====== ====== ====== =======
Total return(3) 7.76% 6.69% 12.55% 7.35% 3.66% 0.43%
Net assets at end of
year (000s omitted) $46,812 $36,439 $34,519 $23,190 $16,833 $88
Ratio of expenses to average
daily net assets(2),(6) 0.96% 1.23% 1.02% 0.68% 0.26%(4) 1.45(4)
Ratio of net investment income
to average daily net assets(2) 7.26% 6.99% 7.36% 7.71% 6.76%(4) 4.65%(4)
Portfolio turnover rate 13.52% 33.49% 15.76% 20.40% 11.33% 7.51%
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</TABLE>
1 For the period September 22, 1986 (commencement of operation of the
Fund) through July 31, 1987.
2 Various Fund fees and expenses were voluntarily waived or absorbed
during the periods referred to above. Had the Fund paid all expenses,
the Class A ratios of expenses and net investment income to average
daily net assets would have been 1.07%/5.86% for the period ended
December 31, 1996, and for periods ended July 31, as follows:
0.96%/5.99% in 1996, 0.90%/6.34% in 1995, 1.01%/5.88% in 1994,
1.24%/6.09% in 1993, 1.14%/6.85% in 1992, 1.26%/6.96% in 1991,
1.23%/6.99% in 1990, 1.20%/7.18% in 1989, 1.21%/7.18% in 1988 and
1.06%/5.96% in 1987. For Class B these ratios would have been
1.66%/4.44% for the period ended December 31, 1997.
3 Total return does not reflect payment of a sales charge.
4 Annualized.
5 For the period December 18, 1996 (commencement of operations) through
December 31,1996.
6 Beginning in the year ended December 31, 1996, the expense ratio
reflects the effect of gross expenses attributable to earnings credits
on uninvested cash balances received by the Fund.
7 On November 6, 1996, the Fund's shareholders approved a change of
investment adviser from I.F.G. Asset Management Services, Inc. to
Voyageur Fund Managers, Inc.
5 Voyageur Funds (Prospectus)
<PAGE>
The Fund
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The Fund is a separate series of Voyageur Mutual Funds, Inc., the parent
corporate entity, which was incorporated in the State of Minnesota on April 14,
1993. The Fund is non-diversified, as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). As a non-diversified
investment company, the Fund will be able to invest, subject to certain federal
tax requirements, a relatively higher percentage of its assets in the securities
of a limited number of issuers which may result in the Fund's securities being
more susceptible to any single economic, political or regulatory occurrence than
the securities of a diversified Fund. The investment objective and policies of
the Fund are described below.
Investment Objective and Policies
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The investment objective of the Fund is to seek a high level of current income
exempt from federal income tax primarily through investment in a portfolio of
medium- and lower-grade Municipal Obligations. The Fund will attempt to invest
100% (and as a matter of fundamental policy during normal circumstances will
invest at least 80%) of the value of its net assets in Municipal Obligations the
interest on which is exempt from regular federal income tax. The Fund may invest
without limit in securities that generate interest that is an item of tax
preference for purposes of federal alternative minimum tax ("AMT"). In normal
circumstances the weighted average maturity of the investment portfolio of the
Fund is expected to be approximately 15 to 25 years. However, if 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.
In normal market or economic situations, the Fund will invest at least 65% of
its total assets in medium-and lower-grade Municipal Obligations rated, at the
time of investment, between BBB and B- (inclusive) by Standard & Poor's Ratings
Services ("S&P"), Baa and B3 (inclusive) by Moody's Investors Service, Inc.
("Moody's"), or BBB and B- (inclusive) by Fitch Investors Service LP ("Fitch"),
or Municipal Obligations determined by the Adviser 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.
6 Voyageur Funds (Prospectus)
<PAGE>
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, or in
municipal securities determined by the Adviser 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 the Adviser 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 alternative
minimum tax and, accordingly, a portion of the income produced by the Fund may
be taxable under the federal alternative minimum tax. The Fund may not be a
suitable investment for investors who are already subject to the alternative
minimum tax or who would become subject to the alternative minimum tax as a
result of an investment in the Fund. See "Taxation."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Moody's Rating Aaa Aa A Baa Ba B Unrated
(S&P Rating) (AAA) (AA) (A) (BBB) (BB) (B) Bonds Total
Voyageur National High Yield
Municipal Bond Fund 0% 2% 2% 5% 6% -- 85% 100%
</TABLE>
At times the Adviser 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 the Adviser 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. The
Adviser 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,
7 Voyageur Funds (Prospectus)
<PAGE>
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,
the Adviser will
8 Voyageur Funds (Prospectus)
<PAGE>
consider factors including, but not limited to (a) whether the lease can be
canceled, (b) what assurance there is that the assets represented by the lease
can be sold, (c) the municipality's general credit strength (e.g., its debt,
administrative, economic and financial characteristics), and the likelihood that
the municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of non-appropriation"), and (e)
the legal recourse in the event of failure to appropriate. Additionally, the
lack of an established trading market for municipal lease obligations may make
the determination of fair market value more difficult. See "Investment Policies
and Restrictions--Municipal Obligations" in the Statement of Additional
Information.
The Fund may also acquire Derivative Municipal Obligations, which are
custodial receipts or trust certificates ("custodial receipts") underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain Municipal Obligations. The underwriter of
these certificates or receipts typically purchases and deposits the securities
in an irrevocable trust or custodial account with a custodian bank, which then
issues receipts or certificates that evidence ownership of the periodic
unmatured coupon payments and the final principal payment on the obligations.
Although under the terms of a custodial receipt or trust certificate, the Fund
may 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 or trust certificates may be allocated
in a number of ways. For example, payments may be allocated such that certain
custodial receipts or trust certificates may have variable or floating interest
rates and others may be stripped securities which pay only the principal or
interest due on the underlying Municipal Obligations. The Fund may also invest
in custodial receipts or trust certificates which are "inverse floating
obligations" (also sometimes referred to as "residual interest bonds"). These
securities pay interest rates that vary inversely to changes in the interest
rates of specified short term 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
9 Voyageur Funds (Prospectus)
<PAGE>
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 the Adviser 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 the Adviser subject to the oversight of and pursuant to procedures adopted by
the Fund's Board of Directors. See "Investment Policies and
Restrictions--Illiquid Investments" in the Statement of Additional Information.
Miscellaneous Investment Practices
Forward Commitments
New issues of 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 liquid
securities 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 Adviser deems it
appropriate to do so. The Fund may realize short-term profits or losses upon the
sale of forward commitments.
10 Voyageur Funds (Prospectus)
<PAGE>
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, or liquid securities 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. The Adviser 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
11 Voyageur Funds (Prospectus)
<PAGE>
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 the Adviser 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 the Adviser's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include a dependence on the Adviser's
ability to predict correctly movements in the direction of interest rates and
security prices; (b) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (c) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (d) the possible absence of a liquid secondary market for
any particular instrument at any time; and (e) the possible need to defer
closing out certain
12 Voyageur Funds (Prospectus)
<PAGE>
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 the
Adviser's experience with respect to such instruments and usually depends upon
the Adviser'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 or liquid 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,
13 Voyageur Funds (Prospectus)
<PAGE>
see "Investment Policies and Restrictions--Concentration Policy" in the
Statement of Additional Information.
The Fund's Board may change any of the foregoing policies that are not
specifically designated fundamental.
Risks and Special Investment Considerations
- --------------------------------------------------------------------------------
General
The yields on 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 Risks 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 Obligations in the
Fund's portfolio and thus in the net asset value
14 Voyageur Funds (Prospectus)
<PAGE>
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. The Adviser has
contracted with Muller Data Corporation as pricing agent and the Adviser 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.
The Adviser seeks to minimize the risks involved in investing in
medium- and lower-grade Municipal Obligations through multiple portfolio
holdings, careful
15 Voyageur Funds (Prospectus)
<PAGE>
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Fund will rely on the Adviser's
judgment, analysis and experience in evaluating the creditworthiness of an
issue. In its analysis, the Adviser 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. The Adviser 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, the Adviser monitors the issuers of
Municipal Obligations held in the Fund's portfolio on an ongoing basis.
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 the Adviser
than is the case for an investment company which invests primarily in exchange
listed higher-grade securities.
Investment Restrictions
- --------------------------------------------------------------------------------
The Fund has adopted certain investment restrictions in addition to those set
forth above, which are set forth in their entirety in the Statement of
Additional Information. Certain of these restrictions are fundamental and cannot
be changed without shareholder approval, including the restriction providing
that the Fund may not borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of its total assets (the
Fund may also borrow money in the form of reverse repurchase agreements up to
10% of total assets). See "Investment Policies and Restrictions--Investment
Restrictions" in the Statement of Additional Information.
The Fund also has a number of non-fundamental investment restrictions
which may be changed by the Fund's Board without shareholder approval. These
include restrictions providing that the Fund may not (a) invest more than 5% of
its total assets in securities of any single investment company, (b) invest more
than 10% of its total assets in securities of two or more investment companies,
(c) invest more than 15% of its net assets in illiquid securities or (d) pledge,
hypothecate, mortgage or otherwise encumber its assets in excess of 10% of net
assets. If the Fund invests in securities of other investment companies, the
return on any such investments will be reduced by the operating expenses,
including investment advisory and administrative fees, of such investment
companies.
Except for the Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.
16 Voyageur Funds (Prospectus)
<PAGE>
How to Purchase Shares
- --------------------------------------------------------------------------------
Alternative Purchase Arrangements
The Fund offers investors the choice among three classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Page 2 of the Prospectus contains a
summary of these alternative purchase arrangements.
A broker-dealer may receive different levels of compensation depending
on which class of shares is sold. In addition, Delaware Distributors, L.P., the
Fund's principal underwriter (the "Underwriter"), from time to time pays certain
additional cash incentives of up to $100 and/or non-cash incentives such as
vacations or merchandise to its investment executives and other broker-dealers
and financial institutions in consideration of their sales of Fund shares. In
some instances, the Underwriter pays amounts not to exceed 1.25% of the Fund's
net assets (such as payments related to retention of shares sold by a particular
broker-dealer or financial institution for a specified period of time) to
broker-dealers and financial institutions who meet certain objective standards
developed by the Underwriter.
General Purchase Information
The minimum initial investment in the Fund is $1,000, and the minimum additional
investment is $100. The Fund's shares may be purchased at the public offering
price from the Underwriter, from other broker-dealers who are members of the
National Association of Securities Dealers, Inc. and who have selling agreements
with the Underwriter, and from certain financial institutions that have selling
agreements with the Underwriter.
When orders are placed for shares of the Fund, the public offering
price used for the purchase will be the net asset value per share next
determined after receipt of the order, plus the applicable sales charge, if any.
If an order is placed with the Underwriter or other broker-dealer, the
broker-dealer is responsible for promptly transmitting the order to the Fund.
The Fund reserves the right, in its absolute discretion, to reject any order for
the purchase of shares.
Shares of the Fund may be purchased by opening an account either by
mail, or by phone, or by wire.
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 800-523-1918.
Purchases by Mail
To open an account by mail, an Investment Application must be completed, signed
and sent with a check payable to the specific Fund and class selected, to:
17 Voyageur Funds (Prospectus)
<PAGE>
Through May 11, 1997:
NW 9369
P.O. Box 1450
Minneapolis, MN 55485-9369
Beginning May 12, 1997:
Delaware Group
1818 Market Street
Philadelphia, PA 19103
Purchases by Telephone
To open an account by telephone, call 800-523-4640 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:
Through May 11, 1997:
Norwest Bank Minnesota, N.A., ABA #091000019
For Credit of: Voyageur National High Yield Municipal Bond Fund
Checking Account No.: 872-458
Account Number: (assigned by telephone)
Beginning May 12, 1997:
CoreStates Bank, N.A.
ABA # 031000011
For Credit of: Voyageur National High Yield Municipal Bond Fund
Account Number: 1412893401
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 Investment Application 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.
18 Voyageur Funds (Prospectus)
<PAGE>
The current sales charges are:
<TABLE>
<CAPTION>
Sales Charge
as % of Sales Charge Dealer Discount
Net Asset as % of as % of
Amount of Purchase Value Offering Price Offering Price(1)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Less than $50,000 3.90% 3.75% 3.25%
$50,000 but less than $100,000 3.63 3.50 3.00
$100,000 but less than $250,000 2.83 2.75 2.50
$250,000 but less than $500,000 2.04 2.00 1.75
$500,000 but less than $1,000,000 1.78 1.75 1.75
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
- -----------------------------------------------------------------------------------------------
</TABLE>
1 Brokers and dealers who receive 90% or more of the sales charge may be
considered to be underwriters under the Securities Act of 1933, as amended.
2 The Underwriter intends to pay its investment executives and other
broker-dealers and banks that sell Fund shares, out of its own assets, a
fee of 1% of the offering price of sales of $1,000,000 or more, other than
on sales not subject to a contingent deferred sales charge.
3 Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "--Contingent Deferred Sales
Charge."
In connection with the distribution of the Fund's Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
Special Purchase Plans--Reduced Sales Charges
Certain investors (or groups of investors) may qualify for reductions in the
sales charges shown above. Investors should contact their broker-dealer or the
Fund for details about the Fund's Combined Purchase Privilege, Cumulative
Quantity Discount and Letter of Intention plans. Descriptions are also included
with the general authorization form and in the Statement of Additional
Information. These special purchase plans may be amended or eliminated at any
time by the Underwriter without notice to existing Fund shareholders.
Rule 12b-1 Fees
Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of .25%
of the average daily net assets of the Fund attributable to Class A shares. All
or a portion of such fees are paid quarterly to financial institutions and
service providers with respect to the average daily net assets attributable to
shares sold or serviced by such institutions and service providers. For
additional information about this fee, see "Management--Plan of Distribution"
below.
Contingent Deferred Sales Charge
Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, the Underwriter pays investment dealers, out of its own
assets, a fee of 1% of the offering price of such shares. If these shares are
redeemed within two years after purchase, the redemption proceeds will be
reduced by a contingent deferred sales charge ("CDSC") of 1%. For additional
information, see "How to Sell Shares--Contingent Deferred Sales Charge."
19 Voyageur Funds (Prospectus)
<PAGE>
Waiver of Sales Charges
Purchases of Class A shares may be made at net asset value by current and former
officers, directors and employees (and members of their families) of the
Adviser, any of its affiliates, any of the Voyageur or other Delaware Group
funds, certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member.
Purchases of Class A shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge ,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated borkers or dealers concerning sales of shares of Voyageur or
other Delaware Group funds. Officers, directors and key employees of
institutional clients of the Adviser or any of its affiliates may purchase Class
A shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of clients of brokers, dealers and registered investment
advisers affiliated with a broker or dealer, if such broker, dealer or
investment adviser has entered into an agreement with the Underwriter providing
specifically for the purchase of Class A shares in connection with special
investment products, such as wrap accounts or similar fee based programs.
The Fund must be notified in advance that an investment qualifies for
purchases at net asset value.
Class B Shares--Contingent Deferred Sales Charge Alternative
The public offering price of Class B shares of the Fund is the net asset value
of the Fund's shares. Class B shares are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. However, a
CDSC of up to 5% will be imposed if shares are redeemed within six years of
purchase. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge." In addition, Class B shares are subject to higher Rule
12b-1 fees as described below. The CDSC will depend on the number of years since
the purchase was made according to the following table:
CDSC as a
CDSC Period % of Amount Redeemed(1)
- ----------------------------------------------------------------------------
1st year after purchase 5%
2nd year after purchase 4
3rd year after purchase 4
4th year after purchase 3
5th year after purchase 2
6th year after purchase 1
Thereafter 0
- ----------------------------------------------------------------------------
1 The CDSC will be calculated on an amount equal to the lesser of the net
asset value of the shares at the time of purchase or the net asset value at
the time of redemption.
Proceeds from the CDSC are paid to the Underwriter and are used to
defray expenses of the Underwriter related to providing distribution-related
services to the Fund in connection with the sale of Class B shares, such as the
payment of compensation to selected broker dealers and for selling Class B
shares. The combination of the CDSC and the Rule 12b-1 fee enables the Fund to
sell the Class B
20 Voyageur Funds (Prospectus)
<PAGE>
shares without deduction of a sales charge at the time of purchase. Although
Class B shares are sold without an initial sales charge, the Underwriter pays to
brokers who sell Class B shares a sales commission equal to 4% of the amount
invested and an ongoing annual servicing fee of .15% (paid quarterly) calculated
on the net assets attributable to sales made by such broker-dealers.
Rule 12b-1 Fees
Class B shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of the Fund attributable to Class B shares. The
higher 12b-1 fee will cause Class B shares to have a higher expense ratio and to
pay lower dividends than Class A shares. For additional information about this
fee, see "Fees and Expenses" and "Management--Plan of Distribution."
Conversion Feature
On the first business day of the month eight years after the purchase date,
Class B shares will automatically convert to Class A shares and will no longer
be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of
the relative net asset values of the two classes. Class A shares issued upon
such conversion will not be subject to any FESC or CDSC. Class B shares acquired
by exchange from Class B shares of another Voyageur Fund (or effective May 12,
1997, from another fund in the Delaware Group) 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 to brokers who sell Class C shares a sales commission equal to
1% of the amount invested and an ongoing annual servicing fee of .90% (paid
quarterly commencing in the thirteenth month after the sale of such shares)
calculated on the net assets attributable to sales made by such broker-dealers.
21 Voyageur Funds (Prospectus)
<PAGE>
How to Sell Shares
- --------------------------------------------------------------------------------
The Fund will redeem its shares in cash at the net asset value next determined
after receipt of a shareholder's written request for redemption in good order
(see below). If shares for which payment has been collected are redeemed,
payment must be made within seven days. 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.
The CDSC does not apply to: (a) redemptions of Class B shares in
connection with the automatic conversion to Class A shares; (b) redemptions of
shares when a Fund exercises its right to liquidate accounts which are less than
the minimum account size; and (c) redemptions in the event of the death or
disability of the shareholder within the meaning of Section 72(m)(7) of the
Internal Revenue Code.
If a shareholder exchanges Class A, Class B or Class C shares subject
to a CDSC for Class A, Class B or Class C shares, respectively, of a different
Voyageur Fund, the transaction will not be subject to a CDSC. However, when
shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the CDSC.
Beginning May 12, 1997, Class A, Class B and Class C Shares of funds in the
Delaware Group and the corresponding classes of the Fund may be exchanged for
each other. The same rules concerning treatment of CDSCs will apply to
permissible exchanges. Fund shares are exchangeable for shares of any Voyageur
money market funds. 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. Effective July 1, 1997, Class B and C Shares of the Fund may not be
exchanged into shares of the Voyageur money market funds. Any
22 Voyageur Funds (Prospectus)
<PAGE>
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.
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 (for which certificates have not been
issued) may redeem by telephoning the Fund directly at 800-523-1918. The
applicable section of the Investment Application 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 Investment Application. Shareholders should notify the
Fund in writing if they do not wish to have such services available to their
accounts.
Neither the Fund nor its shareholder services and transfer agent is
responsible for any shareholder loss incurred in acting upon written or
telephone instructions for redemption of Fund shares which are reasonably
believed to be genuine. With respect to such telephone transactions, the Fund
will follow reasonable procedures to confirm that instructions communicated by
telephone are genuine (including verification of a form of personal
identification) as, if it does not, the Fund or the shareholder services and
transfer agent may be liable for any losses due to unauthorized or fraudulent
transactions. Instructions received by telephone are generally tape recorded,
and a written confirmation will be provided for all purchase and redemption
transactions initiated by telephone. These procedures also apply to written and
telephone exchange requests. By exchanging shares by telephone, you are
acknowledging prior receipt of a prospectus for the fund into which your shares
are being exchanged.
Expedited Redemptions Through Certain Broker Dealers
Certain broker-dealers who have sales agreements with the Underwriter may allow
their customers to effect a redemption of shares of the Fund purchased through
such broker-dealer by notifying the broker-dealer of the amount of shares to be
redeemed. The broker-dealer is then responsible for promptly placing the
redemption request with the Fund on the customer's behalf. Payment will be made
to the shareholder by check or wire sent to the broker-dealer. Broker-dealers
offering this service may impose a fee or additional requirements for such
redemptions.
Good Order
"Good order" means that stock certificates, if issued, must accompany the
written request for redemption and must be duly endorsed for transfer, or must
be accompanied by a duly executed stock power. If no stock certificates have
been issued, a written request to redeem must be made. Stock certificates will
not be issued for Class B or Class C shares. In any case, the shareholder must
execute the redemption request exactly as the shares are registered. If the
redemption proceeds are to be paid to the registered holder(s), a signature
guarantee is not normally required. A signature
23 Voyageur Funds (Prospectus)
<PAGE>
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 Fund's transfer agent 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 transfer agent 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 $5,000 or more at the
current offering price may open a Withdrawal Plan and have monthly withdrawals
of $25 or more paid 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 Class A shares of any Voyageur Fund or Delaware
Group 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 the Voyageur money market funds.
Effective July 1, 1997, however, only Class A shares may be exchanged into such
money market funds.
Beginning May 12, 1997, Class A, Class B and Class C shares of the Fund
may be exchanged into the corresponding classes of shares of the retail funds in
the Delaware Group that have such classes. In addition, each of the three money
market funds in the Delaware Group has Class A shares and a Consultant Class.
The Consultant Class of each of these funds is subject to a Rule 12b-1 Plan;
however, only the consultant class of Delaware Cash Reserve currently assesses a
fee under its 12b-1 Plan. The Class A shares of the Fund may be exchanged into
either Class A shares or the Consultant Class of these three funds.
24 Voyageur Funds (Prospectus)
<PAGE>
The minimum amount which may be exchanged is $1,000. The exchange will
be made on the basis of the relative net asset values next determined after
receipt of the exchange request. For a discussion of issues relating to the
contingent deferred sales charge upon such exchanges, see "How to Sell
Shares--Contingent Deferred Sales Charge." There is no specific limitation on
exchange frequency; however, the Fund is intended for long term investment and
not as a trading vehicle. The Fund reserves the right to prohibit excessive
exchanges (more than four per quarter). The Fund also reserves the right, upon
60 days' prior notice, to restrict the frequency of, or otherwise modify,
condition, terminate or impose charges upon, exchanges. An exchange is
considered to be a sale of shares on which the investor may realize a capital
gain or loss for income tax purposes. Exchange requests may be placed directly
with the Fund in which the investor owns shares, through the Fund's transfer
agent 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, the Fund's transfer agent 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
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had been
retained under an investment advisory contract to act as the Fund's investment
adviser, subject to the authority of the Board of Directors. Voyageur is an
indirect, wholly-owned subsidiary of Dougherty Financial Group, Inc. ("DFG").
After the close of business on April 30, 1997, Voyageur became an indirect,
wholly-owned subsidiary of Lincoln National Corporation ("LNC") as a result of
LNC's acquisition of DFG. LNC, headquartered in Fort Wayne, Indiana, owns and
operates insurance and investment management businesses, including Delaware
Management Holdings, Inc. ("DMH"). Affiliates of DMH serve as adviser,
distributor and transfer agent for the Delaware Group of Mutual Funds which
currently includes 16 open-end funds and 2 closed-end funds (comprising 48
separate investment portfolios). DMH, through its subsidiaries, is responsible
for the management of approximately $32 billion.
Because LNC's acquisition of DFG resulted in a change of control of
Voyageur, the Fund's previous investment advisory agreement with Voyageur was
"assigned," as that term is defined by the Investment Company Act of 1940, and
the previous agreement therefore terminated upon the completion of the
acquisition. The Board of Directors of the Fund unanimously approved a new
investment advisory agreement at a meeting held in person on February 14, 1997,
and called for a shareholders meeting to approve the new agreement. At a meeting
held on April 11, 1997, shareholders of the Fund approved the investment
advisory agreement with the Adviser to become effective after the close of
business on April 30, 1997, the date the acquisition was completed.
Beginning May 1, 1997, Delaware Management Company, Inc., an indirect,
wholly-owned subsidiary of LNC, was retained as investment adviser of the Fund.
The Fund pays the Adviser a monthly investment advisory and management
fee equivalent on an annual basis to .65% of its average daily net assets.
The Adviser has
25 Voyageur Funds (Prospectus)
<PAGE>
agreed to limit fees and expenses to the extent set forth above under "Fees and
Expenses."
Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager of the Fund, assumed primary responsibility for making
day-to-day investment decisions for the Fund on May 1, 1997. Mr. Coyne is a
graduate of Harvard University with an MBA from the University of Pennsylvania's
Wharton School. Prior to joining the Delaware Group's fixed-income department in
1990, Mr. Coyne was a manager at Kidder, Peabody & Co. Inc's trading desk, and
specialized in trading high grade municipal bonds and municipal futures
contracts. Mr. Coyne is a member of the Municipal Bond Club of Philadelphia. Mr.
Conery joined Delaware Group in 1997. He holds a bachelor's degree from Boston
University and an MBA in Finance from the State University of New York at
Albany. He has served as an investment officer with Travelers Insurance and as a
research analyst with CS First Boston and MBIA Corporation. Mr. Coyne and Mr.
Conery are also Vice Presidents/Senior Portfolio Managers for Voyageur Florida
Tax Free Fund, Voyageur Florida Insured Tax Free Fund and Voyageur Florida
Limited Term Tax Free Fund, Voyageur New York Tax Free Fund, Delaware Group
Tax-Free Fund, Inc. and DMC Tax-Free Income Trust-Pennsylvania.
In making such investment decisions for the Fund, Mr. Coyne and Mr.
Conery regularly consult with Paul E. Suckow and other members of Delaware
Group's fixed-income department. Mr. Suckow is Executive Vice President/Chief
Investment Officer, Fixed Income of the Funds and each of the other funds in the
Delaware Group. He is a CFA charterholder and a graduate of Bradley University
with an MBA from Western Illinois University. Mr. Suckow was a fixed-income
portfolio manager at the Delaware Group from 1981-1985. He returned to the
Delaware Group in 1993 after eight years with Oppenheimer Management Corporation
where he served as Executive Vice President and Director of Fixed Income.
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 Delaware Distributors, L.P. (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
26 Voyageur Funds (Prospectus)
<PAGE>
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.
Delaware Service Company, Inc. ("DSC") acts as the Fund's dividend
disbursing, transfer, administrative and fund accounting 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.
Certain institutions may act as sub-transfer agents for the Fund
pursuant to contracts with DSC whereby the institutions will provide shareholder
services to their customers. DSC will pay the sub-administrators' fees out of
its own assets. The fee paid by DSC to any sub-administrator will be a matter of
negotiation between the institution and DSC based on the extent and quality of
the services provided.
Expenses of the Fund
In connection with the merger transaction described above under "Investment
Adviser; Portfolio Manager" the Adviser and its parent, Delaware Management
Holdings, Inc. ("DMH"), have agreed, until April 30, 1999, to pay the operating
expenses of the Fund which exceed 1% (excluding interest expense, taxes,
brokerage fees, commissions and Rule 12b-1 fees) 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, the Adviser 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.
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 the Fund's
investment adviser 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. The
Fund's investment adviser may consider sales of shares of the funds in the
27 Voyageur Funds (Prospectus)
<PAGE>
Delaware Group 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 the close of regular trading on the New York Stock Exchange
(ordinarily 4pm Eastern time) 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 the Adviser 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
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
28 Voyageur Funds (Prospectus)
<PAGE>
intends to take all other action required to ensure that no federal income taxes
will be payable by the Fund and that the Fund can pay exempt- interest
dividends.
Distributions of net interest income from tax-exempt obligations that
are designated by the Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. Distributions paid from other interest
income and from any net realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Distributions paid from long-term capital gains (and designated as such)
are taxable as long-term capital gains for federal income tax purposes, whether
received in cash or shares, regardless of how long a shareholder has held shares
in the Fund.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986 to finance private activities
are treated as an item of tax preference for purposes of computing the
alternative minimum tax for individuals, estates and trusts.
The foregoing discussion relates to federal taxation as of the date of
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
- --------------------------------------------------------------------------------
Advertisements and other sales literature for the Fund may refer to "yield,"
"taxable equivalent yield," "average annual total return" and "cumulative total
return" and may compare such performance quotations with published indices and
comparable quotations of other funds. Performance quotations are computed
separately for Class A, Class B and Class C shares of the Fund. All such figures
are based on historical earnings and performance and are not intended to be
indicative of future performance. Additionally, performance information may not
provide a basis for comparison with other investments or other mutual funds
using a different method of calculating performance. The investment return on
and principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The advertised yield of the Fund will be based on a 30-day period
stated in the advertisement. Yield is calculated by dividing the net investment
income per share deemed earned during the period by the maximum offering price
per share on the last day of the period. The result is then annualized using a
formula that provides for semiannual compounding of income.
Taxable equivalent yield is calculated by applying the stated income
tax rate only to that portion of the yield that is exempt from taxation. The
tax-exempt portion of the yield is divided by the number 1 minus the stated
income tax rate (e.g., 1-28% = 72%). The result is then added to that portion of
the yield, if any, that is not tax-exempt.
Average annual total return is the average annual compounded rate of
return on a hypothetical $1,000 investment made at the beginning of the
advertised period. In calculating average annual total return, the maximum sales
charge is deducted from the hypothetical investment and all dividends and
distributions are assumed to be reinvested.
Cumulative total return is calculated by subtracting a hypothetical
$1,000 payment to the Fund from the ending redeemable value of such payment (at
the end of the relevant advertised period), dividing such difference by $1,000
and multiplying the quotient by 100. In calculating ending redeemable value, all
income and capital gain
29 Voyageur Funds (Prospectus)
<PAGE>
distributions are assumed to be reinvested in additional Fund shares and the
maximum sales load is deducted.
The Fund may also present total return information that does not
reflect the deduction of the maximum sales charges. In this case, such total
return information would be more favorable than total return information that
includes the deductions of maximum sales charges.
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 800-523-4640. For additional information regarding the
calculation of the Fund's yield, taxable equivalent yield, average annual total
return and cumulative total return, see "Calculation of Performance Data" in the
Statement of Additional Information.
General Information
- --------------------------------------------------------------------------------
The Fund sends to its shareholders six-month unaudited and annual audited
financial statements.
The shares of the Fund constitute a separate series of Voyageur Mutual
Funds, Inc. (the "Company"), a Minnesota corporation which issues shares of
common stock with a $.01 par value per share. All shares of the Company are
non-assessable and fully transferable when issued and paid for in accordance
with the terms thereof and possess no cumulative voting, preemptive or
conversion rights. The Board of Directors is empowered to issue other series of
common stock without shareholder approval.
The Fund currently offers its shares in multiple classes, each with
different sales arrangements and bearing different expenses. Class A, Class B
and Class C shares each represent interests in the assets of the Fund and have
identical voting, dividend, liquidation and other rights on the same terms and
conditions except that expenses related to the distribution of each class are
borne solely by such class and each class of shares has exclusive voting rights
with respect to provisions of the Fund's Rule 12b-1 distribution plan which
pertain to a particular class and other matters for which separate class voting
is appropriate under applicable law.
Fund shares are freely transferable, subject to applicable securities
laws, are entitled to dividends as declared by the Board, and, in liquidation,
are entitled to receive the net assets, if any, of the Fund. The Fund does not
generally hold annual meetings of shareholders and will do so only when required
by law.
Each share of a series has one vote irrespective of the relative net
asset value of the shares. On some issues, such as the election of Board
members, the shares of all series and classes vote together as one. On an issue
affecting only a particular series or class, the shares of the affected series
or class vote as a separate series or class. An example of such an issue would
be a fundamental investment restriction pertaining to only one series.
The assets received by the Company for the issue or sale of shares of
each series or class thereof, and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are allocated to such series,
and in the case of a class, allocated to such class, and constitute the
underlying assets of such series or class. The underlying assets of each series,
or class thereof, are required to be segregated on the books of account, and are
to be charged with the expenses in respect to such series or class thereof, and
with a share of the general expenses of the Company. Any general
30 Voyageur Funds (Prospectus)
<PAGE>
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
Delaware Distributors, L.P. This Prospectus does not constitute an offer or
solicitation by anyone in the state in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation.
31 Voyageur Funds (Prospectus)
