Registration No. 33-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1996
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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Post-Effective Amendment No.
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(Check appropriate box or boxes)
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Exact name of Registrant as Specified in Charter:
VOYAGEUR INVESTMENT TRUST II
Area Code and Telephone Number:
(612) 376-7000
Address of Principal Executive Offices:
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
Name and Address of Agent for Service:
Thomas J. Abood, Clerk
Voyageur Investment Trust II
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota 55402
COPY TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Approximate Date of Proposed Public Offering:
As soon as possible following the effective date of this Registration Statement.
It is proposed that this filing become effective on
April 25, 1996 (30 days after filing) pursuant to Rule 488.
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No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant is filing as an exhibit to this Registration Statement a copy of its
earlier declaration under Rule 24f-2. Registrant filed its Rule 24f-2 Notice on
February 26, 1996 for its most recent fiscal year ended December 31, 1995.
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VOYAGEUR INVESTMENT TRUST II
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
<TABLE>
<CAPTION>
PART A OF FORM N-14 PROSPECTUS/PROXY STATEMENT CAPTION
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<S> <C>
1. Beginning of Registration Statement and Outside Front
Cover Page ofProspectus................................... Cross Reference Sheet and Cover Page
2. Beginning and Outside Back Cover Pageof Prospectus........ Table of Contents
3. Synopsis Information and Risk Factors..................... Summary; Principal Risk Factors
4. Information about the Transaction......................... Summary; Information About the Reorganization;
Voting Information
5. Information about the Registrant.......................... Inside Front Cover; Incorporation by Reference;
Summary; Comparison of Investment Objectives,
Policies and Restrictions; Other Information About
Mackenzie Fund and Voyageur Fund
6. Information about the Company being
Acquired.................................................. Incorporation by Reference; Summary;
Comparison of Investment Objectives,
Policies and Restrictions; Other Information
About Mackenzie Fund and Voyageur Fund
7. Voting Information........................................ Summary; Information About the Reorganization;
Voting Information
8. Interest of Certain Persons and Experts................... Voting Information
9. Additional Information.................................... Not Applicable
STATEMENT OF ADDITIONAL
PART B OF FORM N-14 INFORMATION CAPTION
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10. Cover Page................................................ Cover Page
11. Table of Contents......................................... Not Applicable
12. Additional Information about the Registrant............... Cover Page (Incorporation by Reference)
13. Additional Information about the Company
Being Acquired............................................ Cover Page (Incorporation by Reference)
14. Financial Statements...................................... Financial Statements
</TABLE>
PART C OF FORM N-14
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Information required to be included in Part C is set forth under the appropriate
item in Part C of this Registration Statement.
VOYAGEUR INVESTMENT TRUST II
REGISTRATION STATEMENT ON FORM N-14
PART A
PRESIDENT'S LETTER
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
PROSPECTUS/PROXY STATEMENT
PROSPECTUS DATED MARCH 1, 1995, AS SUPPLEMENTED NOVEMBER 9, 1995, OF
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
(A SERIES OF VOYAGEUR INVESTMENT TRUST II)
[TO BE DELIVERED WITH PROSPECTUS/PROXY STATEMENT]
PROSPECTUS DATED OCTOBER 27, 1995 OF MACKENZIE FLORIDA
LIMITED TERM MUNICIPAL FUND
(A SERIES OF MACKENZIE SERIES TRUST)
[INCORPORATED BY REFERENCE INTO PROSPECTUS/PROXY STATEMENT]
[MACKENZIE INVESTMENT MANAGEMENT LETTERHEAD]
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
VIA MIZNER FINANCIAL PLAZA
700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Mackenzie Florida Limited Term Municipal Fund ("Mackenzie Fund"), a series of
the Mackenzie Series Trust ("Mackenzie Trust") to be held on Tuesday, May 28,
1996 at 10:00 a.m. Eastern Time, at the offices of Mackenzie Fund, for the
purpose of considering and voting upon a proposed Agreement and Plan of
Reorganization for Mackenzie Fund.
If the Plan is approved by the shareholders of Mackenzie Fund, all or
substantially all of the assets and all identified and stated liabilities of
Mackenzie Fund will be exchanged for shares of beneficial interest of Voyageur
Florida Limited Term Tax Free Fund ("Voyageur Fund") having an aggregate net
asset value equal to the value of Mackenzie Fund's aggregate net assets
transferred to Voyageur Fund. In the reorganization, you will receive Class A or
Class B shares of Voyageur Fund, respectively, having a net asset value equal to
the value of your Class A or Class B Mackenzie Fund shares.
Voyageur Fund is the sole outstanding series of Voyageur Investment Trust
II, an open-end diversified management investment company located in
Minneapolis, Minnesota. Voyageur Fund Managers, Inc. ("VFM") acts as the
investment adviser to Voyageur Fund. As of December 31, 1995, VFM served as the
investment adviser to six closed-end and 29 open-end funds, administered
numerous private accounts and managed approximately $8.16 billion in assets.
The investment objectives of Mackenzie Fund and Voyageur Fund are similar
in that both seek to provide shareholders with income that is exempt from
federal income tax and both Funds seek to select investments that will enable
shares to be exempt from the Florida intangible personal property tax.
Shareholders should carefully consider, however, both the similarities and the
differences between the investment objectives, policies and restrictions of the
two Funds. These similarities and differences, as well as other important
information concerning the proposed combination of the Funds, are described in
detail in the Prospectus/Proxy Statement, which you are encouraged to review
carefully.
THE BOARD OF TRUSTEES OF MACKENZIE TRUST UNANIMOUSLY RECOMMENDS APPROVAL OF
THE PLAN. Approval of the Plan will require the affirmative vote of the holders
of a majority of the outstanding shares of each class of Mackenzie Fund, voting
as separate classes. We urge you to take the time to consider this important
matter and vote now. Whether or not you expect to attend the meeting, please
sign and promptly return the enclosed proxy in the enclosed postage-prepaid
envelope. Your prompt response will insure that your shares are counted at the
meeting.
Sincerely,
Michael G. Landry
President of the Mackenzie Series Trust
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
A SEPARATELY MANAGED SERIES OF
MACKENZIE SERIES TRUST
VIA MIZNER FINANCIAL PLAZA
700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1996
April 26, 1996
To the Shareholders of Mackenzie Florida Limited Term Municipal Fund:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Mackenzie
Florida Limited Term Municipal Fund ("Mackenzie Fund"), a separately managed
series of Mackenzie Series Trust ("Mackenzie Trust"), will be held at 10:00 a.m.
Eastern time, on Tuesday, May 28, 1996, at the offices of Mackenzie Fund, Via
Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432.
The purpose of the special meeting is as follows:
1. To consider and vote on a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a) the acquisition of
substantially all of the assets and the assumption of all liabilities
of Mackenzie Fund by Voyageur Limited Term Tax Free Fund ("Voyageur
Fund"), in exchange for shares of beneficial interest of Voyageur Fund
having an aggregate net asset value equal to the aggregate value of
the assets acquired (less liabilities assumed) of Mackenzie Fund and
(b) the liquidation of Mackenzie Fund and the pro rata distribution of
Voyageur Fund shares to Mackenzie Fund shareholders. Under the Plan,
Mackenzie Fund shareholders will receive the same class of shares of
Voyageur Fund that they held in Mackenzie Fund, having a net asset
value equal as of the effective time of the Plan to the net asset
value of their Mackenzie Fund shares.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Even if Mackenzie Fund shareholders vote to approve the Plan, consummation
of the Plan is subject to certain other conditions. See "Information About the
Reorganization --Plan of Reorganization" in the attached Prospectus/Proxy
Statement.
THE BOARD OF TRUSTEES OF MACKENZIE TRUST UNANIMOUSLY RECOMMENDS APPROVAL OF
THE PLAN.
The close of business on April 4, 1996 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE RESPECTFULLY ASK FOR
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY. If you are present at the
meeting, you may then revoke your proxy and vote in person, as explained in the
Prospectus/Proxy Statement in the section entitled "Voting Information."
By Order of the Board of Trustees,
C. WILLIAM FERRIS
SECRETARY
PROSPECTUS/PROXY STATEMENT
DATED APRIL 26, 1996
ACQUISITION OF THE ASSETS OF
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
A SEPARATELY MANAGED SERIES OF
MACKENZIE SERIES TRUST
VIA MIZNER FINANCIAL PLAZA
700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
THE SOLE OUTSTANDING SERIES OF
VOYAGEUR INVESTMENT TRUST II
90 SOUTH SEVENTH STREET
SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
This Prospectus/Proxy Statement is being furnished to the shareholders of
Mackenzie Florida Limited Term Municipal Fund ("Mackenzie Fund"), a separately
managed series of Mackenzie Series Trust ("Mackenzie Trust"), in connection with
a special meeting (the "Meeting") of the shareholders of Mackenzie Fund to be
held at the offices of Mackenzie Fund on May 28, 1996, for the purposes set
forth in the accompanying Notice of Special Meeting of Shareholders. This
Prospectus/Proxy Statement is first being mailed to shareholders of Mackenzie
Fund on or about April 26, 1996. Information concerning the voting rights of
each Mackenzie Fund shareholder is set forth under "Voting Information" below.
Representatives of Mackenzie Investment Management Inc., the investment adviser
and manager of Mackenzie Fund, or of its affiliates, may, without cost to
Mackenzie Fund, solicit proxies for management of Mackenzie Fund by means of
mail, telephone, or personal calls. In addition, the services of a third-party
proxy solicitation firm may be utilized, with such firm's expenses allocated
between and borne by Mackenzie Fund and Voyageur Florida Limited Term Tax Free
Fund ("Voyageur Fund") as described under "Information About the
Reorganization--Plan of Reorganization" below. Persons holding shares as
nominees will, upon request, be reimbursed for their reasonable expenses
incurred in sending proxy soliciting materials on behalf of the Board of
Trustees to their principals.
As set forth in the Notice of Special Meeting of Shareholders, this
Prospectus/Proxy Statement relates to a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a)the acquisition of substantially
all of the assets and the assumption of all stated and identified liabilities of
Mackenzie Fund by Voyageur Fund, the sole outstanding series of Voyageur
Investment Trust II ("Voyageur Trust"), in exchange for shares of beneficial
interest of Voyageur Fund having an aggregate net asset value equal to the
aggregate value of the assets acquired (less liabilities assumed) of Mackenzie
Fund, and (b) the liquidation of Mackenzie Fund and the pro rata distribution of
its holdings of Voyageur Fund shares to Mackenzie Fund shareholders. Mackenzie
Fund and Voyageur Fund are sometimes referred to herein, individually, as a
"Fund," or together, as the "Funds."
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.
As a result of the transactions contemplated by the Plan (collectively, the
"Reorganization"), each shareholder of Mackenzie Fund will receive Voyageur Fund
shares of the same class that he or she held in Mackenzie Fund, with an
aggregate net asset value equal as of the effective time of the Plan to the
aggregate net asset value of their Mackenzie Fund shares. The Reorganization is
being structured as a tax-free reorganization so that no income, gain or loss
will be recognized by Mackenzie Fund or its shareholders as a result thereof
(except that Mackenzie Fund contemplates that it will make a distribution
immediately prior to the Reorganization of all of its current year net
tax-exempt income, ordinary taxable income and net realized capital gains, if
any, not previously distributed, and any portion of this distribution which does
not constitute an exempt-interest dividend will be taxable to Mackenzie Fund
shareholders subject to taxation). The shareholders of Mackenzie Fund are being
asked to vote on the proposed Plan and Reorganization at the Meeting.
In addition to the approval of the Plan and Reorganization by Mackenzie
Fund shareholders, the consummation of the Reorganization is subject to certain
other conditions. See "Information About the Reorganization -- Plan of
Reorganization."
Voyageur Fund is the sole outstanding series of the Voyageur Trust, an
open-end management investment company which may offer its shares in multiple
series. The investment objective of Voyageur Fund is to provide investors with
preservation of capital and, secondarily, current income exempt from federal
income tax by maintaining a weighted average portfolio maturity of ten years or
less. Voyageur Fund will seek generally to select investments that will enable
its shares to be exempt from the Florida intangible personal property tax. It is
a fundamental policy of Voyageur Fund that 80% of its income distributions be
exempt from federal income tax. Up to 20% of the securities owned by Voyageur
Fund may generate interest that is an item of tax preference for purposes of
federal alternative minimum tax. The investment objectives, policies and
restrictions of both Funds are described and compared below under "Information
About Mackenzie Fund and Voyageur Fund -- Comparison of Investment Objectives,
Policies and Restrictions."
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the proposed Plan and
Reorganization and about Voyageur Fund and its affiliates that each Mackenzie
Fund shareholder should know prior to voting on the proposed Plan and
Reorganization.
INCORPORATION BY REFERENCE
The documents listed in items 1 and 2 below, which have been filed with the
Securities and Exchange Commission (the "Commission"), are incorporated herein
by reference to the extent noted below. A Statement of Additional Information
dated April 26, 1996 relating to this Prospectus/Proxy Statement has been filed
with the Commission and is also incorporated by reference into this
Prospectus/Proxy Statement. A copy of the Statement of Additional Information,
and of each of the documents listed in items 2 through 7 below, is available
upon request and without charge by writing to Voyageur Fund at 90 South Seventh
Street, Suite 4400, Minneapolis, Minnesota 55402, or by calling (800) 553-2143.
The documents listed in items 3 through 7 below are incorporated by reference
into the Statement of Additional Information and such items will be provided
with any copy of the Statement of Additional Information which is requested. Any
documents requested will be sent within one business day of receipt of the
request by first class mail or other means designed to ensure equally prompt
delivery.
1. The Prospectus dated March 1, 1995, as supplemented November 9, 1995,
of Voyageur Fund is incorporated herein in its entirety by reference,
and a copy thereof accompanies this Prospectus/Proxy Statement.
2. The Prospectus dated October 27, 1995, of Mackenzie Fund is
incorporated herein in its entirety by reference.
3. The Statement of Additional Information dated March 1, 1995, as
supplemented October 29, 1995, of Voyageur Fund is incorporated by
reference in its entirety in the Statement of Additional Information
relating to this Prospectus/Proxy Statement.
4. The Annual Report of Voyageur Fund for the fiscal year ended December
31, 1995 is incorporated by reference in its entirety in the Statement
of Additional Information relating to this Prospectus/Proxy Statement.
5. The Statement of Additional Information dated October 27, 1995, as
supplemented January 1, 1996, of Mackenzie Fund is incorporated by
reference in its entirety in the Statement of Additional Information
relating to this Prospectus/Proxy Statement.
6. The Annual Report of Mackenzie Fund for the fiscal year ended June 30,
1995 is incorporated by reference in its entirety in the Statement of
Additional Information relating to this Prospectus/Proxy Statement.
7. The unaudited Semi-Annual report of Mackenzie Fund for the six month
period ended December 31, 1995 is incorporated by reference in its
entirety in the Statement of Additional Information relating to this
Prospectus/Proxy Statement.
Also accompanying and attached to this Prospectus/Proxy Statement as Exhibit A
is a copy of the Plan for the proposed Reorganization.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement and in the
documents incorporated by reference herein, and by reference to the Plan, a copy
of which is attached to this Prospectus/Proxy Statement as Exhibit A. Mackenzie
Fund shareholders should review the accompanying documents carefully in
connection with their review of this Prospectus/Proxy Statement.
PROPOSED REORGANIZATION
The Plan provides for (a) the acquisition of substantially all of the
assets and the assumption of all identified and stated liabilities of Mackenzie
Fund by Voyageur Fund in exchange for shares of beneficial interest of Voyageur
Fund having an aggregate net asset value equal to the aggregate value of the
assets acquired (less liabilities assumed) of Mackenzie Fund and (b) the
liquidation of Mackenzie Fund and the pro rata distribution of its holdings of
Voyageur Fund shares to Mackenzie Fund shareholders as of the effective time of
the Reorganization (the close of normal trading on the New York Stock Exchange,
currently 4:00 p.m. Eastern Time, five business days after the Plan is approved
by Mackenzie Fund shareholders, or such later date as provided for in the Plan)
(such time and date, the "Effective Time"). As a result of the Reorganization,
each shareholder of Mackenzie Fund will receive Voyageur Fund shares of the same
class that he or she held in Mackenzie Fund with an aggregate net asset value
equal to the aggregate net asset value of the shareholder's Mackenzie Fund
shares as of the Effective Time. See "Information About the Reorganization."
For the reasons set forth below under "Information About the Reorganization
- -- Reasons for the Reorganization," the Board of Trustees of Mackenzie Fund,
including all of the "non-interested" Trustees, as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), has approved the
Reorganization and has submitted the Plan for approval by Mackenzie Fund
shareholders.
The Board of Trustees of Voyageur Fund has also concluded that the
Reorganization would be in the best interests of Voyageur Fund's existing
shareholders and has therefore approved the Reorganization on behalf of Voyageur
Fund.
Approval of the Plan and Reorganization will require the affirmative vote
of a majority of the outstanding shares of each class of Mackenzie Fund, voting
as separate classes.
TAX CONSEQUENCES
Prior to completion of the Reorganization, Mackenzie Fund will have
received from Dorsey & Whitney LLP, counsel to Voyageur Fund, an opinion that,
upon the Reorganization, no gain or loss will be recognized by Mackenzie Fund or
its shareholders for federal income tax purposes. The holding period and
aggregate tax basis of Voyageur Fund shares that are received by each Mackenzie
Fund shareholder will be the same as the holding period and aggregate tax basis
of Mackenzie Fund shares previously held by such shareholders. In addition, the
holding period and tax basis of the assets of Mackenzie Fund in the hands of
Voyageur Fund as a result of the Reorganization will be the same as in the hands
of Mackenzie Fund immediately prior to the Reorganization. See "Information
About the Reorganization -- Federal Income Tax Consequences."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Mackenzie Fund and Voyageur Fund are both non-diversified, open-end
investment company series with investment objectives which are similar.
* The primary investment objective of Mackenzie Fund is to seek as high
a level of interest income exempt from federal income taxes as is
consistent with the preservation of shareholders' capital.
* Voyageur Fund's investment objective is to provide investors with
preservation of capital and, secondarily, current income exempt from
federal income tax by maintaining a weighted average portfolio
maturity of ten years or less.
The investment policies of Mackenzie Fund and Voyageur Fund are similar but
not identical.
* Mackenzie Fund attempts to achieve its objective by investing
primarily in tax-exempt limited term municipal securities exempt from
both regular federal income taxes, in the opinion of bond counsel to
the issuer, and Florida intangible personal property taxes. As a
fundamental policy, at least 80% of the Fund's net assets is invested,
during periods of normal market conditions, in debt obligations issued
by or on behalf of the State of Florida and its political subdivisions
(agencies, authorities and instrumentalities), and the governments of
Puerto Rico, the U.S. Virgin Islands and Guam, the interest on which
is exempt from regular federal income tax and is not a tax preference
item under the federal alternative minimum tax, and the value of which
is exempt from Florida intangible personal property taxes ("Florida
municipal securities"). Mackenzie Fund ordinarily does not intend to
realize investment income from securities other than Florida municipal
securities. However, to the extent that Florida municipal securities
are not readily available for investment by Mackenzie Fund, the Fund
may invest more than 20% of its net assets in securities other than
Florida municipal securities the interest on which is, in the opinion
of bond counsel to the issuer, exempt from federal income tax.
In normal market conditions, Voyageur Fund seeks to achieve its
investment objective by investing primarily in debt obligations issued
by or on behalf of the State of Florida or a U.S. territory or their
agencies, instrumentalities, municipalities and political
subdivisions, the interest payable on which is, in the opinion of bond
counsel, excludable from gross income for purposes of federal income
tax and which qualify as assets exempt from the Florida intangible
personal property tax. It is a fundamental policy of Voyageur Fund
that 80% of its income distributions be exempt from federal income
tax. During times of adverse market conditions when a defensive
investment posture is warranted, Voyageur Fund may temporarily select
investments without regard to the foregoing policy. However, Voyageur
Fund anticipates that, in normal market conditions, substantially all
of its assets will be invested in securities the interest on which is
exempt from federal income tax.
* Under normal market conditions, Mackenzie Fund will invest no more
than 20% of its net assets in obligations the interest from which
gives rise to a preference item for the purpose of the federal
alternative minimum tax. Similarly, up to 20% of the securities owned
by Voyageur Fund may generate interest that is an item of tax
preference for purposes of the federal alternative minimum tax.
* Mackenzie Fund will not invest more than 5% of its net assets in
obligations of each of the U.S. Virgin Islands and Guam, but may
invest without limit in obligations of Puerto Rico. Although Voyageur
Fund's investment in the obligations of such territories is not
limited, it currently does not hold any such obligations.
* Mackenzie Fund expects to maintain a dollar-weighted average portfolio
maturity of three to six years and will purchase only instruments with
remaining maturities of ten years or less. As noted above, Voyageur
Fund's investment objective provides that the Fund will maintain a
weighted average portfolio maturity of ten years or less.
* Mackenzie Fund may purchase (a) municipal securities that are backed
by the full faith and credit of the United States Government; (b)
notes rated MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A, SP-1 or SP-2 by Standard & Poor's Ratings
Services ("S&P"), (c) municipal bonds rated Aaa, Aa or A by Moody's or
AAA, AA or A by S&P; (d) other types of municipal securities provided
that such obligations are rated A-1 or A-2 by S&P or Prime-1 or
Prime-2 by Moody's; and (e) municipal securities that are themselves
unrated, but either are issued by an entity that has other municipal
securities outstanding that meet one of the minimum rating
requirements listed above, or are of equivalent investment quality as
determined by the Fund's investment adviser pursuant to guidelines
established and maintained in good faith by the Board of Trustees.
Voyageur Fund may invest without limitation in securities rated
"investment grade," i.e., within the four highest investment grades,
at the time or investment by Moody's or S&P or, if unrated, judged by
the Fund's investment adviser to be of comparable quality. Up to 20%
of the tax-exempt obligations purchased by Voyageur Fund may be rated
lower than investment grade; however all bond must by rated "B" or
better by Moody's or S&P (or, if unrated, judged by the Fund's
investment adviser to be of comparable quality). Such bonds are often
referred to as "junk" bonds or "high yield" bonds. Bonds rated below
BBB or Baa have a greater vulnerability to default than higher grade
bonds. See "Principal Risk Factors" for a discussion of the risks of
investing in lower grade tax-exempt obligations.
* Both Funds may invest in repurchase agreements, purchase securities on
a "when-issued" basis and borrow money from banks for temporary or
emergency purposes (in an amount equal to 20% of total assets for
Voyageur Fund and 10% of total assets for Mackenzie Fund).
* Voyageur Fund may enter into reverse repurchase agreements, 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, may enter into futures contracts
and may purchase and sell options on futures transactions. Mackenzie
Fund may not enter into such transactions.
The Funds' investment objectives, policies and restrictions are described
and compared in further detail herein under "Information About Mackenzie Fund
and Voyageur Fund --Comparison of Investment Objectives, Policies and
Restrictions." The Annual Reports of Voyageur Fund and Mackenzie Fund for the
fiscal years ended December 31, 1995 and June 30, 1995, respectively, as well as
the unaudited Semi-Annual report of Mackenzie Fund for the six month period
ended December 31, 1995 referred to on the cover page hereof under
"Incorporation by Reference," provide information concerning the composition of
the respective Funds' assets at the applicable dates.
FEES AND EXPENSES
MACKENZIE FUND EXPENSES. Mackenzie Investment Management Inc. ("MIMI")
provides business management and investment advisory services to Mackenzie Fund
pursuant to a Business Management and Investment Advisory Agreement. For MIMI's
services under such Agreement, Mackenzie Fund is obligated to pay MIMI a monthly
fee at an annual rate of .55% of the Fund's average daily net assets. As
discussed below, because MIMI voluntarily limits Mackenzie Fund's total
operating expenses to .64% of the Fund's average daily net assets, Mackenzie
Fund currently does not pay any fees under the Business Management and
Investment Advisory Agreement.
Mackenzie Ivy Funds Distribution, Inc. ("MIFDI"), a wholly owned subsidiary
of MIMI, serves as the exclusive distributor of the Class A and Class B shares
of Mackenzie Fund pursuant to an Amended and Restated Distribution Agreement
with Mackenzie Trust. Under such Distribution Agreement, MIFDI retains the sales
charges, if any, paid by Mackenzie Fund Class A shareholders in connection with
their purchases of Fund shares and is entitled to deduct a contingent deferred
sales charge on the redemption of Class B shares (and on the redemption of
certain ClassA shares initially sold without a sales charge). In addition,
Mackenzie Fund has adopted pursuant to Rule 12b-1 under the 1940 Act separate
distribution plans pertaining to its Class A and Class B shares (the "Class A
Plan" and the "Class B Plan," collectively, the "Plans"). Under Mackenzie Fund's
Class A and Class B Plans, Mackenzie Fund pays MIFDI a monthly service fee at
the annual rate of up to .25% of the average daily net assets attributable to
its Class A shares or Class B shares, as the case may be. Mackenzie Fund also
pays to MIFDI a distribution fee based on the average daily net assets
attributable to its Class B shares paid monthly at the annual rate of .50%.
Mackenzie Trust has entered into an Administrative Services Agreement with
MIMI, pursuant to which MIMI provides various administrative services for
Mackenzie Fund. Under the agreement, MIMI receives a monthly fee from Mackenzie
Fund at the annual rate of .10% of the Fund's average daily net assets.
Mackenzie Trust also has entered into a Fund Accounting Services Agreement
with MIMI pursuant to which MIMI provides certain accounting and pricing
services for the Fund. For fund accounting services, Mackenzie Fund pays MIMI
out-of-pocket expenses as incurred and a monthly fee based upon the Fund's net
assets at the end of the preceding month at the following rates: $1,000 when net
assets are $20 million and under; $1,500 when net assets are over $20 million to
$75 million; $4,000 when net assets are over $75 million to $100 million; and
$6,000 when net assets are over $100 million.
Mackenzie Ivy Investor Services Corp. ("MIISC"), a wholly owned subsidiary
of MIMI, is the transfer agent and dividend paying agent for Mackenzie Fund and
provides certain shareholder and shareholder-related services. For transfer
agency and shareholder services, Mackenzie Fund pays MIISC an annual fee of
$20.75 per open account and $4.25 for each account that is closed. In addition,
Mackenzie Fund reimburses MIISC monthly for out-of-pocket expenses.
MIMI voluntarily limits total Mackenzie Fund expenses (excluding interest,
12b-1 fees, taxes, brokerage commissions, litigation and indemnification
expenses, and other extraordinary expenses) to an annual rate of .64% of the
Fund's average daily net assets. This expense limitation may be terminated or
revised at any time.
VOYAGEUR FUND EXPENSES. Voyageur Fund Managers, Inc. ("VFM") has been
retained under an Investment Advisory Agreement to act as Voyageur Fund's
investment adviser. Voyageur Fund pays VFM a monthly investment advisory and
management fee equivalent on an annual basis to .40% of the Fund's average daily
net assets.
Voyageur Fund Distributors, Inc. ("VFD"), an affiliate of VFM, acts as the
principal distributor of Voyageur Fund's shares pursuant to a Distribution
Agreement with Voyageur Fund. Under the Distribution Agreement, VFD retains the
sales charges, if any, paid by Voyageur Fund Class A shareholders in connection
with their purchases of Fund shares and is entitled to deduct a contingent
deferred sales charge on the redemption of Class B shares (and on the redemption
of certain Class A shares initially sold without a sales charge). In addition,
Voyageur Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the 1940 Act. Pursuant to this Plan, Voyageur Fund pays VFD 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.
VFM also acts as Voyageur Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement. Under the Agreement, Voyageur Fund pays VFM a monthly fee
based upon the Fund's average daily net assets and the number of shareholder
accounts then existing. This fee is equal to the sum of (a) $1.33 per
shareholder account per month, (b) $1,000 per month if the Fund's average daily
net assets do not exceed $50 million, $1,250 per month if the Fund's average
daily net assets are greater than $50 million but do not exceed $100 million,
and $1,500 per month if the Fund's average daily net assets exceed $100 million,
and (c) 0.11% per annum of the first $20 million of the Fund's average daily net
assets, 0.06% per annum of the next $20 million of the Fund's average daily net
assets, 0.035% per annum of the next $60 million of the Fund's average daily net
assets, 0.03% per annum of the next $400 million of the Fund's average daily net
assets and 0.02% per annum of the Fund's average daily net assets in excess of
$500 million.
For the fiscal year ended December 31, 1995, VFM voluntarily limited total
Voyageur Fund expenses, including Rule 12b-1 fees, to .63% of average daily nets
assets for Class A shares, 1.52% of average daily net assets for Class B shares
and 1.62% of average daily net assets for Class C shares. For the fiscal year
ending December 31, 1996, VFM has undertaken to limit total Voyageur Fund
expenses, including Rule 12b-1 fees, to .80% of average daily net assets for
Class A shares and 1.65 % of average daily net assets for Class B and Class C
shares. These expense limitations may be terminated or revised at any time after
December 31, 1996. In addition, VFM is contractually obligated to pay the
operating expenses of Voyageur Fund (excluding interest, taxes, brokerage fees
and commissions, and Rule 12b-1 fees) which exceed 1% of the Fund's average
daily net assets on an annual basis up to the amount of VFM's investment
advisory and management fee.
PRO FORMA FEES AND EXPENSES
The following tables are intended to assist Mackenzie Fund shareholders of
each class in understanding the various costs and expenses (expressed as a
percentage of average net assets) (a) that such shareholders currently bear as
Mackenzie Fund shareholders (under the "Mackenzie Fund" column); (b) that
shareholders of Voyageur Fund currently bear (under the "Voyageur Fund") column;
and (c) that such shareholders can expect to bear as Voyageur Fund shareholders
after the Reorganization is consummated (under the "Pro Forma" column). The
examples set forth below should not be considered representations of past or
future expenses or performance, and actual expenses may be greater or less than
those shown. The following tables are based on Mackenzie Fund expenses for the
fiscal year ended June30, 1995 and Voyageur Fund expenses for the fiscal year
ended December31, 1995.
<TABLE>
<CAPTION>
CLASS A SHARES FEES AND EXPENSES
MACKENZIE VOYAGEUR PRO
FUND FUND FORMA (1)
---- ---- ---------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)............................ 3.00% 2.75% 2.75%
Maximum Deferred Sales Charge (2)............................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
AFTER FEE WAIVER AND EXPENSE REIMBURSEMENT ARRANGEMENTS (3)
Management Fees............................................... 0% 0.40% 0.40%
Rule 12b-1 Fees............................................... 0.25% 0.02% 0.15%
Other Expenses................................................ 0.64% 0.21% 0.25%
----- ----- -----
Total Fund Operating Expenses................................. 0.89% 0.63% 0.80%
Example (4)
You would pay the following expenses on a $1,000 investment over
various time periods assuming: (1) 5% annual return; and (2) redemption at the
end of each time period:
1 year........................................................ $39 $34 $35
3 years....................................................... $58 $47 $52
5 years....................................................... $78 $62 $71
10 years...................................................... $136 $104 $124
</TABLE>
(1) Pro forma numbers are based on VFM's undertaking to limit Voyageur Fund's
Total Operating Expenses for Class A shares to 0.80% of average daily net
assets for the fiscal year ending December 31, 1996.
(2) For both Funds, a contingent deferred sales charge may apply to the
redemption of Class A shares that are purchased without an initial sales
charge. See "Purchase, Exchange and Redemption Procedures" below.
(3) Total Fund Operating Expenses for each Fund reflect expense limitations
discussed herein. MIMI voluntarily limits total operating expenses for
Mackenzie Fund's Class A shares (excluding taxes, 12b-1 fees, brokerage
commissions, interest, litigation and indemnification expenses and other
extraordinary expenses) to an annual rate of .64% of the Fund's average
daily net assets attributable to such shares. Without expense
reimbursements, for the fiscal year ended June 30, 1995, Management Fees
for Mackenzie Fund Class A shares would have been 0.55% of average daily
net assets, Other Expenses would have been 1.29% of average daily net
assets, and Total Fund Operating Expenses would have been 2.09% of average
daily net assets. For the fiscal year ended December 31, 1995, VFM
voluntarily limited Voyageur Fund's total operating expenses for Class A
shares to .63% of average daily net assets. Without expense reimbursements
Rule 12b-1 Fees for Voyageur Fund Class A shares would have been 0.25% of
average daily net assets, Other Expenses would have been 0.60% of average
daily net assets, and Total Fund Operating Expenses would have been 1.25%
of average daily net assets.
(4) Assumes deduction of the maximum initial sales charge at the time of
purchase (3.00% for Mackenzie Fund and 2.75% for Voyageur Fund and on a pro
forma basis) and no deduction of a contingent deferred sales charge at the
time of redemption.
<TABLE>
<CAPTION>
CLASS B SHARES FEES AND EXPENSES
MACKENZIE VOYAGEUR PRO
FUND FUND FORMA (1)
---- ---- ---------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)............................ None None None
Maximum Deferred Sales Charge ................................ 3.00% 3.00% 3.00%
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
AFTER FEE WAIVER AND EXPENSE REIMBURSEMENT ARRANGEMENTS (2)
Management Fees............................................... 0% 0.40% 0.40%
Rule 12b-1 Fees............................................... 0.75% 0.75% 1.00%
Other Expenses................................................ 0.64% 0.37% 0.25%
----- ----- -----
Total Fund Operating Expenses................................. 1.39% 1.52% 1.65%
EXAMPLE (3)
You would pay the following expenses on a $1,000 investment over
various time periods assuming: (1) 5% annual return; and (2)
redemption at the end of each time period:
1 year........................................................ $44 $45 $47
3 years....................................................... $64 $68 $72
5 years....................................................... $86 $83 $90
10 years...................................................... $153 $157 $173
</TABLE>
(1) Pro forma numbers are based on VFM's undertaking to limit Voyageur Fund's
Total Operating Expenses for Class B shares to 1.65% of average daily net
assets for the fiscal year ending December 31, 1996.
(2) Total Fund Operating Expenses for each Fund reflect expense limitations
discussed herein. MIMI voluntarily limits Mackenzie Fund's total operating
expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest,
litigation and indemnification expenses and other extraordinary expenses)
to an annual rate of .64% of the Fund's average daily net assets. Without
expense reimbursements, for the fiscal year ended June 30, 1995, Management
Fees for Mackenzie Fund Class B shares would have been 0.55% of average
daily net assets, Other Expenses would have been 1.29% of average daily net
assets, and Total Fund Operating Expenses would have been 2.59% of average
daily net assets. For the fiscal year ended December 31, 1995, VFM
voluntarily limited Voyageur Fund's total operating expenses for Class B
shares to 1.52% of average daily net assets. Without expense
reimbursements, Rule 12b-1 Fees for Voyageur Fund Class B shares would have
been 1.00% of average daily net assets, Other Expenses for Voyageur Fund
ClassB shares would have been .60% of average daily net assets and Total
Fund Operating Expenses would have been 2.00% of average daily net assets.
(3) Assumes deduction of a contingent deferred sales charge upon redemption at
the end of the one, three and five year periods.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
PURCHASES OF SHARES. Class A shares of both Mackenzie Fund and Voyageur
Fund may be purchased at a public offering price equal to their net asset value
per share plus a sales charge. The maximum sales charge for Mackenzie Fund is
3.00% of the public offering price for investments of less than $25,000. For
Voyageur Fund, the maximum sales charge is 2.75% of the public offering price
for investments of less than $50,000. For each Fund, the sales charge is reduced
on a graduated scale for larger purchases. Purchases of $1,000,000 or more for
Voyageur Fund and $500,000 or more for Mackenzie Fund are not subject to an
initial sales charge. However, Voyageur Fund shares redeemed during the first
year after purchase are subject to a 0.5% contingent deferred sales charge and
Mackenzie Fund shares redeemed within 24 months after the end of the calendar
quarter in which the purchase was made are subject to a 0.75% contingent
deferred sales charge. Class A shares of each Fund 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.
Class B shares of both Funds are offered to investors at net asset value,
without a sales charge. Each Fund imposes a contingent deferred sales charge
("CDSC") of up to 3% on share redemptions. For each Fund, the maximum CDSC
applies to redemptions during the first year after purchase. For Mackenzie Fund,
the charge declines to 2 1/2 % during the second year; 2% during the third year;
11/2% during the fourth year; 1% during the fifth year; and 0% in the sixth year
and thereafter. For Voyageur Fund, the charge remains at 3% during the second
year and declines to 2% during the third year, 1% during the fourth year, and 0%
in the fifth year and thereafter. Class B shares of Voyageur Fund are subject to
a Rule 12b-1 fee payable at an annual rate of 1.00% of the Fund's average daily
net assets attributable to Class B Shares. Class B shares of Mackenzie Fund are
subject to a Rule 12b-1 fee payable at an annual rate of .75% of Mackenzie
Fund's average daily net assets attributable to Class B shares. Class B shares
of each Fund automatically convert to Class A shares at net asset value
approximately eight years after purchase.
Voyageur Fund also offers Class C shares. Such shares are sold without an
initial or contingent deferred sales charge. The Rule 12b-1 fee for Voyageur
Fund Class C shares is paid at an annual rate of 1% of the Fund's average daily
net assets attributable to Class C shares. Class C shares do not convert to any
other class of shares. Mackenzie Fund does not offer Class C shares.
For additional information on the purchase of Voyageur Fund and Mackenzie
Fund shares, see "How to Purchase Shares," beginning on page 20 of the
accompanying Voyageur Fund prospectus, and pages 8 through 12 of the Mackenzie
Fund prospectus incorporated herein by reference.
PURCHASES AT REDUCED OR NO SALES CHARGE. For the Class A shares of each
Fund, various persons, entities and groups may qualify for reduced sales
charges, or for purchases at net asset value without a sales charge. Following
the Reorganization, current Mackenzie Fund shareholders (as holders of Voyageur
Fund shares) will be entitled to such Special Purchase Plans and other purchase
privileges as are set forth in the accompanying prospectus of Voyageur Fund.
These purchase plans and privileges differ in certain respects from those
currently offered by Mackenzie Fund. See "How to Purchase Shares -- Class A
Shares -- Front End Sales Charge Alternative" beginning on page 22 of the
accompanying Voyageur Fund prospectus and "Qualifying for a Reduced Sales
Charge" beginning on page 10 of the Mackenzie Fund prospectus incorporated
herein by reference. Additionally, Class A shares of Voyageur Fund will be
offered at net asset value, without the imposition of a sales charge, to
shareholder accounts which were in existence and entitled to purchase shares of
Mackenzie Fund without a sales charge as of the Effective Time.
REDEMPTION. Shareholders of each Fund may redeem their shares, in whole or
in part, on any business day. All redemptions are made at the net asset value
next determined after a redemption request has been received in good order. As
discussed above, a contingent deferred shales charge may apply to redemptions of
certain Class A shares initially purchased without a sales charge, and to Class
B share redemptions prior to conversion. For additional information on
redemption of shares, see " "How to Sell Shares," beginning on page 26 of the
accompanying Voyageur Fund prospectus, and "How to Redeem Shares," beginning on
page 12 of the Mackenzie Fund prospectus incorporated herein by reference.
EXCHANGE PRIVILEGES. Shares of Mackenzie Fund may be exchanged for shares
of the same class of other Ivy and Mackenzie funds and shares of Voyageur Fund
may be exchanged for shares of the same class of other Voyageur funds. These
exchange privileges are further explained on page 29 of the accompanying
Voyageur Fund prospectus and on page 14 of the Mackenzie Fund prospectus
incorporated herein by reference, in both cases under the heading "Exchange
Privilege."
DIVIDENDS AND DISTRIBUTIONS
Mackenzie Fund declares and pays monthly on an equal basis any dividends
from net investment income (to the extent not previously distributed) on both
classes of Fund shares. Net realized long-term capital gains, if any, are
distributed at least once annually.
Voyageur Fund declares a distribution from net investment income on each
day that the Fund is open for business and pays such distributions monthly. Net
realized long-term capital gains, if any, are distributed annually.
Distributions paid by Voyageur Fund with respect to Class A, Class B and Class C
shares are 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.
For each Fund, dividends and capital gains distributions are reinvested in
additional shares of the same class unless a shareholder elects otherwise.
CAPITAL SHARES; SHAREHOLDER VOTING RIGHTS
Mackenzie Fund currently offers Class A and Class B shares. Voyageur Fund
currently offers Class A, Class B and Class C shares. Each class of shares of a
Fund represents an interest in the same portfolio of investments of such Fund
and has identical voting, dividend, liquidation, and other rights on the same
terms and conditions except that expenses related to the distribution of a class
of shares are borne solely by such class and that each class of a Fund's shares
has exclusive voting rights with respect the provisions of such Fund's Rule
12b-1 plan which pertain to that particular class or when a class vote is
required by the 1940 Act. In addition, each class of shares of Mackenzie Fund
has a different dividend and distribution policy.
Voyageur Fund intends to apply for rulings from the Internal Revenue
Service ("IRS") to the effect that distributions paid with respect to the
different classes of shares of Voyageur Fund will not constitute "preferential
dividends" within the meaning of Section 562(c) of the Internal Revenue Code of
1986, as amended (the "Code"), and that all such distributions will therefore
qualify for the "dividends paid deduction" under Sections 561 and 852(b)(2)(D)
of the Code. In 1994, the IRS issued the same rulings to several other funds
managed by VFM that included classes with terms identical to those of the
classes of Voyageur Fund. Voyageur Fund expects to receive the requested
rulings.
PRINCIPAL RISK FACTORS
GENERAL
Because the investment objectives, policies and restrictions of Mackenzie
Fund and Voyageur Fund are similar (see "Information About Mackenzie Fund and
Voyageur Fund --Comparison of Investment Objectives, Policies and Restrictions"
below), an investment in either Fund involves many of the same risks. Certain of
these risks are discussed below.
DEBT SECURITIES. Investment in debt securities, including municipal
securities, involves both interest rate and credit risk. Generally, the value of
debt instruments rises and falls inversely with interest rates. As interest
rates decline, the value of debt securities generally increases. Conversely,
rising interest rates tend to cause the value of debt securities to decrease.
Bonds with longer maturities generally are more volatile than bonds with shorter
maturities. The market value of debt securities also varies according to the
relative financial condition of the issuer. In general, lower-quality bonds
offer higher yields due to the increased risk that the issuer will be unable to
meet its obligations on interest or principal payments at the time called for by
the debt instrument. Each Fund's investments are also subject to "call" risk.
Certain obligations held by a Fund may permit the issuer at its option to call
or redeem its securities. If an issuer were to redeem securities held by a Fund
during a time of declining interest rates, the Fund might not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
TAX-EXEMPT OBLIGATIONS. The value of tax-exempt obligations owned by each
Fund may be adversely affected by local political and economic conditions and
developments within the state of Florida. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandatory additional services).
Financial considerations relating to the risks associated with investing in
Florida are described in the accompanying prospectus of Voyageur Fund under
"Risks and Special Investment Considerations--State Considerations," in the
prospectus of Mackenzie Fund incorporated herein by reference under "Investment
Techniques and Risk Factors--Special Considerations Relating to Florida
Municipal Securities," and in the statements of additional information of both
Funds, incorporated by reference into the Statement of Additional Information
relating to this Prospectus/Proxy Statement. Each Fund also may invest in debt
obligations issued by or on behalf of certain United States territories,
including Puerto Rico, the U.S. Virgin Islands and Guam. Mackenzie Fund will not
invest more than 5% of its net assets in obligations of each of the U.S. Virgin
Islands and Guam, but may invest without limit in obligations of Puerto Rico.
Investments in obligations of the government of Puerto Rico require a careful
assessment of certain risk factors, including its reliance on substantial
federal assistance and favorable tax programs, above-average levels of
unemployment and low wealth levels, and susceptibility to adverse shifts in
energy prices as well as U.S. foreign trade/monetary policies. See the statement
of additional information of Mackenzie Fund incorporated by reference into the
Statement of Additional Information relating to this Prospectus/Proxy Statement.
OTHER. Both Funds may invest in repurchase agreements, purchase securities
on a "when-issued" basis and borrow money from banks for temporary or emergency
purposes (in an amount equal to 20% of total assets for Voyageur Fund and 10% of
total assets for Mackenzie Fund). Each of these transactions involves certain
risks as set forth in the accompanying Voyageur Fund prospectus under
"Investment Objectives and Policies -- Miscellaneous Investment Practices" and
in the Mackenzie Fund prospectus incorporated herein by reference under
"Investment Techniques and Risk Factors."
DIFFERENCES IN INVESTMENT RISKS
As discussed below, there are certain differences in the investment risks
associated with investments in Voyageur Fund and Mackenzie Fund that should be
considered carefully by Mackenzie Fund shareholders.
LOWER QUALITY DEBT OBLIGATIONS. Voyageur Fund may be subject to a greater
degree of credit risk than Mackenzie Fund. In normal circumstances, Voyageur
Fund may invest up to 20% of its total assets in tax-exempt obligations rated
below investment grade (but not rated lower than B by S&P or Moody's) or in
unrated tax-exempt obligations considered by VFM to be of comparable quality to
such securities. Mackenzie Fund does not invest in securities rated lower than A
(or unrated securities of comparable quality). Investment in such lower grade
tax-exempt obligations involves special risks as compared with investment in
higher grade tax-exempt obligations. Lower grade tax-exempt obligations
generally involve greater credit risk than higher grade tax-exempt obligations
and are more sensitive to adverse economic changes, significant increases in
interest rates and individual issuer developments. The market for lower grade
tax-exempt obligations is considered to be less liquid than the market for
investment grade tax-exempt obligations, which may adversely affect the ability
of Voyageur Fund to dispose of such securities in a timely manner at a price
which reflects the value of such securities in VFM's judgment. The market price
for less liquid securities tends to be more volatile than the market price for
more liquid securities. The lower liquidity of and the absence of readily
available market quotations for lower grade tax-exempt obligations may make
VFM's valuation of such securities more difficult, and VFM's judgment may play a
greater role in the valuation of Voyageur Fund's lower grade tax-exempt
obligations. Periods of economic uncertainty and changes may have a greater
impact on the market price of such bonds and, therefore, the net asset value of
Voyageur Fund. Voyageur Fund may, if deemed appropriate by VFM, retain a
security whose rating has been downgraded below B by S&P or Moody's, or whose
rating has been withdrawn. In no event, however, will more than 5% of Voyageur
Fund's total assets consist of securities that have been downgraded to a rating
lower than B or, in the case of unrated securities, that have been determined by
VFM to be of a quality lower than B. During the year ended December31, 1995,
Voyageur Fund did not invest in any securities rated lower than A or in any
unrated securities. Additional information concerning the risks associated with
investments in lower grade tax-exempt obligations can be found in Voyageur
Fund's statement of additional information incorporated by reference into the
Statement of Additional Information relating to this Prospectus/Proxy Statement.
DERIVATIVE TAX-EXEMPT OBLIGATIONS. Voyageur Fund may acquire derivative
tax-exempt obligations, which are custodial receipts or certificates
underwritten by securities dealers or banks that evidence ownership of future
interest payments, principal payments or both on certain tax-exempt obligations.
Certain of these derivative tax-exempt obligations involve special risks. The
principal and interest payments on the custodial receipts underlying derivative
tax-exempt obligations may be allocated in a number of ways. For example,
payments may be allocated such that certain custodial receipts may have variable
or floating interest rates and others may be stripped securities which pay only
the principal or interest due on the underlying tax-exempt obligations. Voyageur
Fund may also invest in custodial receipts which are "inverse floating
obligations" (also sometimes referred to as "residual interest bonds"). These
securities pay interest rates that vary inversely to changes in the interest
rates of specified short-term tax-exempt obligations or an index of short-term
tax-exempt obligations. Thus, as market interest rates increase, the interest
rates on inverse floating obligations decrease. Conversely, as market rates
decline, the interest rates on inverse floating obligations increase. Such
securities have the effect of providing a degree of investment leverage, since
the interest rates on such securities will generally change at a rate which is a
multiple of the change in the interest rates of the specified tax-exempt
obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other
tax-exempt obligations and investments in these types of obligations will
increase the volatility of the net asset value of shares of Voyageur Fund.
Voyageur Fund's investments in derivative tax-exempt obligations, when combined
with investments in below investment grade rated securities, will not exceed 20%
of the Fund's total assets. Mackenzie Fund may not invest in such securities.
CONCENTRATION. Voyageur Fund may invest without limitation, in
circumstances in which other appropriate available investments may be in limited
supply, in housing, health care, utility, transportation, education and/or
industrial obligations. In such circumstances, economic, business, political and
other changes affecting one bond might also affect other bonds in the same
segment, thereby potentially increasing market or credit risk. A discussion of
these segments of the municipal bond market is set forth in Voyageur Fund's
statement of additional information, incorporated by reference in the Statement
of Additional Information relating to this Prospectus/Proxy Statement, under
"Investment Policies and Restrictions --Concentration Policy." Mackenzie Fund
may not purchase the securities of issuers conducting their principal business
activities in the same industry if immediately after such purchase the value of
the Fund's investments in such industry would exceed 25% of the value of the
total assets of the Fund.
OPTIONS, FUTURES CONTRACTS AND REVERSE REPURCHASE AGREEMENTS. Voyageur 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. Voyageur Fund also 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
on futures contracts. Mackenzie Fund generally does not engage in options or
futures transactions. In addition, Voyageur Fund may enter into reverse
repurchase agreements with banks and securities dealers with respect to not more
than 10% of its total assets. Mackenzie Fund may not enter into such agreements.
The use of options, futures contracts and reverse repurchase agreements entails
special risks as set forth in the accompanying Voyageur Fund prospectus under
"Investment Objectives and Policies -- Miscellaneous Investment Practices."
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
Mackenzie Fund and Voyageur Fund are both non-diversified, open-end funds
with investment objectives which are similar.
* The primary investment objective of Mackenzie Fund is to seek as high
a level of interest income exempt from federal income taxes as is
consistent with the preservation of shareholders' capital.
* Voyageur Fund's investment objective is to provide investors with
preservation of capital and, secondarily, current income exempt from
federal income tax by maintaining a weighted average portfolio
maturity of ten years or less.
INVESTMENT POLICIES
The investment policies and restrictions of Mackenzie Fund and Voyageur
Fund are similar but not identical, as discussed in further detail below.
GENERAL. Mackenzie Fund attempts to achieve its objective by investing
primarily in tax-exempt limited term municipal securities exempt from both
regular federal income taxes, in the opinion of bond counsel to the issuer, and
Florida intangible personal property taxes. As a fundamental policy, at least
80% of the Fund's net assets is invested, during periods of normal market
conditions, in debt obligations issued by or on behalf of the State of Florida
and its political subdivisions (agencies, authorities and instrumentalities),
and the governments of Puerto Rico, the U.S. Virgin Islands and Guam, the
interest on which is exempt from regular federal income tax and is not a tax
preference item under the federal alternative minimum tax, and the value of
which is exempt from Florida intangible personal property taxes ("Florida
municipal securities"). Mackenzie Fund ordinarily does not intend to realize
investment income from securities other than Florida municipal securities.
However, to the extent that Florida municipal securities are not readily
available for investment by Mackenzie Fund, the Fund may invest more than 20% of
its net assets in securities other than Florida municipal securities the
interest on which is, in the opinion of bond counsel to the issuer, exempt from
federal income tax. Under normal market conditions, Mackenzie Fund will invest
no more than 20% of its net assets in obligations the interest from which gives
rise to a preference item for the purpose of the federal alternative minimum
tax.
In normal market conditions, Voyageur Fund seeks to achieve its investment
objective by investing primarily in debt obligations issued by or on behalf of
the State of Florida or a U.S. territory or their agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income tax and which qualify as assets exempt from the Florida
intangible personal property tax. It is a fundamental policy of Voyageur Fund
that 80% of its income distributions be exempt from federal income tax. During
times of adverse market conditions when a defensive investment posture is
warranted, Voyageur Fund may temporarily select investments without regard to
the foregoing policy. However, Voyageur Fund anticipates that, in normal market
conditions, substantially all of its assets will be invested in securities the
interest on which is exempt from federal income tax. Up to 20% of the securities
owned by Voyageur Fund may generate interest that is an item of tax preference
for purposes of the federal alternative minimum tax.
TERRITORIAL OBLIGATIONS. Mackenzie Fund will not invest more than 5% of its
net assets in obligations of each of the U.S. Virgin Islands and Guam, but may
invest without limit in obligations of Puerto Rico. Although Voyageur Fund's
investment in the obligations of such territories is not limited, it currently
does not hold any such obligations.
AVERAGE PORTFOLIO MATURITY. Mackenzie Fund expects to maintain a
dollar-weighted average portfolio maturity of three to six years and will
purchase only instruments with remaining maturities of ten years or less. As
noted above, Voyageur Fund's investment objective provides that the Fund will
maintain a weighted average portfolio maturity of ten years or less.
SECURITIES RATINGS. Mackenzie Fund may purchase (a) municipal securities
that are backed by the full faith and credit of the United States Government;
(b) notes rated MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's") or
AAA, AA, A, SP-1 or SP-2 by Standard & Poor's Ratings Services ("S&P"), (c)
municipal bonds rated Aaa, Aa or A by Moody's or AAA, AA or A by S&P; (d) other
types of municipal securities provided that such obligations are rated A-1 or
A-2 by S&P or Prime-1 or Prime-2 by Moody's; and (e) municipal securities that
are themselves unrated, but either are issued by an entity that has other
municipal securities outstanding that meet one of the minimum rating
requirements listed above, or are of equivalent investment quality as determined
by the Fund's investment adviser pursuant to guidelines established and
maintained in good faith by the Board of Trustees.
Voyageur Fund may invest without limitation in securities rated "investment
grade," i.e., within the four highest investment grades, at the time or
investment by Moody's or S&P or, if unrated, judged by the Fund's investment
adviser to be of comparable quality. Up to 20% of the tax-exempt obligations
purchased by Voyageur Fund may be rated lower than investment grade; however all
bond must by rated "B" or better by Moody's or S&P (or, if unrated, judged by
the Fund's investment adviser to be of comparable quality). Such bonds are often
referred to as "junk" bonds or "high yield" bonds. Bonds rated below BBB or Baa
have a greater vulnerability to default than higher grade bonds. See "Principal
Risk Factors" for a discussion of the risks of investing in lower grade
tax-exempt obligations.
ILLIQUID SECURITIES. With respect to Voyageur Fund, as a fundamental policy
that may not be changed without shareholder approval, the Fund may invest up to
15% of its net assets in illiquid securities. Mackenzie Fund may invest up to
10% of its net assets in such securities. The sale of illiquid securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. A Fund may
be restricted in its ability to sell such securities at a time when its
investment adviser deems it advisable to do so. In addition, in order to meet
redemption requests, a Fund may have to sell other assets, rather than such
illiquid securities, at a time which is not advantageous.
REPURCHASE AGREEMENTS. Both Funds may invest in repurchase agreements.
Repurchase agreements are short-term instruments under which securities are
purchased from a bank or a securities dealer with an agreement by the seller to
repurchase the securities at a mutually agreeable date, interest rate, and
price. A further discussion of repurchase agreements, including the risks
thereof, see the accompanying Voyageur Fund prospectus under "Investment
Objectives and Policies -- Miscellaneous Investment Practices --Repurchase
Agreements."
REVERSE REPURCHASE AGREEMENTS. Voyageur Fund may engage in reverse
repurchase agreements with banks and securities dealers with respect to not more
than 10% of its total assets. Mackenzie Fund may not enter into such agreements.
Reverse repurchase agreements are ordinary repurchase agreements in which
Voyageur Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed upon time and price. A further discussion
of reverse repurchase agreements, including the risks thereof, see the
accompanying Voyageur Fund prospectus under "Investment Objectives and Policies
- --Miscellaneous Investment Practices -- Reverse Repurchase Agreements."
FORWARD COMMITMENTS. Each Fund may purchase securities on a "when issued"
or forward commitment 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 purchase of
securities on such a basis involves certain risks. See "Investment Objectives
and Policies --Miscellaneous Investment Practices --Forward Commitments" in the
accompanying Voyageur Fund prospectus.
TAXABLE INVESTMENTS. Each Fund may invest up to 20% of its net assets in
taxable fixed income obligations under normal market conditions, although
Voyageur Fund anticipates that, in normal market conditions, it will invest
substantially all of its assets in tax-exempt obligations. In addition, each
Fund may invest without limit in taxable fixed income securities for temporary
defensive purposes or, with respect to Voyageur Fund, for liquidity purposes.
The taxable obligations in which Voyageur Fund may invest are described in the
accompanying Voyageur Fund prospectus under "Investment Objectives and Policies
- -- All Funds." Each Fund may invest up to 20% of its assets in securities the
interest on which is an item of tax preference for purposes of the federal
alternative minimum tax.
BORROWING. As a fundamental policy, Mackenzie Fund may borrow from banks up
to a limit of 10% of its total assets, but only for temporary or emergency
purposes. Voyageur Fund, as a fundamental policy, may borrow money from banks
for temporary or emergency purposes in an amount not exceeding 20% of the value
of its total assets. As discussed above, Voyageur Fund may also borrow money in
the form of reverse repurchase agreements in an amount up to 10% of its total
assets.
OPTIONS. Voyageur 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. Mackenzie Fund generally does
not engage in options transactions. Participation in the options market involves
investment risks and transaction costs to which Voyageur Fund would not be
subject absent the use of this strategy. See "Investment Objectives and Policies
- -- Miscellaneous Investment Practices --Options on Securities" in the
accompanying Voyageur Fund prospectus.
FUTURES CONTRACTS AND OPTIONS THEREON. Voyageur 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"). Mackenzie Fund generally does not enter into futures
contracts or options on futures contracts. The successful use of such
instruments draws upon VFM's experience with respect to such instruments and
generally depends upon VFM's ability to forecast interest rate movements
correctly. See "Investment Objectives and Policies --Miscellaneous Investment
Practices --Futures Contracts and Options on Futures Contracts" in the
accompanying Voyageur Fund prospectus.
The foregoing comparison does not purport to be a complete summary of the
investment policies, restrictions and risk factors of Mackenzie Fund or Voyageur
Fund. For complete discussions of the investment policies, restrictions and risk
factors of the respective Funds, see Voyageur Fund's Prospectus accompanying
this Prospectus/Proxy Statement; Mackenzie Fund's Prospectus referred to under
"Incorporation by Reference;" and the Statements of Additional Information of
Mackenzie Fund and Voyageur Fund, also referred to under such caption. The
Annual Reports of Voyageur Fund and Mackenzie Fund for the fiscal years ended
December31, 1995 and June30, 1995, respectively, referred to on the cover page
hereof under "Incorporation by Reference," provide information concerning the
composition of the respective Funds' assets at the applicable dates.
CAPITALIZATION
The following table shows the capitalization of Mackenzie Fund and of
Voyageur Fund as of December 31, 1995 and on an unaudited pro forma basis as of
that date, giving effect to the proposed Reorganization:
(In thousands, except per share values)
<TABLE>
<CAPTION>
MACKENZIE VOYAGEUR
FUND FUND PRO FORMA
---- ---- ---------
CLASS A SHARES
<S> <C> <C> <C>
Net assets........................................... $3,365 $859 $4,224
Net asset value per share............................ $10.28 $10.56 $10.56
Shares outstanding................................... 327 81 400
CLASS B SHARES
Net assets........................................... $1,648 $41 $1,689
Net asset value per share............................ $10.28 $10.56 $10.56
Shares outstanding................................... 160 4 160
CLASS C SHARES*
Net assets........................................... -- $54 $54
Net asset value per share............................ -- $10.55 $10.55
Shares outstanding................................... -- 5 5
* Mackenzie Fund does not offer Class C shares.
</TABLE>
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
Mackenzie Trust was organized in April 1985. Mackenzie Fund, a series of
Mackenzie Trust, commenced operations on April 1, 1994. Since Mackenzie Fund
commenced operations, MIMI has voluntarily limited total Fund expenses
(excluding interest, 12b-1 fees, taxes, brokerage commissions, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
0.64% of the Fund's average daily net assets, resulting in total Fund operating
expenses for the fiscal year ended June 30, 1995 of 0.89% and 1.39% of average
daily net assets attributable to Class A and Class B shares, respectively.
Without expense reimbursements, total operating expenses for Class A and Class B
Mackenzie Fund shares would have been 2.09% and 2.59%, respectively, of average
daily net assets for such fiscal year. MIMI is not obligated to limit Mackenzie
Fund expenses, and has determined that it is economically unfeasible to continue
to limit expenses to the current level of .64%. MIMI therefore proposed the
Reorganization to the Board of Trustees of Mackenzie Trust. The Board of
Trustees of Mackenzie Trust has determined that the Reorganization is in the
best interests of and is expected to provide certain benefits to Mackenzie Fund
and its shareholders. The Board considered, among other things, the following
factors in making such determinations:
(a) PORTFOLIO MANAGEMENT. As of December 31, 1995, VFM served as the
manager to six closed-end and 29 open-end funds, administered numerous
private accounts and managed approximately $8.16 billion in assets. Of the
closed-end and open-end funds under management, 30 are "single state"
funds, including four Florida funds. Thus, Mackenzie Fund fits well within
VFM's area of expertise.
(b) EXPENSE RATIOS. VFM has undertaken to limit Voyageur Fund expenses
for the fiscal year ending December 31, 1996, to 0.80% of average daily net
assets for Class A shares and 1.65% of average daily net assets for Class B
and Class C shares. Assuming VFM continues to limit expenses to such
levels, Class A Mackenzie Fund shareholders will experience a slightly
lower expense ratio as shareholders of Voyageur Fund (0.80% of average
daily net assets for Voyageur Fund, as compared to 0.89% for Mackenzie Fund
after expense limitations). Class B shareholders will experience a somewhat
higher expense ratio (1.65% of average daily net assets for Voyageur Fund,
as compared to 1.39% for Mackenzie Fund). Assuming no expense limitations
for either Fund, both Class A and Class B Mackenzie Fund shareholders would
benefit from significantly lower expense ratios as Voyageur Fund
shareholders. (Without expense reimbursements, total Mackenzie Fund
operating expenses for the fiscal year ended June 30, 1995 were 2.09% and
2.59% of the average daily net assets of Class A and Class B shares,
respectively. Total operating expenses for Voyageur Fund for the fiscal
year ended December 31, 1995 were 1.25% of average daily net assets for
Class A shares and 2.00% of average daily net assets for Class B shares.)
In addition, the Reorganization should allow for certain fund expenses to
be spread over a larger asset base and may in the future result in
economies of scale for shareholders of Voyageur Fund.
(c) TAX CONSEQUENCES OF THE REORGANIZATION. It is intended that the
proposed reorganization will be tax-free to Mackenzie Fund and Mackenzie
Fund shareholders. See "Federal Income Tax Consequences" below.
(d) TERMS OF THE PLAN. The Board considered the terms and conditions
of the Plan, including that (i) the exchange of Mackenzie Fund shares for
Voyageur Fund shares will take place on a net asset value basis; and (ii)
no sales charge will be incurred by Mackenzie Fund shareholders in
connection with their acquisition of Voyageur Fund shares in the
Reorganization.
(e) EXPENSES OF THE REORGANIZATION. VFM will pay the costs incurred by
the Acquiring Fund and the Acquired Fund in connection with the
Reorganization, including the fees and expenses associated with the
preparation and filing of a registration statement for purposes of
registering the Voyageur Fund shares to be issued in the Reorganization,
and the expenses of printing and mailing this Prospectus/Proxy Statement
and holding the Mackenzie Fund shareholder meeting required to approve the
Reorganization.
(f) UNAMORTIZED ORGANIZATIONAL EXPENSES. Prior to the Effective Time,
MIMI will pay Mackenzie Fund an amount in cash equal to the unamortized
organizational expenses on the books of Mackenzie Fund.
The Board of Trustees of Mackenzie Trust concluded that the factors noted
in (a) through (f) above render the proposed Reorganization fair to and in the
best interests of shareholders of Mackenzie Fund.
PLAN OF REORGANIZATION
The following summary of the proposed Plan and the Reorganization is
qualified in its entirety by reference to the Plan attached to this
Prospectus/Proxy Statement as Exhibit A. The Plan provides that, as of the
Effective Time, Voyageur Fund will acquire all or substantially all of the
assets and assume all identified and stated liabilities of Mackenzie Fund in
exchange for Voyageur Fund shares having an aggregate net asset value equal to
the aggregate value of the assets acquired (less liabilities assumed) from
Mackenzie Fund. The value of Mackenzie Fund assets and liabilities to be
acquired by Voyageur Fund, and the value of Voyageur Fund shares to be received
in exchange therefor, will be computed as of the Effective Time. Voyageur Fund
will not assume any liabilities or obligations of Mackenzie Fund, whether
absolute or contingent, other than those identified and stated in an unaudited
statement of assets and liabilities of Mackenzie Fund as of the Effective Time.
Because Mackenzie Fund is a separate series of Mackenzie Trust, for corporate
law purposes the transaction is structured as a sale of the assets and
assumption of the liabilities allocated to Mackenzie Fund in exchange for the
issuance of Voyageur Fund shares to Mackenzie Fund, followed immediately by the
distribution of such Voyageur Fund shares to Mackenzie Fund shareholders and the
cancellation and retirement of outstanding Mackenzie Fund shares.
Pursuant to the Plan, each holder of Class A or Class B shares of Mackenzie
Fund will receive, at the Effective Time, Class A or Class B shares,
respectively, of Voyageur Fund with an aggregate net asset value equal to the
aggregate net asset value of Mackenzie Fund shares owned by such shareholder
immediately prior to the Effective Time. Under the Plan, the net asset value per
share of Mackenzie Fund's and Voyageur Fund's Class A and Class B shares will be
computed as of the Effective Time using the valuation procedures set forth in
the respective Funds' declarations of trust and bylaws and then-current
prospectuses and statements of additional information and as may be required by
the 1940 Act. At the Effective Time, Voyageur Fund will issue to Mackenzie Fund,
and Mackenzie Fund will distribute to Mackenzie Fund's shareholders of record,
determined as of the Effective Time, Voyageur Fund shares issued in exchange for
Mackenzie Fund assets as described above. All outstanding shares of Mackenzie
Fund thereupon will be canceled and retired and no additional shares
representing interests in Mackenzie Fund will be issued thereafter, and
Mackenzie Fund will be deemed to be liquidated. The distribution of Voyageur
Fund shares to former Mackenzie Fund shareholders will be accomplished by the
establishment of accounts on the share records of Voyageur Fund in the names of
Mackenzie Fund shareholders, each representing the numbers of full and
fractional Voyageur Fund Class A or Class B shares due such shareholders.
The Plan provides that no sales charges will be incurred by Mackenzie Fund
shareholders in connection with the acquisition by them of Voyageur Fund shares
pursuant thereto. The Plan also provides that former holders of Mackenzie Fund
Class B shares who receive Voyageur Fund Class B shares in the Reorganization
will receive credit for the period they held Mackenzie Fund Class B shares in
applying the four-year step-down of the contingent deferred sales charge on
Voyageur Fund Class B shares and in determining the date upon which such shares
convert to Voyageur Fund Class A shares. In addition, the Plan provides that in
applying the one-year 0.5% contingent deferred sales charge on purchases of
Class A shares with respect to which the front-end sales charge was waived,
credit will be given for the period a former Mackenzie Fund shareholder who is
subject to such a contingent deferred sales charge held his or her shares.
Mackenzie Fund contemplates that it will make a distribution immediately
prior to the Effective Time of all of its current year net tax-exempt income,
ordinary taxable income and net realized capital gains, if any, not previously
distributed. Any portion of this distribution which does not constitute an
exempt-interest dividend will be taxable to Mackenzie Fund shareholders subject
to taxation.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others: (i)approval of the Plan by the
shareholders of Mackenzie Fund; (ii)the delivery of the opinion of counsel
described below under "-- Federal Income Tax Consequences;" (iii) the accuracy
as of the Effective Time of the representations and warranties made by Mackenzie
Fund and Voyageur Fund in the Plan; and (iv) the delivery of customary closing
certificates. See the Plan attached hereto as Exhibit A for a complete listing
of the conditions to the consummation of the Reorganization. The Plan may be
terminated and the Reorganization abandoned at any time prior to the Effective
Time, before or after approval by shareholders of Mackenzie Fund, by resolution
of the Board of Trustees of either Mackenzie Trust or Voyageur Trust, if
circumstances should develop that, in the opinion of such Board, make proceeding
with the consummation of the Plan and Reorganization not in the best interests
of the respective Fund's shareholders.
The Plan provides that VFM will pay the costs incurred by the Acquiring
Fund and the Acquired Fund in connection with the Reorganization, including the
fees and expenses associated with the preparation and filing of a registration
statement for purposes of registering the Voyageur Fund shares to be issued in
the Reorganization, and the expenses of printing and mailing this
Prospectus/Proxy Statement and holding the Mackenzie Fund shareholder meeting
required to approve the Reorganization. The Plan also provides that at or prior
to the Effective Time, expenses incurred by Mackenzie Fund shall have been
maintained by MIMI or otherwise so as not to exceed any applicable state-imposed
expense limitations. In addition, the Plan provides that at or prior to the
Effective Time, appropriate action shall have been taken by MIMI or otherwise
such that there are no unamortized organizational expenses on the books of
Mackenzie Fund.
Under the Plan, Mackenzie Fund has agreed not to acquire any securities
which are not permissible investments for Voyageur Fund prior to the Effective
Time, and it is a condition to closing that Mackenzie Fund not hold any such
securities immediately prior to the Effective Time. See "Summary -- Investment
Objectives, Policies and Restrictions" and "Information about Mackenzie Fund and
Voyageur Fund --Comparison of Investment Objectives, Policies and Restrictions."
Mackenzie Fund does not hold any such securities at the date of this
Prospectus/Proxy Statement.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of each class of Mackenzie Fund, voting as separate classes.
If the Plan is not approved, the Boards of Trustees of the respective Funds will
consider other possible courses of action.
DESCRIPTION OF VOYAGEUR FUND SHARES
For information concerning the shares of beneficial interest of Voyageur
Fund, including voting rights, see "Summary -- Capital Shares; Shareholder
Voting Rights" above. All Voyageur Fund shares issued in the Reorganization will
be fully paid and non-assessable and will not be entitled to preemptive or
cumulative voting rights.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Voyageur Fund shares for Mackenzie
Fund's net assets and the distribution of such shares to Mackenzie Fund's
shareholders upon liquidation of Mackenzie Fund will be treated as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the "Code"),
and that, for federal income tax purposes, no income, gain or loss will be
recognized by Mackenzie Fund's shareholders (except that Mackenzie Fund
contemplates that it will make a distribution, immediately prior to the
Reorganization, of all of its current year net tax-exempt income, ordinary
taxable income and net realized capital gains, if any, not previously
distributed, and any portion of this distribution which does not constitute an
exempt-interest dividend will be taxable to Mackenzie Fund shareholders subject
to taxation). Mackenzie Fund has not asked, nor does it plan to ask, the
Internal Revenue Service to rule on the tax consequences of the Reorganization.
As a condition to the closing of the Reorganization, the two Funds will
receive an opinion from Dorsey & Whitney LLP, counsel to Voyageur Fund, based in
part on certain representations to be furnished by each Fund, substantially to
the effect that the federal income tax consequences of the Reorganization will
be as follows:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(D) of the Code, and Voyageur Fund and Mackenzie
Fund each will qualify as a party to the Reorganization under Section
368(b) of the Code;
(ii) Mackenzie Fund shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of Voyageur Fund shares.
Mackenzie Fund shareholders subject to taxation will recognize income
upon receipt of any ordinary taxable income or net capital gains of
Mackenzie Fund which are distributed by Mackenzie Fund prior to the
Effective Time;
(iii) the tax basis of the Voyageur Fund shares received by each Mackenzie
Fund shareholder pursuant to the Reorganization will be equal to the
tax basis of the Mackenzie Fund shares exchanged therefor;
(iv) the holding period of Voyageur Fund shares received by each Mackenzie
Fund shareholder pursuant to the Reorganization will include the
period during which the Mackenzie Fund shareholder held Mackenzie Fund
shares exchanged therefor, provided that the Mackenzie Fund shares
were held as a capital asset at the Effective Time;
(v) Mackenzie Fund will recognize no income, gain or loss by reason of the
Reorganization;
(vi) Voyageur Fund will recognize no income, gain or loss by reason of the
Reorganization;
(vii) the tax basis of the assets received by Voyageur Fund pursuant to the
Reorganization will be the same as the basis of those assets in the
hands of Mackenzie Fund as of the Effective Time;
(viii) the holding period of the assets received by Voyageur Fund pursuant
to the Reorganization will include the period during which such assets
were held by Mackenzie Fund; and
(ix) Voyageur Fund will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of Mackenzie Fund as of
the Effective Time.
Shareholders of Mackenzie Fund should consult their tax advisors regarding
the effect, if any, of the proposed Reorganization in light of their individual
circumstances. Since the foregoing discussion only relates to the federal income
tax consequences of the Reorganization, shareholders of Mackenzie Fund should
consult their tax advisors as to state and local tax consequences, if any, of
the Reorganization.
RECOMMENDATION AND VOTE REQUIRED
The Board of Trustees of Mackenzie Trust, including the "non-interested"
trustees, unanimously recommends that shareholders of Mackenzie Fund approve the
Plan. Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares of each class of Mackenzie Fund, voting as separate
classes.
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of Mackenzie Trust to be used
at the Special Meeting of Mackenzie Fund shareholders to be held at 10:00 a.m.,
Eastern time, on May 28, 1996, at the offices of Mackenzie Fund, and at any
adjournments thereof. This Prospectus/Proxy Statement, along with a Notice of
Special Meeting and a proxy card, is first being mailed to shareholders of
Mackenzie Fund on or about April 26, 1996. Only shareholders of record as of the
close of business on April 4, 1996 (the "Record Date") will be entitled to
notice of, and to vote at, the Meeting or any adjournment thereof. If the
enclosed form of proxy is properly executed and returned on time to be voted at
the Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with the instructions marked thereon. Unmarked proxies will
be voted "for" the proposed Plan and Reorganization. A proxy may be revoked by
giving written notice, in person or by mail, of revocation before the Meeting to
Mackenzie Fund at its principal executive offices, Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, or by properly executing
and submitting a later-dated proxy, or by voting in person at the Meeting.
If a shareholder executes and returns a proxy but abstains from voting, the
shares held by such shareholder will be deemed present at the Meeting for
purposes of determining a quorum and will be included in determining the total
number of votes cast. If a proxy is received from a broker or nominee indicating
that such person has not received instructions from the beneficial owner or
other person entitled to vote Mackenzie Fund shares (i.e., a broker "non-vote"),
the shares represented by such proxy will not be considered present at the
Meeting for purposes of determining a quorum and will not be included in
determining the number of votes cast. Brokers and nominees will not have
discretionary authority to vote shares for which instructions are not received
from the beneficial owner.
Approval of the Plan and Reorganization will require the affirmative vote
described above under "Information About the Reorganization -- Recommendation
and Vote Required."
As of April 4, 1996 (a) Mackenzie Fund had _______ Class A shares and
______ Class B shares outstanding and entitled to vote at the Meeting; (b)
Voyageur Fund had _______ Class A shares, _________ Class B shares and _______
Class C shares outstanding; and (c) the trustees and officers of the respective
Funds as a group owned less than one percent of the outstanding shares of each
Fund or any class thereof. The following table sets forth information concerning
those persons known by the respective Funds to own of record or beneficially
more than 5% of the outstanding shares of either Fund, or more than 5% of the
outstanding shares of any class of either Fund, as indicated, as of such date,
including persons and entities who beneficially own more than 25% of either Fund
or any class thereof. Unless otherwise indicated, the persons named below have
both record and beneficial ownership:
NAME AND ADDRESS
OF RECORD HOLDER PERCENTAGE OWNERSHIP
---------------- --------------------
MACKENZIE FUND
CLASS A
CLASS B
VOYAGEUR FUND
CLASS A
CLASS B
CLASS C
- ---------------
* Record ownership only.
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of MIMI and its
affiliates without cost to the Funds. In addition, the services of a third-party
proxy solicitation firm may be utilized, with such firm's fees and expenses
allocated between and borne by Mackenzie Fund and Voyageur Fund as described
under "Information About the Reorganization -- Plan of Reorganization" above.
In the event that sufficient votes to approve the Plan and Reorganization
are not received by the date set for the Meeting, the persons named as proxies
may propose one or more adjournments of the Meeting for up to 120 days to permit
further solicitation of proxies. In determining whether to adjourn the Meeting,
the following factors may be considered: the percentage of votes actually cast,
the percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any such adjournment will require the
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote at the Meeting. The persons named as proxies will vote upon
such adjournment after consideration of the best interests of all shareholders.
INTERESTS OF CERTAIN PERSONS
The following persons affiliated with Voyageur Fund receive payments from
the Fund for services rendered pursuant to contractual arrangements with the
Fund: VFM receives payments from Voyageur Fund for investment advisory services
it renders pursuant to an Investment Advisory Agreement, and for dividend
disbursing, transfer agency, administrative and accounting services it renders
pursuant to an Administrative Services Agreement. VFD receives payments from
Voyageur Fund for servicing of shareholder accounts and distribution-related
services pursuant to a Distribution Agreement and the Fund's Plan of
Distribution. See "Summary--Fees and Expenses--Voyageur Fund Expenses" above.
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of assets and liabilities, including the schedules
of investments in securities, of Mackenzie Fund as of June30, 1995, and of
Voyageur Fund as of December31, 1995, and the related statements of operations
for the years then ended, the statements of changes in net assets for each of
the periods indicated therein, and the financial highlights for the periods
indicated therein, as included in the Annual Reports of Mackenzie Fund for the
fiscal year ended June30, 1995 and Voyageur Fund for the fiscal year ended
December31, 1995, respectively, have been incorporated by reference into this
Prospectus/Proxy Statement in reliance on the reports of KPMG Peat Marwick LLP,
independent auditors for Voyageur Fund, and Coopers & Lybrand L.L.P.,
independent auditors for Mackenzie Fund, given on the authority of such firms as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of the shares of Voyageur
Fund to be issued in the Reorganization will be passed on by Dorsey & Whitney
LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402.
OTHER INFORMATION ABOUT MACKENZIE FUND AND VOYAGEUR FUND
Information concerning Voyageur Fund and Mackenzie Fund is incorporated
herein by reference from their current Prospectuses dated March 1, 1995 as
supplemented November 9, 1995, and October 27, 1995, respectively. The
Prospectus of Voyageur Fund accompanies this Prospectus/Proxy Statement and
forms part of the Registration Statement of Voyageur Fund on Form N-1A which has
been filed with the Commission. The Prospectus of Mackenzie Fund may be obtained
in the manner described under "Incorporation by Reference" and forms part of the
Registration Statement of Mackenzie Fund on Form N-1A which has been filed with
the Commission.
Voyageur Fund and Mackenzie Fund are subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith file reports and other information including proxy
materials, reports and charter documents with the Commission. These proxy
materials, reports and other information filed by Voyageur Fund and Mackenzie
Fund can be inspected and copies obtained at the Public Reference Facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the New York Regional Office of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made as of
this day of , 1996, by and between Voyageur Investment Trust II ("VOYAGEUR
TRUST"), a business trust organized under the laws of the Commonwealth of
Massachusetts, on behalf of Voyageur Florida Limited Term Tax Free Fund (the
"ACQUIRING FUND"), a series of Voyageur Trust, and Mackenzie Series Trust
("MACKENZIE TRUST"), a business trust organized under the laws of the
Commonwealth of Massachusetts, on behalf of Mackenzie Florida Limited Term
Municipal Fund (the "ACQUIRED Fund"), a series of Mackenzie Trust.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation pursuant to Section 368(a)(1)(D) of the United States Internal
Revenue Code of 1986, as amended (the "CODE"). The reorganization (the
"REORGANIZATION") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund to the Acquiring Fund and the assumption by the
Acquiring Fund of all of the identified and stated liabilities of the Acquired
Fund in exchange solely for full and fractional voting shares of beneficial
interest, par value $.001 per share, of the Acquiring Fund (the "ACQUIRING FUND
SHARES"), having an aggregate net asset value equal to the aggregate value of
the assets acquired (less liabilities assumed) of the Acquired Fund, and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in liquidation of the Acquired Fund as provided herein, all upon the terms
and conditions hereinafter set forth.
WITNESSETH:
WHEREAS, each of Voyageur Trust and Mackenzie Trust is a registered,
open-end management investment company, with Mackenzie Trust offering its shares
of beneficial interest in multiple series (each of which series represents a
separate and distinct portfolio of assets and liabilities) and Voyageur Trust
offering its shares of beneficial interest in a single series at the current
time;
WHEREAS, the Acquired Fund offers Class A and Class B shares and the
Acquiring Fund offers Class A, Class B and Class C shares;
WHEREAS, the Acquired Fund owns securities which generally are assets of
the character in which the Acquiring Fund is permitted to invest; and
WHEREAS, the Board of Trustees of each of the Acquired Fund and the
Acquiring Fund has determined that the exchange of all or substantially all of
the assets of the Acquired Fund for Acquiring Fund Shares and the assumption of
all of the liabilities of the Acquired Fund by the Acquiring Fund is in the best
interests of the shareholders of the Acquired Fund and the Acquiring Fund,
respectively.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto covenant and agree as follows:
1. TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE ACQUIRED FUND TO
THE ACQUIRING FUND SOLELY IN EXCHANGE FOR ACQUIRING FUND SHARES, THE
ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES AND THE LIQUIDATION OF THE
ACQUIRED FUND
1.1 Subject to the requisite approval by Acquired Fund shareholders and to
the other terms and conditions set forth herein and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all or substantially all of the Acquired Fund's assets as set forth in
Section 1.2 to the Acquiring Fund, and the Acquiring Fund agrees in exchange
therefor (a) to deliver to the Acquired Fund that number of full and fractional
Acquiring Fund Shares determined in accordance with Article 2, and (b) to assume
all of the identified and stated liabilities of the Acquired Fund, as set forth
in Section 1.3. Such transactions shall take place as of the effective time
provided for in Section 3.1 (the "EFFECTIVE TIME").
1.2 (a) The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all or substantially all of the Acquired Fund's property,
including, but not limited to, all cash, securities, commodities, futures, and
interest and dividends receivable which are owned by the Acquired Fund as of the
Effective Time. All of said assets shall be set forth in detail in an unaudited
statement of assets and liabilities of the Acquired Fund as of the Effective
Time (the "EFFECTIVE TIME STATEMENT"). The Effective Time Statement shall, with
respect to the listing of the Acquired Fund's portfolio securities, detail the
adjusted tax basis of such securities by lot, the respective holding periods of
such securities and the current and accumulated earnings and profits of the
Acquired Fund. The Effective Time Statement shall be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied from the prior audited period and shall be certified by the Acquired
Fund's treasurer.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all of
the Acquired Fund's assets as of the date of execution of this Agreement. The
Acquired Fund reserves the right to sell any of these securities in the ordinary
course of its business and, subject to Section 5.1, to acquire additional
securities in the ordinary course of its business.
1.3 The Acquiring Fund shall assume all of the identified and stated
liabilities, expenses, costs, charges and reserves (including, but not limited
to, expenses incurred in the ordinary course of the Acquired Fund's operations,
such as accounts payable relating to custodian fees, investment management and
administrative fees, legal and audit fees, and expenses of state securities
registration of the Acquired Fund's shares) reflected in the Effective Time
Statement. The Acquiring Fund shall assume only those liabilities of the
Acquired Fund in the amounts reflected on the Effective Time Statement and shall
not assume any other liabilities, whether absolute or contingent, known or
unknown, accrued or unaccrued.
1.4 Immediately after the transfer of assets provided for in Section 1.1
and the assumption of liabilities provided for in Section 1.3, and pursuant to
the plan of reorganization adopted herein, the Acquired Fund will distribute pro
rata (as provided in Article 2) to the Acquired Fund's shareholders of record,
determined as of the Effective Time (the "ACQUIRED FUND SHAREHOLDERS"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to Section 1.1, and
all other assets of the Acquired Fund, if any. Thereafter, no additional shares
representing interests in the Acquired Fund shall be issued. Such distribution
will be accomplished by the transfer of the Acquiring Fund Shares then credited
to the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Acquired
Fund shareholders representing the numbers and classes of Acquiring Fund Shares
due each such shareholder. All issued and outstanding shares of the Acquired
Fund will simultaneously be canceled on the books of the Acquired Fund, although
share certificates representing interests in the Acquired Fund will represent
those numbers and classes of Acquiring Fund Shares after the Effective Time as
determined in accordance with Article 2. Unless requested by Acquired Fund
shareholders, the Acquiring Fund will not issue certificates representing the
Acquiring Fund Shares issued in connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Acquiring Fund Shares will be issued in the manner described in
the Acquiring Fund's Prospectus and Statement of Additional Information as in
effect as of the Effective Time, except that no front-end sales charges will be
incurred by Acquired Fund Shareholders in connection with their acquisition of
Acquiring Fund Shares pursuant to this Agreement.
1.6 The Acquiring Fund agrees that in determining contingent deferred sales
charges applicable to Class B shares distributed by it in the Reorganization and
the date upon which Class B shares distributed by it in the Reorganization
convert to Class A shares, it shall give credit for the period during which the
holders thereof held the shares of the Acquired Fund in exchange for which such
Acquiring Fund shares were issued. In the event that Class A shares of the
Acquiring Fund are distributed in the Reorganization to former holders of Class
A shares of the Acquired Fund with respect to which the front-end sales charge
was waived due to a purchase of $500,000 or more, the Acquiring Fund agrees that
in determining whether a deferred sales charge is payable upon the sale of such
Class A shares of the Acquiring Fund it shall give credit for the period during
which the holder thereof held such Acquired Fund shares.
1.7 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "COMMISSION"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION; ISSUANCE OF ACQUIRING FUND SHARES
2.1 The net asset value per share of the Acquired Fund's and the Acquiring
Fund's Class A and Class B shares shall be computed as of the Effective Time and
after the declaration of any dividends or distributions on that date using the
valuation procedures set forth in their respective declarations of trust and
bylaws, their then-current Prospectuses and Statements of Additional
Information, and as may be required by the Investment Company Act of 1940, as
amended (the "1940 ACT").
2.2 (a) The total number of Class A Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class A shares
shall be determined as of the Effective Time by multiplying the number of Class
A Acquired Fund shares outstanding immediately prior to the Effective Time times
a fraction, the numerator of which is the net asset value per share of the
Acquired Fund's Class A shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Acquiring Fund's
Class A shares immediately prior to the Effective Time, each as determined
pursuant to Section 2.1.
(b) The total number of Class B Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class B shares
shall be determined as of the Effective Time by multiplying the number of Class
B Acquired Fund shares outstanding immediately prior to the Effective Time times
a fraction, the numerator of which is the net asset value per share of the
Acquired Fund's Class B shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Acquiring Fund's
Class B shares immediately prior to the Effective Time, each as determined
pursuant to Section 2.1.
2.3 Immediately after the Effective Time, the Acquired Fund shall
distribute to the Acquired Fund Shareholders of the respective classes in
liquidation of the Acquired Fund pro rata within classes (based upon the ratio
that the number of Acquired Fund shares of the respective classes owned by each
Acquired Fund Shareholder immediately prior to the Effective Time bears to the
total number of issued and outstanding Acquired Fund shares of such classes
immediately prior to the Effective Time) the full and fractional Acquiring Fund
Shares of the respective classes received by the Acquired Fund pursuant to
Section 2.2. Accordingly, each Class A Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class A Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class A
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time; and each Class B Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class B Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class B
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time.
3. EFFECTIVE TIME; CLOSING
3.1 The closing of the transactions contemplated by this Agreement (the
"CLOSING") shall occur as of the close of normal trading on the New York Stock
Exchange (the "EXCHANGE") (currently, 4:00 p.m. Eastern time), and after the
declaration of any dividends or distributions on such date, five business days
after this Agreement and the transactions contemplated herein have been approved
by the requisite vote of the holders of the outstanding shares of the Acquired
Fund, or at such time on such later date as provided herein or as the parties
otherwise may agree in writing (such time and date being referred to herein as
the "EFFECTIVE TIME"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of the Effective Time unless otherwise agreed to by
the parties. The Closing shall be held at the offices of Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota 55402, or at such other place as
the parties may agree.
3.2 The Acquired Fund shall deliver at the Closing its written instructions
to the custodian for the Acquired Fund, acknowledged and agreed to in writing by
such custodian, irrevocably instructing such custodian to transfer to the
Acquiring Fund all of the Acquired Fund's portfolio securities, cash, and any
other assets to be acquired by the Acquiring Fund pursuant to this Agreement.
3.3 In the event that the Effective Time occurs on a day on which (a)the
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, or (b trading or the reporting of trading on the
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is impracticable,
the Effective Time shall be postponed until the close of normal trading on the
Exchange on the first business day when trading shall have been fully resumed
and reporting shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing a certificate of its
transfer agent stating that the records maintained by the transfer agent (which
shall be made available to the Acquiring Fund) contain the names and addresses
of the Acquired Fund shareholders and the numbers and classes of outstanding
Acquired Fund shares owned by each such shareholder as of the Effective Time.
The Acquiring Fund shall certify at the Closing that the Acquiring Fund Shares
required to be issued by it pursuant to this Agreement have been issued and
delivered as required herein.
3.5 At the Closing, each party to this Agreement shall deliver to the other
such bills of sale, liability assumption agreements, checks, assignments, share
certificates, if any, receipts or other similar documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) Mackenzie Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power under its
declaration of trust to own all of its properties and assets and to carry on its
business as it is now conducted;
(b) Mackenzie Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and of each series of
shares offered by Mackenzie Trust (including the Acquired Fund shares) under the
Securities Act of 1933, as amended (the "1933 ACT"), is in full force and
effect;
(c) Shares of the Acquired Fund are registered in all jurisdictions in
which they are required to be registered under state securities laws and any
other applicable laws; said registrations, including any periodic reports or
supplemental filings, are complete and current in all material respects; all
fees required to be paid in connection with such registrations have been paid;
and the Acquired Fund is not subject to any stop orders, and is fully qualified
to sell its shares in any state in which its shares have been registered;
(d) The Prospectus and Statement of Additional Information of the Acquired
Fund, as of the date hereof and up to and including the Effective Time, conform
and will conform in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) The Acquired Fund is not, and the execution, delivery and performance
of this Agreement will not result, in a violation of Mackenzie Trust's
declaration of trust or bylaws or of any material agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired Fund is a
party or by which it is bound, except as previously disclosed to the Acquiring
Fund in writing;
(f) Except as previously disclosed to the Acquiring Fund in writing, no
material litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or, to the best of the
Acquired Fund's knowledge, threatened against the Acquired Fund or any of its
properties or assets. The Acquired Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(g) The Statement of Assets and Liabilities of the Acquired Fund as of the
end of its most recently concluded fiscal year has been audited by Coopers &
Lybrand L.L.P., independent accountants, and is in accordance with generally
accepted accounting principles consistently applied, and such statement (a copy
of which has been furnished to the Acquiring Fund) presents fairly, in all
material respects, the financial position of the Acquired Fund as of such date,
and there are no known material contingent liabilities of the Acquired Fund as
of such date not disclosed therein;
(h) Since the end of the Acquired Fund's most recently concluded fiscal
year, there has not been any material adverse change in the Acquired Fund's
financial condition, assets, liabilities or business other than changes
occurring in the ordinary course of business, except as otherwise disclosed to
the Acquiring Fund. For the purposes of this paragraph (h), a decline in net
asset value per share of the Acquired Fund, the discharge or incurrence of
Acquired Fund liabilities in the ordinary course of business, or the redemption
of Acquired Fund shares by Acquired Fund shareholders, shall not constitute such
a material adverse change;
(i) All material federal and other tax returns and reports of the Acquired
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the best of the
Acquired Fund's knowledge, no such return is currently under audit and no
assessment shall have been asserted with respect to such returns;
(j) For each taxable year of its operation, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and the Acquired Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company for its final, partial taxable year;
(k) All issued and outstanding shares of the Acquired Fund are, and at the
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable (recognizing that, under Massachusetts law, Acquired Fund
Shareholders could, under certain circumstances, be held personally liable for
obligations of Mackenzie Trust). All of the issued and outstanding shares of the
Acquired Fund will, at the Effective Time, be held by the persons and in the
amounts set forth in the records of the Acquired Fund, as provided in Section
3.4. The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquired Fund shares, and there is not
outstanding any security convertible into any Acquired Fund shares (other than
Class B shares which automatically convert to Class A shares after a specified
period);
(l) At the Effective Time, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to Section 1.2 and full right, power, and authority to sell, assign,
transfer and deliver such assets hereunder, and upon delivery of and payment for
such assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act other than as disclosed to the
Acquiring Fund in the Effective Time Statement;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of the Acquired Fund's Board of Trustees, and, subject to the approval of
the Acquired Fund shareholders, this Agreement will constitute a valid and
binding obligation of the Acquired Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws relating to or affecting
creditors' rights and to the application of equitable principles in any
proceeding, whether at law or in equity;
(n) The information to be furnished by and on behalf of the Acquired Fund
for use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects;
(o) All information pertaining to the Acquired Fund, Mackenzie Trust, and
their agents and affiliates and included in the Registration Statement referred
to in Section 5.5 (or supplied by the Acquired Fund, Mackenzie Trust or their
agents or affiliates for inclusion in said Registration Statement), on the
effective date of said Registration Statement and up to and including the
Effective Time, will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
are made, not materially misleading (other than as may timely be remedied by
further appropriate disclosure);
(p) Since the end of the Acquired Fund's most recently concluded fiscal
year, there have been no material changes by the Acquired Fund in accounting
methods, principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to the Acquiring Fund; and
(q) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately in all material respects the assets and
liabilities of the Acquired Fund as of the Effective Time, and the values of the
Acquired Fund's assets and liabilities to be set forth in the Effective Time
Statement will be computed as of the Effective Time using the valuation
procedures set forth in the Acquired Fund's declaration of trust and bylaws, its
then-current Prospectus and Statement of Additional Information, and as may be
required by the 1940 Act. At the Effective Time, the Acquired Fund will have no
liabilities, whether absolute or contingent, accrued or unaccrued, which are not
reflected in the Effective Time Statement.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) Voyageur Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power under its
declaration of trust to own all of its properties and assets and to carry on its
business as it is now conducted;
(b) Voyageur Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and of each series of
shares offered by Voyageur Trust (including the Acquiring Fund Shares) under the
1933 Act, is in full force and effect;
(c) Shares of the Acquiring Fund are registered in all jurisdictions in
which they are required to be registered under state securities laws and any
other applicable laws; said registrations, including any periodic reports or
supplemental filings, are complete and current; all fees required to be paid in
connection with such registrations have been paid; and the Acquiring Fund is in
good standing, is not subject to any stop orders, and is fully qualified to sell
its shares in any state in which its shares have been registered;
(d) The Prospectus and Statement of Additional Information of the
Acquiring Fund, as of the date hereof and up to and including the Effective
Time, conform and will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not and will not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading;
(e) The Acquiring Fund is not, and the execution, delivery and performance
of this Agreement will not result, in a violation of its declaration of trust or
bylaws or of any material agreement, indenture, instrument, contract, lease or
other undertaking to which the Acquiring Fund is a party or by which it is
bound;
(f) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the best of
the Acquiring Fund's knowledge, threatened against the Acquiring Fund or any of
its properties or assets. The Acquiring Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(g) The Statement of Assets and Liabilities of the Acquiring Fund as of
the end of its most recently concluded fiscal year has been audited by KPMG Peat
Marwick LLP, independent accountants, and is in accordance with generally
accepted accounting principles consistently applied, and such statement (a copy
of which has been furnished to the Acquired Fund) presents fairly, in all
material respects, the financial position of the Acquiring Fund as of such date,
and there are no known material contingent liabilities of the Acquiring Fund as
of such date not disclosed therein;
(h) Since the end of the Acquiring Fund's most recently concluded fiscal
year, there has not been any material adverse change in the Acquiring Fund's
financial condition, assets, liabilities or business other than changes
occurring in the ordinary course of business, except as otherwise disclosed to
the Acquired Fund. For the purposes of this paragraph (h), a decline in net
asset value per share of the Acquiring Fund, the discharge or incurrence of
Acquiring Fund liabilities in the ordinary course of business, or the redemption
of Acquiring Fund shares by Acquiring Fund shareholders, shall not constitute
such a material adverse change;
(i) All material federal and other tax returns and reports of the Acquiring
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the best of the
Acquiring Fund's knowledge, no such return is currently under audit and no
assessment shall have been asserted with respect to such returns;
(j) For each taxable year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and the Acquiring Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company in the current and future years;
(k) All issued and outstanding shares of the Acquiring Fund are, and at the
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable (recognizing that, under Massachusetts law, Acquiring Fund
Shareholders could, under certain circumstances, be held personally liable for
obligations of Voyageur Trust). The Acquiring Fund Shares to be issued and
delivered to the Acquired Fund for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, at the Effective Time
will have been duly authorized and, when so issued and delivered, will be duly
and validly issued and outstanding, fully paid and non-assessable (recognizing
that, under Massachusetts law, Acquiring Fund Shareholders could, under certain
circumstances, be held personally liable for obligations of Voyageur Trust). The
Acquiring Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any Acquiring Fund shares, and there is not
outstanding any security convertible into any Acquiring Fund shares (other than
Class B shares which automatically convert to Class A shares after a specified
period);
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of Voyageur Trust's Board of Trustees, and at the Effective Time this
Agreement will constitute a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws relating to or affecting creditors' rights and to the application of
equitable principles in any proceeding, whether at law or in equity.
Consummation of the transactions contemplated by this Agreement does not require
the approval of the Acquiring Fund's shareholders;
(m) The information to be furnished by and on behalf of the Acquiring Fund
for use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects;
(n) Since the end of the Acquiring Fund's most recently concluded fiscal
year, there have been no material changes by the Acquiring Fund in accounting
methods, principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to the Acquired Fund; and
(o) The Registration Statement referred to in Section 5.5, on its effective
date and up to and including the Effective Time, will (i) conform in all
material respects to the applicable requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), and the 1940 Act and the
rules and regulations of the Commission thereunder, and (ii) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading
(other than as may timely be remedied by further appropriate disclosure);
provided, however, that the representations and warranties in clause (ii) of
this paragraph shall not apply to statements in (or omissions from) the
Registration Statement concerning the Acquired Fund, Mackenzie Trust, and their
agents and affiliates (or supplied by the Acquired Fund, Mackenzie Trust, or
their agents or affiliates for inclusion in said Registration Statement).
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Each of the Acquired Fund and the Acquiring Fund will operate its
business in the ordinary course between the date hereof and the Effective Time,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed). Between the date hereof and the Effective Time, the
Acquired Fund will not acquire any securities which are not permissible
investments for the Acquiring Fund.
5.2 The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action reasonably necessary to
obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary with respect to the Acquired Fund and its agents and
affiliates for the preparation of the Registration Statement on Form N-14 of the
Acquiring Fund (the "REGISTRATION STATEMENT"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such
state blue sky or securities laws as may be necessary in order to conduct its
operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by the Acquired Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquired Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected by the transactions contemplated by this Agreement;
6.3 The Acquiring Fund shall have delivered to the Acquired Fund the
certificate as to the issuance of Acquiring Fund shares contemplated by the
second sentence of Section 3.4;
6.4 The Acquiring Fund's investment adviser shall have paid or agreed to
pay the costs incurred by Voyageur Trust and Mackenzie Trust in connection with
the Reorganization, including the fees and expenses associated with the
preparation and filing of the Registration Statement referred to in Section 5.5
above, and the expenses of printing and mailing the prospectus/proxy statement,
soliciting proxies and holding the Acquired Fund shareholder meeting required to
approve the transactions contemplated by this Agreement; and
6.5 The Acquired Fund shall have received an opinion from Dorsey & Whitney
LLP, counsel to the Acquiring Fund, dated as of the Closing Date, to the effect
that:
(a) Under federal laws and the laws of the State of Minnesota, this
Agreement has been duly authorized, executed and delivered by the Acquiring
Fund and, assuming due authorization, execution and delivery of the
Agreement by the Acquired Fund, constitutes a valid and legally binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles;
(b) The execution and delivery of this Agreement did not and the exchange
of the Acquired Fund's assets for shares of the Acquiring Fund do not
violate (i) the Acquiring Fund's declaration of trust or bylaws or (ii) any
federal law of the United States or the laws of the State of Minnesota
applicable to the Acquiring Fund; provided, however, that (x) such counsel
may state that it expresses no opinion with respect to federal or state
securities laws, other antifraud laws and fraudulent transfer laws, (y)
insofar as performance by the Acquiring Fund of its obligations under this
Agreement is concerned such counsel may state that it expresses no opinion
as to bankruptcy, insolvency, reorganization, moratorium or similar laws of
general applicability relating to or affecting creditors' rights, and (z)
insofar as the opinion expressed in subsection (i) hereof involves the laws
of the Commonwealth of Massachusetts, such counsel may assume that such
laws are the same as the laws of the State of Minnesota;
(c) All regulatory consents, authorizations, approvals and filings required
to be obtained or made by the Acquired Fund under the federal laws of the
United States, the laws of the Commonwealth of Massachusetts and state Blue
Sky or securities laws for the consummation of the transactions
contemplated by this Agreement have been obtained or made.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder at or
before the Effective Time and, in addition thereto, the following conditions
(any of which may be waived by the Acquiring Fund, in its sole and absolute
discretion):
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time.
7.2 The Acquired Fund shall have delivered to the Acquiring Fund the
Effective Time Statement.
7.3 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquiring Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected by the transactions contemplated by this Agreement.
7.4 The Acquired Fund shall have delivered to the Acquiring Fund the
written instructions to the custodian for the Acquired Fund contemplated by
Section 3.2.
7.5 The Acquired Fund shall have delivered to the Acquiring Fund the
certificate as to its shareholder records contemplated by the first sentence of
Section 3.4.
7.6 At or prior to the Effective Time, the expenses incurred by the
Acquired Fund (or accrued up to the Effective Time) shall have been maintained
by the Acquired Fund's investment adviser or otherwise so as not to exceed any
applicable contractual or state-imposed expense
limitations.
7.7 At or prior to the Effective Time, appropriate action shall have been
taken by the Acquired Fund's investment adviser or otherwise such that no
unamortized organizational expenses shall be reflected in the Effective Time
Statement.
7.8 Immediately prior to the Effective Time, the Acquired Fund shall not
hold any securities which are not permissible investments for the Acquiring
Fund.
7.9 On or prior to the Closing Date, the Acquired Fund shall have made a
distribution to its shareholders of its net tax-exempt income, ordinary taxable
income and net realized capital gains, if any, for its taxable year ending on
the Closing Date, to the extent necessary to avoid federal income and excise
taxes on its income and gains and to maintain its status as a regulated
investment company under the Code.
7.10 The Acquiring Fund shall have received an opinion from Dechert Price &
Rhoads, counsel to the Acquired Fund, dated as of the Closing Date, to the
effect that:
(a) Mackenzie Trust has been duly organized and is validly existing as a
business trust under the laws of the Commonwealth of Massachusetts with
requisite power and authority to own its properties and, to the knowledge of
such counsel, to carry on its business as presently conducted;
(b) Under federal laws and the laws of the Commonwealth of Massachusetts,
this Agreement has been duly authorized, executed and delivered by the Acquired
Fund and, assuming due authorization, execution and delivery of the Agreement by
the Acquiring Fund, constitutes a valid and legally binding obligation of the
Acquired Fund enforceable against the Acquired Fund in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles;
(c) The execution and delivery of this Agreement did not and the exchange
of the Acquired Fund's assets for shares of the Acquiring Fund do not violate
(i) the Acquired Fund's declaration of trust or bylaws or (ii) any federal law
of the United States or the laws of the Commonwealth of Massachusetts applicable
to the Acquired Fund, provided, however, that such counsel may state that it
expresses no opinion with respect to federal or state securities laws, other
antifraud laws and fraudulent transfer laws; and provided further that insofar
as performance by the Acquired Fund of its obligations under this Agreement is
concerned such counsel may state that it expresses no opinion as to bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
relating to or affecting creditors' rights;
d) All regulatory consents, authorizations, approvals and filings required
to be obtained or made by the Acquired Fund under the federal laws of the United
States and the laws of the Commonwealth of Massachusetts for the consummation of
the transactions contemplated by this Agreement have been obtained or made.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite votes of (a) the Board of Trustees of each of the
Acquiring Fund and the Acquired Fund, and (b) the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the Acquired
Fund's Amended and Restated Declaration of Trust, as amended, and By-Laws and
applicable law, and each Fund shall have delivered certified copies of the
resolutions evidencing such approvals to the other Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the conditions set forth in this Section 8.1.
8.2 As of the Effective Time, no action, suit or other proceeding shall be,
to the knowledge of either party to this Agreement, threatened or pending before
any court or governmental agency in which it is sought to restrain or prohibit,
or obtain damages or other relief in connection with, this Agreement or the
transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop order suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The parties shall have received the opinion of Dorsey & Whitney LLP
addressed to the Acquired Fund and the Acquiring Fund, dated as of the date of
the Closing, and based in part on certain representations to be furnished by the
Acquired Fund, the Acquiring Fund, and their respective investment advisers,
substantially to the effect that:
(a) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(D) of the Code, and the Acquiring Fund and the Acquired
Fund each will qualify as a party to the Reorganization under Section 368(b) of
the Code;
(b) the Acquired Fund shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of the Acquiring Fund Shares.
Acquired Fund shareholders subject to taxation will recognize income upon
receipt of any net investment income or net capital gains of the Acquired Fund
which are distributed by the Acquired Fund prior to the Effective Time;
(ci) the tax basis of the Acquiring Fund Shares received by each Acquired
Fund shareholder pursuant to the Reorganization will be equal to the tax basis
of the Acquired Fund shares exchanged therefor;
(d) the holding period of the Acquiring Fund Shares received by each
Acquired Fund shareholder pursuant to the Reorganization will include the period
during which the Acquired Fund shareholder held the Acquired Fund shares
exchanged therefor, provided that the Acquired Fund shares were held as a
capital asset at the Effective Time;
(e) the Acquired Fund will recognize no income, gain or loss by reason of
the Reorganization;
(f) the Acquiring Fund will recognize no income, gain or loss by reason of
the Reorganization;
(g)) the tax basis of the assets received by the Acquiring Fund pursuant to
the Reorganization will be the same as the basis of those assets in the hands of
the Acquired Fund as of the Effective Time;
(h) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which such assets
were held by the Acquired Fund; and
(i) the Acquiring Fund will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of the Acquired Fund as of the
Effective Time.
9. INDEMNIFICATION
9.1 The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Acquired Fund or any of its
directors or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2 The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Acquiring Fund or any of its
directors or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty, covenant or agreement not set forth herein
and that this Agreement constitutes the entire agreement between the parties.
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall survive
the consummation of the transactions contemplated hereby.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned at any time prior to the Closing:
(a) by either party by resolution of the party's board of trustees at any
time prior to the Effective Time, if circumstances should develop that, in the
good faith opinion of such board, make proceeding with this Agreement and such
transactions not in the best interest of the applicable party's shareholders;
(b) By either party by notice to the other, without liability to the
terminating party on account of such termination (providing the terminating
party is not otherwise in material default or breach of this Agreement) if the
Closing shall not have occurred on or before August 31, 1996.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund shareholders called by the Acquired Fund pursuant
to Section 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of Acquiring Fund Shares to
be issued to Acquired Fund shareholders under this Agreement to the detriment of
such shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to the
Acquiring Fund at 90 South Seventh Street, Suite 4400, Minneapolis, Minnesota
55402, Attention: President, and to the Acquired Fund at Via Mizner Financial
Plaza, 700 South Federal Highway, Boca Raton, Florida 33432, Attention:
President.
14. HEADINGS; COUNTERPARTS; ASSIGNMENT; MISCELLANEOUS
14.1 The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 All agreements, covenants, representations and warranties made herein
by the Acquired Fund, and all obligations, duties, responsibilities, rights and
privileges created hereunder in the name of the Acquired Fund, and all actions
that are to be taken by the Acquired Fund, shall be treated as if made, created
or to be taken by Mackenzie Trust on behalf of the Acquired Fund. The name
"Mackenzie Series Trust" is the designation of the Trustees for the time being
under a Declaration of Trust dated April 22, 1985, as amended. The Acquired
Fund's obligations hereunder shall not be binding upon any of the Trust's
trustees, shareholders, nominees, officers, agents, or employees personally, but
shall bind only the trust property of Mackenzie Trust. Any persons dealing with
Mackenzie Trust must look solely to trust property for the enforcement of any
claims against Mackenzie Trust. No series of Mackenzie Trust other than the
Acquired Fund is responsible for the Acquired Fund's obligations.
14.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
either party without the prior written consent of the other party. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14 .5 The validity, interpretation and effect of this Agreement shall be
governed exclusively by the laws of the Commonwealth of Massachusetts, without
giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President.
VOYAGEUR INVESTMENT TRUST II
on behalf of
VOYAGEUR FLORIDA LIMITED TERM TAX
FREE FUND
By________________________________
Its_______________________________
MACKENZIE SERIES TRUST
on behalf of
MACKENZIE FLORIDA LIMITED TERM
MUNICIPAL FUND
By________________________________
Its_______________________________
PROSPECTUS /PROXY STATEMENT
APRIL 26, 1996
PROPOSED ACQUISITION OF ASSETS OF
MACKENZIE FLORIDA LIMITED TERM
MUNICIPAL FUND
A SEPARATELY MANAGED SERIES OF
MACKENZIE SERIES TRUST
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR FLORIDA LIMITED TERM
TAX FREE FUND
THE SOLE OUTSTANDING SERIES OF
VOYAGEUR INVESTMENT TRUST II
================================================
TABLE OF CONTENTS
================================================
PAGE
----
INCORPORATION BY REFERENCE............... 2
SUMMARY.................................. 4
PRINCIPAL RISK FACTORS................... 11
COMPARISON OF INVESTMENT
OBJECTIVES, POLICIES AND
RESTRICTIONS.......................... 14
CAPITALIZATION........................... 17
INFORMATION ABOUT THE
REORGANIZATION........................ 17
VOTING INFORMATION....................... 21
FINANCIAL STATEMENTS AND EXPERTS
22
LEGAL MATTERS............................ 23
OTHER INFORMATION ABOUT MACKENZIE
FUND AND VOYAGEUR FUND................ 23
EXHIBIT A -- AGREEMENT AND PLAN OF
REORGANIZATION........................ A-1
THE FOLLOWING DOCUMENTS ACCOMPANY THIS
PROSPECTUS/PROXY STATEMENT:
PROSPECTUS DATED MARCH 1, 1995, AS
SUPPLEMENTED NOVEMBER 9, 1995, OF
VOYAGEUR FLORIDA LIMITED TERM TAX
FREE FUND
ANNUAL REPORT OF VOYAGEUR FLORIDA
LIMITED TERM TAX FREE FUND FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995
PROSPECTUS
Dated March 1, 1995 as supplemented November 9, 1995
- --------------------------------------------------------------------------------
Each of the funds listed on this page (individually, a "Fund" and together, the
"Funds") is a series of an open end management investment company, commonly
referred to as a mutual fund. Three styles of funds are contained in this
combined Prospectus: limited term tax free funds (the "Limited Term Tax Free
Funds"), longer term tax free funds (the "Tax Free Funds") and longer term
insured tax free funds (the "Insured Tax Free Funds"). The investment objective
of each Limited Term Tax Free Fund is to provide investors with preservation of
capital and, secondarily, current income exempt from federal income tax and
(except for the "national" fund) the personal income tax, if any, of the Fund's
particular state, by maintaining a weighted average portfolio maturity of 10
years or less. The investment objective of each Tax Free Fund and Insured Tax
Free Fund is to seek as high a level of current income exempt from federal
income tax and (except for the "national" fund) from the personal income tax, if
any, of the Fund's particular state, as is consistent with preservation of
capital. The weighted average maturity of the investment portfolio of each Tax
Free Fund and Insured Tax Free Fund is expected to be approximately 15 to 25
years. There is no assurance that any Fund will achieve its investment
objective.
Tax Exempt Obligations (as defined herein) in the investment portfolios of
the Insured Tax Free Funds consist primarily of insured securities and "escrow
secured" or "defeased" bonds. Insurance on portfolio securities does not
guarantee the market value of such securities or the value of the Insured Tax
Free Funds' shares. See "Investment Objectives and Policies -- Insured Tax Free
Funds."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C>
Voyageur Arizona Limited Term Tax Free Fund Voyageur Kansas Tax Free Fund
Voyageur Arizona Insured Tax Free Fund(1) Voyageur Minnesota Limited Term Tax Free Fund(1)
Voyageur Arizona Tax Free Fund Voyageur Minnesota Insured Fund(1)
Voyageur California Limited Term Tax Free Fund Voyageur Minnesota Tax Free Fund(1)
Voyageur California Insured Tax Free Fund(1) Voyageur Missouri Insured Tax Free Fund
Voyageur California Tax Free Fund Voyageur New Mexico Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund Voyageur North Dakota Tax Free Fund
Voyageur Colorado Insured Tax Free Fund Voyageur Oregon Insured Tax Free Fund
Voyageur Colorado Tax Free Fund(1) Voyageur Utah Tax Free Fund
Voyageur Florida Limited Term Tax Free Fund Voyageur Washington Insured Tax Free Fund
Voyageur Florida Insured Tax Free Fund(1) Voyageur Wisconsin Tax Free Fund
Voyageur Florida Tax Free Fund Voyageur National Limited Term Tax Free Fund(1)
Voyageur Idaho Tax Free Fund Voyageur National Insured Tax Free Fund(1)
Voyageur Iowa Tax Free Fund Voyageur National Tax Free Fund(1)
- --------------------------------------------------------------------------------------------------
</TABLE>
1 Diversified series
The Funds' investment adviser is Voyageur Fund Managers, Inc. ("Voyageur"). The
address of Voyageur and the Funds is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
AN INVESTMENT IN ANY OF THE FUNDS IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER FEDERAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS
INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL DUE TO
FLUCTUATIONS IN THE APPLICABLE FUND'S NET ASSET VALUE.
This Prospectus sets forth certain information about the Funds that a
prospective investor ought to know before investing. Investors should read and
retain this Prospectus for future reference. The Funds have filed a Statement of
Additional Information (dated March 1, 1995) with the Securities and Exchange
Commission. The Statement of Additional Information is available free of charge
by telephone (800-553- 2143) and is incorporated by reference herein in its
entirety.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Funds offer investors a choice among classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.
CLASS A SHARES
An investor who purchases Class A shares pays a sales charge at the time of
purchase. As a result, Class A shares are not subject to any charges when they
are redeemed (except for sales at net asset value in excess of $1 million or
sales subject to special promotions identified from time to time by Voyageur
which in either case are subject to a contingent deferred sales charge). The
initial sales charge may be reduced or waived for certain purchases. Class A
shares of each Fund are subject to a Rule 12b-1 fee payable at an annual rate of
.25% of a Fund's average daily net assets attributable to Class A shares. See
"How to Purchase Shares -- Class A Shares."
CLASS B SHARES
Class B shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 4% if redeemed within six years of
purchase. Class B shares are also subject to a higher Rule 12b-1 fee than Class
A shares. The Rule 12b-1 fee for Class B shares will be paid at an annual rate
of 1% of a Fund's average daily net assets attributable to Class B shares. Class
B shares will automatically convert to Class A shares at net asset value
approximately eight years after purchase. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made but until conversion will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares -- Class B Shares."
CLASS C SHARES
Class C shares are sold without an initial sales charge. Class C shares are also
subject to a higher Rule 12b-1 fee than Class A shares. The Rule 12b-1 fee for
Class C shares of each Fund will be paid at an annual rate of 1% of the Fund's
average daily net assets attributable to Class C shares. Class C shares provide
an investor the benefit of putting all of the investor's dollars to work from
the time the investment is made, but will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee. See "How
to Purchase Shares -- Class C Shares." Class C shares do not convert to any
other class of shares.
The decision as to which class of shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
and intended length of the investment. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Other investors might
consider Class B or Class C shares because all of the purchase price is invested
immediately. Voyageur will treat orders for Class B shares for $250,000 or more
as orders for Class A shares or declined. Sales personnel may receive different
compensation depending on which class of shares they sell.
SHARES OF THE FUNDS COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN ALL STATES.
SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING OFFERED AND
SOLD IN SUCH STATES.
<TABLE>
<CAPTION>
FEES AND EXPENSES
- ------------------------------------------------------------------------------------------------------------
Shareholder Transaction
Expenses Annual Fund Operating Expenses
------------------------ as a percentage of Average Net Assets Total
After Fee Waivers and Fund
Reimbursement Agreements Operating
Maximum ------------------------------------------ Expenses
Front End Maximum Without
Sales Load CDSC Manage- Total Fund Voluntary
Imposed on Imposed on ment Other Operating Waiver and
VOYAGEUR FUNDS (a) Purchases Redemptions Fee 12B-1 Fee Expenses Expenses Reimbursement
- ------------------------------------------------------------------------------------------------------------
STATE LONG TERM FUNDS
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona Tax Free - Class A 4.75% 100% 0.25% 0.25% --% 0.50% 1.25%
Arizona Tax Free - Class B N/A* 4.00 0.25 1.00 -- 1.25 2.00
Arizona Tax Free - Class C N/A* None 0.25 1.00 -- 1.25 2.00
California Tax Free - Class A 4.75 1.00** 0.25 0.25 -- 0.50 1.25
California Tax Free - Class B N/A* 4.00 0.25 1.00 -- 1.25 2.00
California Tax Free - Class C N/A* None 0.25 1.00 -- 1.25 2.00
Colorado Tax Free - Class A 3.75 1.00** 0.50 0.10 0.20 0.80 0.95
Colorado Tax Free - Class B N/A* 4.00 0.50 1.00 0.20 1.70 1.70
Colorado Tax Free - Class C N/A* None 0.50 1.00 0.20 1.70 1.70
Florida Tax Free - Class A 4.75 1.00** 0.25 0.25 -- 0.50 1.25
Florida Tax Free - Class B N/A* 4.00 0.25 1.00 -- 1.25 2.00
Florida Tax Free - Class C N/A* None 0.25 1.00 -- 1.25 2.00
Idaho Tax Free - Class A 3.75 1.00** 0.25 0.25 -- 0.50 1.25
Idaho Tax Free - Class B N/A* 4.00 0.25 1.00 -- 1.25 2.00
Idaho Tax Free - Class C N/A* None 0.25 1.00 -- 1.25 2.00
Iowa Tax Free - Class A 3.75 1.00** 0.50 0.10 0.30 0.90 1.25
Iowa Tax Free - Class B N/A* 4.00 0.50 1.00 0.30 1.80 2.00
Iowa Tax Free - Class C N/A* None 0.50 1.00 0.30 1.80 2.00
Kansas Tax Free - Class A 4.75 1.00** 0.50 0.10 -- 0.60 1.25
Kansas Tax Free - Class B N/A* 4.00 0.50 1.00 -- 1.50 2.00
Kansas Tax Free - Class C N/A* None 0.50 1.00 -- 1.50 2.00
Minnesota Tax Free - Class A 4.75 1.00** 0.50 0.25 0.16 0.91 0.91
Minnesota Tax Free - Class B N/A* 4.00 0.50 1.00 0.16 1.66 1.66
Minnesota Tax Free - Class C N/A* None 0.50 1.00 0.16 1.66 1.66
New Mexico Tax Free - Class A 3.75 1.00** 0.50 0.10 0.40 1.00 1.15
New Mexico Tax Free - Class B N/A* 4.00 0.50 1.00 0.40 1.90 1.90
New Mexico Tax Free - Class C N/A* None 0.50 1.00 0.40 1.90 1.90
North Dakota Tax Free - Class A 4.75 1.00** 0.50 0.05 0.45 1.00 1.20
North Dakota Tax Free - Class B N/A* 4.00 0.50 1.00 0.45 1.95 1.95
North Dakota Tax Free - Class C N/A* None 0.50 1.00 0.45 1.95 1.95
Utah Tax Free - Class A 3.75 1.00** 0.50 0.10 -- 0.60 1.25
Utah Tax Free - Class B N/A* 4.00 0.50 1.00 -- 1.50 2.00
Utah Tax Free - Class C N/A* None 0.50 1.00 -- 1.50 2.00
Wisconsin Tax Free - Class A 3.75 1.00** 0.50 0.10 0.45 1.05 1.20
Wisconsin Tax Free - Class B N/A* 4.00 0.50 1.00 0.45 1.95 1.95
Wisconsin Tax Free - Class C N/A* None 0.50 1.00 0.45 1.95 1.95
STATE INSURED FUNDS
Arizona Insured - Class A 4.75% 1.00**% 0.50% 0.20% 0.20% 0.90% 0.95%
Arizona Insured - Class B N/A* 4.00 0.50 1.00 0.20 1.70 1.70
Arizona Insured - Class C N/A* None 0.50 1.00 0.20 1.70 1.70
California Insured - Class A 4.75 1.00** 0.50 0.15 0.15 0.80 1.20
California Insured - Class B N/A* 4.00 0.50 1.00 0.15 1.65 1.95
California Insured - Class C N/A* None 0.50 1.00 0.15 1.65 1.95
Colorado Insured - Class A 3.75 1.00** 0.25 0.25 -- 0.50 1.25
Colorado Insured - Class B N/A* 4.00 0.25 1.00 -- 1.25 2.00
Colorado Insured - Class C N/A* None 0.25 1.00 -- 1.25 2.00
Florida Insured - Class A 4.75 1.00** 0.50 0.05 0.20 0.75 1.00
Florida Insured - Class B N/A* 4.00 0.50 1.00 0.20 1.70 1.75
Florida Insured - Class C N/A* None 0.50 1.00 0.20 1.70 1.75
Minnesota Insured - Class A 4.75 100 0.50 0.25 0.20 0.95 1.00
Minnesota Insured - Class B N/A* 4.00 0.50 1.00 0.20 1.70 1.75
Minnesota Insured - Class C N/A* None 0.50 1.00 0.20 1.70 1.75
Missouri Insured - Class A 4.75 1.00** 0.50 0.10 -- 0.60 1.20
Missouri Insured - Class B N/A* 4.00 0.50 1.00 -- 1.50 1.95
Missouri Insured - Class C N/A* None 0.50 1.00 -- 1.50 1.95
Oregon Insured - Class A 4.75 1.00** 0.50 0.10 0.10 0.70 1.25
Oregon Insured - Class B N/A* 4.00 0.50 1.00 0.10 1.60 2.00
Oregon Insured - Class C N/A* None 0.50 1.00 0.10 1.60 2.00
Washington Insured - Class A 4.75 1.00** 0.50 0.10 -- 0.60 1.25
Washington Insured - Class B N/A* 4.00 0.50 1.00 -- 1.50 2.00
Washington Insured - Class C N/A* None 0.50 1.00 -- 1.50 2.00
STATE LIMITED TERM FUNDS
Arizona Limited Term - Class A 2.75% 1.00**% 0.25% 0.25% --% 0.50% 1.25%
Arizona Limited Term - Class B N/A* 3.00 0.25 1.00 -- 1.25 2.00
Arizona Limited Term- Class C N/A* None 0.25 1.00 -- 1.25 2.00
California Limited Term - Class A 2.75 1.00** 0.25 0.25 -- 0.50 1.25
California Limited Term - Class B N/A* 3.00 0.25 1.00 -- 1.25 2.00
California Limited Term - Class C N/A* None 0.25 1.00 -- 1.25 2.00
Colorado Limited Term - Class A 2.75 1.00** 0.25 0.25 -- 0.50 1.25
Colorado Limited Term- Class B N/A* 3.00 0.25 1.00 -- 1.25 2.00
Colorado Limited Term- Class C N/A* None 0.25 1.00 -- 1.25 2.00
Florida Limited - Class A 2.75 1.00** 0.40 0.15 0.25 0.80 1.25
Florida Limited - Class B N/A* 3.00 0.40 1.00 0.25 1.65 2.00
Florida Limited - Class C N/A* None 0.40 1.00 0.25 1.65 2.00
Minnesota Limited Term - Class A 2.75 1.00** 0.40 0.25 0.27 0.92 0.92
Minnesota Limited Term - Class B N/A* 3.00 0.40 1.00 0.27 1.67 1.67
Minnesota Limited Term - Class C N/A* None 0.40 1.00 0.27 1.67 1.67
NATIONAL FUNDS
National Tax Free - Class A 4.75% 1.00**% 0.25% 0.25% --% 0.50% 1.25%
National Tax Free - Class B N/A* 4.00 0.25 1.00 -- 1.25 2.00
National Tax Free - Class C N/A* None 0.25 1.00 -- 1.25 2.00
National Insured - Class A 4.75 1.00** 0.50 0.20 0.10 0.80 1.25
National Insured - Class B N/A* 4.00 0.50 1.00 0.10 1.60 2.00
National Insured - Class C N/A* None 0.50 1.00 0.10 1.60 2.00
National Limited Term - Class A 2.75 1.00* 0.25 0.25 -- 0.50 1.25
National Limited Term - Class B N/A* 3.00 0.25 1.00 -- 1.25 2.00
National Limited Term - Class C N/A* None 0.25 1.00 -- 1.25 2.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES (CONTINUED)
- --------------------------------------------------------------------------------
Example of Expenses
An investor in a Voyageur Fund would pay
the following dollar amount of expenses on
a $1,00 investment assuming
(1) a 5% annual return and
(2) redemption at the end of each period
-----------------------------------------------
VOYAGEUR FUNDS (a) 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
STATE LONG TERM FUNDS
Arizona Tax Free - Class A $52 $63 $ -- $--
Arizona Tax Free - Class B 53** 70*** -- --
Arizona Tax Free - Class C 13 40 -- --
California Tax Free - Class A 52 63 -- --
California Tax Free - Class B 53*** 70*** -- --
California Tax Free - Class C 13 40 -- --
Colorado Tax Free - Class A 45 62 80 133
Colorado Tax Free - Class B 57*** 84*** 112*** 177
Colorado Tax Free - Class C 17 54 92 201
Florida Tax Free - Class A 52 63 -- --
Florida Tax Free - Class B 53*** 70*** -- --
Florida Tax Free - Class C 13 40 -- --
Idaho Tax Free - Class A 42 53 -- --
Idaho Tax Free - Class B 53*** 70*** -- --
Idaho Tax Free - Class C 13 40 -- --
Iowa Tax Free - Class A 46 65 85 144
Iowa Tax Free - Class B 58*** 87*** 117*** 188
Iowa Tax Free - Class C 18 57 97 212
Kansas Tax Free - Class A 53 66 79 119
Kansas Tax Free - Class B 55*** 77*** 102*** 155
Kansas Tax Free - Class C 15 47 82 179
Minnesota Tax Free - Class A 56 75 95 154
Minnesota Tax Free - Class B 57*** 82*** 110*** 176
Minnesota Tax Free - Class C 17 52 90 197
New Mexico Tax Free - Class A 47 68 91 155
New Mexico Tax Free - Class B 59*** 90*** 123*** 199
New Mexico Tax Free - Class C 19 60 103 222
North Dakota Tax Free - Class A 57 78 100 164
North Dakota Tax Free - Class B 60*** 91*** 125*** 203
North Dakota Tax Free - Class C 20 61 105 227
Utah Tax Free - Class A 43 56 70 110
Utah Tax Free - Class B 55*** 77*** 102*** 155
Utah Tax Free - Class C 15 47 82 179
Wisconsin Tax Free - Class A 48 70 93 161
Wisconsin Tax Free - Class B 60*** 91*** 125*** 204
Wisconsin Tax Free - Class C 20 61 105 227
STATE INSURED FUNDS
Arizona Insured - Class A $56 $75 $95 $153
Arizona Insured - Class B 57*** 84*** 112*** 179
Arizona Insured - Class C 17 54 92 201
California Insured - Class A 55 72 90 142
California Insured - Class B 57*** 82*** 110*** 173
California Insured - Class C 17 52 90 195
Colorado Insured - Class A 42 53 -- --
Colorado Insured - Class B 53*** 70*** -- --
Colorado Insured - Class C 13 40 -- --
Florida Insured - Class A 55 70 87 136
Florida Insured - Class B 57*** 84*** 112*** 175
Florida Insured - Class C 17 54 92 201
Minnesota Insured - Class A 57 76 98 159
Minnesota Insured - Class B 57*** 84*** 112*** 181
Minnesota Insured - Class C 17 54 92 201
Missouri Insured - Class A 53 66 79 119
Missouri Insured - Class B 55*** 77*** 102*** 155
Missouri Insured - Class C 15 47 82 179
Oregon Insured - Class A 54 69 85 130
Oregon Insured - Class B 56 80*** 107*** 166
Oregon Insured - Class C 16 50 87 190
Washington Insured - Class A 53 66 79 119
Washington Insured - Class B 55*** 77*** 102*** 155
Washington Insured - Class C 15 47 82 179
STATE LIMITED TERM FUNDS
Arizona Limited Term - Class A $32 $43 $-- $--
Arizona Limited Term - Class B 53*** 70*** -- --
Arizona Limited Term - Class C 13 40 -- --
California Limited Term - Class A 32 43 -- --
California Limited Term - Class B 53*** 70*** -- --
California Limited Term - Class C 13 40 -- --
Colorado Limited Term - Class A 32 43 -- --
Colorado Limited Term - Class B 53*** 70*** -- --
Colorado Limited Term - Class C 13 40 -- --
Florida Limited - Class A 35 52 71 124
Florida Limited - Class B 57*** 82*** 110*** 173
Florida Limited - Class C 17 52 90 195
Minnesota Limited Term - Class A 37 56 77 138
Minnesota Limited Term - Class B 57*** 83*** 111 177
Minnesota Limited Term - Class C 17 53 91 198
NATIONAL FUNDS
National Tax Free - Class A $52 $63 $-- $--
National Tax Free - Class B 53*** 70*** -- --
National Tax Free - Class C 13 40 -- --
National Insured - Class A 55 72 90 142
National Insured - Class B 56*** 80*** 107*** 168
National Insured - Class C 16 50 87 190
National Limited Term - Class A 32 43 -- --
National Limited Term - Class B 53*** 70*** -- --
National Limited Term - Class C 13 40 -- --
- --------------------------------------------------------------------------------
* 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.
** A contingent deferred sales charge of up to 1.00% is imposed on certain
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more.
*** Class B share expenses would be lower assuming no redemption at the end of
the period.
(a) The Underwriter pays broker-dealers and financial institutions an annual
fee equal to .25% of the average daily net assets attributable to the Class
A shares (.15% for Class A shares of Limited Term Funds), .15% of the
average daily net assets attributable to the Class B shares, and .75% of
the average daily net assets attributable to the Class C shares held by
their customers. The fee is paid quarterly commencing when such shares are
sold.
THE EXAMPLES CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of the above Fees and Expenses table is to
assist the investor in understanding the various costs and expenses that
investors in the Funds will bear directly or indirectly. The information set
forth in the table reflects actual expenses incurred during fiscal 1994 for the
Class A shares of Minnesota Tax Free Fund and Minnesota Limited Term Tax Free
Fund. For all other Funds, such information has been restated to reflect
anticipated voluntary Rule 12b-1 waivers and expense reimbursements during
fiscal 1995. After December 31, 1995, such expense waivers and reimbursements
may be discontinued or modified by Voyageur and the Underwriter in their sole
discretion. The Funds' investment adviser, Voyageur, is contractually obligated
to pay certain of the operating expenses (excluding rule 12b-1 fees) of each
Fund which exceed 1% of the Fund's average daily net assets on an annual basis,
as further discussed in the section "Management--Expenses of the Funds." For the
fiscal period ended December 31, 1994, Voyageur and the Underwriter voluntarily
waived certain fees and absorbed certain expenses of each Fund then in existence
except for Minnesota Tax Free Fund and Minnesota Limited Term Tax Free Fund.
Absent such fee and expense waivers, Total Fund Operating Expenses for such
period would be equivalent to the corresponding percentages disclosed under the
column "Ratio of Expenses to Average Net Assets Assuming No Voluntary Waivers"
in the section "Financial Highlights".
FINANCIAL HIGHLIGHTS
The following table shows certain per share data and selected information for a
share outstanding during the indicated periods for each Fund. This information
has been audited by KPMG Peat Marwick LLP, independent auditors, and should be
read in conjunction with the financial statements of each Fund contained in its
annual report. An annual report of each Fund is available without charge by
contacting the Funds at 800-553-2143. In addition to financial statements, the
annual reports contain further information about the performance of the Funds.
Per share data is not presented for all classes since not all classes of shares
were outstanding during the periods presented below.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Income from
Investment
Operations Less Distributions
---------------- ------------------
Net
Realized Dividends
Net and from Distrib-
Asset Net Unrealized Net utions
Value Invest- Gains Invest- from Net Asset
Beginning ment (Loss) on ment Captial Value End
VOYAGEUR STATE FUNDS of Period Income Securities Income Gains of Period
- --------------------------------------------------------------------------------
ARIZONA INSURED
Class A - 12/31/94 $11.31 0.55 (1.37) (0.53) (0.10)(h)$ 9.86
Calss A - 12/31/93 10.71 0.58 0.74 (0.58) (0.14) 11.31
Class A - 12/31/92 10.39 0.61 0.38 (0.61) (0.06) 10.71
Class A - 12/31/91(a) 10.00 0.50 0.47 (0.50) (0.08) 10.39
Class C - 12/31/94(a) 10.43 0.27 (0.51) (0.25) (0.08)(h) 9.86
CALIFORNIA INSURED
Class A - 12/31/94(b) 9.51 0.10 (0.18) (0.09) (0.01) 9.33
Class A - 10/31/94 11.08 0.55 (1.52) (0.54) (0.06) 9.51
Class A - 10/31/93 10.02 0.60 1.11 (0.60) (0.05) 11.08
Class A - 10/31/92(a) 10.00 -- 0.02 -- -- 10.02
Class B - 12/31/94(b) 9.51 0.08 (0.17) (0.08) (0.01) 9.33
Class B - 10/31/94(a) 10.68 0.31 (1.16) (0.30) (0.02) 9.51
COLORADO TAX FREE
Class A - 12/31/94 11.10 0.55 (1.54) (0.54) (0.04) 9.53
Class A - 12/31/93 10.57 0.56 0.85 (0.56) (0.32) 11.10
Class A - 12/31/92 10.27 0.58 0.45 (0.58) (0.15) 10.57
Class A - 12/31/91 10.02 0.61 0.43 (0.61) (0.18) 10.27
Class A - 12/31/90 10.00 0.64 0.02 (0.64) -- 10.02
Class A - 12/31/89 9.74 0.67 0.32 (0.67) (0.06) 10.00
Class A - 12/31/88 9.43 0.69 0.34 (0.69) (0.03) 9.74
Class A - 12/31/87(a) 9.58 0.49 (0.15) (0.49) -- 9.43
Class C - 12/31/94(a) 10.21 0.29 (0.67) (0.27) (0.03) 9.53
FLORIDA INSURED
Class A - 12/31/94(b) 9.64 0.10 (0.12) (0.09) (0.01) 9.52
Class A - 10/31/94 11.15 0.55 (1.46) (0.54) (0.06) 9.64
Class A - 10/31/93 10.11 0.58 1.12 (0.58) (0.08) 11.15
Class A - 10/31/92(a) 10.00 0.51 0.15 (0.51) (0.04) 10.11
Class B - 12/31/94(b) 9.63 0.09 (0.11) (0.08) (0.01) 9.52
Class B - 10/31/94(a) 10.82 0.31 (1.19) (0.30) (0.01) 9.63
FLORIDA LIMITED TERM
Class A - 12/31/94(a) 10.00 0.18 (0.36) (0.18) -- 9.64
IOWA
Class A - 12/31/94(b) 9.26 0.17 (0.72) (0.15) -- 8.56
Class A - 8/31/94 10.00 0.49 (0.74) (0.49) -- 9.26
KANSAS
Class A - 12/31/94(b) 9.63 0.09 (0.13) (0.09) -- 9.50
Class A - 10/31/94 10.85 0.57 (1.21) (0.57) (0.01) 9.63
Class A - 10/31/93(a) 10.00 0.56 0.85 (0.56) -- 10.85
MINNESOTA TAX FREE
Class A - 12/31/94 12.85 0.63 (1.48) (0.61) (0.06)(g) 11.33
Class A - 12/31/93 12.21 0.64 0.87 (0.64) (0.23) 12.85
Class A - 12/31/92 12.07 0.70 0.23 (0.70) (0.09) 12.21
Class A - 12/31/91 11.67 0.75 0.49 (0.75) (0.09) 12.07
Class A - 12/31/90 11.68 0.77 0.02 (0.77) (0.03) 11.67
Class A - 12/31/89 11.48 0.80 0.22 (0.80) (0.02) 11.68
Class A - 12/31/88 11.16 0.80 0.32 (0.80) -- 11.48
Class A - 12/31/87 11.85 0.81 (0.66) (0.81) (0.03) 11.16
Class A - 12/31/86 11.12 0.86 0.82 (0.86) (0.09) 11.85
Class A - 12/31/85 10.21 0.93 0.91 (0.93) -- 11.12
Class C - 12/31/94(a) 11.96 0.34 (0.61) (0.32) (0.04) 11.33
MINNESOTA INSURED
Class A - 12/31/94 11.02 0.54 (1.39) (0.52) (0.04) 9.61
Class A - 12/31/93 10.27 0.54 0.84 (0.54) (0.09) 11.02
Class A - 12/31/92 10.07 0.59 0.25 (0.59) (0.05) 10.27
Class A - 12/31/91 9.65 0.60 0.48 (0.60) (0.06) 10.07
Class A - 12/31/90 9.64 0.61 0.02 (0.61) (0.01) 9.65
Class A - 12/31/89 9.48 0.63 0.20 (0.63) (0.04) 9.64
Class A - 12/31/88 9.19 0.67 0.29 (0.67) -- 9.48
Class A - 12/31/87(a) 9.51 0.46 (0.32) (0.46) -- 9.19
Class C - 12/31/94(a) 10.23 0.30 (0.62) (0.28) (0.02) 9.61
MINNESOTA LIMITED TERM
Class A - 12/31/94(b) 10.98 0.37 (0.48) (0.37) -- 10.50
Class A - 2/28/94(c) 11.16 0.08 (0.18) (0.08) -- 10.98
Class A - 12/31/93 10.83 0.47 0.37 (0.47) (0.04) 11.16
Class A - 12/31/92 10.69 0.51 0.18 (0.51) (0.04) 10.83
Class A - 12/31/91 10.32 0.55 0.37 (0.55) -- 10.69
Class A - 12/31/90 10.26 0.60 0.06 (0.60) -- 10.32
Class A - 12/31/89 10.21 0.59 0.05 (0.59) -- 10.26
Class A - 12/31/88 10.17 0.53 0.04 (0.53) -- 10.21
Class A - 12/31/87 10.43 0.55 (0.25) (0.55) (0.01) 10.17
Class A - 12/31/86 10.20 0.61 0.24 (0.61) (0.01) 10.43
Class A - 12/31/85(a) 10.00 0.12 0.20 (0.12) -- 10.20
Class C - 12/31/94(a) 10.74 0.24 (0.24) (0.24) -- 10.50
MISSOURI INSURED
Class A - 12/31/94(b) 9.37 0.10 (0.11) (0.09) -- 9.27
Class A - 10/31/94 10.82 0.55 (1.43) (0.54) (0.03) 9.37
Class A - 10/31/93(a) 10.00 0.55 0.89 (0.55) (0.07) 10.82
Class B - 12/31/94(b) 9.37 0.08 (0.10) (0.08) -- 9.27
Class B - 10/31/94(a) 10.50 0.33 (1.14) (0.32) -- 9.37
NEW MEXICO
Class A - 12/31/94(b) 9.77 0.11 (0.20) (0.09) -- 9.59
Class A - 10/31/94 10.92 0.56 (1.16) (0.55) -- 9.77
Class A - 10/31/93 10.00 0.57 0.98 (0.57) (0.06) 10.92
Class A - 10/31/92(a) 10.00 -- -- -- -- 10.00
Class B - 12/31/94(b) 9.77 0.09 (0.19) (0.08) -- 9.59
Class B - 10/31/94(a) 10.76 0.31 (1.00) (0.30) -- 9.77
NORTH DAKOTA
Class A - 12/31/94 11.07 0.56 (1.15) (0.53) (0.10)(i) 9.85
Class A - 12/31/93 10.59 0.58 0.58 (0.58) (0.10) 11.07
Class A - 12/31/92 10.34 0.62 0.34 (0.62) (0.09) 10.59
Class A - 12/31/91(a) 10.00 0.49 0.41 (0.49) (0.07) 10.34
Class B - 12/31/94(a) 10.31 0.30 (0.39) (0.27) (0.10)(i) 9.85
OREGON INSURED
Class A - 12/31/94(b) 9.00 0.09 (0.09) (0.08) -- 8.92
Class A - 10/31/94 10.24 0.50 (1.24) (0.50) -- 9.00
Class A - 10/31/93(a) 10.00 0.13 0.24 (0.13) -- 10.24
Class B - 12/31/94(b) 9.00 0.08 (0.09) (0.07) -- 8.92
Class B - 10/31/94(a) 10.00 0.27 (1.00) (0.27) -- 9.00
UTAH
Class A - 12/31/94(b) 9.94 0.10 (0.15) (0.09) -- 9.80
Class A - 10/31/94 11.07 0.60 (1.07) (0.60) (0.06) 9.94
Class A - 10/31/93 10.00 0.65 1.07 (0.65) -- 11.07
Class A - 10/31/92(a) 10.00 -- -- -- -- 10.00
WASHINGTON INSURED
Class A - 12/31/94(b) 9.37 0.09 (0.16) (0.09) -- 9.21
Class A - 10/31/94 10.67 0.55 (1.26) (0.57) (0.02) 9.37
Class A - 10/31/93(a) 10.00 0.15 0.67 (0.15) -- 10.67
WISCONSIN
Class A - 12/31/94(b) 9.28 0.16 (0.55) (0.15) -- 8.74
Class A - 8/31/94 10.00 0.49 (0.72) (0.49) -- 9.28
NATIONAL INSURED
Class A - 12/31/94 10.67 0.56 (1.34) (0.55) (0.02) 9.32
Class A - 12/31/93 10.14 0.60 0.60 (0.60) (0.07) 10.67
Class A - 12/31/92(a) 10.00 0.57 0.14 (0.57) -- 10.14
Class B - 12/31/94(a) 9.81 0.31 (0.50) (0.29) (0.01) 9.32
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Ratio of
Net Ratio of
Ratio of Investment Expenses to
Total Net Expenses Income Net Assets
Invest- Assets to to Portfolio Assuming No
ment End Average Average Turn- Voluntary
Return of Period Net Net over Waivers and
VOYAGEUR STATE FUNDS (d) (000s) Assets Assets Rate Reimbursement
- ------------------------------------------------------------------------------------
ARIZONA INSURED
<S> <C> <C> <C> <C> <C> <C>
Class A - 12/31/94 (7.41%) $231,736 0.72% 5.20% 25.18% 0.92%
Class A - 12/31/93 12.64 263,312 0.59 5.00 33.80 1.03
Class A - 12/31/92 9.86 124,120 0.35 5.60 40.29 1.16
Class A - 12/31/91(a) 9.98 38,322 --(f) 6.58(e) 177.66 1.24(e)
Class C - 12/31/94(a) (2.38) 326 1.50(e) 4.10(e) 25.18 1.71(e)
CALIFORNIA INSURED
Class A - 12/31/94(b) (0.84) 27,994 0.10(e) 6.30(e) 7.28 1.24(e)
Class A - 10/31/94 (8.97) 27,282 0.20 5.37 18.34 1.25
Class A - 10/31/93 17.29 12,509 -- 5.26 24.19 1.25
Class A - 10/31/92(a) 0.20 2,056 -- -- 7.31 --
Class B - 12/31/94(b) (0.92) 2,219 0.57(e) 5.54(e) 7.28 1.94(e)
Class B - 10/31/94 (7.93) 1,427 0.73(e) 4.82(e) 18.34 1.95(e)
10/31/94(a)
COLORADO TAX FREE
Class A - 12/31/94 (9.12) 354,138 0.66 5.35 69.32 0.72
Class A - 12/31/93 13.72 399,218 0.75 4.97 58.61 0.75
Class A - 12/31/92 10.42 202,165 0.80 5.59 69.72 0.80
Class A - 12/31/91 10.80 104,863 0.82 6.15 92.42 0.82
Class A - 12/31/90 6.81 53,987 1.00 6.38 69.64 1.00
Class A - 12/31/89 10.73 34,625 1.00 6.37 33.06 1.00
Class A - 12/31/88 10.57 19,767 1.00 6.77 56.31 1.00
Class A - 12/31/87(a) 3.27 5,546 1.00(e) 6.49(e) 92.80 1.00
Class C - 12/31/94(a) (3.75) 465 1.80(e) 4.23(e) 69.32 1.81(e)
FLORIDA INSURED
Class A - 12/31/94(b) (0.11) 240,228 0.20(e) 6.24(e) 2.51 1.06(e)
Class A - 10/31/94 (8.38) 259,702 0.44 5.24 49.12 0.96
Class A - 10/31/93 17.27 289,682 0.18 5.18 53.51 1.12
Class A - 10/31/92(a) 6.74 50,666 -- 5.38(e) 208.24 1.25(e)
Class B - 12/31/94(b) (0.03) 1,477 0.59(e) 5.68(e) 2.51 1.81(e)
Class B - 10/31/94(a) (8.10) 1,135 1.00(e) 4.63(e) 49.12 1.28(e)
FLORIDA LIMITED TERM
Class A - 12/31/94(a) (1.55) 592 -- 4.19(e) -- 1.25(e)
IOWA
Class A - 12/31/94(b) (5.86) 32,373 0.11(e) 5.71(e) 7.18 1.25(e)
Class A - 8/31/94 (2.67) 38,669 0.12 4.89 119.35 1.25
KANSAS
Class A - 12/31/94(b) (0.38) 7,355 0.01(e) 5.88(e) -- 1.25(e)
Class A - 10/31/94 (6.10) 6,469 0.06 5.30 38.96 1.25
Class A - 10/31/93(a) 14.49 2,057 -- 5.26(e) 28.87 1.25(e)
MINNESOTA TAX FREE
Class A - 12/31/94 (6.73) 406,497 0.90 5.29 24.26 0.90
Class A - 12/31/93 12.70 458,145 1.02 5.02 31.77 1.02
Class A - 12/31/92 7.97 331,314 0.96 5.73 23.60 1.04
Class A - 12/31/91 11.04 251,594 0.83 6.44 26.40 0.98
Class A - 12/31/90 7.03 197,629 0.82 6.68 20.54 1.02
Class A - 12/31/89 9.11 172,476 0.77 6.85 22.84 0.77
Class A - 12/31/88 10.31 150,031 0.77 7.01 9.56 0.77
Class A - 12/31/87 1.38 124,082 0.78 7.10 13.84 0.78
Class A - 12/31/86 15.68 106,563 0.85 7.45 11.40 0.85
Class A - 12/31/85 18.76 48,755 1.00 8.57 31.00 1.00
Class C - 12/31/94(a) (2.30) 1,061 1.72(e) 4.56(e) 24.26 1.72(e)
MINNESOTA INSURED
Class A - 12/31/94 (7.88) 284,132 0.61 5.29 24.75 0.94
Class A - 12/31/93 13.80 311,187 0.70 4.93 18.25 1.02
Class A - 12/31/92 8.57 162,728 0.37 5.66 14.11 1.06
Class A - 12/31/91 11.59 68,250 0.78 6.13 43.68 1.16
Class A - 12/31/90 6.63 29,394 0.74 6.30 15.12 1.25
Class A - 12/31/89 8.96 8,217 0.78 6.55 28.34 1.00
Class A - 12/31/88 10.70 4,707 0.86 7.08 68.09 1.00
Class A - 12/31/87(a) 1.48 2,759 0.76(e) 7.93(e) 20.66 1.00(e)
Class C - 12/31/94(a) (3.14) 1,525 1.36(e) 4.68(e) 24.75 1.68(e)
MINNESOTA LIMITED TERM
Class A - 12/31/94(b) (0.98) 84,168 0.92(e) 4.20(e) 42.05 0.92(e)
Class A - 2/28/94(c) (0.95) 78,823 0.88(e) 4.02(e) 0.01 0.88(e)
Class A - 12/31/93 7.88 75,374 0.99 4.18 19.13 0.99(e)
Class A - 12/31/92 6.62 48,210 1.09 4.71 25.56 1.09
Class A - 12/31/91 9.24 27,268 1.23 5.35 43.39 1.23
Class A - 12/31/90 6.59 22,526 1.18 5.81 51.47 1.18
Class A - 12/31/89 6.43 21,884 0.84 5.74 68.23 0.84
Class A - 12/31/88 6.02 24,157 0.84 5.15 16.13 0.84
Class A - 12/31/87 2.97 29,063 0.84 5.14 24.79 0.84
Class A - 12/31/86 8.58 20,967 1.00 5.81 30.10 1.00
Class A - 12/31/85(a) 3.24 1,787 1.00(e) 7.04(e) 6.20 1.00(e)
Class C - 12/31/94(a) (0.03) 341 1.71(e) 3.35(e) 42.05 1.71(e)
MISSOURI INSURED
Class A - 12/31/94(b) (0.07) 37,790 0.11(e) 6.00(e) 8.85 1.12(e)
Class A - 10/31/94 (8.28) 37,384 0.15 5.39 32.02 1.13
Class A - 10/31/93(a) 14.74 30,270 -- 4.82(e) 76.51 1.25(e)
Class B - 12/31/94(b) (0.14) 2,742 0.60(e) 5.32(e) 8.85 1.84(e)
Class B - 10/31/94(a) (7.75) 1,701 0.49(e) 4.89(e) 32.02 1.83(e)
NEW MEXICO
Class A - 12/31/94(b) (0.90) 19,706 0.06(e) 6.38(e) 2.21 1.25(e)
Class A - 10/31/94 (5.56) 23,096 0.29 5.26 22.94 1.16
Class A - 10/31/93 15.77 17,302 -- 5.10 30.76 1.25
Class A - 10/31/92(a) -- 361 -- -- -- --
Class B - 12/31/94(b) (0.98) 272 0.75(e) 5.60(e) 2.21 2.00(e)
Class B - 10/31/94(a) (6.40) 264 0.98(e) 4.57(e) 22.94 1.86(e)
NORTH DAKOTA
Class A - 12/31/94 (5.47) 33,829 0.46 5.36 32.60 1.14
Class A - 12/31/93 11.20 34,880 0.59 5.11 27.39 1.25
Class A - 12/31/92 9.70 15,846 0.40 5.78 26.27 1.25
Class A - 12/31/91 9.23 4,914 0.16(e) 6.43(e) 126.37 1.25(e)
Class B - 12/31/94(a) (0.77) 144 0.99(e) 4.97(e) 32.60 1.89(e)
OREGON INSURED
Class A - 12/31/94(b) 0.06 14,650 0.05(e) 5.79(e) -- 1.25(e)
Class A - 10/31/94 (7.35) 14,086 0.03 5.17 48.98 1.25
Class A - 10/31/93(a) 3.64 4,609 -- 4.61(e) 11.08 1.25(e)
Class B - 12/31/94(b) 0.03 1,303 0.60(e) 5.19(e -- 2.00(e)
Class B - 10/31/94(a) (7.21) 1,146 0.75(e) 4.43 48.98 2.00(e)
UTAH
Class A - 12/31/94 (0.41) 3,728 0.11(e) 6.38(e) -- 1.14(e)
Class A - 10/31/94 (4.50) 4,054 0.10 5.64 2.77 1.25
Class A - 10/31/93 17.54 3,913 -- 5.65 44.54 1.25
Class A - 10/31/92(a) -- 19 -- -- -- --
WASHINGTON INSURED
Class A - 12/31/94(b) (0.69) 2,049 0.10(e) 6.18(e) -- 1.25(e)
Class A - 10/31/94 (6.85) 2,118 0.14 5.44 -- 1.25
Class A - 10/31/93(a) 8.05 2,108 -- 5.50(e) 45.14 1.25(e)
WISCONSIN
Class A - 12/31/94(b) (4.12) 20,167 0.08(e) 5.54(e) 20.52 1.25(e)
Class A - 8/31/94 (2.40) 16,093 0.04 4.89 86.26 1.25
NATIONAL INSURED
Class A - 12/31/94 (7.45) 35,305 0.10 5.71 31.25 1.25
Class A - 12/31/93 12.10 25,315 -- 5.29 77.79 1.25
Class A - 12/31/92(a) 7.43 2,919 --(f) 5.85(e) 114.92 1.25(e)
Class B - 12/31/94(a) (1.94) 478 0.48(e) 5.37(e) 31.25 1.99(e)
- ------------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
(a) The information is for the period from each Fund's commencement of
operations to the Fund's year end. The classes of each Voyageur Fund commenced
operations on the following dates:
<TABLE>
<CAPTION>
ARIZONA INSURED TAX FREE FUND MINNESOTA LIMITED TERM TAX FREE FUND
<S> <C> <C> <C>
Class A April 1, 1991 Class A October 27, 1985
Class C April 30, 1994 Class C April 30, 1994
CALIFORNIA INSURED TAX FREE FUND MISSOURI INSURED TAX FREE FUND
Class A October 15, 1992 Class A November 2, 1992
Class B March 1, 1994 Class B March 1, 1994
COLORADO TAX FREE FUND NEW MEXICO TAX FREE FUND
Class A April 23, 1987 Class A October 5, 1992
Class C April 30, 1994 Class B March 1, 1994
FLORIDA INSURED TAX FREE FUND NATIONAL INSURED TAX FREE FUND
Class A January 1, 1992 Class A January 10, 1992
Class B March 1, 1994 Class B April 30, 1994
FLORIDA LIMITED TERM TAX May 1, 1994
FREE FUND NORTH DAKOTA TAX FREE FUND
KANSAS TAX FREE FUND November 30, 1992 Class A April 1, 1991
MINNESOTA TAX FREE FUND Class B April 30, 1994
Class C April 30, 1994 OREGON INSURED TAX FREE FUND
MINNESOTA INSURED FUND Class A August 1, 1993
Class A May 1, 1987 Class B March 1, 1994
Class C April 30, 1994 UTAH TAX FREE FUND October 5, 1992
WASHINGTON INSURED TAX August 1, 1993
FREE FUND
</TABLE>
(b) Effective December 31, 1994, the fund changed its fiscal year end to
December 31.
(c) Effective February 28, 1994, the fund changed its fiscal year end to
February 28.
(d) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(e) Adjusted to an annual basis.
(f) The Adviser also paid $6,364 beyond total fees and expenses for National
Insured Tax Free Fund for the period ended December 31, 1992 and $25,631
for Arizona Insured Tax Free Fund for the period ended December 31, 1991.
(g) (.01) consists of distribitions in excess of net realized gains.
(h) (.06) and (.04) consists of distributions in excess of net realized gains
for Class A and Class C shares, respectively.
(i) (.02) and (.02) consists of distributions in excess of net realized gains
for Class A and Class B shares, respectively.
THE FUNDS
- --------------------------------------------------------------------------------
E ach of the Funds is a separate series of one of the parent corporate or trust
entities described herein under the heading "General Information." The series
which are diversified, as such term is defined in the Investment Company Act of
1940, as amended (the "1940 Act") are designated as such by a footnote on the
cover page of this Prospectus. All other series are non-diversified. Each
non-diversified Fund will be able to invest, subject to certain federal tax
requirements, a relatively higher percentage of its assets in the securities of
a limited number of issuers which may result in such Fund's securities being
more susceptible to any single economic, political or regulatory occurrence than
the securities of a diversified Fund. The investment objectives and policies of
each Fund are described below. Except where noted, an investment objective or
policy description applies to all Funds.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of each Limited Term Tax Free Fund is to provide
investors with preservation of capital and, secondarily, current income exempt
from federal income tax and (except for the National Limited Term Tax Free Fund)
the personal income tax, if any, of the Fund's particular state, by maintaining
a weighted average portfolio maturity of 10 years or less. The investment
objective of each Tax Free Fund and Insured Tax Free Fund is to seek as high a
level of current income exempt from federal income tax and (except for National
Tax Free Fund and National Insured Tax Free Fund) from the personal income tax,
if any, of the Fund's particular state, as is consistent with preservation of
capital. The weighted average maturity of the investment portfolio of each Tax
Free Fund and Insured Tax Free Fund is expected to be approximately 15 to 25
years. Each of Florida Limited Term Tax Free Fund, Florida Tax Free Fund and
Florida Insured Tax Free Fund will seek to select investments that will enable
its shares to be exempt from the Florida intangible personal property tax.
During times of adverse market conditions when a defensive investment
posture is warranted, each Fund may temporarily select investments without
regard to the foregoing policy. There are risks in any investment program, and
there is no assurance that a Fund's investment objective will be achieved. The
value of each Fund's shares will fluctuate with changes in the market value of
its investments. Each Fund's investment objective and certain other investment
policies explicitly designated herein as such are fundamental, which means that
they cannot be changed without the vote of its respective shareholders as
provided in the 1940 Act.
Each Fund anticipates that, in normal market conditions, it will invest
substantially all of its assets in Tax Exempt Obligations (as defined below),
the interest on which is exempt from federal income tax and (for Funds other
than the three "national" funds) from the personal income tax, if any, of its
respective state. Up to 20% of the securities owned by each such Fund may
generate interest that is an item of tax preference for purposes of federal and
state alternative minimum tax ("AMT"), except that the Minnesota Insured Fund
may invest without limit in such securities and the Minnesota Tax Free Fund may
not invest in such AMT securities.
TAX FREE AND LIMITED TERM TAX FREE FUNDS
Each Tax Free Fund and each Limited Term Tax Free Fund may invest without
limitation in securities rated "investment grade," i.e., within the four highest
investment grades, at the time of investment by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") or, if unrated, judged
by Voyageur to be of comparable quality. Bonds included in the lowest investment
grade rating category involve certain speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher rated bonds. Up to 20% of the Tax Exempt Obligations purchased by the
Funds may be rated lower than investment grade; however, all bonds must be rated
"B" or better by Moody's or S&P (or, if unrated, judged by Voyageur to be of
comparable quality). Such bonds are often referred to as "junk" bonds or "high
yield" bonds. Bonds rated below "BBB" have a greater vulnerability to default
than higher grade bonds. See "Risks and Special Investment Considerations --
General" for a discussion of the risks of investing in lower grade Tax Exempt
Obligations. A description of the ratings assigned by Moody's and S&P is set
forth in Appendix A to the Statement of Additional Information.
The following table sets forth the weighted average percentage of total
investments with respect to the portfolios of certain Funds during the year
ended December 31, 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MOODY'S RATING Aaa Aa A Baa Ba B Unrated
(S&P EQUIVALENT) (AAA) (AA) (A) (BBB) (BB) (B) Bonds Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VOYAGEUR TAX FREE FUNDS
Colorado 49% 19% 20% 11% 1% -- -- 100%
Iowa 16% 1% 83% -- -- -- -- 100%
Kansas 61% 33% 6% -- -- -- -- 100%
Minnesota 51% 19% 22% 3% -- -- 5% 100%
New Mexico 53% 24% 13% 9% -- -- 1% 100%
North Dakota 30% 19% 44% 6% -- -- 1% 100%
Utah 76% 12% 12% -- -- -- -- 100%
Wisconsin 38% 14% 35% 2% -- -- 11% 100%
VOYAGEUR LIMITED TERM
TAX FREE FUNDS
Florida 87% 4% 9% -- -- -- -- 100%
Minnesota 61% 18% 15% 3% -- -- 3% 100%
- ----------------------------------------------------------------------------------------------
</TABLE>
INSURED TAX FREE FUNDS
The Tax Exempt Obligations in each Insured Tax Free Fund's portfolio will
consist of (a) obligations that at all times are fully insured as to scheduled
payments of principal and interest ("insured securities") and (b) "escrow
secured" or "defeased" bonds. Insured securities may consist of bonds covered by
Primary Insurance, Secondary Market Insurance or Portfolio Insurance (as defined
below). All insurers must have a triple A-rated claims paying ability (as
assigned by either or both of Moody's and S&P) at the time of investment.
Securities that are covered by either Primary or Secondary Market Insurance will
carry a triple-A rating at the time of investment by the Fund. However,
securities that are not covered by either Primary or Secondary Market Insurance
at the time of investment (or that are not "escrow secured" or "defeased") must
be covered by Portfolio Insurance immediately after their acquisition. Voyageur
anticipates that such securities, at the time of investment, generally will be
rated investment grade. However, all securities in each Insured Tax Free Fund's
portfolio, after application of insurance, will be rated Aaa by Moody's and/or
AAA by S&P at the time of investment. Pending the investment or reinvestment of
its assets in longer-term Tax Exempt Obligations, each Insured Tax Free Fund may
invest up to 35% of its net assets in short-term tax exempt instruments, without
obtaining insurance, provided such instruments carry an A-l+ or SP-l+ short-term
rating or AAA or Aaa long-term rating by S&P or Moody's, and may invest up to
10% of its net assets in securities of tax exempt money market mutual funds. The
"insured securities" in each Insured Tax Free Fund's investment portfolio are
insured as to the scheduled payment of all installments of principal and
interest as they fall due. The purpose of such insurance is to minimize credit
risks to such Funds and their shareholders associated with defaults in Tax
Exempt Obligations owned by such Funds. Such insurance does not insure against
market risk and therefore does not guarantee the market value of the securities
in an Insured Tax Free Fund's investment portfolio or the value of any Insured
Tax Free Funds' shares.
Certain insurance companies will issue policies guaranteeing the timely
payment of principal of, and interest on, particular Tax Exempt Obligations or
on a portfolio of Tax Exempt Obligations. Insurance may be purchased by the
issuer of a Tax Exempt Obligation or by a third party at the time of issuance of
the Tax Exempt Obligation ("Primary Insurance") or by the Fund or a third party
subsequent to the original issuance of a Tax Exempt Obligation ("Secondary
Market Insurance"). In each case, a single premium is paid to the insurer by the
party purchasing the insurance when the insurance is obtained. Primary Insurance
and Secondary Market Insurance policies are non-cancellable and remain in effect
for so long as the insured Tax Exempt Obligation is outstanding and the insurer
is in business.
The Insured Tax Free Funds may also purchase insurance covering certain Tax
Exempt Obligations which the Insured Tax Free Funds intend to purchase for their
portfolios or which the Insured Tax Free Funds already own ("Portfolio
Insurance"). Portfolio Insurance policies guarantee the timely payment of
principal of, and interest on, covered Tax Exempt Obligations only while they
are owned by the Insured Tax Free Funds. Such policies are non-cancellable and
remain in effect until the Fund terminates, provided the Fund pays the
applicable insurance premiums and the insurer remains in business. Tax Exempt
Obligations in the Insured Tax Free Funds' portfolios covered by a Portfolio
Insurance policy will not be covered by such policy after they are sold by a
Fund unless the Fund elects to obtain some form of Secondary Market Insurance
for them at the time of sale. The Insured Tax Free Funds would obtain such
Secondary Market Insurance only if, in Voyageur's view, it would be economically
advantageous for the Funds to do so. Further information about insurance
(including its limitations) is set forth in the Statement of Additional
Information.
ALL FUNDS
The foregoing policies as to credit quality of portfolio investments will apply
only at the time of the purchase of a security, and the Funds are not required
to dispose of securities in the event that Moody's or S&P downgrades its
assessment of the credit characteristics of a particular issuer or, in the case
of unrated securities, in the event Voyageur reassesses its view with respect to
the credit quality of the issuer thereof. In no event, however, will more than
5% of each Fund's total assets consist of securities that have been downgraded
to a rating lower than the minimum rating in which each Fund is permitted to
invest or, in the case of unrated securities, that Voyageur has determined to
have a quality lower than such minimum rating. With respect to the Insured Tax
Free Funds, up to 35% of each such Fund's total assets may consist of securities
that have been downgraded to AA or Aa subsequent to initial investment in such
securities by an Insured Tax Free Fund.
Each Fund may invest without limitation in short term Tax Exempt
Obligations or in taxable obligations on a temporary, defensive basis due to
market conditions or, with respect to taxable obligations, for liquidity
purposes. Such taxable obligations, whether purchased for liquidity purposes or
on a temporary, defensive basis, may include: obligations of the U.S.
Government, its agencies or instrumentalities; other debt securities rated
within the three highest grades by either Moody's or S&P; commercial paper rated
in the highest grade by either of such rating services (Prime-1 or A-1,
respectively); certificates of deposit and bankers' acceptances of domestic
banks which have capital, surplus and undivided profits of over $100 million;
high-grade taxable municipal bonds; and repurchase agreements with respect to
any of the foregoing investments. Each Fund also may hold its assets in cash and
in securities of tax exempt money market mutual funds.
TAX EXEMPT OBLIGATIONS
As used in this Prospectus, the term "Tax Exempt Obligations" refers to debt
obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions, the interest
payable on which is, in the opinion of bond counsel, excludable from gross
income for purposes of federal income tax and (with respect to Funds other than
the National Fund, National Insured Fund or National Limited Term Fund) from the
personal income tax, if any, of the state specified in the Fund's name. The term
"Tax Exempt Obligations" also includes Derivative Tax Exempt Obligations as
defined below. In certain instances the interest on Tax Exempt Obligations may
be an item of tax preference includable in alternative minimum taxable income
depending upon the shareholder's tax status. See "Distributions to Shareholders
and Taxes -- Taxes."
Tax Exempt Obligations are primarily debt obligations issued to obtain
funds for various public purposes such as constructing public facilities and
making loans to public institutions. The two principal classifications of Tax
Exempt Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Tax Exempt
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Tax Exempt Obligations, there is
a variety of types of municipal securities. Certain Tax Exempt Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indexes, such as a
bank prime rate or a tax exempt money market index. Accordingly, the yield on
such obligations can be expected to fluctuate with changes in prevailing
interest rates. Other Tax Exempt Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.
Tax Exempt Obligations also include state or municipal leases and
participation interests therein. The Funds may invest in these types of
obligation without limit. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. Municipal lease obligations,
except in certain circumstances, are considered illiquid by the staff of the
Securities and Exchange Commission. Municipal lease obligations held by a Fund
will be treated as illiquid unless they are determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors. Under these guidelines,
Voyageur will consider factors including, but not limited to (1) whether the
lease can be cancelled, (2) what assurance there is that the assets represented
by the lease can be sold, (3) the municipality's general credit strength (e.g.,
its debt, administrative, economic and financial characteristics), (4) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
non-appropriation"), and (5) the legal recourse in the event of failure to
appropriate. Additionally, the lack of an established trading market for
municipal lease obligations may make the determination of fair market value more
difficult. See "Investment Policies and Restrictions -- Tax Exempt Obligations"
in the Statement of Additional Information.
Each Fund may also acquire Derivative Tax Exempt Obligations, which are
custodial receipts or certificates underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain Tax Exempt Obligations. The 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, a Fund typically would be authorized to assert its rights
directly against the issuer of the underlying obligation, a Fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, a Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if a Fund
had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which
the underlying security had been deposited is determined to be an association
taxable as a corporation, instead of a non taxable entity, it would be subject
to state income tax (but not federal income tax) on the income it earned on the
underlying security, and the yield on the security paid to such Fund and its
shareholders would be reduced by the amount of taxes paid. Furthermore, amounts
paid by the trust or custodial account to a Fund would lose their tax exempt
character and become taxable, for federal and state purposes, in the hands of
the Fund and its shareholders. However, each Fund will only invest in custodial
receipts which are accompanied by a tax opinion stating that interest payable on
the receipts is tax exempt. If a Fund invests in custodial receipts, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.
Investments in Derivative Tax Exempt Obligations, when combined with
investments in below investment grade rated securities, will not exceed 20% of
each Fund's total assets. For a discussion of certain risks involved in
investments in Derivative Tax Exempt Obligations, see "Risks and Special
Investment Considerations -- General."
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS
New issues of Tax Exempt Obligations and other securities are often purchased on
a "when issued" or delayed delivery basis, with delivery and payment for the
securities normally taking place 15 to 45 days after the date of the
transaction. The payment obligation and the interest rate that will be received
on the securities are each fixed at the time the buyer enters into the
commitment. Each Fund may enter into such "forward commitments" if it holds, and
maintains until the settlement date in a segregated account, cash or high-grade
liquid debt obligations in an amount sufficient to meet the purchase price.
There is no percentage limitation on each Fund's total assets which may be
invested in forward commitments. Tax Exempt Obligations purchased on a
when-issued basis and the securities held in a Fund's portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Tax Exempt Obligations
purchased on a when-issued basis may expose a Fund to risk because they may
experience such fluctuations prior to their actual delivery. Purchasing Tax
Exempt Obligations on a when-issued basis can involve the additional risk that
the yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Any significant commitment
by a Fund to the purchase of securities on a when-issued basis may increase the
volatility of the Fund's net asset value. Although each Fund will generally
enter into forward commitments with the intention of acquiring securities for
its portfolio, it may dispose of a commitment prior to settlement if the Fund's
investment manager deems it appropriate to do so. The Funds may realize
short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to not more than 10%
of its total assets (taken at current value), except when investing for
defensive purposes during times of adverse market conditions. Each Fund may
enter into repurchase agreements with respect to any securities which it may
acquire consistent with its investment policies and restrictions.
A repurchase agreement involves the purchase by a Fund of securities with
the condition that, after a stated period of time, the original seller (a member
bank of the Federal Reserve System or a recognized securities dealer) will buy
back the same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities. In the event the original seller defaults on its
obligation to repurchase, as a result of its bankruptcy or otherwise, the Fund
will seek to sell the collateral, which action could involve costs or delays. In
such case, the Fund's ability to dispose of the collateral to recover such
investment may be restricted or delayed. While collateral will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, a Fund could suffer a
loss. See "Investment Policies and Restrictions -- Taxable Obligations" in the
Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS
Certain Funds (Arizona Limited Term Tax Free Fund, Arizona Tax Free Fund,
California Limited Term Tax Free Fund, California Tax Free Fund, Colorado
Limited Term Tax Free Fund, Colorado Insured Tax Free Fund, Florida Limited Term
Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free Fund, National Limited Term
Tax Free Fund and National Tax Free Fund) may engage in "reverse repurchase
agreements" with banks and securities dealers with respect to not more than 10%
of its total assets. Reverse repurchase agreements are ordinary repurchase
agreements in which the Fund is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular sale and later
repurchase of the securities because it avoids certain market risks and
transaction costs. Because certain of the incidents of ownership of the security
are retained by the Fund, reverse repurchase agreements are considered a form of
borrowing by the Fund from the buyer, collateralized by the security. At the
time a Fund enters into a reverse repurchase agreement, cash, U. S. Government
securities or other liquid high grade debt obligations having a value sufficient
to make payments for the securities to be repurchased will be segregated, and
will be marked to market daily and maintained throughout the period of the
obligation. Reverse repurchase agreements may be used as a means of borrowing
for investment purposes subject to the 10% limitation set forth above. This
speculative technique is referred to as leveraging. Leveraging may exaggerate
the effect on net asset value of any increase or decrease in the market value of
the Fund's portfolio. Money borrowed for leveraging will be subject to interest
costs which may or may not be recovered by income from or appreciation of the
securities purchased. Because the Funds do not currently intend to utilize
reverse repurchase agreements in excess of 10% of total assets, the Funds
believe the risks of leveraging due to use of reverse repurchase agreements to
principal are reduced. Voyageur believes that the limited use of leverage may
facilitate the Fund's ability to provide current income without adversely
affecting the Fund's ability to preserve capital.
OPTIONS AND FUTURES
Each Fund may utilize put and call transactions and certain Funds (see "Futures
Contracts and Options on Futures Contracts" below) may utilize futures
transactions to hedge against market risk and facilitate portfolio management.
See "Investment Policies and Restrictions -- Options and Futures Transactions"
in the Statement of Additional Information. Options and futures may be used to
attempt to protect against possible declines in the market value of a Fund's
portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), to protect a Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of a Fund's portfolio or to establish a position in the securities markets as a
temporary substitute for purchasing particular securities. The use of options
and futures is a function of market conditions. Other transactions may be used
by the Funds in the future for hedging purposes as they are developed to the
extent deemed appropriate by the Board.
OPTIONS ON SECURITIES
Each Fund may write (i.e., sell) covered put and call options and purchase put
and call options on the securities in which it may invest and on indices of
securities in which it may invest, to the extent such put and call options are
available.
A put option gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option on
or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date, at
a predetermined price.
In purchasing a call option, a Fund would be in a position to realize a
gain if, during the option period, the price of the security increased by an
amount in excess of the premium paid. It would realize a loss if the price of
the security declined or remained the same or did not increase during the period
by more than the amount of the premium. In purchasing a put option, a Fund would
be in a position to realize a gain if, during the option period, the price of
the security declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained the same or
did not decrease during that period by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund.
If a put option written by a Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by a Fund were exercised, the Fund would be obligated to sell the
underlying security at the exercise price. The risk involved in writing a put
option is that there could be a decrease in the market value of the underlying
security caused by rising interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then be sold to the
Fund at a higher price than its current market value. The risk involved in
writing a call option is that there could be an increase in the market value of
the underlying security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying security would
then be sold by the Fund at a lower price than its current market value. These
risks could be reduced by entering into a closing transaction as described in
Appendix B to the Statement of Additional Information. The Fund retains the
premium received from writing a put or call option whether or not the option is
exercised.
Over-the-counter options are purchased or written by a Fund in privately
negotiated transactions. Such options are illiquid, and it may not be possible
for a Fund to dispose of an option it has purchased or terminate its obligations
under an option it has written at a time when Voyageur believes it would be
advantageous to do so. Over the counter options are subject to each Fund's 15%
illiquid investment limitation. See Appendix B to the Statement of Additional
Information for a further discussion of the general characteristics and risks of
options.
Participation in the options market involves investment risks and
transaction costs to which the Funds would not be subject absent the use of this
strategy. If Voyageur's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
a Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (1) dependence on Voyageur's
ability to predict correctly movements in the direction of interest rates and
securities prices; (2) imperfect correlation between the price of options and
movements in the prices of the securities being hedged; (3) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences. See
"Investment Policies and Restrictions -- Risks of Transactions in Futures
Contracts and Options" in the Statement of Additional Information for further
discussion and see Appendix B for a discussion of closing transactions and other
risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Certain Funds (Arizona Limited Term Tax Free Fund, Arizona Tax Free Fund,
California Limited Term Tax Free Fund, California Tax Free Fund, Colorado
Limited Term Tax Free Fund, Colorado Insured Tax Free Fund, Florida Limited Term
Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free Fund, National Limited Term
Tax Free Fund and National Tax Free Fund) may enter into contracts for the
purchase or sale for future delivery of fixed income securities or contracts
based on financial indices including any index of securities in which the Fund
may invest ("futures contracts") and may purchase and write put and call options
to buy or sell futures contracts ("options on futures contracts"). A "sale" of a
futures contract means the acquisition of a contractual obligation to deliver
the securities called for by the contract at a specified price on a specified
date. The purchaser of a futures contract on an index agrees to take or make
delivery of an amount of cash equal to the difference between a specified dollar
multiple of the value of the index on the expiration date of the contract
("current contract value") and the price at which the contract was originally
struck. Options on futures contracts to be written or purchased by the Fund will
be traded on exchanges or over the counter. The successful use of such
instruments draws upon Voyageur's experience with respect to such instruments
and usually depends upon Voyageur's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize losses and would thus be in a worse position than if
such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the prices of the securities hedged or used for cover will not be
perfect.
A Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements. To the extent required to
comply with applicable Securities and Exchange Commission releases and staff
positions, when purchasing a futures contract or writing a put option, the Fund
will maintain in a segregated account cash, U. S. Government securities or other
liquid high grade debt securities equal to the value of such contracts, less any
margin on deposit. In addition, the rules and regulations of the Commodity
Futures Trading Commission currently require that, in order to avoid "commodity
pool operator" status, the Fund must use futures and options positions (a) for
"bona fide hedging purposes" (as defined in the regulations) or (b) for other
purposes so long as aggregate initial margins and premiums required in
connection with non hedging positions do not exceed 5% of the liquidation value
of the Fund's portfolio. There are no other numerical limits on 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
Although each Fund may invest 25% or more of its total assets in revenue bonds,
as a fundamental policy, no Fund will invest 25% or more of its total assets in
revenue bonds payable only from revenues derived from facilities or projects
within a single industry, except that the Funds may invest without limitation,
in circumstances in which other appropriate available investments may be in
limited supply, in housing, health care, and/or utility obligations. In
addition, Arizona Limited Term Tax Free Fund, Arizona Tax Free Fund, California
Limited Term Tax Free Fund, California Tax Free Fund, Colorado Limited Term Tax
Free Fund, Colorado Insured Tax Free Fund, Florida Limited Term Tax Free Fund,
Florida Tax Free Fund, Idaho Tax Free Fund, National Limited Term Tax Free Fund
and National Tax Free Fund may invest in such circumstances in transportation,
education and/or industrial obligations. In such circumstances, economic,
business, political and other changes affecting one bond might also affect other
bonds in the same segment, thereby potentially increasing market or credit risk.
For a discussion of these segments of the municipal bond market, see "Investment
Policies and Restrictions -- Concentration Policy" in the Statement of
Additional Information.
Each Fund's Board may change any of the foregoing policies that are not
specifically designated fundamental. The non-fundamental policy of each Insured
Fund requiring the Tax Exempt Obligations to be insured may not be eliminated
except upon 30 days' advance notice to the shareholders of the applicable
Insured Fund.
RISKS AND SPECIAL INVESTMENT CONSIDERATIONS
- -------------------------------------------------------------------------------
GENERAL
T he yields on Tax Exempt Obligations are dependent on a variety of factors,
including the financial condition of the issuer or other obligor thereon or the
revenue source from which debt service is payable, general economic and monetary
conditions, conditions in the relevant market, the size of a particular issue,
maturity of the obligation and the rating of the issue. Generally, the value of
Tax Exempt Obligations will tend to fall as interest rates rise and will tend to
increase as interest rates decrease. In addition, Tax Exempt Obligations of
longer maturity produce higher current yields than Tax Exempt Obligations with
shorter maturities but are subject to greater price fluctuation due to changes
in interest rates, tax laws and other general market factors. Lower-rated Tax
Exempt Obligations generally produce a higher yield than higher-rated Tax Exempt
Obligations due to the perception of a greater degree of risk as to the payment
of principal and interest. Certain Tax Exempt Obligations held by a Fund may
permit the issuer at its option to "call," or redeem, its securities. If an
issuer were to redeem securities held by a
Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
In normal circumstances, each Fund (except for the Insured Tax Free Funds)
may invest up to 20% of its total assets in Tax Exempt Obligations rated below
investment grade (but not rated lower than B by S&P or Moody's) or in unrated
Tax Exempt Obligations considered by Voyageur to be of comparable quality to
such securities. Investment in such lower grade Tax Exempt Obligations involves
special risks as compared with investment in higher grade Tax Exempt
Obligations. The market for lower grade Tax Exempt Obligations is considered to
be less liquid than the market for investment grade Tax Exempt Obligations,
which may adversely affect the ability of a Fund to dispose of such securities
in a timely manner at a price which reflects the value of such securities in
Voyageur's judgment. The market price for less liquid securities tends to be
more volatile than the market price for more liquid securities. The lower
liquidity of and the absence of readily available market quotations for lower
grade Tax Exempt Obligations may make Voyageur's valuation of such securities
more difficult, and Voyageur's judgment may play a greater role in the valuation
of the Fund's lower grade Tax Exempt Obligations. Periods of economic
uncertainty and changes may have a greater impact on the market price of such
bonds and, therefore, the net asset value of any Fund investing in such
obligations.
Lower grade Tax Exempt Obligations generally involve greater credit risk
than higher grade Tax Exempt Obligations and are more sensitive to adverse
economic changes, significant increases in interest rates and individual issuer
developments. Because issuers of lower grade Tax Exempt Obligations frequently
choose not to seek a rating of such securities, a Fund will rely more heavily on
Voyageur's ability to determine the relative investment quality of such
securities than if such Fund invested exclusively in higher grade Tax Exempt
Obligations. A Fund may, if deemed appropriate by Voyageur, retain a security
whose rating has been downgraded below B by S & P or Moody's, or whose rating
has been withdrawn. In no event, however, will more than 5% of each Fund's total
assets consist of securities that have been downgraded to a rating lower than
the minimum rating in which each Fund is permitted to invest or, in the case of
unrated securities, that have been determined by Voyageur to be of a quality
lower than such minimum rating. Additional information concerning the risks
associated with instruments in lower grade Tax Exempt Obligations is included in
the Fund's Statement of Additional Information.
The principal and interest payments on the Derivative Tax Exempt
Obligations underlying custodial receipts may be allocated in a number of ways.
For example, payments may be allocated such that certain custodial receipts may
have variable or floating interest rates and others may be stripped securities
which pay only the principal or interest due on the underlying Tax Exempt
Obligations. The Funds may also invest in custodial receipts which are "inverse
floating obligations" (also sometimes referred to as "residual interest bonds").
These securities pay interest rates that vary inversely to changes in the
interest rates of specified short term Tax Exempt Obligations or an index of
short term Tax Exempt Obligations. Thus, as market interest rates increase, the
interest rates on inverse floating obligations decrease. Conversely, as market
rates decline, the interest rates on inverse floating obligations increase. Such
securities have the effect of providing a degree of investment leverage, since
the interest rates on such securities will generally change at a rate which is a
multiple of the change in the interest rates of the specified Tax Exempt
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other Tax
Exempt Obligations and investments in these types of obligations will increase
the volatility of the net asset value of shares of the Funds.
STATE CONSIDERATIONS
The value of Tax Exempt Obligations owned by the Funds may be adversely affected
by local political and economic conditions and developments within a particular
state. Adverse conditions in an industry significant to a local economy could
have a correspondingly adverse effect on the financial condition of local
issuers. Other factors that could affect Tax Exempt Obligations include a change
in the local, state or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes and other developments generally affecting the revenues of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandatory additional services). A summary description of certain
factors affecting and statistics describing issuers of Tax Exempt Obligations of
each applicable state is set forth below. Such information has been taken from
publicly available offering documents relating to the relevant state or issuers
located in such state. No Fund or Voyageur has independently verified this
information and no Fund or Voyageur makes any representation regarding such
information. See "Special Factors Affecting the Funds" in the Statement of
Additional Information.
ARIZONA'S primary economic sectors include services, tourism and
manufacturing. Arizona maintained a general fund surplus of $229 million (on
general fund revenues of $4.164 billion) for its 1994 fiscal year. Currently
there are no general obligation ratings for the state. CALIFORNIA'S primary
economic sectors are services, trade and manufacturing. Recently Orange County,
California filed a voluntary petition under the bankruptcy code. It is uncertain
what effect the filing will have on the state's ratings or on issuers located
within Orange County. California projected a general fund deficit for its
1994-95 fiscal year of over $1 billion (on estimated revenues of approximately
$41.891 billion). Currently, California's general obligation bonds are rated A1
by Moody's and A by S&P. COLORADO'S economy is based primarily on services.
Colorado projected a generally balanced budget for its 1994 fiscal year (on
estimated revenues of approximately $3.570 billion). Currently there are no
general obligation ratings for Colorado. FLORIDA'S economy is based primarily on
the services sector and tourism in particular. Florida projected a general fund
surplus of $313 million for its 1994-1995 fiscal year (on estimated revenues of
approximately $14.624 billion). Currently, Florida's general obligation bonds
are rated Aa by Moody's and AA by S&P. IDAHO'S primary economic sectors are
agriculture, manufacturing and mining. Idaho maintained a fiscal year 1993
general fund surplus of approximately $10 million (on revenues of approximately
$1 billion). Currently there are no general obligation ratings for Idaho. IOWA'S
primary economic sectors are services, manufacturing and agriculture. Iowa
projected an unreserved fund balance of approximately $71.5 million (on
estimated revenues of approximately $6.258 billion) for its fiscal year 1994.
Currently there are no general obligation ratings for Iowa. KANSAS' economy is
based primarily on agriculture, manufacturing, and services. Kansas projected a
positive general fund balance for its 1995 fiscal year (on estimated revenues of
approximately $3.702 billion). Currently there are no general obligation ratings
for Kansas. MINNESOTA'S economy is based primarily on agriculture, manufacturing
and services. Minnesota projects a balanced general fund at the end of its 1995
biennium. Currently Minnesota's general obligation bonds are rated Aa1 by
Moody's and AA+ by S&P. MISSOURI'S primary economic sectors are services,
manufacturing and trade. Missouri had a general fund surplus of $260 million for
its 1992 fiscal year (on revenues of approximately $9.352 billion). Currently
Missouri's general obligation bonds are rated Aaa by Moody's and AAA by S&P. NEW
MEXICO'S economy is based primarily on agriculture but also has tourism,
services and mining sectors. New Mexico projected a $150 million general fund
surplus for its 1994 fiscal year (on estimated revenues of approximately $2.56
billion). Currently New Mexico's general obligation bonds are rated Aa1 by
Moody's and AA by S&P. NORTH DAKOTA'S economy is based primarily on agriculture.
North Dakota had a positive fund balance for its 1994 fiscal year (on revenues
of approximately $1.345 billion). Currently North Dakota's general obligation
bonds are rated Aa by Moody's and AA- by S&P. OREGON'S economy is based
primarily on forestry, agriculture and tourism sectors. Oregon projected a
general fund surplus of approximately $102 million for its 1995 biennium (on
estimated revenue of approximately $6.158 billion). Currently Oregon's general
obligation bonds are rated Aa by Moody's and AA-by S&P. UTAH'S economy is based
primarily on agriculture and mining sectors. Utah projected a general fund
surplus of approximately $11 million for its 1994 fiscal year (on estimated
revenues of approximately $3.783 billion). Currently Utah's general obligation
bonds are rated Aaa by Moody's and AAA by S&P. WASHINGTON'S economy is based
primarily on manufacturing and service sectors. Washington projected a general
fund surplus of $270 million for its 1995 biennium (on estimated revenues of
approximately $16.396 billion). Currently Washington's general obligation bonds
are rated Aa by Moody's and AA by S&P. WISCONSIN'S economy is based primarily on
agriculture and manufacturing. Wisconsin projected a general fund surplus of
$233 million for its 1994 fiscal year (on estimated revenues of approximately
$18.260 billion). Currently Wisconsin's general obligation bonds are rated Aa by
Moody's and AA by S&P.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Each Fund has adopted certain investment restrictions in addition to those set
forth above, which are set forth in their entirety in the Statement of
Additional Information. Certain of these restrictions are fundamental and cannot
be changed without shareholder approval, including the restriction providing
that no Fund may borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of its total assets (10%
for Colorado Tax Free Fund) (certain Funds may also borrow money in the form of
reverse repurchase agreements up to 10% of total assets). Also, certain Funds
may not, as a matter of fundamental policy invest more than 15% of their net
assets in illiquid securities and pledge, hypothecate, mortgage or otherwise
encumber their assets in excess of 10% of net assets. See "Investment Policies
and Restrictions -- Investment Restrictions" in the Statement of Additional
Information. Each Fund also has a number of non-fundamental investment
restrictions which may be changed by the Fund's Board without the shareholder
approval. These include restrictions providing that no Fund may (i) invest more
than 5% of its total assets in securities of any single investment company or
(ii) invest more than 10% of its total assets in securities of two or more
investment companies. To the extent that a Fund invests in the securities of
other open-end investment companies, Voyageur will take appropriate action to
avoid subjecting such Fund's shareholders to duplicate management and other fees
and expenses.
Any investment restriction or limitation which involves a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after an acquisition of
securities or a utilization of assets and such excess results therefrom.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
ALTERNATIVE PURCHASE ARRANGEMENTS
The Funds offer investors the choice among three classes of shares which offer
different sales charges and bear different expenses. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Page 2 of the Prospectus contains a
summary of these alternative purchase arrangements.
A broker-dealer may receive different levels of compensation depending on
which class of shares is sold. In addition, the Underwriter from time to time
pays certain additional cash incentives of up to $100 and/or non cash incentives
such as vacations or other prizes to its investment executives and other
broker-dealers and financial institutions in consideration of their sales of
Fund shares. In some instances, other incentives may be made available only to
selected broker-dealers and financial institutions, based on objective standards
developed by the Underwriter, to the exclusion of other broker-dealers and
financial institutions. The Underwriter in its discretion may from time to time,
pursuant to objective criteria established by it, pay fees to qualifying
brokers, dealers or financial intermediaries for certain services or activities
which are primarily intended to result in sales of shares of a Fund.
GENERAL PURCHASE INFORMATION
The minimum initial investment in each Fund is $1,000, and the minimum
additional investment is $100. Each Fund's shares may be purchased at the public
offering price from the Underwriter, from other broker-dealers who are members
of the National Association of Securities Dealers, Inc. and who have selling
agreements with the Underwriter, and from certain financial institutions that
have selling agreements with the Underwriter.
When orders are placed for shares of a Fund, the public offering price used
for the purchase will be the net asset value per share next determined, plus the
applicable sales charge, if any. If an order is placed with the Underwriter or
other broker-dealer, the broker-dealer is responsible for promptly transmitting
the order to the Fund. The Fund reserves the right, in its absolute discretion,
to reject any order for the purchase of shares.
Shares of the Funds may be purchased by opening an account either by mail
or by phone. Dividend income begins to accrue as of the opening of the New York
Stock Exchange (the "Exchange") on the day that payment is received. If payment
is made by check, payment is considered received on the day the check is
received if the check is drawn upon a member bank of the Federal Reserve System
within the Ninth Federal Reserve District (Michigan's Upper Peninsula,
Minnesota, Montana, North Dakota, South Dakota and northwestern Wisconsin). In
the case of other checks, payment is considered received when the check is
converted into "Federal Funds," i.e., monies of member banks within the Federal
Reserve System that are on deposit at a Federal Reserve Bank, normally within
two days after receipt.
An investor who may be interested in having shares redeemed shortly after
purchase should consider making unconditional payment by certified check or
other means approved in advance by the Underwriter. Payment of redemption
proceeds will be delayed as long as necessary to verify by expeditious means
that the purchase payment has been or will be collected. Such period of time
typically will not exceed 15 days.
AUTOMATIC INVESTMENT PLAN
Investors may make systematic investments in fixed amounts automatically on a
monthly basis through each Fund's Automatic Investment Plan. Additional
information is available from the Underwriter by calling 800-545-3863.
PURCHASES BY MAIL
To open an account by mail, complete the general authorization form attached to
this Prospectus, designate an investment dealer or other financial institution
on the form, and mail it, along with a check payable to the Fund, to:
NW 9369
P.O. Box 1450
Minneapolis, MN 55485-9369
PURCHASES BY TELEPHONE
To open an account by telephone, call 612-376-7014 or 800-545-3863 to obtain an
account number and instructions. Information concerning the account will be
taken over the phone. The investor must then request a commercial bank with
which he or she has an account and which is a member of the Federal Reserve
System to transmit Federal Funds by wire to the appropriate Fund as follows:
Norwest Bank Minnesota, N.A., ABA #091000019
For Credit of: (insert applicable Fund name)
Checking Account No.: 872-458
Account Number: (assigned by telephone)
Information on how to transmit Federal Funds by wire is available at any
national bank or any state bank that is a member of the Federal Reserve System.
The bank may charge the shareholder for the wire transfer. If the phone order
and Federal Funds are received before the close of trading on the Exchange, the
order will be deemed to become effective at that time. Otherwise, the order will
be deemed to become effective as of the close of trading on the Exchange on the
next day the Exchange is open for trading. The investor will be required to
complete the general authorization form attached to this Prospectus and mail it
to the Fund after making the initial telephone purchase.
CLASS A SHARES -- FRONT END SALES CHARGE ALTERNATIVE
The public offering price of Class A shares of each Fund is the net asset value
of the Fund's shares plus the applicable front end sales charge ("FESC"), which
will vary with the size of the purchase. The Fund receives the net asset value.
The FESC varies depending on the size of the purchase and is allocated between
the Underwriter and other broker-dealers.
The current sales charges are:
<TABLE>
<CAPTION>
Group 1* Funds
- ----------------------------------------------------------------------------------------------
SALES CHARGE SALES CHARGE DEALER DISCOUNT
AS % OF AS % OF AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE OFFERING PRICE OFFERING PRICE(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.00%
$50,000 but less than $100,000 4.71 4.50 4.00
$100,000 but less than $250,000 3.90 3.75 3.25
$250,000 but less than $500,000 2.83 2.75 2.50
$500,000 but less than $1,000,000 2.30 2.25 2.00
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
- ----------------------------------------------------------------------------------------------
Group 2** Funds
- ----------------------------------------------------------------------------------------------
SALES CHARGE SALES CHARGE DEALER DISCOUNT
AS % OF AS % OF AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE OFFERING PRICE OFFERING PRICE1
- ----------------------------------------------------------------------------------------------
Less than $50,000 3.90% 3.75% 3.00%
$50,000 but less than $100,000 3.63 3.50 3.00
$100,000 but less than $250,000 3.09 3.00 2.50
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.75
$1,000,000 or more NAV(3) NAV(3) 1.00(2)
- ----------------------------------------------------------------------------------------------
Group 3*** Funds
- ----------------------------------------------------------------------------------------------
SALES CHARGE SALES CHARGE DEALER DISCOUNT
AS % OF AS % OF AS % OF
AMOUNT OF PURCHASE NET ASSET VALUE OFFERING PRICE OFFERING PRICE(1)
- ----------------------------------------------------------------------------------------------
Less than $50,000 2.83% 2.75% 2.25%
$50,000 but less than $100,000 2.56 2.50 2.00
$100,000 but less than $250,000 2.04 2.00 1.75
$250,000 but less than $500,000 1.27 1.25 1.00
$500,000 but less than $1,000,000 1.01 1.00 0.75
$1,000,000 or more NAV(3) NAV(3) 0.50(2)
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Brokers and dealers who receive 90% or more of the sales charge may be
considered to be underwriters under the Securities Act of 1933, as amended.
(2) The Underwriter intends to pay its investment executives and other
broker-dealers and banks that sell Fund shares, out of its own assets, a
fee of up to 1% (up to .50% for Group 3 Funds) of the offering price of
sales of $1,000,000 or more, other than on sales not subject to a
contingent deferred sales charge.
(3) Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge at the time of redemption. See "How to Sell Shares --
Contingent Deferred Sales Charge."
* Group 1 Funds: Arizona Tax Free, Arizona Insured Tax Free, California Tax
Free, California Insured Tax Free, Florida Tax Free, Florida Insured Tax
Free, Missouri Insured Tax Free, National Tax Free, National Insured Tax
Free, Oregon Insured Tax Free, Washington Insured Tax Free, Kansas Tax
Free, Minnesota Tax Free, Minnesota Insured and North Dakota Tax Free.
** Group 2 Funds: Colorado Tax Free, Colorado Insured Tax Free, Iowa Tax Free,
New Mexico Tax Free, Utah Tax Free, Wisconsin Tax Free, Idaho Tax Free
*** Group 3 Funds: Arizona Limited Term Tax Free, Colorado Limited Term Tax
Free, California Limited Term Tax Free, National Limited Term Tax Free,
Minnesota Limited Term Tax Free, Florida Limited Term Tax Free.
In connection with the distribution of the Funds' Class A shares, the
Underwriter is deemed to receive all applicable sales charges. The Underwriter,
in turn, pays its investment executives and other broker-dealers selling such
shares a "dealer discount," as set forth above. In the event that shares are
purchased by a financial institution acting as agent for its customers, the
Underwriter or the broker-dealer with whom such order was placed may pay all or
part of its dealer discount to such financial institution in accordance with
agreements between such parties.
SPECIAL PURCHASE PLANS -- REDUCED SALES CHARGES
Certain investors (or groups of investors) may qualify for reductions in the
sales charges shown above. Investors should contact their broker-dealer or the
Funds for details about the Funds' Combined Purchase Privilege, Cumulative
Quantity Discount and Letter of Intention plans. Descriptions are also included
with the general authorization form and in the Statement of Additional
Information. These special purchase plans may be amended or eliminated at any
time by the Underwriter without notice to existing Fund shareholders.
RULE 12B-1 FEES
Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of .25%
of the average daily net assets of a Fund attributable to Class A shares. All or
a portion of such fees are paid quarterly to financial institutions and service
providers with respect to the average daily net assets attributable to shares
sold or serviced by such institutions and service providers. For additional
information about this fee, see "Management -- Plan of Distribution" below.
CONTINGENT DEFERRED SALES CHARGE
Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, the Underwriter pays investment dealers out of its own
assets, a fee of up to 1% (up to .50% for Group 3 Funds) of the offering price
of such shares. If these shares are redeemed within a certain period of time
after purchase, the redemption proceeds will be reduced by a contingent deferred
sales charge ("CDSC"). For additional information, see "How to Sell Shares --
Contingent Deferred Sales Charge." The CDSC will depend on the number of years
since the purchase was made according to the following table:
<TABLE>
<CAPTION>
CDSC AS A % OF AMOUNT REDEEMED FOR INVESTMENTS OF $1,000,000 OR MORE
- --------------------------------------------------------------------------------------
Group 1 & 2 Funds Group 3 Funds
CDSC Period CDSC CDSC Period CDSC
- --------------------------------------- ------------------------------------
<S> <C> <C> <C>
First year after purchase 1.0% First year after purchase 0.5%
Second year after purchase 0.5 Thereafter 0.0
Thereafter 0.0
- --------------------------------------------------------------------------------------
</TABLE>
WAIVER OF SALES CHARGES
A limited group of institutional and other investors may qualify to purchase
Class A shares at net asset value, with no front end or deferred sales charges.
The investors qualifying to purchase such shares are: (1) officers and directors
of the Funds; (2) officers, directors and full-time employees of Voyageur
Companies, Inc., Voyageur, Voyageur Asset Management Group, Inc., the
Underwriter and Pohlad Companies, and officers, directors and full-time
employees of parents and subsidiaries of the foregoing companies; (3) officers,
directors and full-time employees of investment advisers of other mutual funds
subject to a sales charge and included in any other family of mutual funds that
includes any Voyageur Fund as a member ("Other Load Funds"), and officers,
directors and full-time employees of parents, subsidiaries and corporate
affiliates of such investment advisers; (4) spouses and lineal ancestors and
descendants of the officers, directors/trustees and employees referenced in
clauses (1), (2) and (3), and lineal ancestors and descendants of their spouses;
(5) investment executives and other employees of banks and dealers that have
selling agreements with the Underwriter and parents, spouses and children under
the age of 21 of such investment executives and other employees; (6) trust
companies and bank trust departments for funds held in a fiduciary, agency,
advisory, custodial or similar capacity; (7) any state or any political
subdivision thereof or any instrumentality, department, authority or agency of
any state or political subdivision thereof; (8) partners and full-time employees
of the Funds' general counsel; (9) managed account clients of Voyageur, clients
of investment advisers affiliated with Voyageur and other registered investment
advisers and their clients (the Funds may be available through a broker-dealer
which charges a transaction fee for purchases and sales) and (10) "wrap
accounts" for the benefit of clients of financial planners adhering to certain
standards established by Voyageur.
Class A shares will also be issued at net asset value, without a front end
or deferred sales charge, if the purchase of such shares is funded by the
proceeds from the redemption of shares of any unrelated open-end investment
company that charges a front end sales charge, and, in certain circumstances, a
contingent deferred sales charge. In order to exercise this privilege, the
purchase order must be received by the Fund within 60 days after the redemption
of shares of the unrelated investment company.
CLASS B SHARES -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE
The public offering price of Class B shares of each Fund is the net asset value
of the Fund's shares. Class B shares are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. However, a
CDSC of up to 4% will be imposed if shares are redeemed within six years of
purchase. For additional information, see "How to Sell Shares -- Contingent
Deferred Sales Charge." In addition, Class B shares are subject to higher Rule
12b-1 fees as described below. The CDSC will depend on the number of years since
the purchase was made according to the following table:
<TABLE>
<CAPTION>
CDSC AS A % OF AMOUNT REDEEMED*
- ----------------------------------------------------------------------------------------------
GROUPS 1 & 2 FUNDS GROUP 3 FUNDS
CDSC AS A % OF CDSC AS A % OF
CDSC PERIOD AMOUNT REDEEMED CDSC PERIOD AMOUNT REDEEMED
- ------------------------------------------ -------------------------------------------
<S> <C> <C> <C>
1st year after purchase 4% 1st year after purchase 3%
2nd year after purchase 4 2nd year after purchase 3
3rd year after purchase 3 3rd year after purchase 2
4th year after purchase 3 4th year after purchase 1
5th year after purchase 2 Thereafter 0
6th year after purchase 1
Thereafter 0
- ----------------------------------------------------------------------------------------------
</TABLE>
* The CDSC will be calculated on an amount equal to the lesser of the net
asset value of the shares at the time of purchase or the net asset value at
the time of redemption.
Proceeds from the CDSC are paid to the Underwriter and are used to defray
expenses of the Underwriter related to providing distribution-related services
to the Funds in connection with the sale of Class B shares, such as the payment
of compensation to selected broker dealers, and for selling Class B shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Funds to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge at the time the
shares are sold, the Underwriter pays a sales commission equal to 3% (2.5% for
Group 3) of the amount invested to broker-dealers who sell Class B shares and
pays an ongoing annual servicing fee of .15% (paid quarterly) calculated on the
net assets attributable to sales made by such broker-dealers.
RULE 12B-1 FEES
Class B shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of a Fund attributable to Class B shares. The
higher 12b-1 fee will cause Class B shares to have a higher expense ratio and to
pay lower dividends than Class A shares. For additional information about this
fee, see "Fees and Expenses" above and "Management -- Plan of Distribution"
below.
CONVERSION FEATURE
On the first business day of the month eight years after the purchase date,
Class B shares will automatically convert to Class A shares and will no longer
be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of
the relative net asset values of the two classes. Class A shares issued upon
such conversion will not be subject to any FESC or CDSC. Class B shares acquired
by exchange from Class B shares of another Voyageur Fund will convert into Class
A shares based on the time of the initial purchase. Similarly, Class B shares
acquired by exercise of the Reinstatement Privilege will convert into Class A
shares based on the time of the original purchase of Class B shares. See
"Reinstatement Privilege" below. Class B shares acquired through reinvestment of
distributions will convert into Class A shares based on the date of issuance of
such shares.
CLASS C SHARES -- LEVEL LOAD ALTERNATIVE
The public offering price of Class C shares of each Fund is the net asset value
of the Fund's shares. Class C shares are sold without an initial sales charge or
contingent deferred sales charge so that the Fund receives the full amount of
the investor's purchase. Class C shares are subject to higher annual Rule 12b-1
fees as described below.
RULE 12B-1 FEES
Class C shares are subject to a Rule 12b-1 fee payable at an annual rate of 1%
of the average daily net assets of a Fund attributable to Class C shares. The
higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio
and to pay lower dividends than Class A shares. For additional information about
this fee, see "Fees and Expenses" above and "Management -- Plan of Distribution"
below.
Proceeds from the Rule 12b-1 fee are paid to the Underwriter and are used
to defray expenses of the Underwriter related to providing distribution-related
services to the Funds in connection with the sale of Class C shares, such as the
payment of compensation to selected broker-dealers, and for selling Class C
shares. The Rule 12b-1 fee enables the Funds to sell the Class C shares without
deduction of a sales charge at the time of purchase. Although Class C shares are
sold without an initial or contingent deferred sales charge, the Underwriter
pays an annual fee of .75% (paid quarterly) of the net asset value of the amount
invested to broker-dealers who sell Class C shares.
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
E ach Fund will redeem its shares in cash at the net asset value next determined
after receipt of a shareholder's written request for redemption in good order
(see below). If shares for which payment has been collected are redeemed,
payment must be made within seven days. Shareholders will not earn any income on
redeemed shares on the redemption date. Each Fund may suspend this right of
redemption and may postpone payment only when the Exchange is closed for other
than customary weekends or holidays, or if permitted by the rules of the
Securities and Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it impracticable for such Fund
to dispose of its securities or to determine fairly the value of its net assets
or during any other period permitted by order of the Commission for the
protection of investors.
Each Fund reserves the right and currently plans to redeem Fund shares
and mail the proceeds to the shareholder if at any time the value of Fund shares
in the account falls below a specified value, currently set at $250.
Shareholders will be notified and will have 60 days to bring the account up to
the required value before any redemption action will be taken by a Fund.
CONTINGENT DEFERRED SALES CHARGE
The CDSC will be calculated on an amount equal to the lesser of the net asset
value of the shares at the time of purchase or their net asset value at the time
of redemption. No charge will be imposed on increases in net asset value above
the initial purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
In determining whether a CDSC is payable with respect to any redemption,
the calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, it will be assumed that shares that are not subject to
the CDSC are redeemed first, shares subject to the lowest level of CDSC are
redeemed next, and so forth. If a shareholder owns Class A and Class B shares,
then absent a shareholder choice to the contrary, Class B shares not subject to
a CDSC, will be redeemed in full prior to any redemption of Class A shares not
subject to a CDSC.
The CDSC does not apply to: (1) redemptions of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemptions of shares when
a Fund exercises its right to liquidate accounts which are less than the minimum
account size; and (3) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
If a shareholder exchanges Class A, Class B or Class C shares subject to a
CDSC for Class A, Class B or Class C shares, respectively, of a different
Voyageur Fund, the transaction will not be subject to a CDSC. However, when
shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the CDSC.
Fund shares are exchangeable for shares of any money market fund available
through Voyageur. No CDSC will be imposed at the time of any such exchange;
however, the shares acquired in any such exchange will remain subject to the
CDSC and the period during which such shares represent shares of the money
market fund will not be included in determining how long the shares have been
held. Any CDSC due upon a redemption of Fund shares will be reduced by the
amount of any Rule 12b-1 payments made by such money market fund with respect to
such shares.
The Underwriter, upon notification, intends to provide, out of its own
assets, a pro rata refund of any CDSC paid in connection with a redemption of
Class A or Class B shares of any Fund (by crediting such refunded CDSC to such
shareholder's account) if, within 90 days of such redemption, all or any portion
of the redemption proceeds are reinvested in shares of the same class in any of
the Voyageur Funds. Any reinvestment within 90 days of a redemption to which the
CDSC was paid will be made without the imposition of a FESC but will be subject
to the same CDSC to which such amount was subject prior to the redemption. The
amount of the CDSC will be calculated from the original investment date.
EXPEDITED REDEMPTIONS
Each Fund offers several expedited redemption procedures, described below, which
allow a shareholder to redeem Fund shares at net asset value determined on the
same day that the shareholder places the request for redemption of those shares.
Pursuant to these expedited redemption procedures, each Fund will redeem its
shares at their net asset value next determined following the Fund's receipt of
the redemption request. Each Fund reserves the right at any time to suspend or
terminate the expedited redemption procedures or to impose a fee for this
service. There is currently no additional charge to the shareholder for use of
the Funds' expedited redemption procedures.
EXPEDITED TELEPHONE REDEMPTION
Shareholders redeeming at least $1,000 and no more than $50,000 (for which
certificates have not been issued) may redeem by telephoning the Fund directly
at 612-376-7014 or 800-545-3863. The applicable section of the general
authorization form must have been completed by the shareholder and filed with
the Fund before the telephone request is received. The proceeds of the
redemption will be paid by check mailed to the shareholder's address of record
or, if requested at the time of redemption, by wire to the bank designated on
the general authorization form. The Funds will employ reasonable procedures to
confirm that telephone instructions are genuine, including requiring that
payment be made only to the shareholder's address of record or to the bank
account designated on the authorization form and requiring certain means of
telephonic identification. The Fund's Adviser and Distributor will not be liable
for following instructions which are reasonably believed to be genuine.
EXPEDITED REDEMPTIONS THROUGH CERTAIN BROKER DEALERS
Certain broker-dealers who have sales agreements with the Underwriter may allow
their customers to effect a redemption of shares of a Fund purchased through
such broker-dealer by notifying the broker-dealer of the amount of shares to be
redeemed. The broker-dealer is then responsible for promptly placing the
redemption request with the Fund on the customer's behalf. Payment will be made
to the shareholder by check or wire sent to the broker-dealer. Broker-dealers
offering this service may impose a fee or additional requirements for such
redemptions.
GOOD ORDER
"Good order" means that stock certificates, if issued, must accompany the
written request for redemption and must be duly endorsed for transfer, or must
be accompanied by a duly executed stock power. If no stock certificates have
been issued, a written request to redeem must be made. Stock certificates will
not be issued for Class B or Class C shares. In any case, the shareholder must
execute the redemption request exactly as the shares are registered. If the
redemption proceeds are to be paid to the registered holder(s), a signature
guarantee is not normally required. A signature guarantee is required in certain
other circumstances, for example, to redeem more than $50,000 or to have a check
mailed other than to the shareholder's address of record. See "Other
Information" in the Statement of Additional Information. The Adviser may waive
certain of these redemption requirements at its own risk, but also reserves the
right to require signature guarantees on all redemptions, in contexts perceived
by the Adviser to subject the Fund to an unusual degree of risk.
MONTHLY CASH WITHDRAWAL PLAN
An investor who owns or buys shares of any Fund valued at $10,000 or more at the
current offering price may open a Withdrawal Plan and have a designated sum of
money paid monthly to the investor or another person. Deferred sales charges may
apply to monthly redemptions of Class B shares. See "Monthly Cash Withdrawal
Plan" in the Statement of Additional Information.
REINSTATEMENT PRIVILEGE
- --------------------------------------------------------------------------------
An investor in a Fund whose shares have been redeemed and who has not previously
exercised the Reinstatement Privilege as to such Fund may reinvest the proceeds
of such redemption in shares of the same class of any Voyageur Fund eligible for
sale in the shareholder's state of residence. Reinvestment will be at the net
asset value of Fund shares next determined after the Underwriter receives a
check along with a letter requesting reinstatement. The Underwriter must receive
the letter requesting reinstatement within 365 days following the redemption.
Investors who desire to exercise the Privilege should contact their
broker-dealer or the Fund.
Exercise of the Reinstatement Privilege does not alter the income tax
treatment of any capital gains realized on a sale of shares of a Fund, but to
the extent that any shares are sold at a loss and the proceeds are reinvested
within 30 days in shares of such Fund, some or all of the loss may not be
allowed as a deduction, depending upon the number of shares reacquired.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Except as described below, shareholders may exchange some or all of their Fund
shares for shares of another Voyageur Fund, provided that the shares to be
acquired in the exchange are eligible for sale in the shareholder's state of
residence. Class A shareholders may exchange their shares for Class A shares of
other Voyageur Funds. Class B shareholders may exchange their shares for the
Class B shares of other Voyageur Funds and Class C shareholders may exchange
their shares for the Class C shares of other Voyageur Funds. Shares of each
class may also be exchanged for shares of any money market fund available
through Voyageur.
The minimum amount which may be exchanged is $1,000. The exchange will be
made on the basis of the relative net asset values next determined after receipt
of the exchange request, plus the amount, if any, by which the applicable sales
charge exceeds the sum of all sales charges previously paid in connection with
the prior investment. For a discussion of issues relating to the contingent
deferred sales charge upon such exchanges, see "How to Sell Shares -- Contingent
Deferred Sales Charge." There is no specific limitation on exchange frequency;
however, the Funds are intended for long term investment and not as a trading
vehicle. The Adviser reserves the right to prohibit excessive exchanges (more
than four per quarter). The Adviser also reserves the right, upon 60 days' prior
notice, to restrict the frequency of, or otherwise modify, condition, terminate
or impose charges upon, exchanges. An exchange is considered to be a sale of
shares on which the investor may realize a capital gain or loss for income tax
purposes. Exchange requests may be placed directly with the Fund in which the
investor owns shares, through the Adviser or through other broker-dealers. An
investor considering an exchange should obtain a prospectus of the Fund to be
acquired and should read such prospectus carefully. Contact any of the Funds,
the Adviser or any of such other broker-dealers for further information about
the exchange privilege.
MANAGEMENT
- --------------------------------------------------------------------------------
The Boards of Directors, or Trustees, as the case may be, of the Funds are
responsible for managing the business and affairs of the Funds. The names,
addresses, principal occupations and other affiliations of Directors and
executive officers of the Funds are set forth in the Statement of Additional
Information.
INVESTMENT ADVISER; PORTFOLIO MANAGEMENT
Voyageur has been retained under an investment advisory agreement (the "Advisory
Agreement") to act as each Fund's investment adviser, subject to the authority
of the Board of Directors. Voyageur and the Underwriter are each indirect
wholly-owned subsidiaries of Dougherty Financial Group, Inc. ("DFG"), which is
owned approximately 49% by Michael E. Dougherty, 49% by Pohlad Companies and
less than 1% by certain retirement plans for the benefit of DFG employees. Mr.
Dougherty co-founded the predecessor of Dougherty Dawkins in 1977 and has served
as Dougherty Dawkins' Chairman of the Board and Chief Executive Officer since
inception. Pohlad Companies is a holding company owned in equal parts by each of
James O. Pohlad, Robert C. Pohlad and William M. Pohlad. As of October 1, 1995,
Voyageur served as the manager to six closed-end and ten open-end investment
companies (comprising 26 separate investment portfolios), administered numerous
private accounts and managed approximately $7.65 billion in assets. Voyageur's
principal business address is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402.
Each Fund pays Voyageur a monthly investment advisory and management fee
equivalent on an annual basis to .50% of its average daily net assets, except
each Limited Term Tax Free Fund pays .40%, of its average daily net assets.
Andrew M. McCullagh, Jr. has had, since inception, day-to-day portfolio
management responsibility for the Arizona Funds, California Funds, Colorado
Funds, Florida Funds, National Funds, as well as the New Mexico Fund, North
Dakota Fund and Utah Fund. Mr. McCullagh has been a Director of Voyageur and the
Underwriter since 1993 and an Executive Vice President and Senior Tax Exempt
Portfolio Manager for Voyageur since January 1990. He is President of Colorado
Tax Free Fund and is an Executive Vice President of each of the other Voyageur
Funds. From 1978 to 1990, Mr. McCullagh served as a municipal bond trader and a
portfolio manager for Kirchner, Moore & Company. Mr. McCullagh currently has
over 23 years' experience in municipal bond trading, underwriting and portfolio
management.
Elizabeth H. Howell has had, since 1991, day-to-day portfolio management
responsibility for the Minnesota Funds, as well as, since inception, the Idaho,
Iowa, Kansas, Missouri, Oregon, Washington and Wisconsin Funds. Ms. Howell is a
Vice President and Senior Tax Exempt Portfolio Manager for Voyageur, where she
has been employed since 1991 and is a Vice President of the Voyageur Funds.
Prior to being employed by Voyageur, Ms. Howell had been a portfolio manager for
Windsor Financial Group in Minneapolis, Minnesota from March 1988. Ms. Howell
has over ten years' experience as a securities analyst and portfolio manager.
PLAN OF DISTRIBUTION
Each Fund has adopted a Plan of Distribution under the 1940 Act (the "Plan") and
has entered into a Distribution Agreement with Voyageur Fund Distributors, Inc.
(the "Underwriter"). Pursuant to each Fund's Plan, the Fund pays the Underwriter
a Rule 12b-1 fee, at an annual rate of .25% of the Fund's average daily net
assets attributable to Class A shares and 1% of the Fund's average daily net
assets attributable to each of Class B and Class C shares for servicing of
shareholder accounts and distribution related services. Payments made under the
Plan are not tied exclusively to expenses actually incurred by the Underwriter
and may exceed or be less than expenses actually incurred by the Underwriter.
Please see the "Fees and Expenses" table at the beginning of this Prospectus for
information with respect to fee waivers, if any.
All of the Rule 12b-1 fee attributable to Class A shares, and a portion of
the fee equal to .25% of the average daily net assets of the Fund attributable
to each of Class B shares and Class C shares constitutes a shareholder servicing
fee designed to compensate the Underwriter for the provision of certain services
to the shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Funds and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Underwriter may use such Rule 12b-1 fee
or portion thereof to make payments to qualifying broker-dealers and financial
institutions that provide such services.
That portion of the Rule 12b-1 fee equal to .75% of the average daily net
assets of the Fund attributable to Class B shares and Class C shares,
respectively, constitutes a distribution fee designed to compensate the
Underwriter for advertising, marketing and distributing the Class B shares and
Class C shares of each Fund. In connection therewith, the Underwriter may
provide initial and ongoing sales compensation to its investment executives and
other broker-dealers for sales of Class B shares and Class C shares and may pay
for other advertising and promotional expenses in connection with the
distribution of Class B shares and Class C shares. The distribution fee
attributable to Class B shares and Class C shares is designed to permit an
investor to purchase such shares through investment executives of the
Underwriter and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit the Underwriter to compensate its
investment executives and other broker-dealers in connection with the sale of
such shares.
CUSTODIAN; DIVIDEND DISBURSING, TRANSFER, ADMINISTRATIVE AND ACCOUNT SERVICES
AGENT
Norwest Bank Minnesota, N.A. serves as the custodian of each Fund's portfolio
securities and cash.
Voyageur acts as each Fund's dividend disbursing, transfer, administrative
and accounting services agent to perform dividend-paying functions, to calculate
each Fund's daily share price, to maintain shareholder records and to perform
certain regulatory and compliance related services for the Funds. The fees paid
for these services are based on each Fund's assets and include reimbursement of
out-of-pocket expenses. Voyageur receives a monthly fee from each Fund equal to
the sum of (1) $1.33 per shareholder account per month, (2) a monthly fee
ranging from $1,000 to $1,500 based on the average daily net assets of the Fund
and (3) a percentage of average daily net assets which ranges from 0.11% to
0.02% based on the average daily net assets of the Fund. See "The Investment
Adviser and Underwriter -- Expenses of the Funds" in the Statement of Additional
Information.
Certain institutions may act as sub-administrators for one or more of the
Funds pursuant to contracts with Voyageur, whereby the institutions will provide
shareholder services to their customers. Voyageur will pay the
sub-administrators' fees out of its own assets. The fee paid by Voyageur to any
sub-administrator will be a matter of negotiation between the institution and
Voyageur based on the extent and quality of the services provided.
EXPENSES OF THE FUNDS
Voyageur is contractually obligated to pay the operating expenses (excluding
interest expense, taxes, brokerage fees, commissions and Rule 12b-1 fees and,
with respect to the Insured Funds, premiums with respect to Portfolio Insurance
or Secondary Market Insurance) of each Fund which exceed 1% of such Fund's
average daily net assets on an annual basis up to certain limits as set forth in
detail in the Statement of Additional Information. In addition, Voyageur and the
Underwriter reserve the right to voluntarily waive their fees in whole or part
and to voluntarily absorb certain other of the Funds' expenses. Voyageur and the
Underwriter have agreed to waive fees or absorb expenses for the fiscal year
ending December 31, 1995 in such a manner as will result in the Funds being
charged fees and expenses that approximate those set forth in the section "Fees
and Expenses" except Voyageur and the Underwriter are not waiving fees with
respect to Minnesota Tax Free Fund and Minnesota Limited Term Tax Free Fund.
After December 31, 1995, such voluntary fee and expense waivers may be
discontinued or modified by Voyageur and the Underwriter in their sole
discretion.
Each Fund's expenses include, among others, fees of directors, expenses of
directors' and shareholders' meetings, insurance premiums, expenses of
redemption of shares, expenses of the issue and sale of shares (to the extent
not otherwise borne by the Underwriter), expenses of printing and mailing stock
certificates and shareholder statements, association membership dues, charges of
such Fund's custodian, bookkeeping, auditing and legal expenses, the fees and
expenses of registering such Fund and its shares with the Securities and
Exchange Commission and registering or qualifying its shares under state
securities laws and expenses of preparing and mailing prospectuses and reports
to existing shareholders.
PORTFOLIO TRANSACTIONS
No Fund will effect any brokerage transactions in its portfolio securities with
any broker-dealer affiliated directly or indirectly with Voyageur unless such
transactions, including the frequency thereof, the receipt of commissions
payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions, are not unfair or unreasonable to the
shareholders of such Fund. It is not anticipated that any Fund will effect any
brokerage transactions with any affiliated broker-dealer, including the
Underwriter, unless such use would be to such Fund's advantage. Voyageur may
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute the Funds' securities transactions.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of Fund shares is determined once daily, Monday through
Friday, as of 3:00 p.m. Minneapolis time (the primary close of trading on the
Exchange) on each business day the Exchange is open for trading.
For each Fund, the net asset value per share of each class is determined by
dividing the value of the securities, cash and other assets of the Fund
attributable to such class less all liabilities attributable to such class by
the total number of shares of such class outstanding. For purposes of
determining the net assets of each Fund, tax exempt securities are stated on the
basis of valuations provided by a pricing service, approved by the Board of
Directors, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. Market quotations
are used when available. Non-tax exempt securities for which market quotations
are readily available are stated at market value which is currently determined
using the last reported sale price, or, if no sales are reported, as in the case
of most securities traded over-the-counter, the last reported bid price, except
that U.S. Government securities are stated at the mean between the last reported
bid and asked prices. Short-term notes having remaining maturities of 60 days or
less are stated at amortized cost which approximates market. All other
securities and other assets are valued in good faith at fair value by Voyageur
in accordance with procedures adopted by the Board of Directors.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
The present policy of each Fund is to declare a distribution from net investment
income on each day that the Fund is open for business. Net investment income
consists of interest accrued on portfolio investments of a Fund, less accrued
expenses. Distributions of net investment income are paid monthly. Short-term
capital gains distributions are taxable to shareholders as ordinary income. Net
realized long term capital gains, if any, are distributed annually, after
utilization of any available capital loss carryovers. Distributions paid by the
Funds, if any, with respect to Class A, Class B and Class C shares will be
calculated in the same manner, at the same time, on the same day and will be in
the same amount, except that the higher Rule 12b-1 fees applicable to Class B
and Class C shares will be borne exclusively by such shares. The per share
distributions on Class B and Class C shares will be lower than the per share
distributions on Class A shares as a result of the higher Rule 12b-1 fees
applicable to Class B and Class C shares.
Shareholders receive distributions from investment income and capital gains
in additional shares of the Fund and class owned by such shareholders at net
asset value, without any sales charge, unless they elect otherwise. Each Fund
sends to its shareholders no less than quarterly statements with details of any
reinvested dividends.
TAXES
FEDERAL INCOME TAXATION
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund (other than Funds which have not yet completed their first fiscal period)
qualified during its last taxable year and each Fund intends to qualify during
its current taxable year as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). Each Fund also intends to take
all other action required to ensure that no
federal income taxes will be payable by the Fund and that the Fund can pay
exempt-interest dividends.
Distributions of net interest income from tax exempt obligations that are
designated by a Fund as exempt-interest dividends are excludable from the gross
income of the Fund's shareholders. Distributions paid from other interest income
and from any net realized short-term capital gains are taxable to shareholders
as ordinary income, whether received in cash or in additional shares.
Distributions paid from long-term capital gains (and designated as such) are
taxable as long-term capital gains for federal income tax purposes, whether
received in cash or shares, regardless of how long a shareholder has held shares
in a Fund.
Exempt-interest dividends attributable to interest income on certain tax
exempt obligations issued after August 7, 1986 to finance private activities are
treated as an item of tax preference for purposes of computing the alternative
minimum tax for individuals, estates and trusts. Each Fund may invest up to 20%
of its total assets in securities which generate interest which is treated as an
item of tax preference and subject to federal and state AMT, except that
Minnesota Insured Fund may invest without limit in such securities and Minnesota
Tax Free Fund may not invest in obligations which generate interest subject to
federal and state AMT.
The following is a summary of certain information regarding state taxation.
See "Taxes" in the Statement of Additional Information.
ARIZONA STATE TAXATION
The portion of exempt-interest dividends that is derived from interest income on
Arizona Tax Exempt Obligations is excluded from the Arizona taxable income of
individuals, estates, trusts, and corporations. Dividends qualifying for federal
income tax purposes as capital gain dividends are to be treated by shareholders
as long-term capital gains under Arizona law.
CALIFORNIA STATE TAXATION
Individual shareholders of the California Funds who are subject to California
personal income taxation will not be required to include in their California
gross income that portion of their federally tax exempt dividends which a Fund
clearly identifies as directly attributable to interest earned on California
state or municipal obligations, and dividends which a Fund clearly identifies as
directly attributable to interest earned on obligations of the United States,
the interest on which is exempt from California personal income tax pursuant to
federal law, provided that at least 50% of the value of the Fund's total assets
consists of obligations the interest on which is exempt from California personal
income taxation pursuant to federal or California law. Distributions to
individual shareholders derived from interest on state or municipal obligations
issued by governmental authorities in states other than California, short term
capital gains and other taxable income will be taxed as dividends for purposes
of California personal income taxation. Each Fund's long term capital gains for
federal income tax purposes will be taxed as long term capital gains to
individual shareholders of the Fund for purposes of California personal income
taxation. Gain or loss, if any, resulting from an exchange or redemption of
shares will be recognized in the year of the change or redemption.
COLORADO STATE TAXATION
To the extent that dividends are derived from interest income on Colorado Tax
Exempt Obligations, such dividends will also be exempt from Colorado income
taxes for individuals, trusts, estates, and corporations. Dividends qualifying
for federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains under Colorado law.
FLORIDA STATE TAXATION
Florida does not currently impose a tax on the income of individuals, and
individual shareholders of the Florida Funds will thus not be subject to income
tax in Florida on distributions from the Florida Funds or upon the sale of
shares held in such Funds. Florida does, however, impose a tax on intangible
personal property held by individuals as of the first day of each calendar year.
Under a rule promulgated by the Florida Department of Revenue, shares in the
Florida Funds will not be subject to the intangible property tax so long as, on
the last business day of each calendar year, all of the assets of each Fund
consist of obligations of the U. S. government and its agencies,
instrumentalities and territories, and the State of Florida and its political
subdivisions and agencies. If any Florida Fund holds any other types of assets
on that date, then the entire value of the shares in such Fund (except for the
portion of the value of the shares attributable to U. S. government obligations)
will be subject to the intangible property tax. Each Florida Fund must sell any
non exempt assets held in its portfolio during the year and reinvest the
proceeds in exempt assets prior to December 31. Transaction costs involved in
converting the portfolio's assets to such exempt assets would likely reduce the
Florida Funds' investment return and might, in extraordinary circumstances,
exceed any increased investment return such Fund's achieved by investing in non
exempt assets during the year. Corporate shareholders in the Florida Funds may
be subject to the Florida income tax imposed on corporations, depending upon the
domicile of the corporation and upon the extent to which income received from
such Fund constitutes "nonbusiness income" as defined by applicable Florida law.
IDAHO STATE TAXATION
The Idaho Fund has received a ruling from the Idaho Department of Revenue that
provides that dividends paid by the Idaho Fund that are attributable to (i)
interest earned on bonds issued by the State of Idaho, its cities and political
subdivisions, and (ii) interest earned on obligations of the U.S. government or
its territories and possessions will not be included in the income of Fund
shareholders subject to either the Idaho personal income tax or the Idaho
corporate franchise tax. All other dividends paid by the Idaho Fund will be
subject to the Idaho personal or corporate income tax. Capital gain dividends
qualifying as long term capital gains for federal tax purposes will be treated
as long term capital gains for Idaho income tax purposes. Idaho taxes long term
capital gains at the same rates as ordinary income, while imposing limitations
on the deductibility of capital losses similar to those under federal law.
IOWA STATE TAXATION
The Iowa Fund has received a ruling from the Iowa Department of Revenue and
Finance dated May 21, 1993 to the effect that dividends paid by the Iowa Fund
that are attributable to (1) interest earned on bonds issued by the State of
Iowa, its political subdivisions, agencies and instrumentalities, the interest
on which is exempt from taxation by Iowa statute, and (2) interest earned on
obligations of the U.S. government or its territories and possessions will not
be included in the income of the Fund shareholders subject to either the Iowa
personal or the Iowa corporate income tax, except in the case of shareholders
that are financial institutions subject to the tax imposed by Iowa Code ss.
422.60. All other dividends paid by the Iowa Fund will be subject to the Iowa
personal or corporate income tax. Capital gain dividends qualifying as long term
capital gains for federal tax purposes will be treated as long term capital
gains for Iowa income tax purposes.
KANSAS STATE TAXATION
Individuals, trusts, estates and corporations will not be subject to Kansas
income tax on the portion of dividends derived from interest on obligations of
Kansas and its political subdivisions issued after December 31, 1987, and
interest on specified obligations of Kansas and its political subdivisions
issued before January 1, 1988. The Fund intends to invest only in Kansas
obligations the interest on which is excludable from Kansas taxable income. All
remaining dividends (except for dividends, if any, derived from interest paid on
obligations of the United States, its territories and possessions), including
dividends derived from capital gains, will be includable in the taxable income
of individuals, trusts, estates, and corporations. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long term capital gains. Kansas taxes long term capital gains at
the same rates as ordinary income, while restricting the deductibility of
capital losses. Dividends received by shareholders will be exempt from the tax
on intangibles imposed by certain counties, cities and townships.
MINNESOTA STATE TAXATION
Minnesota taxable net income is based generally on federal taxable income. The
portion of exempt-interest dividends that is derived from interest income on
Minnesota Tax Exempt Obligations is excluded from the Minnesota taxable net
income of individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from such Minnesota sources paid to all shareholders
represents 95 percent or more of the exempt-interest dividends paid by the
respective Fund. Exempt-interest dividends are not excluded from the Minnesota
taxable income of corporations and financial institutions. Dividends qualifying
for federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. Minnesota has repealed the favorable
treatment of long term capital gains, while retaining restrictions on the
deductibility of capital losses. Exempt interest dividends subject to the
federal alternative minimum tax will also be subject to the Minnesota
alternative minimum tax imposed on individuals, estates and trusts.
MISSOURI STATE TAXATION
The portion of exempt interest dividends that is derived from interest on
Missouri Tax Exempt Obligations is excluded from the taxable income of
individuals, trusts, and estates and of corporations subject to the Missouri
corporate income tax. All remaining dividends (except dividends attributable to
interest on obligations of the United States, its territories and possessions),
including dividends derived from capital gains, will be includable in the
taxable income of individuals, trusts, estates and corporations. Dividends
qualifying for federal income tax purposes as capital gain dividends are to be
treated by shareholders as long term capital gains. Missouri taxes long term
capital gains at the same rates as ordinary income, while restricting the
deductibility of capital losses.
NEW MEXICO STATE TAXATION
The portion of exempt interest dividends that is derived from interest on New
Mexico Tax Exempt Obligations is excluded from the taxable income of
individuals, trusts, and estates, and of corporations subject to the New Mexico
corporate income tax. The Fund will provide shareholders with an annual
statement identifying income paid to shareholders by source. All remaining
dividends (except for dividends, if any, derived from interest paid on
obligations of the United States, its territories and possessions), including
dividends derived from capital gains, will be includable in the taxable income
of individuals, trusts, estates and corporations. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long term capital gains. New Mexico taxes long term capital
gains at the same rates as ordinary income, while restricting the deductibility
of capital losses.
NORTH DAKOTA STATE TAXATION
North Dakota taxable income is based generally on federal taxable income. The
portion of exempt interest dividends that is derived from interest income on
North Dakota Tax Exempt Obligations is excluded from the North Dakota taxable
income of individuals, estates, trusts and corporations. Exempt interest
dividends are not excluded from the North Dakota taxable income of banks.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long term capital gains under North Dakota
law.
OREGON STATE TAXATION
The portion of exempt interest dividends that is derived from interest on Oregon
Tax Exempt Obligations is excluded from the taxable income of individuals,
trusts and estates. All remaining dividends (except for dividends, if any,
derived from interest paid on obligations of the United States, its territories
and possessions), including dividends derived from capital gains, will be
includable in the taxable income of individuals, trusts and estates.
Furthermore, all dividends, including exempt interest dividends, will be
includable in the taxable income of corporations subject to the Oregon
corporation excise tax. Dividends qualifying for federal income tax purposes as
capital gain dividends are to be treated by shareholders as long term capital
gains. Oregon taxes long term capital gains at the same rates as ordinary
income, while restricting the deductibility of capital losses.
UTAH STATE TAXATION
All exempt interest dividends, whether derived from interest on Utah Tax Exempt
Obligations or the Tax Exempt Obligations of any other state, are excluded from
the taxable income of individuals, trusts, and estates. Any remaining dividends
(except for dividends, if any, derived from interest paid on obligations of the
United States, its territories and possessions), including dividends derived
from capital gains, will be includable in the taxable income of individuals,
trusts, and estates. Furthermore, all dividends, including exempt interest
dividends, will be includable in the taxable income of corporations subject to
the Utah corporate franchise tax. Dividends qualifying for federal income tax
purposes as capital gain dividends are to be treated by shareholders as long
term capital gains. Utah taxes long term capital gains at the same rates as
ordinary income, while restricting the deductibility of capital losses.
WASHINGTON STATE TAXATION
Washington does not currently impose an income tax on individuals or
corporations. Therefore, dividends paid to shareholders will not be subject to
tax in Washington.
WISCONSIN STATE TAXATION
The Wisconsin Fund has received a ruling from the Wisconsin Department of
Revenue dated July 7, 1993 to the effect that dividends paid by the Wisconsin
Fund that are attributable to (1) interest earned on certain higher education
bonds issued by the State of Wisconsin, certain bonds issued by the Wisconsin
Housing and Economic Development authority, Wisconsin Housing Finance Authority
bonds, and public housing authority bonds and redevelopment authority bonds
issued by Wisconsin municipalities, the interest on which is exempt from
taxation by Wisconsin statute, and (2) interest earned on obligations of the U.
S. government or its territories and possessions will not be included in the
income of the Fund shareholders subject to the Wisconsin personal income tax.
Capital gain dividends qualifying as long term capital gains for federal tax
purposes will be treated as long term capital gains for Wisconsin income tax
purposes.
The foregoing discussion relates to federal and state taxation as of the
date of the Prospectus. See "Taxes" in the Statement of Additional Information.
Distributions from the Funds, including exempt-interest dividends, may be
subject to tax in other states. This discussion is not intended as a substitute
for careful tax planning. You are urged to consult your tax adviser with
specific reference to your own tax situation.
INVESTMENT PERFORMANCE
- --------------------------------------------------------------------------------
Advertisements and other sales literature for the Funds may refer to "yield,"
"taxable equivalent yield," "average annual total return" and "cumulative total
return" and may compare such performance quotations with published indices and
comparable quotations of other funds. Performance quotations are computed
separately for Class A, Class B and Class C shares of the Funds. When a Fund
advertises any performance information, it also will advertise its average
annual total return as required by the rules of the Securities and Exchange
Commission and will include performance data for Class A, Class B and Class C
shares. All such figures are based on historical earnings and performance and
are not intended to be indicative of future performance. Additionally,
performance information may not provide a basis for comparison with other
investments or other mutual funds using a different method of calculating
performance. The investment return on and principal value of an investment in
any of the Funds will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
The advertised yield of each Fund will be based on a 30-day period stated
in the advertisement. Yield is calculated by dividing the net investment income
per share deemed earned during the period by the maximum offering price per
share on the last day of the period. The result is then annualized using a
formula that provides for semiannual compounding of income.
Taxable equivalent yield is calculated by applying the stated income tax
rate only to that portion of the yield that is exempt from taxation. The tax
exempt portion of the yield is divided by the number 1 minus the stated income
tax rate (e.g., 1-28% = 72%). The result is then added to that portion of the
yield, if any, that is not tax exempt.
Average annual total return is the average annual compounded rate of return
on a hypothetical $1,000 investment made at the beginning of the advertised
period. In calculating average annual total return, the maximum sales charge is
deducted from the hypothetical investment and all dividends and distributions
are assumed to be reinvested.
Cumulative total return is calculated by subtracting a hypothetical $1,000
payment to the Fund from the ending redeemable value of such payment (at the end
of the relevant advertised period), dividing such difference by $1,000 and
multiplying the quotient by 100. In calculating ending redeemable value, all
income and capital gain distributions are assumed to be reinvested in additional
Fund shares and the maximum sales load is deducted.
In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Funds' shares,
including data from Lipper Analytical Services, Inc. and Morningstar.
For Fund performance information and daily net asset value quotations,
investors may call 612-376-7010 or 800-525-6584. For additional information
regarding the calculation of a Fund's yield, taxable equivalent yield, average
annual total return and cumulative total return, see "Calculation of Performance
Data" in the Statement of Additional Information.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Each Fund sends to its shareholders six-month unaudited and annual audited
financial statements.
The shares of the Funds constitute separate series of the parent entities
listed below. Certain of these parent entities are organized as Minnesota
corporations, and the shares of the series thereof are transferable common
stock, $.01 par value per share, of such corporations. Other parent entities are
organized as business trusts under the laws of the Commonwealth of
Massachusetts, and the shares of the series thereof represent transferable
common shares of beneficial interest. All shares of each corporation and,
subject to the statement below regarding shareholder liability, of each trust,
are non assessable and fully transferable when issued and paid for in accordance
with the terms thereof and possess no cumulative voting, preemptive or
conversion rights. The Board of each corporation and trust is empowered to issue
other series of common stock or common shares of beneficial interest without
shareholder approval. Set forth below is a listing of the parent entities and
constituent series, form of organization and date of organization of the parent.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PARENT FORM OF ORGANIZATION DATE ORGANIZED
- ------------------------------------------------------------------------------------------
<S> <C> <C>
VOYAGEUR TAX FREE FUNDS, INC. Minnesota Corporation November 10, 1993
Minnesota Tax Free
North Dakota Tax Free
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC. Minnesota Corporation July 11, 1985
Arizona Limited Term Tax Free
California Limited Term Tax Free
Colorado Limited Term Tax Free
Minnesota Limited Term Tax Free
National Limited Term Tax Free
VOYAGEUR INSURED FUNDS, INC. Minnesota Corporation January 6, 1987
Arizona Insured Tax Free
Colorado Insured Tax Free
Minnesota Insured
National Insured Tax Free
VOYAGEUR INVESTMENT TRUST Massachusetts Business Trust November 16, 1993
California Insured Tax Free
Florida Insured Tax Free
Florida Tax Free
Kansas Tax Free
Missouri Insured Tax Free
New Mexico Tax Free
Oregon Insured Tax Free
Utah Tax Free
Washington Insured Tax Free
VOYAGEUR INVESTMENT TRUST II Massachusetts Business Trust November 16, 1993
Florida Limited Term Tax Free
VOYAGEUR MUTUAL FUNDS, INC. Minnesota Corporation April 14, 1993
Arizona Tax Free
California Tax Free
Idaho Tax Free
Iowa Tax Free
Wisconsin Tax Free
National Tax Free
VOYAGEUR MUTUAL FUNDS II, INC. Minnesota Corporation January 13, 1987
Colorado Tax Free
- ------------------------------------------------------------------------------------------
</TABLE>
The Funds currently offer their shares in multiple classes, each with
different sales arrangements and bearing different expenses. Class A, Class B
and Class C shares each represent interests in the assets of the respective
Funds and have identical voting, dividend, liquidation and other rights on the
same terms and conditions except that expenses related to the distribution of
each class are borne solely by such class and each class of shares has exclusive
voting rights with respect to provisions of a Fund's Rule 12b-1 distribution
plan which pertain to a particular class and other matters for which separate
class voting is appropriate under applicable law.
Fund shares are freely transferable, subject to applicable securities laws,
are entitled to dividends as declared by the Board, and, in liquidation of a
Fund, are entitled to receive the net assets, if any, of such Fund. The Funds do
not generally hold annual meetings of shareholders and will do so only when
required by law. Shareholders may remove Board members from office by votes cast
in person or by proxy at a meeting of shareholders or by written consent and, in
accordance with Section 16 of the 1940 Act, the Board shall promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Board member when requested to do so by the record holders of not less
than 10% of the outstanding shares. Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations of
the Funds organized as Massachusetts business trusts. However, each Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of such Funds and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by such
Funds or the trustees. The Declaration of Trust further provides for
indemnification out of the assets and property of a Fund for all loss and
expense of any shareholder held personally liable for the obligations of such
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund would be
unable to meet its obligations. Each Fund organized as a series of a
Massachusetts business trust believes that the likelihood of such circumstances
is remote.
Each share of a series has one vote irrespective of the relative net asset
value of the shares. On some issues, such as the election of Board members, all
shares of a corporation or trust vote together as one series of such corporation
or trust. On an issue affecting only a particular series or class, the shares of
the affected series or class vote as a separate series or class. An example of
such an issue would be a fundamental investment restriction pertaining to only
one series. In voting on the Investment Advisory Agreements, approval by the
shareholders of a particular series is necessary to make such agreement
effective as to that series.
The assets received by a corporation or trust for the issue or sale of
shares of each series or class thereof, and all income, earnings, profits and
proceeds thereof, subject only to the rights of creditors, are allocated to such
series, and in the case of a class, allocated to such class, and constitute the
underlying assets of such series or class. The underlying assets of each series
or class thereof, are required to be segregated on the books of account, and are
to be charged with the expenses in respect to such series or class thereof, and
with a share of the general expenses of such corporation or trust. Any general
expenses of a corporation or trust not readily identifiable as belonging to a
particular series or class shall be allocated among the series or classes
thereof, based upon the relative net assets of the series or class at the time
such expenses were accrued. Each corporation's Articles of Incorporation and
trust's Declaration of Trust limit the liability of the respective Board members
to the fullest extent permitted by law. For a further discussion of the above
matters, see "Additional Information" in the Statement of Additional
Information.
In the opinion of the staff of the Securities and Exchange Commission, the
use of this combined Prospectus may possibly subject all of the Funds to a
certain amount of liability for any losses arising out of any statement or
omission in this Prospectus regarding a particular Fund. In the opinion of the
Funds' executive officers, however, the risk of such liability is not materially
increased by the use of a combined Prospectus.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS (AND/OR IN THE STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE
COVER PAGE OF THIS PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR VOYAGEUR FUND DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN THE STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
MACKENZIE SERIES TRUST
MACKENZIE FLORIDA LIMITED TERM
MUNICIPAL FUND
Supplement Dated January 1, 1996
to Prospectus Dated October 27, 1995
The tenth sentence of the paragraph under "Organization of the Fund" on page 6
is modified as follows:
Each class of shares has a different 12b-1 distribution policy and bears
different distribution fees.
The second sentence of the paragraph under "Transfer Agent" on page 6 is
replaced in its entirety as follows:
For transfer agency and shareholder services, the Fund pays MIISC a fee of
$20.75 per open account. The Fund also pays MIISC a fee of $4.36 for each
account that is closed and reimburses MIISC monthly for out-of-pocket expenses.
Certain Broker/Dealers that maintain shareholder accounts with the Fund through
an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by MIISC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. As compensation for these services, MIISC pays the Broker/Dealer a
similar open account fee for each account within the omnibus account, or a fixed
rate (eg., .10%) based on the average daily net asset value of the omnibus
account (or a combination thereof).
The second paragraph under "Dividends and Taxes" on page 7 is deleted in its
entirety.
The first sentence of the third paragraph under "Dividends and Taxes" on page 7
is modified as follows:
The Fund intends to declare and pay monthly any dividends from net investment
income (to the extent not previously distributed) on both classes of Fund
shares, based on their relative net asset values.
The second paragraph under "Purchase of Class A Shares at Net Asset Value" on
page 11 is modified as follows:
Officers and Trustees of the Trust (and their relatives), MIMI, Ivy Management,
Inc. (which is a wholly owned subsidiary of MIMI) and Mackenzie Financial
Corporation (of which MIMI is a subsidiary) and their officers, directors,
employees and retired employees (and their relatives), and legal counsel and
independent accountants (and their relatives) may buy Class A shares of the Fund
without an initial sales charge or contingent deferred sales charge.
[LOGO IVY FUNDS]
Via Mizner Financial Plaza
700 S. Federal Highway
Boca Raton, Florida 33432
1-800-456-5111
MFLTMF-16-196
<PAGE>
October 27, 1995 [LOGO MACKENZIE]
MACKENZIE
FLORIDA
LIMITED TERM
MUNICIPAL
FUND
- -----------
PROSPECTUS
- -----------
Mackenzie Investment
Management Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[PICTURE]
Mackenzie Series Trust (the "Trust") is a registered investment company
currently consisting of five separate investment portfolios. One portfolio of
the Trust, Mackenzie Florida Limited Term Municipal Fund (the "Fund"), is
described in this Prospectus.
This Prospectus sets forth concisely the information about the Fund that
a prospective investor should know before investing and should be read
carefully and retained for future reference. Additional information about the
Fund is contained in the Statement of Additional Information ("SAI") for the
Fund, which is incorporated by reference into this Prospectus. The SAI, dated
October 27, 1995, has been filed with the Securities and Exchange Commission
("SEC") and is available upon request and without charge from the Trust at the
Distributor's address and telephone number provided below.
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.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Schedule of Fees.............................2
Expense Data Table...........................2
The Fund's Financial Highlights..............3
Investment Objective and Policies............4
Investment Techniques and Risk Factors.......4
Organization of the Fund.....................6
Investment Manager ..........................6
Administrator ...............................6
Fund Accounting..............................6
Transfer Agent ..............................6
Distributor .................................6
Dividends and Taxes..........................7
Performance Data ............................7
Alternative Purchase Arrangements............8
Factors to Consider in Choosing an
Alternative................................8
How to Buy Shares ...........................8
How Your Purchase Price is Determined........9
How the Fund Values its Shares...............9
Initial Sales Charge--Class A Shares........10
Contingent Deferred Sales Charge--Class
A Shares .................................10
Waiver of Contingent Deferred Sales Charge..10
Qualifying for a Reduced Sales Charge.......10
Rights of Accumulation .....................10
Letter of Intent............................10
Purchases of Class A Shares At Net
Asset Value ..............................11
Contingent Deferred Sales Charge
Alternative--Class B Shares...............11
Conversion of Class B Shares.............12
Waiver of Contingent Deferred Sales
Charge.................................12
Arrangements with Broker/Dealers
and Others.................................12
How to Redeem Shares........................12
Minimum Account Balance Requirements .......13
Signature Guarantees .......................13
Choosing a Distribution Option..............13
Tax Identification Number...................14
Certificates ...............................14
Exchange Privilege .........................14
Reinvestment Privilege......................15
Systematic Withdrawal Plan .................15
Automatic Investment Method.................15
Consolidated Account Statements.............15
Shareholder Inquiries.......................15
</TABLE>
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT INVESTMENT
John S. Anderegg, Jr. Michael G. Landry, President Mackenzie Ivy Investor MANAGER
Paul H. Broyhill Keith J. Carlson, Vice President Services Corp. Mackenzie Investment
Stanley Channick C. William Ferris P.O. Box 3022 Management Inc.
Frank W. DeFriece, Jr. Secretary/Treasurer Boca Raton, FL 33431-0922 Boca Raton, FL
Roy J. Glauber 1-800-777-6472
Michael G. Landry DISTRIBUTOR
Joseph G. Rosenthal CUSTODIAN AUDITORS Mackenzie Ivy Funds
J. Brendan Swan Brown Brothers Harriman & Co. Coopers & Lybrand L.L.P. Distribution, Inc.
Boston, MA Ft. Lauderdale, FL Via Mizner Financial Plaza
LEGAL COUNSEL 700 South Federal Highway
Dechert Price & Rhoads Boca Raton, FL 33432
Boston, MA 1-800-456-5111
</TABLE>
<PAGE>
SCHEDULE OF FEES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum sales load imposed on purchases
(as a percentage of offering
price at time of purchase).................... 3.00%* None
Maximum contingent deferred sales charge (as
a percentage of original purchase price)...... None** 3.00%***
The Fund has no sales load on reinvested
dividends, no redemption fees and no exchange
fees
</TABLE>
* Class A shares of the Fund may be purchased under a variety of plans that
provide for the reduction or elimination of the sales charge. See
"Alternative Purchase Arrangements" for more information.
** A contingent deferred sales charge may apply to the redemption of Class A
shares that are purchased without an initial sales charge. See "Purchases
of Class A Shares at Net Asset Value" and "Contingent Deferred Sales
Charge--Class A Shares."
*** The maximum contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase. The charge declines to 2
1/2% during the second year; 2% during the third year; 1 1/2% during the
fourth year; 1% during the fifth year; and 0% in the sixth year and
thereafter.
EXPENSE DATA TABLE
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
Annual Fund Operating Expenses (as a percentage
of average daily net assets):
Management Fees After Expense Reimbursements (1)........ 0.00% 0.00%
12b-1 Service/Distribution Fees......................... 0.25% 0.75% (2)
Other Expenses.......................................... 0.64% 0.64%
---- ----
Total Fund Operating Expenses (3)....................... 0.89% 1.39%
==== ====
</TABLE>
(1) Management Fees for both Class A and Class B shares of the Fund reflect
expense reimbursements (see note (3) below). Without the expense
reimbursement, Management Fees would have been 0.55% of aveage daily net
assets.
(2) Long-term investors may, as a result of the Fund's 12b-1 fees, pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
(3) Mackenzie Investment Management Inc. ("MIMI") voluntarily limits the
Fund's Total Fund Operating Expenses (excluding taxes, 12b-1 fees,
brokerage commissions, interest, litigation and indemnification expenses
and other extraordinary expenses) to an annual rate of 0.64% of the Fund's
average daily net assets. Without expense reimbursements, Total Fund
Operating Expenses for Class A and B shares would have been 2.09% and
2.59%, respectively. MIMI, as investment adviser, has reserved the right
to terminate or revise this expense limitation at any time.
EXAMPLE
CLASS A SHARES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$39(1) $58 $78 $136
</TABLE>
These figures assume that the current voluntary expense limitation is in
place for each of the time periods indicated. MIMI, as investment adviser, has
reserved the right to terminate or revise this expense limitation at any time,
which may affect the results in years one, three, five and ten in the preceding
Example. If the voluntary expense limitation is terminated, the Fund's Class A
expenses for the one-, three-, five- and ten-year periods are estimated to be
$51, $94, $139 and $265, respectively.
(1) Assumes deduction of the maximum 3.00% initial sales charge at the time of
purchase and no deduction of a contingent deferred sales charge at the time
of redemption.
EXAMPLE (1 OF 2)
CLASS B SHARES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS(4)
------ ------- ------- -----------
<S> <C> <C> <C>
$44(1) $64(2) $86(3) $153
</TABLE>
These figures assume that the current voluntary expense limitation is in
place for each of the time periods indicated. MIMI, as investment adviser, has
reserved the right to terminate or revise this expense limitation at any time,
which may affect the results in years one, three, five and ten in the preceding
Example. If the voluntary expense limitation is terminated, the Fund's Class B
expenses for the one, three, five and ten year periods are estimated to be $56,
$101, $148 and $280, respectively.
EXAMPLE (2 OF 2)
CLASS B SHARES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) no redemption:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS(4)
------ ------- ------- -----------
<S> <C> <C> <C>
$14 $44 $76 $153
</TABLE>
These figures assume that the current voluntary expense limitation is in
place for each of the time periods indicated. MIMI, as investment adviser, has
reserved the right to terminate or revise this expense limitation at any time,
which may affect the results in years one, three, five and ten in the preceding
Example. If the voluntary expense limitation is terminated, the Fund's Class B
expenses for the one, three, five and ten year periods are estimated to be $26,
$81, $138 and $280, respectively.
(1) Assumes deduction of a 3% contingent deferred sales charge at the time of
redemption.
(2) Assumes deduction of a 2% contingent deferred sales charge at the time of
redemption.
(3) Assumes deduction of a 1% contingent deferred sales charge at the time of
redemption.
(4) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year and, therefore, reflect Class A expenses for
years nine and ten.
The purpose of the foregoing tables is to provide an investor with an
understanding of the expenses that an investor in the Fund will bear, directly
or indirectly. The Examples assume reinvestment of all distributions and that
the percentage amounts under "Total Fund Operating Expenses" remain the same
each year. The assumed annual return of 5% is required by applicable law to be
applied by all investment companies and is used for illustrative purposes only.
THIS ASSUMPTION IS NOT A PROJECTION OF FUTURE PERFORMANCE. THE ACTUAL EXPENSES
FOR THE FUND MAY BE HIGHER OR LOWER THAN THE ESTIMATES GIVEN.
Except as set forth in the Fund's Financial Highlight Table below, the
percentages expressing annual fund operating expenses are based on amounts
incurred during the fiscal year ended June 30, 1995. The information in the
tables does not reflect the charge of $10.00 per transaction that would apply
if a shareholder makes a request to have redemption proceeds wired to his or
her bank account. For a more detailed discussion of the Fund's fees and
expenses, see the following sections of the Prospectus: "Organization of the
Fund," "Initial Sales Charge Alternative - Class A Shares," "Contingent
Deferred Sales Charge Alternative - Class B Shares," and "How to Buy Shares,"
and the following section of the SAI: "Investment Advisory and Other Services."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following information through the year ended June 30, 1995 has been
audited by Coopers & Lybrand L.L.P., independent accountants. The report of
Coopers & Lybrand L.L.P. on the Fund's financial statements appears in the
Fund's Annual Report to shareholders. The Fund's Annual Report, which is
incorporated by reference into the SAI, contains further information about, and
management's discussion of, the Fund's performance, and is available to
shareholders upon request and without charge. The information presented below
should be read in conjunction with the financial statements and notes thereto.
<TABLE>
<CAPTION>
CLASS A
---------------------------
FOR THE FOR THE PERIOD
YEAR APRIL 1, 1994
ENDED (COMMENCEMENT)
JUNE 30, TO JUNE 30,
-------- -----------
1995 1994
---- ----
<S> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period $10.10 $10.00*
------ ------
Income from investment operations
Net investment income (a) .......................... 47 .11
Net gain on investments (both realized and
unrealized) .13 .10
------ ------
Total from investment operations .60 .21
------ ------
Less distributions from:
Net investment income............................... .47 .11
Net capital gain.................................... .07 --
------ ------
Total distributions.......................... .54 .11
------ ------
Net asset value, end of period......................... $10.16 $10.10
====== ======
Total return (%)....................................... 6.14(b) 2.12(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............... $4,166 $2,331
Ratio of expenses to average daily net assets:
With expense reimbursement(%)....................... .89 .89(d)
Without expense reimbursement(%).................... 2.09 2.87(d)
Ratio of net investment income to average daily net
assets (%)(a)........................................ 4.56 4.40(d)
Portfolio turnover rate(%)............................. 164 0
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------
FOR THE FOR THE PERIOD
YEAR APRIL 1, 1994
ENDED (COMMENCEMENT)
JUNE 30, TO JUNE 30,
-------- -----------
1995 1994
---- ----
<S> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period................... $10.10 $10.00
------ ------
Income from investment operations
Net investment income(a)............................ .42 .10
Net gain on investments (both realized and
unrealized)....................................... .13 .10
------ ------
Total from investment operations.............. .55 .20
------ ------
Less distributions from:
Net investment income............................... .42 .10
Net capital gain.................................... .07 --
------ ------
Total distributions........................... .49 .10
------ ------
Net asset value, end of period......................... $10.16 $10.10
====== ======
Total return (%)....................................... 5.61(b) 2.01(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............... $2,305 $1,553
Ratio of expenses to average daily net assets:
With expense reimbursement(%)....................... 1.39 1.39(d)
Without expense reimbursement(%).................... 2.59 3.37(d)
Ratio of net investment income to average daily net
assets(%)(a)........................................ 4.06 3.90(d)
Portfolio turnover rate(%)............................. 164 0
</TABLE>
(a) Net investment income is net of expenses reimbursed by MIMI.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a sales
charge.
(d) Annualized.
* Price at inception excludes sales charge.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is fundamental and may not be changed
without the approval of a majority of the outstanding voting shares of the
Fund. Except for the Fund's investment objective and those investment
restrictions specifically identified as fundamental, all investment policies
and practices described in this Prospectus and in the SAI are non-fundamental,
and may be changed by the Trustees without shareholder approval. There can be
no assurance that the Fund's objective will be met. The different types of
securities and investment techniques used by the Fund involve varying degrees
of risk. For more information about the particular risks associated with each
type of investment, see "Investment Techniques and Risk Factors," below, and
the SAI.
The Fund seeks a high a level of interest income exempt from Federal
income taxes as is consistent with the preservation of shareholders' capital.
The Fund attempts to achieve this objective by investing primarily in
tax-exempt limited term municipal securities exempt from both regular Federal
income taxes, in the opinion of bond counsel, to the issuer, and Florida
intangible personal property taxes. As a fundamental policy, at least 80% of
the Fund's net assets will be invested, during normal market conditions, in
debt obligations issued by or on behalf of the State of Florida and its
political subdivisions (agencies, authorities and instrumentalities), and the
governments of Puerto Rico, the U.S. Virgin Islands and Guam, the interest on
which is exempt from regular Federal income tax and is not a tax preference
item under the Federal alternative minimum tax, and the value of which is
exempt from Florida intangible personal property taxes ("Florida municipal
securities"). The Fund will not invest more than 5% of its net assets in
obligations of each of the U.S. Virgin Islands and Guam, but may invest without
limit in obligations of Puerto Rico. The Fund ordinarily does not intend to
realize investment income from securities other than Florida municipal
securities. However, to the extent that Florida municipal securities are not
readily available for investment by the Fund, the Fund may invest more that 20%
of its net assets in securities other than Florida municipal securities, the
interest on which is, in the opinion of bond counsel to the issuer, exempt from
Federal income tax ("non-Florida municipal securities"). The Fund will attempt
to manage its investments in non-Florida municipal securities to minimize, to
the extent possible, the likelihood that such investments may result in shares
of the Fund being subject to the Florida intangible personal property tax. The
Fund expects to maintain a dollar-weighted average portfolio maturity of three
to six years and will only purchase instruments with remaining maturities of
ten years or less. If the Fund invests solely in assets that are exempt from
the Florida intangible personal property tax, including Florida municipal
securities and U.S. Government obligations, the value of its shares will also
be exempt from this tax.
The Fund is classified as "non-diversified" within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), which means that the
Fund is not limited by the Act in the proportion of its assets that it may
invest in the obligations of a single issuer. However, the Fund's investments
will be limited so as to qualify it as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"). Toward
this end, the Trust will limit the Fund's investments so that at the close of
each quarter of the taxable year (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. A fund that elects to be
classified as "diversified" under the Act must satisfy the foregoing 5% and 10%
requirements with respect to 75% of its total assets.
The Fund's portfolio will be actively managed in the pursuit of its
objective, and therefore may have higher portfolio turnover than that of other
funds with similar objectives. Portfolio turnover may result in the realization
of taxable capital gains, which are not tax-exempt when distributed to
shareholders. See "Portfolio Turnover" in the SAI for further information about
portfolio turnover and portfolio transactions.
INVESTMENT TECHNIQUES AND RISK FACTORS
DEBT SECURITIES IN GENERAL: Investment in debt securities, including
municipal securities, involves both interest rate and credit risk. Generally,
the value of debt instruments rises and falls inversely with interest rates. As
interest rates decline, the value of debt securities generally increases.
Conversely, rising interest rates tend to cause the value of debt securities to
decrease. Bonds with longer maturities generally are more volatile than bonds
with shorter maturities. The market value of debt securities also varies
according to the relative financial condition of the issuer. In general,
lower-quality bonds offer higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or principal payments
at the time called for by the debt instrument.
MUNICIPAL SECURITIES: Municipal securities are debt obligations that
generally have a maturity at the time of issue that exceeds one year and are
issued to obtain funds for various public purposes. The two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds, including industrial development bonds or private activity bonds.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
bonds are payable only from the revenues derived from a particular facility or
class of facilities, or, in some cases, from the proceeds of a special excise
or specific revenue source. Industrial development bonds or private activity
bonds are issued by or on behalf of public authorities to obtain funds for
privately-operated facilities and are in most cases revenue bonds that do not
carry the pledge of the full faith and credit of the issuer of such bonds, but
depend for payment on the ability of the industrial user to meet its
obligations (or on any property pledged as security).
The interest on municipal securities is wholly exempt from Federal income
tax, in the opinion of bond counsel, to the issuers at the time of issuance.
Interest on certain municipal securities (including certain industrial
development bonds which are specified private activity bonds, as defined in the
Code, issued after August 7, 1986), while exempt from regular Federal income
tax, is a preference item for the purpose of the Federal alternative minimum
tax. Where a regulated investment company receives such interest, a
proportionate share of any exempt-interest dividend paid by the investment
company will be treated as such a preference item to shareholders. Interest on
Florida municipal securities is exempt from regular Federal income tax and is
not a preference item under the Federal alternative minimum tax. Under normal
conditions, the Fund will invest no more than 20% of its net assets (calculated
at market value at the time of each investment) in obligations the interest
from which gives rise to a preference item for the purpose of the alternative
minimum tax.
Certain municipal securities that the Fund may purchase bear interest at
rates that are not fixed, but that vary with changes in specified market rates
or indices (such as a Federal Reserve composite index). Such securities may
also carry a demand feature that would permit the holder to tender them back to
the issuer at par value prior to maturity, and may include participation
interests in variable rate tax-exempt municipal securities (expected to be
primarily in industrial development bonds) owned by banks. A participation
interest gives the Fund an undivided interest in the municipal securities in
the proportion that the Fund's participation interest bears to the total
principal amount of the municipal security and provides the demand purchase
feature described above. Each participation is backed by an irrevocable letter
of credit or guarantee of a bank that MIMI has determined meets the prescribed
investment quality standards for the Fund. The Fund has the right to sell the
instrument back to the bank and draw on the letter of credit on demand, on
seven days notice, for all or any part of the full principal amount of the
Fund's participation interest in the industrial development bond, plus accrued
interest. To the extent these securities are illiquid, the Fund will limit
4
<PAGE>
its investments in these and all other illiquid securities to not more
than 10% of its net assets (calculated at market value at the time of each
investment).
The Fund may purchase (i) municipal securities that are backed by the full
faith and credit of the United States Government; (ii) notes rated MIG-1 or
MIG-2 by Moody's Investor Services, Inc. ("Moody's") or AAA, AA, A, SP-1 or
SP-2 by Standard & Poor's Corporation ("S&P"); (iii) municipal bonds rated Aaa,
Aa or A by Moody's or AAA, AA, or A by S&P; (iv) other types of municipal
securities, provided that such obligations are rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by Moody's; and (v) municipal securities that are themselves
unrated, but either are issued by an entity that has other municipal securities
outstanding that meet one of the minimum rating requirements listed above, or
are of equivalent investment quality as determined by MIMI pursuant to
guidelines established and maintained in good faith by the Board of Trustees. A
description of the ratings of Moody's and S&P is contained in the SAI.
The Fund may invest without limit in municipal securities with similar
risk characteristics, such as municipal securities issued by issuers located in
the same geographic region, and municipal securities (other than those issued
by non-governmental issuers) that derive interest payments from revenues of
similar projects (for example, electric utility systems, hospitals and other
health care facilities, airport revenue obligations, or housing finance
agencies). As a result, the Fund's portfolio of investments may be more
susceptible to adverse political, economic or regulatory developments than a
portfolio of securities that is more diversified.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL SECURITIES: Florida's
economy has typically performed better than the nation's, due in large part to
Florida's strong population growth. Since 1985, the job creation rate for
Florida has almost doubled the rate for the nation as a whole and, over the
years, Florida's personal income has been growing at a strong pace and has
generally outperformed that of other states. Under the Florida Constitution,
the state budget as a whole and each separate fund within the state budget is
required to be kept in balance from currently available revenues each fiscal
year. Florida is not authorized by law to issue obligations to fund
governmental operations. Because Florida lacks an income tax, it relies
principally on revenues generated by the state sales and use tax. The lack of
an income tax subjects state tax collections to greater volatility than would
otherwise be the case and, in the event of an economic downturn in its economy,
could affect Florida's ability to pay principal and interest in a timely
manner. In addition, investments in obligations of the government of Puerto
Rico require a careful assessment of certain risk factors, including its
reliance on substantial Federal assistance and favorable tax programs,
above-average levels of unemployment and low wealth levels, and susceptibility
to adverse shifts in energy prices as well as U.S. foreign trade/monetary
policies. Additional financial considerations relating to the risks associated
with investing in Florida and Puerto Rico debt securities are described in the
SAI.
U.S. GOVERNMENT SECURITIES: The Fund may invest in U.S. Government
securities. U.S. Government securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Securities guaranteed
by the U.S. Government include: (1) direct obligations of the U.S. Treasury
(such as Treasury bills, notes, and bonds) and (2) Federal agency obligations
guaranteed as to principal and interest by the U.S. Treasury (such as GNMA
certificates, which are mortgage-backed securities). When such securities are
held to maturity, the payment of principal and interest is unconditionally
guaranteed by the U.S. Government, and thus they are of the highest possible
credit quality. U.S. Government securities that are not held to maturity are
subject to variations in market value caused by fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. Although the mortgage loans in the pool will have
maturities of up to 30 years, the actual average life of the loans typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. In periods of
falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the
security's actual average life. Since it is not possible to predict accurately
the average life of a particular pool, and because prepayments are reinvested
at current rates, the market value of mortgage-backed securities may decline
during periods of declining interest rates.
CORPORATE DEBT SECURITIES: Bonds rated Aaa by Moody's and AAA by S&P are
of the highest quality, carrying the smallest degree of investment risk. Bonds
rated Aa by Moody's and AA by S&P are also considered very high quality, rating
lower than the best bonds because margins of protection may not be as large or
fluctuation of protective elements may be of greater amplitude.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS: The Fund may invest in
bank obligations, which may include certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Investments in certificates
of deposit and bankers' acceptances are limited to obligations of (i) banks
having total assets in excess of $1 billion, and (ii) other banks if the
principal amount of such obligation is fully insured by the Federal Deposit
Insurance Corporation ("FDIC") (currently up to $100,000). Investments in
certificates of deposit of savings associations are limited to obligations of
federally or state chartered institutions that have total assets in excess of
$1 billion and whose deposits are insured by the FDIC.
COMMERCIAL PAPER: Commercial paper represents short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations
and finance companies. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's
or S&P, issued by companies having an outstanding debt issue currently rated
Aaa or Aa by Moody's or AAA or AA by S&P.
REPURCHASE AGREEMENTS: Repurchase agreements are agreements under which
the Fund buys a money market instrument and obtains a simultaneous commitment
from the seller to repurchase the instrument at a specified time and at an
agreed upon yield. The Fund will not enter into a repurchase agreement with
more than seven days to maturity if, as a result, more than 10% of the Fund's
net assets (calculated at market value at the time of each investment) would be
invested in illiquid securities including such repurchase agreements. The Fund
may enter into repurchase agreements with banks or broker/dealers deemed to be
creditworthy by MIMI under guidelines approved by the Board of Trustees. In the
unlikely event of failure of the executing bank or broker/dealer, the Fund
could experience some delay in obtaining direct ownership of the underlying
collateral and might incur a loss if the value of the security should decline,
as well as costs in disposing of the security.
BORROWING: As a matter of fundamental policy, the Fund may borrow from a
bank up to a limit of 10% of its total assets (calculated at market value at
the time of the borrowing), but only for temporary or emergency purposes.
Borrowing may exaggerate the effect on the Fund's net asset value of any
increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances).
TAXABLE FIXED INCOME OBLIGATIONS: Under normal market conditions, the Fund
may invest up to 20% of its net assets in taxable fixed income obligations. For
temporary defensive purposes, the Fund may invest without limit in such
securities. Taxable investments of the Fund may consist of obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
com-
5
<PAGE>
mercial paper, corporate obligations rated Aaa or Aa by Moody's or AAA or AA
by S&P, certificates of deposit or bankers' acceptances or other short-term
obligations of domestic banks or thrifts, or repurchase agreements with banks
or broker/dealers.
OTHER INVESTMENT TECHNIQUES: The Fund may make commitments to purchase
municipal obligations on a "when-issued" or firm commitment basis. The Fund may
also acquire third party puts or stand by commitments to enable the Fund to
improve its portfolio liquidity by providing a ready market for certain
municipal securities at an acceptable price.
ORGANIZATION OF THE FUND
The Fund is organized as a separate portfolio of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
April 22, 1985. The Fund is "non-diversified" as defined under the 1940 Act.
The business and affairs of the Fund are managed under the direction of the
Trustees. Information about the Trustees, as well as the Trust's executive
officers, may be found in the SAI. The Trust has an unlimited number of
authorized shares of beneficial interest. The Trustees have the authority,
without shareholder approval, to classify and reclassify shares of the Fund
into one or more classes. The Trustees have authorized the issuance of two
classes of shares of the Fund, designated as Class A and Class B. Shares of the
Fund entitle their holders to one vote per share (with proportionate voting for
fractional shares). The shares of each class of the Fund represent an interest
in the same portfolio of investments of the Fund. Each class of shares has a
different dividend and distribution policy and bears different Rule
12b-1 distribution fees. Shares of each class have equal rights as to voting,
redemption, dividends and liquidation, but have exclusive voting rights with
respect to their Rule 12b-1 distribution plans.
INVESTMENT MANAGER
The Trust employs MIMI to provide business management, investment
advisory, administrative and accounting services. As of October 10, 1995, MIMI
had approximately $217 million in assets under management. MIMI is a subsidiary
of Mackenzie Financial Corporation, which has been an investment counsel and
mutual fund manager in Toronto, Ontario, Canada for more than 25 years. MIMI's
subsidiary, Ivy Management, Inc., provides investment advice to 13 U.S.
investment portfolios, which as of October 10, 1995 had combined assets of
approximately $1.1 billion.
PORTFOLIO MANAGEMENT: The Fund is managed by a team, with each team
member having specific responsibilities. The following individuals have
responsibilities related to the management of the Fund. Daniel J. Johnedis,
Jr., portfolio manager for the Fund from 1993 to 1995, presently serves in an
advisory capacity to the Fund and as a consultant to MIMI. Mr. Johnedis has
eight years of professional investment experience and is a Chartered Financial
Analyst. Leslie A. Ferris, a Vice President of MIMI and Managing Director -
Fixed Income, has been a portfolio manager for the Fund since 1995. Ms. Ferris
joined MIMI in 1988 and has 13 years of professional investment experience. She
is a Chartered Financial Analyst and holds an MBA degree from the University of
Chicago. Prior to joining MIMI, Ms. Ferris was a portfolio manager at Kemper
Financial Services Inc. from 1982-1988. Michael Borowsky has served as a
portfolio assistant to the Fund since 1994. Michael G. Landry, the President
and a Director of MIMI and the President and a Trustee of the Trust, is the
investment strategist for the Fund. Mr. Landry joined MIMI in 1987 and has 23
years of professional investment experience.
INVESTMENT MANAGEMENT EXPENSES: For management of its investments and
business affairs, the Fund pays MIMI a monthly fee calculated on the basis of
the Fund's average daily net assets at an annual rate of 0.55%.
Under the Fund's management agreement, MIMI pays all expenses incurred by
it in rendering management services to the Fund. The Fund bears its own costs
of operations. See the SAI. If, however, the Fund's total expenses in any
fiscal year exceed the permissible limits that apply to the Fund in any state
in which its shares are then qualified for sale, MIMI will bear the excess
expenses. In addition, MIMI may voluntarily limit the Fund's total operating
expenses. Without voluntary expense reimbursements, the ratio of operating
expenses to average daily net assets for Class A and Class B shares of the Fund
for the fiscal year ended June 30, 1995 was 2.09% and 2.59%, respectively.
The assets received by each class of the Fund for the issue or sale of
its shares and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of the creditors, are allocated to, and constitute
the underlying assets of, that class of the Fund. The underlying assets of each
class of the Fund are allocated and are charged with the expenses with respect
to that class of the Fund and with a share of the general expenses of the
Trust. General expenses of the Trust (such as costs of maintaining the Trust's
existence, legal fees, proxy and shareholders meeting costs, etc.) that are not
readily identifiable as belonging to a particular series of the Trust or to a
particular class of a series of the Trust will be allocated among and charged
to the assets of each series on a fair and equitable basis, which may be based
on the relative assets of each series or the nature of the services performed
and relative applicability to each series. Expenses that relate exclusively to
a particular series of the Trust, such as certain registration fees, brokerage
commissions and other portfolio expenses, will be borne directly by that
series.
ADMINISTRATOR
The Trust has entered into an Administrative Services Agreement with
MIMI, pursuant to which MIMI provides various administrative services for the
Fund, including maintenance of registration or qualification of the Fund's
shares under state "Blue Sky" laws, assisting in the preparation of Federal,
state and local income tax returns and preparing financial and other
information for prospectuses, statements of additional information, and
periodic reports to shareholders. In addition, MIMI will assist the Trust's
legal counsel with SEC registration statements, proxies and other required
filings. Under the agreement, the Fund's average daily net assets are subject
to a monthly fee at the annual rate of 0.10%.
FUND ACCOUNTING
The Trust has entered into a Fund Accounting Services Agreement with
MIMI, pursuant to which MIMI provides certain accounting and pricing services
for the Fund. For fund accounting services, the Fund pays MIMI out-of-pocket
expenses as incurred and a monthly fee based upon the Fund's net assets at the
end of the preceding month at the following rates: $1,000 when net assets are
$20 million and under; $1,500 when net assets are over $20 million to $75
million; $4,000 when net assets are over $75 million to $100 million; and
$6,000 when net assets are over $100 million.
TRANSFER AGENT
Mackenzie Ivy Investor Services Corp. ("MIISC"), a wholly owned
subsidiary of MIMI, is the transfer agent and dividend paying agent for the
Fund and provides certain shareholder and shareholder-related services as
required by the Fund. For transfer agency and shareholder services, the Fund
pays MIISC an annual fee of $20.75 per open account and $4.25 for each account
that is closed. In addition, the Fund reimburses MIISC monthly for
out-of-pocket expenses.
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc. ("MIFDI" or the "Distributor"),
a wholly owned subsidiary of MIMI, is the principal underwriter of the Fund's
shares.
6
<PAGE>
DIVIDENDS AND TAXES
Dividends and capital gain distributions that you receive from the Fund
are reinvested in additional shares of your class unless you elect to receive
them in cash. If you elect the cash option and the U.S. Postal Service cannot
deliver your checks, your election will be converted to the reinvestment
option. Because of the higher expenses associated with Class B shares, any
dividend on these shares will be lower than on Class A shares.
In order to provide that the Class A and Class B shares of the Fund have
the same net asset value, the Board of Trustees intends normally to declare
daily a distribution to the Fund's Class A shareholders, based on the Fund's
adjusted net assets attributable to its Class A shares at the beginning of the
day, at an annual rate of 0.50%, plus any additional amount needed to equalize
the net asset values of the two classes. The accumulated daily declarations
will be paid monthly to Class A shareholders of the Fund. If a shareholder of
the Fund redeems all of his/her Fund shares at any time prior to payment of a
distribution, all declarations accrued to the date of redemption, including the
date of redemption, are paid in addition to the redemption proceeds.
In addition, the Fund intends to declare and pay monthly on an equal
basis any dividends from net investment income (to the extent not previously
distributed) on both classes of Fund shares. Net investment income generally is
the income from interest earned on the Fund's investments, less expenses
incurred in its operations. Thus, the amount of dividends paid per share may
vary from month to month. The Fund intends to make a final distribution for
each fiscal year of any remaining net investment income and net realized
short-term capital gain, as well as undistributed net long-term capital gain
realized during the year. An additional distribution may be made of net
investment income, net realized short-term capital gain and net realized
long-term capital gain to comply with the calendar year distribution
requirement under the excise tax provisions of Section 4982 the Code.
If, for any year, the total distributions from the Fund exceed earnings
and profits for the Fund, the excess, distributed from the assets of the Fund,
will generally be treated as return of capital. The amount treated as a return
of capital will reduce a shareholder's adjusted basis in his/her shares
(thereby increasing the potential gain or reducing the potential loss on the
sale of the shares) and, to the extent that the amount exceeds this basis, will
be treated as a taxable gain. However, if the Fund has current or accumulated
earnings and profits, so as to characterize all or a portion of such excess as
a dividend for Federal income tax purposes, the distributions, to that extent,
would normally be taxable as ordinary income (unless taxable as a capital gain
dividend or exempt-interest dividend, as described below).
TAXATION: The following discussion is intended for general information
only. An investor should consult with his/her own tax advisor as to the tax
consequences of an investment in the Fund, including the status of
distributions from the Fund under applicable state or local law.
The Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Code. To qualify, the Fund must meet
certain income, distribution and diversification requirements. In any year in
which the Fund qualifies as a regulated investment company and timely
distributes all of its taxable income and substantially all of its net
tax-exempt interest income, the Fund generally will not pay any U.S. Federal
income or excise tax.
Dividends distributed by the Fund that are derived from interest income
exempt from Federal income tax and are designated by the Fund as "exempt
interest dividends" will be exempt from Federal income taxation.
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gain) will be taxable
to a shareholder as ordinary income. Because no portion of the Fund's income is
expected to consist of dividends paid by U.S. corporations, no portion of the
dividends paid by the Fund is expected to be eligible for the corporate
dividends-received deduction. Distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any,
designated as capital gain dividends are taxable as long-term capital gains,
regardless of how long the shareholder has held the Fund's shares. Dividends
are taxable to shareholders in the same manner whether received in cash or
reinvested in additional Fund shares.
A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Each year the Fund will notify shareholders of the tax status of
dividends and distributions.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in
complete liquidation of the Fund, generally will be a capital gain or loss
which will be long term or short term, generally depending upon the
shareholder's holding period for the shares.
The Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service
("IRS") that they are subject to backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability.
Further information relating to tax consequences is contained in the SAI.
STATE AND LOCAL TAXES: Fund distributions may be subject to state and
local taxes. In certain states, Fund distributions which are derived from
interest on obligations of that state or its municipalities or any political
subdivisions thereof may be exempt from state and local taxes. Fund
distributions which are derived from interest on obligations of the U.S.
Government and certain of its agencies, authorities and instrumentalities also
may be exempt from state and local taxes in certain states. Under Florida law,
shares of the Fund will be exempt from the Florida intangible personal property
tax if, on an annual valuation date, the Fund's portfolio of assets consists
solely of assets, including Florida municipal securities and U.S. Government
obligations, that are exempt from the tax. Shareholders should consult their
own tax advisers regarding the particular tax consequences of an investment in
the Fund.
PERFORMANCE DATA
Performance information is computed separately for the Fund's Class A and
Class B shares in accordance with the formulas described below. Because Class B
shares bear the expense of distribution fees, it is expected that the level of
performance of the Fund's Class B shares will be lower than that of the Fund's
Class A shares.
Average annual total return figures as prescribed by the SEC represent
the average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes applicable sales charge) for
one-, five- and ten-year periods, or portion thereof, to the extent applicable,
through
7
<PAGE>
the end of the most recent calendar quarter, assuming reinvestment of
all distributions. The Fund may also furnish total return quotations for other
periods, or based on investments at various sales charge levels or at net asset
value. For such purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment expressed as
a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's
portfolio investments, and is calculated by dividing the Fund's net investment
income per share during a recent 30-day period by the maximum public offering
price on the last day of that period and then annualizing the result.
Yield, which is calculated according to a formula prescribed by the
SEC (see the SAI), is not indicative of the dividends or distributions that
were or will be paid to the Fund's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution rate, which may
be quoted to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by the Fund during the 12
months by a current maximum offering price (offering price includes sales
charge). Under certain circumstances, such as when there has been a change in
the amount of dividend payout or a fundamental change in investment policies,
it might be appropriate to annualize the dividends paid during the period when
such policies would be in effect, rather than using the dividends during the
past 12 months. The distribution rate will differ from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, short-term capital gains and net
equalization credits and will be calculated over a different period of time.
Performance figures are based upon past performance and reflect all
recurring charges against Fund income. In the case of Class A shares,
performance figures may assume the payment of the maximum sales charge on the
purchase of shares, which charge would reduce a performance figure. In the case
of Class B shares, performance figures may assume the deduction of any
applicable contingent deferred sales charge imposed on a redemption of shares
held for the period. The investment results of the Fund, like all others, will
fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Fund's total
return may be in any future period.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to the net asset
value per share, plus a sales charge. At your election, this charge may be
imposed either at the time of purchase (see "Initial Sales Charge Alternative -
Class A Shares") or on a contingent deferred basis (see "Contingent Deferred
Sales Charge Alternative - Class B Shares"). If you do not specify on your
Account Application which class of shares you are purchasing, it will be
assumed that you are investing in Class A shares.
CLASS A SHARES: If you elect to purchase Class A shares, you will incur
an initial sales charge unless the amount you purchase is $500,000 or more. If
you purchase $500,000 or more of Class A shares, you will not be subject to an
initial sales charge, but you will incur a contingent deferred sales charge
("CDSC") if you redeem your shares within 24 months of purchase. See
"Contingent Deferred Sales Charge - Class A Shares." Class A shares of the Fund
are subject to ongoing service fees at an annual rate of up to 0.25% of the
Fund's average daily net assets attributable to Class A shares. Certain
purchases of Class A shares qualify for a reduced initial sales charge. See
"Qualifying for a Reduced Sales Charge."
CLASS B SHARES: You will not incur a sales charge when you purchase Class
B shares, but the shares are subject to a contingent deferred sales charge if
you redeem them within five years of purchase. Class B shares are subject to
ongoing service and distribution fees at a combined annual rate of up to 0.75%
of the Fund's average daily net assets attributable to Class B shares. The
ongoing distribution fee will cause these shares to have a higher expense ratio
than that of Class A shares. To the extent that any dividends are paid by the
Fund, these higher expenses will also result in lower dividends than those paid
on Class A shares.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most
beneficial way to buy shares given the amount of your purchase, the length of
time you expect to hold your shares and other circumstances. You should
consider whether, during the anticipated life of your investment in the Fund,
the accumulated fees on Class B shares would be less than the initial sales
charge and accumulated fees on Class A shares purchased at the same time, and
to what extent this differential would be offset by the Class A shares '
potentially higher yield. To help you make this determination, the table under
the caption "Expense Data Table" at the beginning of this Prospectus gives
examples of the charges that apply to each class of shares. Class A shares will
normally be more beneficial if you qualify for a reduced sales charge. See
"Qualifying for a Reduced Sales Charge".
Class A shares are not subject to distribution fees, and accordingly, pay
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, you would not have all of your
funds invested initially and, therefore, would own fewer shares. If you do not
qualify for a reduced initial sales charge and expect to maintain your
investment for an extended period of time, you might consider purchasing Class
A shares because the accumulated service and distribution charges on Class B
shares may exceed the initial sales charge and accumulated service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it would be more advantageous to
purchase Class B shares in order to have all of your funds invested initially,
although remaining subject to a contingent deferred sales charge over a period
of five years, and a distribution fee over a period of eight years.
In the case of Class A shares, the distribution expenses that MIFDI
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and the ongoing service fees. In the case of Class
B shares, the expenses will be paid from the proceeds of ongoing service and
distribution fees, as well as the CDSC incurred upon redemption within five
years of purchase. The purpose and function of the Class B shares' CDSC and
ongoing service and distribution fees are the same as those of the Class A
shares' initial sales charge and ongoing service fees. Sales personnel
distributing each Fund's shares may receive different compensation for selling
each class of shares.
HOW TO BUY SHARES
The minimum initial investment for the Fund is $1,000; the minimum
additional investment is $100. All purchases must be made in U.S. dollars.
Complete the Account Application attached to this Prospectus. Indicate whether
you are purchasing Class A or Class B shares. If you do not specify which class
of shares you are purchasing, MIISC will assume you are investing in Class A
shares. The Fund reserves the right to reject for any reason any purchase order
or exchange (see "Exchange Privilege" below).
OPENING AN ACCOUNT
BY CHECK
1. Make your check payable to the Fund. Third party checks will not be
accepted
2. Deliver the completed application and check to your registered
representative or selling broker, or mail it directly to MIISC.
8
<PAGE>
3. Our address is:
MACKENZIE IVY INVESTOR SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
4. Our courier address is:
MACKENZIE IVY INVESTOR SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
BY WIRE
1. Deliver the completed Account Application to your registered
representative or selling broker, or mail it directly to MIISC. Before
wiring any funds, please contact MIISC at 1-800-777-6472 to verify your
account number.
2. Instruct your bank to wire funds to:
BARNETT BANK OF PALM BEACH COUNTY
ABA #067008582
FOR DEPOSIT TO
THE IVY AND MACKENZIE FUNDS
A/C #1455031505
NAME OF YOUR ACCOUNT
YOUR IVY OR MACKENZIE ACCOUNT NUMBER
THE IVY OR MACKENZIE FUND YOU ARE BUYING
Your bank may charge a fee for wiring funds.
THROUGH A REGISTERED SECURITIES DEALER: You may also place an order to
purchase shares through your Registered Securities Dealer.
BUYING ADDITIONAL CLASS A AND CLASS B SHARES
BY CHECK
1. Complete the investment stub attached to your statement or include a note
with your check listing the name of the fund in which you are investing,
the class of shares to purchase, your account number and the name(s) in
which the account is registered.
2. Make your check payable to the Fund.
3. Mail the account information and check to:
MACKENZIE IVY INVESTOR SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
Our courier address is:
MACKENZIE IVY INVESTOR SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
or deliver it to your registered representative or selling broker.
BY WIRE
Instruct your bank to wire funds to:
BARNETT BANK OF PALM BEACH COUNTY
ABA #067008582
FOR DEPOSIT TO
THE IVY AND MACKENZIE FUNDS
A/C #1455031505
NAME OF YOUR ACCOUNT
YOUR IVY OR MACKENZIE ACCOUNT NUMBER
THE IVY OR MACKENZIE FUND YOU ARE BUYING
Your bank may charge a fee for wiring funds.
THROUGH A REGISTERED SECURITIES DEALER: You may also place an order to
purchase shares through your Registered Securities Dealer.
BY AUTOMATIC INVESTMENT METHOD ("AIM")
1. Complete the "Automatic Investment Method" and "Wire/EFT Information"
sections on the Account Application designating a bank account from which
funds may be drawn. Please note that in order to invest using this
method, your bank must be a member of the Automated Clearing House system
(ACH). The minimum investment under this plan is $50 per month ($25 per
month for retirement plans). Please remember to attach a voided check to
your Account Application.
2. At pre-specified intervals, your bank account will be debited and the
proceeds will be credited to your Ivy or Mackenzie fund account.
HOW YOUR PURCHASE PRICE IS DETERMINED
Your purchase price for Class A shares of the Fund is the net asset value
per share plus a sales charge, which may be reduced or eliminated in certain
circumstances. The purchase price for Class A shares is known as the public
offering price. Your purchase price for Class B shares of the Fund is the net
asset value per share.
Your purchase of shares will be made at the next determined price after
the purchase order is received. The price is effective for orders received by
MIISC or by your Registered Securities Dealer prior to the time of the
determination of the net asset value. Any orders received after the time of the
determination of the net asset value will be entered at the next calculated
price.
Orders placed with a securities dealer before the time of determination
of the net asset value and transmitted through the facilities of the National
Securities Clearing Corporation by 7:00 p.m., EST, on the same day are
confirmed at that day's price. Any loss resulting from the dealer's failure to
submit an order by the deadline will be borne by that dealer.
You will receive an account statement after any purchase, exchange or
full liquidation. Statements related to reinvestment of distributions,
automatic investment plans (see the SAI for further explanation) and/or
systematic withdrawal plans will be sent quarterly.
HOW THE FUND VALUES ITS SHARES
The Net Asset Value ("NAV") per share is the value of one Fund share. The
NAV is determined in the following manner: the total of all Fund liabilities,
including accrued expenses and taxes and any necessary reserves, is deducted
from the aggregate value of all Fund assets, and the difference is divided by
the number of shares outstanding at the time, adjusted to the nearest cent. The
NAV per share is determined once every business day (as of the close of regular
trading on each day the New York Stock Exchange is open, normally 4:00 p.m.
EST) (see the SAI under "Net Asset Value" for a detailed description of how the
NAV is determined).
The Fund offers two classes of shares in this Prospectus: Class A shares,
which are subject to an initial sales charge; and Class B shares, which are
subject to a contingent deferred sales charge. IF YOU DO NOT SPECIFY A
PARTICULAR CLASS OF
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<PAGE>
SHARES, IT WILL BE ASSUMED THAT YOU ARE PURCHASING CLASS A SHARES AND AN
INITIAL SALES CHARGE WILL BE ASSESSED.
INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES
Class A shares may be purchased at a public offering price equal to their
NAV per share plus a sales charge, as set forth below:
<TABLE>
<CAPTION>
SALES CHARGE
---------------------------------------------
AS A AS A PORTION OF
PERCENTAGE PERCENTAGE PUBLIC OFFERING
OF PUBLIC OF NET PRICE
OFFERING AMOUNT RETAINED
AMOUNT INVESTED PRICE INVESTED BY DEALER
- --------------- ------------ -------- ---------
<S> <C> <C> <C>
Less than $25,000................................... 3.00% 3.09% 2.50%
$25,000 but less than $250,000...................... 2.50% 2.56% 2.00%
$250,000 but less than $500,000..................... 2.00% 2.04% 1.65%
$500,000 and over*.................................. 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge may apply to the redemption of Class A
shares that were purchased on or after January 26, 1994 without an initial
sales charge. See "Contingent Deferred Sales Charge--Class A Shares."
Sales charges are not applied to any dividends which are reinvested in
additional shares of the Fund.
MIFDI may, at the time of any purchase of Class A shares, pay out of
MIFDI's own resources commissions to dealers that provided distribution
assistance in connection with the purchase. For purchases over $500,000, the
commission would be computed at 0.75% of the first $3,000,000 invested; 0.50%
of the next $2,000,000 invested; and 0.25% of the amount invested in excess of
$5,000,000. An investor may be charged a transaction fee for Class A shares
purchased or redeemed at net asset value through a broker or agent other than
MIFDI.
MIFDI compensates participating brokers who sell Class A shares through
the initial sales charge. MIFDI retains that portion of the initial sales
charge that is not reallowed to the dealers, which it may use to distribute the
Fund's Class A shares. MIFDI may, from time to time, reallow the entire sales
charge or a portion of the sales charge greater than that which will normally
be reallowed to selected dealers who sell or are expected to sell significant
amounts of shares of the Fund during specified time periods. During periods
when 90% or more of the sales commission is reallowed, such dealers may be
deemed to be underwriters, as that term is defined in the Securities Act of
1933. Pursuant to separate distribution plans for the Fund's Class A and Class
B shares, MIFDI bears various promotional and sales-related expenses, including
the cost of printing and mailing prospectuses to persons other than
shareholders. Pursuant to the Fund's distribution plans applicable to its Class
A and Class B shares, MIFDI currently pays a continuing service fee to
qualified dealers at an annual rate of 0.25% of qualified investments.
MIFDI may from time to time pay a bonus or other incentive to dealers
(other than MIFDI) that employ a registered representative who sells a minimum
dollar amount of the shares of the Fund and/or other funds distributed by MIFDI
during a specified period of time. This bonus or other incentive may take the
form of payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to places within or without the United States or other bonuses such as
gift certificates or the cash equivalent of such bonus or incentive.
CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES
Purchases of $500,000 or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 24
months after the end of the calendar quarter in which the purchase was made
(the contingent deferred sales charge period), a contingent deferred sales
charge of 0.75% will be imposed.
In order to recover commissions paid to dealers on NAV Transfers (as
defined in "Purchase of Class A Shares at Net Asset Value"), Class A shares of
the Fund are subject to a contingent deferred sales charge of 0.75% for certain
redemptions within 24 months after the date of purchase.
The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class A shares
redeemed. Accordingly, no contingent deferred sales charge will be imposed on
increases in account value above the initial purchase price, including any
dividends which have been reinvested in additional Class A shares.
In determining whether a contingent deferred sales charge applies to a
redemption, the calculation will be determined in a manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first made from any shares in your account not subject to the
contingent deferred sales charge. The contingent deferred sales charge is
waived in certain circumstances. See the discussion below under the caption
"Waiver of Contingent Deferred Sales Charge."
WAIVER OF CONTINGENT DEFERRED SALES CHARGE: The contingent deferred sales
charge is waived for any partial or complete redemption following the death or
disability (as defined in Section 72(m)(7) of the Code) of a shareholder from
an account in which the deceased or disabled is named, provided that the
redemption is requested within one year of the death or disability. MIFDI may
require documentation prior to waiver of the contingent deferred sales charge.
Class A shareholders may exchange their Class A shares subject to a
contingent deferred sales charge ("outstanding Class A shares") for Class A
shares of another Ivy or Mackenzie fund ("new Class A shares") on the basis of
the relative net asset value per Class A share, without the payment of any
contingent deferred sales charge that otherwise would be due upon the
redemption of the outstanding Class A shares. The original contingent deferred
sales charge rate that would have been charged if the outstanding Class A
shares were redeemed will carry over to the Class A shares received in the
exchange, and will be charged accordingly at the time of redemption.
QUALIFYING FOR A REDUCED SALES CHARGE
RIGHTS OF ACCUMULATION: Rights of Accumulation ("ROA") is calculated by
determining the current market value of all Class A shares in all Ivy or
Mackenzie fund accounts (except Ivy Money Market Fund) owned by you, your
spouse and your children under 21 years of age. ROA is also applicable to
accounts under a trustee or other single fiduciary (including retirement
accounts qualified under Section 401 of the Code). The current market value of
each of your accounts as described above is added together and then added to
your current purchase amount. If the combined total is equal to or greater than
a breakpoint amount for the Fund, then you qualify for the reduced sales
charge. To reduce or eliminate the sales charge, you must complete Section 4B
of the Account Application. For additional information, shareholders should
call 1-800-777-6472.
LETTER OF INTENT: A Letter of Intent ("LOI") is a non-binding agreement
that states your intention to invest in additional Class A shares, within a
thirteen month period after the initial purchase, an amount equal to a
breakpoint amount for the Fund. The LOI may be backdated up to 90 days. To sign
an LOI, complete Section 4B of the Account Application.
Should the LOI not be fulfilled within the thirteen month period, your
account will be debited for the difference between the full sales charge that
applies
10
<PAGE>
and the reduced sales charge actually paid on purchases placed under the
terms of the LOI. For additional information, shareholders should call
1-800-777-6472.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE
An investor who was a shareholder of any Ivy Fund on December 31, 1991 or
a shareholder of American Investors Income Fund, Inc. or American Investors
Growth Fund, Inc. on October 31, 1988 and who became a shareholder of Ivy Bond
Fund (formerly Mackenzie Fixed Income Trust) or Ivy Growth Fund as a result of
the respective reorganizations of the funds will be exempt from sales charges,
including any contingent deferred sales charge, on purchases of Class A shares
of any Ivy or Mackenzie fund. This privilege is also available to immediate
family members of a shareholder (i.e., the shareholder's children, the
shareholder's spouse and the children of the shareholder's spouse). This
no-load privilege terminates for the investor if the investor redeems all
shares owned. Shareholders and their relatives as described above should call
1-800-235-3322 for further information on additional purchases or to inquire
about their account.
Officers and Trustees of the Trust (and their relatives), MIMI, Ivy
Management, Inc. (which is a wholly owned subsidiary of MIMI) and Mackenzie
Financial Corporation (of which MIMI is a subsidiary) and their officers,
directors, employees and retired employees (and their relatives) may buy Class
A shares of the Fund without an initial sales charge or a contingent deferred
sales charge.
Directors, officers, partners, registered representatives, employees (and
their relatives) of dealers having a sales agreement with MIFDI may buy Class A
shares of the Fund without an initial sales charge or a contingent deferred
sales charge. In addition, certain investment advisers and financial planners
who charge a management, consulting or other fee for their services and who
place trades for their own accounts and the accounts of their clients may
purchase Class A shares of the Fund without an initial sales charge or a
contingent deferred sales charge, provided such purchases are placed through a
broker or agent who maintains an omnibus account with the Fund. Also, clients
of these advisers and planners may make purchases under the same conditions if
the purchases are through the master account of such adviser or planner on the
books of such broker or agent.
Class A shares of the Fund can also be purchased without an initial sales
charge, but subject to a contingent deferred sales charge of 0.75% during the
first 24 months by trust companies, bank trust departments, credit unions,
savings and loans, and other similar organizations in their fiduciary capacity
or for their own accounts, subject to any minimum requirements set by MIFDI.
Currently, these criteria require that the amount invested or to be invested
during the subsequent 13-month period totals at least $250,000. MIFDI may, at
the time of any such purchase, pay out of MIFDI's own resources commissions to
dealers which provided distribution assistance in connection with the purchase.
Commissions would be computed at 0.75% of the first $3,000,000 invested; 0.50%
of the next $2,000,000 invested; and 0.25% of the amount invested in excess of
$5,000,000.
Class A shares of the Fund can also be purchased without an initial sales
charge, but subject to a contingent deferred sales charge of 0.75% during the
first 24 months by any state, county, or city, or any instrumentality,
department, authority or agency of these entities, which is prohibited by
applicable investment laws from paying a sales charge or commission when
purchasing shares of any registered management investment company (an "eligible
governmental authority"). MIFDI may, at the time of such purchase, pay out of
MIFDI's own resources commissions to dealers which provided distribution
assistance in connection with the purchase. Commissions would be computed at
0.75% of the first $3,000,000 invested; 0.50% of the next $2,000,000 invested;
and 0.25% of the amount invested in excess of $5,000,000.
Class A shares of the Fund may also be purchased without a sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
The Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of various broker/dealers with which MIFDI has a
selling relationship. This privilege will apply only to Class A shares of the
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares (on which a commission has been paid) of
an investment company (other than the Trust or Ivy Fund), unit investment trust
or limited partnership ("NAV Transfers"). Some dealers may elect not to
participate in this program. Those dealers that do elect to participate in the
program must complete certain forms required by MIFDI. The normal service fee,
as described in the "Initial Sales Charge Alternative - Class A Shares" and
"Contingent Deferred Sales Charge Alternative - Class B Shares" sections of
this Prospectus, will also be paid to dealers in connection with these
purchases. Additional information on reductions or waivers may be obtained from
MIFDI at the address listed on the cover of this Prospectus.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES
Class B shares are offered at net asset value without a front-end sales
charge. However, Class B shares redeemed within five years of purchase will be
subject to a contingent deferred sales charge at the rates set forth below.
This charge will be assessed on an amount equal to the lesser of the current
market value or the original cost of the shares being redeemed. Accordingly,
you will not be assessed a contingent deferred sales charge on increases in
account value above the initial purchase price, including shares derived from
the reinvestment of distributions. In determining whether a contingent deferred
sales charge applies to a redemption, the calculation will be determined in a
manner that results in the lowest possible rate being charged. It will be
assumed that your redemption comes first from shares you have held beyond the
contingent deferred sales charge redemption period or those you acquire through
reinvestment of distributions, and next from the shares you have held the
longest.
Proceeds from the contingent deferred sales charge are paid to MIFDI.
MIFDI uses them, in whole or in part, to defray its expenses related to
providing the Fund with distribution services in connection with the sale of
Class B shares, such as compensating selected dealers and agents for selling
these shares. The combination of the contingent deferred sales charge and the
service and distribution fees makes it possible for the Fund to sell Class B
shares without deducting a sales charge at the time of purchase.
The amount of the contingent deferred sales charge, if any, will vary
depending upon the number of years from the time of your purchase of Class B
shares until the time you redeem them. Solely for purposes of determining this
holding period, all payments during the quarter will be aggregated and deemed
to have been made on the last day of the quarter.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -----------------
<S> <C>
First.............................................................. 3%
Second............................................................. 2 1/2%
Third.............................................................. 2%
Fourth............................................................. 1 1/2%
Fifth.............................................................. 1%
Sixth and thereafter............................................... 0%
</TABLE>
MIMI, on behalf of MIFDI, currently intends to pay dealers a sales
commission of 2.50% of the sale price of Class B shares of the Fund sold by
such dealers, subject to future amendment or termination. MIFDI will retain
0.50%
11
<PAGE>
of the continuing 0.75% service/distribution fee for the Fund assessed to
Class B shareholders and will receive the entire amount of the contingent
deferred sales charge paid by shareholders on the redemption of Class B shares
to finance the sales commission plus related marketing expenses.
CONVERSION OF CLASS B SHARES: Your Class B shares and an appropriate
portion of both reinvested distributions on those shares will be converted into
Class A shares automatically no later than the month following eight years
after the shares were purchased, resulting in the discontinuance of annual
distribution fees. If you exchanged Class B shares from another Ivy or
Mackenzie fund into Class B shares of the Fund, the calculation will be based
on the time the shares in the original fund were purchased.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE: The contingent deferred sales
charge is waived for any partial or complete redemption following the death or
disability (as defined in Section 72(m)(7) of the Code) of a shareholder from
an account in which the deceased or disabled is named, provided that the
redemption is requested within one year of death or disability. MIFDI may
require documentation prior to waiver of the contingent deferred sales charge.
ARRANGEMENTS WITH BROKER/DEALERS AND OTHERS: MIFDI may, at its own
expense, pay concessions in addition to those described above to dealers which
satisfy certain criteria established from time to time by MIFDI. These
conditions relate to increasing sales of shares of the Fund over specified
periods and to certain other factors. These payments may, depending on the
dealer's satisfaction of the required conditions, be periodic and may be up to
(i) 0.25% of the value of Fund shares sold by such dealer during a particular
period, and (ii) 0.10% of the value of Fund shares held by the dealer's
customers for more than one year, calculated on an annual basis.
HOW TO REDEEM SHARES
You may redeem your Fund shares through your registered securities
representative, by mail, by telephone or by Federal Funds wire. A contingent
deferred sales charge may apply to certain Class A share redemptions, and to
Class B share redemptions prior to conversion. All redemptions are made at the
net asset value next determined after a redemption request has been received in
good order. Requests for redemptions must be received by 4:00 p.m. EST to be
processed at the net asset value for that day. Any redemption request in good
order that is received after 4:00 p.m. will be processed at the price
determined on the following business day. IF SHARES TO BE REDEEMED WERE
PURCHASED BY CHECK, PAYMENT OF THE REDEMPTION MAY BE DELAYED UNTIL THE CHECK
HAS CLEARED OR FOR UP TO 15 DAYS AFTER THE DATE OF PURCHASE, WHICHEVER IS LESS.
If you own shares of more than one class of the Fund, the Fund will redeem
Class A shares first; any shares subject to a contingent deferred sales charge
will be redeemed last unless you specifically elect otherwise.
When shares are redeemed, the Fund generally sends you payment on the
next business day. Under unusual circumstances, the Fund may suspend
redemptions or postpone payment to the extent permitted by Federal securities
laws. The proceeds of the redemption may be more or less than the purchase
price of your shares, depending upon, among other factors, the market value of
the Fund's securities at the time of the redemption. If the redemption is for
over $50,000, or the proceeds are to be sent to an address other than the
address of record, or an address change has occurred in the last 30 days, it
must be requested in writing with a signature guarantee. See "Signature
Guarantees" below.
If you are not certain of the requirements for a redemption, please
contact MIISC at 1-800-777-6472.
THROUGH YOUR REGISTERED SECURITIES DEALER: The Dealer is responsible for
promptly transmitting redemption orders. Redemptions requested by dealers will
be made at the net asset value (less any applicable contingent deferred sales
charge) determined at the close of regular trading (4:00 p.m. EST) on the day
that a redemption request is received in good order by MIISC.
BY MAIL: Requests for redemption in writing are considered to be in
"proper or good order" if they contain the following:
- Any outstanding certificate(s) for shares being redeemed.
- A letter of instruction, including the fund name, the account number,
the account name(s), the address and the dollar amount or number of
shares to be redeemed.
- Signatures of all registered owners whose names appear on the
account.
- Any required signature guarantees.
- Other supporting legal documentation, if required (in the case of
estates, trusts, guardianships, corporations or other representative
capacities).
The dollar amount or number of shares indicated for redemption must not
exceed the available shares or net asset value of your account at the next
determined prices. If your request exceeds these limits, then the trade will be
rejected in its entirety.
Mail your request to:
MACKENZIE IVY INVESTOR SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
Our courier address is:
MACKENZIE IVY INVESTOR SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
BY TELEPHONE: Individual and joint accounts may redeem up to $50,000 per
day over the telephone by contacting MIISC at 1-800-777-6472. In times of
unusual economic or market changes, the telephone redemption privilege may be
difficult to implement. If you are unable to execute your transaction (for
example, during such times), you may want to consider placing the order in
writing and sending it by mail or overnight courier.
Checks will be made payable to the current account registration and sent
to the address of record. If there has been a change of address in the last 30
days, please use the instructions for redemption requests by mail described
above. A signature guarantee would be required.
Requests for telephone redemptions will be accepted from the registered
owner of the account, the designated registered representative or his/her
assistant.
Shares held in certificate form cannot be redeemed by telephone.
If Section 6E of the Account Application is not completed, telephone
redemption privileges will be provided automatically. Although telephone
redemptions may be a convenient feature, you should realize that you may be
giving up a measure of security that you may otherwise have if you terminated
the privilege and redeemed your shares in writing. If you do not wish to make
telephone redemptions or permit your registered representative or his/her
assistant to do so on your behalf, you must notify MIISC in writing.
12
<PAGE>
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
CHECK WRITING: Check writing is available on Class A shares of the Fund.
Checks must be written for a minimum of $500. You may sign up for this option
by completing Section 8--Check Writing Enrollment on the last page of the new
account application. If the Class A shares to be redeemed have been purchased
by check, availability of the shares for redemption by check may be delayed
until your check clears or for up to 15 calendar days after the date of
purchase, whichever is less.
In order to qualify for check writing, Fund shareholders must maintain a
minimum average balance of $1,000. Class A shares must be unissued (held at the
Fund) for any account requesting check writing privileges.
Checks can be reordered by calling MIISC at 1-800-777-6472. Checking
activity is reported on your statement, and cancelled checks are returned to
you each month. There is no limitation on the number of checks a shareholder
may write.
Checks written on the Fund are redemptions of shares and considered
taxable events by the IRS. As such, any capital gain realized must be reported
on your income tax return.
When a check is presented for payment, the Fund redeems a sufficient
number of Class A shares to cover the amount of the check. Checks written on
accounts with insufficient shares will be returned to the payee marked
"non-sufficient funds." There is a nominal charge for each supply of checks,
copies of cancelled checks, stop payment orders, checks drawn for amounts less
than the Fund minimum (see above) and checks returned for "non-sufficient
funds." To pay for these charges, the Fund automatically redeems an appropriate
number of the shareholder's Class A shares after the charges are incurred.
You may not close your Fund account by writing a check because any earned
dividends will remain in your account. Check writing is not available for
accounts in Class B of the Fund. The Fund reserves the right to change, modify
or terminate the check writing service at any time upon notification mailed to
the address of record of the shareholder(s).
BY FEDERAL FUNDS WIRE: For shareholders who established this feature at
the time they opened their new account, telephone instructions will be accepted
for redemption amounts up to $50,000 ($1,000 minimum) and proceeds will be
wired on the next business day to a pre-designated bank account.
In order to add this feature to an existing account or change existing
bank account information, please submit a letter of instructions including your
bank information to MIISC at the address provided above. The letter must be
signed by all registered owners, and their signatures must be guaranteed.
Your account will be charged a $10 fee each time redemption proceeds are
wired to your bank.
Neither MIISC nor the Fund can be responsible for the efficiency of the
Federal Funds wire system or the shareholder's bank.
MINIMUM ACCOUNT BALANCE REQUIREMENTS
Due to the high cost of maintaining small accounts and subject to state
law requirements, the Fund may redeem the accounts of shareholders who have
maintained an investment, including sales charges paid, of less than $1,000 for
more than 12 months. No redemption will be made unless the shareholder has been
given at least 60 days notice of the Fund's intention to redeem the shares. No
redemption will be made if a shareholder's account falls below the minimum due
to a reduction in the value of the Fund's portfolio securities. SIGNATURE
GUARANTEES
For your protection, and to prevent fraudulent redemptions, we require a
signature guarantee in order to accommodate the following requests:
- Redemption requests over $50,000.
- Requests for redemption proceeds to be sent to someone other than
the registered shareholder.
- Requests for redemption proceeds to be sent to an address other than
the address of record.
- Registration transfer requests.
- Requests for redemption proceeds to be wired to your bank account
(if this option was not selected on your original application, or
if you are changing the bank wire information).
A signature guarantee may be obtained only from an eligible guarantor
institution. An eligible guarantor institution includes banks, brokers,
dealers, municipal securities dealers, government securities dealers,
government securities brokers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
The signature guarantee must not be qualified in any way. Notarizations from
notary publics are not the same as signature guarantees, and are not accepted.
Circumstances other than those described above may require a signature
guarantee. Please contact MIISC at 1-800-777-6472 for more information.
CHOOSING A DISTRIBUTION OPTION
You have the option of selecting the dividend and capital gain
distribution option that best suits your needs:
1. AUTOMATIC REINVESTMENT OPTION - Both dividends and capital gains are
automatically reinvested at net asset value in additional shares of the same
class of the Fund unless you specify one of the other options.
2. INVESTMENT IN ANOTHER IVY OR MACKENZIE FUND - Both divi- dends and capital
gains are automatically invested at net asset value in an- other Ivy or
Mackenzie fund of the same class.
3. DIVIDENDS IN CASH/CAPITAL GAINS REINVESTED - Dividends will be paid in cash.
Capital gains will be reinvested at net asset value in additional shares of
the same class of the Fund or another Ivy or Mackenzie fund of the same
class.
4. DIVIDENDS AND CAPITAL GAINS IN CASH - Both dividends and capital gains will
be paid in cash.
If you wish to have your cash distributions deposited directly to your
bank account via electronic funds transfer, or if you wish to change your
distribution option, please contact MIISC at 1-800-777-6472.
If you wish to have your cash distributions go to an address other than
the address of record, a signature guarantee is required.
13
<PAGE>
TAX IDENTIFICATION NUMBER
In general, to avoid being subject to a 31% Federal backup withholding
tax on dividends, capital gain distributions and redemption proceeds, you must
furnish the Fund with your certified tax identification number ("TIN") and
certify that you are not subject to backup withholding due to prior
under-reporting of interest and dividends to the IRS. If you fail to provide a
certified TIN, or such other tax-related certifications as the Fund may
require, within 30 days of opening your new account, the Fund reserves the
right to involuntarily redeem your account and send the proceeds to the address
of record.
You can avoid the above withholding and/or redemption by correctly
furnishing your TIN and making certain certifications in Section 2 of the
Account Application at the time you open your new account, unless the IRS
requires that backup withholding be applied to your account.
Certain payees, such as corporations, generally are exempt from backup
withholding. Please complete IRS Form W-9 with the Account Application to claim
the exemption. If the registration is for a UGMA/UTMA account, please provide
the social security number of the minor. Non-U.S. investors who do not have a
TIN must provide, with the new Account Application, a completed IRS Form W-8.
CERTIFICATES
In order to facilitate transfers, exchanges and redemptions, most
shareholders elect not to receive certificates. Should you wish to have a
certificate issued, please contact MIISC at 1-800-777-6472 and request that one
be sent to you. Please note that if you were to lose your certificate, you
would incur an expense to replace it.
Certificates for shares valued up to $50,000 will be issued to the
current registration and mailed to the address of record. Should you wish to
have your certificates mailed to a different address, or registered differently
from the current registration, you must provide a letter of instruction, signed
by all registered owners with signature guarantee. The letter of instruction
would then be mailed to MACKENZIE IVY INVESTOR SERVICES CORP., P.O. BOX 3022,
BOCA RATON, FL 33431-0922.
EXCHANGE PRIVILEGE
Shareholders of the Fund have an exchange privilege with other Ivy and
Mackenzie funds. Class A shareholders may exchange their outstanding Class A
shares for Class A shares of another Ivy or Mackenzie fund on the basis of the
net asset value per Class A share, plus an amount equal to the difference
between the sales charge previously paid on the outstanding Class A shares and
the sales charge payable at the time of the exchange on the new Class A shares.
Incremental sales charges are waived for outstanding Class A shares that have
been invested for 12 months or longer.
Class B shareholders may exchange their Class B shares for Class B shares
of another Ivy or Mackenzie fund on the basis of the net asset value per Class
B share, without the payment of any contingent deferred sales charge that would
otherwise be due upon the redemption of Class B shares. Class B shareholders
who exercise the exchange privilege would continue to be subject to the Fund's
contingent deferred sales charge schedule (or period) following an exchange if
such schedule is higher (or longer) than the contingent deferred sales charge
for the new Class B shares.
Shares resulting from the reinvestment of distributions will not be
charged an initial sales charge or a contingent deferred sales charge when
exchanged into another Ivy or Mackenzie fund.
Exchanges are considered to be taxable events, and may result in a
capital gain or a capital loss for tax purposes. Prior to executing an
exchange, you should obtain and read the prospectus and consider the investment
objective of the fund to be purchased. Shares must be unissued in order to
execute an exchange. Exchanges are available only in states where they can be
legally made. This privilege is not intended to provide shareholders a means by
which to speculate on short-term movements in the market. Exchanges are
accepted only if the registrations of the two accounts are identical. Amounts
to be exchanged must meet minimum investment requirements for the Ivy or
Mackenzie fund into which the exchange is made.
With respect to Fund shares subject to a contingent deferred sales
charge, if less than all of an investment is exchanged out of the Fund, the
shares exchanged will reflect, pro rata, the cost, capital appreciation and/or
reinvestment of distributions of the original investment as well as the
original purchase date, for purposes of calculating any contingent deferred
sales charge for future redemptions of the exchanged shares.
An investor who was a shareholder of American Investors Income Fund, Inc.
or American Investors Growth Fund, Inc. prior to October 31, 1988, or a
shareholder of any Ivy Fund prior to December 31, 1991, who became a
shareholder of the Fund as a result of a reorganization or merger between the
Funds may exchange between funds without paying a sales charge. An investor who
was a shareholder of American Investors Income Fund, Inc. or American Investors
Growth Fund, Inc. on or after October 31, 1988 who became a shareholder of the
Fund as a result of the reorganization between the Funds will receive credit
toward any applicable sales charge imposed by any Ivy or Mackenzie fund into
which an exchange is made.
In calculating the sales charge assessed on an exchange, shareholders
will be allowed to use the Rights of Accumulation privilege.
EXCHANGES BY TELEPHONE: When you fill out the application for your
purchase of Fund shares, if Section 6E of the new Account Application is not
completed, telephone exchange privileges will be provided automatically.
Although telephone exchanges may be a convenient feature, you should realize
that you may be giving up a measure of security that you may otherwise have if
you terminated the privilege and exchanged your shares in writing. If you do
not wish to make telephone exchanges or permit your registered representative
or his/ her assistant to do so on your behalf, you must notify MIISC in
writing.
In order to execute an exchange, please contact MIISC at 1-800-777-6472.
Have the account number of your current fund and the exact name in which it is
registered available to give to the telephone representative.
The Fund employs reasonable procedures that require personal
identification prior to acting on exchange instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
EXCHANGES IN WRITING: In a letter, request an exchange and provide the
following information:
- The name and class of the fund whose shares you currently own.
- Your account number
- The name(s) in which the account is registered.
- The name of the fund in which you wish your exchange to be invested.
14
<PAGE>
- The number of shares, all shares or the dollar amount you wish to
exchange.
The request must be signed by all registered owners.
Mail the request and information to:
MACKENZIE IVY INVESTOR SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
REINVESTMENT PRIVILEGE
Investors who have redeemed Class A shares of the Fund have an unlimited
privilege of reinvesting all or a part of the proceeds of the redemption back
into Class A shares of the Fund at net asset value (without a sales charge)
within 24 months after the date of redemption. IN ORDER TO REINVEST WITHOUT A
SALES CHARGE, SHAREHOLDERS OR THEIR BROKERS MUST INFORM MIISC THAT THEY ARE
EXERCISING THE REINVESTMENT PRIVILEGE AT THE TIME OF REINVESTMENT. The tax
status of a gain realized on a redemption generally will not be affected by the
exercise of the reinvestment privilege, but a loss realized on a redemption
generally may be disallowed by the IRS if the reinvestment privilege is
exercised within 30 days after the redemption. In addition, upon a
reinvestment, the shareholder may not be permitted to take into account sales
charges incurred on the original purchase of shares in computing their taxable
gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
You may elect the Systematic Withdrawal Plan at any time by completing
the Account Application, which is attached to this Prospectus. You can also
obtain this application by contacting your registered representative or MIISC
at 1-800-777-6472. To be eligible, you must have at least $5,000 in your
account. Payments (minimum distribution amount--$50) from your account can be
made monthly, quarterly, semi-annually, annually or on a selected monthly
basis, to yourself or any other designated payee. You may elect to have your
systematic withdrawal paid directly to your bank account via electronic funds
transfer ("EFT"). Share certificates must be unissued (held by the Fund) while
the Systematic Withdrawal Plan is in effect. A Systematic Withdrawal Plan may
not be established if you are currently participating in the Automatic
Investment Method. For more information, please contact MIISC at
1-800-777-6472.
If payments you receive through the Systematic Withdrawal Plan exceed the
dividends and capital appreciation of your account, you will be reducing the
value of your account. Additional investments made by shareholders
participating in the Systematic Withdrawal Plan must equal at least $1,000
while the plan is in effect. However, it may not be advantageous to purchase
additional Class A or Class B shares when you have a Systematic Withdrawal
Plan, because you may be subject to an initial sales charge on your purchase of
Class A shares or to a contingent deferred sales charge imposed on your
redemptions of Class B shares. In addition, redemptions are taxable events.
Amounts paid to you through the Systematic Withdrawal Plan are derived
from the redemption of shares in your account. Any applicable contingent
deferred sales charge will be assessed upon redemption. A contingent deferred
sales charge will not be assessed on withdrawals not exceeding 12% annually of
the initial account balance when the Systematic Withdrawal Plan was started.
Should you wish at any time to add a Systematic Withdrawal Plan to an
existing account or change payee instructions, you will need to submit a
written request, signed by all registered owners, with signatures guaranteed.
If the U.S. Postal Service cannot deliver your checks, or if deposits to a
bank account are returned for any reason, your redemptions will be
discontinued.
AUTOMATIC INVESTMENT METHOD
You may authorize an investment to be automatically drawn each month from
your bank for investment in Fund shares under the "Automatic Investment Method"
and "Fed Wire/EFT" sections of the Account Application. There is no charge to
you for this program.
You may terminate or suspend your Automatic Investment Method by
telephone at any time by contacting MIISC at 1-800-777-6472.
If you have investments being withdrawn from a bank account and we are
notified that the account has been closed, your Automatic Investment Method
will be discontinued.
CONSOLIDATED ACCOUNT STATEMENTS
Shareholders with two or more Ivy or Mackenzie fund accounts will receive
a single quarterly account statement, unless otherwise specified. This feature
consolidates the activity for each account onto one statement. Requests for
quarterly consolidated statements for all other accounts must be submitted in
writing and must be signed by all registered owners.
SHAREHOLDER INQUIRIES
Inquiries regarding the Fund should be directed to MIISC at
1-800-777-6472.
15
<PAGE>
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16
<PAGE>
ACCOUNT APPLICATION
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
CLASS A AND CLASS B SHARES
Please mail applications and checks to: Mackenzie Ivy Investor Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for
which Ivy is custodian.)
<TABLE>
<S> <C> <C> <C> <C>
FUND
USE
ONLY ______________________________________________ _________________ _______________ ________________
Account Number Dealer # Branch # Rep. I.D #
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTRATION--1
[ ] Individual ______________________________________________________________________________________
[ ] Joint Tenant Owner, Custodian or Trustee
[ ] Estate ______________________________________________________________________________________
[ ] UGMA/UTMA Co-owner or Minor
[ ] Corporation ______________________________________________________________________________________
[ ] Partnership Minor's State of Residence
[ ] Sole Proprietor ______________________________________________________________________________________
[ ] Trust Street
________________
Date of Trust ______________________________________________________________________________________
[ ] Other __________ City State Zip
___________________
_________________________________________ ____________________________________
Phone Number -- Day Phone Number -- Evening
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TAX ID#--2 ________________________________ or ______________________________________ Citizenship [ ] U.S. [ ] Other _____________
Social Security Number Tax Identification Number
Under penalties of perjury, I certify by signing in Section 9 below that: (1) the number shown in this section is my
correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not
been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup
withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup
withholding because of under reporting interest or dividends on your tax return.) Please see the "Tax Identification
Number" section of the Prospectus for additional information on completing this section.
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DEALER
INFORMATION--3
The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and
legal capacity of the Shareholder, and agrees to notify the Manager of any purchases made under a Letter of Intent or
Rights of Accumulation.
__________________________________________________________ __________________________________________________________
Dealer Name Representative's Name and Number
__________________________________________________________ __________________________________________________________
Branch Office Address Representative's Phone Number
__________________________________________________________ __________________________________________________________
City State Zip Code Authorized Signature of Dealer
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INVESTMENTS--4
A. Enclosed is my check for $ ______________ ($1,000 minimum) made payable to Mackenzie Florida Limited Term Municipal
Fund.
Please invest it in: [ ] Class A or [ ] Class B shares.
B. I qualify for an elimination of the sales charge due to the following privilege (applies only to Class A shares):
[ ] New Letter of Intent (if ROA or 90-day backdate privilege is applicable, provide account(s) information below.)
[ ] ROA with the account(s) listed below.
[ ] Existing Letter of Intent with account(s) listed below.
_____________________________________ ________________________________ [ ] or New
Fund Name Account Number
_____________________________________ ________________________________ [ ] or new
Fund Name Account Number
If establishing a Letter of Intent, you will need to purchase Class A shares over a thirteen-month period in
accordance with the provisions in the Prospectus. The aggregate amount of these purchases will be at least equal to
the amount indicated below (see Prospectus for minimum amount required for reduced sales charges).
[ ] $25,000 [ ] $250,000 [ ] $500,000
C. FOR DEALER USE ONLY _________________________ ________________________________ _________________________
Confirmed trade orders: Confirm Number Number of Shares Trade Date
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DISTRIBUTION
OPTIONS--5
A. I would like to reinvest dividends and capital gains into additional shares of the same class in this account at
net asset value unless a different option is checked below.
B. [ ] Reinvest all dividends and capital gains into additional shares of the same class in an account in a
different Mackenzie or Ivy fund.
___________________________________ __________________________ [ ] New Account
Fund Name Account Number
C. [ ] Pay all dividends in cash and reinvest capital gains into additional shares of the same class in this account
or an account in a different Mackenzie or Ivy fund.
___________________________________ __________________________ [ ] New Account
Fund Name Account Number
D. [ ] Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C
OR D BE:
[ ] Sent to the address listed in the registration.
[ ] Sent to the special payee listed in Section
7A [ ] (By-Mail)
7B [ ] (By-E.F.T.)
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</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
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OPTIONAL SPECIAL FEATURES--6
A. [ ] AUTOMATIC INVESTMENT METHOD (AIM)*
I wish to invest [ ] once per month. My bank account will be debited on or about the ______________ day of the month
[ ] twice ______________ day of the month
[ ] 3 times ______________ day of the month
[ ] 4 times ______________ day of the month *
Please invest $_____________ each period starting in the month of _______ in Class A [ ] or Class B [ ] shares of Mackenzie
(Dollar Amount) (Month) Florida Limited Term Municipal Fund
[ ] I have attached a voided check to ensure my correct bank account will be debited.
* There must be a period of at least seven calendar days between each investment period.
B. [ ] SYSTEMATIC WITHDRAWAL PLANS** I request the distribution be:
I wish to automatically withdraw funds from my Mackenzie [ ] Monthly [ ] Quarterly [ ] Semiannually [ ]Annually
Florida Limited Term Municipal Fund. [ ] Sent to the address listed in the registration.
In Class A [ ] or Class B [ ] shares--[ ] Once [ ] Sent to the special payee listed in Section 7.
[ ] Twice [ ] 3 times [ ] 4 times per month [ ] Invested into additional shares of the same
class of a different Ivy or Mackenzie fund.
Amount (Minimum $50) $ ____________: starting on or _________________________________________________
about the__________day of the month (Fund Name)
__________day of the month _________________________________________________
__________day of the month (Account Number)
__________day of the month
NOTE: (Account minimum: $5,000 in shares at current offering price)
** There must be a period of at least seven calendar days between each withdrawal period
C. [ ] ELECTRONIC FUNDS TRANSFER FOR REDEMPTION PROCEEDS*
I authorize the Agent to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may
be wire transferred to the bank account designated ($1,000 minimum). Shares issued in certificate form may not be
redeemed under this privilege. (COMPLETE SECTION 7B)
D. [ ] TELEPHONE EXCHANGES* [ ] Yes [ ] No (IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE PROVIDED
AUTOMATICALLY.)
I authorize exchanges by telephone among the Ivy and Mackenzie family of funds upon instructions from any person as
more fully described in the Prospectus. To change this option once established, written instruction must be received
from the shareholder of record or the current registered representative.
E. [ ] TELEPHONE REDEMPTIONS* [ ] Yes [ ] No (IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE PROVIDED
AUTOMATICALLY.)
The Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds
are to be payable to the shareholder of record and mailed to the address of record. To change this option once
established, written instruction must be received from the shareholder of record or the current registered
representative.
*MAY NOT BE USED IF SHARES ARE ISSUED IN CERTIFICATE FORM.
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- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL PAYEE--7
(A.) MAILING ADDRESS B. FED WIRE / E.F.T. INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Please send all disbursements to this special payee
_______________________________________________________ ____________________________________________________
Name of Bank or Individual Financial Institution
_______________________________________________________ ____________________________ _____________________
Account Number (if applicable) ABA # Account #
_______________________________________________________ ____________________________________________________
Street Street
_______________________________________________________ ____________________________________________________
City/State/Zip City/State/Zip
(Please attach a voided check)
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(Remember to sign Section 9)
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CHECK WRITING ENROLLMENT FORM--8
CHECK WRITING PRIVILEGES are available to Class A shareholders of Mackenzie Florida Limited Term Municipal Fund (checks must
be written for a minimum of $500). Class A shares purchased in the Fund may be subject to a holding period of up to 15
calendar days before being redeemed by check. Please see the Prospectus for details.
HOW TO ENROLL
1. ALL REGISTERED OWNERS MUST SIGN THIS FORM IN THE SPACE PROVIDED BELOW.
2. Check the appropriate Number of Signatures Required box to indicate the number of signatures required
when writing checks.
NUMBER OF SIGNATURES REQUIRED
[ ] All signatures are required [ ] One signature is required [ ] More than one signature is required ____________________
number of signatures
required
IF NONE OF THE ABOVE IS CHECKED THEN ALL SIGNATURES WILL BE REQUIRED
______________________________________________________ ___________________
Authorized Signature Date
______________________________________________________ ___________________
Authorized Signature Date
______________________________________________________ ___________________
Authorized Signature Date
______________________________________________________ ___________________
Authorized Signature Date
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SIGNATURE--9
Investors should be aware that failure to check "No" under Section 6, "Optional Special Features", above means that the
Telephone Exchange/Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal
identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such
instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions. Please see "Exchanging by Telephone" and "How to Redeem Your Mackenzie Fund
Shares" in the Prospectus for more information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the
organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this
application by reference. I am certifying my taxpayer informations as stated in Section 2.
--------------------------------------------------------------------------- ------------------
SIGNATURE OF OWNER, CUSTODIAN, TRUSTEE OR CORPORATE OFFICER DATE
--------------------------------------------------------------------------- ------------------
SIGNATURE OF JOINT OWNER, CO-TRUSTEE OR CORPORATE OFFICER DATE
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</TABLE>
18
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 25, 1996
ACQUISITION OF THE ASSETS OF
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
A SEPARATELY MANAGED SERIES OF
MACKENZIE SERIES TRUST
VIA MIZNER FINANCIAL PLAZA, 700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
(800-456-5111)
BY AND IN EXCHANGE FOR SHARES OF
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
A SEPARATELY MANAGED SERIES OF
VOYAGEUR INVESTMENT TRUST II
90 SOUTH SEVENTH STREET, SUITE 4400
MINNEAPOLIS, MINNESOTA 55402
(800-553-2143)
This Statement of Additional Information relates to the proposed Agreement
and Plan of Reorganization providing for (a) the acquisition of substantially
all of the assets and the assumption of all stated and identified liabilities of
Mackenzie Florida Limited Term Municipal Fund (the "Acquired Fund"), a
separately managed series of Mackenzie Series Trust, by Voyageur Florida Limited
Term Tax Free Fund (the "Acquiring Fund"), in exchange for shares of beneficial
interest of the Acquiring Fund having an aggregate net asset value equal to the
aggregate value of the assets acquired (less the liabilities assumed) of the
Acquired Fund and (b) the liquidation of the Acquired Fund and the pro rata
distribution of the Acquiring Fund shares to Acquired Fund shareholders.
This Statement of Additional Information consists of this cover page and
the following documents, of which items 1 through 4 are incorporated by
reference herein:
1. The Statement of Additional Information dated March 1, 1995, as
supplemented August 29, 1995, of the Acquiring Fund.
2. The Annual Report of the Acquiring Fund for the fiscal year ended
December 31, 1995.
3. The Statement of Additional Information dated October 27, 1995 as
supplemented January 1, 1996 of the Acquired Fund.
4. The Annual Report and unaudited Semi-Annual report of the Acquired
Fund for the fiscal year and six month period ended June 30, 1995 and
December 31, 1995, rspectively.
5. Financial Statements required by Form N-14, Item 14 (to the extent not
included in items 2 and 4 above).
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April 25, 1996 relating to the above-referenced
transaction may be obtained without charge by writing or calling the Acquiring
Fund at the address or telephone number noted above. This Statement of
Additional Information relates to, and should be read in conjunction with, such
Prospectus/Proxy Statement.
PART B
VOYAGEUR ARIZONA LIMITED TERM TAX FREE FUND
VOYAGEUR ARIZONA INSURED TAX FREE FUND
VOYAGEUR ARIZONA TAX FREE FUND
VOYAGEUR CALIFORNIA LIMITED TERM TAX FREE FUND
VOYAGEUR CALIFORNIA TAX FREE FUND
VOYAGEUR CALIFORNIA INSURED TAX FREE FUND
VOYAGEUR COLORADO LIMITED TERM TAX FREE FUND
VOYAGEUR COLORADO TAX FREE FUND
VOYAGEUR COLORADO INSURED TAX FREE FUND
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
VOYAGEUR FLORIDA TAX FREE FUND
VOYAGEUR FLORIDA INSURED TAX FREE FUND
VOYAGEUR IDAHO TAX FREE FUND
VOYAGEUR IOWA TAX FREE FUND
VOYAGEUR KANSAS TAX FREE FUND
VOYAGEUR MINNESOTA LIMITED TERM TAX FREE FUND
VOYAGEUR MINNESOTA TAX FREE FUND
VOYAGEUR MINNESOTA INSURED FUND
VOYAGEUR MISSOURI INSURED TAX FREE FUND
VOYAGEUR NATIONAL LIMITED TERM TAX FREE FUND
VOYAGEUR NATIONAL INSURED TAX FREE FUND
VOYAGEUR NATIONAL TAX FREE FUND
VOYAGEUR NEW MEXICO TAX FREE FUND
VOYAGEUR NORTH DAKOTA TAX FREE FUND
VOYAGEUR OREGON INSURED TAX FREE FUND
VOYAGEUR UTAH TAX FREE FUND
VOYAGEUR WASHINGTON INSURED TAX FREE FUND
VOYAGEUR WISCONSIN TAX FREE FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with each Fund's Prospectus dated March 1, 1995. A copy of
the Prospectus or this Statement of Additional Information may be obtained free
of charge by contacting the Funds at 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402. Telephone: (612) 376-7000 or (800) 553-2143.
TABLE OF CONTENTS
PAGE
----
Investment Policies and Restrictions......................................... 2
Special Factors Affecting The Funds..........................................14
Insurance....................................................................42
Board Members and Executive Officers of the Funds............................43
The Investment Adviser and Underwriter.......................................45
Taxes........................................................................58
Special Purchase Plans ......................................................62
Net Asset Value and Public Offering Price....................................64
Calculation of Performance Data..............................................67
Monthly Cash Withdrawal Plan.................................................74
Additional Information.......................................................75
Appendix A - Descriptions of Bond Ratings...................................A-1
Appendix B - General Characteristics and Risks of Options and Futures ......B-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated March 1, 1995, and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made. The delivery of this Statement of Additional Information
at any time shall not imply that there has been no change in the affairs of any
of the Funds since the date hereof.
Dated March 1, 1995
INVESTMENT POLICIES AND RESTRICTIONS
The investment objectives, policies and restrictions of the open-end series
investment companies on the first page of this Statement of Additional
Information (collectively, the "Funds") are set forth in the combined
prospectus. Certain additional investment information is set forth below. All
capitalized terms not defined herein have the same meanings as set forth in the
prospectus.
TAX EXEMPT OBLIGATIONS
The term "Tax Exempt Obligations" refers to debt obligations issued by or
on behalf of a state or territory or its agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income taxation (except, in certain instances, the alternative minimum
tax, depending upon the shareholder's tax status) and with respect to the Funds
other than the three national funds, personal income tax of the state specified
in the Fund's name, if any. Tax-Exempt Obligations are generally issued to
obtain funds for various public purposes, including the construction or
improvement of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Tax Exempt Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, Tax Exempt Obligations may be issued by or on behalf of
public bodies to obtain funds to provide for the construction, equipping, repair
or improvement of housing facilities, convention or trade show facilities,
airport, mass transit, industrial, port or parking facilities and certain local
facilities for water supply, gas, electricity, sewage or solid waste disposal.
Securities in which the Funds may invest, including Tax Exempt Obligations,
are subject to the provisions of bankruptcy, insolvency, reorganization and
other laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or a State's
legislature extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations within
constitutional limitations. There is also the possibility that, as a result of
litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest on and principal of their Tax Exempt
Obligations may be materially affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Tax Exempt Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Tax Exempt Obligations for investment by the
Funds and the value of each Fund's portfolio. In such event, management of the
Funds may discontinue the issuance of shares to new investors and may reevaluate
each Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") for Tax Exempt Obligations
may change as a result of changes in such organizations or their rating systems,
the Funds will attempt to use comparable ratings as standards for their
investments in accordance with the investment policies contained in the Funds'
Prospectus and this Statement of Additional Information. The ratings of Moody's
and S&P represent their opinions as to the quality of the Tax Exempt Obligations
which they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings provide an initial criterion for selection of portfolio
investments, Voyageur Fund Managers, Inc. ("Voyageur"), the Funds' investment
manager, will subject these securities to other evaluative criteria prior to
investing in such securities.
FLOATING AND VARIABLE RATE DEMAND NOTES. The Funds may purchase floating
and variable rate demand notes. Generally, such notes are secured by letters of
credit or other credit support arrangements provided by banks. Such notes
normally have a stated long-term maturity but permit the holder to tender the
note for purchase and payment of principal and accrued interest upon a specified
number of days' notice. The issuer of floating and variable rate demand notes
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus accrued interest
upon a specified number of days' notice to the noteholders. The interest rate on
a floating rate demand note is based on a specified interest index, such as a
bank's prime rate, and is adjusted automatically each time such index is
adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based upon current market conditions. Voyageur monitors the
creditworthiness of issuers of floating and variable rate demand notes in each
Fund's portfolio.
ESCROW SECURED BONDS OR DEFEASED BONDS. Escrow secured bonds or defeased
bonds are created when an issuer refunds in advance of maturity (or pre-refunds)
some of its outstanding bonds and it becomes necessary or desirable to set aside
funds for redemption or payment of the bonds at a future date or dates. In an
advance refunding, the issuer will use the proceeds of a new bond issue to
purchase high grade interest bearing debt securities which are then deposited in
an irrevocable escrow account held by an escrow agent to secure all future
payments of principal and interest of the advance refunded bond. Escrow secured
bonds will often receive a triple A rating from S&P and Moody's. The Insured Tax
Free Funds will purchase escrow secured bonds without additional insurance only
where the escrow is invested in securities of the U.S. government or agencies or
instrumentalities of the U.S. Government.
STATE OR MUNICIPAL LEASE OBLIGATIONS. Municipal leases may take the form of
a lease with an option to purchase, an installment purchase contract, a
conditional sales contract or a participation certificate in any of the
foregoing. In determining leases in which the Funds will invest, Voyageur will
evaluate the credit rating of the lessee and the terms of the lease.
Additionally, Voyageur may require that certain municipal leases be secured by a
letter of credit or put arrangement with an independent financial institution.
State or municipal lease obligations frequently have the special risks described
below which are not associated with general obligation or revenue bonds issued
by public bodies.
The Constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits, interest rate
limits and public sale requirements. Leases have evolved as a means for public
bodies to acquire property and equipment without needing to comply with all of
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations may be inapplicable for one or more of the following
reasons: (1) the inclusion in many leases or contracts of "nonappropriation"
clauses that provide that the public body has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis
(the "nonappropriation" clause); (2) the exclusion of a lease or conditional
sales contract from the definition of indebtedness under relevant state law; or
(3) the lease provides for termination at the option of the public body at the
end of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If the lease is terminated by the public body for nonappropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.
CONCENTRATION POLICY. As set forth in the Funds' Prospectus, although each
Fund may invest 25% or more of its total assets in limited obligation bonds, no
Fund will invest 25% or more of its total assets in limited obligation bonds
payable only from revenues derived from facilities or projects within a single
industry, except that the Funds may invest without limitation, in circumstances
in which other appropriate available investments may be in limited supply, in
housing, health care and/or utility obligations. Arizona Limited Term Tax Free
Fund, Arizona Tax Free Fund, California Limited Term Tax Free Fund, California
Tax Free Fund, Colorado Limited Term Tax Free Fund, Colorado Insured Tax Free
Fund, Florida Limited Term Tax Free Fund, Idaho Tax Free Fund, National Limited
Term Fund and National Tax Free Fund also may, under such circumstances, invest
without limit in transportation, education and/or industrial obligations.
Appropriate available investments may be in limited supply, from time to time in
the opinion of Voyageur, due to, among other things, each Fund's investment
policy of investing primarily in obligations of its state (and the state's
municipalities, other political subdivisions and public authorities) and of
investing primarily in investment grade (high grade, with respect to the Insured
Tax Free Funds) securities. Additionally, the insurance policies of the Insured
Tax Free Funds may affect the appropriate available investment supply from time
to time in the opinion of Voyageur. Certain of the risks set forth below may be
reduced or eliminated to the extent a Fund invests in insured Tax Exempt
Obligations.
HOUSING OBLIGATIONS. Each Fund may invest, from time to time, 25% or more
of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
HEALTH CARE OBLIGATIONS. Each Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.
UTILITY OBLIGATIONS. Each Fund may invest, from time to time, 25% or more
of its total assets in obligations issued by public bodies, including state and
municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.
TRANSPORTATION OBLIGATIONS. Certain Funds may, from time to time, invest
25% or more of their total assets in obligations issued by public bodies,
including state and municipal authorities, to finance airports and highway,
bridge and toll road facilities. The major portion of an airport's gross
operating income is generally derived from fees received from signatory airlines
pursuant to use agreements which consist of annual payments for airport use,
occupancy of certain terminal space, service fees and leases. Airport operating
income may therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased competition,
excess capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines are experiencing severe financial difficulties.
The revenues of issuers which derive their payments from bridge, road or tunnel
toll revenues could be adversely affected by competition from toll-free
vehicular bridges and roads and alternative modes of transportation. Such
revenues could also be adversely affected by a reduction in the availability of
fuel to motorists or significant increases in the costs thereof.
EDUCATION OBLIGATIONS. Certain Funds may, from time to time, invest 25% or
more of their total assets in obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from tuition, dormitory revenues, grants and endowments. General
problems of such issuers include the prospect of a declining percentage of the
population consisting of college aged individuals, possible inability to raise
tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants, state funding and alumni
support, and government legislation or regulations which may adversely affect
the revenues or costs of such issuers.
INDUSTRIAL REVENUE OBLIGATIONS. Certain Funds may, from time to time,
invest 25% or more of their total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or deterioration resulting from leveraged buy-outs or takeovers. The
bonds may be subject to special or extraordinary redemption provisions which may
provide for redemption at par or accredited value, plus, if applicable, a
premium.
OTHER RISKS. The exclusion from gross income for purposes of federal income
taxes and the personal income taxes of certain states for certain housing,
health care, utility, transportation, education and industrial revenue bonds
depends on compliance with relevant provisions of the Code. The failure to
comply with these provisions could cause the interest on the bonds to become
includable in gross income, possibly retroactively to the date of issuance,
thereby reducing the value of the bonds, subjecting shareholders to
unanticipated tax liabilities and possibly requiring the Funds to sell the bonds
at the reduced value. Furthermore, such a failure to meet these ongoing
requirements may not enable the holder to accelerate payment of the bond or
require the issuer to redeem the bond.
TAXABLE OBLIGATIONS
As set forth in the Funds' prospectus, the Funds may invest to a limited
extent in obligations and instruments, the interest on which is includable in
gross income for purposes of federal and state income taxation.
GOVERNMENT OBLIGATIONS. The Funds may invest in securities issued or
guaranteed by the U. S. Government or its agencies or instrumentalities. These
securities include a variety of Treasury securities, which differ in their
interest rates, maturities and times of issuance. Treasury Bills generally have
maturities of one year or less; Treasury Notes generally have maturities of one
to ten years; and Treasury Bonds generally have maturities of greater than ten
years. Some obligations issued or guaranteed by U. S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U. S. Treasury;
other obligations, such as those of the Federal Home Loan Banks, are secured by
the right of the issuer to borrow from the Treasury; other obligations, such as
those issued by the Federal National Mortgage Association, are supported by the
discretionary authority of the U. S. Government to purchase certain obligations
of the agency or instrumentality; and other obligations, such as those issued by
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U. S. Government provides financial support
to such U. S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Funds will invest in such securities only when Voyageur is satisfied that the
credit risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements. The
Funds' custodian will hold the securities underlying any repurchase agreement or
such securities will be part of the Federal Reserve Book Entry System. The
market value of the collateral underlying the repurchase agreement will be
determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the obligor under the agreement will promptly
furnish additional collateral to the Funds' custodian (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
OTHER TAXABLE INVESTMENTS. The Funds also may invest in certificates of
deposit, bankers' acceptances and other time deposits. Certificates of deposit
are certificates representing the obligation of a bank to repay the funds
deposited (plus interest thereon) at a time certain after the deposit. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. With respect to Colorado Fund, investments in time deposits
generally are limited to London branches of domestic banks that have total
assets in excess of one billion dollars.
OPTIONS AND FUTURES TRANSACTIONS
To the extent set forth in the prospectus, each Fund may buy and sell put
and call options on the securities in which they may invest, and certain Funds
may enter into futures contracts and options on futures contracts with respect
to fixed-income securities or based on financial indices including any index of
securities in which the Fund may invest. Futures and options will be used to
facilitate allocation of a Fund's investments among asset classes, to generate
income or to hedge against changes in interest rates or declines in securities
prices or increases in prices of securities proposed to be purchased. Different
uses of futures and options have different risk and return characteristics.
Generally, selling futures contracts, purchasing put options and writing (i.e.
selling) call options are strategies designed to protect against falling
securities prices and can limit potential gains if prices rise. Purchasing
futures contracts, purchasing call options and writing put options are
strategies whose returns tend to rise and fall together with securities prices
and can causes losses if prices fall. If securities prices remain unchanged over
time option writing strategies tend to be profitable, while option buying
strategies tend to decline in value.
WRITING OPTIONS. The Funds may write (i.e. sell) covered put and call
options with respect to the securities in which they may invest. By writing a
call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, a Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by any Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the investment objective of such Fund.
"Covered options" means that so long as a Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
(or comparable securities satisfying the cover requirements of securities
exchanges). A Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of a put option, it deposits
and maintains with its custodian cash, U. S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
exercise price of the option.
Through the writing of call or put options, a Fund may obtain a greater
current return than would be realized on the underlying securities alone. A Fund
receives premiums from writing call or put options, which it retains whether or
not the options are exercised. By writing a call option, a Fund might lose the
potential for gain on the underlying security while the option is open, and by
writing a put option, a Fund might become obligated to purchase the underlying
security for more than its current market price upon exercise.
PURCHASING OPTIONS. The Funds may purchase put options in order to protect
portfolio holdings in an underlying security against a decline in the market
value of such holdings. Such protection is provided during the life of the put
because a Fund may sell the underlying security at the put exercise price,
regardless of a decline in the underlying security's market price. Any loss to a
Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit a Fund realizes on the sale of the security
will be reduced by the premium paid for the put option less any amount for which
the put is sold.
A Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. The Fund may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio.
Each of the Funds may also purchase call options. During the life of the
call option, the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
SECURITIES INDEX OPTION TRADING. The Funds may purchase and write put and
call options on securities indexes. Options on securities indexes are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on an index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of the option is obligated to make delivery of this
amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in a Fund's portfolio
correlate with price movements of the index selected. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular security, whether a Fund will realize a gain or loss from
the purchase or writing of options on an index depends upon movements in the
level of prices in the relevant underlying securities markets generally or, in
the case of certain indexes, in an industry market segment, rather than
movements in the price of a particular security. Accordingly, successful use by
a Fund of options on security indexes will be subject to Voyageur's ability to
predict correctly movements in the direction of the stock market or interest
rates market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities. In the event Voyageur is unsuccessful in predicting the movements of
an index, a Fund could be in a worse position than had no hedge been attempted.
Because exercises of index options are settled in cash, a Fund cannot
determine the amount of its settlement obligations in advance and, with respect
to call writing, cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. When a Fund
writes an option on an index, the Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option, cash,
high-grade liquid debt securities or "qualified securities" with a market value
determined on a daily basis of not less than 100% of the current market value of
the option.
Options purchased and written by a Fund may be exchange traded or may be
options entered into by the Fund in negotiated transactions with investment
dealers and other financial institutions (over-the-counter or "OTC" options)
(such as commercial banks or savings and loan associations) deemed creditworthy
by Voyageur. OTC options are illiquid and it may not be possible for the Fund to
dispose of options it has purchased or to terminate its obligations under an
option it has written at a time when Voyageur believes it would be advantageous
to do so.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Certain Funds may enter
into futures contracts and purchase and write options on these contracts,
including but not limited to interest rate and securities index contracts and
put and call options on these futures contracts. These contracts will be entered
into on domestic and foreign exchanges and boards of trade, subject to
applicable regulations of the Commodity Futures Trading Commission. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes.
In connection with transactions in futures contracts and writing related
options, each Fund will be required to deposit as "initial margin" a specified
amount of cash or short-term, U. S. Government securities. The initial margin
required for a futures contract is set by the exchange on which the contract is
traded. It is expected that the initial margin would be approximately 1-1/2% to
5% of a contract's face value. Thereafter, subsequent payments (referred to as
"variation margin") are made to and from the broker to reflect changes in the
value of the futures contract. No Fund will purchase or sell futures contracts
or related options if, as a result, the sum of the initial margin deposit on
that Fund's existing futures and related options positions and premiums paid for
options or futures contracts entered into for other than bona fide hedging
purposes would exceed 5% of the Fund's assets.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded, a Fund will incur brokerage fees when it
purchases or sells futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS.
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several risks in
using securities index or interest rate futures contracts as hedging devices.
One risk arises because the prices of futures contracts may not correlate
perfectly with movements in the underlying index or financial instrument due to
certain market distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements. Rather than making
additional variation margin payments, investors may close the contracts through
offsetting transactions which could distort the normal relationship between the
index or security and the futures market. Second, the margin requirements in the
futures market are lower than margin requirements in the securities market, and
as a result the futures market may attract more speculators than does the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Because of possible price distortion
in the futures market and because of imperfect correlation between movements in
indexes of securities and movements in the prices of futures contracts, even a
correct forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements in
the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of a Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by a Fund is subject to the ability of
Voyageur to predict correctly movements in the direction of interest rates or
the relevant underlying securities market. If a Fund has hedged against the
possibility of an increase in interest rates adversely affecting the value of
fixed-income securities held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its security which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
LIQUIDITY OF FUTURES CONTRACTS. A Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by the Fund. A Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts. Although the
Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISK OF OPTIONS. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transactions costs). The writing
of a call option generates a premium, which may partially offset a decline in
the value of a Fund's portfolio assets. By writing a call option, the Fund
becomes obligated to sell an underlying instrument or a futures contract, which
may have a value higher than the exercise price. Conversely, the writing of a
put option generates a premium, but the Fund becomes obligated to purchase the
underlying instrument or futures contract, which may have a value lower than the
exercise price. Thus, the loss incurred by a Fund in writing options may exceed
the amount of the premium received.
The effective use of options strategies is dependent, among other things,
on a Fund's ability to terminate options positions at a time when Voyageur deems
it desirable to do so. Although a Fund will enter into an option position only
if Voyageur believes that a liquid secondary market exists for such option,
there is no assurance that the Fund will be able to effect closing transactions
at any particular time or at an acceptable price. The Funds' transactions
involving options on futures contracts will be conducted only on recognized
exchanges.
A Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by Voyageur, which
could prove to be inaccurate. Even if the expectations of Voyageur are correct,
there may be an imperfect correlation between the change in the value of the
options and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of a purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If a Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; a Fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Certain Funds may purchase put options to hedge against a decline in the
value of their portfolios. By using put options in this way, such Funds will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.
Certain Funds may purchase call options to hedge against an increase in
price of securities that the Funds anticipate purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
As discussed above, options may be traded over-the-counter ("OTC options").
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. OTC options are illiquid and it
may not be possible for the Funds to dispose of options they have purchased or
terminate their obligations under an option they have written at a time when
Voyageur believes it would be advantageous to do so. Accordingly, OTC options
are subject to each Fund's limitation that a maximum of 15% of its net assets be
invested in illiquid securities. In the event of the bankruptcy of the writer of
an OTC option, a Fund could experience a loss of all or part of the value of the
option. Voyageur anticipates that options on Tax Exempt Obligations will consist
primarily of OTC options.
ILLIQUID INVESTMENTS
Each Fund is permitted to invest up to 15% of its net assets in illiquid
investments. For certain Funds, this policy is fundamental. See "Investment
Restrictions" below. An investment is generally deemed to be "illiquid" if it
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the Securities and Exchange Commission (the "SEC"),
since such securities may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. However, the Securities and Exchange
Commission has recently acknowledged that a market exists for certain restricted
securities (for example, securities qualifying for resale to certain "qualified
institutional buyers" pursuant to Rule 144A under the 1933 Act, certain forms of
interest-only and principal-only, mortgaged-backed U.S. Government securities
and commercial paper issued pursuant to the private placement exemption of
Section 4(2) of the 1933 Act). As a fundamental policy, the Funds may invest
without limitation in these forms of restricted securities if such securities
are deemed by Voyageur to be liquid in accordance with standards established by
the Funds' Board. Under these guidelines, Voyageur must consider, among other
things, (a) the frequency of trades and quotes for the security, (b) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (c) dealer undertakings to make a market in the security,
and (d) the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer.)
At the present time, it is not possible to predict with accuracy how the
markets for certain restricted securities will develop. Investing in restricted
securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified purchasers of the securities become, for a time,
uninterested in purchasing these securities.
As more fully described in the Funds' prospectus, the Funds are permitted
to invest in municipal leases. Traditionally, municipal leases have been viewed
by the Securities and Exchange Commission staff as illiquid investments.
However, subject to Board standards similar to the standards applicable to
restricted securities (as discussed above), Voyageur may treat certain municipal
leases as liquid investments and not subject to the policy limiting illiquid
investments.
DIVERSIFICATION
Each Fund designated as such on the cover of the prospectus operates as a
"diversified" management investment company, as defined in the Investment
Company Act of 1940 (the "1940 Act"), which means that at least 75% of its total
assets must be represented by cash and cash items (including receivables),
Government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of total assets of
such Fund and to not more than 10% of the outstanding voting securities of such
issuer. The other Funds are "non-diversified," as defined in the 1940 Act. See
the prospectus regarding certain considerations relating to "non-diversified"
status.
Each Fund intends to conduct its operations so that it will comply with
diversification requirements and qualify under the Internal Revenue Code of 1986
as a "regulated investment company." In order to qualify as a regulated
investment company, each Fund must limit its investments so that, at the close
of each quarter of the taxable year, with respect to at least 50% of its total
assets, not more than 5% of its total assets will be invested in the securities
of a single issuer. In addition, the Code requires that not more than 25% in
value of each Fund's total assets may be invested in the securities of a single
issuer at the close of each quarter of the taxable year.
For purposes of such diversification, the identification of the issuer of
Tax Exempt Obligations depends on the terms and conditions of the security. If a
State or a political subdivision thereof pledges its full faith and credit to
payment of a security, the State or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a State or a political subdivision thereof are
separate from those of the State or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the State, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.
Similarly, in the case of an industrial development bond, if that bond is
backed only by certain revenues to be received from the non-governmental user of
the project financed by the bond, then such non-governmental user is deemed to
be the sole issuer. If, however, in any of the above cases, a State, political
subdivision or some other entity guarantees a security and the value of all
securities issued or guaranteed by the guarantor and owned by one of the Funds
exceeds 10% of the value of such Fund's total assets, the guarantee is
considered a separate security and is treated as an issue of the guarantor.
Investments in municipal obligations refunded with escrowed U. S. Government
securities will be treated as investments in U. S. Government securities for
purposes of determining a Fund's compliance with the 1940 Act diversification
requirements.
PORTFOLIO TURNOVER
Portfolio turnover for a Fund is the ratio of the lesser of annual
purchases or sales of portfolio securities by the Fund to the average monthly
value of portfolio securities owned by such Fund, not including securities
maturing in less than 12 months. A 100% portfolio turnover rate would occur, for
example, if the lesser of the value of purchases or sales of a Fund's portfolio
securities for a particular year were equal to the average monthly value of the
portfolio securities owned by the Fund during the year. The portfolio turnover
rate for each of the Funds (other than for Funds which have not commenced
investment operations as of the date of this Statement of Additional
Information) is set forth in the prospectus under "Financial Highlights."
INVESTMENT RESTRICTIONS
The Funds have adopted certain investment restrictions set forth below
which, together with the investment objectives of each Fund and other policies
which are specifically identified as fundamental in the Prospectus or herein
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. As defined in the 1940 Act, this means the lesser of
the vote of (1) 67% of the shares of a Fund at a meeting where more than 50% of
the outstanding shares of a Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of a Fund. The following investment
restrictions apply to Arizona Insured Tax Free Fund, California Insured Tax Free
Fund, Colorado Tax Free Fund, Florida Insured Tax Free Fund, Kansas Tax Free
Fund, Minnesota Insured Fund, Minnesota Limited Term Tax Free Fund, Minnesota
Tax Free Fund, Missouri Insured Tax Free Fund, National Insured Tax Free Fund,
New Mexico Tax Free Fund, North Dakota Tax Free Fund, Oregon Insured Tax Free
Fund, Utah Tax Free Fund, and Washington Insured Tax Free Fund. No such Fund
will:
(1) Borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% (10% for Colorado Tax Free Fund) of
the value of such Fund's total assets, including the amount borrowed. The
Funds may not borrow for leverage purposes, and securities will not be
purchased while borrowings are outstanding. Interest paid on any money
borrowed will reduce such Fund's net income.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of its total assets (taken at the lower of cost or current
value) and then only to secure borrowings permitted by restriction (1)
above.
(3) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
(4) Make short sales of securities or maintain a short position for
the account of such Fund unless at all times when a short position is open
it owns an equal amount of such securities or owns securities which,
without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to,
the securities sold short.
(5) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under federal securities laws.
(6) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(7) Purchase or sell commodities or commodity contracts (including
futures contracts).
(8) Make loans, except by purchase of debt obligations in which such
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(9) Invest in securities of any issuer if, to the knowledge of such
Fund, officers and directors (or trustees) of such Fund or officers and
directors of such Fund's investment adviser who beneficially own more than
1/2 of 1% of the securities of that issuer together own more than 5% of
such securities.
(10) Invest 25% or more of its assets in the securities of issuers in
any single industry, except that the Funds may invest without limitation,
in circumstances in which other appropriate available investments may be in
limited supply, in housing, health care and utility obligations; provided
that there shall be no limitation on the purchase of Tax Exempt Obligations
and, for defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. (Note: For purposes of this
investment restriction, Voyageur interprets "Tax Exempt Obligations" to
exclude limited obligation bonds payable only from revenues derived from
facilities or projects within a single industry.)
(11) Invest more than 15% of its net assets in illiquid investments.
The following fundamental investment restrictions apply to Iowa Tax Free
Fund and Wisconsin Tax Free Fund. These Funds will not:
(1) Borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of such Fund's total
assets, including the amount borrowed. The Funds may not borrow for
leverage purposes, and securities will not be purchased while borrowings
are outstanding. Interest paid on any money borrowed will reduce such
Fund's net income.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which such
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more of its assets in the securities of issuers in
any single industry , except that it may invest without limitation, in
circumstances in which other appropriate available investments may be in
limited supply, in housing, health care and/or utility obligations;
provided that there shall be no limitation on the purchase of Tax Exempt
Obligations and, for defensive purposes, obligations issued or guaranteed
by U.S. Government, its agencies or instrumentalities. (Note: For purposes
of this investment restriction, Voyageur interprets "Tax Exempt
Obligations" to exclude limited obligations bonds payable only from
revenues derived from facilities or projects within a single industry.)
(6) Issue any senior securities (as defined in the 1940 Act), except
as set forth in investment restriction number (1) above, and except to the
extent that purchasing or selling on a when-issued or forward commitment
basis may be deemed to constitute issuing a senior security.
(7) Purchase or sell commodities or commodity contracts (including
futures contracts).
(8) Make short sales of securities or maintain a short position for
the account of such Fund unless at all times when a short position is open
it owns an equal amount of such securities or owns securities which,
without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to,
the securities sold short.
The following restrictions apply to Arizona Limited Term Tax Free Fund,
Arizona Tax Free Fund, California Limited Term Tax Free Fund, California Tax
Free Fund, Colorado Limited Term Tax Free Fund, Colorado Insured Tax Free Fund,
Florida Limited Term Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free Fund,
National Limited Term Tax Free Fund and National Tax Free Fund. No such Fund
will:
(1) Borrow money (provided that such Fund may enter into reverse
repurchase agreements), except from banks for temporary or emergency
purposes in an amount not exceeding 20% of the value of the Fund's total
assets, including the amount borrowed. The Funds may not borrow for
leverage purposes, provided that such Funds may enter into reverse
repurchase agreements for such purposes, and securities will not be
purchased while outstanding borrowings exceed 5% of the value of such
Fund's total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, such
Fund may be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through
repurchase agreements.
(5) Invest 25% or more of its assets in the securities of issuers in
any single industry (except that it may invest without limitation, in
circumstances in which other appropriate available investments may be in
limited supply, in housing, health care, utility, transportation, education
and/or industrial obligations); provided that there shall be no limitation
on the purchase of Tax Exempt Obligations and, for defensive purposes,
obligations issued or guaranteed by the U. S. government, its agencies or
instrumentalities. (Note: For purposes of this investment restriction,
Voyageur interprets "Tax Exempt Obligations" to exclude limited obligations
bonds payable only from revenues derived from facilities or projects within
a single industry.)
(6) Issue any senior securities (as defined in the 1940 Act), except
as set forth in investment restriction number (1) above, and except to the
extent that using options, futures contracts and options on futures
contracts, purchasing or selling on a when-issued or forward commitment
basis or using similar investment strategies may be deemed to constitute
issuing a senior security.
(7) Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the
Fund from purchasing or selling, on a basis consistent with any
restrictions contained in its then-current Prospectus, any financial
contracts or instruments which may be deemed commodities (including, by way
of example and not by way of limitation, options, futures, and options on
futures with respect, in each case, to interest rates, currencies, stock
indices, bond indices or interest rate indices).
(8) With respect to Florida Limited Term Tax Free Fund only, pledge,
hypothecate, mortgage or otherwise incumber its assets in excess of 10% of
its total assets (taken at the lower of cost or current value). For the
purposes of this restriction, collateral arrangements for margin deposits
on futures contracts with respect to the writing of options, with respect
to reverse repurchase agreements or with respect to similar investment
techniques are not deemed to be a pledge of assets.
The following non-fundamental investment restrictions may be changed by the
Board of each Fund at any time. None of the Funds will:
(1) Invest more than 5% of its total assets in securities of any
single investment company, nor more than 10% of its total assets in
securities of two or more investment companies, except as part of a merger,
consolidation or acquisition of assets.
(2) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(3) With respect to the National Funds, such Funds will not write puts
if, as a result, more than 50% of the Fund's assets would be required to be
segregated to cover such puts.
(4) With respect to Arizona Limited Term Tax Free Fund, Arizona Tax
Free Fund, California Limited Term Tax Free Fund, California Tax Free Fund,
Colorado Limited Term Tax Free Fund, Colorado Insured Tax Free Fund,
Florida Limited Term Tax Free Fund, Florida Tax Free Fund, Idaho Tax Free
Fund, National Limited Term Tax Free Fund and National Tax Free Fund, such
Funds will not make short sales of securities or maintain a short position
for the account of such Fund, unless at all times when a short position is
open it owns an equal amount of such securities or owns securities which,
without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to,
the securities sold short.
Any investment restriction or limitation which involves a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after an acquisition of
securities or a utilization of assets and such excess results therefrom.
SPECIAL FACTORS AFFECTING THE FUNDS
The following information is a brief summary of particular state factors
affecting the Funds and does not purport to be a complete description of such
factors. The financial condition of a state, its public authorities and local
governments could affect the market values and marketability of, and therefore
the net asset value per share and the interest income of the respective state
Fund, or result in the default of existing obligations, including obligations
which may be held by a Fund. Further, each state faces numerous forms of
litigation seeking significant damages which, if awarded, could adversely affect
the financial situation of a state or issuers located in such state. It should
be noted that the creditworthiness of obligations issued by local issuers may be
unrelated to the creditworthiness of a state, and that there is no obligation on
the part of a state to make payment on such local obligations in the event of
default in the absence of a specific guarantee or pledge provided by a state.
The following information is based primarily upon information derived from
public documents relating to securities offerings of issuers of such states and
other historically reliable sources, but has not been independently verified by
the Funds. The Funds make no representation or warranty regarding the
completeness or accuracy of such information. The market value of the shares of
any Fund may fluctuate due to factors such as changes in interest rates, matters
affecting a particular state or for other reasons.
FACTORS AFFECTING ARIZONA FUNDS
GENERAL ECONOMIC CONDITIONS. Arizona is the nation's sixth largest state in
terms of area and ranks among the leading states in three economic indices of
growth. Arizona's main economic/employment sectors include services, tourism and
manufacturing. Mining and agriculture are also significant, although they tend
to be more capital than labor intensive. Services is the single largest economic
sector. Many of these jobs are directly related to tourism. The need to provide
services for these visitors has contributed substantially to employment gains in
the State.
The unemployment rate in Arizona for 1993 was 6.4% compared to a national
rate of 6.4%. While growth in the number of jobs in Arizona was consistent at
the rate of 2.4% to 2.5% in 1989 and 1990, and job growth for 1991 was 1.8%,
this was due in large part to consistently strong government and services job
markets in the past three years. Job growth may be adversely affected by a
potential closing of a major air force based near Phoenix and the bankruptcy of
several major employers, including America West Airlines. Arizona's economy has
continued to grow in recent years, although at a slower rate of economic growth
than in earlier periods.
In 1986, the value of Arizona real estate began a steady decline,
reflecting a market which had been overbuilt in the previous decade with a
resulting surplus of completed inventory. This decline adversely affected both
the construction industry and those Arizona financial institutions which had
aggressively pursued many facets of real estate lending. In the future,
Arizona's financial institutions are likely to continue to experience problems
until the excess inventories of commercial and residential properties are
absorbed. The problems of these financial institutions have adversely affected
employment and economic activity.
BUDGETARY PROCESS. Arizona operates on a fiscal year beginning July 1 and
ending June 30. Total General Fund revenues grew by 14.2% in fiscal year 1992
over fiscal 1991. Non-tax revenue includes items such as income from the state
lottery, licenses, fees and permits, and interest.
For fiscal year 1992, the budget called for expenditures of $2.7 billion.
Major appropriations include $1.3 billion to the Department of Education (for
grades K-12), $369.9 million for the administration of the Arizona Health Care
Cost Containment System ("AHCCCS", the State's alternative to Medicaid), $357.4
million to the Department of Economic Security and $255.9 million to the
Department of Corrections. The budget for fiscal year 1991 totaled approximately
$2.537 billion. The State's general fund revenues for fiscal year 1993 were
budgeted at $3.66 billion and the total general fund expenditures for fiscal
year 1993 are budgeted at $3.65 billion. The State's general fund revenues for
fiscal year 1994 were approximately $4.164 billion and total general fund
expenditures for fiscal 1994 were approximately $3.934 billion leaving a
positive fund balance of approximately $229 million.
The State is not permitted to issue general obligation debt. The particular
source of payment and security for each of the Arizona Tax Exempt Obligations is
detailed in the debt instruments themselves and in related offering materials.
There can be no assurances with respect to whether the market value or
marketability of any of the Arizona Tax Exempt Obligations issued by an entity
other than the State of Arizona will be affected by financial or other
conditions of the State or of any entity located within the State. In addition,
it should be noted that the State of Arizona, as well as counties,
municipalities, political subdivisions and other public authorities of the
State, are subject to limitations imposed by Arizona's Constitution with respect
to ad valorem taxation, bonded indebtedness and other matters. For example, the
State legislature cannot appropriate revenues in excess of 7% of the total
personal income of the State in any fiscal year. These limitations may affect
the ability of the issuers to generate revenues to satisfy their debt
obligations.
Local governments have experienced many of the same fiscal difficulties for
many of the same reasons and, in several cases, have been prevented by
Constitutional limitations on bonded indebtedness from securing necessary funds
to undertake street, utility and other infrastructure expansions, improvements
and renovations in order to meet the need of rapidly increasing populations. In
this regard, the voters of the cities of Phoenix and Tucson and adjoining
counties have approved certain bond issuances.
Although most of the Arizona Tax Exempt Obligations are revenue obligations
of local governments or authorities in the State, there can be no assurance that
the fiscal and economic conditions referred to above will not affect the market
value or marketability of the Arizona Tax Exempt Obligations or the ability of
the respective obligors to pay principal of and interest on the Arizona Tax
Exempt Obligations when due.
The State of Arizona was sued by fifty-four school districts within the
State, claiming the State's funding system for school buildings and equipment is
unconstitutional. The lawsuit does not seek damages, but request that the court
order the State to create a new financing system that sets minimum standards for
buildings and furnishings that apply on a statewide basis. A superior court
ruling has upheld the constitutionality of the State's school funding system. It
is anticipated that this decision will be appealed. It is unclear at this time
what effect any judgment would have on State finances or school district
budgets. The U.S. Department of Education has determined that Arizona's
educational funding system does not meet federal requirements of equity. This
determination could mean a loss in federal funds of approximately $50 million.
Certain other circumstances are relevant to the market value, marketability
and payment of any Arizona Tax Exempt Obligations consisting of hospital and
health care revenue bonds. The Arizona Legislature has in the past sought to
enact health care cost control legislation. Certain other health care regulatory
laws have expired. It is expected that the Arizona Legislature will at future
sessions continue to attempt to adopt legislation concerning health care cost
control and related regulatory matters. The effect of any such legislation or of
the continued absence of any legislation restricting hospital bed increases and
limiting new hospital construction on the ability of Arizona hospitals and other
health care providers to pay debt service on their revenue bonds cannot be
determined at this time.
Arizona does not participate in the federally administered Medicaid
program. Instead, the State administers an alternative program, AHCCCS, which
provides health care to indigent persons meeting certain financial eligibility
requirements through managed care programs.
Under State law, hospitals retain authority to raise rates with
notification and review by, but not approval from, the Department of Health
Services. Hospitals in Arizona have experienced profitability problems along
with hospitals in other states. At least two Phoenix-based hospitals have
defaulted on or reported difficulties in meeting their bond obligations in
recent years.
With respect to Arizona Tax Exempt Obligations consisting of investor owned
public utility pollution control revenue bonds, the issuance of such bonds and
the periodic rate increases needed to cover operating costs and debt service are
generally subject to regulation by the Arizona Corporation Commission. On July
15, 1991, several creditors of Tucson Electric Power Company ("Tucson Electric")
filed involuntary petitions under Chapter 11 of the U.S. Bankruptcy Code to
force Tucson Power to reorganize under the supervision of the bankruptcy court.
On December 31, 1991, the Bankruptcy Court approved the utility's motion to
dismiss the July petition after five months of negotiations between Tucson
Electric and its creditors to restructure the utility's debt and other
obligations. In December 1992, Tucson Electric announced that it had completed
its financial restructuring. In January 1993, Tucson Electric asked the Arizona
Corporation Commission for a 9.6% average rate increase. Tucson Electric serves
approximately 270,000 customers, primarily in the Tucson area. Inability of any
regulated public utility to secure necessary rate increases could adversely
affect, to an indeterminable extent, its ability to pay debt service on its
pollution control revenue bonds.
FACTORS AFFECTING CALIFORNIA FUNDS
GENERAL. California's economy is the largest among the 50 states and one of
the largest in the world. The State's July 1, 1993 population of almost 32
million represented over 12 percent of the total United States population. Total
employment is about 14 million, the majority of which is in the service, trade
and manufacturing sectors.
The official 1990 Census population was 29,760,021 as of April 1, 1990,
which represented an increase of over 6 million persons, or 26 percent, during
the decade of the 1980s. The bureau of the Census conducted a post enumeration
survey which indicated an undercount of 1,000,000. The City of Los Angeles and
the City and County of San Francisco are parties to a federal District Court
action in southern California challenging the accuracy of the 1990 census count.
California, through its Attorney General, is a plaintiff in another federal
District Court action in New York City that also challenges the accuracy of the
1990 census count. The federal District Court in New York City sustained the
accuracy of the 1990 census count. The matter is now on appeal. California did
not join the appeal. In August 1994, the United States Court of Appeals for the
Second Circuit issued its decision remanding the matter to the District Court to
review, under a different legal standard, the decision of the Department of
Commerce not to adjust the 1990 census.
STATE FINANCES. Since the start of the 1990-91 fiscal year, the State has
faced the worst economic, fiscal and budget conditions since the 1930's.
Construction, manufacturing (especially aerospace), exports and financial
services, among others, have all been severely affected. Job losses have been
the worst of any post-war recession. Employment levels were expected to
stabilize by late 1993 before net employment starts to increase, and
pre-recession job levels are not expected to be reached for several more years.
Unemployment reached 10% in November 1992 and is expected to remain above the
National average through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for health
and welfare programs. The State has also been facing a structural imbalance in
its budget with the largest programs supported by the General Fund--K-12 schools
and community colleges, health and welfare, and corrections--growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State has experienced recurring budget deficits. The
Controller reports that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92. By June 30, 1993, according to the Department
of Finance, the State's Reserve for Economic Uncertainties had a deficit, on a
budget basis, of approximately $2.8 billion. Thus the accumulated budget deficit
at June 30, 1994 is now estimated by the Department of Finance to be
approximately $2.0 billion, and the deficit will not be retired by June 30, 1995
as planned.
The State's significant financial difficulties, have reduced its credit
standing. The ratings of certain related debt of other issuers for which the
State has an outstanding lease purchase, guarantee or other contractual
obligation (such as for State-insured hospital bonds) are generally linked
directly to the State's rating. Should the financial condition of the State
deteriorate, its credit ratings could be further reduced, and the market value
and marketability of all outstanding notes and bonds issued by the State, its
public authorities or local governments could be adversely affected.
As a result of the deterioration in the State's budget and cash situation
in fiscal years 1991-92 and 1992-93, the rating agencies reduced the State's
credit ratings. Between October 1991 and October 1992 the rating on the State's
general obligation bonds was reduced by S & P from "AAA" to "A+," by Moody's
from "Aaa" to "Aa," and by Fitch Investors Service, Inc. from "AAA" to "AA." On
July 15, 1994, the rating agencies rating the State's long-term debt lowered
their ratings of the State's general obligation bonds. Moody's Investors Service
lowered its rating from "Aa" to "A1," and Standard & Poor's Ratings Group
lowered its rating from "A+" to "A" and termed its outlook as "stable."
A further consequence of the large budget imbalances over the last three
fiscal years has been that the State depleted its available cash resources and
has had to use a series of external borrowings to meet its cash needs.
The 1994-95 Fiscal Year represents the fourth consecutive year the Governor
and Legislature were faced with a very difficult budget environment to produce a
balanced budget. Many program cuts and budgetary adjustments have already been
made in the last three years. The Governor's Budget Proposal, as updated in May
and June, 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution. The budget proposal sets forth
revenue and expenditure forecasts and revenue and expenditure proposals which
result in operating surpluses for the budget for both 1994-95 and 1995-96, and
lead to the elimination of the accumulated budget deficit, estimated at about
$2.0 billion at June 30, 1994, by June 30, 1996.
With the combined program to balance the budget over the period 1993-94 and
1994-95, the Governor's plan projects a General Fund balance of $510 million on
June 30, 1995.
The forecast predicts the State's economy will improve slowly in 1994 and
1995, but will continue to experience deep defense budget cuts, over built
commercial real estate and high business and living costs, especially compared
to neighboring western states.
The Northridge earthquake resulted in a downward revision for this year's
personal income growth--from 4 percent in the 1994-95 Governor's Budget to 3.6
percent. However, this decline is more than explained by the $5.5 billion
charged against rental and proprietors' incomes -- equal to 0.8 percent of total
income -- reflecting uninsured damage from the quake. For calendar year 1995,
without the effect of the quake, income is projected to grow 6.1 percent,
compared to 5 percent as forecast in the 1994-95 Governor's Budget. Without the
effect of the quake, income growth was little changed in the May 1994 Revision
compared to the 1994-95 Governor's Budget forecast.
The unemployment rate in September 1993 was 9.4%, almost unchanged from the
year earlier, and much higher than the national rate. As projected, the rate has
averaged over 9% in 1993. As total jobs have declined, the main factor in the
unemployment rate is the size of the labor force working or actively seeking
employment. The Department of Finance recently reported that California suffered
a net loss of 150,000 residents to other states in the last fiscal year. The
employment upturn is still tenuous. The Employment Development Department
revised down February's employment gain and March was revised to a small
decline. Unemployment rates in California have historically been volatile. For
example, since January they have ranged from a high of 10.1 percent to a low of
8.3 percent. The small sample size coupled with changes made to the survey
instrument in January contribute to this volatility.
Finally, the Department of Finance noted that California would be hit hard
by the latest round of federal military base closings and force realignments,
which will be implemented over the remaining years of the decade. California was
estimated to have 22% of the nation's defense spending, but might suffer 25-30%
of the defense spending cuts over the next five years. The Department also
estimates that the recent federal Budget Reconciliation Act will have a
disproportionate and negative impact on California. California wold suffer 19.5%
of the outlay reductions, which rely heavily on defense budget cuts, and the
State, with many high income taxpayers, will pay nearly 14.5% of the tax
increases, compared to 12% of the nation's population.
Recently, Orange County, California filed a voluntary petition under the
bankruptcy code. It is uncertain what effect the filing will have on the state's
ratings or on issuers located within Orange County.
LIMITATIONS ON TAXES. The taxing powers of California local governments and
districts are limited by Article XIII A of the California Constitution, enacted
by the voters in 1978 and commonly known as "Proposition 13". Briefly, Article
XIII A limits to 1% of full cash value the rate of AD VALOREM property taxes on
real property and generally restricts the reassessment of property to the rate
of inflation, not to exceed 2% per year, or decline in value, or in the case of
new construction or change of ownership (subject to a number of exemptions).
Article XIII A prohibits local governments from raising revenues through AD
VALOREM property taxes above the 1% limit (except to pay debt service on certain
voter-approved general obligation debt); it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax". The
interpretation of such term has been the subject of several court decisions and
of Proposition 62, enacted by voters in 1986, creating a complex and sometimes
conflicting body of law imposing different limits and approval requirements
based upon particular types of taxes and of governmental units. In December
1991, the California Supreme Court overturned, in part, an earlier
interpretation and ruled that special districts were required to obtain
two-thirds voter approval to impose non-property taxes, such as sales taxes, if
such district was "essentially controlled" by a city or county and is being used
to circumvent Article XIIIA limits.
APPROPRIATIONS LIMIT. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly modified by
Propositions 98 and 111 in 1988 and 1990, respectively. "Appropriations subject
to limitation" are authorizations to spend "proceeds of taxes," which consist of
tax revenues and certain other funds, including proceeds from regulatory
licenses, user charges or other fees to the extent that such proceeds exceed the
cost of providing the product or service, but "proceeds of taxes" excludes most
State subventions to local governments. No limit is imposed on appropriations of
funds which are not "proceeds of taxes," such as reasonable user charges or
fees, and certain other non-tax funds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
required to comply with mandates of courts or the federal government, (3)
appropriations for qualified capital outlay projects, and (4) appropriations of
revenues derived from any increases in gasoline taxes and vehicle weight fees
above certain limits.
The State's tax revenue experience clearly reflects sharp declines in
employment, income and retail sales on a scale not seen in over 50 years. The
1993-94 Budget Act assumes the State will remain in recessionary conditions
through 1993, with a modest upturn beginning late in 1993 or in 1994.
Pre-recession job levels are not expected to be reached until 1996.
To meet its seasonal cash flow needs, the State has used internal borrowing
resources (temporary loans from the Special Fund for Economic Uncertainties and
its special funds) and issued tax and revenue anticipation notes. The State's
short term borrowing requirements in the public credit markets have increased
substantially in recent years, rising from $2.1 billion in FY 1987-88 to over
$5.0 billion in FY 1992-93, and are now greater than those of any other state or
municipal government. The proceeds of the notes have been used, in addition to
seasonal cash flow needs, to repay interim notes issued early in each fiscal
year to secure a bridge loan provided to the State. No assurance can be given
that the State will be able to continue to meet its financing requirements in
the public credit markets at the times or in the amounts required.
REVENUE BASE. The principal sources of General Fund revenues are
economically sensitive, and include the California personal income tax (42% of
total FY1991-92 receipts), the sales tax (35%), bank and corporation taxes
(11%), and the gross premium tax on insurance (3%). Legislation in 1991 added
two new marginal tax rates at 10% and 11%, effective for tax years 1991 through
1995. After 1995, the maximum personal income tax rate is scheduled to return to
9.3%, thereby reducing the State's tax base in future years.
Operating results for the General Fund are significantly affected by the
reliability of fiscal projections made during the budget adoption process of
revenues expected to be collected during the ensuing fiscal year. Such
projections are based upon forecasts of economic conditions which may not be
sustained by actual results. A substantial budgetary imbalance would result if
countervailing reductions in appropriated expenditures are not implemented
during the fiscal year.
BUDGETARY FLEXIBILITY. The provisions of the California Constitution
extending the right of initiative to voters provides a mechanism which has been,
and may be used in the future, to bypass the traditional budgetary process to
enact measures which may impact or divert revenues and mandate or curtail
expenditures. Recently adopted initiatives include Propositions 98 and 111.
Proposition 98 further restricted the State's fiscal flexibility by
guaranteeing K-14 schools a minimum share of General Fund revenues by applying a
complex formula. For several years the State has maintained a Special Fund for
Economic Uncertainties as a reserve fund which was depleted (and subsequently
replenished) to finance the FY1989-90 and FY1990-91 operating deficits. The $1.3
billion fund, again depleted during FY1991-92, has been budgeted at only $28
million for FY1992-93, further reducing budgetary flexibility.
STATE ASSISTANCE TO LOCALITIES. Property tax revenues received by local
governments declined more than 50% following passage of Proposition 13.
Subsequently, the California Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies, the
reallocation of certain State revenues to local agencies and the assumption of
certain governmental functions by the State to assist municipal issuers to raise
revenues. However, in response to the State's current fiscal difficulties, the
State has substantially reduced its financial assistance to counties and cities;
diverted a large share of local property taxes to K-14 districts from other
local governmental units; and adopted measures to transfer certain of its
governmental functions to its counties and cities, accompanied by new funding
sources; such actions could compound the serious fiscal constraints already
experienced by many local governments. To the extent the State should be
constrained by its Article XIII B appropriations limit, or its obligation to
conform to Proposition 98, or other fiscal considerations, State assistance to
local governments may be further reduced.
OTHER CONSIDERATIONS. Securities which are assessment bonds or Mello-Roos
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which was undeveloped at the time of issuance but anticipated to be
developed. In the event of an economic slowdown or recession, such development
may not occur or may be delayed, thereby increasing the risk of a default of
bonds. Because the special assessments or taxes securing these bonds are not the
personal liability of the owners of the assessed property, the lien on the
property (which may decline in value) is the only security for the bonds.
Moreover, in most cases the bond issuer is not required to make payments on the
bonds in the event of delinquency in the payment of assessments or taxes, except
from amounts, if any, in a bond reserve fund.
Limitations on AD VALOREM property taxes may particularly affect tax
allocation bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment area decline (for example, because of an economic
downturn or a major natural disaster such as an earthquake), the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. The major rating agencies have withdrawn ratings when initiatives
affecting property taxes have qualified for the ballot, and have not uniformly
restored such ratings when measures (such as Proposition 13) have been adopted.
Payments to provide for debt service on securities (such as certificates of
participation) secured in whole or in part from governmental payments pursuant
to a lease agreement, service contract, installment sale or similar contract are
subject to annual appropriation by the governing legislative body. Among other
factors, a budgetary imbalance in future fiscal years could affect the ability
and willingness of such governing body to appropriate, and the availability of
moneys to make, the payments provided for in such contract.
The repayment of industrial development bonds secured by real property may
be affected by California laws limiting foreclosure rights of creditors. Health
care and hospital bonds may be affected by changes in State regulations
governing cost reimbursements to Medi-Cal providers, including risks related to
the policy of awarding exclusive contracts to certain hospitals. Periodic
droughts may affect revenues securing water and sewer bonds and electric and
power securities related to hydroelectric facilities.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any security in the Fund could be affected by an
interruption of revenues because of damaged facilities, or, consequently, income
tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage at reasonable rates;
(ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State governments to appropriate
sufficient funds within their respective budget limitations.
FACTORS AFFECTING COLORADO FUNDS
COLORADO FISCAL CONDITION. The State Constitution required that
expenditures for any fiscal year not exceed revenues for such fiscal year. By
statute, the amount of General Fund revenues available for appropriation is
based upon revenue estimates which, together with other available resources,
must exceed annual appropriations by the amount of the unappropriated reserve
(the "Unappropriated Reserve"). The Unappropriated Reserve requirement for
fiscal year 1991, 1992 and 1993 was set at 3% of total appropriations from the
General Fund. For fiscal years 1994 and thereafter, the Unappropriated Reserve
retirement is set at 4%. In addition to the Unappropriated Reserve, a
constitutional amendment approved by Colorado voters in 1992 requires the State
and each local government to reserve a certain percentage of its fiscal year
spending (excluding bonded debt service) for emergency use (the "Emergency
Reserve"). The minimum Emergency Reserve is set at 2% for 1994 and 3% for 1995
and later years. For fiscal year 1992 and thereafter General Fund appropriations
are also limited by statute to an amount equal to the cost of performing certain
required reappraisals of taxable property plus an amount equal to the lesser of
(i) five percent of Colorado personal income or (ii) 106% of the total General
Fund appropriations for the previous fiscal year. This restriction does not
apply to any General Fund appropriations which are required as a result of a new
federal law, a final state or federal court order or moneys derived from the
increase in the rate or amount of any tax or fee approved by a majority of the
registered electors of the State voting at any general election. In addition,
the statutory limit on the level of Federal Fund appropriations may be exceeded
for a given fiscal year upon the declaration of a State fiscal emergency by the
State General Assembly.
The 1992 fiscal year ending General Fund balance was $133.3 million, which
as $49.1 million over the Unappropriated Reserve requirement. The 1993 fiscal
year ending General Fund balance was $326.6 million, or $196.7 million over the
required Unappropriated Reserve and Emergency Reserve. Based on June 20, 1994,
estimates, the 1994 fiscal year ending General Fund balance is expected to be
$333.7 million, or $224.3 million over the required Unappropriated Reserve and
Emergency Reserve.
On November 3, 1992, voters in Colorado approved a constitutional amendment
(the "Amendment") which, in general, became effective December 31, 1992, and
which could restrict the ability of the State and local governments to increase
revenues and impose taxes. The Amendment applies to the State and all local
governments, including home rule entities ("Districts"). Enterprises, defined as
government-owned businesses authorized to issue revenue bonds and receiving
under 10% of annual revenue in grants from all Colorado state and local
governments combined, are excluded from the provisions of the Amendment.
The Amendment limits the ability of Districts to increase taxes by
providing that advance voter approval is required for "any new tax, tax rate
increase, mill levy above that for the prior year, valuation for assessment
ratio increase for a property class, or extension of an expiring tax, or a tax
policy change directly causing a net tax revenue gain to any district." An
additional limitation is placed on the maximum annual percentage increase in
property tax revenue.
The Amendment also imposes new limitations on government borrowing. The
amendment provides that Districts must have advance voter approval for the
"creation of any multiple-fiscal year direct or indirect district debt or other
financial obligation whatsoever without adequate present cash reserves pledged
irrevocably and held for payments in all future fiscal years," except for
refinancing District bonded debt at a lower interest rate or adding new
employees to existing District pension plans. Prior to the adoption of the
Amendment, voter approval was generally required only for the creation of
general obligation debt.
Spending limitations applicable to the State and separately to local
governments are also included in Amendment One. The amendment provides that the
maximum annual percentage change in each local District's Fiscal Year Spending
shall equal inflation in the prior calendar year plus annual local growth,
adjusted for revenue changes approved by voters after 1991 and certain other
allowed adjustments. "Fiscal Year Spending" is defined as all District
expenditures and reserve increases except refunds made in the current or next
fiscal year, gifts, federal funds, collections for another government, pension
contributions by employees and pension fund earnings, reserve fund transfers or
expenditures, damage awards and property sales. If revenue from sources not
excluded from Fiscal Year Spending exceeds the spending limit for a fiscal year,
the Amendment provides that the excess must be refunded in the next fiscal year
unless voters approve a revenue change as an offset.
While it is too early to determine what impacts the Amendment will
ultimately have on the financial operations of Colorado state and local
governments, the new constraints on budgetary and debt management flexibility
may create credit concerns. Furthermore, the language of the Amendment is not
clear as to certain matters, including (a) whether property tax rates can be
increased without voter approval to support outstanding or refunding general
obligation bonds, (b) whether new lease rental bonds and certificates of
participation constitute multiple-year financial obligations within the context
of the amendment, and (c) the precise definition of exempt Enterprises.
Litigation concerning several issues relating to the Amendment is pending in the
Colorado courts. The litigation deals with three principal issues: (i) whether
Districts can increase mill levies to pay debt service on general obligation
bonds without obtaining voter approval; (ii) whether a multi-year lease-purchase
agreement subject to annual appropriations is an obligation which requires voter
approval prior to execution of the agreement; and (iii) what constitutes an
"enterprise" which is excluded form the provisions of the Amendment. In
September, 1994 the Colorado Supreme Court held that Districts can increase mill
levies to pay debt service on general obligation bonds issued after the
effective date of the Amendment; litigation regarding mill levy increases to pay
general obligation bonds issued prior to the Amendment is still pending. Various
cases addressing the remaining issues are at different states in the trial and
appellate process. The outcome of such litigation cannot be predicted at this
time.
COLORADO ECONOMY. According to the COLORADO ECONOMIC PERSPECTIVE, FOURTH
QUARTER, FY 1993-94, JUNE 20, 1994 (the "Economic Report"), inflation for 1992
was 3.8% and population grew at the rate of 2.8% in Colorado. Accordingly, under
the Amendment, increased in State expenditures during the 1994 fiscal year will
be limited to 6.6% over expenditures during the 1993 fiscal year. The limitation
for the 1995 fiscal year is projected to be 7.1%, based on projected inflation
of 4.2% for 1993 and projected population growth of 2.9% during 1993. The 1993
fiscal year is the base year for calculating the limitation for the 1994 fiscal
year. For the 1993 fiscal year, General Fund revenues totaled $3,443.3 million
and program revenues (cash funds) totaled $1,617.6 million, resulting in total
estimated base revenues of $5,060.9 million. Expenditures for the 1994 fiscal
year, therefore, cannot exceed $5,394.9 million. However, the 1994 fiscal year
General Fund and program revenues (cash funds) are projected to be only $5,242.8
million, or $152.1 million less than expenditures allowed under the spending
limitation.
There is also a statutory restriction on the amount of annual increases in
taxes that the various taxing jurisdictions in Colorado can levy without
electoral approval. This restriction does not apply to taxes levied to pay
general obligation debt.
As the State experienced revenue shortfalls in the mid-1980s, it adopted
various measures, including impoundment of funds by the Governor, reduction of
appropriations by the General Assembly, a temporary increase in the sales tax,
deferral of certain tax reductions and inter-fund borrowings. On a GAAP basis,
the State had unrestricted General Fund balances at June 30 of approximately
$100.3 million in fiscal year 1988, $134.4 million in fiscal year 1989, $116.6
million in fiscal year 1990, $16.3 million in fiscal year 1991, $133.3 million
in fiscal year 1992, and $326.6 million in fiscal year 1993. The fiscal year
1994 unrestricted General Fund ending balance is currently projected to be
$337.7 million.
For fiscal year 1993, the following tax categories generated the following
respective revenue percentages of the State's $3,443.3 million total gross
receipts: individual income taxes represented 51.1% of gross fiscal year 1993
receipts; sales, use and other excise taxes represented 31.3% of gross fiscal
year 1993 receipts; and corporate income taxes represented 4.0% of gross fiscal
year 1993 receipts. The final budget for fiscal year 1994 projects general fund
revenues of approximately $3,570.8 million and appropriations of approximately
$3,556.8 million. The percentages of general fund revenue generated by type of
tax for fiscal year 1994 are not expected to be significantly different from
fiscal year 1993 percentages.
Under its constitution, the State of Colorado is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The State
enters into certain lease transactions which are subject to annual renewal at
the option of the State. In addition, the State is authorized to issue
short-term revenue anticipation notes. Local governmental units in the State are
also authorized to incur indebtedness. The major source of financing for such
local government indebtedness is an ad valorem property tax. In addition, in
order to finance public projects, local governments in the State can issue
revenue bonds payable from the revenues of a utility or enterprise or from the
proceeds of an excise tax, or assessment bonds payable from special assessments.
Colorado local governments can also finance public projects through leases which
are subject to annual appropriation at the option of the local government. Local
governments in Colorado also issue tax anticipation notes. The Amendment
requires prior voter approval for the creation of any multiple fiscal year debt
or other financial obligation whatsoever, except for refundings at a lower rate
or obligations of an enterprise.
Based on data published by the State of Colorado, Office of State Planning
and Budgeting as presented in the Economic Report, over 50% of non-agricultural
employment in Colorado in 1993 was concentrated in the retail and wholesale
trade and service sectors, reflecting the importance of tourism to the State's
economy and of Denver as a regional economic and transportation hub. The
government and manufacturing sectors followed as the fourth and fifth largest
employment sectors in the State, representing approximately 17.8% and 11.3%,
respectively, of non-agricultural employment in the State in 1993. The Office of
Planning and Budgeting projects similar concentrations for 1994 and 1995.
According to the Economic Report, the unemployment rate improved slightly
from an average of 5.9% during 1992 to 5.2% during 1993. Total retail sales
increased by 9.7% during 1993. Colorado continued to surpass the job growth rate
of the U.S., with a 3.4% rate of growth projected for Colorado in 1994, as
compared with 2.2% for the nation as a whole. However, the rate of job growth in
Colorado is expected to decline in 1995, primarily due to the completion in 1994
of large public works projects, such as Denver International Airport, Coors
Baseball Field, and the Denver Public Library renovation project.
Personal income rose 7.6% in Colorado during 1992 and 5.5% in 1991. During
1993, personal income rose 7.4% in Colorado, as compared with 4.7% for the
nation as a whole.
FACTORS AFFECTING FLORIDA FUNDS
Florida is the twenty-second (22nd) largest state, with an area of 54,136
square miles and a water area of 4,424 square miles. The State is 447 miles long
(St. Marys River to Key West) and 361 miles wide (Atlantic Ocean to Perdido
River) and has tidal shoreline of almost 2,300 miles. According to the U.S.
Census Bureau, Florida moved past Illinois in 1986 to become the fourth most
populous state, and as of 1991 had an estimated population of 13.2 million.
POPULATION. In 1980, Florida was ranked seventh among the fifty states with
a population of 9.7 million people according to the U.S. Census Bureau. The
State has grown dramatically since then. As of April 1,1993, Florida ranks
fourth with an estimated population of 13.6 million. Since the beginning of the
eighties, Florida has surpassed Ohio, Illinois and Pennsylvania in total
population. Florida's attraction, as both a growth and retirement state, has
kept net migration fairly steady with an average of 292,988 new residents per
year, from 1983 through 1993.
The State's strong population growth is one fundamental reason why its
economy has typically performed better than the nation as a whole. Since 1983,
the United States has had an average population increase of about 1.0% annually,
while Florida's average annual rate of increase is around 2.5%. Florida has been
and continues to be the fastest growing of the 10 largest states.
EMPLOYMENT. Between 1980 and 1993, the State's population has increased by
just over 40%. In the same period of time, Florida's total non-farm employment
has grown by approximately 64%. Though the State has grown by an average of
296,600 people per year, the strength of the economy has created an environment
that has more than absorbed new residents seeking employment. The job creation
rate for the State of Florida is almost twice the rate for the nation as a
whole, since 1980. Contributing to Florida's rapid rate of growth in employment
and income is international trade. Structural changes to Florida's economy have
also contributed heavily to the State's strong performance. The State is now
less dependent on employment from construction and construction related
manufacturing and resource based manufacturing, which have declined as a
proportion of total State employment.
The service sector is Florida's largest employer. Presently, the State's
service sector employment constitutes 32.6% of total non-farm employment. While
the southeast and the nation are endowed with a greater proportion of
manufacturing jobs, which tend to pay higher wages, services, historically, tend
to be less sensitive to business cycle swings. Moreover, manufacturing jobs
nationwide and in the southeast are more concentrated in areas such as heavy
equipment, primary metals, chemicals and textile mill products. Florida, on the
other hand, has a concentration of manufacturing jobs in high-tech and high
value-added sectors, such as electrical and electronic equipment, as well as
printing and publishing. These kinds of jobs tend to be less cyclical than other
forms of manufacturing employment. The rate of job creation in Florida's
manufacturing sector has exceeded that of the U.S. From the beginning of 1980
through 1992, Florida added over 50,100 new manufacturing jobs, an 11.7%
increase. During the same period, national manufacturing employment declined ten
out of the fourteen years, for a loss of 2,977,000 jobs. Florida's unemployment
rate throughout the 1980's tracked below that of the nation's. In recent years,
however, as the State's economic growth has slowed from its previous highs, the
unemployment rate has tracked above the national average. The average rate of
unemployment for Florida since 1980 is 6.5%, while the national average is 7.1%.
Tourism is one of Florida's most important industries. Approximately 41
million people visited the State in 1993, as reported by the Florida Department
of Commerce. In terms of business activities and State tax revenues, tourists in
Florida in 1993 represented an estimated 4.5 million additional residents,
spending their dollars predominantly at eating and drinking establishments,
hotels and motels, and amusement and recreation parks. Visitors to the State
tend to arrive about equally by air or car. The State's tourist industry over
the years has become more sophisticated, attracting visitors year round, thus,
to a degree, reducing its seasonality. Besides a subtropical climate and clean
beaches that attract people in the winter months, the State has added, among
other attractions, a variety of amusement and educational theme parks. These
additions have helped to reduce the seasonal and cyclical character of the
industry and have effectively stabilized tourist related employment as a result.
Total non-farm employment in Florida is expected to increase 3.6% in
1994-95 and rise 3.3% in 1995-96. By the end of 1995-96, non-farm employment in
the State is expected to reach an average of 6.1 million. Trade and services,
the two largest sectors, account for more than half of total non-farm
employment. Employment in the service sectors should experience an increase of
5.4% in 1994-95, while growing 4.7% in 1995-96. Trade is expected to expand 3.1%
this year and 3.2% next year. The service sector has overtaken the trade sector
and is now the State's largest employment category. Florida's unemployment rate
is forecasted at 6.1% in 1994-95 and 6.1% in 1995-96.
An important element of Florida's economic outlook is the construction
sector. In Florida, single and multi-family housing starts in 1994-95 are
projected to reach a combined level of 118,000 units, while increasing to
124,100 next year. Multi-family starts have been slow to recover, but they
should maintain a level of nearly 25,000 in 1994-95 and almost 29,000 in
1995-96. Single family starts are expected to be slightly over 93,000 this year
and 95,300 next year. Total construction expenditures are forecasted to increase
6.6% this year and increase 7.5% next year.
For fiscal year 1994-95 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $14,624.4 million, a 5.7%
increase over 1993-94. This amount reflects a transfer of $159.0 million in
non-recurring revenue due to Hurricane Andrew, to a hurricane relief trust fund.
The $13,858.4 million in Estimated Revenues (excluding the Hurricane Andrew
impacts) and recently legislated revenue impacts represent a 7.9% increase over
the analogous figure in 1993-94. With combined General Revenue, Working Capital
Fund and Budget Stabilization appropriations at $14,311.1 million, unencumbered
reserves at the end of 1994-95 are estimated at $313.3 million.
For fiscal year 1995-96, the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $15,145.9 million, a 3.6%
increase over 1994-95. The $14,647.2 million in Estimated Revenues represent a
5.7% increase over the analogous figure in 1994-95.
STATE BOND RATING. Florida maintains a bond rating of Aa and AA from
Moody's and S&P, respectively, on the majority of its general obligation bonds,
although the rating of a particular series of revenue bonds relates primarily to
the project, facility or other revenue source from which such series derives
funds for repayment. It should also be noted that the creditworthiness of
obligations issued by local Florida issuers may be unrelated to the
creditworthiness of obligations issued by the State of Florida, and that there
is no obligation on the part of Florida to make payment on such local
obligations in the event of default.
FACTORS AFFECTING IDAHO
Idaho is located in the northwestern portion of the United States, bordered
by Washington, Oregon, Nevada, Utah, Wyoming, Montana and Canada. Idaho consists
of approximately 84,00 square miles of varied terrain. The terrain and access to
outdoor activities such as boating, fishing, hunting and skiing, make tourism
and recreation a major, growing industry in the State.
Although located in the arid West, Idaho has significant water resources,
including 26,000 miles of rivers and streams and more than 2,000 natural lakes.
The drop in elevation of rivers like the Snake permit hydropower production,
allowing the State some of the lowest electricity rates in the nation.
The State has a broadly based economy, ranging from mining and timber
resources to agricultural lands which are irrigated by a series of man-made
reservoirs and irrigation systems. More than four million acres are irrigated in
the Snake River Basin.
Traditionally, Idaho has been an agricultural state. Livestock, beef, dairy
cattle and sheep are important to the economy, while the major food crops
include potatoes, wheat, barley, sugar beets, seed crops and fruit. Major
manufacturing industries include food processing, forest products, phosphate
processing and electronics. Mining also has been important in the development of
the State with phosphate rock, silver, lead, zinc and molybdenum among the
resources mined. Mining activity is dependent on the market prices of products
and over the past few years with depressed prices, mining activity has been
declining, and may not improve.
In recent years, a combination of warmer than usual temperatures and low
winter snowfall in the State, particularly the southern half, caused early
run-off and depletion of the available snowpack. This caused a severe drought in
those areas of the State where agriculture is a major portion of the economy.
Ground water levels dropped, but are not currently in danger. The ultimate
effect on the State economy will not be fully known for some time, and may be
mitigated by more normal precipitation levels.
In the past, the State's economy has often behaved counter to national
economic trends. In spite of the national difficulties in the 1970's, the State
enjoyed economic growth for most years in the decade. The State's economy began
to cool in 1979 preceding the national recession and experienced weaker than
average economic performance during the first half of the 1980's. Idaho's
economy turned up in 1988, and has continued above the national rates. Although
Idaho may feel the effect of the nation's slow economic growth, it should
continue to outperform the nation as a whole.
Much of the State's economic behavior is explained in terms of Idaho's
changing mix of industries and markets. In recent years, non-agricultural
employment has grown more rapidly, with Idaho's machinery industry, service
sector, tourism, and government sectors among leading areas. Mining has been
particularly weak, with forest products, food processing and chemical products
sectors among the weaker sectors. The shift from industries dependent on natural
resources should make the State less sensitive to events in international and
national markets.
Idaho has benefitted from the recent population exodus from California. The
shift has helped make the state among the fastest growing economies in the
nation. However impressive this may sound, it is important to bear in mind that
Idaho has a relatively small population and percentages are easily changed by
the influx of relatively few people. Also, such immigration brings a demand for
increased infrastructure and the financing to fund it. Any such increase in
infrastructure would require that economic growth be maintained to support it,
and if growth is not maintained economic problems could develop.
The State operates under an annual budget system that coincides with the
July-June fiscal year. The State Division of Financial Management in the
Governor's office, in connection with the Governor, prepares the proposed budget
for the ensuing year and the Governor submits this budget to the Legislature.
The State must operate on a balance budget, in accordance with revenue
projections. Following the legislative process, appropriation bills for each
department or agency are submitted to the House and Senate for approval and then
sent to the Governor for signature. The Governor has "line-item veto" power. The
appropriations constitute the limit for each department or agency for
expenditures.
Total funds available in the General Fund in fiscal year 1994 are estimated
to be $1,166,757,000. This consists of an estimated $10,880,000 carryover from
fiscal year 1993, plus $1,157,485,000 in base revenues, less $1,608,000 in
revenue adjustments. General fund expenditures authorized for fiscal year 1994
are $1,109,489,000. This leaves a projected General Fund carryover of
$18,230,700 into fiscal year 1995.
The revised base General Fund revenue forecast for fiscal year 1994
consists primarily of sales and income tax receipts. Product taxes account for a
little over one percent of General Fund revenues, and miscellaneous receipts
account for slightly less than five percent of General Fund revenues.
General Fund expenditures in fiscal year 1994 consist of $1,084,561,400 in
original appropriations, $221,500 in reappropriations and receipts, and
$24,706,100 in supplementals. Included in the $1,109,489,000 appropriation is a
one-time supplemental appropriation (reflected as an operating transfer) of
$11,200,000 to pay off the lease-purchase of the new Law Enforcement Complex.
$4,450,300 is appropriated to cover a projected Medicaid Program shortfall.
$2,125,000 is appropriated to cover an Adult & AFDC Program caseload increase.
$1,500,000 is appropriated to match federal funds for the Idaho Housing Agency.
The remaining $5,430,800 is spread over 30 other appropriations, all below
$1,000,000 each. Not included in the $1,109,489,000 are a one-time operating
transfer of $38,142,600 from the general fund to the permanent building fund for
various building projects and a miscellaneous one-time transfer of $725,000.
The amount of total funds available to the General Fund in fiscal year 1995
is estimated to be $1,273,490,300. This consists of an estimated $18,230,700
beginning balance plus $1,255,259,600 in revenue in fiscal year 1995. General
Fund expenditures authorized for fiscal year 1995 are $1,264,200,400. This
leaves an estimated free-fund balance of $9,289,900 in the General Fund at the
end of fiscal year 1995.
The original Executive revenue forecast of $1,255,665,000 for fiscal year
1995 reflects 8.5% growth over fiscal year 1994. This has been adjusted to
reflect a net reduction of $405,400 as a result of the enactment of 21 bills
that either increased or decreased revenue to the General Fund.
General Fund revenues consist primarily of the sales tax and the individual
and corporate income tax. Miscellaneous revenues, dominated by the insurance
premium tax and interest earnings, are a little over 4 percent of total General
Fund Revenues. They are forecast to decline by 4.4 percent as a result of
legislative changes in fiscal year 1995. The net growth rate for total General
Fund revenue in fiscal year 1995 after revenue adjustment is 8.6 percent.
Expenditures in fiscal year 1995 consist of $1,086,244,000 in base spending plus
$177,956,400 in enhancements, inflation adjustments, salary increases and
various one-time outlays.
The State may not incur long-term debt, and, consequently, the funding for
projects requiring such debt is done through cities, instrumentalities, agencies
and political subdivisions of the State.
FACTORS AFFECTING IOWA
GENERAL ECONOMIC INFORMATION The State of Iowa has a population of
approximately 2.81 million. In terms of population, Iowa has become an
increasingly urbanized state. While Iowa has been traditionally characterized as
a rural state, the number of inhabitants who live outside towns and cities has
declined for most of this century.
Iowa's economy is supported by a diverse mixture of industry, agriculture,
services and government employment. Traditionally, it is estimated that
agriculture accounted for 5-9% of the total earned income in the State (although
it accounted for only 0.9% in 1993 due to the impact of flood losses) as
compared to manufacturing, services, and government which accounted for (in
1993) 22.5%, 22.3% and 16.8% of total earned income, respectively.
However, agriculture continues to play a major role in the State economy.
Iowa is a leader in the production of corn, soybeans, hogs and cattle. In
addition, a larger part of Iowa's non-farm personal income is earned in
agriculture related industries, such as agricultural services, food and kindred
products, leather and leather products, and chemicals, in addition to farm
machinery.
In 1990 the State ranked thirtieth in number of inhabitants among the fifty
states. Historically, the population of Iowa has grown more slowly than the
nation's. For this reason, the national population rank of Iowa has dropped in
each decade from 1950 through 1990.
The mix of employment changed in the State between 1990 and 1993. As a
percentage of the resident total employment, agricultural employment decreased
from 14.0% to 11.0% between 1980 and 1993 while nonagricultural wage and salary
employment increased from 81.8% to 85.4% of the resident total employment.
Recently, significant changes have occurred in the mix of nonagricultural
wage and salary employment. Between 1980 and 1993, the service industries grew
from 18.9% to 25.4%, government decreased from 18.7% to 17.8% and insurance
expanded from 2.1% to 2.7%.
Iowa's nonagricultural economy is diverse, including manufacturing,
commerce, insurance, banking and food related industries. The growing
diversification of Iowa's economy has led to the State's economy more closely
resembling the nation's non-farm employment composite. However, many Iowa
workers depend, directly or indirectly, upon agriculture for their jobs. These
jobs include processing, manufacturing, servicing and utilizing agricultural
products.
Economic earnings produced by the various industries has also shifted
during the 1980's. From 1985 through 1993, services, retail trade and finance
all showed significant income gains. On an unadjusted basis, from the $23.9
billion level in 1985, industry income overall increased by 48% to $35.5 billion
in 1990.
BUDGETARY INFORMATION. Under State law, the budget presented by the
Governor must be balanced and supporting data must be supplied to the
legislative branch. The State's budget is prepared on an annual basis. The
Governor's proposed budget is required to be completed and presented to the
General Assembly by the first of February prior to the new fiscal year and
proposed appropriation bills necessary for its implementation are presented to
each house of the General Assembly. When an appropriation bill is passed by both
houses of the General Assembly, the bill is enrolled and sent to the Governor.
The Governor may sign it into law or veto it as a whole or veto parts of it on a
line-item basis.
State law establishes a revenue estimating conference consisting of the
Governor or the Governor's designee, the Director of the Legislative Fiscal
Bureau, and a third member to be agreed to by the other two members. By December
15 of each year, the conference is to agree to a revenue estimate for the fiscal
year beginning on the following July 1. That estimate will then be used by the
Governor in the preparation of the Governor's budget message and by the General
Assembly in the budget process. The State Revenue Estimating Conference may meet
as necessary throughout the fiscal year to revise estimates as economic
conditions change.
To help assure that expenditures on a budget basis in a fiscal year will
not exceed revenues on a budget basis for such fiscal year, estimated
expenditures and revenues for the balance of such fiscal year are monitored on
an on-going basis. In recent years, when expenditures for a fiscal year have
been projected to exceed estimated revenues for such fiscal year the State has
taken various measures to increase revenues or decrease expenditures. Such
measures have included: (i) suspending the hiring of additional State employees
or the replacing of retiring State employees; (ii) imposing certain restrictions
on purchases by State agencies; (iii) increasing certain tax rates; and (iv) the
preparation and submission by the Governor to the General Assembly of a revised
budget.
State law authorizes the Governor to impose across-the-board pro rata
reductions expenditures in order to assure that revenues and other available
funds are sufficient to pay expenses in a given fiscal year. The Governor has
exercised this authority several times in recent years. On July 1, 1991, the
Governor directed that allotments for the 1992 fiscal year be modified to reduce
State expenditures by 3.25 percent (approximately $105 million) on an annual
basis. This was done by reducing quarterly allotments to the extent necessary to
achieve a balance between projected revenues and expenditures. On April 9, 1992,
the Governor exercised this authority again to impose an additional $19 million
of across-the-board reductions in expenditures. Expenditures for new programs or
for expansion of existing programs cannot be made from the General Fund until
moneys have been authorized by the Governor and appropriated by the General
Assembly.
The General Fund receives those revenues of the State not specifically
required to be deposited in other funds. General Fund revenues are obtained from
the payment of State taxes and from Federal and non-tax revenue sources. Major
tax revenues credited to the General Fund include the individual income tax,
corporate income tax, sales tax, use tax, and certain other taxes and revenues.
Iowa taxes are not subject to taxpayer initiative or referendum.
By State Constitution and statute, certain funds other than the General
Fund have been established for the State. Among these funds are the Road Use Tax
Fund, the Primary Road Fund, the Unemployment Insurance Fund, the Payroll
Trustee Fund (constituting employee payroll deductions and State payroll
contributions to pay benefits, taxes, social security, and retirement
contributions), the Liquor Trust Fund (constituting revenues from the wholesale
distribution of alcoholic liquor), and the Iowa Public Employees Retirement
System Fund.
The Unreserved Fund Balance in the General Fund improved from $408.8
million at the end of fiscal year 1991-92 to $306.8 million at the end of fiscal
year 1992-93. This improvement of $102 million, about 25%, reverses the trend of
a growing deficit balance and marks a turning point in the financial condition
of the State. The projected positive balance of $71.5 million for fiscal year
1993-94 demonstrates a dramatic improvement, due primarily to the implementation
of GASB Statement No. 22, the build up of cash reserves and the funding for GAAP
deficit reduction items.
FACTORS AFFECTING KANSAS FUND
Kansas is the 14th largest state in terms of size with an area in excess of
82,000 square miles. It is rectangular in shape and is 411 miles long from east
to west and 208 miles wide. The geographic center of the 48 contiguous states
lies within its borders. While much of the state is rural in nature, it has
important investments in the construction, finance, manufacturing,
transportation, distribution and oil and gas industries. Kansas became the 34th
state in 1861 and Topeka was chosen to be the capitol later that year. Kansas
has the traditional three branches of government: the executive Branch, which
includes the elected state officers; the Legislative Branch, which includes the
State Senate and the House of Representatives; and the Judicial Branch, which
includes the State Supreme Court, the Court of Appeals, and the district and
municipal courts. The state's resident population increased from 2,364,236 in
1980 to 2,478,099 in 1990 according to figures from the 1990 U.S. Census. This
was an increase of 4.8 percent. Although Kansas' percentage growth was about
half the nationwide increase of 9.8 percent, it was higher than the percentage
growth in any of the surrounding states, except Colorado, and was greater than
21 other states.
During the 1980's a total of 79 of the state's 105 counties lost
population. Overall, counties in northwest and southeast Kansas showed
population losses, while northeast and southwest counties gained population.
During the decade, either counties had population growth at or above 10 percent.
Sedgwick County, which is located in south central Kansas, is the most populous
county in Kansas with a 1990 population of 403,662, and Greeley is the least
populated with 1,774 residents.
The most recent education information available for Kansas is from the 1990
U.S. Census. This data showed of the persons 25 years or older, about 81.3
percent were at least high school graduates, up from 73.3 percent in 1980.
Kansas ranks 10th nationally in the percentage of adults who are high school
graduates which is above the U.S. average of 75.2 percent. In addition, about
21.1 percent had a least a bachelor's degree compared with 20.3 percent for the
United States.
The Kansas economy has four major economic sectors which employ from 15 to
24 percent of the labor force. This economic diversity provides the state's
economy with some resistance to recession, because it is unusual for all of the
economic sectors to decline at the same time.
All of the state's major labor markets experienced employment growth
between 1991 and 1992, an improvement over a year earlier when five had
employment declines. Among the metropolitan areas, Lawrence had the most rapid
rate of growth with a 3.7 percent increase. For the nonmetropolitan major labor
markets, Crawford County, with a 5.5 percent gain, had the most rapid rate of
growth.
AGRICULTURE. Although this sector of the Kansas economy does not now employ
many people, the importance of agriculture to the State and national economies
is evidenced by Kansas' ranking among all states in the production of crops and
livestock. Kansas ranked first in 1992 in the production of milled wheat flour,
wheat flour milling capacity, and sorghum silage produced. It ranked second in
the number of cattle slaughtered, sorghum grain produced, and all wheat
produced.
For the first time in four years, employment growth in Kansas did not
exceed the national rate. National employment based on household survey data
edged up 1.4 percent in 1993. By contrast, Kansas employment grew 0.4 percent in
1992.
Employment growth in Kansas will be less rapid than in 1993. Employment
declines are expected in manufacturing as well as transportation and utilities.
Cost-cutting measures in manufacturing will continue. Three factors will combine
to produce some downsizing: military procurement reductions, increased
international competition, and a stagnant international economy. Cuts in
military spending have and will continue to affect the industry. International
manufacturing subsidies have made inroads into the market share of U.S.
companies, and the no-growth international economy will weaken export demand
which is of critical importance in an industry where the largest Kansas firm
sold over 80 percent of its commercial aircraft to customers outside the U.S.
last year.
Kansas experienced unemployment rates below the national average for almost
three decades. The state experienced an unemployment rate of 6.3 percent or less
for the last decade. Since 1987, the rate has been at 4.9 percent or below. This
was in sharp contrast to the national unemployment rate which was 7.4 percent in
1992. The unemployment rate was 4.0 percent in 1992, and rose to 4.9 percent in
1992 but was still below the national average.
The governor of Kansas has proposed a budget for fiscal year 1995 showing
total general fund revenue of $3.247 billion and general fund expenditures of
$3.342 billion leaving a positive general fund balance of $359 million. This
proposal depends on holding the growth in State spending at or near the level of
inflation.
FACTORS AFFECTING MINNESOTA FUNDS
The information contained below, is derived primarily from a State of
Minnesota General Obligation Bonds Official Statement dated September 27, 1994.
Minnesota resident population grew from 4,085,000 in 1980 to 4,386,000 in
1990 or, at an average annual compound rate of .7 percent. In comparison, U.S.
population grew at an annual compound rate of .9 percent during this period.
Minnesota population is currently forecast to grow at an annual compound rate of
.6 percent between 1990 and 2000.
Diversity and a significant natural resource base are two important
characteristics of the State's economy. when viewed in 1993 at a highly
aggregative level of detail, the structure of the State's economy parallels the
structure of the United States economy as a whole. State employment in 10 major
sectors was distributed in approximately the same proportions as national
employment. In all sectors, the share of total State employment was within 2
percentage points of national employment share. Some unique characteristics of
the State's economy are apparent in employment concentrations in industries that
comprise the durable goods and non-durable goods manufacturing categories.
The importance of the State's rich resource base for overall employment is
apparent in the employment mix in non-durable goods industries. In 1993, 29.4
percent of the State's non-durable goods employment was concentrated in food and
kindred industries, and 19.1 percent in paper and allied industries. This
compares to 21.5 percent and 8.9 percent, respectively, for comparable sectors
in the national economy.
In the period 1980 to 1990, overall employment growth in Minnesota lagged
behind national growth. However, manufacturing has been a strong sector, with
Minnesota employment outperforming its U.S. counterpart in both the l980-1990
and 1990-1993 periods. In spite of a strong manufacturing sector, during the
1980 to 1990 period total employment in Minnesota increased 17.9 percent while
increasing 20.1 percent nationally. Most of Minnesota's relatively slower growth
is associated with declining agricultural employment and with the two recessions
in the U.S. economy during the early 1980's which were more severe in Minnesota
than nationwide. In the period 1990 to 1993, employment growth in Minnesota
exceeded national growth. Employment data through 1993 indicate that the
recession that began in July 1990 was less severe in Minnesota than in the
national economy and that Minnesota's recovery has been more rapid than the
nation's.
Since 1980, State per capita personal income has been within three
percentage points of national per capita personal income. The State's per capita
income, which is computed by dividing personal income by total resident
population, has generally remained above the national average in spite of the
early 1980's recessions and some difficult years in agriculture. In 1993,
Minnesota per capita personal income was 101.1 percent of its US. counterpart.
MINNESOTA FISCAL CONDITION. Minnesota's constitutionally prescribed fiscal
period is a biennium, and Minnesota operates on a biennial budget basis.
Legislative appropriations for each biennium are prepared and adopted during the
final legislative session of the immediately preceding biennium. Prior to each
fiscal year of a biennium, Minnesota's Department of Finance allots a portion of
the applicable biennial appropriation to each agency or other entity for which
an appropriation has been made. An agency or other entity may not expend moneys
in excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, Minnesota's Commissioner of Finance, with
the approval of the Governor, is required to reduce allotments to the extent
necessary to balance expenditures and forecasted available resources for the
then current biennium. The Governor may prefer legislative action when a large
reduction in expenditures appears necessary, and if Minnesota's legislature is
not in session the Governor is empowered to convene a special session.
Minnesota relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system that is sensitive
to economic conditions. Frequently in recent years, legislation has been
required to eliminate projected budget deficits by raising additional revenue,
reducing expenditures, including aids to political subdivisions and higher
education, reducing the State's budget reserve, imposing a sales tax on
purchases by local governmental units, and making other budgetary adjustments. A
budget forecast released by the Minnesota Department of Finance on December 6,
1994 projects a General Fund balance of $268 million at the end of the current
biennium, June 30, 1995, plus a budget reserve of $500 million. Total projected
expenditures and transfers for the biennium are $16.9 billion. State law imposes
caps on appropriations for education (including higher education) and human
services in the biennium ending June 30, 1997. It is anticipated as a result of
these caps either that spending in these areas will be reduced below levels
needed to maintain current programs or that other budgetary changes will need to
be made by the State for that biennium. Either approach could result in fiscal
difficulties for other governmental entities in Minnesota. The forecast does not
reflect the effects of a recent decision of the Minnesota Supreme Court that
numerous banks are entitled to refunds of Minnesota bank excise taxes paid for
tax years 1979 through 1983. The taxes and interest to be refunded to banks and
other corporations as a result of this decision are estimated to be
approximiately $327 million. The State will be permitted to pay the refunds over
a four-year period, which would increase interest payments by approximately $24
million. The State also is party to a variety of other civil actions that could
adversely affect the State's General Fund.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota. Even with respect to
bonds that are revenue obligations of the issuer and not general obligations of
Minnesota, there can be no assurance that the fiscal problems referred to above
will not adversely affect the market value or marketability of the bonds or the
ability of the respective obligors to pay interest on and principal of the
bonds.
There can be no assurance that Minnesota's economy and fiscal condition
will not materially change in the future or that future difficulties will not
occur. Economic difficulties and the resultant impact on state and local
government finances may adversely affect the market value of obligations in the
portfolio of the Fund or the ability of respective obligors to make timely
payment of the principal and interest on such obligations.
FACTORS AFFECTING MISSOURI FUND
Missouri is a central mid-western state located near the geographic center
of the United States. Bordered by Iowa on the north, Arkansas on the south,
Illinois, Kentucky and Tennessee across the Mississippi River on the east, and
Nebraska, Kansas and Oklahoma on the west. Missouri is one of only two states
which shares its boundaries with as many as eight states. The State ranks 19th
in size with a total area of approximately 69,697 square miles, consisting of
68,945 square miles of land and 752 square miles of water, including eight large
man-made lakes. Missouri's population was 5,117,000 according to the 1990
decennial census of the United States Bureau of the Census, which represented an
increase of 200,000 or 4.1% from the 1980 decennial census of 4,917,000
inhabitants. Based on the 1990 population, Missouri was the 15th largest state
in the nation and the third most populous state west of the Mississippi River,
ranking behind California and Texas. In 1992, the State's population was
estimated to be 5,193,000 by the United States Bureau of the Census.
Missouri's central geographical location is advantageous for commuting to
all parts of the United States and for shipping and receiving merchandise, raw
material and other resources. Facilities for highway, rail, water and air
transportation are available throughout the State. There are approximately
32,000 miles of highway in the state highway system, including ten interstate
highways running through Missouri. Kansas City and St. Louis are both among the
nations top trucking centers.
The Elementary and Secondary Education System of Missouri comprises 2,032
schools in 538 school districts with an enrollment of 840,062 students for the
1992-93 school year in grades Kindergarten through 12. There are 55
vocational-technical schools in the State which provide opportunities for
students and other residents of several districts to participate in vocational
programs using common equipment and facilities. The State vocational
rehabilitation program, which operates in secondary schools, provides prosthetic
devices, medical treatment and diagnostic services as well as vocational
training.
The State's economy is diverse, including manufacturing, commerce, trade,
agriculture and mining. The State's proximity to the geographical and population
centers of the nation makes the State an attractive location for business and
industry. Both earnings and employment are well distributed among the
manufacturing, trade and service sectors. The relative importance of each
category in the State closely approximates the average national distribution,
thus lessening the State's cyclical sensitivity to impact by any single sector.
Growth in service and trade industries has aided the State's economic
development. In 1990, Services represented the single most significant economic
activity, with Wholesale and Retail Trade ranking second and Manufacturing
ranking third. In 1990, these three economic sectors employed 577,300, 560,900
and 436,80 people, respectively, and accounted for 67.29% of the State's
nonagricultural employment
Evidence of the State's diversified economic base is reflected by the
employment distribution among nonagricultural industrial sectors. During the
last ten years, Wholesale and Retail Trade has been the State's major source of
employment, rising 18%. Strong gains were recorded from 1979 to 1990 in the
Services category (up 50%) and in the Finance, Insurance and Real Estate and
Government categories. In recent years, the State's unemployment rates have been
less than the national average.
Manufacturing continues to be a leading component of Missouri's diversified
economy. While the manufacture of durable goods, especially motor vehicles and
equipment, remains important, the greatest gains in manufacturing earnings in
recent years have occurred in the production of electric and electronic
equipment, which has become one of the major contributors to manufacturing
earnings. The following table illustrates the diversity in the sources of the
States manufacturing earnings and contribution to the wage and salary component
of the State's total personal income.
Defense-related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related business in
Missouri are the recipient of sizable defense contract awards. The following
table illustrates the State's annual amount of defense contract awards over
$25,000, Missouri's rank among the states in total awards, and the annual change
in the dollar amount of such awards for Missouri and the United States.
Agriculture is a significant component of Missouri's economy. According to
data of the United States Department of Agriculture, Missouri ranked 16th in the
nation in 1992 in the value of cash receipts from farm marketing, with over
$4.068 billion. Missouri is one of the nation's leading purebred livestock
producers. In 1992, sales of livestock and livestock products constituted nearly
52% of the State's total agricultural receipts.
AUTHORITY TO INCUR INDEBTEDNESS. Limitations on the State debt and bond
issues are contained in Article III, Section 37 of the Constitution of Missouri.
Pursuant to this section, the General Assembly may issue general obligation
bonds solely for the purpose of (1) refunding outstanding bonds or (2) upon the
recommendation of the Governor, for a temporary liability by reason of
unforeseen emergency or of deficiency in revenue in an amount not to exceed
$1,000,000 for any one year and to be paid in not more than five years. When the
liability exceeds $1,000,000, the General Assembly, or the people by initiative,
may submit the proposition to incur indebtedness to the voters of the State, and
the bonds may be issued if approved by a majority of those voting. Before any
bonds so authorized are issued the General Assembly shall make adequate
provisions for the payment of the principal and interest and shall provide for
an annual tax on all taxable property in an amount sufficient for that purpose.
Primary responsibility for the planning and control of the State financial
practices is shared by the General Assembly, the Division of Budget and Planning
and the Division of Accounting of the Office of Administration, the Office of
the State Auditor and the Office of the State Treasurer. The General Assembly
has responsibility for legislating the level of State services and appropriating
the funds for operations of State agencies. The Division of Budget and Planning
prepares the Executive Budget and monitors the level of State expenditures. The
Division of Accounting has the responsibility for the disbursement process. The
State Treasurer has responsibilities for disbursements, bank reconciliation and
investment of funds. The State Treasurer also maintains fund and appropriation
control as a double-check on State spending. The Office of the State Auditor has
responsibility for performing financial post-audits of State agencies and for
establishing appropriate accounting systems for State agencies.
Annually, all State agencies submit budget requests for the following
appropriation year to the Division of Budget and Planning of the Office of
Administration. The Division of Budget and Planning prepares the Executive
Budget and an estimate of general revenue. The Executive Budget contains the
budget amount which is recommended and submitted to the General Assembly by the
Governor within 30 days after the General Assembly convenes in each regular
session.
The State's financial record is characterized by sizeable balances
registered by both the General Revenue Fund and the State's consolidated 321
separate funds. Since the modified accrual basis of accounting was adopted for
the governmental funds in mid-1978, the General Revenue Fund's year-end fund
balance rose to $379.1 million at June 30, 1980, a level equal to 22% of that
Fund's revenues and transfers. The recessionary period of 1981 and 1982 weakened
revenue realization, particularly from the sales and use and corporate income
taxes, in the subsequent fiscal years, reducing the fund balance to $98.9
million at June 30, 1983. Stronger than anticipated revenue results provided for
an increase in the General Revenue Fund balance at June 30, 1985 to $385.0
million. For the fiscal year ending June 30, 1993 ("Fiscal Year 1993") revenues
are projected at $4,347.5 million. This does not include $120.8 million in
proceeds from the state lottery and other transfers or a carryover balance of
approximately $59.6 million. Expenditures are projected at $4,331.9 million,
including $139.3 million and $151.9 million respectively for the St. Louis and
Kansas City desegregation cases. Expenditures also include $30.8 million
reserved for supplemental appropriations for Fiscal Year 1993. Legislation
enacted in 1983 created a Cash Operating Reserve Fund to meet cash flow
requirements of the State. A total of $130 million in general revenue was
transferred to the Fund in the fiscal year ended June 30, 1985 to provide a
balance equal to approximately five percent of general revenue obligations. The
Fiscal Year 1993 beginning balance was $187.0 million
Article X, Sections 16-24 of the Constitution of Missouri (the "Tax
Limitation Amendment"), imposes a limit on the amount of revenue which may be
collected by the State in any fiscal year. This limit is tied to total State
revenues for fiscal year ended June 30, 1981, as defined in the Tax Limitation
Amendment, adjusted annually, in accordance with the formula set forth in the
amendment. Under that formula, the revenue limit for any fiscal year equals the
product of the ratio of total state revenues in fiscal year 1981 divided by the
personal income of Missouri in calendar year 1979 multiplied by the personal
income of Missouri in either the calendar year prior to the calendar year in
which appropriations for the fiscal year for which the calculation is being
made, or the average of personal income of Missouri in the previous three
calendar years, whichever is greater. If the revenue limit is exceeded by 1% or
more in any fiscal year, a refund of the excess revenues collected by the State
is required. The details of the amendment are complex and clarification from
subsequent legislation and judicial decision may be necessary. The revenue limit
can be exceeded only if the General Assembly approves by a two-thirds vote of
each house an emergency declaration by the Governor. The State Building Bonds
and the Water Pollution Control Bond proceeds are not subject to the Tax
Limitation Amendment. The revenue limit has not been exceeded in any past year
and current projections indicate the revenue limit will not be exceeded in
Fiscal Year 1994.
Debt obligations of certain State and local agencies, boards and
authorities are not, by the terms of their respective authorizing statutes,
obligations of the State or any political subdivision. The debt obligations of
such issuers are payable only from the revenues generated by the project or
program financed from the proceeds of such debt obligations, or in certain
cases, the limited assets of such issuer.
FACTORS AFFECTING NEW MEXICO FUND
The State of New Mexico, admitted as the forty-seventh state on January 6,
1912, is the fifth largest state, containing approximately 121,365 square miles.
New Mexico's population at the time of the official 1990 United States Census
was 1,515,069. New Mexico's terrain varies widely and incorporates six of the
seven life zones between its northern mountains and its arid southern plains.
New Mexico has a semiarid subtropical climate with light precipitation.
Major industries in New Mexico are energy resources, tourism, services,
arts and crafts, agriculture-agribusiness, government, manufacturing, and
mining. Major federally funded scientific research facilities at Los Alamos,
Albuquerque and White Sands are also a notable part of New Mexico's economy. New
Mexico has a thriving tourist industry.
Agriculture is a major part of New Mexico's economy. As a high relatively
dry region with extensive grasslands, New Mexico is ideal for raising cattle,
sheep, and other livestock. Because of irrigation and a variety of climatic
conditions, the State's farmers are able to produce a diverse assortment of
quality products. New Mexico's major crops are alfalfa, hay, wheat, chile
peppers, cotton, fruits and pecans. Agricultural businesses include chile
canneries, wineries, alfalfa pellets, chemical and fertilizer plants, farm
machinery, feed lots, and commercial slaughter plants.
By statute, the financial affairs of every agency in New Mexico are
thoroughly examined and audited each year by the State Auditor, personnel of his
office designated by him, or by the independent auditors approved by him. The
audits are conducted in accordance with generally accepted auditing standards.
The audit reports are presented on a modified accrual basis of accounting in
accordance with generally accepted accounting principles.
By statute, the Governor is required to submit a budget for the upcoming
fiscal year to the Legislature by the twenty-fifth legislative day. The
Governor's budget includes the executive recommendations for higher education,
public education and State agencies as well as historic information on prior
expenditures and revenues and revenue projections, among other information. The
State budget is contained in a General Appropriation Bill which is first
referred to the House Appropriations and Finance Committee for consideration.
The General Appropriation Act may also contain proposals for supplemental and
deficiency appropriations for the then current fiscal year.
The February 1993 estimate of FY 1993-94 revenue was $2.265 billion. The
1993 Legislature increased revenues by $114 million including $76.5 million of
tax increases, $20 million from elimination of food and medical rebates, and $10
million from de-earmarking. Tax changes included a 6 cents per gallon increase
in gasoline taxes (with 1 cent per gallon to the Road Fund), cigarette and
alcohol tax increases, and a 0.85 percent increase in the emergency school tax
rate on natural gas.
As noted above, economic and revenue growth have been sharply higher than
expected. Based on actual revenues through April 1994, FY94 revenues should
reach approximately $2.56 billion, representing growth of 13 percent. Underlying
revenue growth, exclusive of tax increases is about eight percent. Including
substantial supplemental appropriations enacted by the 1994 legislature, FY 94
recurring appropriations reached $2.40 billion, up 11 percent over FY93.
Spending for Medicaid and other health programs is up 19 percent; spending for
public and higher education is up approximately 8.5 percent. Reflecting the
substantial increase in revenues and reserves, non-recurring appropriations for
FY94, including spending from reserves, totaled $188 million. Most of this was
for capital projects. General Fund balances for FY94 are expected to be
approximately $150 million, or almost 6 percent of FY95 appropriations.
The 1994 legislature cut General Fund revenues for FY95 by almost $60
million by restoring low income/personal income tax rebates, lowering personal
income tax rates, especially for married filers, suspending 2 cents of the
gasoline tax for a 3-year period and diverting the governmental gross receipts
tax to an infrastructure fund. Further personal income tax rate cuts in 1995 and
1996 will reduce personal income tax revenues an additional $30 million by FY97.
The post-session estimate of FY95 revenues (not adjusted for recent strength) is
$2.63 billion. Recurring appropriations for FY95 total $2.605 billion, up 8.6
percent from FY94.
Declines in oil and gas prices and in gas production have contributed to a
major restructuring of New Mexico's tax base by the 1986, 1987, 1988 and 1990
Legislatures. Sales and income taxes were increased to offset declines in
severance tax and royalty revenue.
FACTORS AFFECTING NORTH DAKOTA FUND
GENERAL. North Dakota lies in the central portion of the Northern Plains
with a land area of 70,665 square miles. Elevation in the northeast corner of
the State is 750 feet above sea level and in the southwest corner of the State
is 3,506 feet.
In the east, the Red River Vally is flat with fertile soil, and
particularly suited to agricultural activity. Gently rolling hills characterize
the glaciated plains in the central area of the State and west of this area is
the Missouri Plateau.
With an average growing season of 120 days, relatively low growing season
temperatures and an average growing season rainfall of 13 inches, North Dakota's
climate is particulary conducive to the growing of grains. The premier farming
area is located in the eastern part of the State, gradually displaced by
ranching toward the west.
AGRICULATURE. North Dakota's economy is dependent upon the well-being of
agriculture. Agriculture is the state's chief source of revenue and composes
two-thirdds of the state's economic base (excluding federal activity). Crops
make up two-thirds of the State's annual agricultural productivity; livestock
makes up the rest.
Cash receipts for 1991 from the marketing of crops and livestock in the
State totalled $3.2 billion. Each dollar produced by agriculture turns over an
additional three to four dollars of revenue in the business sector.
Historically, wheat has been the singel most important source of
agricultural income in North Dakota, and accounted for 26% of the total cash
receipts in 1991. Cattle and calves ranked second, contributing 15% of the
total, and barley was third, at 6.5%.
Agricultural exports totalled $704 million in 1991 with wheat and wheat
products accounting for 45% of the total. Feed grains and products were the
second most exported commmodities in the State, followed by sunflower sed and
oil.
North Dakota is considered the most "agriculture dependent" state in the
nation, based on the number of counties where agriculture is a primary industry.
Likewise, agricultural employment in North Dakota is the largest, employing
approximately 31% of the State's work force based on 1991 data.
BUDGET PROCEDURES. The focus of North Dakota's budget format and process is
on programs. The budget includes spending requests for general funds, federal
funds and other state-appropriated revenues. State agencies submit their budget
requests on a biennial basis to the Office of Management and Budget based on
guidelines that are published by the Office of Management and Budget to assist
in preparation. State agencies have complete discretion in the formulation of
their budget requests. The agency director makes the final determination
regarding overall formulation of the budget request. Once the budget request is
submitted to OMB, a budget hearing is held for further clarification of
budgetary data and discussion of outstanding issues and policy.
The Governor presents the executive budget to the Legislative Assembly for
its consideration. The Legislative Assembly then makes changes to the executive
budget in the course of its deliberations.
For the first time in the history of North Dakota the Governor has
presented capital budget recommendations separate from operating budget
recommendations to the 1993 Legislature. Key components in the decision to
prepare a formalized capital budget included statewide concerns of possible
deferred building maintenance and the lack of long-term planning for new
construction. It is anticipated that the development of a formal capital
budgeting system will take a number of years. This step represents the beginning
of that process.
BUDGET STABILIZATION FUND. The Budget Stabilization Fund, created in 1987,
is a special fund in the State Treasury. Effective July 17, 1991, through June
30, 1993, any amount in the State general fund in excess of $111,000,000 at the
end of any biennium must be transferred by the State Treasurer to the Budget
Stabilization Fund, provided that the balance in the Fund may not exceed 5% of
the total of the current general fund biennial budget. If the Director of the
Office of Management and Budget projects that general fund revenues for a
biennium will be at least 2-1/2% less than estimated by the most recently
adjourned special or regular session of the Legislature, and if the Governor
orders a transfer, the State Treasurer shall transfer the appropriate funds from
the Budget Stabilization Fund to the State general fund to offset the decrease
in general fund revenues. The amount transferred may not exceed the difference
between an amount 2-1/2% below the general fund revenue projections for the
biennium of the most recently adjourned special or regular session of the
legislature and the general fund revenue projections for the biennium by the
Director of the Office of Management and Budget, and may be expended within the
limits of legislative guidelines and general fund appropriations of the most
recently adjourned special or regular session of the Legislature. Regardless of
the foregoing limitations, effective July 17, 1991, through June 30, 1993, if
the Governor orders a transfer, the State Treasurer shall transfer any necessary
funds from the Budget Stabilization Fund to the State general fund to offset a
negative balance in the general fund and, upon order of the governor, the State
Treasurer shall return to the Budget Stabilization Fund any transfer or portions
of transfer which may have been made during the current biennium. The North
Dakota combined statement of revenues and expenditures for the fiscal year ended
June 30, 1994 showed total fund revenues of approximately $1.345 billion, total
fund expenditures of approximately $1.224 billion and a remaining fund balance
of approximately $327 million.
FACTORS AFFECTING OREGON FUND
RECENT TRENDS. Oregon's economy has outperformed the nation's economy in
recent years. In every year since 1986, Oregon's employment growth rate has
exceeded the nation's. Between 1987 and 1993, Oregon employment increased by
19.3 percent while U.S. employment grew by 8.1 percent. From 1990 to 1991, total
employment remained relatively flat and the unemployment rate increased in
Oregon, largely the result of rapid immigration. In 1992 employment resumed its
upward trend, growing 1.9 percent for the year, and 2.9 percent for 1993.
With growth has come diversification. Oregon's economy has become less
dependent on the forest products industry and expanded its involvement in high
technology industries. By 1993, 16,400 fewer Oregonians worked in lumber and
products manufacturing than had in 1980. Over the same period, employment in the
high technology sectors of electrical and nonelectrical machinery increased by
more than 10,000. Oregon's other basic industries, agriculture and tourism,
continue to provide strong, diversified support for the State's economy. Despite
these positive developments in employment, population growth, and housing,
Oregon per capita personal income remains at about 92 percent of the national
average.
NONAGRICULTURAL EMPLOYMENT TRENDS. Between 1981 and 1993, total
nonagricultural wage and salary employment in Oregon rose from 1,018,000 to
1,310,000, an increase of 28 percent. During this period, however, employment
exhibited sharply different trends.
Although the severity of the recession eliminated many Oregon jobs, both in
manufacturing (42,800) and nonmanufacturing (52,600), it also caused inflation
and interest rates eventually to drop significantly. This improvement, plus more
stimulative federal monetary and fiscal policies, set the stage for another
period of economic expansion beginning in early 1983. In the ten year period
between 1982 and 1991, Oregon's wage and salary employment increased by 32.1% to
reach 1,268,000, a gain of over 303,000 jobs.
About 93% of the 350,000 new wage and salary jobs added in the 1982-93
period came in nonmanufacturing. Although virtually every nonmanufacturing
industrial category except mining, railroad transportation and communications
increased employment, the service and trade industries accounted for over 70% of
all new nonmanufacturing jobs during the 1982-93 period. Job growth was
especially strong in food stores, eating and drinking places, health care and
business services.
POPULATION. Oregon's July 1, 1993 population was estimated to be 3,038,000
by Portland State University's Center for Population Research and Census, the
State's official bureau for population data. Since 1960, the State's population
has increased by almost 72 percent. Compared to the 1980 federal census,
Oregon's population in 1990, as of the official Census bureau date of April 1,
had grown 7.7 percent.
There are four major urban population areas in Oregon. The City of
Portland, located in Multnomah County, is the State's largest city with a
population of 471,325 as of July 1, 1993. The Vancouver Primary Metropolitan
Statistical Area (PMSA), which is comprised of Clackamas, Columbia, Multnomah,
Washington, Yamhill and Clark (Washington State) counties had a population of
1,647,200 at that time.
BUDGETARY PROCESS. The Oregon budget is approved on a biennial basis by
separate appropriation measures. Although the Governor recommends a budget, no
omnibus budget measure is approved. A biennium begins July 1 and ends June 30 of
odd-numbered years. Measures are passed for the approaching biennium during each
regular Legislative session, held beginning in January of odd-numbered years.
However, the budgeting process begins several months prior to the beginning of a
biennium.
The Governor's budget recommendations to the Legislature must be completed
by early November to meet the December 1, February 1 for a new Governor,
statutory deadline for distribution of printed copies to the Legislature.
Appropriation bills for each agency are prepared separately and filed during
December so that when the Legislature convenes in January the Joint Ways and
Means Committee can begin consideration of each bill. During the 1993
legislative session, each house established its own committee to review and
approve budgets for each state agency rather than using the Joint Ways and Means
Committee.
Serving as staff to the Ways and Means Committee, the Legislative Fiscal
Office analyzes each budget. Public hearings are held by Ways and Means
subcommittees before the recommended budget bills are referred to the full
Legislature for a final vote.
The Governor may veto any bill. The Governor may veto single items in
appropriation bills, and the emergency clause in new bills, without affecting
any other provision in the bill. The Governor's veto may be overridden by a
two-thirds vote of the Legislature.
REVENUE FORECAST. General Fund revenue is projected to total $6,404.5
million for the 1993-95 biennium. The forecast is revised up $71.4 million
relative to the June estimate. Compared to the Close of the 1993 Legislative
Session forecast, the current estimate is greater by $199.0 million or 3.2
percent. The major changes in the current forecast are: $29.2 million increase
in corporate income taxes, $22.3 million increase in gift and inheritance taxes,
$22.1 million increase in personal income taxes, and $9.4 million decrease in
interest earnings.
General Fund revenue is projected to be $6,870.2 million for the 1995-97
biennium. The beginning balance for the biennium is estimated to be $401.5
million. This leads to a total General Fund resources estimate of $7,271.7
million. The September resource estimate exceeds the June forecast by $33.1
million.
The estimate for General Fund resources is higher than the previous
forecast only because the beginning balance is expected to be greater. The
estimate for revenue collected during the 1993-95 biennium is $37.5 million less
than the June forecast. The primary reason for the downward adjustment in
revenue is the new higher estimate for the 2 percent corporate kicker credit.
The higher anticipated credit explains most of the $24.7 million reduction in
the corporate income tax forecast.
FACTORS AFFECTING PUERTO RICO
The Commonwealth of Puerto Rico, the fourth largest of the Caribbean
islands, is located 1,600 miles southeast of New York City. Puerto Rico is
approximately 100 miles long and 35 miles wide, having an area of 3,435 square
miles and a population of approximately 3.8 million people. Its capital, San
Juan, has a population of .5 million. Puerto Rico has been part of the U.S.
since 1898. Under a compact which governs relations between the U.S. and Puerto
Rico, both share a common defense, market, currency and citizenship.
Puerto Rico's economic base remains centered around tax advantages offered
to U.S. manufacturing firms pursuant to Section 936 of the U.S. Internal Revenue
Code. As discussed below, this section allows qualifying U.S. corporations
operating in Puerto Rico exemptions from a portion of U.S. corporate income tax;
however, recently enacted legislation will limit the amount of the exemption
available in 1994 and subsequent years.
The U.S. Congress has been considering legislation that would authorize a
plebiscite for Puerto Rico to determine statehood, independence, or enhanced
commonwealth status. In the event Puerto Rico becomes a state or an independent
country, it would result in the elimination or phaseout of the Section 936 tax
incentives. The plebescite legislation remains stalled in the U.S. Congress.
Before the enactment of the Omnibus Budget Reconciliation Act of 1993
("OBRA"), under Section 936 of the Internal Revenue Code domestic corporations
with a substantial amount of their business operations in Puerto Rico could
elect to claim a "Section 936 credit" that effectively eliminated their U.S.
income tax on income from business operations conducted in Puerto Rico. OBRA has
now limited the amount of the Section 936 credit available to corporations in
1994 and subsequent years. Generally, a corporation may elect between two
alternative limitations on the amount of the credit. The first limitation is
based on the amount of economic activity it conducts in Puerto Rico (measured by
compensation paid there and depreciation claimed on property located and used in
a trade or business there); the second is based on an applicable percentage
(40%, once the limitation is fully phased in by 1998) of the amount of the
credit that would have been available to the corporation under pre-OBRA law. It
is impossible to predict with certainty whether, or to what extent, these
limitations on the Section 936 credit will result in a decrease in the business
operations of U.S. corporations in Puerto Rico.
In August 1983, the United States enacted legislation widely known as the
Caribbean Basin Initiative ("CBI"). CBI, which is designed to encourage economic
development in the Caribbean and Central America, provides for (i) unilateral,
duty-free access to a United States market for Caribbean Basin products, except
for a few selected commodities, for a period of 12 years; (ii) tax deductions
for conventions held in the Caribbean; and (iii) direct economic assistance
payments by the United States. CBI contains a number of measures designed to
maintain the competitive position of Puerto Rico and U.S. insular possessions.
Such measures include, among others, the inclusion in free trade benefits of
products that are processed in part in Puerto Rico, rebates to Puerto Rico of
excise taxes collected on rum imports and the exclusion of processed tuna from
duty-free treatment. The government of Puerto Rico strongly supports the
island's involvement in the CBI, particularly in relation to the development of
twin plants, or complementary projects. Under this program, the labor-intensive
phase of production generally occurs in a Caribbean or Central American country,
while the more sophisticated, higher technology phases take place in Puerto
Rico.
Since the early 1970s, capital-intensive industries have been the primary
force in Puerto Rican development. Pharmaceuticals, machinery and metal products
dominate, followed by food products and apparel. The overall labor force has
grown annually since 1983. The unemployment rate had decreased to 14.4% for
1990. As of June 30, 1990, the total labor force numbered just over one million.
The unemployment rate had decreased to 14.4% for 1990. However, during the
current slowdown of the economy in the mainland, Puerto Rico's level of
unemployment has increased to approximately 16% for 1991.
The principal employment sectors are government at 16.7%, services at 22.6%
and manufacturing at 16.8%. The other major sectors of Puerto Rico's economy are
tourism and agriculture. While tourism registered strong gains during recent
years, it nonetheless accounted for only 6% of gross product in 1988.
Agriculture is a large employer and continues to seek expansion by trying to
grow crops for domestic consumption. Wealth and income ratios remain low in
comparison to the United States despite the low cost of living on the island.
Revenue shortfalls for fiscal 1991 resulted in the institution of a tax
amnesty program, which while successful, represents the usage of a one-time
revenue collection. Operating deficits have occurred in the general fund for the
past two fiscal years and fiscal 1992 is expected to have the same result.
Already the Commonwealth has experienced revenue shortfalls in addition to fines
levied for prison facilities. It is expected that fiscal 1992 will close with an
unreserved general fund balance of $5 million and an additional $27 million in a
special budgetary reserve.
Debt ratios in Puerto Rico are high. Debt policy has sought to keep the
rate of growth of debt at or below that of gross domestic product, although
substantial borrowings and the current economic slowdown mark a departure from
this policy. The net tax-supported debt is $7.79 billion. AS of 1992, the per
capita guaranteed debt burden is high at over $1,000, of which guaranteed and
tax-supported debt will approximate $2,100. Debt service is more manageable
relative to total expenditures at 12% of combined general and debt service fund
expenditures. Currently, Puerto Rico's general obligation debt is rated Baa1 by
Moody's and A by S&P.
FACTORS AFFECTING UTAH FUND
Utah is ranked thirty-fifth in total population with a population of
approximately 1.7 million. The State's economy is highly diversified. The
agricultural and mining sectors have been supplemented by manufacturing,
finance, transportation and tourism. Utah has experienced a job growth of 3% or
better for five consecutive years, while many states in the nation were losing
jobs. Employment in defense-related jobs is expected to be reduced in the coming
years, but strong employment growth in other job sectors will more than absorb
these reductions.
Utah's per capita income is only 75% of the national average due to large
family size, but the median household income is closer to the nation's. The
State had an unrestricted General Fund surplus totaling $11,396,000 at June 30,
1993 of which $9,651,000 was designated for fiscal year 1994 appropriation and
$1,745,000 was unrestricted undesignated surplus. The unrestricted undesignated
surplus was appropriated by the 1994 Legislature for one time projects.
The adopted budget for fiscal 1994 conservatively projects revenue growth
of 4.5%, and expenditure growth of 5.2% in the General and Uniform School Funds
(the primary state taxing and spending funds), including the use of $13 million
in surplus from the prior year. No new taxes are imposed to fund the budget
which incorporates estimates of growth in sales tax of 4.5% and growth in income
tax of 8.0%. Public education and Medicaid account for the largest areas of
increased spending. Public education spending is up 6.4%, and accounts for about
49% of total General and Uniform School Fund spending. Spending for schools is
expected to continue to grow rapidly because Utah has the youngest population in
the nation. During the last decade public education enrollment increased by 25%
and the state projects the school age population to continue to grow at that
rate. State General Fund Medicaid spending is budgeted to grow by 15.7%, with
the state offsetting some of this cost through a temporary assessment on
hospitals, which will generate $34.6 million in matching funds.
Utah is a growing state with natural resources and national defense
important economic influences. While defense-related employment is expected to
be reduced in the coming years, strong employment growth in other job sectors is
more than absorbing these reductions. In the 1980s, economic growth slowed, as
mining and construction sectors were weak, partly offset by gains in services.
The Mormon Church represents a source of economic stability.
Utah has weathered the current national recession well, experiencing annual
job growth of 3% or better for five consecutive years, while many states in the
nation were losing jobs. The Rocky Mountain states have generally performed
better than the nation in the recession, with personal income growth exceeding
the U.S. rate from 1988 through 1992. Utah has out-performed the Rocky Mountain
region in this period. Unemployment fell from 5.0% at the beginning of the year
to 3.0% at year's end. The latter is a fifteen year low. The 4.0% average
unemployment rate for the year is a reduction from the 4.9% average of 1992. The
State unemployment rate was among the lowest in the nation for 1993, and nearly
three full points below the national average of 6.8% for the year.
The State's personal income grew by 6.7% in calendar year 1993. This rate
of growth exceeds that of the nation at 4.7% but does not match the growth rate
of 7.6% of the Rocky Mountain Region (i.e., Utah, Colorado, Idaho, Montana, and
Wyoming).
Utah continues to grow in population, but its high rate of internal
population growth has been partially offset by a net migration of people out of
the state. In 1991, this trend reversed, with the State experiencing a
substantial net in-migration of 19,000, the first since 1983. In 1992, the State
again had a substantial in-migration of over 19,000. Utah has become attractive
for new and expanding businesses in manufacturing, high technology and
information processing. A relatively low wage rate is one factor in attracting
businesses to Utah; the average annual wages in 1990 were 85% of the national
average. Utah, while still growing, has felt some of the effects of the national
recession. Personal income growth has slowed from a peak of 9.3% in 1990 to a
current rate of 7.3% in 1992, still well above the national rate of 5.1%. The
State anticipates a defense job loss of 3,000 to 6,000 per year over the next
three years; however, these losses amount to only about 1.5% of total non-farm
employment. Defense jobs currently account for 8% of employment and are
projected to drop to 6%. Strong employment growth in other job sectors is
expected to absorb defense-related job losses.
Utah significantly increased its borrowing in the 1980s, but has offset
this by rapid payout of new debt. Bond life is short, with debt service claiming
a moderate proportion of governmental revenues, currently 3.3%.
FACTORS AFFECTING WASHINGTON FUND
The State experienced an increase in population between 1980 and 1990. The
1990 U.S. census count is 4,866,700 or 17.8% more than the 4,132,400 counted in
1980. In contrast, the total United States population increased by approximately
9.8% over the same period. State residents increased by one quarter million
since 1990. The State's population reached an estimated 5,334,400 in September
1994, with an annual growth rate of more than 2% despite slower economic growth
since 1990.
The capital of Washington is Olympia; the State's largest city is Seattle.
Seattle is situated on the Puget Sound and is part of the strong international
trade, manufacturing, high technology, and business service corridor which
extends from Everett to Tacoma. The Pacific Coast-Puget Sound region of the
State includes 75% of the population, the major portion of industrial activity
and the major part of the State's forests which are important to the timber and
paper industries. The balance of the State includes rich agricultural areas
primarily devoted to grain, apple and other fruit orchards, and dairy
operations.
WASHINGTON'S ECONOMY. The economic base of the State includes manufacturing
and service industries as well as agricultural and timber production. Overall,
during 1987 through 1993, employment within the State experienced growth in
manufacturing as well as non-manufacturing industries. Sectors in which growth
has exceeded comparable figures reported for the United States include durable
and non-durable goods manufacturing, services and government. The Boeing
Company, the State's largest employer, is preeminent in aircraft manufacture.
Boeing exerts a significant impact on overall State production, employment and
labor earnings.
The State's leading export industries are aerospace, forest products,
agriculture and food processing. On a combined basis, the aerospace, timber and
food processing industries employ about 9% of the State's non-farm workers. The
State ranks fourth among 12 leading states in the percentage of its work force
employed in technology-related industries and ranks third among the largest
software development centers. The State is the home of approximately 1000
advanced technology firms.
Real GDP grew by 3.7% in the second quarter of 1994 although most of the
growth resulted of a surge in inventories. The forecast expects more moderate
growth in the second half of 1994 and 1995. Residential construction is expected
to decline in the second half of this year and investment in producers' durable
equipment should grow more slowly. Federal government fiscal restraint and the
foreign sector will continue to dampen the recovery. More moderate growth in the
second half of 1994 and early 1995 are expected to convince the Federal Reserve
Board that its efforts to restrain the economy were successful, allowing it to
ease interest rates in 1995. The forecast calls for real GDP to grow 3.6% in
1994 slowing to 2.5% in 1995. Growth is expected to accelerate to 2.8% in 1996
and 2.7% in 1997, however. The implicit price deflator for personal consumption
expenditures is expected to rise only 2.2% in 1994 but to accelerate to 2.9% in
1995, 3.1% in 1996, and 3.2% in 1997.
The Washington economy is expected to continue to grow during 1994 and
1995, spurred by the U.S. recovery and continued strong population growth.
Declines in aerospace employment in 1994 and a correction in construction
employment in 1995 will hold growth below the national average, however. Total
nonfarm employment growth is expected to increase to 2.1% in 1994 and 1.7% in
1995 from 1.4% in 1994. Real personal income, which rose 1.9% in 1993, is
expected to increase 2.8% in 1994 and 2.5% in 1995. The September 1994 General
Fund- State revenue forecast for the 1993-95 Biennium is $16.396 billion (GAAP
basis), an increase of $62 million over the June forecast.
For the 1993-95 Biennium, General Fund-State revenues are projected to be
$16.396 billion, an increase of 10.3% over the 1991-93 Biennium, plus a
carry-forward of $234 million. Since passage of the 1994 Supplemental budget,
estimates of General Fund-State revenue collections have increased in two
successive forecasts. Revenues are expected to be $114 million higher than
expected at the time of enactment of the 1994 Supplemental. The outlook for the
remainder of the biennium is unchanged.
The State Legislature passed a 1993-95 Biennium Budget on May 6, 1993, and
the Governor signed the budget bill on May 28, 1993. This budget contains $650
million in general tax increases, $163 million in other revenues, $700 million
in program and administrative reductions, and $622 million in funds shifts (such
as to federal funding sources). The 1994 Supplemental Operating Budget passed
the State legislature on March 14, 1994, and the Governor signed the
Supplemental budget bill on April 6, 1994. The Supplemental budget includes $48
million in tax cuts, an $11 million revenue increase from a variety of sources
and $168 million in additional expenditures, many of which represent one time
investments.
REVENUES. General and selective sales and gross receipts taxes accounted
for approximately 77.4% of total State tax revenues for the fiscal year ending
June 30, 1992. The State property tax levy represented approximately 10.1% of
all State tax revenues for fiscal year 1992. The Washington State Constitution,
as interpreted by the Washington State Supreme Court, prohibits the imposition
of net income taxes.
BUDGETING. Washington operates on a July 1 to June 30 fiscal year and on a
biennial budget basis, the constitutionally prescribed fiscal period. Washington
State law requires a balanced biennial budget. Furthermore, whenever it appears
that disbursements will exceed the aggregate of estimated receipts plus
beginning cash surplus, the Governor is required to reduce allotments, thereby
reducing expenditures of appropriated funds. To assist in its financial
planning, Washington prepares quarterly econometric forecasts which are derived
from national econometric models.
FACTORS AFFECTING WISCONSIN FUND
Wisconsin's economy, although fairly diverse, is primarily concentrated in
the manufacture of durable goods (accounting for 25% of its employment) and
secondarily in agriculture and tourism. Wisconsin escaped the worst of the
national recession and has continued to outperform the national economy. The
state's unemployment rate has been below the national average for the past five
years.
The State has a diverse revenue-raising structure. Approximately 37% of the
total revenue is derived from the various taxes levied by the State. The
remainder comes from the federal government and from various kinds of fees,
licenses, permits and service charges paid by users of specific services,
privileges or facilities. The State's tax structure has a diverse underlying
base consisting of income, general and special product sales, transfer of wealth
and property value. About one-third of all taxes collected by the State are
returned to local units of government. The remaining funds are used for State
programs.
On April 25, 1994 the Governor signed into law a budget adjustment bill for
the 1993-94 and 1994-95 fiscal years. For the fiscal year ending June 30, 1994,
the budget, as adjusted, on an all-funds basis projects a surplus of $233
million. Total available revenues are estimated to be $18.260 billion consisting
of (i) a beginning balance of $168 million, (ii) tax revenues of $7.305 billion
and (iii) nontax revenues of $10.787 billion. Total disbursements and reserves
are estimated to be $18.100 billion, consisting of net disbursements of $17,968
billion and reserves of $132 million. This results in an estimated balance of
$160 million which, when combined with the statutorily required balance of $723
million, results in a surplus at June 30, 1994 of $233 million.
The projected general-fund surplus for June 30, 1994 is the same as the
all-funds surplus, $233 million. Total available revenues are estimated to be
$12.843 billion consisting of (i) a beginning balance of $168 million, (ii) tax
revenues of $7.305 billion and (iii) nontax revenues of $5.370 billion. Total
disbursements and reserves are estimated to be $12.683 billion, consisting of
net disbursements of $12.551 billion and reserves of $132 million. The surplus
is identical to the all-funds amount.
For the fiscal year ending June 30, 1995, the budget, as adjusted, on an
all-funds basis projects a surplus of $105 million. Total available revenues are
estimated to be $19.161 billion consisting of (i) a beginning balance of $233
million, (ii) tax revenues of $7.700 billion and (iii) nontax revenues of
$11.228 billion. Total disbursements and reserves are estimated to be $19.134
billion, consisting of net disbursements of $18.929 billion and reserves of $205
million. This results in an estimated balance of $27 million which, when
combined with the statutorily required balance of $78 million, results in a
surplus at June 30, 1995 of $105 million.
The projected general-fund surplus for June 30, 1995 is the same as the
all-funds surplus, $105 million. Total available revenues are estimated to be
$13.500 billion consisting of (i) a beginning balance of $233 million, (ii) tax
revenues of $7.700 billion and (iii) nontax revenues of $5.567 billion. Total
disbursements and reserves are estimated to be $13.473 billion, consisting of
net disbursements of $13.268 billion and reserves of $205 million. The surplus
is identical to the all-funds amount.
Since adoption of the budget adjustment bill, additional legislation has
been signed providing for net additional spending of approximately $10.4
million, principally in the 1994-95 fiscal year. As a result the June 30, 1995
balance has been reduced to approximately $94.6 million.
On May 15, 1990 the Wisconsin Supreme Court declared unconstitutional a
sales tax imposed by the State on access services in connection with telephone
service provided between local access and transfer areas. Based on the decision,
payers of the invalidated tax may file a claim for refund. The State has one
year from the date of filing to review the claim. It is estimated that refunds
could be made in an aggregate amount up to $90 million. Legislation reducing
taxation on telephone companies has been enacted. Based on negotiations with the
telephone companies, it is the intention that the full and complete
implementation of the legislation in 1997 will constitute the refund of taxes
that could be claimed. The 1992-93 budget does not provide for the payment of
the claims.
The projections of total State disbursements for the 1992-93 fiscal year is
based on assumptions relating to economic and demographic factors, desired
levels of services, and the success of expenditure control mechanisms applied by
the Secretary of Administration pursuant to statutory authority in controlling
disbursements for State operations. Factors that may affect the level of
disbursements in the 1992-93 fiscal year and make the projected levels difficult
to maintain include uncertainties relating to the economy of the nation and the
State.
The State may increase appropriations from or reduce taxes below the levels
established in its budget. In recent past years, including the current fiscal
year, the State has adopted appropriation measures subsequent to passage of the
budget act. However, it has been the State's policy that supplemental
appropriations adopted by the Legislature will be within revenue projections for
that fiscal period or balanced by reductions in other appropriations. Thus,
spending from additional appropriations has been matched by reduced
disbursements, increased revenues or a combination of both.
The Dane County Circuit Court has specified the remedies resulting from its
1991 decision regarding the source of payment for certain additional pension
amounts. One part of the remedy requires a lump-sum payment from the General
Fund to the Employee Trust Fund to be made by August 1994. The payment is
estimated to be $95.3 million. In addition, the State is expected to incur other
costs of about $0.5 million to implement the remedy and an amount yet to be
determined to pay plaintiffs' attorneys fees. The monetary remedy has been
stayed by the Dane County Circuit Court pending entry of a final, nonappealable
judgment. All parties have filed appeals or cross-appeals. It is possible that
the amount of the remedy may be increased or decreased, perhaps substantially,
or eliminated. The 1994-95 budget does not specifically provide for this
payment, although a portion of the amounts budgeted for compensation/litigation
reserves could be applied to the payment of this, and other, claims. The 1993-
94 budget allocates $59 million and the 1994-95 budget allocates $120 million
for compensation/litigation reserves, however, no representation is made as to
the adequacy of the compensation/litigation reserves to make this payment.
No legislation directly or indirectly affecting general purpose revenue
(tax revenue and departmental revenue) of the General Fund may be enacted if the
bill would cause the estimated General Fund balance on June 30 of the fiscal
year to be less than the required statutory reserve. The State began the 1992-93
fiscal year with a balance of less than 1% of the general purpose revenue
appropriations due to a circuit court decision enjoining the use of state
lottery fund moneys for general school equalization aids. General purpose
revenue appropriation legislation for the 1992-93 fiscal year will have to take
into consideration the fact that the balance is below the statutory requirement.
The State has experienced and expects to continue to experience certain
periods when the General Fund is in a negative cash position. State statutes
provide certain administrative remedies to deal with these periods. The
Secretary of Administration may temporarily reallocate up to $400 million of
available cash in other funds to the General Fund. The Secretary of
Administration may set priorities for payments from the General Fund as well as
prorate certain payments. State statutes provide that all payments shall be in
accordance with the following order of preference: (1) all direct and indirect
payments of principal and interest on State general obligation debt have first
priority and may not be prorated or reduced; (2) all direct and indirect
payments of principal and interest on operating notes have second priority and
may not be prorated or reduced; (3) all State employee payrolls have third
priority and may be prorated or reduced; and (4) all other payments shall be
paid in a priority determined by the Secretary of Administration and may be
prorated or reduced.
INSURANCE
Voyageur anticipates that substantially all of the insured Tax-Exempt
Obligations in each Insured Fund's investment portfolio will be covered by
either Primary Insurance or Secondary Market Insurance. However, as a
non-fundamental policy, the Insured Tax Free Funds must obtain Portfolio
Insurance on all Tax-Exempt Obligations requiring insurance that are not covered
by either Primary Insurance or Secondary Market Insurance. Both Primary
Insurance and Secondary Market Insurance are non-cancellable and continue in
force so long as the insured security is outstanding and the respective insurer
remains in business. Premiums for Portfolio Insurance, if any, would be paid
from Fund assets and would reduce the current yield on its investment portfolio
by the amount of such premiums.
Because Portfolio Insurance coverage terminates upon the sale of an insured
security from a Fund's portfolio, such insurance does not have an effect on the
resale value of the security. Therefore, unless a Fund elects to purchase
Secondary Market Insurance with respect to such securities or such securities
are already covered by Primary Insurance, it generally will retain any such
securities insured by Portfolio Insurance which are in default or in significant
risk of default, and will place a value on the insurance equal to the difference
between the market value of the defaulted security and the market value of
similar securities which are not in default.
The Insured Tax Free Funds are authorized to obtain Portfolio Insurance
from insurers that have obtained a claims-paying ability rating of "AAA" from
S&P or "Aaa" (or a short-term rating of "MIG-1") from Moody's, including AMBAC
Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ("FGIC") and Financial Security
Assurance, Inc. ("FSA").
A Moody's insurance claims-paying ability rating is an opinion of the
ability of an insurance company to repay punctually senior policyholder
obligations and claims. An insurer with an insurance claims-paying ability
rating of Aaa is adjudged by Moody's to be of the best quality. In the opinion
of Moody's, the policy obligations of an insurance company with an insurance
claims-paying ability rating of Aaa carry the smallest degree of credit risk
and, while the financial strength of these companies is likely to change, such
changes as can be visualized are most unlikely to impair the company's
fundamentally strong position. An S&P insurance claims-paying ability rating is
an assessment of an operating insurance company's financial capacity to meet
obligations under an insurance policy in accordance with its terms. An insurer
with an insurance claims-paying ability rating of AAA has the highest rating
assigned by S&P. The capacity of an insurer so rated to honor insurance
contracts is adjudged by S&P to be extremely strong and highly likely to remain
so over a long period of time.
An insurance claims-paying ability rating by Moody's or S&P does not
constitute an opinion on any specific insurance contract in that such an opinion
can only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or cancellation penalties or the timeliness of
payment; nor does it address the ability of a company to meet non-policy
obligations (i.e., debt contracts).
The assignment of ratings by Moody's or S&P to debt issues that are fully
or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of insurance claims-paying ability
ratings. The likelihood of a timely flow of funds from the insurer to the
trustee for the bondholders is a likely element in the rating determination for
such debt issues.
Each of AMBAC, MBIA, FGIC, and FSA has a insurance claims-paying ability
rating of Aaa from Moody's and AAA from S&P.
AMBAC has received a letter ruling from the Internal Revenue Service which
holds in effect that insurance proceeds representing maturing interest on
defaulted municipal obligations paid by AMBAC to municipal bond funds
substantially similar to the Insured Tax Free Funds, under policy provisions
substantially identical to those contained in its municipal bond insurance
policy, will excludable from federal gross income under Section 103(a) of the
Internal Revenue Code.
As of June 30, 1994, the total admitted assets (unaudited) of AMBAC were
approximately $2.060 billion with statutory capital (unaudited) of approximately
$1.178 billion. Statutory capital consists of the AMBAC's statutory contingency
reserve and policyholders' surplus.
As of June 30, 1994, the total admitted assets (unaudited) of MBIA were
approximately $3.3 billion with total liabilities (unaudited) of approximately
$2.2 billion and total capital and surplus (unaudited) of approximately $1.1
billion.
As of September 30, 1993, the total capital and surplus of FGIC was
approximately $744.7 million.
As of June 30, 1994, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of FSA and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $475.8 million (unaudited) and $232.9 million
(unaudited), and the total shareholders' equity and the total unearned premium
reserve, respectively, of FSA and its consolidated subsidiaries were, in
accordance with generally accepted accounting principles, approximately $530.0
million (unaudited) and $206.0 million (unaudited).
None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has any
material business relationship, direct or indirect, with the Funds.
AMBAC, MBIA, FGIC and FSA are subject to regulation by the department of
insurance in each state in which they are qualified to do business. Such
regulation however, is not a guarantee that any of AMBAC, MBIA, FGIC and FSA
will be able to perform on its contractual insurance in the event a claim should
be made thereunder at some time in the future.
The information relating to AMBAC, MBIA, FGIC and FSA set forth above,
including the financial information, has been furnished by such corporations or
has been obtained from publicly available sources. Financial information with
respect to AMBAC, MBIA, FGIC and FSA appears in reports filed by AMBAC, MBIA,
FGIC and FSA with insurance regulatory authorities and is subject to audit and
review by such authorities. No representation is made herein as to the accuracy
or adequacy of such information with respect to AMBAC, MBIA, FGIC and FSA or as
to the absence of material adverse changes in such information subsequent to the
date thereof.
BOARD MEMBERS AND EXECUTIVE OFFICERS OF THE FUNDS
The Board members and officers of the Funds, their position with the
Funds and their principal occupations during the past five years are set forth
below. In addition to the occupations set forth below, the Directors and
officers also serve as directors and trustees or officers of various other
closed-end and open-end investment companies managed by Voyageur.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS, AND AGE POSITION PAST FIVE YEARS AND OTHER AFFILIATIONS
- ---------------------- -------- --------------------------------------
<S> <C> <C>
John G. Taft, 40 President President of Voyageur and of Voyageur Fund Distributors,
90 South Seventh Street (Executive Inc. ("the Underwriter ") since 1991; Director of Voyageur
Suite 4400 Vice and the Underwriter since 1993; Management Committee member
Minneapolis, Minnesota 55402 President - of Voyageur from 1991 to 1993; previously, Managing Director
Colorado at Piper, Jaffray & Hopwood Incorporated from 1986 to 1991.
Fund
only)
Andrew M. McCullagh, Jr., 46 Vice Director of Voyageur and the Underwriter since 1993;
717 Seventeenth Street President Executive Vice President of Voyageur since 1990; Executive
Denver, Colorado 80202 (President - Vice President of Colorado Funds Management Group, Inc. from
Executive Colorado Tax 1987 to 1990.
Free Fund
only)
Kenneth R. Larsen, 32 Treasurer Chief Financial Officer of Voyageur since 1990; Director of
90 South Seventh Street Voyageur and the Underwriter since 1993; Secretary and
Suite 4400 Treasurer of Voyageur and the Underwriter from 1990 to 1993.
Minneapolis, Minnesota 55402
Thomas J. Abood, 31 Secretary Vice President and General Counsel of Voyageur and Voyageur
90 South Seventh Street Companies, Inc. since October 1994; associated with the law
Suite 4400 firm of Skadden, Arps, Slate, Meagher & Flom, Chicago,
Minneapolis, Minnesota 55402 Illinois from September 1988 to October 1994.
Clarence G. Frame, 76 Board member Of counsel, Briggs & Morgan law firm.
W-875
First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
Richard F. McNamara, 61 Board member Chief Executive Officer of Activar, Inc., a
7808 Creekridge Circle Minneapolis-based holding company consisting of seventeen
Minneapolis, Minnesota 55439 companies in industrial plastics, sheet metal, automotive
aftermarket, consturction supply, electronics and financial
services, since 1966.
Thomas F. Madison*, 58 Board member Vice Chairman-Office of the CEO, Minnesota Mutual Life
200 South Fifth Street Insurance Company since February 1994; President and CEO of
Suite 2100 MLM Partners, Inc. since January 1993; previously, President
Minneapolis, Minnesota 55402 of U.S. WEST Communications-Markets from 1988 to 1993; Mr.
Madison currently serves on the board of directors of
Minnesota Mutual Life Insurance Company, Valmont Industries,
Inc., Eltrax Systems, Inc. and various civic and educational
organizations.
James W. Nelson, 52 Board member Chairman and Chief Executive Officer of Eberhardt Holding
81 South Ninth Street Company and its subsidiaries since 1990; prior to which he
Suite 400 had been President since 1976.
Minneapolis, Minnesota 55440
Robert J. Odegard, 73 Board member Special Assistant to the President of the University of
University of Minnesota Minnesota from August 1984 to April 1989 and from May 1990
Foundation to present; Associate Vice President for Alumni Relations
1300 South Second Street and Development of the University of Minnesota from 1970 to
Minneapolis, Minnesota 55454 August 1984 and from April 1989 to May 1990.
Jane M. Wyatt, 40 Executive Director and Chief Investment Officer of Voyageur since
90 South Seventh Street Vice 1993; Director of the Underwriter since 1993; Executive Vice
Suite 4400 President President and Portfolio Manager of Voyageur from 1992 to
Minneapolis, Minnesota 55402 1993; Vice President and Portfolio Manager from 1989 to
1992.
Elizabeth H. Howell, 32 Vice Vice President of Voyageur and Senior Tax Exempt Portfolio
90 South Seventh Street President Manager; previously, portfolio manager for Windsor Financial
Suite 4400 Group, Minneapolis, from 1988 to 1991.
Minneapolis, Minnesota 55402
James C. King, 54 Vice Director of Voyageur and the Underwriter since 1993;
90 South Seventh Street President Executive Vice President and Senior Equity Portfolio Manager
Suite 4400 of Voyageur since 1990.
Minneapolis, Minnesota 55402
Richard Vandenberg, 45 Vice Executive Vice President of Voyageur since 1994; Portfolio
90 South Seventh Street President Manager of Voyageur since October 1992; previously,
Suite 4400 Proprietary Trader with Norwest Bank from March 1992 to
Minneapolis, Minnesota 55402 October 1992; President of Ravan Corporation, a commodity
trading adviser in Excelsior, Minnesota, from 1990 to March
1992.
</TABLE>
_________________________________
*"Interested person" of the Funds as such term is defined in the 1940 Act.
The Funds do not compensate their officers. Each director or trustee (who
is not an employee of Voyageur or any of its affiliates) received a total annual
fee of $24,000 for serving as a director or trustee for each of the open-end and
closed-end investment companies (the "Fund Complex") for which Voyageur acts as
investment adviser, plus a $500 fee for each special in-person meeting attended
by such director. These fees are allocated among each series or fund in the Fund
Complex based on the relative average net asset value of each series or fund.
Currently the Fund Complex consists of ten open-end investment companies
comprising 38 series or funds and six closed-end investment companies. In
addition, each director or trustee who is not an employee of Voyageur or any of
its affiliates is reimbursed for expenses incurred in connection with attending
meetings. For the fiscal year ended December 31, 1994, the Fund Complex paid
total compensation of $22,500 to each of Messrs. Frame, McNamara, Nelson and
Odegaard and $16,000 to Mr. Madison. Mr. Harley Danforth received $22,500 for
service as a director/trustee through the fiscal year ended December 31, 1994.
Mr. Danforth has resigned as a member of the Board of the Funds, but has been
retained as a consultant by the Funds for the period ending January 1996. He
will receive $20,000 for his services as a consultant.
THE INVESTMENT ADVISER AND UNDERWRITER
Voyageur Fund Managers, Inc., a Minnesota corporation ( "Voyageur"), has
been retained under an investment advisory agreement (the "Advisory Agreement")
to act as each Fund's investment adviser, subject to the authority of the Board
of each Fund. Voyageur and the Underwriter are each indirect wholly-owned
subsidiaries of Dougherty Dawkins, Inc. ("Dougherty Dawkins"), which is owned
50% by Michael E. Dougherty and 50% by Pohlad Companies. Mr. Dougherty
co-founded the predecessor of Dougherty Dawkins in 1977 and has served as
Dougherty Dawkins' Chairman of the Board and Chief Executive Officer since
inception. Pohlad Companies is a holding company owned in equal parts by each of
James O. Pohlad, Robert C. Pohlad and William M. Pohlad. Certain key employees
of Dougherty Dawkins and its subsidiaries and an employee benefit plan
benefitting the employees of such companies have been offered the opportunity to
purchase voting common shares of Dougherty Dawkins through stock options granted
with respect thereto, with the shareholdings of Pohlad Companies and Mr.
Dougherty each to be diluted proportionately by any such purchases. Following
any such purchases, Mr. Dougherty and Pohlad Companies would each continue to
own greater than 25% of the outstanding voting common shares of Dougherty
Dawkins, and no other person or entity would own greater than 25% of such
shares. The principal executive offices of Voyageur are located at 90 South
Seventh Street, Suite 4400, Minneapolis, Minnesota 55402.
Voyageur Fund Distributors, Inc. (the "Underwriter") is the principal
distributor of the Funds' shares. With regard to the Underwriter, Mr. Taft is
the President and a director, Mr. Abood is Vice President and General Counsel,
and Mr. McCullagh, Ms. Wyatt, and Mr. Larsen are each a director.
INVESTMENT ADVISORY AGREEMENTS
The Funds do not maintain their own research departments. The Funds have
contracted with Voyageur for investment advice and management. Pursuant to an
Investment Advisory Agreement, Voyageur has the sole and exclusive
responsibility for the management of each Fund's portfolio and the making and
execution of all investment decisions for each Fund subject to the objectives
and investment policies and restrictions of each Fund and subject to the
supervision of each Fund's Board of Directors. Voyageur also furnishes, at its
own expense, office facilities, equipment and personnel for servicing the
investments of each Fund. Voyageur has agreed to arrange for officers and
employees of Voyageur to serve without compensation from the Funds as directors,
officers or employees of each Fund if duly elected to such positions by the
shareholders or directors of the Funds.
As compensation for Voyageur's services, each Fund is obligated to pay to
Voyageur a monthly investment advisory and management fee equivalent on an
annual basis to .50 of 1% (.40 of 1% for the Limited Term Tax Free Funds) of its
average daily net assets, respectively. The fee is based on the average daily
value of each Fund's net assets at the close of each business day.
The Investment Advisory Agreement on behalf of each Fund continues from
year to year only if approved annually (a) by the Fund's Board or by vote of a
majority of the outstanding voting securities of the Fund and (b) by vote of a
majority of board members of the Fund who are not parties to such Investment
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting of the Board called for the purpose of
voting on such approval. The Investment Advisory Agreement on behalf of each
Fund may be terminated by either party on 60 days' notice to the other party and
terminates automatically upon its assignment. The Investment Advisory Agreement
also provides that amendments to the Agreement may be affected if approved by
the Board (including a majority of the directors who are not interested persons
of Voyageur or the Fund), unless the 1940 Act requires that any such amendment
must be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board of Directors
(unless the 1940 Act otherwise requires shareholder approval).
ADMINISTRATIVE SERVICES AGREEMENTS
Voyageur also acts as each Fund's dividend disbursing, transfer,
administrative and accounting services agent pursuant to an Administrative
Services Agreement. Pursuant to the Administrative Services Agreements, Voyageur
provides each Fund all dividend disbursing, transfer agency, administrative and
accounting services required by such Fund including, without limitation, the
following: (i) the calculation of net asset value per share (including the
pricing of each Fund's portfolio of securities) at such times and in such manner
as is specified in the Fund's current Prospectus and Statement of Additional
Information, (ii) upon the receipt of funds for the purchase of the Fund's
shares or the receipt of redemption requests with respect to the Fund's shares
outstanding, the calculation of the number of shares to be purchased or
redeemed, respectively, (iii) upon the Fund's distribution of dividends, the
calculation of the amount of such dividends to be received per share, the
calculation of the number of additional shares of the Fund to be received by
each shareholder of the Fund (other than any shareholder who has elected to
receive such dividends in cash) and the mailing of payments with respect to such
dividends to shareholders who have elected to receive such dividends in cash,
(iv) the provision of transfer agency services, (v) the creation and maintenance
of such records relating to the business of the Fund as the Fund may from time
to time reasonably request, (vi) the preparation of tax forms, reports, notices,
proxy statements, proxies and other shareholder communications, and the mailing
thereof to shareholders of the Fund, and (vii) the provision of such other
dividend disbursing, transfer agency, administrative and accounting services as
the Fund and Voyageur may from time to time agree upon. Pursuant to each
Administrative Services Agreement, Voyageur also provides such regulatory,
reporting and compliance related services and tasks as the Funds may reasonably
request.
As compensation for these services, each Fund pays Voyageur a monthly fee
based upon each Fund's average daily net assets and the number of shareholder
accounts then existing. This fee is equal to the sum of (i) $1.33 per
shareholder account per month, (ii) $1,000 per month if the Fund's average daily
net assets do not exceed $50 million, $1,250 per month if the Fund's average
daily net assets are greater than $50 million but do not exceed $100 million,
and $1,500 per month if the Fund's average daily net assets exceed $100 million,
(iii) with respect to each of Colorado Tax Free Fund, Minnesota Tax Free Fund,
Minnesota Insured Tax Free Fund, Minnesota Limited Term Tax Free Fund, Florida
Limited Term Tax Free Fund, Iowa Tax Free Fund, Idaho Tax Free Fund, and
Wisconsin Tax Free Fund; 0.11% per annum of the first $20 million of the Fund's
average daily net assets, 0.06% per annum of the next $20 million of the Fund's
average daily net assets, 0.035% per annum of the next $60 million of the Fund's
average daily net assets, 0.03% per annum of the next $400 million of the Fund's
average daily net assets and 0.02% per annum of the Fund's average daily net
assets in excess of $500 million and (iv) with respect to each of Arizona
Limited Term Tax Free Fund, Arizona Tax Free Fund, Arizona Insured Tax Free
Fund, California Limited Term Tax Free Fund, California Tax Free Fund,
California Insured Tax Free Fund, Colorado Limited Term Tax Free Fund, Colorado
Insured Tax Free Fund, Florida Tax Free Fund, Florida Insured Tax Free Fund,
Kansas Tax Free Fund, Missouri Insured Tax Free Fund, New Mexico Tax Free Fund,
Oregon Insured Tax Free Fund, Utah Tax Free Fund, Washington Insured Tax Free
Fund, National Limited Term Fund, National Tax Free Fund, National Insured Tax
Free Fund and North Dakota Tax Free Fund, 0.11% per annum of the first $50
million of the Fund's average daily net assets, 0.06% per annum of the next $100
million of the Fund's average daily net assets, 0.035% per annum of the next
$250 million of the Fund's average daily net assets, 0.03% per annum of the next
$300 million of the Fund's average daily net assets and 0.02% per annum of the
Fund's average daily net assets in excess of $700 million. For purposes of
calculating average daily net assets, as such term is used in the Administrative
Services Agreements, each Fund's net assets equal its total assets minus its
total liabilities. Each Fund also reimburses Voyageur for its out-of-pocket
expenses in connection with Voyageur's provision of services under the Fund's
Administrative Services Agreement.
Each Administrative Services Agreement is renewable from year to year if
the directors approve it in the same way they approve the Investment Advisory
Agreements. The Administrative Services Agreements can be terminated by either
party on 60 days' notice to the other party and the Agreements terminate
automatically upon their assignment. The Administrative Services Agreements also
provide that amendments to the Agreement may be effected if approved by the
Board (including a majority of the board members who are not interested persons
of Voyageur or the Fund), unless the 1940 Act requires that any such amendment
must be submitted for approval by the Fund's shareholders and that all proposed
assignments of such agreement are subject to approval by the Board (unless the
1940 Act otherwise requires shareholder approval thereof).
EXPENSES OF THE FUNDS
Voyageur is contractually obligated to pay the operating expenses of each
Fund (excluding interest, taxes, brokerage fees and commissions, Rule 12b-1
fees, if any, and, with respect to the Insured Funds, insurance premiums on
portfolio securities) which exceed 1% of the Fund's average daily net assets on
an annual basis up to the amount of the investment advisory and management fee,
and, with respect to the Insured Tax Free Funds up to the combined amount of the
investment advisory and management fee and the dividend disbursing,
administrative and accounting services fee. In addition, Voyageur reserves the
right to voluntarily waive its fees in whole or part and to voluntarily absorb
certain other of the Funds' expenses. Any such waiver or absorption, however, is
in Voyageur's sole discretion and may be lifted or reinstated at any time. In
order to comply with requirements of California law, the California Funds and
National Funds have undertaken to limit expenses in certain circumstances such
that aggregate annual expenses will not exceed 2-1/2% of the first $30 million
of the average net assets, 2% of the next $70 million of the average net assets
and 1-1/2% of the remaining average net assets for any fiscal year. Set forth
below is certain information regarding the investment advisory and
administrative services fees paid by each Fund to Voyageur during the indicated
fiscal periods.
<TABLE>
<CAPTION>
ARIZONA INSURED TAX FREE FUND
-----------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 $1,298,673 $ 289,690 $ 0
1/1/93-12/31/93 $ 990,603 $ 291,426 $ 389,913
1/1/92-12/31/92 $ 412,371 $ 116,329 $ 463,500
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA INSURED TAX FREE FUND
--------------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94(1) $ 23,717 $ 9,550 $ 33,267
11/1/93-10/31/94 $ 111,570 $ 52,328 $ 163,898
11/1/92-10/31/93 $ 28,388 $ 24,463 $ 52,851
11/1/91-10/31/92 $ 202 $ 0 $ 202
</TABLE>
<TABLE>
<CAPTION>
COLORADO TAX FREE FUND
----------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 $ 2,039,009 $ 409,511 None
1/1/93-12/31/93 $ 1,539,825 $ 344,565 None
1/1/92-12/31/92 $ 742,409 $ 142,698 None
</TABLE>
<TABLE>
<CAPTION>
FLORIDA LIMITED TERM TAX FREE FUND
----------------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 (3) $956 $11,264 $12,220
</TABLE>
<TABLE>
<CAPTION>
FLORIDA INSURED TAX FREE FUND
-----------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/93 (1) $ 204,833 $ 76,709 $ 250,000
11/1/93-10/31/94 $1,481,786 $350,992 $ 805,000
11/1/92-10/31/93 $ 794,887 $261,534 $ 1,056,421
11/1/91-10/31/92 $ 58,317 $ 29,516 $ 87,833
</TABLE>
<TABLE>
<CAPTION>
IOWA TAX FREE FUND
------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
9/1/94-12/31/94 (1) $ 56,650 $34,707 $ 91,357
9/1/93-8/31/94 $ 127,361 $70,832 $198,193
</TABLE>
<TABLE>
<CAPTION>
KANSAS TAX FREE FUND
--------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94 (1) $ 5,550 $ 5,993 $ 11,543
11/1/93-10/31/94 $ 22,132 $ 18,251 $ 40,383
11/1/92-10/31/93 $ 4,534 $ 15,024 $ 19,558
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA LIMITED TERM TAX FREE FUND
------------------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
3/1/94-12/31/94 (2) $ 272,884 $ 104,431 None
1/1/94-2/28/94 (2) $ 49,861 $ 16,471 None
1/1/93-12/31/93 $ 250,315 $ 95,608 None
1/1/92-12/31/92 $ 148,311 $ 63,577 None
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA INSURED FUND
----------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 $ 1,561,406 $ 366,842 $ 925,000
1/1/93-12/31/93 $ 1,175,742 $ 258,060 $ 442,000
1/1/92-12/31/92 $ 585,951 $ 117,832 $ 599,500
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA TAX FREE FUND
-----------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 $ 2,241,071 $ 460,255 None
1/1/93-12/31/93 $ 2,015,440 $ 470,493 None
1/1/92-12/31/92 $ 1,443,687 $ 248,217 None
</TABLE>
<TABLE>
<CAPTION>
MISSOURI INSURED TAX FREE FUND
------------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94 (1)$ 32,651 $ 20,078 $ 50,000
11/1/93-10/31/94 $ 173,907 $ 79,615 $ 253,522
11/1/92-10/31/93 $ 79,101 $ 48,736 $ 127,837
</TABLE>
<TABLE>
<CAPTION>
NATIONAL INSURED TAX FREE FUND
------------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 $ 154,949 $ 68,996 $ 223,945
1/1/93-12/31/93 $ 66,604 $ 38,036 $ 104,640
1/1/92-12/31/92 $ 6,373 $ 12,939 $ 19,312
</TABLE>
<TABLE>
<CAPTION>
NEW MEXICO TAX FREE FUND
------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94 (1) $ 17,494 $ 12,232 $ 29,726
11/1/93-10/31/94 $108,865 $ 47,287 $ 135,000
11/1/92-10/31/93 $ 42,112 $ 31,103 $ 73,215
11/1/91-10/31/92 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
NORTH DAKOTA TAX FREE FUND
--------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
1/1/94-12/31/94 $ 180,617 $ 80,745 $ 157,087
1/1/93-12/31/93 $ 135,899 $ 72,879 $ 119,913
1/1/92-12/31/92 $ 49,043 $ 28,191 $ 74,000
</TABLE>
<TABLE>
<CAPTION>
OREGON INSURED TAX FREE FUND
----------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94 (1) $ 12,840 $ 6,649 $ 19,489
11/1/93-10/31/94 $ 49,537 $ 33,740 $ 83,277
11/1/92-10/31/93 $ 2,080 $ 3,422 $ 5,502
</TABLE>
<TABLE>
<CAPTION>
UTAH TAX FREE FUND
------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94 (1) $ 3,184 $ 1,757 $ 4,941
11/1/93-10/31/94 $ 20,384 $ 17,294 $ 37,678
11/1/92-10/31/93 $ 9,477 $ 18,569 $ 28,046
11/1/91-10/31/92 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
WASHINGTON INSURED TAX FREE FUND
--------------------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
11/1/94-12/31/94 (1) $ 1,422 $ 2,369 $ 3,791
11/1/93-10/31/94 $ 7,561 $ 13,824 $ 21,385
11/1/92-10/31/93 $ 1,001 $ 3,702 $ 4,703
</TABLE>
<TABLE>
<CAPTION>
WISCONSIN TAX FREE FUND
-----------------------
INVESTMENT ADMINISTRATIVE FEES ABSORBED
ADVISORY SERVICES OR
FEES FEES WAIVED
---- ---- ------
<S> <C> <C> <C>
9/1/94-12/31/94 (1) $ 31,634 $ 22,386 $ 54,020
9/1/94-8/31/94 $ 46,460 $ 31,486 $ 77,946
</TABLE>
(1) Effective December 31, 1994, the Fund changed its fiscal year end to
December 31.
(2) Effective February 28, 1994, Minnesota Limited Term Tax Free Fund changed
its fiscal year end to February 28 and, effective December 31, 1994, changed
back to December 31.
(3) Period from May 1, 1994 (commencement of operations) to December 31, 1994.
All costs and expenses (other than those specifically referred to as being
borne by Voyageur or the Underwriter) incurred in the operation of each Fund are
borne by the Fund. These expenses include, among others, fees of the Board
members who are not employees of Voyageur or any of its affiliates, expenses of
directors' and shareholders' meetings, including the cost of printing and
mailing proxies, expenses of insurance premiums for fidelity bond and other
coverage and, with respect to the Insured Tax Free Funds, insurance premiums for
portfolio securities, expenses of redemption of shares, expenses of issue and
sale of shares (to the extent not borne by the Underwriter under its agreement
with such Fund), expenses of printing and mailing stock certificates
representing shares of such Fund, association membership dues, charges of such
Fund's custodian, and bookkeeping, auditing and legal expenses. Each Fund will
also pay the fees and bear the expense of registering and maintaining the
registration of such Fund and its shares with the Securities and Exchange
Commission and registering or qualifying its shares under state or other
securities laws and the expense of preparing and mailing prospectuses, reports
and statements to shareholders.
RULE 12B-1 PLANS OF DISTRIBUTION; DISTRIBUTION AGREEMENTS
Each Fund has adopted a Plan of Distribution (the "Plan") relating to the
payment of certain expenses pursuant to Rule 12b-1 under the 1940 Act. Rule
12b-1(b) provides that any payments made by a Fund in connection with the
distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing.
Rule 12b-1(b)(1) requires that such plan be approved by a vote of at least
a majority of the Fund's outstanding shares, and Rule 12b-1(b)(2) requires that
such plan, together with any related agreements, be approved by a vote of the
Board of Directors and of the directors who are not interested persons of the
Fund and have no direct or indirect financial interest in the operation of the
plan or in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3)
requires that the plan or agreement provide, in substance:
(1) that it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule 12b-1;
(2) that any person authorized to direct the disposition of monies paid or
payable by a Fund pursuant to its plan or any related agreement shall provide to
the Board of Directors, and the directors shall review, at least quarterly, a
written report of the amount so expended and the purposes for which such
expenditures were made; and
(3) in the case of a plan, that it may be terminated at any time by vote of
a majority of the members of the Board of Directors who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the plan or in any agreements related to the plan or by vote of a
majority of the outstanding voting securities of a Fund.
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(C) provides that each
Fund may rely upon Rule 12b-1 only if the selection and nomination of that
Fund's disinterested directors are committed to the discretion of such
disinterested directors. Rule 12b-1(e) provides that each Fund may implement or
continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to
approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under state
law, and under Section 36(a) and (b) of the 1940 Act, that there is a reasonable
likelihood that the plan will benefit the Fund and its shareholders.
Each Fund has entered into a Distribution Agreement with the Underwriter,
pursuant to which the Underwriter acts as the principal underwriter of each
Fund's shares. The Distribution Agreement and Plan provide that the Underwriter
agrees to provide, and shall pay costs which it incurs in connection with
providing, administrative or accounting services to shareholders of each Fund
(such costs are referred to as "Shareholder Servicing Expenses") and that the
Underwriter shall also pay all costs of distributing the shares of each Fund
("Distribution Expenses"). Shareholder Servicing Expenses include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of the Funds, including, but not limited to,
an allocation of the Underwriter's overhead and payments made to persons,
including employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other administrative or
accounting services not otherwise required to be provided by the Funds'
investment adviser or dividend disbursing, transfer, administrative and
accounting services agent. Distribution Expenses include, but are not limited
to, initial and ongoing sales compensation (in addition to sales loads) paid to
investment executives of the Underwriter and to other broker-dealers and
participating financial institutions; expenses incurred in the printing of
prospectuses, statements of additional information and reports used for sales
purposes; expenses of preparation and distribution of sales literature; expenses
of advertising of any type; an allocation of the Underwriter's overhead;
payments to and expenses of persons who provide support services in connection
with the distribution of Fund shares; and other distribution-related expenses.
Pursuant to the provisions of the Distribution Agreements, the Underwriter
is entitled to receive a total fee each quarter at an annual rate of .25% of the
average daily net assets attributable to each Fund's Class A shares, 1.00% of
the average daily net assets attributable to each Fund's Class B shares and
1.00% of the average daily net assets attributable to each Fund's Class C shares
to pay distribution expenses. As determined from time to time by the Board, a
portion of such fees shall be designated as a "shareholder servicing fee" and a
portion shall be designated as a "distribution fee." The Board has determined
that all of the fee payable with respect to Class A shares shall be designated a
shareholder servicing fee. With respect to fees payable with respect to Class B
shares and Class C shares, that portion of the fee equal to .25% of average
daily net assets attributable to a Fund's Class B shares or Class C shares is
designated a shareholder servicing fee and that portion of the fee equal to .75%
of average daily net assets attributable to a Fund's Class B shares or Class C
shares is designated a distribution fee. Amounts payable to the Underwriter
under the Distribution Agreement may exceed or be less than the Underwriter's
actual distribution expenses and shareholder servicing expenses. In the event
such distribution expenses and shareholder servicing expenses exceed amounts
payable to the Underwriter under the Plan, the Underwriter shall not be entitled
to reimbursement by the Funds. In addition to being paid shareholder servicing
and distribution fees, the Underwriter also receives for its services the sales
charge on sales of Fund shares set forth in each Prospectus.
Each Fund's Distribution Agreement is renewable from year to year if such
Fund's Board approves the Agreement and the Fund's Plan. Each Fund or the
Underwriter can terminate its Distribution Agreement on 60 days' notice to the
other party, and each Distribution Agreement terminates automatically upon its
assignment. In each Fund's Distribution Agreement, the Underwriter agrees to
indemnify the Fund against all costs of litigation and other legal proceedings
and against any liability incurred by or imposed on the Fund in any way arising
out of or in connection with the sale or distribution of the Fund's shares,
except to the extent that such liability is the result of information which was
obtainable by the Underwriter only from persons affiliated with the Fund but not
the Underwriter.
For the fiscal years (or portions thereof, as indicated) ended December 31,
1994, 1993, and 1992, the Funds paid the following Rule 12b-1 fees and the
Underwriter waived the following Rule 12b-1 fees:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
12B-1 FEE AMOUNT WAIVED 12B-1 FEE AMOUNT WAIVED 12B-1 FEE AMOUNT WAIVED
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Insured Tax Free Fund
Class A $648,615 $493,491 $495,302 $ 495,302 $ 206,185 $206,185
Class C 1,609 333 N/A N/A N/A N/A
California Insured Tax Free Fund
12/31/94 - Class A 11,176 8,495 N/A N/A N/A N/A
12/31/94 - Class B 2,774 1,260 N/A N/A N/A N/A
10/31/94 - Class A 54,720 44,074 14,194 14,194 101 101
10/31/94 - Class B 4,534 1,869 N/A N/A N/A N/A
Colorado Tax Free Fund
Class A 265,096 265,096 N/A N/A N/A N/A
Class C 2,161 14 N/A N/A N/A N/A
Florida Limited Term Tax Free Fund
Class A 602 602 N/A N/A N/A N/A
Florida Insured Tax Free Fund
12/31/94 - Class A 101,760 101,760 N/A N/A N/A N/A
12/31/94 - Class B 2,101 1,265 N/A N/A N/A N/A
10/31/94 - Class A 739,775 739,775 397,444 397,444 29,159 29,159
10/31/94 - Class B 4,452 1,761 N/A N/A N/A N/A
Iowa Tax Free Fund
12/31/94 - Class A 28,296 28,296 N/A N/A N/A N/A
8/31/94 - Class A 63,681 63,681 N/A N/A N/A N/A
Kansas Tax Free Fund
12/31/94- Class A 2,775 2,775 N/A N/A N/A N/A
10/31/94- Class A 11,078 11,078 2,267 2,267 N/A N/A
Minnesota Limited Term Tax Free Fund
12/31/94 - Class A 171,101 0 125,158 0 74,156 0
12/31/94 - Class C 1,385 0 N/A N/A N/A N/A
2/28/94 Class A 31,163 0 N/A N/A N/A N/A
2/28/94 - Class C N/A N/A N/A N/A N/A N/A
Minnesota Insured Fund
Class A 778,913 119,759 587,871 311,980 292,976 212,900
Class C 6,399 0 N/A N/A N/A N/A
Minnesota Tax Free Fund
Class A 1,118,958 0 1,007,720 0 721,844 234,660
Class C 4,020 0 N/A N/A N/A N/A
Missouri Insured Tax Free Fund
12/31/94 - Class A 15,539 15,539 N/A N/A N/A N/A
12/31/94 - Class B 3,190 1,609 N/A N/A N/A N/A
10/31/94 - Class A 85,866 85,866 39,551 39,551 N/A N/A
10/31/94 - Class B 4,486 2,119 N/A N/A N/A N/A
National Insured Tax Free Fund
Class A 76,958 47,420 33,302 33,302 3,186 3,186
Class B 2,238 903 N/A N/A N/A N/A
New Mexico Tax Free Fund
12/31/94 - Class A 8,619 8,619 N/A N/A N/A N/A
12/31/94 - Class B 446 134 N/A N/A N/A N/A
10/31/94 - Class A 54,411 54,411 21,056 21,056 0 0
10/31/94 - Class B 1,441 310 N/A N/A N/A N/A
North Dakota Tax Free Fund
Class A 90,095 90,095 67,950 67,950 24,522 24,522
Class B 622 310 N/A N/A N/A N/A
Oregon Insured Tax Free Fund
12/31/94 - Class A 5,914 5,914 N/A N/A N/A N/A
12/31/94 - Class B 2,045 923 N/A N/A N/A N/A
10/31/94 - Class A 23,890 23,890 1,040 1,040 N/A N/A
10/31/94 - Class B 3,762 1,507 N/A N/A N/A N/A
Utah Tax Free Fund
12/31/94 1,590 1,590 N/A N/A N/A N/A
10/31/94 10,190 10,190 4,739 4,739 0 0
Washington Insured Tax Free Fund
12/31/94 710 710 N/A N/A N/A N/A
10/31/94 3,782 3,782 501 501 N/A N/A
Wisconsin Tax Free Fund
12/31/94 15,845 14,603 N/A N/A N/A N/A
8/31/94 23,230 23,230 N/A N/A N/A N/A
</TABLE>
The following table sets forth the aggregate dollar amount of underwriting
commissions paid by each Fund for the fiscal periods indicated and the amount of
such commissions retained by the Underwriter.
<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS
TOTAL UNDERWRITING COMMISSIONS RETAINED BY UNDERWRITER
------------------------------ -----------------------
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/94 12/31/93 12/31/92 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arizona Insured Tax Free Fund $2,007,707 $ 5,870,964 $ 3,480,812 $272,585 $ 789,394 $477,800
California Insured Tax Free Fund
12/31/94 (1) 61,913 N/A N/A 8,043 N/A N/A
10/31/94 434,743 434,394 13,421 58,732 58,855 1,559
Colorado Tax Free Fund 2,513,880 6,056,629 2,975,855 346,636 835,738 425,728
Florida Limited Term Tax Free Fund 0 N/A N/A 0 N/A N/A
Florida Insured Tax Free Fund
12/31/94 (1) 39,051 N/A N/A 5,589 N/A N/A
10/31/94 1,497,591 9,639,186 2,338,832 207,722 1,350,713 331,919
Iowa Tax Free Fund
12/31/94 (1) 101,383 N/A N/A 18,061 N/A N/A
8/31/94 1,352,653 N/A N/A 249,929 N/A N/A
Kansas Tax Free Fund
12/31/94 (1) 9,935 N/A N/A 1,572 N/A N/A
10/31/94 175,196 98,488 N/A 24,852 14,245 N/A
Minnesota Limited Term
Tax Free Fund
12/31/94 (1) 126,433 457,090 389,853 22,538 79,125 63,834
2/28/94 67,700 N/A N/A 12,408 N/A N/A
Minnesota Tax Free Fund 1,781,640 3,572,923 2,807,445 246,291 496,962 345,856
Minnesota Insured Fund 1,938,352 5,068,046 3,369,796 269,910 690,609 408,911
Missouri Insured Tax
Free Fund
12/31/94 (1) 37,792 N/A N/A 5,375 N/A N/A
10/31/94 467,540 528,375 N/A 65,646 74,660 N/A
National Insured Tax Free Fund 406,397 720,463 119,670 54,878 98,702 14,668
New Mexico Tax Free Fund
12/31/94 (1) 7,174 N/A N/A 1,424 N/A N/A
10/31/94 302,834 669,386 12,579 50,348 92,055 1,368
North Dakota Tax Free Fund 188,974 663,051 509,456 27,132 95,206 72,725
Oregon Insured Tax Free Fund
12/31/94 (1) 30,428 N/A N/A 4,107 N/A N/A
10/31/94 398,064 126,674 N/A 55,282 18,509 N/A
Utah Tax Free Fund
12/31/94 (1) 1,003 N/A N/A 201 N/A N/A
10/31/94 75,407 120,641 954 12,223 16,878 153
Washington Insured Tax
Free Fund
12/31/94 (1) 3,265 N/A N/A 380 N/A N/A
10/31/94 26,890 13,308 N/A 3,895 1,743 N/A
Wisconsin Tax Free Fund
12/31/94 (1) 101,720 N/A N/A 18,121 N/A N/A
8/31/94 487,555 N/A N/A 71,314 N/A N/A
</TABLE>
(1) Effective 12/31/94, the fund changed its fiscal year end to 12/31.
PORTFOLIO TRANSACTIONS, ALLOCATION OF BROKERAGE AND TURNOVER RATE
As the Funds' portfolios are composed exclusively of debt, rather than
equity securities, most portfolio transactions are effected with dealers without
the payment of brokerage commissions, but rather at net prices which usually
include a spread or markup. In effecting such portfolio transactions on behalf
of the Funds, Voyageur seeks the most favorable net price consistent with the
best execution. However, frequently, Voyageur selects a dealer to effect a
particular transaction without contacting all dealers who might be able to
effect such transaction, because of the volatility of the bond market and the
desire of Voyageur to accept a particular price for a security because the price
offered by the dealer meets its guidelines for profit, yield or both.
Decisions with respect to placement of the Funds' portfolio transactions
are made by Voyageur. The primary consideration in making these decisions is
efficiency in the execution of orders and obtaining the most favorable net
prices for the Funds. When consistent with these objectives, business may be
placed with broker-dealers who furnish investment research services to Voyageur.
Such research services include advice, both directly and in writing, as to the
value of securities; the advisability of investing in, purchasing or selling
securities; and the availability of securities, or purchasers or sellers of
securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. This allows Voyageur to supplement its own investment research
activities and enables Voyageur to obtain the views and information of
individuals and research staffs of many different securities firms prior to
making investment decisions for the Funds. To the extent portfolio transactions
are effected with broker-dealers who furnish research services to Voyageur,
Voyageur receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Funds from these
transactions.
Voyageur has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of the Funds' portfolio transactions in exchange
for research services provided Voyageur, except as noted below. However,
Voyageur does maintain an informal list of broker-dealers, which is used from
time to time as a general guide in the placement of the Funds' business, in
order to encourage certain broker-dealers to provide Voyageur with research
services which Voyageur anticipates will be useful to it. Because the list is
merely a general guide, which is to be used only after the primary criterion for
the selection of broker-dealers (discussed above) has been met, substantial
deviations from the list are permissible and may be expected to occur. Voyageur
will authorize the Funds to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if Voyageur determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or Voyageur's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
The Funds will not effect any brokerage transactions in their portfolio
securities with any broker-dealer affiliated directly or indirectly with
Voyageur, unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Funds. In the event any transactions are
executed on an agency basis, Voyageur will authorize the Funds to pay an amount
of commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Voyageur determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or Voyageur's overall
responsibilities with respect to the Funds as to which it exercises investment
discretion. If the Funds execute any transactions on an agency basis, they will
generally pay higher than the lowest commission rates available.
In determining the commissions to be paid to a broker-dealer affiliated
with Voyageur, it is the policy of the Funds that such commissions will, in the
judgment of Voyageur, subject to review by the Board, be both (a) at least as
favorable as those which would be charged by other qualified brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time, and (b) at
least as favorable as commissions contemporaneously charged by such affiliated
broker-dealers on comparable transactions for their most favored comparable
unaffiliated customers. While each Fund does not deem it practicable and in its
best interest to solicit competitive bids for commission rates on each
transaction, consideration will regularly be given to posted commission rates as
well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers.
None of the Funds in existence during the fiscal periods ended December 31,
1994, 1993 and 1992, paid any brokerage commissions, directed portfolio
transactions to broker-dealers because of research services provided to Voyageur
or executed brokerage transactions with an affiliated broker-dealer.
Pursuant to conditions set forth in rules of the Securities and Exchange
Commission, the Funds may purchase securities from an underwriting syndicate of
which an affiliated broker-dealer is a member (but not directly from such
affiliated broker-dealer itself). Such conditions relate to the price and amount
of the securities purchased, the commission or spread paid and the quality of
the issuer. The rules further require that such purchases take place in
accordance with procedures adopted and reviewed periodically by the Board of the
Funds, particularly those Board members who are not interested persons of the
Funds.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Funds' directors may determine,
Voyageur may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute the Funds' securities transactions.
OTHER INFORMATION
CONVERSION OF CLASS B SHARES. In addition to information regarding
conversion set forth in the prospectus, the conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that payment of different
dividends by each of the classes of shares does not result in the Funds'
dividends or distributions constituting "preferential dividends" under the Code
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion will be available. In such event, Classs B shares
would continue to be subject to higher expenses than Class A shares for an
indefinite period.
SIGNATURE GUARANTY. In addition to information regarding redemption of
shares and signature guaranty set forth in the prospectus, a signature guaranty
will be required when redemption proceeds: (1) exceed $50,000 (unless it is
being wired to a pre-authorized bank account, in which case a guarantee is not
required), (2) are to be paid to someone other than the registered shareholder
or (3) are to be mailed to an address other than the address of record or wired
to an account other than the pre-authorized bank or brokerage account. On joint
account redemptions of the type previously listed, each signature must be
guaranteed. A signature guarantee may not be provided by a notary public. Please
contact your investment excecutive for instructions as to what institutions
constitute eligible signature guarantors.
VALUATION OF PORTOLIO SECURITIES. Generally, trading in certain securities
such as tax exempt securities, corporate bonds, U.S. Government securities and
money market instruments is substantially completed each day at various times
prior to the primary close of trading on the Exchange. The values of such
securities used in determining the net asset value of Fund shares are computed
as of such times. Occasionally events affecting the value of such securities may
occur between such times and the primary close of trading on the Exchange which
are not reflected in the computation of net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities are valued at their fair market value as determined in good faith by
Voyageur in accordance with procedures adopted by the Boards.
BANK PURCHASES. Banks, acting as agents for their customers and not for the
Funds or the Underwriter, from time to time may purchase Fund shares for the
accounts of such customers. Generally, the Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. Should the activities of any bank, acting as agent for its customers
in connection with the purchase of any Fund's shares, be deemed to violate the
Glass-Steagall Act, management will take whatever action, if any, is appropriate
in order to provide efficient services for the Funds. Management does not
believe that a termination in the relationship with a bank would result in any
material adverse consequences to the Funds. In addition, state securities laws
on this issue may differ and banks and financial institutions may be required to
register as dealers pursuant to state law. Fund shares are not deposits or
obligations of, or guaranteed or endorsed by, any bank and are not insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other federal agency.
TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), all or a
portion of the interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest dividends, such as
each of the Funds, will not be deductible by a shareholder. Indebtedness may be
allocated to shares of the Fund even though not directly traceable to the
purchase of such shares.
Each Fund's present policy is to designate exempt-interest dividends at
each daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
An exchange of shares in one Voyageur fund for shares in another fund
pursuant to exercise of the Exchange Privilege is considered to be a sale of the
shares for federal tax purposes that may result in a taxable gain or loss. If a
shareholder incurs a sales charge in acquiring shares and then, after holding
those shares not more than 90 days, exchanges them pursuant to the Exchange
Privilege for shares of another Voyageur fund, the shareholder may not take into
account the initial sales charge (to the extent that the otherwise applicable
sales charge on the later-acquired shares is reduced) for purposes of
determining the shareholder's gain or loss on the exchange of the first held
shares. To the extent that the sales charge is disregarded upon the exchange of
the first shares, however, it may be taken into account in determining gain or
loss on the eventual sale or exchange of the later-acquired shares.
Each Fund will be subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the taxable amount required to be distributed for each
calendar year over the amount actually distributed. In order to avoid this
excise tax, each Fund must declare dividends by the end of the calendar year
representing 98% of such Fund's ordinary income for the calendar year and 98% of
its capital gain net income (both long and short term partial gain) for the
12-month period ending on October 31 of such year. For purposes of the excise
tax, any income on which a Fund has paid corporate-level tax is considered to
have been distributed. Each Fund intends to make sufficient distributions each
year to avoid the payment of the excise tax.
Under a special provision of the Revenue Reconciliation Act of 1993, all or
a portion of the gain that a Fund realizes on the sale of a Tax Exempt
Obligation that it purchased at a market discount may have to be treated as
ordinary income rather than capital gain.
For shareholders who are recipients of Social Security benefits, exempt
interest dividends are includable in computing "modified adjusted gross income"
for purposes of determining the amount of Social Security benefits, if any, that
is required to be included in gross income. The maximum amount of Social
Security benefits that may be included in gross income is 85%.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's
regular income tax liability (with certain adjustments). Exempt-interest
dividends attributable to interest income on certain tax-exempt obligations
issued after August 7, 1986 to finance private activities are treated as an item
of tax preference that is included in alternative minimum taxable income for
purposes of computing the federal AMT for all taxpayers and the federal
environmental tax on corporations. In addition, all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be included
in adjusted current earnings for purposes of determining the federal corporate
AMT and the environmental tax imposed on corporations by Section 59A of the
Code. Liability for AMT will depend on each shareholder's individual tax
situation.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
bonds held by the Funds. The Funds will avoid investment in bonds which, in the
opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a bond in any Fund's portfolio lost its exempt status,
such Fund would make every effort to dispose of such investment on terms that
are not detrimental to the Fund.
The Code forbids a regulated investment company from earning 30% or more of
its gross income from the sale or other disposition of securities held less than
three months. This restriction may limit the extent to which any Fund may
purchase options. To the extent a Fund engages in short-term trading and enters
into options transactions, the likelihood of violating this 30% requirement is
increased.
Gain or loss on options is taken into account when realized by entering
into a closing transaction or by exercise. In addition, with respect to many
types of options held at the end of a Fund's taxable year, unrealized gain or
loss on such contracts is taken into account at the then current fair market
value thereof under a special "marked-to-market, 60/40 system," and such gain or
loss is recognized for tax purposes. The gain or loss from such options
(including premiums on certain options that expire unexercised) is treated as
60% long-term and 40% short-term capital gain or loss, regardless of their
holding period. The amount of any capital gain or loss actually realized by a
Fund in a subsequent sale or other disposition of such options will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale under the "marked-to-market, 60/40
system."
ARIZONA STATE TAXATION The portion of exempt-interest dividends that is
derived from interest income on Arizona Tax Exempt Obligations is excluded from
the Arizona taxable income of individuals, estates, trusts, and corporations.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains under Arizona law.
CALIFORNIA STATE TAXATION. Individual shareholders of a California Fund who
are subject to California personal income taxation will not be required to
include in their California gross income that portion of their federally tax
exempt dividends which the Fund clearly identifies as directly attributable to
interest earned on California state or municipal obligations, and dividends
which the Fund clearly identifies as directly attributable to interest earned on
obligations of the United States, the interest on which is exempt from
California personal income tax pursuant to federal law, provided that at least
50% of the value of the Fund's total assets consists of obligations the interest
on which is exempt from California personal income taxation pursuant to federal
or California law. Distributions to individual shareholders derived from
interest on state or municipal obligations issued by governmental authorities in
states other than California, short-term capital gains and other taxable income
will be taxed as dividends for purposes of California personal income taxation.
Each Fund's long-term capital gains for federal income tax purposes will be
taxed as long-term capital gains to individual shareholders of the Fund for
purposes of California personal income taxation. Gain or loss, if any, resulting
from an exchange or redemption of shares will be recognized in the year of the
change or redemption. Present California law taxes both long-term and short-term
capital gains at the rates applicable to ordinary income. Interest on
indebtedness incurred or continued by a shareholder in connection with the
purchase of shares of California Fund will not be deductible for California
personal income tax purposes. California has an alternative minimum tax similar
to the federal alternative minimum tax described above. However, the California
alternative minimum tax does not include interest from private activity bonds as
an item of tax preference. Generally, corporate shareholders of a California
Fund subject to the California franchise tax will be required to include any
gain on an exchange or redemption of shares and all distributions of exempt
interest, capital gains and other taxable income, if any, as income subject to
such tax. The California Funds will not be subject to California franchise or
corporate income tax on interest income or net capital gain distributed to the
shareholders. Shares of the California Funds will be exempt from local property
taxes in California.
COLORADO STATE TAXATION. To the extent that dividends are derived from
interest income on Colorado Tax Exempt Obligations, such dividends will also be
exempt from Colorado income taxes for individuals, trusts, estates, and
corporations. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains
under Colorado law.
FLORIDA STATE TAXATION. Florida does not currently impose a tax on the
income of individuals, and individual shareholders of the Florida Fund will thus
not be subject to income tax in Florida on distributions from the Florida Fund
or upon the sale of shares held in such Fund. Florida does, however, impose a
tax on intangible personal property held by individuals as of the first day of
each calendar year. Under a rule promulgated by the Florida Department of
Revenue, shares in the Florida Fund will not be subject to the intangible
property tax so long as, on the last business day of each calendar year, all of
the assets of each Fund consist of obligations of the U. S. government and its
agencies, instrumentalities and territories, and the State of Florida and its
political subdivisions and agencies. If any Florida Fund holds any other types
of assets on that date, then the entire value of the shares in such Fund (except
for the portion of the value of the shares attributable to U. S. government
obligations) will be subject to the intangible property tax.
In order to take advantage of the exemption from the intangibles tax in any
year, each Florida Fund must sell any non-exempt assets held in its portfolio
during the year and reinvest the proceeds in exempt assets prior to December 31.
Transaction costs involved in converting the portfolio's assets to such exempt
assets would likely reduce a Florida Fund's investment return and might, in
extraordinary circumstances, exceed any increased investment return such Fund
achieved by investing in non-exempt assets during the year.
Corporate shareholders in a Florida Fund may be subject to the Florida
income tax imposed on corporations, depending upon the domicile of the
corporation and upon the extent to which income received from such Fund
constitutes "nonbusiness income" as defined by applicable Florida law.
IOWA STATE TAXATION. The Fund has received a ruling from the Iowa
Department of Revenue and Finance dated May 21, 1993 to the effect that
dividends paid by the Iowa Fund that are attributable to (1) interest earned on
bonds issued by the State of Iowa, its political subdivisions, agencies and
instrumentalities, the interest on which is exempt from taxation by Iowa
statute, and (2) interest earned on obligations of the U. S. government or its
territories and possessions, will not be included in the income of the Fund
shareholders subject to either the Iowa personal or the Iowa corporate income
tax, except in the case of shareholders that are financial institutions subject
to the tax imposed by Iowa Code ss. 422.60. All other dividends paid by the Iowa
Fund will be subject to the Iowa personal or corporate income tax. Capital gain
dividends qualifying as long-term capital gains for federal tax purposes will be
treated as long-term capital gains for Iowa income tax purposes. Iowa taxes
long-term capital gains at the same rates as ordinary income, while imposing
limitations on the deductibility of capital losses similar to those under
federal law.
Iowa imposes an alternative minimum tax on individuals and corporations to
the extent that such tax exceeds the taxpayer's regular tax liability. Iowa AMT
is based on federal alternative minimum taxable income, with certain
adjustments. The Fund has received a ruling to the effect that dividends paid by
the Iowa Fund that are attributable to interest paid on obligations issued by
the State of Iowa, its political subdivisions, agencies and instrumentalities,
the interest on which is exempt under Iowa statute, and on obligations of U. S.
territories and possessions will not be subject to the AMT that Iowa imposes on
individuals and corporations.
KANSAS STATE TAXATION. Individuals, trusts, estates and corporations will
not be subject to Kansas income tax on the portion of dividends derived from
interest on obligations of Kansas and its political subdivisions issued after
December 31, 1987, and interest on specified obligations of Kansas and its
political subdivisions issued before January 1, 1988. The Fund intends to invest
only in Kansas obligations the interest on which is excludable from Kansas
taxable income. All remaining dividends (except for dividends, if any, derived
from interest paid on obligations of the United States, its territories and
possessions), including dividends derived from capital gains, will be includable
in the taxable income of individuals, trusts, estates and corporations.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains. Kansas taxes
long-term capital gains at the same rates as ordinary income, while restricting
the deductibility of capital losses. Dividends received by shareholders will be
exempt from the tax on intangibles imposed by certain counties, cities and
townships.
MINNESOTA STATE TAXATION. Minnesota taxable net income is based generally
on federal taxable income. The portion of exempt-interest dividends that is
derived from interest income on Minnesota Tax Exempt Obligations is excluded
from the Minnesota taxable net income of individuals, estates and trusts,
provided that the portion of the exempt-interest dividends from such Minnesota
sources paid to all shareholders represents 95 percent or more of the
exempt-interest dividends paid by the respective Fund. Exempt-interest dividends
are not excluded from the Minnesota taxable income of corporations and financial
institutions. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains.
Minnesota has repealed the favorable treatment of long term capital gains, while
retaining restrictions on the deductibility of capital losses. Exempt interest
dividends subject to the federal alternative minimum tax will also be subject to
the Minnesota alternative minimum tax imposed on individuals, estates and
trusts.
MISSOURI STATE TAXATION. The portion of exempt-interest dividends that is
derived from interest on Missouri Tax Exempt Obligations is excluded from the
taxable income of individuals, trusts, and estates and corporations subject to
the Missouri corporate income tax. All remaining dividends (except dividends
attributable to interest on obligations of the United States, its territories
and possessions), including dividends derived from capital gains, will be
includable in the taxable income of individuals, trusts, estates and
corporations. Dividends qualifying for federal income tax purposes as capital
gain dividends are to be treated by shareholders as long-term capital gains.
Missouri taxes long-term capital gains at the same rates as ordinary income,
while restricting the deductibility of capital losses.
NEW MEXICO STATE TAXATION. The portion of exempt-interest dividends that is
derived from interest on New Mexico Tax Exempt Obligations is excluded from the
taxable income of individuals, trusts, and estates, and of corporations subject
to the New Mexico corporate income tax. The Fund will provide shareholders with
an annual statement identifying income paid to shareholders by source. All
remaining dividends (except for dividends, if any, derived from interest paid on
obligations of the United States, its territories and possessions), including
dividends derived from capital gains, will be includable in the taxable income
of individuals, trusts, estates and corporations. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. New Mexico taxes long-term capital
gains at the same rates as ordinary income, while restricting the deductibility
of capital losses.
NORTH DAKOTA STATE TAXATION. North Dakota taxable income is based generally
on federal taxable income. The portion of exempt-interest dividends that is
derived from interest income on North Dakota Tax Exempt Obligations is excluded
from the North Dakota taxable income of individuals, estates, trusts and
corporations. Exempt-interest dividends are not excluded from the North Dakota
taxable income of banks. Dividends qualifying for federal income tax purposes as
capital gain dividends are to be treated by shareholders as long-term capital
gains under North Dakota law.
OREGON STATE TAXATION. The portion of exempt-interest dividends that is
derived from interest on Oregon Tax Exempt Obligations is excluded from the
taxable income of individuals, trusts, and estates. All remaining dividends
(except for dividends, if any, derived from interest paid on obligations of the
United States, its territories and possessions), including dividends derived
from capital gains, will be includable in the taxable income of individuals,
trusts and estates. Furthermore, all dividends, including exempt-interest
dividends, will be includable in the taxable income of corporations subject to
the Oregon corporation excise tax. Dividends qualifying for federal income tax
purposes as capital gain dividends are to be treated by shareholders as
long-term capital gains. Oregon taxes long-term capital gains at the same rates
as ordinary income, while restricting the deductibility of capital losses.
UTAH STATE TAXATION. All exempt-interest dividends, whether derived from
interest on Utah Tax Exempt Obligations or the Tax Exempt Obligations of any
other state, are excluded from the taxable income of individuals, trusts and
estates. Any remaining dividends (except for dividends, if any, derived from
interest paid on obligations of the United States, its territories and
possessions), including dividends derived from capital gains, will be includable
in the taxable income of individuals, trusts and estates. Furthermore, all
dividends, including exempt- interest dividends, will be includable in the
taxable income of corporations subject to the Utah corporate franchise tax.
Dividends qualifying for federal income tax purposes as capital gain dividends
are to be treated by shareholders as long-term capital gains. Utah taxes
long-term capital gains at the same rates as ordinary income, while restricting
the deductibility of capital losses.
WASHINGTON STATE TAXATION. Washington does not currently impose an income
tax on individuals or corporations. Therefore, dividends paid to shareholders
will not be subject to tax in Washington.
WISCONSIN STATE TAXATION. The Wisconsin Fund has received a ruling from the
Wisconsin Department of Revenue dated July 7, 1993 to the effect that dividends
paid by the Wisconsin Fund that are attributable to (1) interest earned on
certain higher education bonds issued by the State of Wisconsin, certain bonds
issued by the Wisconsin Housing and Economic Development authority, Wisconsin
Housing Finance Authority bonds, and public housing authority bonds and
redevelopment authority bonds issued by Wisconsin municipalities, the interest
on which is exempt from taxation by Wisconsin statute, and (2) interest earned
on obligations of the U. S. government or its territories and possessions will
not be included in the income of the Fund shareholders subject to the Wisconsin
personal income tax. Capital gain dividends qualifying as long-term capital
gains for federal tax purposes will be treated as long-term capital gains for
Wisconsin income tax purposes. Wisconsin taxes long-term capital gains at the
same rates as ordinary income, while imposing limitations on the deductibility
of capital losses similar to those under federal law.
Wisconsin imposes an alternative minimum tax on individuals, trusts and
estates to the extent that such tax exceeds a taxpayer's regular tax liability.
Wisconsin's AMT is based on federal alternative minimum taxable income, with
certain adjustments. The Fund has received a ruling to the effect that dividends
paid by the Wisconsin Fund that are attributable to interest paid on obligations
issued by the State of Wisconsin or its agencies, the interest on which is
exempt from Wisconsin personal income tax under Wisconsin statute, and on
obligations of U. S. territories and possessions will not be subject to the
Wisconsin AMT when received by shareholders subject to the Wisconsin personal
income tax.
SPECIAL PURCHASE PLANS
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares may be
purchased through a preauthorized automatic investment plan. Such preauthorized
investments (at least $100) may be used to purchase shares of any Fund at the
public offering price next determined after such Fund receives the investment
(normally the 20th of each month, or the next business day thereafter). Further
information is available from the Underwriter.
COMBINED PURCHASE PRIVILEGE. The following persons (or groups of persons)
may qualify for reductions from the front end sales charge ("FESC") schedule for
Class A shares set forth in each Fund's prospectus by combining purchases of any
class of shares of any one or more of the Funds which bear a FESC (and, in
certain circumstances, purchases of FESC shares of certain other open end
investment companies) if the combined purchase of all such funds totals at least
$50,000.
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act;
(ii) an individual, his or her spouse and their children under
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit trust) created pursuant to a plan qualified under
Section 401 of the Code;
(iv) tax-exempt organizations enumerated in Section 501(c)(3) of the
Code;
(v) employee benefit plans of a single employer or of affiliated
employers;
(vi) any organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying
redeemable securities of a registered investment company, and provided that
the purchase is made through a central administration, or through a single
dealer, or by other means which result in economy of sales effort or
expense. An organized group does not include a group of individuals whose
sole organizational connection is participation as credit cardholders of a
company, policyholders of an insurance company, customers of either a bank
or broker-dealer, or clients of an investment adviser.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchase of Class A
shares may qualify for a Cumulative Quantity Discount. The applicable FESC will
then be based on the total of:
(i) the investor's current purchase; and
(ii) the net asset value (at the close of business on the previous
day) of the shares of FESC classes of the Funds held by the investor; and
(iii) the net asset value of shares of FESC classes of the Funds owned
by another shareholder eligible to participate with the investor in a
"Combined Purchase Privilege" (see above).
For example, if an investor owned shares worth $35,000 at the then current
net asset value and purchased an additional $15,000 of shares, the sales charge
for the $15,000 purchase would be at the rate applicable to a single $50,000
purchase. With respect to each Fund, except Colorado Tax Free Fund and Minnesota
Limited Term Tax Free Fund, the cumulative purchase would have to total at least
$50,000 ($25,000 with respect to Colorado Tax Free Fund and Minnesota Limited
Term Tax Free Fund ) to qualify for the Cumulative Quantity Discount.
To qualify for the Combined Purchase Privilege or to obtain the Cumulative
Quantity Discount on a purchase through an investment dealer, when each purchase
is made the investor or dealer must provide the Fund whose shares are being
purchased with sufficient information to verify that the purchase qualifies for
the privilege or discount.
LETTER OF INTENTION. Investors may also obtain the reduced front end sales
charges shown in each Fund's prospectus by means of a written Letter of
Intention, which expresses the investor's intention to invest not less than
$50,000 ($25,000 with respect to Colorado Tax Free Fund and Minnesota Limited
Term Tax Free Fund) (including certain "credits," as described below) within a
period of 13 months in the Funds bearing a FESC. Each purchase of shares under a
Letter of Intention will be made at the public offering price applicable at the
time of such purchase to a single transaction of the dollar amount indicated in
the Letter. A Letter of Intention may include purchases of shares made not more
than 90 days prior to the date that an investor signs a Letter; however, the
13-month period during which the Letter is in effect will begin on the date of
the earliest purchase to be included. Investors qualifying for the Combined
Purchase Privilege described above may purchase shares under a single Letter of
Intention.
If, for example, on the date an investor signs a Letter of Intention to
invest at least $50,000 as set forth above and the investor and the investor's
spouse and children under twenty-one have previously invested $20,000 in shares
which are still held by such persons, it will only be necessary to invest a
total of $30,000 during the 13 months following the first date of purchase of
such shares in order to qualify for the sales charges applicable to investments
of $50,000. With respect to each Fund, except Colorado Tax Free Fund and
Minnesota Limited Term Tax Free Fund, the cumulative purchase would have to
total at least $50,000 ($25,000 with respect to Colorado Tax Free Fund and
Minnesota Limited Term Tax Free Fund) to qualify for a reduced sales charge.
The Letter of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intention is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased. When the full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the dollar amount
indicated on the Letter of Intention and qualifies for further reduced sales
charges, the sales charges will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in sales charges will be used to
purchase additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases.
Investors electing to take advantage of the Letter of Intention should
carefully review the appropriate provisions on the authorization form attached
to each Prospectus.
Shares of other open end investment companies bearing a FESC will be
included with Voyageur Fund shares bearing a FESC in a Combined Purchase
Privilege, Cumulative Quantity Discount or Letter of Intention only if such
shares are owned by customers of dealers that Voyageur or the Underwriter has
engaged to provide administration or accounting services to Fund omnibus
accounts in connection with the offering of the Funds as part of such other
investment companies' family of funds. Additionally, the maximum reduction of
the applicable Fund's FESC that may result from the inclusion of shares of such
other investment companies' in a Combined Purchase Privilege, Cumulative
Quantity Discount or Letter of Intention shall be a reduction to the front-end
sales charge applicable to purchases of $500,000 but less than $1,000,000 (as
set forth in the sales charge tables in the prospectus).
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the net asset value of Fund shares is summarized
in the prospectus in "Determination of Net Asset Value." The public offering
price of Class A shares is the net asset value of Fund shares plus the
applicable front end sales charge, if any. The maximum front end sales charge is
4.99% of the net asset value (certain Funds have lower maximum sales charges).
The public offering price of Class B and Class C shares is the net asset value
of Fund shares.
The portfolio securities in which each Fund invests fluctuate in value, and
therefore, the net asset value per share of each Fund also fluctuates. As of
December 31, 1994, the net asset value per share of each Fund which had
commenced investment operations was calculated as follows:
Arizona Insured Tax Free Fund
Class A
NET ASSETS ($231,735,713)= Net Asset Value Per Share ($9.86)
-------------------------
Shares Outstanding (23,506,929)
Class C
NET ASSETS ($325,818)= Net Asset Value Per Share ($9.86)
---------------------
Shares Outstanding (33,052)
California Insured Tax Free Fund
Class A
NET ASSETS ($27,994,179)= Net Asset Value Per Share ($9.33)
------------------------
Shares Outstanding (3,000,421)
Class B
NET ASSETS ($2,219,373)= Net Asset Value Per Share ($9.33)
-----------------------
Shares Outstanding (237,885)
Colorado Tax Free Fund
Class A
NET ASSETS ($354,137,579)= Net Asset Value Per Share ($9.53)
-------------------------
Shares Outstanding (37,170,869)
Class C
NET ASSETS ($464,823)= Net Asset Value Per Share ($9.53)
---------------------
Shares Outstanding (48,790)
Florida Limited Term Tax Free Fund
NET ASSETS ($592,219 )= Net Asset Value Per Share ($9.64)
----------------------
Shares Outstanding (61,408)
Florida Insured Tax Free Fund
Class A
NET ASSETS ($240,227,749)= Net Asset Value Per Share ($9.52)
-------------------------
Shares Outstanding (25,238,596)
Class B
NET ASSETS ($1,477,267)= Net Asset Value Per Share ($9.52)
-----------------------
Shares Outstanding (155,205)
Iowa Tax Free Fund
NET ASSETS ($32,372,834)= Net Asset Value Per Share($8.56)
Shares Outstanding (3,779,718)
Kansas Tax Free Fund
NET ASSETS ($7,354,515)= Net Asset Value Per Share ($9.50)
------------------------
Shares Outstanding (774,490)
Minnesota Limited Term Tax Free Fund
Class A
NET ASSETS ($84,167,646)= Net Asset Value Per Share ($10.50)
-------------------------
Shares Outstanding (8,016,396)
Class C
NET ASSETS ($340,943)= Net Asset Value Per Share ($10.50)
---------------------
Shares Outstanding (32,473)
Minnesota Insured Fund
Class A
NET ASSETS ($284,131,780)= Net Asset Value Per Share ($9.61)
-------------------------
Shares Outstanding (29,568,646)
Class C
NET ASSETS ($1,525,115)= Net Asset Value Per Share ($9.61)
-----------------------
Shares Outstanding (158,719)
Minnesota Tax Free Fund
Class A
NET ASSETS ($406,496,515)= Net Asset Value Per Share ($11.33)
-------------------------
Shares Outstanding (35,879,040)
Class C
NET ASSETS ($1,060,550)= Net Asset Value Per Share ($11.33)
-----------------------
Shares Outstanding (93,611)
Missouri Insured Tax Free Fund
Class A
NET ASSETS ($37,789,737)= Net Asset Value Per Share($9.27)
-------------------------
Shares Outstanding (4,077,838)
Class B
NET ASSETS ($2,742,058)= Net Asset Value Per Share($9.27)
------------------------
Shares Outstanding (295,885)
National Insured Tax Free Fund
Class A
NET ASSETS ($35,305,308)= Net Asset Value Per Share ($9.32)
------------------------
Shares Outstanding (3,789,502)
Class B
NET ASSETS ($478,105)= Net Asset Value Per Share ($9.32)
---------------------
Shares Outstanding (51,319)
New Mexico Tax Free Fund
Class A
NET ASSETS ($19,706,079) = Net Asset Value Per Share ($9.59)
-------------------------
Shares Outstanding (2,054,419)
Class B
NET ASSETS ($271,724)= Net Asset Value Per Share ($9.59)
---------------------
Shares Outstanding (28,329)
North Dakota Tax Free Fund
Class A
NET ASSETS ($33,829,283)= Net Asset Value Per Share ($9.85)
------------------------
Shares Outstanding (3,435,590)
Class B
NET ASSETS ($144,023)= Net Asset Value Per Share ($9.85)
---------------------
Shares Outstanding (14,627)
Oregon Insured Tax Free Fund
Class A
NET ASSETS ($14,650,172) = Net Asset Value Per Share ($8.92)
-------------------------
Shares Outstanding (1,642,992)
Class B
NET ASSETS ($1,302,608)= Net Asset Value Per Share ($8.92)
------------------------
Shares Outstanding (146,087)
Utah Tax Free Fund
NET ASSETS ($3,728,493)= Net Asset Value Per Share ($9.80)
-----------------------
Shares Outstanding (380,607)
Washington Insured Tax Free Fund
NET ASSETS ($2,048,928)= Net Asset Value Per Share ($9.21)
-----------------------
Shares Outstanding (222,438)
Wisconsin Tax Free Fund
NET ASSETS ($20,166,777)= Net Asset Value Per Share ($8.74)
-------------------------
Shares Outstanding (2,306,976)
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
"yield," "taxable equivalent yield," "average annual total return" and
"cumulative total return." Yield, taxable equivalent yield, average annual total
return and cumulative total return are calculated as follows. Performance data
is provided for Class B or Class C shares to the extent such shares were
outstanding during the periods indicated.
YIELD
Yield is computed by dividing the net investment income per share deemed
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD = 2[({(a-b)/cd} + 1) -1]
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day
of the period.
The yields for the Funds for the 30-day period ended December 31, 1994 are
as set forth below:
30-DAY YIELD
------------
ABSENT
VOLUNTARY
ACTUAL FEE WAIVERS
------ -----------
Arizona Insured Tax Free Fund - Class A 5.88% 5.72%
Arizona Insured Tax Free Fund - Class C 5.43% 5.22%
California Insured Tax Free Fund - Class A 6.21% 5.22%
California Insured Tax Free Fund - Class B 5.99% 4.68%
Colorado Tax Free Fund - Class A 5.76% 5.70%
Colorado Tax Free Fund - Class C 4.98% 4.97%
Florida Limited Term Tax Free Fund 6.34% 4.56%
Florida Insured Tax Free Fund - Class A 6.02% 5.29%
Florida Insured Tax Free Fund - Class B 5.91% 4.78%
Iowa Tax Free Fund 6.30% 5.26%
Kansas Tax Free Fund 5.72% 4.69%
Minnesota Limited Term Tax Free Fund - Class A 4.64% 4.64%
Minnesota Limited Term Tax Free Fund - Class C 4.03% 4.03%
Minnesota Insured Fund - Class A 6.22% 5.94%
Minnesota Insured Fund - Class C 5.76% 5.46%
Minnesota Tax Free Fund - Class A 5.67% 5.67%
Minnesota Tax Free Fund - Class C 5.22% 5.22%
Missouri Insured Tax Free Fund - Class A 6.05% 5.17%
Missouri Insured Tax Free Fund - Class C 5.84% 4.66%
National Insured Tax Free Fund - Class A 7.37% 6.38%
National Insured Tax Free Fund - Class B 7.27% 5.84%
New Mexico Tax Free Fund - Class A 6.46% 5.44%
New Mexico Tax Free Fund - Class B 6.01% 4.87%
North Dakota Tax Free Fund - Class A 6.75% 6.16%
North Dakota Tax Free Fund - Class B 5.87% 5.02%
Oregon Insured Tax Free Fund - Class A 5.73% 4.70%
Oregon Insured Tax Free Fund - Class B 5.61% 4.32%
Utah Tax Free Fund 6.31% 5.41%
Washington Insured Tax Free Fund 6.10% 5.10%
Wisconsin Tax Free Fund 6.01% 4.98%
TAXABLE EQUIVALENT YIELD
Taxable equivalent yield is computed by dividing that portion of the yield
of a Fund (as computed above) which is tax-exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the yield of the
Fund that is not tax-exempt.
The taxable equivalent yields for the Funds for the 30-day period ended
December 31, 1994 are set forth below. These taxable equivalent yields are based
on current Federal income tax rates combined with state income tax rates, if
applicable. Each combined rate assumes a single taxpayer and that state income
taxes paid are fully deductible for purposes of computing federal taxable income
(but does not assume the deductibility of federal taxes paid in computing state
taxable income except for Iowa, Missouri, New Mexico, North Dakota, and Utah).
The combined rates do not reflect federal rules concerning the phase-out of
personal exemptions and limitations on the allowance of itemized deductions for
certain high-income taxpayers. The highest state marginal tax rate was used for
each Federal taxable income bracket.
<TABLE>
<CAPTION>
ACTUAL
------
ARIZONA(1)
----------
<S> <C> <C> <C> <C>
32.61% 35.42% 40.42% 43.77%
------ ------ ------ ------
Arizona Insured Tax Free Fund - Class A 8.73% 9.10% 9.87% 10.46%
Arizona Insured Tax Free Fund - Class C 8.06% 8.41% 9.11% 9.66%
CALIFORNIA(2)
-------------
34.70% 37.90% 43.04% 46.24%
------ ------ ------ ------
California Insured Tax Free Fund - Class A 9.51% 10.00% 10.90% 11.55%
California Insured Tax Free Fund - Class B 9.17% 9.64% 10.51% 11.14%
COLORADO (3)
------------
31.60% 34.45% 39.20% 42.62%
------ ------ ------ ------
Colorado Tax Free Fund - Class A 8.42% 8.79% 9.47% 10.04%
Colorado Tax Free Fund - Class C 7.28% 7.60% 8.19% 8.68%
FLORIDA
-------
28% 31% 36% 39.6%
--- --- --- -----
Florida Insured Tax Free Fund - Class A 8.36% 8.72% 9.41% 9.97%
Florida Insured Tax Free Fund - Class B 8.21% 8.57% 9.23% 9.78%
Florida Limited Term Tax Free Fund 8.81% 9.19% 9.91% 10.50%
IOWA (4)
--------
33.32% 35.90% 40.24% 43.39%
------ ------ ------ ------
Iowa Tax Free Fund 9.45% 9.83% 10.54% 11.13%
KANSAS (5)
----------
33.58% 36.35% 40.96% 44.28%
------ ------ ------ ------
Kansas Tax Free Fund 8.61% 8.99% 9.69% 10.27%
MINNESOTA (6)
-------------
34.12% 36.87% 41.44% 44.73%
------ ------ ------ ------
Minnesota Insured Fund - Class A 9.44% 9.85% 10.62% 11.25%
Minnesota Insured Fund - Class C 8.74% 9.12% 9.84% 10.42%
Minnesota Tax Free Fund - Class A 8.61% 8.98% 9.68% 10.26%
Minnesota Tax Free Fund - Class C 7.92% 8.27% 8.91% 9.44%
Minnesota Limited Term Tax Free Fund - Class A 7.04% 7.35% 7.92% 8.40%
Minnesota Limited Term Tax Fund - Class C 6.12% 6.38% 6.88% 7.29%
MISSOURI(7)
-----------
31.16% 33.91% 38.51% 41.84%
------ ------ ------ ------
Missouri Insured Tax Free Fund - Class A 8.79% 9.15% 9.84% 10.40%
Missouri Insured Tax Free Fund - Class B 8.48% 8.84% 9.50% 10.04%
NEW MEXICO(8)
-------------
33.64% 36.41% 41.01% 44.33%
------ ------ ------ ------
New Mexico Tax Free Fund - Class A 9.73% 10.16% 10.95% 11.60%
New Mexico Tax Free Fund - Class B 9.06% 9.45% 10.19% 10.80%
NORTH DAKOTA(9)
---------------
30.72% 33.87% 39.07% 42.77%
------ ------ ------ ------
North Dakota Tax Free Fund - Class A 9.75% 10.21% 11.08% 11.79%
North Dakota Tax Free Fund - Class B 8.47% 8.88% 9.63% 10.26%
OREGON(10)
----------
34.48% 37.21% 41.76% 45.04%
------ ------ ------ ------
Oregon Insured Tax Free Fund - Class A 8.75% 9.13% 9.84% 10.43%
Oregon Insured Tax Free Fund - Class B 8.56% 8.93% 9.63% 10.21%
UTAH(11)
--------
32.50% 35.25% 39.83% 43.14%
------ ------ ------ ------
Utah Tax Free Fund 9.35% 9.75% 10.49% 11.10%
WASHINGTON
----------
28% 31% 36% 39.6%
--- --- --- -----
Washington Insured Tax Free Fund 8.47% 8.84% 9.53% 10.10%
WISCONSIN(12)
-------------
32.99% 35.78% 40.44% 43.79%
------ ------ ------ ------
Wisconsin Tax Free Fund 8.97% 9.36% 10.09% 10.69%
NATIONAL
--------
28% 31% 36% 39.6%
--- --- --- -----
National Insured Tax Free Fund - Class A 10.24% 10.68% 11.52% 12.20%
National Insured Tax Free Fund - Class B 10.10% 10.54% 11.36% 12.04%
</TABLE>
<TABLE>
<CAPTION>
ABSENT VOLUNTARY FEE WAIVERS
----------------------------
ARIZONA(1)
----------
<S> <C> <C> <C> <C>
32.61% 35.42% 40.42% 43.77%
------ ------ ------ ------
Arizona Insured Fund- Class A 8.49% 8.86% 9.60% 10.17%
Arizona Insured Fund- Class C 7.75% 8.08% 8.76% 9.28%
CALIFORNIA(2)
-------------
34.70% 37.90% 43.04% 46.24%
------ ------ ------ ------
California Insured Tax Free Fund - Class A 7.99% 8.41% 9.16% 9.71%
California Insured Tax Free Fund - Class B 7.17% 7.54% 8.22% 8.71%
COLORADO (3)
------------
31.60% 34.45% 39.20% 42.62%
------ ------ ------ ------
Colorado Tax Free Fund - Class A 8.33% 8.70% 9.38% 9.93%
Colorado Tax Free Fund - Class C 7.27% 7.58% 8.17% 8.66%
IOWA(4)
-------
33.32% 35.90% 40.24% 43.39%
------ ------ ------ ------
Iowa Tax Free Fund 7.89% 8.21% 8.80% 9.29%
FLORIDA
-------
28% 31% 36% 39.6%
--- --- --- -----
Florida Insured Tax Free Fund - Class A 7.35% 7.67% 8.27% 8.76%
Florida Insured Tax Free Fund - Class B 6.64% 6.93% 7.47% 7.91%
Florida Limited Term Tax Free Fund 6.33% 6.61% 7.13% 7.55%
KANSAS (5)
----------
33.58% 36.35% 40.96% 44.28%
------ ------ ------ ------
Kansas Tax Free Fund 7.06% 7.37% 7.94% 8.42%
MINNESOTA (6)
-------------
34.12% 36.87% 41.44% 44.73%
------ ------ ------ ------
Minnesota Insured Fund - Class A 9.02% 9.41% 10.14% 10.75%
Minnesota Insured Fund - Class C 8.29% 8.65% 9.32% 9.88%
Minnesota Tax Free Fund - Class A 8.61% 8.98% 9.68% 10.26%
Minnesota Tax Free Fund - Class C 7.92% 8.27% 8.91% 9.44%
Minnesota Limited Term Fund - Class A 7.04% 7.35% 7.92% 8.40%
Minnesota Limited Term Fund - Class C 6.12% 6.38% 6.88% 7.29%
MISSOURI(7)
-----------
31.16% 33.91% 38.51% 41.84%
------ ------ ------ ------
Missouri Insured Tax Free Fund - Class A 7.51% 7.82% 8.41% 8.89%
Missouri Insured Tax Free Fund - Class B 6.77% 7.05% 7.58% 8.01%
NEW MEXICO(8)
-------------
33.64% 36.41% 41.01% 44.33%
------ ------ ------ ------
New Mexico Tax Free Fund - Class A 8.20% 8.55% 9.22% 9.77%
New Mexico Tax Free Fund - Class B 7.34% 7.66% 8.26% 8.75%
NORTH DAKOTA(9)
---------------
30.72% 33.87% 39.07% 42.77%
------ ------ ------ ------
North Dakota Tax Free Fund - Class A 8.89% 9.31% 10.11% 10.76%
North Dakota Tax Free Fund - Class B 7.25% 7.59% 8.24% 8.77%
OREGON(10)
----------
34.48% 37.21% 41.76% 45.04%
------ ------ ------ ------
Oregon Insured Tax Free Fund - Class A 7.17% 7.49% 8.07% 8.55%
Oregon Insured Tax Free Fund - Class B 6.59% 6.88% 7.42% 7.86%
UTAH(11)
--------
32.50% 35.25% 39.83% 43.14%
------ ------ ------ ------
Utah Tax Free Fund 8.01% 8.36% 8.99% 9.51%
WASHINGTON
----------
28% 31% 36% 39.6%
--- --- --- -----
Washington Insured Tax Free Fund 7.08% 7.39% 7.97% 8.44%
WISCONSIN(12)
-------------
32.99% 35.78% 40.44% 43.79%
------ ------ ------ ------
Wisconsin Tax Free Fund 7.43% 7.75% 8.36% 8.86%
NATIONAL
--------
28% 31% 36% 39.6%
--- --- --- -----
National Insured Tax Free Fund - Class A 8.86% 9.25% 9.97% 10.56%
National Insured Tax Free Fund - Class B 8.11% 8.46% 9.13% 9.67%
</TABLE>
(1) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 6.4% Arizona marginal rate and a 28% federal
marginal rate, (b) a 6.4% Arizona marginal rate and a 31% federal marginal
rate, (c) a 6.9% Arizona marginal rate and a 36% federal marginal rate, and
(d) a 6.9% Arizona marginal rate and a 39.6% federal marginal rate. Each
combined rate assumes that state income taxes paid are fully deductible for
purposes of computing federal taxable income. The combined rates do not
reflect federal rules concerning the phase-out of personal exemptions and
limitations on the allowance of itemized deductions for certain high-income
taxpayers.
(2) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 9.3% California marginal rate and a 28%
federal marginal rate, (b) a 10% California marginal rate and a 31% federal
marginal rate, (c) an 11% California marginal rate and a 36% federal
marginal rate, and (d) an 11% California marginal rate and a 39.6% federal
marginal rate.
(3) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 5% Colorado rate and (a) a 28% federal marginal
rate, (b) a 31% federal marginal rate, (c) a 36% federal marginal rate, and
(d) 39.6% federal marginal rate.
(4) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 7.39% Iowa marginal rate and a 25.93% federal
marginal rate, (b) a 7.11% Iowa marginal rate and a 28.8% federal marginal
rate, (c) a 6.63% Iowa marginal rate and a 33.61% federal marginal rate,
and (d) a 6.28% Iowa marginal rate and a 37.11% federal marginal rate.
(5) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 7.75 Kansas marginal rate and (a) a 28% federal
marginal rate, (b)a 31% federal marginal rate, (c) a 36% federal marginal
rate, and (d) a 39.6% federal marginal rate.
(6) The four combined rates listed above assume, respectively, that the
taxpayer is subject to an 8.5% Minnesota marginal rate and (a) a 28%
federal marginal rate, (b) a 31% federal marginal rate, (c) a 36% federal
marginal rate, and (d) a 39.6% federal marginal rate.
(7) The fourt combined rates listed above assume that the taxpayer is subject
to (a) a 4.39% Missouri marginal rate and a 26.77% federal marginal rate,
(b) a 4.22% Missouri marginal rate and a 29.69% federal marginal rate, (c)
a 3.92% Missouri marginal rate and a 34.59% federal marginal rate, and (d)
a 3.71% Missouri marginal rate and a 38.13% federal marginal rate.
(8) The four combined rates listed above asume, respectively, that the taxpayer
is subject to a 7.83% New Mexico marginal rate and (a) a 25.81% federal
marginal rate, (b) a 28.57% federal marginal rate, (c) a 33.18% federal
marginal rate, and (d) a 36.50% federal marginal rate.
(9) The four combined rates listed above assume that the taxpayer is subject to
(a) 28%, (b) 31%, (c) 36% and (d) 39.6% federal marginal rate and elects to
determine his or her North Dakota income tax liability as an amount equal
to 14% of his or her adjusted federal income tax liability.
(10) The four combined rates listed above assume that the taxpayer is subject to
9% Oregon tax rate and (respectively) (a) a 28% federal marginal rate, (b)
a 31% federal marginal rate, (c) a 36% federal marginal rate, and (d) a
39.6% federal marginal rate.
(11) The four combined rates listed above assume that the taxpayer is subject to
7.2% Utah tax rate and (respectively) (a) a 6.26% Utah marginal rate and a
26.25% federal marginal rate, (b) a 6.15% Utah marginal rate and a 29.09%
federal marginal rate, (c) a 5.98% Utah marginal rate and a 33.85% federal
marginal rate, and (d) a 5.86% Utah marginal rate and a 37.28% federal
marginal rate.
(12) The four combined rates listed above assume that the taxpayer is subject to
a 6.93% Wisconsin marginal rate and (respectively) (a) a 28% federal
marginal rate, (b) a 31% federal marginal rate, (c) a 36% federal marginal
rate, and (d) a 39.6% federal marginal rate.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
The following table sets forth the average annual total return for each
Fund for the periods indicated and ended December 31, 1994:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
ABSENT VOLUNTARY
ACTUAL FEE WAIVERS
----------------------------- -----------------------------
SINCE SINCE
1 YEAR 5 YEAR INCEPTION 1 YEAR 5 YEAR INCEPTION
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Arizona Insured Tax Free Fund
Class A (Inception 4/1/91) (11.81%) * 4.98% (11.98%) * 4.19%
Class C (Inception 4/30/94) * * (2.38%) * * (2.51%)
California Insured Tax Free Fund
Class A (Inception 10/15/92) (13.75%) * 0.46% (14.64%) * (0.61%)
Class B (Inception 3/1/94) * * (8.78%) * * (9.75%)
Colorado Tax Free Fund
Class A (Inception 4/23/87) (12.66%) 4.96% 6.67% (12.72%) 4.94% 6.66%
Class C (Inception 4/30/94) * * (3.75%) * * (3.75%)
Florida Limited Term Tax Free Fund
Class A (Inception 5/1/94) * * (4.25%) * * (4.82%)
Florida Insured Tax Free Fund
Class A (Inception 1/1/92) (12.99%) * 2.87% (13.13%) * 2.19%
Class B (Inception 3/1/94) * * (8.13%) * * (8.76%)
Iowa Tax Free Fund
Class A (Inception 9/1/93) (13.67%) * (9.00%) (14.68%) * (10.05%)
Kansas Tax Free Fund
Class A (Inception 11/30/92) (11.60%) * 0.95% (12.69%) * (0.22%)
Minnesota Limited Term Tax Free Fund
Class A (Inception 10/27/85) (4.61%) 5.02% 5.68% + + +
Class C (Inception 4/30/94) * * (0.03%) * * +
Minnesota Tax Free Fund
Class A (Inception 2/27/84) (11.17%) 5.14% 7.97%# + + 7.97%#
Class C (Inception 4/30/94) * * (2.30%) * * +
Minnesota Insured Fund
Class A (Inception 5/1/87) (12.25%) 5.23% 6.14% (12.55%) 4.88% 5.76%
Class C (Inception 4/30/94) * * (3.14%) * * (3.35%)
Missouri Insured Tax Free Fund
Class A (Inception 11/2/92) (13.34%) * 0.08% (14.21%) * (0.96%)
Class B (Inception 3/1/94) * * (7.88%) * * (8.96%)
National Insured Tax Free Fund
Class A (Inception 1/10/92) (11.84%) * 2.02% (12.86%) * (0.69%)
Class B (Inception 4/30/94) * * (1.94%) * * (2.86%)
New Mexico Tax Free Fund
Class A (Inception 10/5/92) (10.41%) * 1.88% (11.26%) * 0.93%
Class B (Inception 3/1/94) * * (7.32%) * * (8.09%)
North Dakota Tax Free Fund
Class A (Inception 4/1/91) (9.96%) * 4.97% (10.57%) * 4.13%
Class B (Inception 4/30/94) * * (0.77%) * * (1.38%)
Oregon Insured Tax Free Fund
Class A (Inception 8/1/93) (11.95%) * (6.01%) (13.12%) * (7.19%)
Class B (Inception 3/1/94) * * (7.19%) * * (8.24%)
Utah Tax Free Fund
Class A (Inception 10/5/92) (9.91%) * 3.30% (10.94%) * 2.21%
Washington Insured Tax Free Fund
Class A (Inception 8/1/93) (11.96%) * (3.40%) (12.99%) * (4.49%)
Wisconsin Tax Free Fund
Class A (Inception 9/1/93) (11.77%) * (7.54%) (12.86%) * (8.68%)
* Not in existence for the period.
+ There were no voluntary fee waivers during the period.
# Return is for the 10 year period ended December 31, 1994.
</TABLE>
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
ERV-P
CTR=(----------)100
P
Where: CRT = Cumulative total return;
EVR = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts.
Class B shares, Class C shares and Florida Limited Term Tax Free Fund's
cumulative total return since inception are equivalent to their average annual
total returns since inception. The following table sets forth the cumulative
total return for Class A shares of each Fund (except Florida Limited Term Tax
Free Fund) for the period from inception to December 31, 1994:
CUMULATIVE TOTAL RETURN
SINCE INCEPTION
------------------------
ABSENT VOLUNTARY
ACTUAL FEE WAIVERS
------ -----------
Arizona Insured Tax Free Fund
(Inception 4/1/91) 20.01% 17.05%
California Insured Tax Free Fund
(Inception 10/15/92) 1.06% (1.38%)
Colorado Tax Free Fund
(Inception 4/23/87) 64.02% 63.91%
Florida Insured Tax Free Fund
(Inception 1/1/92) 7.79% 6.90%
Iowa Tax Free Fund
(Inception 9/1/93) (11.81%) (13.18%)
Kansas Tax Free Fund
(Inception 11/30/92) 2.00% (0.48%)
Minnesota Limited Term Tax Free Fund
(Inception 10/27/85) 65.90% N/A
Minnesota Insured Fund
(Inception 5/1/87) 57.96% 53.58%
Minnesota Tax Free Fund
(Inception 2/27/84) 138.26% 137.95%
Missouri Insured Tax Free Fund
(Inception 11/2/92) 0.17% (2.06%)
National Insured Tax Free Fund
(Inception 1/10/92) 6.17% 2.09%
New Mexico Tax Free Fund
(Inception 10/5/92) 4.29% 2.09%
North Dakota Tax Free Fund
(Inception 4/1/91) 19.95% 16.78%
Oregon Insured Tax Free Fund
(Inception 8/1/93) (8.48%) (10.04%)
Utah Tax Free Fund
(Inception 10/5/92) 7.59% 5.05%
Washington Insured Tax Free Fund
(Inception 8/1/93) (4.79%) (6.30%)
Wisconsin Tax Free Fund
(Inception 9/1/93) (9.93%) (12.86%)
MONTHLY CASH WITHDRAWAL PLAN
Any investor who owns or buys shares of any Fund valued at $10,000 or more
at the current offering price may open a Withdrawal Plan and have a designated
sum of money paid monthly to the investor or another person. Shares are
deposited in a Withdrawal Plan account and all distributions are reinvested in
additional shares of such Fund at net asset value or distributed in cash. Shares
in a Withdrawal Plan account are then redeemed to make each withdrawal payment.
Deferred sales charges may apply to monthly redemptions of Class B and Class C
shares. Redemptions for the purpose of withdrawal are made on the 25th of the
month (or on the preceding business day if the 25th falls on a weekend or is a
holiday) at that day's closing net asset value and checks are mailed on the next
business day. Payments will be made to the registered shareholder. As withdrawal
payments may include a return on principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The redemption of
shares in connection with a Withdrawal Plan may result in a gain or loss for tax
purposes. Continued withdrawals in excess of income will reduce and possibly
exhaust invested principal, especially in the event of a market decline. The
maintenance of a Withdrawal Plan concurrently with purchases of additional Class
A shares of a Fund would normally be disadvantageous to the investor because of
the FESC payable on such purchases. For this reason, an investor may not
maintain a plan for the accumulation of Class A shares of a Fund (other than
through reinvestment of distributions) and a Withdrawal Plan at the same time.
The cost of administering Withdrawal Plans is borne by each Fund as an expense
of all shareholders. Each Fund or the Underwriter may terminate or change the
terms of the Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary
and may be terminated by the shareholder at any time without the imposition of
any penalty.
Since the Withdrawal Plan may involve invasion of capital, investors should
consider carefully with their own financial advisers whether the Withdrawal Plan
and the specified amounts to be withdrawn are appropriate in their
circumstances. The Funds make no recommendations or representations in this
regard.
ADDITIONAL INFORMATION
Information regarding certain record and beneficial ownership of the Fund
shares which equals or exceeds 5% of a Fund's shares is available by calling
800-553-2143.
Organizational costs in connection with start-up and initial registration
are being amortized over 60 months on an inverse acceleration
(sum-of-the-year's-digits) basis. If Voyageur redeems any or all of its shares
of any Fund prior to the end of such Fund's 60-month amortization period, the
redemption proceeds will be reduced by its pro rata portion of such Fund's
unamortized organizational costs. If a Fund liquidates prior to the date such
costs are fully amortized, Voyageur will bear all unamortized organizational
costs of such Fund.
CUSTODIAN; COUNSEL; INDEPENDENT AUDITORS
Norwest Bank Minnesota, N.A., Sixth Street & Marquette Avenue, Minneapolis,
Minnesota 55479, acts as custodian of the Funds' assets and portfolio
securities.
Dorsey & Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota
55402, serves as counsel for the Funds.
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
serves as independent auditors for the Funds. The Financial Statements and
Financial Highlights for the Funds as of December 31, 1994, included in this
Registration Statement have been included herein in reliance upon the report of
the independent auditors and upon the authority of said firm as experts in
accounting and auditing.
LIMITATION OF DIRECTOR LIABILITY
CORPORATE ENTITIES. Under Minnesota law, each director owes certain
fiduciary duties to each Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in good
faith, in a manner the director reasonably believes to be in the best interest
of the corporation, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances." Fiduciary duties of a
director of a Minnesota corporation include, therefore, both a duty of "loyalty"
(to act in good faith and act in a manner reasonably believed to be in the best
interests of the corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances). In February 1987, Minnesota enacted legislation which authorizes
corporations to eliminate or limit the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of the fiduciary
duty of "care". Minnesota law does not, however, permit a corporation to
eliminate or limit the liability of directors (i) for any breach of the
directors' duty of "loyalty" to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for authorizing a dividend, stock repurchase or
redemption or other distribution in violation of Minnesota law or for violation
of certain provisions of Minnesota securities law, or (iv) for any transaction
from which the directors derived an improper personal benefit. The Articles of
Incorporation of each of the Funds limits the liability of such Funds' directors
to the fullest extent permitted by Minnesota statutes, except to the extent that
such liability cannot be limited as provided in the 1940 Act (which Act
prohibits any provisions which purport to limit the liability of directors
arising from such directors' willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their role as
directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted thereunder.
TRUST ENTITIES. As described in the prospectus following the caption
"General Information," shares of the Funds are entitled to one vote per share
(with proportional voting for fractional shares) on such matters as shareholders
are entitled to vote. There will normally be no meetings of shareholders for the
purpose of electing Trustees, except insofar as elections are required under the
1940 Act in the event that (i) less than a majority of the Trustees have been
elected by shareholders, or (ii) if, as a result of a vacancy, less than
two-thirds of the Trustees have been elected by the shareholders, the vacancy
will be filled only by a vote of the shareholders. In addition, the Trustees may
be removed from office by a written consent signed by the holders of two-thirds
of the outstanding shares of the Funds and filed with the Funds' custodian or by
a vote of the holders of two-thirds of the outstanding shares of the Funds at a
meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders, who have been such for at
least six months, and who in the aggregate hold shares having a net asset value
of at least $25,000 or constituting 1% of the outstanding shares, stating that
such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a Trustee, the Funds have undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, each Trustee shall continue
to hold office and may appoint a successor.
Under Massachusetts law, shareholders could, under certain circumstances,
be held liable for the obligations of the Funds. However, the Funds' Agreement
and Declaration of Trust disclaims shareholder liability for acts or obligations
of the Funds and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by a Fund or the
Trustees. The Agreement and Declaration of Trust provides for indemnification
out of each Fund's property for all loss and expense of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which such Fund would be unable to meet
its obligations.
SHAREHOLDER MEETINGS
None of the Funds is required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Regular and special
shareholder meetings are held only at such times and with such frequency as
required by law. Minnesota corporation law provides for the Board of Directors
to convene shareholder meetings when it deems appropriate. Similar discretion is
vested in the Boards of Trustees of parent entities organized as Massachusetts
Business Trusts. In addition, if a regular meeting of shareholders has not been
held during the immediately preceding fifteen months, a shareholder or
shareholders holding three percent or more of the voting shares of certain Funds
may demand a regular meeting of shareholders of the Fund by written notice of
demand given to the chief executive officer or the chief financial officer of
the Fund. Within ninety days after receipt of the demand, a regular meeting of
shareholders must be held at the expense of the Fund. Additionally, the 1940 Act
requires shareholder votes for all amendments to fundamental investment policies
and restrictions and for all investment advisory contracts and amendments
thereto.
The audited Financial Statements and Financial Highlights for the Funds
for the fiscal year ended December 31, 1994 are incorporated herein by reference
from the annual report of each Fund as filed with the Securities and Exchange
Commission. Please call (800) 553-2143 to obtain a copy of the most recent
annual report of a Fund at no charge.
APPENDIX A
DESCRIPTIONS OF BOND RATINGS
Description of Standard and Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's") ratings:
S&P'S RATINGS FOR MUNICIPAL BONDS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an object with respect to a specific obligation. S&P's
letter ratings may be modified by the addition of a plus or minus sign, which is
used to show relative standing within the major rating categories, except in the
AAA (Prime Grade) category.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
AAA is the highest rating assigned by S&P. An issuer's capacity to pay
interest and repay the principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB and B
Debt rated BB and B (as well as debt rated CCC, C and C) is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation within this category, B represents a somewhat
higher degree of speculation and C represents the highest degree of speculation
of these ratings.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal repayments.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
S&P RATINGS FOR MUNICIPAL NOTES
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. A short-term rating designated VMIG, may also be assigned an issue having
a demand feature. The municipal obligations bearing the designation MIG 1/VMIG 1
are of the best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. The municipal obligations bearing the designation are
ample although not so large as in the preceding group.
Description of S&P A-1+
and
A-1 Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must possess overwhelming safety
characteristics regarding timely payment. Commercial paper rated A-1 must have a
degree of safety that is either overwhelming or very strong.
Description of
Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation and well established access
to a range of financial markets and assured sources of alternate liquidity.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF OPTIONS AND FUTURES
GENERAL. As described in the Prospectus under "Investment Objectives and
Policies -- Options and Futures," each Fund may purchase and sell options on the
securities in which it may invest and certain Funds may purchase and sell
options on futures contracts (as defined below) and may purchase and sell
futures contracts. The Funds intend to engage in such transactions if it appears
advantageous to Voyageur to do so in order to pursue the Funds' investment
objectives, to seek to hedge against the effects of market conditions and to
seek to stabilize the value of its assets. The Funds will engage in hedging and
risk management transactions from time to time in V oyageur's discretion, and
may not necessarily be engaging in such transactions when movements in interest
rates that could affect the value of the assets of the Funds occur.
Conditions in the securities, futures and options markets will determine
whether and in what circumstances the Funds will employ any of the techniques or
strategies described below. The Funds' ability to pursue certain of these
strategies may be limited by applicable regulations of the Commodity Futures
Trading Commission (the ' CFTC") and the federal tax requirements applicable to
regulated investment companies. Transactions in options and futures contracts
may give rise to income that is subject to regular federal income tax and,
accordingly, in normal circumstances the Funds do not intend to engage in such
practices to a significant extent.
The use of futures and options, and the possible benefits and attendant
risks, are discussed below.
FUTURES CONTRACTS AND RELATED OPTIONS. Certain Funds may enter into
contracts for the purchase or sale for future delivery (a "futures contract") of
fixed-income securities or contracts based on financial indices including any
index of securities in which certain Funds may invest. A "sale" of a futures
contract means the undertaking of a contractual obligation to deliver the
securities, or the cash value of an index, called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities, or cash value of an index, at a specified price during a specified
delivery period. certain Funds may also purchase and sell (write) call and put
options on financial futures contracts. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract at a specified exercise price at any time during, or at the
termination of, the period specified in the terms of the option. Upon exercise,
the writer of the option delivers the futures contract to the holder at the
exercise price. Certain Funds would be required to deposit with its custodian
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. Certain
Funds' ability to establish and close out positions in futures contracts and
options on futures contracts will be subject to the liquidity of the market.
Although certain Funds generally will purchase or sell only those futures
contracts and options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will exist for any
particular futures contract or option thereon at any particular time. Where it
is not possible to effect a closing transaction in a contract or to do so at a
satisfactory price, certain Funds would have to make or take delivery under the
futures contract, or, in the case of a purchased option, exercise the option.
Idaho Fund would be required to maintain initial margin deposits with respect to
the futures contract and to make variation margin payments until the contract is
closed. Certain Funds will incur brokerage fees when it purchases or sells
futures contracts.
At the time a futures contract is purchased or sold, certain Funds must
deposit in a custodial account cash or securities as a good faith deposit
payment (known as "initial margin"). It is expected that the initial margin on
futures contracts certain Funds may purchase or sell may range from
approximately 3% to approximately 15% of the value of the securities (or the
securities index) underlying the contract. In certain circumstances, however,
such as during periods of high volatility, certain Funds may be required by an
exchange to increase the level of its initial margin payment. Initial margin
requirements may be increased generally in the future by regulatory action. An
out standing futures contract is valued daily in a process known as "marking to
market." If the market value of the futures contract has changed, certain Funds
will be required to make or will be entitled to receive a payment in cash or
specified high quality debt securities in an amount equal to any decline or
increase in the value of the futures contract. These additional deposits or
credits are calculated and required on a daily basis and are known as "variation
margin."
There may be an imperfect correlation between movements in prices of the
futures contract certain Funds purchase or sell and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by Idaho Fund in a hedging
transaction, even if Voyageur correctly forecasts market trends certain Funds'
hedging strategy may not be successful. If this should occur, certain Funds
could lose money on the futures contracts and also on the value of its portfolio
securities.
Although certain Funds believe that the use of futures contracts and
options thereon will benefit it, if V oyageur's judgment about the general
direction of securities prices or interest rates is incorrect, certain Funds'
overall performance may be poorer than if it had not entered into futures
contracts or purchased or sold options thereon. For example, if certain Funds
seek to hedge against the possibility of an increase in interest rates, which
generally would adversely affect the price of fixed-income securities held in
its portfolio, and interest rates decrease instead, certain Funds will lose part
or all of the benefit of the increased value of its assets which it has hedged
due to the decrease in interest rates because it will have offsetting losses in
its futures positions. In addition, particularly in such situations, certain
Funds may have to sell assets from its portfolio to meet daily margin
requirements at a time when it may be disadvantageous to do so.
OPTIONS ON SECURITIES. Each Fund may purchase and sell (write) options on
securities, which options may be either exchange-listed or over-the-counter
options. The Funds may write call options only if the call option is "covered."
A call option written by a Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. The Funds may write put
options only if the put option is "secured." A put option written by a Fund is
secured if the Fund, which is obligated as a writer of a put option, invests an
amount, not less than the exercise price of a put option, in eligible
securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities exchange ("Exchange")
on opening transactions or closing transactions or both, (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume, or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Each Fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
Each Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
Each Fund may purchase and sell options that are exchange-traded or that
are traded over-the counter ("OTC options"). Exchange-traded options in the
United States are issued by a clearing organization affiliated with the exchange
on which the option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when a Fund
purchases OTC options, it must rely on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Although each Fund will enter into OTC options only with dealers that agree
to enter into, and which are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
Until a Fund is able to effect a closing purchase transaction in a covered OTC
call option the Fund has written, it will not be able to liquidate securities
used as cover until the option expires or is exercised or different cover is
substituted. This may impair the Funds' ability to sell a portfolio security at
a time when such a sale might be advantageous. In the event of insolvency of the
counterparty, the Funds may be unable to liquidate an OTC option. In the case of
options written by the Funds, the inability to enter into a closing purchase
transaction may result in material losses to the Funds.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
SEC releases and staff positions, when entering into futures contracts or
certain option transactions, such as writing a put option, the Funds will
maintain, in a segregated account, cash or liquid high-grade securities equal to
the value of such contracts. Compliance with such segregation requirements may
restrict the Funds' ability to invest in intermediate- and long-term Tax Exempt
Obligations.
The Funds intend to comply with CFTC regulations and avoid "commodity pool
operator" status. These regulations require that futures and options positions
be used (a) for "bona fide hedging purposes" (as defined in the regulations) or
(b) for other purposes so long as aggregate initial margins and premiums
required in connection with non-hedging positions do not exceed 5% of the
liquidation value of the Fund's portfolio. The Funds currently do not intend to
engage in transactions in futures contracts or options thereon for speculation.
ACCOUNTING CONSIDERATIONS. When either Fund writes an option, an amount
equal to the premium received by it is included in the Fund's Statement of
Assets and Liabilities as a liability. The amount of the liability subsequently
is marked to market to reflect the current market value of the option written.
When either Fund purchases an option, the premium paid by the Fund is recorded
as an asset and subsequently is adjusted to the current market value of the
option.
In the case of a regulated futures contract purchased or sold by certain
Funds. an amount equal to the initial margin deposit is recorded as an asset.
The amount of the asset subsequently is adjusted to reflected changes in the
amount of the deposit as well as changes in the value of the contract.
<TABLE>
<CAPTION>
<S> <C>
VOYAGEUR ARIZONA LIMITED TERM TAX FREE FUNDS VOYAGEUR KANSAS TAX FREE FUND
VOYAGEUR ARIZONA INSURED TAX FREE FUND VOYAGEUR MINNESOTA LIMITED TERM TAX FREE FUND
VOYAGEUR ARIZONA TAX FREE FUND VOYAGEUR MINNESOTA INSURED FUND
VOYAGEUR CALIFORNIA LIMITED TERM TAX FREE FUND VOYAGEUR MINNESOTA TAX FREE FUND
VOYAGEUR CALIFORNIA INSURED TAX FREE FUND VOYAGEUR MISSOURI INSURED TAX FREE FUND
VOYAGEUR CALIFORNIA TAX FREE FUND VOYAGEUR NEW MEXICO TAX FREE FUND
VOYAGEUR COLORADO LIMITED TERM TAX FREE FUND VOYAGEUR NORTH DAKOTA TAX FREE FUND
VOYAGEUR COLORADO INSURED TAX FREE FUND VOYAGEUR OREGON INSURED TAX FREE FUND
VOYAGEUR COLORADO TAX FREE FUND VOYAGEUR UTAH TAX FREE FUND
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND VOYAGEUR WASHINGTON INSURED TAX FREE FUND
VOYAGEUR FLORIDA INSURED TAX FREE FUND VOYAGEUR WISCONSIN TAX FREE FUND
VOYAGEUR FLORIDA TAX FREE FUND VOYAGUER NATIONAL LIMITED TERM TAX FREE FUND
VOYAGEUR IDAHO TAX FREE FUND VOYAGEUR NATIONAL INSURED TAX FREE FUND
VOYAGEUR IOWA TAX FREE FUND VOYAGEUR NATIONAL TAX FREE FUND
</TABLE>
================================================================================
SUPPLEMENT DATED AUGUST 29, 1995 TO
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1995
================================================================================
The following new paragraph is added to the end of the section captioned
"Factors Affecting Minnesota Funds" on Page B-30 of the Statement of Additional:
The 1995 Minnesota Legislature has enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian
tribes be included in net income of individuals, estates and trusts
for Minnesota income tax purposes if a court determines that
Minnesota's exemption of such interest unlawfully discriminates
against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This
provision applies to taxable years that begin during or after the
calendar year in which any such court decision becomes final,
irrespective of the date on which the obligations were issued. The
Fund is not aware of any decision in which a court has held that a
state's exemption of interest on its own bonds or those of its
political subdivisions or Indian tribes, but not of interest on the
bonds of other states or their political subdivisions or Indian
tribes, unlawfully discriminates against interstate commerce or
otherwise contravenes the United States Constitution. Nevertheless,
the Fund cannot predict the likelihood that interest on the Minnesota
bonds held by the Fund would become taxable under this Minnesota
statutory provision.
FLORIDA TAX FREE FUND
FLORIDA INSURED TAX FREE FUND
FLORIDA LIMITED TERM TAX FREE FUND
ANNUAL REPORT
Dated December 31, 1995
Voyageur offers a family of mutual funds, each with an individual objective
stated in its prospectus. Investment objectives of the funds range from high
current income to long-term capital appreciation. Exchange privileges allow you
to change your investment between Voyageur Funds
as your objectives or market conditions change.
VOYAGEUR TAX FREE FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in investment
grade municipal bonds.
Voyageur ARIZONA Tax Free Fund Voyageur MINNESOTA Tax Free Fund
Voyageur CALIFORNIA Tax Free Fund Voyageur NATIONAL Tax Free Fund
Voyageur COLORADO Tax Free Fund Voyageur NEW MEXICO Tax Free Fund
Voyageur FLORIDA Tax Free Fund Voyageur NORTH DAKOTA Tax Free Fund
Voyageur IDAHO Tax Free Fund Voyageur UTAH Tax Free Fund
Voyageur IOWA Tax Free Fund Voyageur WISCONSIN Tax Free Fund
Voyageur KANSAS Tax Free Fund
VOYAGEUR INSURED TAX FREE FUNDS seek high current income free from both Federal
income taxes and state income taxes (where applicable) with the added safety of
an insured portfolio. The Funds invest in insured municipal bonds.
Voyageur ARIZONA Insured Voyageur MISSOURI Insured
Tax Free Fund Tax Free Fund
Voyageur CALIFORNIA Insured Voyageur NATIONAL Insured
Tax Free Fund Tax Free Fund
Voyageur FLORIDA Voyageur OREGON
Tax Free Fund Tax Free Fund
Voyageur MINNESOTA Insured Fund Voyageur WASHINGTON
Tax Free Fund
VOYAGEUR LIMITED TERM FUNDS seek to preserve original investment principal while
providing income free from both Federal income taxes and state income taxes
(where applicable). The Funds invest in intermediate term investment grade
municipal bonds.
Voyageur FLORIDA Limited Term Tax Free Fund Voyageur NATIONAL Limited
Voyageur MINNESOTA Limited Term Tax Free Fund Term Tax Free Fund
VOYAGEUR EQUITY FUNDS seek long term capital appreciation by investing in common
stocks.
Voyageur AGGRESSIVE GROWTH Fund Voyageur GROWTH Stock Fund
Voyageur GROWTH AND INCOME Fund Voyageur INTERNATIONAL Equity Fund
VOYAGEUR INCOME FUNDS seek high current income from investments issued,
guaranteed or otherwise backed by the full faith and credit of the U.S.
Government.
Voyageur U.S. GOVERNMENT SECURITIES Fund
VOYAGEUR CASH TRUST SERIES MONEY MARKET FUNDS seek high current income,
principal protection and liquidity by investing in money market instruments.
Voyageur CALIFORNIA MUNICIPAL CASH Series Voyageur MUNICIPAL CASH Series
Voyageur FLORIDA MUNICIPAL CASH Series Voyageur OHIO MUNICIPAL CASH Series
Voyageur GOVERNMENT CASH Series Voyageur PRIME CASH Series
Voyageur MINNESOTA MUNICIPAL CASH Series Voyageur TREASURY CASH Series
For more complete information regarding the investment objectives, fees and
expenses of the Funds, please obtain a prospectus from your Investment
Representative or from Voyageur, 90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402-4115; (612) 376-7044 (local); 800-525-6584 (MKTG).
Dear Shareholder:
1995 was an excellent year for municipal bond fund investors and I am pleased to
report that your Funds did extremely well.
As you may recall, the previous year, 1994, represented one of the most
difficult years for fixed income investors since the 1920s. Voyageur's
investment strategy, however, emphasizes total return over the long term.
Shareholders who maintained a long term outlook through 1994 are to be
congratulated for their patience. This patience was rewarded in 1995.
Two of the major factors contributing to the resurgence of the municipal bond
market this past year were:
* Progressively lower interest rates throughout the year. (Falling interest
rates directly increases the value of your Fund's portfolio, and hence your
shares.)
* A narrowing "spread" between yields on higher quality bonds versus lower
quality bonds. (Your Funds benefited from maintaining a large position in
quality bonds.)
In the following pages, Steve Eldredge, the Funds' portfolio manager, will
elaborate on these and other points of interest regarding the municipal bond
market in 1995 and will also share Voyageur's economic outlook for the next
fiscal year.
Finally, I'd like to apprise you of the amount of capital appreciation and
current income generated by the Funds on your behalf in 1995.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA TAX FREE FUND
TOTAL NET
NET ASSET NET ASSET ASSETS
VALUE VALUE DIVIDENDS END OF
BEGINNING END PAID PER PERIOD
OF PERIOD OF PERIOD SHARE (000'S)
--------- --------- ----- -------
PERIOD
- ------
Period ended December 31, 1995:
<S> <C> <C> <C> <C>
Class A Shares $10.00* $10.73 $0.49 $4,421
Class B Shares 10.37** 10.73 0.17 101
Class C Shares 10.20*** 10.73 0.36 9
___________________________________
*Net asset value at March 2, 1995 (commencement of operations)
**Net asset value at September 15, 1995 (commencement of operations)
***Net asset value at April 22, 1995 (commencement of operations)
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA INSURED TAX FREE FUND
TOTAL NET
NET ASSET NET ASSET ASSETS
VALUE VALUE DIVIDENDS END OF
BEGINNING END PAID PER PERIOD
OF PERIOD OF PERIOD SHARE (000'S)
--------- --------- ----- -------
PERIOD
- ------
Period ended December 31, 1995:
<S> <C> <C> <C> <C>
Class A Shares $9.52 $10.94 $0.56 $242,425
Class B Shares 9.52 10.94 0.52 2,814
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
TOTAL NET
NET ASSET NET ASSET ASSETS
VALUE VALUE DIVIDENDS END OF
BEGINNING END PAID PER PERIOD
OF PERIOD OF PERIOD SHARE (000'S)
--------- --------- ----- -------
PERIOD
- ------
Period ended December 31, 1995:
<S> <C> <C> <C> <C>
Class A Shares $9.64 $10.56 $0.53 $859
Class B Shares 10.58* 10.56 0.15 41
Class C Shares 10.08** 10.55 0.33 54
___________________________________
*Net asset value at September 15, 1995 (commencement of operations)
**Net asset value at March 23, 1995 (commencement of operations)
</TABLE>
I will be reporting to you again in August, 1996 to review the first half of the
coming year. In the interim, if you have any questions or comments about your
Funds, please call Voyageur's Shareholder Services Department at (800)545- 3863
or your financial advisor.
Thank you for investing with Voyageur.
Sincerely,
John G. Taft
President
Voyageur Florida Tax Free Fund
Voyageur Florida Insured Tax Free Fund
Voyageur Florida Limited Term Tax Free Fund
FUND INVESTMENT OBJECTIVES AND STRATEGIES
The primary objective of the Voyageur Florida Tax Free Fund is to seek as high a
level of current income free from federal income tax as is consistent with the
preservation of capital. Voyageur Florida Insured Tax Free Fund seeks as high a
level of current income free from federal income tax as is consistent with
preservation of capital, with the added safety of an insured portfolio. Voyageur
Florida Limited Term Tax Free Fund seeks to preserve original investment
principal while providing income free from federal income tax.
The Florida Tax Free Fund generally invests in long-term investment grade
municipal bonds; the Florida Insured Tax Free Fund generally invests in
long-term, insured municipal bonds; the Florida Limited Term Tax Free Fund
generally invests in intermediate-term, high quality municipal bonds. The Funds
are exempt from federal income tax and the Florida state intangibles tax. We
believe that insured municipal bonds for the Florida Insured Tax Free Fund and
investment grade municipal bonds for the Florida Tax Free Fund and the Florida
Limited Term Tax Free Fund offer the best value in today's interest rate
environment. The Voyageur Florida Insured Tax Free Fund adopted a modification
of an investment policy which will permit this Fund to retain insured municipal
bonds in its portfolio the rating of which is not lower than AA by Standard &
Poor's Ratings Service or Aa by Moody's Investor Service so long as such AA or
Aa insured municipal bonds do not exceed 35% of the Fund's total assets. Such
bonds must still have a AAA or Aaa rating at the time of initial investment by
the Fund.
DISCUSSION OF FUNDS PERFORMANCE
by Steven P. Eldredge
MR. ELDREDGE IS A SENIOR VICE PRESIDENT AND TAX EXEMPT PORTFOLIO MANAGER FOR
VOYAGEUR FUND MANAGERS AND MANAGES THE VOYAGEUR FLORIDA TAX FREE FUNDS. HE HAS
SPECIALIZED IN THE FLORIDA MUNICIPAL BOND MARKET SINCE 1978.
We are pleased to report the 1995 performance results of the Voyageur Florida
Tax Free Funds for the fiscal year ending December 31, 1995. Of the Voyageur
Florida Tax Free Fund, Voyageur Florida Insured Tax Free Fund and Voyageur
Florida Limited Term Tax Free Fund, only the Class 'A' and 'B' shares of the
Florida Insured Tax Free Fund and the Class 'A' shares of the Florida Limited
Term Tax Free Fund have been in operation for the entire fiscal year. The
Voyageur Florida Insured Tax Free Fund achieved a total return of +21.2% in 1995
for Class 'A' shares (assuming purchase at net asset value and reinvestment of
dividends and capital gains). Class 'B' shares achieved a +20.8% total return.
The Voyageur Florida Limited Term Tax Free Fund achieved a total return of
+15.1% in 1995 for Class 'A' shares (assuming purchase at net asset value and
reinvestment of dividends and capital gains). For information pertaining to
total returns, relative performance, and inception dates for the other Funds
and/or share classes, as well as information about the Funds' performance over
additional timeframes and including the effect of sales charges, please refer to
the charts on pages 8, 9 and 10.
FACTORS AFFECTING FUND PERFORMANCE IN 1995
As discussed in John Taft's introduction, a general downward trend in prevailing
interest rates had a positive impact on the net asset value of Funds shares in
1995. The Voyageur Florida Insured Fund's relative performance for the fiscal
year was very good, beating the industry average by over 3%. According to Lipper
Analytical Services, the Fund (Class 'A' shares) was ranked #5 of 73 Florida
municipal bond funds for one year total return. As a group, these 73 funds
achieved an average one year total return of +17.8%. The Voyageur Florida
Limited Term Tax Free Fund (Class 'A' shares) was ranked #2 of 22 Florida
intermediate municipal bond funds for one year total return. (Once again, please
refer to the charts on pages 8, 9 and 10 for additional performance
information.)
Each of the Funds was able to capture significant capital appreciation through
duration management. Longer duration funds experience wider fluctuations in
market prices than shorter duration funds. For example, the Voyageur Florida
Insured Tax Free Fund started 1995 with an average weighted duration of 11.8
years which allowed for a significant increase in net asset value. After having
captured this market rally, the duration of the Fund was systematically reduced,
closing the year at approximated 8.5 years. As of December 31, 1995, the
duration for the Voyageur Florida Tax Free Fund was 9.7 years, and the duration
for the Voyageur Florida Limited Term Tax Free Fund was 6.3 years.
The Funds also benefited from relative changes in value between high quality
bonds and lower quality bonds. As interest rate spreads between these two
classes of municipal bonds narrowed, high quality bonds (which had been
dramatically oversold during the 1994 bear market) gained significant relative
value. The Voyageur Florida Insured Tax Free Fund is comprised exclusively of
bonds rated AAA and/or Aaa by Moody's Investors Service and/or Standard & Poor's
Ratings Service; Seventy-six percent of the Voyageur Florida Tax Free Fund's
portfolio was comprised of bonds rated A/a or higher; and ninety-four percent of
the Voyageur Florida Limited Term Tax Free Fund's portfolio was comprised of
bonds rated A/a or higher. As you can see, throughout 1995, asset quality
remained high in all the Voyageur Florida Tax Free Funds.
Finally, supply and demand trends of municipal bonds benefited Fund
shareholders. Even though the economy grew at a steady pace in 1995, new
issuance of municipal bonds remained low. The primary reason for this lower rate
of new issuance stems from some municipal bond refinancing limitations
established under the Tax Reform Act of 1986. A lower level of supply of
municipal bonds favors existing bond holders, particularly large institutional
buyers, such as mutual funds.
OUTLOOK FOR 1996
Our outlook for the municipal bond market remains bullish. However, we do not
anticipate as significant levels of total return in the upcoming year as was
achieved in 1995.
Our 1996 economic outlook calls for:
* CONTINUED LOW RATES OF INFLATION. We expect a Consumer Price Index (CPI)
increase of from 2.5% to 2.8%.
* SLOWING OF ECONOMIC GROWTH. In 1995, U.S. Gross Domestic Product (GDP)
climbed about 3%. Voyageur's 1996 projection for GDP calls for an increase
of about 2.4%.
* STABLE TO SLIGHTLY DECLINING INTEREST RATES. During 1995, the Federal
Reserve Board encouraged lower interest rates by reducing the Federal Funds
Rate by a total of .5%. (Rates were subsequently lowered by an additional
.25% in February 1996.) We expect further reductions of .5% to .75%, which
will likely occur well in advance of the November elections.
In conclusion, Voyageur believes the municipal bond market will have a good year
in 1996. However, we advise against expectations of total return levels achieved
in 1995.
PURSUANT TO RULE 232.304(a) OF REGULATION S-T THE FOLLOWING IS A TABULAR
REPRESENTATION OF A LINE GRAPH FOR VOYAGEUR FLORIDA INSURED TAX FREE FUND
PORTFOLIO ABSTRACT FOR THE PERIOD ENDED DECEMBER 31, 1995. THE DATA REPRESENTS
THE CUMULATIVE TOTAL RETURN OF A HYPOTHETICAL INVESTMENT IN CLASS A SHARES OF
$10,000 MADE ON THE DATE THE FUND COMMENCED OPERATIONS THROUGH DECEMBER 31,
1995.
ENDING VALUE ENDING VALUE ENDING VALUE
WITH SALES WITHOUT SALES LEHMAN BROS.
DATE CHARGE CHARGE BOND INDEX
- ---- ------ ------ ----------
Jan-92 9525 10000 10000
Jan-92 9643.05 10123.93 10030
Feb-92 9651.98 10133.31 10026.991
Mar-92 9675.83 10158.35 10026.993
Apr-92 9728.39 10213.53 10115.23
May-92 9869.03 10361.19 10234.59
Jun-92 10030.62 10530.84 10418.813
Jul-92 10340.44 10856.11 10779.304
Aug-92 10177.52 10685.06 10644.562
Sep-92 10271.99 10784.24 10696.721
Oct-92 10167.37 10674.41 10573.708
Nov-92 10443.41 10964.21 10815.846
Dec-92 10596.87 11125.33 10932.657
Jan-93 10724.39 11259.2 11054.01
Feb-93 11067.84 11619.78 11502.803
Mar-93 11092.39 11645.55 11363.619
Apr-93 11209.6 11768.61 11496.573
May-93 11276.01 11838.33 11571.301
Jun-93 11468.08 12039.98 11766.856
Jul-93 11482.84 12055.47 11791.566
Aug-93 11759.82 12346.26 12045.085
Sep-93 11878.85 12471.23 12186.012
Oct-93 11923.58 12518.19 12201.854
Nov-93 11764.28 12350.95 12087.157
Dec-93 11946.6 12542.36 12356.7
Jan-94 12206 12814.7 12500.038
Feb-94 11868.75 12460.63 12151.287
Mar-94 11365.16 11931.92 11581.392
Apr-94 11143.37 11699.07 11699.522
May-94 11305.18 11868.95 11813.007
Jun-94 11201.5 11760.1 11725.591
Jul-94 11442.93 12013.58 11970.656
Aug-94 11439.28 12009.74 11986.218
Sep-94 11199.55 11758.06 11788.445
Oct-94 10924.92 11469.73 11549.14
Nov-94 10592.61 11120.85 11340.1
Dec-94 10912.52 11456.71 11617.933
Jan-95 11310.29 11874.32 12003.648
Feb-95 11825.13 12414.84 12373.36
Mar-95 11959.84 12556.26 12510.705
Apr-95 11955.02 12551.21 12521.964
May-95 12395.1 13013.23 12943.955
Jun-95 12237.69 12847.97 12801.571
Jul-95 12280.66 12893.08 12903.984
Aug-95 12371.45 12988.4 13078.187
Sep-95 12569.35 13196.17 13168.427
Oct-95 12791.99 13429.91 13392.29
Nov-95 13051.93 13702.81 13633.351
Dec-95 13228.35 13888.03 13773.775
VOYAGEUR FLORIDA INSURED TAX FREE FUND
AVERAGE ANNUAL TOTAL RETURNS
(CLASS A SHARES)
----------------
SINCE
1 Year 1/1/92**
------ --------
Without Sales Charge 21.22% 8.56%
With Sales Charge* 15.46% 7.24%
Lehman Bros. Long 18.56% 8.33%
Insured Municipal
Bond Index
VOYAGEUR FLORIDA INSURED TAX FREE FUND
AVERAGE ANNUAL TOTAL RETURNS
(CLASS B SHARES)
----------------
SINCE
1 Year 3/11/94**
------ ---------
Without Contingent 20.76% 6.80%
Deferred Sales Charge
With Contingent 16.76% 4.68%
Deferred Sales Charge***
*Averagve annual total returns include th emaximum 4.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1995.
PURSUANT TO RULE 232.304(a) OF REGULATION S-T THE FOLLOWING IS A TABULAR
REPRESENTATION OF A LINE GRAPH FOR VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
PORTFOLIO ABSTRACT FOR THE PERIOD ENDED DECEMBER 31, 1995. THE DATA REPRESENTS
THE CUMULATIVE TOTAL RETURN OF A HYPOTHETICAL INVESTMENT IN CLASS A SHARES OF
$10,000 MADE ON THE DATE THE FUND COMMENCED OPERATIONS THROUGH DECEMBER 31,
1995.
ENDING VALUE ENDING VALUE ENDING VALUE
WITH SALES WITHOUT SALES LEHMAN BROS.
DATE CHARGE CHARGE BOND INDEX
- ---- ------ ------ ----------
May-94 9725 10000 10000
Jun-94 9735.79 10011.1 10044.975
Jul-94 9741.25 10016.71 10161.4967
Aug-94 9830.86 10108.86 10210.2719
Sep-94 9729.83 10004.97 10141.8631
Oct-94 9622.66 9894.76 10074.9268
Nov-94 9475.88 9743.84 9983.24494
Dec-94 9574.7 9845.45 10096.0556
Jan-95 9773.89 10050.27 10221.2467
Feb-95 10033.9 10317.63 10400.1185
Mar-95 10134.56 10421.14 10506.1997
Apr-95 10185.12 10473.13 10546.1233
May-95 10438.14 10733.31 10767.5919
Jun-95 10489.16 10785.77 10785.8968
Jul-95 10571.15 10870.08 10917.4847
Aug-95 10684.3 10986.42 11016.8338
Sep-95 10787.33 11092.37 11044.3759
Oct-95 10870.25 11177.64 11111.7466
Nov-95 10974.18 11284.51 11212.8635
Dec-95 11023.9 11335.63 11271.1704
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
AVERAGE ANNUAL TOTAL RETURNS
(CLASS A SHARES)
----------------
SINCE
1 Year 5/1/94**
------ --------
Without Sales Charge 15.14% 7.79%
With Sales Charge* 11.97% 6.01%
Lehman Bros. 5 11.64% 7.44%
Year Municipal
Bond Index
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
TOTAL RETURNS
(CLASS B SHARES
---------------
SINCE
9/15/95**
---------
Without Contingent Deferred 1.13%
Sales Charge
With Contingent Deferred (1.87%)
Sales Charge***
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
TOTAL RETURNS
(CLASS C SHARES)
----------------
SINCE
3/23/95**
---------
7.95%
* Average annual total returns include the maximum 2.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1995.
PURSUANT TO RULE 232.304(a) OF REGULATION S-T THE FOLLOWING IS A TABULAR
REPRESENTATION OF A LINE GRAPH FOR VOYAGEUR FLORIDA TAX FREE FUND PORTFOLIO
ABSTRACT FOR THE PERIOD ENDED DECEMBER 31, 1995. THE DATA REPRESENTS THE
CUMULATIVE TOTAL RETURN OF A HYPOTHETICAL INVESTMENT IN CLASS A SHARES OF
$10,000 MADE ON THE DATE THE FUND COMMENCED OPERATIONS THROUGH DECEMBER 31,
1995.
ENDING VALUE ENDING VALUE ENDING VALUE
WITH SALES WITHOUT SALES LEHMAN BROS.
DATE CHARGE CHARGE BOND INDEX
- ---- ------ ------ ----------
Mar-95 9525 10000 10000
Mar-95 9651.875 10133.2 10110.3024
Apr-95 9649.213 10130.41 10108.2803
May-95 9993.627 10492 10489.3625
Jun-95 9886.06 10379.07 10327.8263
Jul-95 9914.973 10409.42 10381.531
Aug-95 9983.76 10481.64 10523.758
Sep-95 10131.06 10636.28 10606.8957
Oct-95 10347.73 10863.76 10832.8225
Nov-95 10565.78 11092.69 11072.2279
Dec-95 10714.71 11249.04 11227.2391
VOYAGEUR FLORIDA TAX FREE FUND
TOTAL RETURNS
(CLASS A SHARES)
----------------
SINCE
3/2/95**
--------
Without Sales Charge 12.49%
With Sales Charge* 7.15%
Lehman Bros. 20 12.27%
Year Municipal
Bond Index
VOYAGEUR FLORIDA TAX FREE FUND
TOTAL RETURNS
(CLASS B SHARES)
----------------
SINCE
9/15/95**
---------
Without Contingent Deferred 5.10%
Sales Charge
With Contingent Deferred 1.10%
Sales Charge***
VOYAGEUR FLORIDA TAX FREE FUND
TOTAL RETURNS
(CLASS C SHARES)
----------------
SINCE
4/22/95**
---------
8.88%
* Average annual total returns include the maximum 4.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1995.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
Voyageur Investment Trust
Voyageur Investment Trust II:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Voyageur Florida Tax
Free Fund and Voyageur Florida Insured Tax Free Fund (funds within Voyageur
Investment Trust) and Voyageur Florida Limited Term Tax Free Fund (a fund within
Voyageur Investment Trust II) as of December 31, 1995, the related statements of
operations for the year ended December 31, 1995 (period from March 2, 1995,
commencement of operations, to December 31, 1995 for Voyageur Florida Tax Free
Fund), the statements of changes in net assets for the period from March 2,
1995, commencement of operations, to December 31, 1995 for Voyageur Florida Tax
Free Fund, the year ended December 31, 1995, the two-month period ended December
31, 1994 and the year ended October 31, 1994 for Voyageur Florida Insured Tax
Free Fund and for the year ended December 31, 1995 and the period from May 1,
1994, commencement of operations, to December 31, 1994 for Voyageur Florida
Limited Term Tax Free Fund and the financial highlights for the periods
presented in note 6. These financial statements and the financial highlights are
the responsibility of Fund management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased but not received, we request confirmations
from brokers and where replies are not received we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Voyageur Florida Tax Free Fund, Voyageur Florida Insured Tax Free
Fund and Voyageur Florida Limited Term Tax Free Fund as of December 31, 1995,
and the results of their operations, changes in their net assets and the
financial highlights for the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis Minnesota
February 9, 1996
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
VOYAGEUR VOYAGEUR VOYAGEUR
FLORIDA FLORIDA FLORIDA
TAX FREE INSURED LIMITED TERM
FUND TAX FREE FUND TAX FREE FUND
-------- ------------- -------------
ASSETS
<S> <C> <C> <C>
Investments in securities, at market value (note 1) (identified cost:
$4,389,074, $235,230,708 and $821,038, respectively)........ $4,604,360 $247,437,810 $ 854,931
Cash in bank on demand deposit................................. 72,479 -- 123,605
Accrued interest receivable.................................... 75,217 4,230,248 12,296
Receivable for Fund shares sold................................ 15,005 37,037 --
Organizational costs (note 4).................................. -- 20,052 30,714
---------- ------------ ---------
Total assets................................................ 4,767,061 251,725,147 1,021,546
---------- ------------ ---------
LIABILITIES
Bank overdraft................................................. -- 964,984 --
Dividends payable to shareholders.............................. 28,557 1,036,979 6,113
Payable for Fund shares redeemed............................... -- 180,500 --
Payable for investment securities purchased.................... 196,415 4,219,250 49,683
Distribution fees payable...................................... 4,806 8,234 186
Other accrued expenses......................................... 6,321 75,870 11,850
---------- ------------ ---------
Total liabilities........................................... 236,099 6,485,817 67,832
---------- ------------ ---------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES.................... $4,530,962 $245,239,330 $ 953,714
========== ============ =========
Represented by:
Paid-in capital (note 1).................................... $4,315,638 $245,805,537 $ 912,144
Undistributed net investment income......................... 38 69,987 7,677
Accumulated net realized loss on investments (note 1)....... -- (12,843,296) --
Unrealized appreciation of investments...................... 215,286 12,207,102 33,893
---------- ------------ ---------
Total net assets.......................................... $4,530,962 $245,239,330 $ 953,714
========== ============ =========
Net assets applicable to outstanding Class A Shares............ $4,421,203 $242,425,038 $ 859,162
========== ============ =========
Net assets applicable to outstanding Class B Shares............ $ 101,114 $ 2,814,292 $ 40,907
========== ============ =========
Net assets applicable to outstanding Class C Shares............ $ 8,645 N/A $ 53,645
========== ============ =========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - Shares of beneficial interest outstanding: 412,140,
22,159,712 and 81,392, respectively (note 5).............. $10.73 $10.94 $10.56
====== ====== ======
Class B - Shares of beneficial interest outstanding: 9,424,
257,299 and 3,875, respectively (note 5).................. $10.73 $10.94 $10.56
====== ====== ======
Class C - Shares of beneficial interest outstanding: 806,
N/A and 5,083, respectively (note 5)...................... $10.73 N/A $10.55
====== ======= ======
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------------
VOYAGEUR VOYAGEUR VOYAGEUR
FLORIDA FLORIDA FLORIDA
TAX FREE INSURED LIMITED TERM
FUND* TAX FREE FUND TAX FREE FUND
-------- ------------- -------------
Investment income:
<S> <C> <C> <C>
Interest............................................ $123,053 $14,154,310 $32,584
-------- ----------- -------
Expenses (note 3):
Investment advisory and management fee.............. 10,974 1,235,118 2,665
Dividend-disbursing, administrative and
accounting services fees.......................... 15,010 325,819 10,995
Printing, postage and supplies...................... 959 53,809 1,052
Audit and accounting fees........................... 2,832 18,817 2,633
Legal fees.......................................... 546 5,091 671
Distribution fees - Class A......................... 5,427 611,873 1,536
Distribution fees - Class B......................... 195 22,840 120
Distribution fees - Class C......................... 48 N/A 402
Directors' fees..................................... 475 12,978 133
Registration fees................................... 1,970 2,516 838
Custodian fees...................................... 2,642 37,020 6,702
Amortization of organizational costs................ -- 15,794 3,300
Other .............................................. 1,099 15,656 94
-------- ----------- -------
Total expenses.................................... 42,177 2,357,331 31,141
Less: Expenses waived or absorbed.................. (35,099) (1,089,651) (26,419)
-------- ----------- -------
Net expenses before earnings credits on uninvested cash 7,078 1,267,680 4,722
Less: Earnings credits on uninvested cash.......... (46) (37,020) (111)
-------- ----------- -------
Total net expenses................................ 7,032 1,230,660 4,611
-------- ----------- -------
Investment income - net........................... 116,021 12,923,650 27,973
-------- ----------- -------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on security transactions (note 2) 8,195 (10,106,237) 2,938
Net change in unrealized appreciation or
depreciation of investments....................... 215,286 44,984,832 56,693
-------- ----------- -------
Net gain on investments........................... 223,481 34,878,595 59,631
-------- ----------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $339,502 $47,802,245 $87,604
======== =========== =======
___________________________________
* Period from March 2, 1995 (commencement of operations) to December 31, 1995.
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------
VOYAGEUR FLORIDA
TAX FREE FUND
----------------
PERIOD FROM
MARCH 2, 1995*
TO DECEMBER 31,
Operations: 1995
----------------
<S> <C>
Investment income - net........................................................ $ 116,021
Realized gain (loss) on investments - net...................................... 8,195
Net change in unrealized appreciation or depreciation of investments .......... 215,286
----------
Net increase (decrease) in net assets resulting from operations.............. 339,502
----------
Distributions to shareholders from:
Investment income - net:
Class A...................................................................... (114,869)
Class B...................................................................... (890)
Class C...................................................................... (224)
Net realized gain on investments:
Class A...................................................................... (8,023)
Class B...................................................................... (156)
Class C...................................................................... (16)
----------
Total distributions............................................................ (124,178)
----------
Share transactions (note 5)
Proceeds from sale of shares:
Class A (note 3)............................................................. 7,295,342
Class B...................................................................... 98,749
Class C...................................................................... 8,000
Net asset value of shares issued in reinvestment of net investment income and
realized gain distributions:
Class A.................................................................... 58,440
Class B.................................................................... 127
Class C.................................................................... 188
Payments for redemption of shares:
Class A...................................................................... (3,145,208)
Class B (note 3)............................................................. --
Class C (note 3)............................................................. --
----------
Increase (decrease) in net assets from share transactions...................... 4,315,638
----------
Total increase (decrease) in net assets...................................... 4,530,962
Net assets at beginning of period................................................. --
----------
Net assets at end of period (including undistributed net investment income of
$38, $69,987, $456,366, $226,091, $7,677 and $4,101, respectively)............. $4,530,962
==========
_________________________________
* Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
VOYAGEUR FLORIDA
INSURED TAX FREE FUND
-------------------------------------------
YEAR TWO MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1995 1994 (NOTE 1) 1994
------------ ------------ -------------
Operations:
<S> <C> <C> <C>
Investment income - net.................................................... $ 12,923,650 2,550,708 $ 15,534,263
Realized gain (loss) on investments - net.................................. (10,106,237) (2,714,141) 998,155
Net change in unrealized appreciation or depreciation of investments ...... 44,984,832 (598,143) (42,668,553
------------ ------------ -------------
Net increase (decrease) in net assets resulting from operations.......... 47,802,245 (761,576) (26,136,135
------------ ------------ -------------
Distributions to shareholders from:
Investment income - net:
Class A.................................................................. (13,200,309) (2,309,982) (15,291,790
Class B.................................................................. (111,406) (10,719) (19,754
Class C.................................................................. N/A N/A N/A
Net realized gain on investments:
Class A.................................................................. -- (362,080) (1,658,750
Class B.................................................................. -- (2,123) (965
Class C.................................................................. N/A N/A N/A
------------ ------------ -------------
Total distributions........................................................ (13,311,715) (2,684,904) (16,971,259
------------ ------------ -------------
Share transactions (note 5)
Proceeds from sale of shares:
Class A (note 3)......................................................... 15,868,684 1,526,367 65,436,366
Class B.................................................................. 1,240,744 349,116 1,262,199
Class C.................................................................. N/A N/A N/A
Net asset value of shares issued in reinvestment of net
investment income and realized gain distributions:
Class A................................................................ 3,537,588 336,032 4,711,199
Class B................................................................ 35,055 1,922 10,015
Class C................................................................ N/A N/A N/A
Payments for redemption of shares:
Class A.................................................................. (51,412,855) (17,898,652) (57,085,493
Class B (note 3)......................................................... (225,432) (336) (72,097
Class C (note 3)......................................................... N/A N/A N/A
------------ ------------ -------------
Increase (decrease) in net assets from share transactions.................. (30,956,216) (15,685,551) 14,262,189
------------ ------------ -------------
Total increase (decrease) in net assets.................................. 3,534,314 (19,132,031) (28,845,205
Net assets at beginning of period............................................. 241,705,016 260,837,047 289,682,252
------------ ------------ -------------
Net assets at end of period (including undistributed net investment income of
$38, $69,987, $456,366, $226,091, $7,677 and $4,101, respectively)......... $245,239,330 $241,705,016 $260,837,047
============ ============ ============
_________________________________
* Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
VOYAGEUR FLORIDA
LIMITED TERM TAX FREE FUND
---------------------------------
YEAR PERIOD FROM
ENDED MAY 1, 1994* TO
DECEMBER 31, DECEMBER 31,
1995 1994
--------- ----------
Operations:
<S> <C> <C>
Investment income - net........................................................ $ 27,973 $ 10,091
Realized gain (loss) on investments - net...................................... 2,938 --
Net change in unrealized appreciation or depreciation of investments .......... 56,693 (22,800)
---------- ------------
Net increase (decrease) in net assets resulting from operations.............. 87,604 (12,709)
---------- ------------
Distributions to shareholders from:
Investment income - net:
Class A...................................................................... (28,766) (10,149)
Class B...................................................................... (436) N/A
Class C...................................................................... (1,435) N/A
Net realized gain on investments:
Class A...................................................................... (2,605) --
Class B...................................................................... (144) N/A
Class C...................................................................... (189) N/A
-------- ----------
Total distributions............................................................ (33,575) (10,149)
-------- ----------
Share transactions (note 5)
Proceeds from sale of shares:
Class A (note 3)............................................................. 902,017 1,066,161
Class B...................................................................... 40,710 N/A
Class C...................................................................... 50,007 N/A
Net asset value of shares issued in reinvestment of net investment income and
realized gain distributions:
Class A.................................................................... 14,355 7,664
Class B.................................................................... 302 N/A
Class C.................................................................... 1,271 N/A
Payments for redemption of shares:
Class A...................................................................... (701,186) (458,748)
Class B (note 3)............................................................. (10) N/A
Class C (note 3)............................................................. -- N/A
-------- ----------
Increase (decrease) in net assets from share transactions...................... 307,466 615,077
-------- ----------
Total increase (decrease) in net assets...................................... 361,495 592,219
Net assets at beginning of period................................................. 592,219 --
-------- ----------
Net assets at end of period (including undistributed net investment income of
$38, $69,987, $456,366, $226,091, $7,677 and $4,101, respectively)............. $953,714 $ 592,219
======== ==========
__________________________________
* Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
THE VOYAGEUR FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Voyageur Florida Tax Free Fund (Florida Tax Free Fund) and the Voyageur
Florida Insured Tax Free Fund (Florida Insured Tax Free Fund), funds within the
Voyageur Investment Trust, a Massachusetts business trust registered under the
Investment Company Act of 1940 (as amended) as open-end management investment
companies with an unlimited number of authorized shares of beneficial interest.
Voyageur Florida Limited Term Tax Free Fund (Florida Limited Term Fund) is a
fund within Voyageur Investment Trust II, a Massachusetts business trust
registered under the Investment Company Act of 1940 (as amended) as an open-end
management investment company with an unlimited number of authorized shares of
beneficial interest. Florida Tax Free Fund seeks high current income free from
federal income tax and state intangibles tax by investing in investment grade
municipal bonds. Florida Insured Tax Free Fund seeks high current income free
from federal income tax and state intangibles tax with the added safety of an
insured portfolio by investing in insured municipal bonds. Florida Limited Term
Fund seeks to preserve original investment principal while providing income free
both federal income tax and state intangibles tax by investing in intermediate
term investment grade municipal bonds.
Florida Tax Free Fund, Florida Insured Tax Free Fund and Florida Limited
Term Fund (the Funds) each offer Class A, Class B and Class C Shares. As of
December 31, 1995 Florida Insured Tax Free Fund had no Class C Shares
outstanding. Class A Shares are sold with a front-end sales charge. Class B
Shares, first offered in 1995 by Florida Tax Free Fund and Florida Limited Term
Fund, may be subject to a contingent deferred sales charge and such shares
automatically convert to Class A after eight years. Class C Shares, first
offered in 1995 by Florida Tax Free Fund and Florida Insured Tax Free Fund, are
not subject to a contingent deferred sales charge or a front-end sales charge
and have no conversion feature. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that the level of distribution fees charged differ between classes. Income,
expenses (other than expenses incurred under each class' Distribution Agreement)
and realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets. Florida Insured Tax Free
Fund is registered as a diversified Fund. Florida Limited Term Fund and Florida
Tax Free Fund are registered as non-diversified Funds. Effective December 31,
1994, Florida Insured Tax Free Fund changed its fiscal year from October 31 to
December 31. The significant accounting policies followed by the Funds are
summarized as follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net increase (decrease) in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
INVESTMENTS IN SECURITIES
Securities are valued at fair value as determined by the Board of Trustees.
Determination of fair value involves, among other things, using pricing services
or prices quoted by independent brokers. Short-term securities are valued at
amortized cost which approximates market value.
Security transactions are accounted for on the trade date. Securities gains
and losses are calculated on the identified-cost basis. Interest income,
including level-yield amortization of premium and original issue discount, is
accrued daily.
The Funds concentrate their investments in limited geographical areas and
therefore, may have more credit risk related to the economic conditions of these
areas than a portfolio with broader geographical diversification.
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
their income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the Funds. Net investment income and net realized
gains (losses) for the Funds may differ for financial statement and tax purposes
primarily because of losses deferred for tax purposes due to "wash sale"
transactions. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Funds. For federal income tax purposes, Florida Insured Tax Free Fund had a
capital loss carryover at December 31, 1995, of $12,820,379 that will expire in
2003 if not offset by subsequent capital gains. It is unlikely the Board of
Trustees will authorize a distribution of any net realized capital gains until
the available capital loss carryover has been offset or expires.
On the statements of assets and liabilities for Florida Insured Tax Free
Fund and Florida Limited Term Fund, as a result of permanent book-to-tax
differences, reclassification adjustments have been made to increase
undistributed net investment income and decrease additional paid-in capital by
$1,686 and $6,240, respectively.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends declared daily from net investment income are payable monthly in
cash or reinvested in additional shares of the Funds. Net short-term realized
capital gains, if any, may be distributed throughout the year and net long-term
realized capital gains, when available, are distributed annually.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the Funds
on a forward commitment or when-issued basis can take place up to a month or
more after the transaction date. During this period, such securities are subject
to market fluctuations and the portfolio maintains, in a segregated account with
its custodian, assets with a market value equal to or greater than the amount of
its purchase commitments.
(2) INVESTMENT SECURITIES TRANSACTIONS
Purchase cost and proceeds of sales of investment securities other than
short-term securities aggregated $6,011,801 and $1,630,922, for Florida Tax Free
Fund, $249,601,438 and $272,862,304 for Florida Insured Tax Free Fund and
$425,593 and $176,481 for Florida Limited Term Fund during the period ended
December 31, 1995, respectively.
(3) EXPENSES
Each Fund has an investment advisory and management fee agreement with
Voyageur Fund Managers, Inc. (Voyageur) under which Voyageur manages the Funds'
assets and provides other specified services. The fee for investment management
and advisory services is payable monthly and is based on the average daily net
assets of each Fund at the annual rate of .50% for Florida Tax Free Fund and for
Florida Insured Tax Free Fund and .40% for Florida Limited Term Fund. In
addition, the Funds will pay most other operating expenses including directors'
fees, registration fees, printing of shareholder reports, legal and auditing
services and other miscellaneous expenses. There was no portfolio insurance
expense for Florida Insured Tax Free Fund. Portfolio insurance expense, if any,
is recognized over the premium period. Voyageur is obligated to pay all expenses
of the Funds (excluding distribution fees, insurance premiums on portfolio
securities, taxes, interest and brokerage commissions) which exceed 1% of
average daily net assets, on an annual basis. During the period ended December
31, 1995, Voyageur absorbed $14,412 for Florida Tax Free Fund and $22,410 for
Florida Limited Term Fund pursuant to the contractual 1% expense limitation and,
excluding waiver of distribution fees, voluntarily absorbed $20,588 for Florida
Tax Free Fund, $480,000 for Florida Insured Tax Free Fund and $2,590 for Florida
Limited Term Fund. During the period ended December 31, 1995, credits earned on
uninvested cash balances held by each Fund at the custodian were $46 for Florida
Tax Free Fund, $48,512 for Florida Insured Tax Free Fund and $111 for Florida
Limited Term Fund. Of these credits, $46, $37,020 and $111, respectively, were
used to reduce certain fees for various custodial, pricing and accounting
services provided by the custodian bank. The remaining $11,492 in credits for
Florida Insured Tax Free Fund are included in interest income.
The Funds will also pay a fee to Voyageur for acting as the Funds'
dividend-disbursing, administrative and accounting services agent. The fee is
paid monthly and is equal to the sum of $1.33 per shareholder account per month,
a fixed monthly fee ranging from $1,000 to $1,500 based on the level of each
Fund's average daily net assets and an annualized percentage of average daily
net assets at reducing rates from .11% to .02%. Each Fund is also responsible
for reimbursing Voyageur's out-of-pocket expense in connection with the
performance of dividend-disbursing, administrative and accounting services.
Each Fund has a Distribution Agreement under Rule 12b-1 of the Investment
Company Act of 1940 with Voyageur Fund Distributors, Inc. (Fund Distributors).
Under these plans, each Fund is obligated to pay Fund Distributors a monthly
distribution fee at an annual rate of .25% of each Fund's average daily net
assets of the Class A Shares and 1.00% of each Fund's average daily net assets
of the Class B Shares and Class C Shares. Fund Distributors may waive all or
part of its distribution fee at its sole discretion. During the period ended
December 31, 1995, Fund Distributors voluntarily waived Class A distribution
fees of $595,950 for Florida Insured Tax Free Fund and $1,389 for Florida
Limited Term Fund; and Class B distribution fees of $99 for Florida Tax Free
Fund, $13,701 for Florida Insured Tax Free Fund and $30 for Florida Limited Term
Fund.
Sales charges paid by Class A shareholders were $42,789 Florida Tax Free
Fund, $355,988 for Florida Insured Tax Free Fund and $3,866 for Florida Limited
Term Fund. Of these amounts, Fund Distributors received $6,121 for Florida Tax
Free Fund, $46,946 for Florida Insured Tax Free Fund and $741 for Florida
Limited Term Fund. Contingent deferred sales charges for the year ended December
31, 1995 were $1,166 for Florida Insured Tax Free Fund's Class B shareholders.
(4) ORGANIZATIONAL COSTS
Organizational costs for the Funds are being amortized over 60 months on an
inverse acceleration (sum-of-the-years digits) basis. If Voyageur redeems any or
all of its shares in the Funds representing initial capital prior to the end of
the 60-month amortization period, Voyageur will reimburse the Fund for the
unamortized balance in the same proportion as the number of shares redeemed bear
to the number of initial shares outstanding at the time of redemption.
(5) SHARE TRANSACTIONS
Transactions in shares of beneficial interest during each period were as
follows:
<TABLE>
<CAPTION>
FLORIDA TAX FREE FUND
------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------- ------------------ ---------------
PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 2, 1995* SEPTEMBER 15, 1995* APRIL 22, 1995*
TO DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1995 1995 1995
----------------- ------------------ ---------------
<S> <C> <C> <C>
Shares sold............................... 714,330 9,412 788
Shares issued for
reinvested distributions............... 5,684 12 18
Shares redeemed........................... (307,874) -- --
------------ --------- -------
Increase in shares outstanding............ 412,140 9,424 806
============ ======== =======
_______________________________
* Commencement of operations
</TABLE>
<TABLE>
<CAPTION>
FLORIDA INSURED TAX FREE FUND
-----------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------- ---------------------------------------
PERIOD FROM
YEAR TWO MONTHS YEAR YEAR TWO MONTHS MARCH 1,
ENDED ENDED ENDED ENDED ENDED 1994* TO
DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1995 1994 1994 1995 1994 1994
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................. 1,522,503 163,472 6,083,008 120,147 37,194 123,827
Shares issued for
reinvested distributions.. 344,908 36,293 450,509 3,406 208 1,002
Shares redeemed.............. (4,946,296) (1,913,092) (5,567,599) (21,459) (36) (6,990)
----------- ----------- ----------- -------- -------- --------
Increase (decrease) in
shares outstanding........ (3,078,885) (1,713,327) 965,918 102,094 37,366 117,839
============ =========== =========== ======== ======== ========
_______________________________
* Commencement of operations
</TABLE>
<TABLE>
<CAPTION>
FLORIDA LIMITED TERM FUND
--------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------------- ------------------- ---------------
YEAR PERIOD FROM PERIOD FROM PERIOD FROM
ENDED MAY 1, 1994* TO SEPTEMBER 15, 1995* MARCH 23, 1995*
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1995
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Shares sold............................... 88,686 107,691 3,848 4,960
Shares issued for
reinvested distributions............... 1,412 785 28 123
Shares redeemed........................... (70,114) (47,068) (1) --
-------- -------- -------- ------
Increase in shares outstanding............ 19,984 61,408 3,875 5,083
======== ======== ======== =======
_______________________________
* Commencement of operations
</TABLE>
(6) FINANCIAL HIGHLIGHTS
Per share data (rounded to the nearest cent) for a share of beneficial interest
outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
FLORIDA TAX FREE FUND
----------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------- --------------------- -----------------
PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 2, 1995(a) SEPTEMBER 15, 1995(a) APRIL 22, 1995(a)
TO DECEMBER 31, TO DECEMBER 31, TO DECEMBER, 31
1995 1995 1995
----------------- --------------------- -----------------
Net asset value:
<S> <C> <C> <C>
Beginning of period........................... $10.00 $10.37 $10.20
------ ------ ------
Operations:
Net investment income......................... .47 .15 .33
Net realized and unrealized loss on investments .75 .38 .56
------ ------ ------
Total from operations......................... 1.22 .53 .89
------ ------ ------
Distributions to shareholders:
From net investment income (b)................ (.47) (.15) (.34)
From net realized gains....................... (.02) (.02) (.02)
------ ------ ------
Total distributions......................... (.49) (.17) (.36)
------ ------ ------
Net asset value:
End of period................................. $10.73 $10.73 $10.73
====== ====== ======
Total investment return (c)...................... 12.49% 5.10% 8.88%
Net assets at end of period (000's omitted)...... $4,421 $101 $9
Ratios:
Ratio of expenses to
average daily net assets (f)................ .32%(e) .44%(e) 1.11%(e)
Ratio of net investment income
to average daily net assets................. 5.26%(e) 4.88%(e) 4.57%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (d).......................... 1.25%(e) 2.00%(e) 2.00%(e)
Net investment income................. 4.33%(e) 3.32%(e) 3.68%(e)
Portfolio turnover rate (excluding
short-term securities)........................ 63.52% 63.52% 63.52%
See accompanying notes to Financial Highlights.
</TABLE>
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FLORIDA INSURED TAX FREE FUND
-------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
PERIOD FROM
YEAR TWO MONTHS JANUARY 1,
ENDED ENDED 1992(a) TO
DECEMBER 31, DECEMBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
1995 1994 1994 1993 1992
------ ----- ------ ------ ------
Net Asset Value:
<S> <C> <C> <C> <C> <C>
Beginning of period...................... $ 9.52 $9.64 $11.15 $10.11 $10.00
------ ----- ------ ------ ------
Operations:
Net investment income.................... .54 .10 .55 .58 .51
Net realized and unrealized
gain (loss) on investments ........... 1.44 (.12) (1.46) 1.12 .15
------ ----- ------ ------ ------
Total from operations................ 1.98 (.02) (.91) 1.70 .66
------ ----- ------ ------ ------
Distributions to shareholders:
From net investment income (b)........... (.56) (.09) (.54) (.58) (.51)
From net realized gains.................. -- (.01) (.06) (.08) (.04)
------ ----- ------ ------ ------
Total distributions.................... (.56) (.10) (.60) (.66) (.55)
------ ----- ------ ------ ------
Net asset value:
End of period............................ $10.94 $9.52 $9.64 $11.15 $10.11
====== ===== ===== ====== ======
Total investment return (c)................. 21.22% (0.11)% (8.38)% 17.27% 6.74%
Net assets at end of period
(000's omitted).......................... $242,425 $240,228 $259,702 $289,682 $50,666
Ratios:
Ratio of expenses to
average daily net assets (f)........... .51% .20%(e) .44% .18% --%
Ratio of net investment income
to average daily net assets............ 5.24% 6.24%(e) 5.24% 5.18% 5.38%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (d)..................... .95% 1.06%(e) .96% 1.12% 1.25%(e)
Net investment income............ 4.80% 5.38%(e) 4.72% 4.24% 4.13%(e)
Portfolio turnover rate (excluding
short-term securities)................... 101.48% 2.51% 49.12% 53.51% 208.24%
See accompanying notes to Financial Highlights.
</TABLE>
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FLORIDA INSURED TAX FREE FUND
------------------------------------------------
CLASS B
------------------------------------------------
YEAR TWO MONTHS PERIOD FROM
ENDED ENDED MARCH 1, 1994(a)
DECEMBER 31, DECEMBER 31, TO OCTOBER 31,
1995 1994 1994
------ ----- ------
Net Asset Value:
<S> <C> <C> <C>
Beginning of period........................... $ 9.52 $9.63 $10.82
------ ----- ------
Operations:
Net investment income......................... .50 .09 .31
Net realized and unrealized
gain (loss) on investments ................ 1.44 (.11) (1.19)
------ ----- ------
Total from operations..................... 1.94 (.02) (.88)
------ ----- ------
Distributions to shareholders:
From net investment income (b)................ (.52) (.08) (.30)
From net realized gains....................... -- (.01) (.01)
------ ----- ------
Total distributions......................... (.52) (.09) (.31)
------ ----- ------
Net asset value:
End of period................................ $10.94 $9.52 $9.63
====== ===== =====
Total investment return (c)..................... 20.76% (0.03)% (8.10)%
Net assets at end of period
(000's omitted)............................... $2,814 $1,477 $1,135
Ratios:
Ratio of expenses to
average daily net assets (f)............... .89% .59%(e) 1.00%(e)
Ratio of net investment income
to average daily net assets................ 4.80% 5.68%(e) 4.63%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (d)......................... 1.68% 1.81%(e) 1.28%(e)
Net investment income................. 4.01% 4.46%(e) 4.35%(e)
Portfolio turnover rate (excluding
short-term securities)........................ 101.48% 2.51% 49.12%
See accompanying notes to Financial Highlights.
</TABLE>
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FLORIDA LIMITED TERM FUND
-----------------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------------------- --------------------- -----------------
YEAR PERIOD FROM PERIOD FROM PERIOD FROM
ENDED MAY 1, 1994(a) SEPTEMBER 15, 1995(a) MARCH 23, 1995(a)
DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1995
----- ------ ------ ------
Net asset value:
<S> <C> <C> <C> <C>
Beginning of period.................... $9.64 $10.00 $10.58 $10.08
----- ------ ------ ------
Operations:
Net investment income.................. .44 .18 .10 .25
Net realized and unrealized gain (loss)
on investments....................... 1.01 (.36) .03 .55
----- ------ ------ ------
Total from operations.................. 1.45 (.18) .13 .80
----- ------ ------ ------
Distributions to shareholders:
From net investment income (b)......... (.49) (.18) (.11) (.29)
From net realized gains................ (.04) -- (.04) (.04)
----- ------ ------ ------
Total distributions.................. (.53) (.18) (.15) (.33)
----- ------ ------ ------
Net asset value:
End of period.......................... $10.56 $9.64 $10.56 $10.55
====== ===== ====== ======
Total investment return (c)............... 15.14% (1.55)% 1.13% 7.95%
Net assets at end of period (000's omitted) $859 $592 $41 $54
Ratios:
Ratio of expenses to
average daily net assets (f)......... .63% --%(e) 1.52%(e) 1.62%(e)
Ratio of net investment income
to average daily net assets.......... 4.28% 4.19%(e) 3.32%(e) 3.10%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (d)................... 1.25% 1.25%(e) 2.00%(e) 2.00%(e)
Net investment income.......... 3.66% 2.94%(e) 2.84%(e) 2.72%(e)
Portfolio turnover rate (excluding
short-term securities)................. 27.76% --% 27.76% 27.76%
See accompanying notes to Financial Highlights.
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
- -----------------------------
(a) Commencement of operations.
(b) For federal income tax purposes, all of the net investment income
distributions were derived from interest on securities exempt from federal
income tax.
(c) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(d) Voyageur and Fund Distributors voluntarily waived or reimbursed a portion
of expenses during the periods presented. The annual contractual expense
limit for the Fund (excluding distribution fees, insurance premiums on
portfolio securities, taxes, interest and brokerage commissions) is 1% of
average daily net assets. The maximum distribution fee is .25% of each
Fund's average daily net assets for Class A Shares and 1.00% of each Fund's
average daily net assets for Class B and Class C Shares.
(e) Annualized.
(f) Beginning in the year ended December 31, 1995, the expense ratio reflects
the effect of gross expenses attributable to earnings credits on uninvested
cash balances received by the Funds. Prior period expense ratios have not
been adjusted.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
MUNICIPAL BONDS (101.6%):
UTILITIES (23.5%):
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$100 Charlotte County Utility Revenue (FGIC Insured)........................ 5.50% 10-01-17 100,990
100 Fort Pierce Utility Authority Revenue (AMBAC Insured).................. 5.25 10-01-16 99,678
100 Key West Sewer Revenue (FGIC Insured).................................. 5.70 10-01-26 101,937
100 Miramar Wastewater Improvement Revenue (FGIC Insured).................. 6.75 10-01-25 111,033
150 Puerto Rico Electric Power Authority Revenue........................... 5.50 07-01-25 148,059
100 St. Lucie County Utility System Revenue (FGIC Insured)................. 5.50 10-01-17 100,623
150 St. Lucie County Special Assessment Revenue, South Hutchinson Island... 6.10 01-01-20 153,563
250 Vero Beach Electric Refunding Revenue (MBIA Insured)................... 5.38 12-01-21 250,463
------------
1,066,346
------------
TRANSPORTATION (5.8%):
------------------------------------------------------------------------------------------------------
160 Florida State Mid Bay Bridge Authority Revenue......................... 6.13 10-01-22 161,923
100 Hillsborough County Aviation Authority Revenue, Tampa Airport
(FGIC Insured)....................................................... 5.60 10-01-19 101,038
------------
262,961
------------
HEALTH CARE (20.5%):
------------------------------------------------------------------------------------------------------
155 Dade County Public Facility Revenue, Jackson Memorial Hospital
(MBIA Insured)...................................................... 5.25 06-01-23 150,607
100 Hillsborough County Hospital Authority, Tampa General Hospital
(FSA Insured)....................................................... 6.38 10-01-13 107,600
225 Orange County Health Facility Revenue Adventist Health System
(AMBAC Insured)..................................................... 5.25 11-15-20 219,793
100 Palm Beach Health Facility Revenue, Good Samaritan Health.............. 6.30 10-01-22 106,250
200 Sarasota Health Facility Revenue, Sunnyside Properties................. 6.00(d) 05-15-10 195,658
150 South Miami Health Facility Authority Revenue (MBIA Insured)........... 5.50 10-01-20 150,296
------------
930,204
------------
HOUSING (30.5%):
------------------------------------------------------------------------------------------------------
150 Blackwater Housing Corporation......................................... 6.50 06-01-25 154,347
500 Dade County Housing Finance Authority, Multifamily Mortgage
(MBIA Insured)....................................................... 6.25 07-01-24 518,125
200 Florida Housing Finance Agency, Homeowner Mortgage..................... 6.00 01-01-17 203,076
500 Florida Housing Finance Agency, Vineyards Project...................... 6.40 11-01-15 504,900
------------
1,380,448
------------
OTHER REVENUE (21.3%):
------------------------------------------------------------------------------------------------------
100 Boca Raton Special Assessment Revenue.................................. 5.20 07-01-22 96,326
145 Florida State Division of Bond Finance, General Services Revenue....... 5.38 07-01-12 145,610
100 Jacksonville Sales Tax Revenue (FGIC Insured).......................... 5.38 10-01-18 100,072
155 Miami Parking Facility Revenue......................................... 5.70 10-01-09 158,653
100 North Palm Beach County Impt. Dist. Revenue - Dev. 31-1................ 6.75 11-01-15 102,952
110 Orange County Sales Tax Revenue........................................ 5.38 01-01-24 107,173
250 Orlando & Orange County Expressway Authority Revenue................... 5.95 07-01-23 253,615
------------
964,401
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $4,389,074) (c) $4,604,360
============
See accompanying notes to financial statements.
VOYAGEUR FLORIDA INSURED TAX FREE FUND
INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
MUNICIPAL BONDS (100.9%):
GENERAL OBLIGATION (11.6%):
------------------------------------------------------------------------------------------------------
$ 1,000 Coral Springs Water & Sewer Improvement District (MBIA Insured) 6.00% 06-01-10 $1,094,320
6,000 Florida State Board of Education (MBIA Insured)........................ 5.75 06-01-11 6,264,780
5,500 Florida State Board of Education (MBIA Insured)........................ 6.10 06-01-24 5,855,465
4,600 Florida State Department of Transportation Right of Way (MBIA Insured). 5.60 07-01-10 4,746,556
4,900 Florida State Department of Transportation Right of Way (MBIA Insured). 5.70 07-01-11 5,088,944
2,350 Florida State Department of Transportation Right of Way (MBIA Insured). 5.75 07-01-12 2,443,084
3,000 Indian River School District (FSA Insured)............................. 5.50 04-01-13 3,038,760
------------
28,531,909
------------
UTILITY (29.1%):
------------------------------------------------------------------------------------------------------
2,385 Bradenton Utility System Revenue (FGIC Insured)........................ 5.75 10-01-11 2,500,052
1,700 Coco Beach Utility Systems (MBIA Insured).............................. 5.50 11-01-13 1,726,945
1,000 Coral Springs Water & Sewer Revenue (FGIC Insured)..................... 6.00 09-01-10 1,065,450
1,000 Dade County Water & Sewer Revenue (FGIC Insured)....................... 5.50 10-01-18 1,007,050
7,725 Dade County Water & Sewer Revenue (FGIC Insured)....................... 5.50 10-01-25 7,757,445
2,070 Florida State Municipal Power St. Lucie (FGIC Insured)................. 5.50 10-01-12 2,098,483
7,000 Hillsborough County Utility (MBIA Insured)............................. 5.50 08-01-16 7,064,890
2,000 Indian River Water & Sewer Revenue (FGIC Insured)...................... 5.50 09-01-15 2,021,160
3,000 Jacksonville Electric Authority Revenue (FSA Insured).................. 5.50 10-01-14 3,029,850
2,000 Jupiter Water Revenue (AMBAC Insured).................................. 6.25 10-01-12 2,144,040
1,000 Key West Sewer Revenue Refunding (FGIC Insured)........................ 5.60 10-01-14 1,019,460
1,000 Kissimmee Utility Electric Revenue (FGIC Insured)...................... 5.25 10-01-18 984,910
1,000 Lakeland Electric & Water Revenue (FGIC Insured)....................... 5.88(d) 10-01-08 1,081,640
1,015 Lakeland Electric & Water Revenue (FGIC Insured)....................... 6.00(d) 10-01-13 1,108,370
1,000 Lakeland Electric & Water Revenue (FGIC Insured)....................... 6.00(d) 10-01-14 1,091,810
1,250 Longboat Key Water & Sewer (AMBAC Insured)............................. 5.50 07-01-10 1,276,500
1,800 Miami Beach Water & Sewer Revenue (FSA Insured)........................ 5.40 09-01-09 1,833,732
3,400 Miami Beach Water & Sewer Revenue (FSA Insured)........................ 5.38 09-01-15 3,404,692
2,175 Miramar Water Improvement Assessment Revenue (FGIC Insured)............ 6.75 10-01-25 2,414,968
1,000 New Smyrna Beach Utility Revenue (FGIC Insured)........................ 6.00 10-01-13 1,058,840
1,500 North Port Utilities System Revenue (FGIC Insured)..................... 6.15 10-01-09 1,619,055
5,000 North Port Utilities System Revenue (FGIC Insured)..................... 6.25 10-01-22 5,356,600
1,475 Ocoee Water & Sewer System (MBIA Insured).............................. 5.75 10-01-10 1,547,187
2,500 Okeechobee Utility Authority System Revenue (MBIA Insured)............. 5.50 10-01-15 2,530,425
5,000 Port St. Lucie Utility System Revenue (FGIC Insured)................... 6.00 09-01-24 5,235,150
1,500 Titusville Water & Sewer (MBIA Insured)................................ 6.20 10-01-14 1,627,275
7,850 Vero Beach Electric Refunding (MBIA Insured)........................... 5.38 12-01-21 7,864,522
------------
71,470,501
------------
INDUSTRIAL (5.7%):
------------------------------------------------------------------------------------------------------
1,000 Canaveral Port Authority Revenue (FGIC Insured)........................ 6.00 06-01-12 1,058,900
2,500 Citrus County Capital Improvement (MBIA Insured)....................... 5.38 07-01-11 2,527,575
1,000 Collier County Capital Improvement (FGIC Insured)...................... 5.75 10-01-13 1,032,340
5,230 Dade County Pro Sports Tax Revenue Series 95 (MBIA Insured)............ 5.25 10-01-30 5,027,913
1,000 Hernando County Capital Improvement (MBIA Insured).................... 5.75 02-01-10 1,040,440
1,000 Palm Beach Solid Waste Authority Revenue (MBIA Insured)................ 6.00 12-01-07 1,078,680
2,000 Palm Beach Solid Waste Authority Revenue (MBIA Insured)................ 6.25 12-01-08 2,174,080
------------
13,939,928
------------
HEALTH CARE (12.7%):
------------------------------------------------------------------------------------------------------
2,500 Alachua County Shands Hospital Facilities (MBIA Insured)............... 5.75 12-01-15 2,544,275
1,000 Broward County Holy Cross Health (AMBAC Insured)....................... 5.25 06-01-08 1,001,420
4,000 Dade County Baptist Hospital Health Facility (MBIA Insured)............ 5.25 05-15-21 3,901,200
1,350 Dunedin Hospital Mease Health Care (MBIA Insured)...................... 5.38 11-15-13 1,349,595
3,600 Hillsborough County Hospital (FSA Insured)............................. 6.38 10-01-13 3,873,600
8,250 Orange County Orlando Medical Center (MBIA Insured).................... 5.50 11-15-15 8,279,370
5,000 Orange County Adventist Health (AMBAC Insured)......................... 5.25 11-15-20 4,884,300
2,675 South Miami Health Facility Authority Revenue (MBIA Insured)........... 5.50 10-01-20 2,680,270
2,500 Tallahassee Health Facility (MBIA Insured)............................. 6.00 12-01-15 2,616,350
------------
31,130,380
------------
EDUCATION (1.8%):
------------------------------------------------------------------------------------------------------
4,500 University of Puerto Rico Revenue Series 95M (MBIA Insured)............ 5.25 06-01-25 4,466,250
------------
CERTIFICATE OF PARTICIPATION (7.6%):
------------------------------------------------------------------------------------------------------
1,265 Collier County School Board COP (FSA Insured).......................... 5.13(d) 02-15-11 1,242,116
3,000 Collier County School District COP (FSA Insured)....................... 5.00 02-15-16 2,880,360
12,750 Palm Beach County School Board (AMBAC Insured)......................... 5.38 08-01-15 12,699,000
1,680 St. Lucie School Board COP (FSA Insured)............................... 5.38 07-01-19 1,670,458
------------
18,491,934
------------
TRANSPORTATION (7.2%):
------------------------------------------------------------------------------------------------------
2,000 Florida State Turnpike Authority (FGIC Insured)........................ 6.30 07-01-12 2,143,340
10,000 Florida Transportation Department (FGIC Insured)....................... 5.25 07-01-12 10,007,300
1,500 Lee City Airport Revenue (AMBAC Insured)............................... 5.50 10-01-10 1,516,860
4,000 Orlando Orange County Expressway (FGIC Insured)........................ 5.25 07-01-12 4,002,920
------------
17,670,420
------------
OTHER REVENUE (25.2%):
------------------------------------------------------------------------------------------------------
2,000 Collier County Capital Improvement Revenue (MBIA Insured).............. 5.75 10-01-10 2,086,980
1,340 Coral Springs Franchise Revenue (AMBAC Insured)........................ 6.10 09-01-13 1,427,341
3,000 Florida Div Board Preservation 2000 (AMBAC Insured).................... 5.75 07-01-11 3,140,760
5,800 Florida Div Board Preservation 2000 (MBIA Insured)..................... 6.25 07-01-13 6,193,240
22,000 Florida Div Board Preservation 2000 (AMBAC Insured).................... 5.75 07-01-13 22,874,940
2,260 Hillsborough County Utility Revenue (MBIA Insured)..................... 5.50 08-01-13 2,287,617
2,225 Jacksonville Capital Improvement (AMBAC Insured)....................... 5.50 10-01-19 2,232,676
2,855 Jacksonville Sales Tax Revenue (FGIC Insured).......................... 5.38 10-01-18 2,857,056
2,500 Jupiter Sales Tax Revenue (AMBAC Insured).............................. 6.38 09-01-20 2,679,575
1,000 Marion County Public Improvement Revenue (MBIA Insured)................ 6.13 12-01-08 1,073,420
1,000 Nassau County Optional Gas Tax (FGIC Insured).......................... 6.00 03-01-09 1,066,240
1,000 Ocala Optional Gas Tax Revenue (AMBAC Insured)......................... 6.00 12-01-09 1,071,130
1,000 Osceola County Celebration '94 (MBIA Insured).......................... 6.10 05-01-16 1,064,840
1,000 Osceola County Enterprise '94 (MBIA Insured)........................... 6.10 05-01-16 1,064,840
1,225 Pembroke Pines Capital Improvement Revenue (AMBAC Insured)............. 5.95 10-01-20 1,289,790
1,000 Reedy Creek Improvement District Revenue (MBIA Insured)................ 5.60 06-01-11 1,025,520
1,000 Reedy Creek Improvement District Revenue (MBIA Insured)................ 5.70 06-01-12 1,031,220
2,300 Reedy Creek Improvement District Revenue (MBIA Insured)................ 5.75 06-01-13 2,378,867
3,500 Reedy Creek Improvement District Revenue (MBIA Insured)................ 5.75 06-01-14 3,612,700
1,200 Sanford Community Redevelopment (AMBAC Insured)........................ 6.00 06-01-11 1,277,736
------------
61,736,488
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $235,230,708) (c) $247,437,810
============
See accompanying notes to investments in securities.
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
FLORIDA MUNICIPAL BONDS (89.6%):
ESCROWED WITH U.S. GOVERNMENT BONDS (12.0%):
------------------------------------------------------------------------------------------------------
$ 50 Boyton Beach Water & Sewer (AMBAC Insured)............................. 7.40% 11-01-00 $ 57,547
25 Dade County U of N Miami Education Facility (MBIA Insured)............. 7.10 10-01-01 28,876
25 Manatee County Water & Sewer........................................... 6.80 10-01-00 27,619
------------
114,042
------------
UTILITIES (26.7%):
------------------------------------------------------------------------------------------------------
25 East County Water (Lee County Drain Revenue)........................... 5.45 11-01-02 26,366
25 Orlando Waste Water System Revenue (AMBAC Insured)..................... 4.70 10-01-03 25,134
50 Pensacola Gas Revenue (AMBAC Insured).................................. 4.63 12-01-04 49,727
100 St. Lucie County Special Asset Revenue................................. 5.60 11-01-09 101,500
50 Tallahassee Utilities System Revenue................................... 5.50 10-01-05 52,227
------------
254,954
------------
CERTIFICATE OF PARTICIPATION (2.6%):
------------------------------------------------------------------------------------------------------
25 Volusia County School Board COP (FSA Insured).......................... 5.10 08-01-08 25,021
------------
TRANSPORTATION (8.1%):
------------------------------------------------------------------------------------------------------
25 Broward County Airport System Revenue (AMBAC Insured).................. 4.70 10-01-02 25,257
25 Orange & Orlando County Expressway (FGIC Insured)...................... 4.70 07-01-04 25,000
25 Orlando Aviation Airport Revenue (AMBAC Insured)....................... 5.90 10-01-04 27,277
------------
77,534
------------
HEALTH CARE (21.7%):
------------------------------------------------------------------------------------------------------
25 Dade County Health Facility Authority (AMBAC Insured).................. 6.10 08-15-03 27,284
50 Leesburg Regional Medical Center....................................... 5.30 07-01-03 50,058
50 Palm Beach County (Good Samaritan Health Systems)...................... 5.70 10-01-02 53,124
25 Palm Beach County (Good Samaritan Health Systems)...................... 6.00 10-01-04 27,119
50 Sarasota Health Facility Authority Revenue............................. 5.50(d) 05-15-01 49,375
------------
206,960
------------
HOUSING (2.7%):
------------------------------------------------------------------------------------------------------
25 Escambia County Housing Finance Authority.............................. 5.75 04-01-04 25,963
------------
OTHER REVENUE (15.8%):
------------------------------------------------------------------------------------------------------
25 Brevard County Sales Tax Revenue (MBIA Insured)........................ 5.20 12-01-04 25,991
100 Florida Department of General Services (MBIA Insured).................. 4.50 07-01-04 98,654
25 Orlando Capital Improvement Special Revenue............................ 5.50 10-01-04 25,812
------------
150,457
------------
TOTAL INVESTMENT IN SECURITIES (cost: $821,038) (c) $854,931
============
See accompanying notes to investments in securities.
</TABLE>
VOYAGEUR FLORIDA TAX FREE FUND
VOYAGEUR FLORIDA INSURED TAX FREE FUND
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
NOTES TO INVESTMENTS IN SECURITIES DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) Investments in bonds, by rating category (unaudited) as a percentage of
total bonds, are as follows:
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BAA/BBB NR/NR TOTAL
------- ----- --- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Florida Tax Free Fund................... 49% 8% 19% 18% 6% 100%
Florida Insured Tax Free Fund........... 100% -- -- -- -- 100%
Florida Limited Term Tax Free Fund...... 55% 24% 15% 6% -- 100%
</TABLE>
(c) Also represents the cost of securities for federal income tax purposes for
Florida Tax Free Fund and Florida Limited Term Tax Free Fund. At December
31, 1995 the cost of investments for federal income tax purposes was
$235,253,625 for Florida Insured Tax Free Fund. The aggregate gross
unrealized appreciation and depreciation of securities based on this cost
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------
<S> <C> <C> <C>
Florida Tax Free Fund..................... $ 215,286 $ -- $ 215,286
Florida Insured Tax Free Fund............. 12,184,185 -- 12,184,185
Florida Limited Term Tax Free Fund........ 33,942 (49) 33,893
</TABLE>
(d) At December 31, 1995, the cost of securities purchased on a when issued
basis was $195,282 for Florida Tax Free Fund, $4,212,687 for Florida
Insured Tax Free Fund and $49,424 for Florida Limited Term Tax Free Fund.
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year ended December
31, 1995 shown below. Exempt interest dividends are exempt from federal income
tax and should not be included in shareholder's gross income, but need to be
reported on the income tax return for informational purposes. Each shareholder
should consult a tax adviser about reporting this income for state and local
purposes. In January 1996, the Fund separately provided each shareholder with
tax information for calendar year 1995.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA TAX FREE FUND
-------------------------------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------- ------- -------
PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 2, 1995 SEPTEMBER 15, 1995 APRIL 22, 1995
TO DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1995 1995 1995
--------------- ------------------ ---------------
<S> <C> <C> <C>
Net investment income distributions (none qualifying for
corporate dividend received deduction)................. $.4711 $.1467 $.3396
Short-term capital gain distribution...................... .0195 .0195 .0195
------ ------ ------
Total Distribution..................................... $.4906 $.1662 $.3591
====== ====== ======
</TABLE>
The short-term capital gain distributions above are taxable as ordinary income
to shareholders for federal and state income tax purposes.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA INSURED TAX FREE FUND
--------------------------------------
PER CLASS PER CLASS
A SHARE B SHARE
------- -------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Net investment income distributions (none qualifying for
corporate dividend received deduction)................. $.5579 $.5160
====== ======
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
----------------------------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------- ------- -------
YEAR PERIOD FROM PERIOD FROM
ENDED SEPTEMBER 15, 1995 MARCH 23, 1995
DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1995 1995 1995
------------- ------------------ ---------------
<S> <C> <C> <C>
Net investment income distributions (none qualifying for
corporate dividend received deduction)................. $.4878 $.1116 $.2857
Long-term capital gain distribution....................... .0372 .0372 .0372
------ ------ ------
Total Distribution..................................... $.5250 $.1488 $.3229
====== ====== ======
</TABLE>
For federal income tax purposes, 100.00%, 99.83% and 100.00% of the above net
investment income distributions for Voyageur Florida Tax Free Fund, Voyageur
Florida Insured Tax Free Fund and Voyageur Florida Limited Term Tax Free Fund,
respectively, were derived from interest on securities exempt from federal
income tax.
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
a series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
October 27, 1995
(as supplemented on January 1, 1996)
- --------------------------------------------------------------------------------
Mackenzie Series Trust (the "Trust") is a diversified open-end
management investment company that consists of five fully managed portfolios,
one of which is offered hereby. This Statement of Additional Information ("SAI")
describes one of the portfolios, Mackenzie Florida Limited Term Municipal Fund
(the "Fund").
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated October 27, 1995 (as supplemented on January 1,
1996) (the "Prospectus"), which may be obtained without charge from the Trust at
the Distributor's address and telephone number listed below.
INVESTMENT MANAGER
Mackenzie Investment Management Inc. ("MIMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (407) 393-8900
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc. ("MIFDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES..................................... 4
MUNICIPAL SECURITIES.......................................... 4
RISK FACTORS AND SPECIAL CONSIDERATIONS
RELATING TO FLORIDA MUNICIPAL SECURITIES...................... 6
U.S. GOVERNMENT SECURITIES.................................... 12
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS............. 13
COMMERCIAL PAPER.............................................. 13
REPURCHASE AGREEMENTS......................................... 14
BORROWING..................................................... 14
RESTRICTED AND ILLIQUID SECURITIES............................ 14
TEMPORARY INVESTMENTS......................................... 15
OTHER INVESTMENT TECHNIQUES................................... 15
INVESTMENT RESTRICTIONS................................................ 15
ADDITIONAL RESTRICTIONS................................................ 17
ADDITIONAL RIGHTS AND PRIVILEGES....................................... 18
AUTOMATIC INVESTMENT METHOD................................... 19
EXCHANGE OF SHARES............................................ 19
LETTER OF INTENT.............................................. 22
REINVESTMENT PRIVILEGE........................................ 23
RIGHTS OF ACCUMULATION........................................ 23
SYSTEMATIC WITHDRAWAL PLAN.................................... 24
BROKERAGE ALLOCATION................................................... 25
TRUSTEES AND OFFICERS.................................................. 27
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER.............. 30
COMPENSATION TABLE..................................................... 31
INVESTMENT ADVISORY AND OTHER SERVICES................................. 32
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
SERVICES...................................................... 32
DISTRIBUTION SERVICES......................................... 34
CUSTODIAN..................................................... 37
FUND ACCOUNTING............................................... 38
TRANSFER AND DIVIDEND PAYING AGENT............................ 38
ADMINISTRATOR................................................. 38
AUDITORS...................................................... 38
CAPITALIZATION AND VOTING RIGHTS....................................... 39
NET ASSET VALUE........................................................ 40
PORTFOLIO TURNOVER..................................................... 41
REDEMPTIONS............................................................ 42
CONVERSION OF CLASS B SHARES........................................... 43
TAXATION............................................................... 44
GENERAL....................................................... 44
DISCOUNT...................................................... 45
DISTRIBUTIONS................................................. 46
DISPOSITION OF SHARES......................................... 47
BACKUP WITHHOLDING............................................ 48
OTHER TAXATION................................................ 49
PERFORMANCE INFORMATION................................................ 49
FINANCIAL STATEMENTS................................................... 56
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND,
COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS RATINGS............. 57
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME........................ 64
INVESTMENT OBJECTIVES AND POLICIES
Mackenzie Series Trust (the "Trust") is a diversified open-end management
investment company organized as a Massachusetts business trust on April 22, 1985
under the name Industrial Series Trust. The Fund's investment objectives and
general investment policies are described in the Prospectus. Additional
information concerning the characteristics of the Fund's investments is set
forth below.
MUNICIPAL SECURITIES
The Fund may invest in municipal securities within the three highest rating
categories used by Moody's Investors Service, Inc. ("Moody's) and Standard &
Poor's Corporation ("S&P"). A description of the ratings is contained in
Appendix A to this SAI.
The Fund may invest in both "general obligation bonds" and "revenue bonds."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source, but not from the general taxing power. Municipal bonds
are issued for various public purposes, including construction of a wide range
of public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other public
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds and private activity
bonds are issued by or on behalf of public authorities to obtain funds to
provide for privately operated housing facilities and certain facilities for
water supply, gas, electricity or sewage or solid waste disposal.
Industrial development bonds that pay tax-exempt interest are, in most
cases, revenue bonds and do not generally carry the pledge of the full faith and
credit of the issuer of such bonds. The payment of the principal and interest on
such industrial development bonds depends solely on the ability of the user of
the facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund will not invest more than 5% of its assets in securities where
the principal and interest are the responsibility of an industrial user with
less than three years' operational history. In addition, the Fund will not
invest in industrial development bonds for the use of privately-owned electric
utilities.
There are, depending on numerous factors, variations in the risks involved
in holding municipal securities, both within a particular rating classification
and between classifications. The market values of outstanding municipal bonds
will vary as a result of the rating of the issue and changing evaluations of the
ability of the issuer to meet interest and principal payments. Such market
values will also change in response to changes in the interest rates payable on
new issues of municipal bonds. Should such interest rates rise, the values of
outstanding bonds, including those held in the Fund's portfolio, would decline;
should such interest rates decline, the values of outstanding bonds would
increase.
As a result of litigation or other factors, the power or ability of issuers
of municipal bonds to pay principal and/or interest might be adversely affected.
Municipal securities are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress, state
legislatures extending the time for payment of principal or interest or both, or
imposing other constraints upon enforcement of such obligations or upon the
power of municipalities to levy taxes.
The Fund may invest without limitation in issues of municipal securities
that have similar characteristics, such as municipal securities issued by
issuers located in the same geographic region, and municipal securities (other
than those issued by non-governmental issuers) that derive interest payments
from revenues of similar projects (for example, electric utility systems,
hospitals, or housing finance agencies). Consequently, the Fund's portfolio of
municipal securities may be more susceptible to the risks of adverse economic,
political, or regulatory developments than would be the case with a portfolio of
securities required to be more diversified as to geographic region and/or source
of revenue.
For the purpose of certain requirements under the Investment Company Act of
1940, as amended (the "1940 Act"), and certain of the Fund's investment
restrictions, identification of the "issuer" of a municipal security depends on
the terms and conditions of the security. When the assets and revenues of a
political subdivision are separate from those of the government that created the
subdivision and the security is backed only by the assets and revenues of the
subdivision, the subdivision would be deemed to be the sole issuer. Similarly,
in the case of an industrial development bond or private activity bond, if that
bond is backed only by the assets and revenues of the nongovernmental user, then
the nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security and would be
treated as an issue of the government or other agency.
Interest on certain types of industrial development bonds (or private
activity bonds) (generally small issues, and obligations to finance certain
exempt facilities which may be leased to or used by persons other than the
issuer) will not be exempt from Federal income tax when received by "substantial
users" or persons related to "substantial users" as defined in the Internal
Revenue Code of 1986, as amended (the "Code"). The term "substantial user"
generally includes any "non-exempt person" who regularly uses in his or her
trade or business a part of a facility financed from the proceeds of industrial
development bonds. The Fund may invest periodically in industrial development
bonds and private activity bonds and, therefore, may not be an appropriate
investment for entities which are substantial users of facilities financed by
such bonds or "related persons" of substantial users. Generally, an individual
will not be a related person of a substantial user under the Code unless the
person or his or her immediate family (spouse, brothers, sisters and lineal
descendants) owns directly or indirectly in the aggregate more than 50% in value
of the equity of the substantial user.
Legislative developments may affect the value of the securities in the
Fund's portfolio, and therefore the value of the Fund's shares, as well as the
tax-exempt status of dividends. The Board of Trustees of the Trust will monitor
the progress of any such proposals to determine what, if any, defensive action
may be taken. If any legislation which would have a material adverse effect on
the ability of the Fund to pursue its objective were adopted, the investment
objective and policies of the Fund would be reconsidered by the Fund's
shareholders.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL
SECURITIES:
The following information as to certain Florida state (the "State") risk factors
is given to investors in light of Mackenzie Florida Limited Term Municipal
Fund's policy of concentrating its investments in Florida municipal issuers.
Obligations of the State or local governments may be affected by budgetary
pressures affecting the State and economic conditions in the State. The
following information constitutes only a brief summary, does not purport to be a
complete description and is based on information from sources believed by the
Trust to be reliable, including official statements relating to securities
offerings of Florida issuers and periodic publications by national ratings
organizations. Such information, however, has not been independently verified by
the Trust.
FLORIDA ECONOMY. The State's economy has typically performed better than
the nation's. The State's strong population growth is one fundamental reason for
this relatively better economic performance. Since 1984, the State's average
annual population increase has been around 2.3%, while the nation's average
annual population increase has been around 1.0%. Though the State has grown by
an average of 287,300 people per year from 1985 through 1994, the strength of
the economy has created an environment that has essentially absorbed the vast
majority of new residents seeking employment. Since 1985, the job creation rate
for the State is almost twice the rate for the nation as a whole.
Over the years, Florida's personal income has been growing at a strong pace
and has generally outperformed both the U.S. as a whole and the southeast in
particular. The State's economy since the early seventies has diversified in
such a way as to provide a broader economic base. As a result, the State's per
capita personal income has tracked closely with the national average and has
tracked above the southeast. From 1985 through 1994, the State's per capita
income rose an average 5.2% per year, while the national per capita income
increased an average 5.1%.
Florida's income structure differs from that of the nation and the
southeast. Because Florida has a proportionally greater retirement age
population, property income and transfer payments are a relatively more
important source of income. One positive aspect of this greater diversity is
that transfer payments are typically less sensitive to the business cycle than
employment income and, therefore, act as stabilizing forces in weak economic
periods. From 1985 through 1994, Florida's total nominal and per capita personal
income increased by approximately 107% and 64.6%, respectively. For the nation,
total and per capita personal income increased by approximately 80.7% and 63.7%,
respectively.
The service sector is Florida's largest employer. Presently, the State's
service sector employment constitutes 86.4% of total non-farm employment. While
structurally the southeast and the nation are endowed with a greater proportion
of manufacturing jobs, which tend to pay higher wages, service jobs are less
sensitive to business cycle swings. Moreover, manufacturing jobs nationwide and
in the southeast are more concentrated in areas such as heavy equipment, primary
metals, chemicals and textile mill products. Florida, on the other hand, has a
concentration of manufacturing jobs in high-tech and high value-added sectors,
such as electrical and electronic equipment, as well as printing and publishing.
These kinds of jobs tend to be less cyclical than other forms of manufacturing
employment. The rate of job creation in Florida's manufacturing sector has kept
pace with that of the U.S since the eighties. Florida's unemployment rate
throughout the 1980's tracked below that of the nation. In recent years,
however, as the State's economic growth has slowed from its previous highs, the
unemployment rate has tracked above the national average. The average rate of
unemployment for Florida since 1980 is 6.3%, while the national average is 6.4%.
Tourism is one of the State's most important industries. Approximately 39.9
million people visited the State in 1994, as reported by the Florida Department
of Commerce. The state's tourist industry over the years has become more
sophisticated, attracting visitors year-round, thus, to a degree reducing its
seasonality.
REVENUES AND EXPENDITURES. The State prepares an annual budget which is
formulated each year and presented to the Governor and the Legislature. The
Florida Constitution and Statutes mandate that the State budget as a whole, and
each separate fund within the State budget, be kept in balance from currently
available revenues each State fiscal year (July 1- June 30). The Governor and
Comptroller are responsible for insuring that sufficient revenues are collected
to meet appropriations and that no deficit occurs in any State fund.
The State is not authorized by law to issue obligations to fund
governmental operations. The Florida Constitution provides that State bonds
pledging the full faith and credit of the State may be issued only to finance or
refinance the cost of State fixed capital outlay projects upon approval by a
vote of the electors, and provides that revenue bonds may be issued by the State
or its agencies without a vote of the electors only to finance or refinance the
cost of State fixed capital outlay projects which shall be payable solely from
funds derived directly from sources other than State tax revenues.
Financial operations of the State covering all receipts and expenditures
are maintained through the use of four fund types the General Revenue Fund,
Trust Funds, the Working Capital Fund and beginning in fiscal year 1994-1995,
the Budget Stabilization Fund.
The General Revenue Fund receives the majority of State tax revenues. Major
sources of tax revenues to the General Revenue Fund are the sales and use tax,
corporate income tax, intangible personal property tax and beverage tax. The
greatest single source of tax receipts in Florida is the sales and use tax. All
receipts of the sales and use tax, with the exception of the tax on gasoline and
special fuels, are credited either to the General Revenue Fund, the Solid Waste
Management Trust Fund, or counties and cities. For the fiscal year ended June
30, 1994, receipts from this source were $10,012.50 million, an increase of 6.9%
from fiscal year 1992-93. The second largest source of State tax receipts,
including those distributed to local governments, is the tax on motor fuels.
Collections from this source in State fiscal year ending June 30, 1994 were
$1,733.4 million. These revenues are almost entirely dedicated to trust funds
for specific purposes and are not included in the State General Revenue Fund.
The State's alcoholic beverage tax is an excise tax on beer, wine and liquor.
This tax is one of the State's major tax sources, with revenues totalling $439.8
million in the fiscal year ended June 30, 1994. All receipts of the corporate
income tax are credited to the General Revenue Fund. For the fiscal year ended
June 30, 1994, receipts from this source were $1,047.4 million, an increase of
23.7% from fiscal year 1992-93. In fiscal year 1993-94 total intangible personal
property tax collections were $836.0 million, a 6.7% increase over the prior
year.
For fiscal year 1994-95, the estimated General Revenue plus Working Capital
funds available total $14,682.9 million, a 6.1% increase over 1992-93. This
amount reflects a transfer of $159.0 million in non-recurring revenue due to
Hurricane Andrew, to a hurricane relief trust fund. The $13,702.1 million in
Estimated Revenues (excluding the Hurricane Andrew impacts) represent a 6.6%
increase over the analogous figure in 1993-94. With combined General Revenue
Working Capital Fund and Budget Stabilization Fund appropriations at $14,330.8
million, unencumbered reserves at the end of 1994-95 are estimated at $352.1
million.
For fiscal year 1995-96, the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $15,147.5 million, a 3.2%
increase over 1994-95. The $14,456.7 million in Estimated Revenues and recently
legislated revenue impacts represent a 5.5% increase over the analogous figure
in 1994-95. With combined General Revenue, Working Capital Fund, and Budget
Stabilization Fund appropriations at $14,800.4 million, unencumbered reserves at
the end of 1995-96 are estimated at $347.1 million.
Subject to the limitations described in the Prospectus, Florida municipal
securities also include debt obligations issued by or on behalf of the
governments of Puerto Rico, the U.S. Virgin Islands and Guam. Mackenzie Florida
Limited Term Municipal Fund may not invest more than 5% its net assets in
obligations of each of the U.S. Virgin Islands and Guam, but may invest without
limitation in obligations of Puerto Rico. Accordingly, Mackenzie Florida Limited
Term Municipal Fund may be adversely affected by local political and economic
conditions and developments within Puerto Rico affecting the issuers of such
obligations.
PUERTO RICO ECONOMY. Since 1983, Puerto Rico has experienced a wide ranging
expansion with growth in almost every sector of its economy and record levels of
employment. In February 1995, the number of persons employed in Puerto Rico
increased to 1,086,000. The unemployment rate as of February 1995 was 12.5%.
Although the increase in real gross product slowed to 0.9% in fiscal 1991, and
0.8% in fiscal 1992, reflecting the effects of the recession in the U.S.
economy, the growth pattern continued in fiscal 1993 and 1994 with real gross
product increases of 3.0% and 2.6%. While trends in the Puerto Rico economy
normally follow those in the United States, Puerto Rico did not experience a
recession during fiscal 1991 as the United States recently did, primarily
because its manufacturing base is comprised of certain industries less prone to
business cycle fluctuations. Other factors contributing to Puerto Rico's
decade-long expansion include Commonwealth-sponsored economic development
programs, the relatively stable prices of oil imports, the continued growth in
the U.S. economy, declines in the exchange value of the U.S. dollar and the
relatively low cost of borrowing during the period.
In the first seven months of fiscal 1995, the Economic Activity Index, a
composite index of thirteen economic indicators prepared by the Puerto Rico
Planning Board, increased 2.7% compared to fiscal 1994. The Index may not
necessarily change at the same percentage rate as the real gross product of
Puerto Rico. The Planning Board's real gross product forecast for fiscal 1995
and fiscal 1996, made in February 1995, shows increases of 2.9% and 2.7%,
respectively. Actual growth in fiscal 1996 will continue to depend on several
factors, including the state of the U.S. economy, the relative stability in the
price of oil imports, the exchange value of the U.S. dollar and the cost of
borrowing.
Puerto Rico has a diversified economy with the manufacturing and services
sectors comprising the principal sectors. Manufacturing is the largest sector in
terms of gross domestic product. In fiscal 1994, manufacturing generated $16.3
billion (or 41.5%) of gross domestic product, as compared with fiscal 1993 when
it generated $15.2 billion (or 41.4%) of gross domestic product. Manufacturing
in Puerto Rico is more diversified now than during the earlier phases of its
industrial development and includes several industries less prone to business
cycles. In the last two decades, industrial development has tended to be more
capital intensive and more dependent on skilled labor. This gradual shift in
emphasis is best exemplified by the heavy investment in the pharmaceutical,
scientific instruments, computer, microprocessor, medical product and electrical
product industries over the last decade. One of the factors assisting the
development of the manufacturing sector has been the tax incentives offered by
the federal and Commonwealth governments, most notably Section 936 of the Code,
under which certain qualifying U.S. corporations may be entitled to U.S.
corporate income tax credits. Federal legislation enacted in 1993 amending Code
Section 936 reduces the level of these incentives. At present, it is difficult
to forecast what the short and long term effects of the new limitations to the
Section 936 credit will be on the economy of Puerto Rico.
Over the past decade, Puerto Rico has experienced significant growth in the
services sector in terms of both income and employment, showing a favorable
trend as compared with certain other industrialized economies. During the period
between 1990 and 1994, the gross domestic product in the services sector
increased at an annual average rate of 4.7%. Employment in this sector increased
at an annual average rate of 3.2% during the same period. The services sector,
which accounted for approximately 47.3% of total employment, accounted for $15.0
billion (or 38.2%) of Puerto Rico's gross domestic product in fiscal 1994, as
compared with $14.4 billion (or 39.2%) of gross domestic product in fiscal 1993.
The services sector, particularly wholesale and retail trade and finance,
insurance and real estate, has experienced significant growth partly in response
to the expansion of the manufacturing sector. A major element in the economic
program of the present administration is the further development of the local
services sector which has the capacity to increase its export potential and to
generate more income and jobs during the coming years.
The United States, Canada and Mexico have entered into the North American
Free Trade Agreement ("NAFTA"), which agreement is designed to eliminate
restrictions on trade and investment flows among the three countries. Certain of
the Commonwealth's industries, including those that are lower salaried and labor
intensive, may face increased competition from Mexico, while Puerto Rico's
favorable investment environment, highly skilled work force, infrastructure
development and tax structure (mainly Section 936) may tend to create expanded
trade opportunities for Puerto Rico in such areas as pharmaceutical and high
technology manufacturing. Reductions in after-tax return resulting from changes
to Section 936 is not expected to eliminate Puerto Rico's competitive advantage
in certain key industries over Mexico, including pharmaceuticals, electronics
and scientific instruments.
PUERTO RICO DEBT MANAGEMENT. The Commonwealth exercises virtually the same
control over its internal affairs as do the fifty states; however, it differs
from the states in its relationship with the federal government. Most federal
taxes, except those such as social security taxes, are not levied in Puerto
Rico. No federal income tax is collected from Commonwealth residents on ordinary
income earned from sources in Puerto Rico, except for federal employees who are
subject to taxes on their salaries.
The Commonwealth has established policies and programs directed at the
development of manufacturing and the expansion and modernization of the island's
infrastructure. Infrastructure expansion and modernization have been to a large
extent financed by bonds and notes issued by the Commonwealth, its public
corporations and municipalities. The Constitution of Puerto Rico provides a
limitation on the amount of general obligations debt that can be issued. The
Commonwealth's policy has been and continues to be to maintain the level of such
debt within a prudent range below the constitutional limitation. Direct debt of
the Commonwealth is supported by Commonwealth taxes. Debt of public
corporations, other than bond anticipation notes, is generally supported by the
revenues of such corporations from charges for services or products. However,
certain debt of public corporations is supported, in whole or in part, directly
or indirectly, by Commonwealth appropriations or taxes. Debt of municipalities,
other than bond anticipation notes, is supported by real and personal property
taxes and municipal license taxes.
Historically, the Commonwealth has maintained a fiscal policy which
provides for a prudent relationship between the growth of public sector debt and
the growth of the economic base required to service that debt. The Commonwealth
also has sought opportunities to realize debt service savings by refunding
outstanding debt with obligations bearing lower interest rates. In certain
years, this policy has had the effect of causing the rate of growth of public
sector debt to be higher than the rate of growth of gross domestic product. Over
the fiscal years 1990 to 1994, public sector debt increased 21.4% while gross
product rose 23.3%. Short-term debt outstanding relative to total debt was 7.4%
as of December 31, 1994.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes, and bonds), and (2) Federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). In these securities, the payment of principal and
interest is unconditionally guaranteed by the U.S. Government, and thus they are
of the highest possible credit quality. Such securities are subject to
variations in market value due to fluctuations in interest rates, but, if held
to maturity, will be paid in full.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the GNMA
certificates typically will be substantially less because the mortgages will be
subject to normal principal amortization and may be prepaid prior to maturity.
Prepayment rates vary widely and may be affected by changes in market interest
rates. In periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the GNMA certificates.
Conversely, when interest rates are rising, the rate of prepayments tends to
decrease, thereby lengthening the actual average life of the GNMA certificates.
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, GNMA
certificates can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates. GNMA
certificates may appreciate or decline in market value during periods of
declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury.
However, they involve Federal sponsorship in one way or another; some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Bank for Cooperatives (including Central
Bank for Cooperatives), Federal Intermediate Credit Banks, Federal Home Loan
Banks, Federal National Mortgage Association, Student Loan Marketing
Association, Tennessee Valley Authority, Export-Import Bank of the United
States, Commodity Credit Corporation, Federal Financing Bank, Federal Home Loan
Mortgage Corporation, Small Business Administration and National Credit Union
Administration.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
The Fund may invest in bank obligations, which may include certificates of
deposit, bankers' acceptances, and other short-term debt obligations.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Investments in certificates of deposit and bankers' acceptances are limited to
obligations of (i) banks having total assets in excess of $1 billion, and (ii)
other banks if the principal amount of such obligation (currently $100,000) is
fully insured by the Federal Deposit Insurance Corporation ("FDIC"). Investments
in certificates of deposit of savings associations are limited to obligations of
federally or state chartered institutions that have total assets in excess of $1
billion and whose deposits are insured by the FDIC.
COMMERCIAL PAPER
The Fund may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. Investments in commercial paper
are limited to obligations rated Prime-1 by Moody's Investors Service, Inc.
("Moody's") or A-1 by Standard and Poor's Corporation ("S&P") or, if not rated
by Moody's or S&P, issued by companies having an outstanding debt issue
currently rated Aaa or Aa by Moody's or AAA or AA by S&P.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Repurchase agreements are
agreements under which the Fund buys a money market instrument and obtains a
simultaneous commitment from the seller to repurchase the instrument at a
specified time and at an agreed-upon yield. The Fund will not enter into a
repurchase agreement with more than seven days to maturity if, as a result, more
than 10% of the Fund's net assets would be invested in illiquid securities
including such repurchase agreements. The Fund may enter into repurchase
agreements with banks or broker-dealers deemed to be creditworthy by MIMI under
guidelines approved by the Board of Trustees. In the event of failure of the
executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
BORROWING
As a fundamental policy, the Fund may borrow from banks as a temporary
measure for extraordinary or emergency purposes. The Fund may borrow in amounts
up to 10% of its total assets taken at cost or market value, whichever is lower.
All borrowings will be repaid before any additional investments are made. The
Fund may not mortgage, pledge or in any other manner transfer any of its assets
as security for any indebtedness. Borrowing may exaggerate the effect on the
Fund's net asset value of any increase or decrease in the value of the Fund's
portfolio securities. Money borrowed will be subject to interest costs (which
may include commitment fees and/or the cost of maintaining minimum average
balances).
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted securities, including restricted
securities offered and sold to "qualified institutional buyers" under Rule 144A
under the Securities Act of 1933, as amended (the "1933 Act"), and any other
illiquid securities (including certain repurchase agreements and other
securities which are not readily marketable) may not constitute, at the time of
purchase, more than 10% of the value of the Fund's net assets. Issuers of
restricted securities may not be subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the 1933 Act. Where a registration statement is
required, the Fund may be required to bear all or part of the registration
expenses. There may be a lapse of time between the Fund's decision to sell a
restricted or illiquid security and the point at which the Fund is permitted or
able to sell such security. If, during such a period, adverse market conditions
were to develop, the Fund might obtain a price less favorable than the price
that prevailed when it decided to sell. Since it is not possible to predict with
assurance that the market for securities eligible for resale under Rule 144A
will continue to be liquid, the Fund will carefully monitor each of its
investments in these securities, focussing on such important factors, among
others, as valuation, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
TEMPORARY INVESTMENTS
From time to time on a temporary basis, the Fund may invest in fixed-income
obligations the interest on which is subject to Federal income tax. Except when
the Fund is in a "defensive" investment position, it will not purchase a taxable
security if, as a result, more than 20% of its total net assets would be
invested in taxable securities.
The above limitation is a fundamental policy of the Fund, i.e., it may not
be changed without a majority vote of the Fund's outstanding securities.
Temporary taxable investments of the Fund may consist of obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
commercial paper rated A-l by S&P or Prime-1 by Moody's, corporate obligations
rated AAA or AA by S&P or Aaa or Aa by Moody's, certificates of deposit or
bankers' acceptances of domestic banks or thrifts with at least $1 billion in
assets, or repurchase agreements with such banks or with broker-dealers. See
Appendix A for a further description of repurchase agreements and of the Moody's
and S&P ratings relating to taxable securities.
OTHER INVESTMENT TECHNIQUES
Although the Fund has not done so in the last year and has no current
intention of doing so in the foreseeable future, the Fund may (i) lend its
portfolio securities, (ii) purchase securities on a "when-issued" or firm
commitment basis, (iii) acquire puts or standby commitments, (iv) engage in
transactions in certain types of financial futures (such as interest rate
futures) and related options, and options on individual securities and bond
indices, (v) engage in "conversion" and spread transactions; and (vi) write
straddles.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the Prospectus under
"Investment Objectives and Policies," together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the Fund's outstanding voting shares.
Under these restrictions, the Fund may not:
(i) invest in real estate, real estate mortgage loans, commodities,
commodity futures contracts or interests in oil, gas and/or mineral
exploration or development programs, although the Fund may purchase
and sell (a) securities that are secured by real estate, (b)
securities of issuers that invest or deal in real estate, and (c)
futures contracts as described in the Prospectus;
(ii) make investments in securities for the purpose of exercising control
over or management of the issuer;
(iii) participate on a joint or a joint and several basis in any trading
account in securities, although the "bunching" of orders of the
Fund--or of the Fund and of other accounts under the investment
management of the persons rendering investment advice to the Fund-
-for the sale or purchase of portfolio securities shall not be
considered participation in a joint securities trading account;
(iv) purchase securities on margin, except such short- term credits as are
necessary for the clearance of transactions, although the deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered
the purchase of a security on margin;
(v) make loans, except that this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly distributed
debt securities, (b) the lending of portfolio securities (provided
that the loan is secured continuously by collateral consisting of U.S.
Government securities or cash or cash equivalents maintained on daily
marked-to- market basis in an amount at least equal to the current
market value of the securities loaned), or (c) entry into repurchase
agreements with banks or broker-dealers;
(vi) borrow amounts in excess of 10% of its total assets, taken at lower of
cost or market value, and then only from banks as a temporary measure
for extraordinary or emergency purposes;
(vii) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund (except as
may be necessary in connection with permitted borrowings and then not
in excess of 20% of the Fund's total assets); provided, however, that
this does not prohibit escrow, collateral or margin arrangements in
connection with the Fund's use of options, short sales, futures
contracts and options on futures contracts;
(viii) purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after such
purchase the value of the Fund's investments in such industry would
exceed 25% of the value of the total assets of the Fund;
(ix) act as an underwriter of securities;
(x) make short sales of securities or maintain a short position; or
(xi) issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any repurchase
agreement or any permitted borrowing.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy. Under these
restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) purchase or retain securities of any company if, to the knowledge of
the Trust, officers and Trustees of the Trust and officers and
directors of MIMI or Mackenzie Financial Corporation who individually
own more than 1/2 of 1% of the securities of that company together own
beneficially more than 5% of such securities;
(iv) purchase any security if as a result the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(v) invest more than 10% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over-the- counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities that legally or in the
Investment Manager's opinion, subject to the Board's supervision, may
be deemed illiquid, but shall not include any instrument that, due to
the existence of a trading market, to the Fund's compliance with
certain conditions intended to provide liquidity, or to other factors,
is liquid; or
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the 1940 Act, and
rules thereunder, or by any state in which shares of the Fund are
registered.
In addition, so long as it remains a restriction of the Ohio Division of
Securities, the Fund will treat securities eligible for resale under Rule 144A
of the Securities Act of 1933 and securities of unseasoned issuers as described
in non-fundamental restriction (iv) above, as subject to the Fund's restriction
on investing in restricted securities (see "Restricted and Illiquid Securities"
under "Investment Objectives and Policies," above).
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment
by the Fund, a later increase or decrease in the percentage that results from
circumstances not involving any affirmative action by the Fund, such as a change
in market conditions or a change in the Fund's asset level or other
circumstances beyond the Fund's control, will not be considered a violation.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors (and except as noted below, bears the cost of
providing) the rights and privileges described below. The Trust reserves the
right to amend or terminate any one or more of such rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to other funds
distributed by MIFDI, which funds are not described in this SAI. These funds
are: Mackenzie Limited Term Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund, the
four other series of the Trust, and Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy Emerging Growth Fund, Ivy Global Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund, Ivy International Bond Fund,
Ivy Latin America Strategy Fund, Ivy Money Market Fund, Ivy New Century Fund and
Ivy Short-Term Bond Fund, the thirteen series of Ivy Fund (collectively, with
the Fund, the "Ivy and Mackenzie Funds"). Investors should obtain a current
prospectus before exercising any right or privilege that may relate to these
other funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for Class A and Class B
shareholders of the Fund. The minimum initial and subsequent investment pursuant
to this plan is $50 per month. The Automatic Investment Method may be
discontinued at any time upon receipt by Mackenzie Ivy Investor Services Corp.
("MIISC") of telephone instructions or written notice of such discontinuation
from the investor. See "Automatic Investment Method" in the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an exchange
privilege with certain other Ivy and Mackenzie Funds. Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy or Mackenzie Fund into which the exchange is to
be made.
INITIAL SALES CHARGE SHARES.
Class A shareholders may exchange their Class A shares ("outstanding Class
A shares") for Class A shares of another Ivy or Mackenzie Fund (or for shares of
another Ivy or Mackenzie Fund that currently offers only a single class of
shares) ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for outstanding Class A shares that have been
invested for a period of 12 months or longer.) Class A shareholders may also
exchange their Class A shares for Class A shares of Ivy Money Market Fund (no
initial sales charge will be assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES.
CLASS A: Class A shareholders may exchange their Class A shares subject to
a contingent deferred sales charge, as described in the Prospectus ("outstanding
Class A shares"), for Class A shares of another Ivy or Mackenzie Fund (or for
shares of another Ivy or Mackenzie Fund that currently offers only a single
class of shares) ("new Class A shares") on the basis of the relative net asset
value per Class A share, without the payment of any contingent deferred sales
charge that would otherwise be due upon the redemption of the outstanding Class
A shares. Class A shareholders of the Fund exercising the exchange privilege
will continue to be subject to the Fund's contingent deferred sales charge
schedule (or period) following an exchange, unless the contingent deferred sales
charge schedule that applies to the new Class A shares is higher (or such period
is longer) than the contingent deferred sales charge schedule (or period), if
any, applicable to the outstanding Class A shares, in which case the schedule
(or period) of the fund into which the exchange is made shall apply.
For purposes of the exchange feature and computing the contingent deferred
sales charge that may be payable upon the redemption of the new Class A shares,
the holding period of the outstanding Class A shares is "tacked" onto the
holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy or Mackenzie
Fund ("new Class B shares") on the basis of the relative net asset value per
Class B share, without the payment of any contingent deferred sales charge that
would otherwise be due upon the redemption of the outstanding Class B shares.
Class B shareholders of the Fund exercising the exchange privilege will continue
to be subject to the Fund's contingent deferred sales charge schedule (or
period) following an exchange, unless the contingent deferred sales charge
schedule that applies to the new Class B shares is higher (or such period is
longer) than the contingent deferred sales charge schedule (or period)
applicable to the outstanding Class B shares, in which case the schedule (or
period) of the fund into which the exchange is made shall apply.
For purposes of both the exchange feature and computing the contingent
deferred sales charge that may be payable upon the redemption of the new Class B
shares (prior to conversion), the holding period of the outstanding Class B
shares is "tacked" onto the holding period of the new Class B shares.
The following contingent deferred sales charge table ("Table 1") applies to
Class B shares of Mackenzie National Municipal Fund, Mackenzie California
Municipal Fund, Mackenzie New York Municipal Fund, Ivy Bond Fund, Ivy Canada
Fund, Ivy Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging Growth Fund, Ivy International Fund, Ivy International Bond Fund, Ivy
New Century Fund, Ivy Latin America Strategy Fund and Ivy China Region Fund
("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- -------------------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge table ("Table 2") applies to
Class B shares of the Fund, Mackenzie Limited Term Municipal Fund and Ivy
Short-Term Bond Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- -------------------------
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for Table 1 Funds is higher
(and the period is longer) than the contingent deferred sales charge schedule
(and period) for Table 2 Funds. Accordingly, the contingent deferred sales
charge schedule that applies to the redemption of Table 1 Fund shares would
apply to all Class B shares that are acquired as a result of an exchange between
a Table 1 and a Table 2 Fund (taking into account the "tacking" of the holding
period, if any, of the shares held before the exchange).
EXAMPLE: An investor may decide to exchange Class B shares of a Table 1
Fund that have been held for two years ("outstanding Class B shares") for
Class B shares of a Table 2 Fund ("new Class B shares"). The exchange
itself would not trigger payment of the 4% contingent deferred sales charge
that would have been due in accordance with Table 1 upon the redemption of
the outstanding Class B shares. If, three years later, the investor redeems
the new Class B shares, a 2% contingent deferred sales charge would be
assessed in accordance with Table 1, since Table 1's contingent deferred
sales charge schedule is higher than that of Table 2, and because by
"tacking" the two year holding period of the outstanding Class B shares
onto the three year holding period of the new Class B shares, the investor
will be deemed to have held the new Class B shares for five years.
The minimum amount that a shareholder may exchange into an Ivy or Mackenzie
Fund in which shares are not already held is $1,000. In addition, no exchange
out of the Fund (other than by a complete exchange of all Fund shares held by
the shareholder) may be made if it would reduce the shareholder's interest in
the Fund to less than $1,000. Exchanges are available only in states where the
exchange can legally be made.
Each exchange will be made on the basis of the relative net asset values
per share of each fund of the Ivy Mackenzie Funds next computed following
receipt of telephone instructions by MIISC or a properly executed request by the
MIISC. Exchanges, whether written or telephonic, must be received by MIISC by
the close of regular trading on the New York Stock Exchange (the "Exchange")
(normally 4:00 p.m., eastern time), to receive the price computed on the day of
receipt; exchange requests received after that time will receive the price next
determined following receipt of the request. This exchange privilege may be
modified or terminated at any time, upon at least 60 days' notice when such
notice is required by Rules adopted by the Securities and Exchange Commission
("SEC"). See "Redemptions."
An exchange of shares between any of the Ivy or Mackenzie Funds will result
in a taxable gain or loss. Generally, any such taxable gain or loss will be a
capital gain or loss (long-term or short-term, depending on the holding period
of the shares) in the amount of the difference between the net asset value of
the shares surrendered and the shareholder's tax basis for those shares.
However, in certain circumstances, shareholders will be ineligible to take sales
charges into account in computing taxable gain or loss on an exchange. See
"Taxation."
With limited exceptions, gain realized by a tax-deferred retirement plan
would not be taxable to the plan and will not be taxed to the participant until
distribution. Each investor should consult his or her tax adviser regarding the
tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments made pursuant to a
non-binding Letter of Intent. A Letter of Intent may be submitted by an
individual, his or her spouse and children under the age of 21 or a trustee or
other fiduciary of a single trust estate or single fiduciary account. See the
Account Application in the Prospectus. Any investor may submit a Letter of
Intent stating that he or she will invest, over a period of 13 months, at least
$100,000 in Class A shares of the Fund. A Letter of Intent may be submitted at
the time of an initial purchase of Class A shares of the Fund or within 90 days
of the initial purchase, in which case the Letter of Intent will be backdated. A
shareholder may include the value (at the applicable offering price) of all
Class A shares of the Fund, Mackenzie Limited Term Municipal Fund, Mackenzie
National Municipal Fund, Mackenzie California Municipal Fund, Mackenzie New York
Municipal Fund, Ivy Short-Term Bond Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy
Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy International Fund, Ivy New Century Fund, Ivy Latin America Strategy
Fund and Ivy China Region Fund (and shares that have been exchanged into Ivy
Money Market Fund from any of the other funds in the Ivy and Mackenzie Funds),
held of record by him or her as of the date of his or her Letter of Intent as an
accumulation credit toward the completion of such Letter. During the term of the
Letter of Intent, the Fund's transfer agent will hold in escrow Class A shares
representing 5% of the indicated amount (less any accumulation credit value).
The escrowed Class A shares will be released when the full indicated amount has
been purchased. If the full indicated amount is not purchased during the term of
the Letter of Intent, the investor is required to pay MIFDI an amount equal to
the difference between the dollar amount of sales charge that he or she has paid
and that which he or she would have paid on his or her aggregate purchases if
the total of such purchases had been made at a single time. Such payment will be
made by an automatic liquidation of Class A shares in the escrow account. A
Letter of Intent does not obligate the investor to buy or the Trust to sell the
indicated amount of Class A shares and the investor should read carefully all
the provisions thereof before signing.
REINVESTMENT PRIVILEGE
Investors who have redeemed Class A shares of the Fund may reinvest all or
a part of the proceeds of the redemption back into Class A shares of the Fund at
net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by the Fund's transfer
agent of the reinvestment order accompanied by the funds to be reinvested. No
compensation will be paid to any sales personnel or dealer in connection with
the transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to certain investments in Class A
shares of the Fund by an individual, his or her spouse and children under the
age of 21, or a trustee or other fiduciary of a single trust estate or single
fiduciary account (including a pension, profit sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of the Code. An
investment qualifies for a reduced sales charge if the sum of: (a) the combined
value, determined at the higher of current offering price or amount invested, of
Class A shares held by the persons identified above in (i) any of the five
series of the Trust, including the Fund, (ii) any of the series of Ivy Fund
(except for shares of Ivy Money Market Fund, but including shares that have been
exchanged from any of the Ivy or Mackenzie Funds into Ivy Money Market Fund),
and (iii) any other investment company distributed by MIFDI currently owned; and
(b) the value of the Class A shares being purchased, exceeds: (i) $25,000, with
respect to an investment in the Fund or Mackenzie Limited Term Municipal Fund;
(ii) $50,000, with respect to an investment in Ivy Canada Fund, Ivy Global Fund,
Ivy Growth Fund, Ivy Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy International Bond Fund, Ivy New Century Fund, Ivy Latin
America Strategy Fund or Ivy China Region Fund; or (iii) $100,000, with respect
to an investment in Mackenzie National Municipal Fund, Mackenzie California
Municipal Fund, Mackenzie New York Municipal Fund, Ivy Short-Term Bond Fund or
Ivy Bond Fund.
At the time an investment takes place, MIMI, in the case of a wire order,
or Mackenzie Ivy Investor Services Corp. ("MIISC," or the "Transfer Agent"), in
the case of a direct mail remittance, must be notified by the investor or his or
her dealer that the investment qualifies for the reduced charge on the basis of
previous investments. The reduced charge is subject to confirmation of the
investor's holdings through a check of the Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (the "Withdrawal
Plan") by telephone instructions to MIISC (i.e., the Transfer Agent) or delivery
to the Transfer Agent of a written election to so redeem, accompanied by a
surrender to the Transfer Agent of all share certificates then outstanding in
the name of such shareholder, properly endorsed by him or her. A Withdrawal Plan
may not be established if the investor is currently participating in the
Automatic Investment Method. The Withdrawal Plan may involve the use of
principal and, to the extent that it does, depending on the amount withdrawn,
the investor's principal may be depleted.
A redemption under the Withdrawal Plan is a taxable event. Investors
contemplating participation in the Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in the Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial or contingent
deferred sales changes.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to the Transfer Agent. If all shares
held by the investor are liquidated at any time, the Withdrawal Plan will
terminate automatically. The Trust or MIMI may terminate the Withdrawal Plan at
any time after reasonable notice to shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board of
Trustees of the Trust, MIMI places orders for the purchase and sale of the
Fund's portfolio securities. All portfolio transactions are effected at the best
price and execution obtainable. Purchases and sales of debt securities are
usually principal transactions and, therefore, brokerage commissions are usually
not required to be paid by the Fund for such purchases and sales, although the
price paid generally includes undisclosed compensation to the dealer. The prices
paid to underwriters of newly-issued securities usually include a concession
paid by the issuer to the underwriter, and purchases of after-market securities
from dealers normally reflect the spread between the bid and asked prices. In
connection with over-the-counter transactions, MIMI attempts to deal directly
with the principal market makers, except in those circumstances where it
believes that better prices and execution are available elsewhere. Subject to
the requirement of best price and execution, MIMI may select broker-dealers that
provide it with research services and may consider sales of Fund shares as a
factor in the selection of broker-dealers.
MIMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of each firm's professional services. Commissions charged and investment
services rendered, including statistical, research, and counseling services by
brokerage firms, are among the factors that are considered in the placing of
brokerage business. The types of research services provided by brokers may
include general economic and industry data, and information on securities of
specific companies. Research services furnished by brokers through whom the
Trust effects securities transactions may be used by MIMI in servicing all of
its accounts. In addition, not all of these services may be used by MIMI in
connection with the services it provides to the Fund or the Trust. MIMI may
consider sales of Fund shares as a factor in the selection of broker-dealers and
may select broker-dealers who provide it with research services. MIMI will not,
however, execute brokerage transactions other than at the best price and
execution.
The Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. The Fund will consider accepting securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that MIMI deems to be a desirable investment for the
Fund. While no minimum has been established, it is expected that the Fund will
not accept securities having an aggregate value of less than $1 million. The
Trust may reject in whole or in part any or all offers to pay for Fund shares
with securities and may discontinue accepting securities as payment for Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and Fund shares will be sold for net asset value determined at the same
time the accepted securities are valued. The Trust will accept only securities
that are delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with applicable laws of certain states.
During the fiscal year ended June 30, 1995 and the period from April 1,
1994 (commencement) to June 30, 1994, the Fund did not pay any brokerage
commissions.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust, their business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION
WITH THE BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL OCCUPATIONS
- ------------------ ----- -------------------------
<S> <C> <C>
Michael G. Landry Trustee President, Chairman and Director of Mackenzie Investment
700 South Federal Hwy. and Management Inc. (1987-present); President and Director of
Suite 300 President Ivy Management, Inc. (1992- present); Chairman and Director
Boca Raton, FL 33432 of Mackenzie Ivy Investor Services Corp. (1993-present);
Age: 49* Director and President of Mackenzie Ivy Funds Distribution,
[Deemed to be an Inc. (1993-1994); Chairman and Director of Mackenzie Ivy
"interested person"of the Trust, Funds Distribution, Inc. (1994-present); President and
as defined under the 1940 Act.] Trustee of Ivy Fund (1992-present); President of Mackenzie
Series Trust (1987- present); Director and President of The
Mackenzie Funds Inc. (1987-1995).
John S. Anderegg, Jr. (71) Trustee Chairman, Dynamics Research Corp. (instruments and
60 Concord Street controls); Director, Burr- Brown Corp. (operational
Wilmington, MA 01887 amplifiers); Director, Metritage Incorporated (level
measuring instruments); Trustee of Ivy Fund (1967-present).
Paul H. Broyhill (71) Trustee Chairman, BMC Fund, Inc. (1983-present); Chairman, Broyhill
800 Hickory Blvd. Family Foundation, Inc. (1983-present); Chairman and
Golfview Park President, Broyhill Investments, Inc. (1983-present);
Lenoir, NC 28645 Chairman, Broyhill Timber Resources (1983-present); Director
of The Mackenzie Funds Inc. (1988-1995); Trustee of Ivy Fund
(1992-present); Management of a personal portfolio of fixed
income and equity investments (1983-present).
Stanley Channick (71) Trustee President, The Whitestone Corporation (insurance agency);
11 Bala Avenue President, Scott Management Company (administrative services
Bala Cynwyd, PA 19004 for insurance companies); President, The Channick Group
(consultants to insurance companies and national trade
associations); Trustee of Ivy Fund (1984-1993); Director of
The Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. (74) Trustee Director of The Mackenzie Funds Inc. (1987-1995); Trustee
322 Seventh Street and Second Vice Chairman, East Tennessee Public
Bristol, TN Communications Corp. (WSJK-TV) (1984-present); Director,
37620-2218 Manager and Vice President, President Massengill- DeFriece
Foundation (charitable organization) (1950-present); Trustee
of Ivy Fund (1992-present).
Roy J. Glauber (70) Trustee Mallinckrodt Professor of Physics, Harvard University (since
1974); Trustee of Ivy Fund (1961-1991); Trustee of Mackenzie
Series Trust (1994-present).
Joseph G. Rosenthal (61) Trustee Chartered Accountant (1958- present); Director of The
110 Jardin Drive Mackenzie Funds Inc. (1987- 1995); Trustee of Ivy Fund
Unit #12 (1992-present).
Concord, Ontario Canada
L4K 2T7
J. Brendan Swan (65) Trustee President, Airspray International, Inc.; Joint Managing
4701 North Federal Hwy. #465 Director, Airspray International B.V. (an environmentally
Pompano Beach, FL 33064 sensitive packaging company); Trustee of Ivy Fund
(1992-present); Director, The Mackenzie Funds Inc.
(1992-1995).
Keith J. Carlson (39) Vice President Senior Vice President and Director of Mackenzie Investment
700 South Federal Hwy. Management, Inc. (1994-present); Senior Vice President,
Suite 300 Secretary and Treasurer of Mackenzie Investment Management
Boca Raton, FL 33432 Inc. (1985-1994); Senior Vice President and Director of Ivy
Management, Inc. (1994- present); Senior Vice President,
Treasurer and Director of Ivy Management, Inc. (1992-1994);
Vice President of The Mackenzie Funds Inc. (1987-1995);
President and Director of Mackenzie Ivy Investor Services
Corp. (1993- present); Vice President of Mackenzie Series
Trust (1994-present); Treasurer of Mackenzie Series Trust
(1985-1994); President and Director of Mackenzie Ivy Funds
Distribution, Inc. (1994-present); Executive Vice President
and Director of Mackenzie Ivy Funds Distribution, Inc.
(1993- 1994); Treasurer of Ivy Fund (1992-1994); Vice
President of Ivy Fund (1994-present).
C. William Ferris (51) Secretary/ Senior Vice President, Secretary/Treasurer and Director of
700 South Federal Hwy. Treasurer Mackenzie Investment Management Inc. (1994-present); Senior
Boca Raton, FL 33432 Vice President, Finance and Administration/Compliance
Officer of Mackenzie Investment Management Inc. (1989-1994);
Senior Vice President, Secretary/Treasurer and Clerk of Ivy
Management, Inc. (1989-1994); Senior Vice President,
Secretary/Treasurer of Mackenzie Ivy Funds Distribution,
Inc. (1993- 1994); Secretary/Treasurer and Director of
Mackenzie Ivy Investor Services Corp. (1993-1994); Secretary
of Mackenzie Series Trust (1993-1994); Secretary/Treasurer
and Director of Mackenzie Ivy Investor Services Corp.
(1993-present); Secretary/Treasurer of The Mackenzie Funds
Inc. (1993- 1995); Secretary/Treasurer of Mackenzie Series
Trust (1994-present); Secretary of Ivy Fund (1993-1994);
Secretary/Treasurer of Ivy Fund (1994-present).
</TABLE>
As of September 29, 1995, all Trustees and executive officers of the Trust
as a group owned beneficially or of record 1.8% of the outstanding Class A and
Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
Employees of MIMI are permitted to make personal securities transactions,
subject to requirements and restrictions set forth in MIMI's Code of Ethics. The
Code of Ethics contains provisions and requirements designed to identify and
address certain conflicts of interest between personal investment activities and
the interests of investment advisory clients such as the Fund. Among other
things, the Code of Ethics, which generally complies with standards recommended
by the Investment Company Institute's Advisory Group on Personal Investing,
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
monthly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Code of Ethics may be granted in particular circumstances after review by
appropriate personnel.
<TABLE>
<CAPTION>
COMPENSATION TABLE
(for the calendar year ending December 31, 1995)
------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ANNUAL COMPENSA-
COMPENSA- ACCRUED AS BENEFITS TION FROM
NAME, TION FROM PART OF FUND UPON TRUST PAID
POSITION TRUST EXPENSES RETIREMENT TO TRUSTEE
- -------- ----- -------- ---------- ----------
<S> <C> <C> <C> <C>
John S. 888 N/A N/A 888
Anderegg, Jr.
(Trustee)
Paul H. 888 N/A N/A 888
Broyhill
(Trustee)
Stanley 8,000 N/A N/A 8,000
Channick
(Trustee)
Frank W.
DeFriece, Jr. 888 N/A N/A 888
(Trustee)
Roy J. Glauber 8,000 N/A N/A 8,000
(Trustee)
Michael G.
Landry -0- N/A N/A -0-
(Trustee and
President)
Joseph G. 888 N/A N/A 888
Rosenthal
(Trustee)
J. Brendan Swan 888 N/A N/A 888
(Trustee)
Keith J. -0- N/A N/A -0-
Carlson
(Vice
President)
C. William -0- N/A N/A -0-
Ferris
(Secretary/
Treasurer)
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Mackenzie Investment Management Inc. ("MIMI") provides business management
and investment advisory services to the Fund pursuant to a Business Management
and Investment Advisory Agreement (the "Agreement"). The Agreement was approved
by the Board of Trustees for the Fund on November 19, 1993, including a majority
of the Trustees who neither are "interested persons" (as defined in the 1940
Act) of the Trust nor have any direct or indirect financial interest in the
operation of the distribution plans described below (see "Distribution
Services") or in any related agreement (the "Independent Trustees'). The
Agreement was approved by the initial shareholder of the Fund on March 31, 1994.
The continuation of the Agreement was last approved on August 26, 1995 by the
Board of Trustees, including the Independent Trustees. MIMI is a subsidiary of
Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto,
Ontario, Canada, a public corporation organized under the laws of Ontario whose
shares are listed for trading on The Toronto Stock Exchange. MFC is registered
in Ontario as a mutual fund dealer.
Under the Agreement, MIMI makes investments for the account of the Fund in
accordance with its best judgment and within the investment objectives and
restrictions set forth in the Prospectus, the 1940 Act and the provisions of the
Code relating to regulated investment companies, subject to policy decisions
adopted by the Trust's Board of Trustees. MIMI also provides an investment
program, determines the securities to be purchased or sold by the Fund and
places orders with brokers or dealers who deal in such securities.
MIMI also provides certain business management services pursuant to the
Agreement. MIMI is obligated to (1) coordinate with the Fund's custodian and
transfer agent and monitor the services they provide to the Fund; (2) coordinate
with and monitor any other third parties furnishing services to the Fund; (3)
provide the Fund with any necessary office space, telephones and other
communications facilities; (4) provide the services of individuals competent to
perform administrative and clerical functions that are not performed by
employees or other agents engaged by the Fund or by MIMI acting in some other
capacity pursuant to a separate agreement or arrangement with the Fund; (5)
maintain or supervise the maintenance by third parties of such books and records
of the Trust as may be required by applicable Federal or state law; (6)
authorize and permit MIMI's directors, officers and employees who may be elected
or appointed as trustees or officers of the Trust to serve in such capacities;
and (7) take such other action with respect to the Trust, after approval by the
Trust, as may be required by applicable law, including without limitation the
rules and regulations of the SEC and of state securities commissions and other
regulatory agencies.
For MIMI's services under the Agreement, the Fund pays MIMI a monthly fee
at an annual rate of 0.55% of the Fund's average daily net assets. For the
fiscal year ended June 30, 1995 and the period from April 1, 1994 (commencement)
to June 30, 1994, the Fund paid MIMI $35,302 and $2,538, respectively.
The Trust pays the following expenses under the Agreement: (1) the fees and
expenses of the Trust's Independent Trustees; (2) the salaries and expenses of
any of the Trust's officers or employees who are not affiliated with MIMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
MIMI voluntarily limits total Fund expenses (excluding interest, 12b-1
fees, taxes, brokerage commissions, litigation and indemnification expenses, and
other extraordinary expenses) to an annual rate of 0.64% of the Fund's average
daily net assets. As long as the Fund's expense limitation continues, it may
lower the Fund's expenses and increase its yield. The Fund's expense limitation
may be terminated or revised at any time, at which time the Fund's expenses may
increase and its yield may be reduced, depending on the total assets of the
Fund. If the Fund's expense limitation is terminated, MIMI will comply with any
applicable state regulations, which may require MIMI to make reimbursements to
the Fund in the event that the Fund's aggregate operating expenses, including
the management and advisory fee and shareholder and administrative services fee,
but generally excluding interest, taxes, brokerage commissions and extraordinary
expense, are in excess of specific applicable limitations. At the present time,
the most restrictive state expense limitation provision limits the Fund's annual
expenses (excluding interest, taxes, distribution expenses, brokerage
commissions and extraordinary expenses, and other expenses subject to approval
by state securities administrators) to 2.5% of the first $30 million of its
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets over $100 million. For the
fiscal year ended June 30, 1995, voluntary expense reimbursements for the Fund
were $76,855.
The Agreement will continue in effect with respect to the Fund for more
than its initial two-year period only so long as the continuance is specifically
approved at least annually (i) by the vote of a majority of the Independent
Trustees, and (ii) either (a) by the vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act), or (b) by the vote
of a majority of the entire Board of Trustees. If the question of continuance of
the Agreement (or adoption of any new agreement) is presented to the Fund's
shareholders, continuance (or adoption) shall be effected only if approved by
the affirmative vote of a majority of the Fund's outstanding voting securities.
See "Capitalization and Voting Rights." The Agreement may be terminated with
respect to the Fund at any time, without payment of any penalty, by the vote of
a majority of the Board of Trustees, or by the vote of a majority of the Fund's
outstanding voting securities, on 60 days' written notice to MIMI, or by MIMI on
60 days' written notice to the Trust. The Agreement shall terminate
automatically in the event of its assignment. MIMI and MFC reserve all rights in
the name "Mackenzie" and permit the use of the name "Mackenzie" or any name
derived from the name "Mackenzie" by the Fund and the Trust only so long as the
Agreement or any extension, renewal or amendment thereof remains in effect.
DISTRIBUTION SERVICES
Mackenzie Ivy Funds Distribution, Inc. ("MIFDI"), a wholly owned subsidiary
of MIMI, serves as the exclusive distributor of the Class A and Class B shares
of the Fund pursuant to an Amended and Restated Distribution Agreement with the
Trust dated April 1, 1994 (the "Distribution Agreement"). 1[Effective October 1,
1993, MIFDI succeeded to and is continuing MIMI's broker-dealer activities. The
provisions of the Fund's previous Distribution Agreements with MIMI remain
unchanged by the succession.] The Distribution Agreement does not obligate MIFDI
to sell any specific amount of Fund shares. The Distribution Agreement will
continue in effect for successive one-year periods, provided that such
continuance is specifically approved at least annually by the vote of a majority
of the Independent Trustees, cast in person at a meeting called for that purpose
and by the vote of either a majority of the entire Board of Trustees or a
majority of the outstanding voting securities of the Fund. The Distribution
Agreement may be terminated with respect to the Fund at any time, without
payment of any penalty, by MIFDI on 60 days' written notice to the Fund, or by
the Fund by vote of either a majority of the outstanding voting securities of
the Fund or a majority of the Independent Trustees on 60 days' written notice to
MIFDI. The Distribution Agreement shall terminate automatically in the event of
its assignment.
Under the terms of the Distribution Agreement, MIFDI is entitled to deduct
a contingent deferred sales charge on the redemption of Class B shares of the
Fund in the manner set forth in the Prospectus. MIFDI may reallow all or a
portion of the contingent deferred sales charge to dealers as MIFDI may
determine from time to time. During the fiscal year ended June 30, 1995, MIFDI
received $24,940 in contingent deferred sales charges on redemptions of Class B
shares of the Fund. During the period from April 1, 1994 (commencement) to June
30, 1994, MIFDI received no contingent deferred sales charges on redemptions of
Class B shares of the Fund.
MIFDI is also entitled under the Distribution Agreement to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
Prospectus, and the net asset value on which such price is based. Out of such
commission, MIFDI may allow to dealers such concession as MIFDI may determine
from time to time. During the fiscal year ended June 30, 1995 and the period
from April 1, 1994 (commencement) to June 30, 1994, MIFDI received $39,506 and
$55,101, respectively, in commissions from sales of Class A shares of the Fund,
of which $9,322 and $6,924, respectively, was retained after dealers'
reallowances.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the
1940 Act, which permits a registered open-end investment company whose shares
are registered on Form N-1A to issue multiple classes of shares in accordance
with a written plan approved by the investment company's board of
directors/trustees and filed with the SEC. At a meeting held on December 1-2,
1995, the Board of Trustees of the Trust adopted a multi-class plan (the "Rule
18f-3 plan") on behalf of the Fund. The key features of the Rule 18f-3 plan are
as follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy or
Mackenzie fund; and (iii) the Fund's Class B shares will convert automatically
into Class A shares of the Fund after a period of eight years, based on the
relative net asset value of such shares at the time of conversion.
CLASS A AND CLASS B DISTRIBUTION PLANS
As described in the Prospectus, the Fund has adopted pursuant to Rule 12b-1
under the 1940 Act separate distribution plans pertaining to its Class A and
Class B shares (the "Class A Plan" and the "Class B Plan," collectively, the
"Plans"). In adopting each Plan, a majority of the Independent Trustees have
concluded in conformity with the requirements of the 1940 Act that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of Fund shares, although it is impossible to know for
certain the level of sales and redemptions of Fund shares in the absence of a
Plan or under an alternative distribution arrangement.
Under the Fund's Class A and Class B Plans, the Fund pays MIFDI a service
fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the
average daily net assets attributable to its Class A shares or Class B shares,
as the case may be. The services for which service fees may be paid include,
among other services, advising clients or customers regarding the purchase, sale
or retention of Fund shares, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to these Plans, service fee payments made out of or charged against the
assets attributable to the Fund's Class A or Class B shares must be in
reimbursement for services rendered for or on behalf of that class of the Fund.
The expenses not reimbursed in any one given month may be reimbursed in a
subsequent month. The Class A Plan does not provide for the payment of interest
or carrying charges as distribution expenses.
The Fund also pays to MIFDI a distribution fee based on the average daily
net assets attributable to its Class B shares, accrued daily and paid monthly at
the annual rate of 0.50%. MIFDI may reallow all or a portion of the service and
distribution fees to dealers as MIMI may determine from time to time. The
distribution fee compensates MIFDI for expenses incurred in connection with
activities primarily intended to result in the sale of Class B shares of the
Fund, including the printing of prospectuses for persons other than shareholders
and the preparation, printing and distribution of sales literature and
advertising materials. Pursuant to the Fund's Class B Plan, MIFDI may include
interest, carrying or other finance charges in its calculation of Class B
distribution expenses, if not prohibited from doing so pursuant to an order of
or a regulation adopted by the SEC. The SEC order permitting the imposition of a
contingent deferred sales charge on Class B shares does not currently permit
MIFDI to recover such charges.
Among other things, each Plan provides that (1) MIFDI will submit to the
Board of Trustees of the Trust at least quarterly, and the Trustees will review,
written reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made; (2) the Plan will continue in effect only
so long as such continuance is approved at least annually, and any material
amendment thereto is approved, by the votes of a majority of the Trust's Board
of Trustees, including the Independent Trustees, cast in person at a meeting
called for that purpose; (3) payments by the Fund under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the outstanding shares of the relevant class; and (4) while the Plan is in
effect, the selection and nomination of Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust shall be committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
MIFDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
to MIMI by the Fund. MIFDI also may make payments (such as the service fee
payments described above) to unaffiliated broker-dealers for services rendered
in the distribution of the Fund's shares. To qualify for such payments, shares
may be subject to a minimum holding period. However, no such payments will be
made to any dealer or broker, if at the end of each year the amount of shares
held does not exceed a minimum amount. The minimum holding period and minimum
level of holdings will be determined from time to time by MIFDI.
Each Plan may be amended at any time with respect to the class of shares of
the Fund to which the Plan relates by vote of the Trustees, including a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of considering such amendment. Each Plan may be terminated with respect to the
class of shares of the Fund to which the Plan relates at any time, without
payment of any penalty, by vote of a majority of the Independent Trustees, or by
vote of a majority of the outstanding voting securities of that class.
RULE 12B-1 PAYMENTS BY THE FUND FOR DISTRIBUTION-RELATED SERVICES: For the
period from April 1, 1994 (commencement) to June 30, 1994, the Fund paid MIFDI
$771 and $1,139 pursuant to the Class A and Class B plans, respectively. For the
fiscal year ended June 30, 1995, the Fund paid MIFDI $9,998 and $18,151 pursuant
to the Class A and Class B plans, respectively.
DISTRIBUTION-RELATED EXPENSES BORNE BY MIFDI: During the fiscal year ended
June 30, 1995, MIFDI expended the following amounts in marketing Class A and
Class B shares of the Fund: advertising, $523 and $289, respectively; printing
and mailing of prospectuses to persons other than current shareholders, $10,343
and $5,722, respectively; compensation to dealers, $9,442 and $5,224,
respectively; compensation to sales personnel, $6,251 and $3,459, respectively;
seminars and meetings, $2,360 and $1,306, respectively; travel and
entertainment, $1,720 and $951, respectively; general and administrative, $2,723
and $1,507, respectively; telephone, $218 and $121, respectively; and occupancy
and equipment rental, $532 and $294, respectively.
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), has been retained to act as Custodian of the Trust's
investments. Its primary responsibility is to maintain custody of the cash and
securities in the Fund's portfolio. Brown Brothers may receive, as partial
payment for its services, a portion of the Trust's brokerage business, subject
to its ability to provide best price and execution. The First National Bank of
Boston, One Financial Center, Boston, Massachusetts 02111, served as the Trust's
custodian until May 31, 1993.
FUND ACCOUNTING
Pursuant to the Fund Accounting Services Agreement dated July 1, 1991
(effective March 31, 1994 with respect to the Fund), MIMI provides certain
accounting and pricing services for the Fund. As compensation for such services,
the Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The
monthly fee is based on the net assets of the Fund at the preceding month end at
the following rates: $1,000 when the net assets are less than $20 million;
$1,500 when the net assets are $20 to $75 million; $4,000 when the net assets
are $75 to $100 million; and $6,000 when the net assets are over $100 million.
For the fiscal year ended June 30, 1995 and the period from April 1, 1994
(commencement) to June 30, 1994, the Fund paid $13,606 and $2,906, respectively,
to MIMI pursuant to the agreement.
TRANSFER AND DIVIDEND PAYING AGENT
Mackenzie Ivy Investor Services Corp. ("MIISC," or the "Transfer Agent")
acts as the Trust's transfer agent and dividend paying agent pursuant to a
Transfer Agency and Shareholder Services Agreement. For transfer agency and
shareholder services, the Fund pays MIISC an annual fee of $20.75 per open
account and $4.36 for each account that is closed. In addition, the Fund
reimburses MIISC monthly for out-of-pocket expenses.
ADMINISTRATOR
MIMI provides various administrative services to the Trust pursuant to an
Administrative Services Agreement. A description of these services and related
fees is provided in the Fund's Prospectus.
AUDITORS
Coopers & Lybrand L.L.P., independent certified public accountants, 200
East Las Olas Boulevard, Suite 1700, Ft. Lauderdale, Florida 33301, has been
selected as auditors for the Trust. The audit services performed by Coopers &
Lybrand L.L.P. include audits of the annual financial statements of each of the
funds of the Trust. Other services provided primarily relate to filings with the
SEC and the review of the Trust's tax returns.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest with a par value of $0.001 per share. When issued, shares
of each Class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Declaration of Trust permits the Trustees to create separate series or
portfolios and to divide any series or portfolio into one or more classes. The
Trustees have authorized five series, each of which represents a fund. The
Trustees have further authorized the issuance of Classes A and B shares for the
Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. Shares of each class of a particular
fund entitle their holders to one vote per share (with proportionate voting for
fractional shares). On matters affecting only one fund, only the shareholders of
that fund are entitled to vote. All classes of shares of the Fund will vote
together, except with respect to the distribution plan applicable to its Class A
or Class B shares or when a class vote is required by the 1940 Act. On matters
relating to all funds, but affecting each fund differently, separate votes by
the shareholders of the funds are required. Approval of an investment advisory
agreement and a change in fundamental policies would be regarded as matters
requiring separate voting by the shareholders of the funds. If the Trustees
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general, such as ratification of the selection
of independent public accountants, will be voted upon collectively by the
shareholders of all of the funds that comprise the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the
shares of the Fund (or of the Trust) present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or of the Trust). With
respect to the submission to shareholder vote of a matter requiring separate
voting by the Fund, the matter shall have been effectively acted upon with
respect to the Fund if a majority of the outstanding voting securities of the
Fund votes for the approval of the matter, notwithstanding that: (1) the matter
has not been approved by a majority of the outstanding voting securities of any
other fund of the Trust; or (2) the matter has not been approved by a majority
of the outstanding voting securities of the Trust. The Trust's shares do not
have cumulative voting rights and accordingly the holders of more than 50% of
the outstanding shares could elect the entire Board of Trustees, in which case
the holders of the remaining shares would not be able to elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
losses and expenses of any shareholder of a fund held personally liable for the
obligations of that fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote.
PRINCIPAL HOLDERS OF SECURITIES: To the knowledge of the Trust, as of
September 29, 1995, no shareholder owned beneficially or of record 5% or more of
the Fund's outstanding shares, except that of the outstanding Class B shares of
the Fund, Smith Barney Inc., 388 Greenwich Street, New York, New York 10013,
owned of record 10,178.219 shares (5.81%).
NET ASSET VALUE
The market price of the Fund share is its net asset value. The net asset
value per share is calculated separately for the Fund, and is computed by
dividing the value of the assets of the Fund, less its liabilities, by the
number of shares of the Fund outstanding. The Fund's liabilities are allocated
between its Classes. The total of such liabilities allocated to a Class plus
that Class's distribution fee and any other expenses specially allocated to that
Class are then deducted from the proportionate interest of the Class in the
Fund's assets, and the resulting amount for each Class is divided by the number
of shares of that Class outstanding to produce the net asset value per share.
Portfolio securities are valued and net asset value per share is determined
as of the close of regular trading on the New York Stock Exchange (the
"Exchange") (normally 4:00 p.m., eastern time) on each day the Exchange is open
for trading. The Trust's offices will be closed, and net asset value will not be
calculated on the following national business holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Veterans Day, Thanksgiving Day and Christmas Day. On any day on which either or
both of the Fund's Custodian or the Exchange close early as a result of such day
being a partial holiday or otherwise, the Fund reserve the right to advance the
time on that day by which purchase and redemption requests must be received.
Municipal securities held by the Fund are valued through a pricing service
and/or in accordance with procedures approved by the Board of Trustees.
Valuations furnished by a pricing service are based on a computerized matrix
system and/or appraisals based in each case upon information concerning market
transactions and quotations from recognized municipal securities dealers. In
valuing the Fund's municipal securities, the pricing service considers factors
such as yields or prices of municipal bonds of comparable quality, type of
issue, coupon, maturity and rating, indications as to value from dealers, and
general market conditions. The Trust's officers, under the general supervision
of the Board of Trustees, will regularly review procedures used and valuations
provided by the pricing service.
Taxable securities held by the Fund for which market quotations are readily
available will be valued at market value, which is the last reported sale price
or, at the mean between the latest available bid and asked prices. The Board of
Trustees has determined that securities having 60 days or less remaining to
maturity will be valued at their amortized cost, which approximates market value
when such amortized cost is believed to reflect the fair market value of such
securities.
The sale of the Fund's shares will be suspended during any period when the
determination of its net asset value is suspended pursuant to rules or orders of
the SEC, and may be suspended by the Board of Trustees whenever in its judgment
it is in the best interest of the Fund to do so.
PORTFOLIO TURNOVER
A change in securities held by a Fund is known as "portfolio turnover" and
may involve the payment by the Fund of dealer markup or underwriting commission
and other transaction costs on the sale of securities, as well as on the
reinvestment of the proceeds in other securities. The Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the most recently completed fiscal year by the monthly average of
the value of the portfolio securities owned by the Fund during that year. For
purposes of determining the Fund's portfolio turnover rate, all securities whose
maturities at the time of acquisition were one year or less are excluded. The
Fund's portfolio turnover rate for the period from April 1, 1994 (commencement)
to June 30, 1994 and for the fiscal year ended June 30, 1995 were 0% and 164%,
respectively. It should be noted, however, that most of the transactions
represented in the high portfolio turnover rate were transactions effected
between funds of the Trust, for which transactions there were no brokerage
commissions or other transaction costs. A portfolio turnover rate that exceeds
100% usually involves correspondingly higher brokerage commissions and other
transaction costs, which are borne directly by the Fund. In addition, any net
short-term gains realized from portfolio transactions would be taxable to
shareholders as ordinary income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next determined
after a redemption request in proper form has been received by MIISC, less any
applicable contingent deferred sales charge.
Unless a shareholder requests that the proceeds of any redemption be wired
to his or her bank account, payment for shares tendered for redemption is made
by check within seven days after tender in proper form, except that the Trust
reserves the right to suspend the right of redemption or to postpone the date of
payment upon redemption, to the extent permitted by Federal securities laws, (i)
for any period during which the New York Stock Exchange is closed (other than
customary weekend and holiday closing) or during which trading on the Exchange
is restricted, (ii) for any period during which an emergency exists as
determined by the SEC as a result of which disposal of securities owned by the
Fund is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (iii) for such other
periods as the SEC may by order permit for the protection of the Fund's
shareholders.
Under unusual circumstances, when the Board of Trustees deems it in the
best interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed, in whole or in part, in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the 1940 Act. This will require
the Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). If payment is made in the form of Fund
securities, the redeeming shareholder may incur brokerage costs in converting
such securities to cash.
Subject to state law restrictions, the Trust may redeem those accounts of
shareholders who have maintained an investment, including sales charges paid, of
less than $1,000 in the Fund for a period of more than 12 months. All accounts
below that minimum will be redeemed simultaneously when MIMI deems it advisable.
The $1,000 balance will be determined by actual dollar amounts invested by the
shareholder, unaffected by market fluctuations. The Trust will notify any such
shareholder by certified mail of its intention to redeem such account, and the
shareholder shall have 60 days from the date of such letter to invest such
additional sum as shall raise the value of such account above that minimum.
Should the shareholder fail to forward such sum within 60 days of the date of
the Trust's letter of notification, the Trust will redeem the shares held in
such account and transmit the redemption in value thereof to the shareholder.
However, those shareholders who are investing pursuant to the Automatic
Investment Method will not be redeemed automatically unless they have ceased
making payments pursuant to the plan for a period of at least six consecutive
months, and these shareholders will be given six months' notice by the Trust
before such redemption. Shareholders in a qualified retirement, pension or
profit sharing plan who wish to avoid tax consequences would have to "rollover"
any sum so redeemed into another qualified plan within 60 days. The Trustees of
the Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employ reasonable procedures that require personal identification
prior to acting on redemption or exchange instructions communicated by telephone
to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will convert
automatically to Class A shares, based on the relative net asset values per
share of the two Classes, as of the close of business on the first business day
after the last day of the calendar quarter in which the eighth anniversary of
the initial issuance of such Class B shares of the Fund occurs. For the purpose
of calculating the holding period required for conversion of Class B shares, the
date of initial issuance shall mean: (i) the date on which such Class B shares
were issued, or (2) for Class B shares obtained through an exchange, or a series
of exchanges, (subject to the exchange privileges for Class B shares) the date
on which the original Class B shares were issued. For purposes of conversion of
Class B shares, Class B shares purchased through the reinvestment of dividends
and capital gain distributions paid in respect of Class B shares will be held in
a separate sub-account. Each time any Class B shares in the shareholder's
regular account (other than those shares in the sub-account) convert to Class A
shares, a pro rata portion of the Class B shares in the sub-account will also
convert to Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through the reinvestment of
dividends and capital gain distributions.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax advisor about the tax consequences to them of investing
in any Fund.
GENERAL
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code. In order to
qualify, the Fund must, among other things, (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities,
or foreign currencies, or other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (b) derive in each taxable
year less than 30% of its gross income from the sale or other disposition of
certain assets (namely (i) stock or securities, (ii) options, futures, and
forward contracts (other than those on foreign currencies), and (iii) foreign
currencies (including options, futures, and forward contracts on such
currencies) not directly related to the Fund's principal business of investing
in stocks or securities (or options and futures with respect to stocks and
securities)) held less than three months (the "30% Limitation"); and (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of the Fund's assets is represented by cash, U.S.
Government securities, the securities of other regulated investment companies,
and other securities, with such other securities of any one issuer limited for
purposes of this calculation to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in securities of any
other issuer (other than U.S. Government securities and the securities of other
regulated investment companies).
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and net capital gains (net
long-term capital gains in excess of net short-term capital losses) that it
distributes to shareholders, if at least 90% of both its investment company
taxable income and its net tax-exempt interest income for the taxable year is
distributed. The Fund intends to distribute such income.
Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid that tax, the Fund must distribute during
each calendar year an amount equal to (1) at least 98% of its ordinary income
(not taking into account any capital gains or losses) for the calendar year, (2)
at least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for the twelve-month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution, including an
"exempt-interest dividend," will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of that year to shareholders of record at some date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taken into account by shareholders in the calendar year
the distributions are declared, rather than the calendar year in which the
distributions are received.
The Fund may enter into put transactions with respect to municipal
obligations it holds. The IRS has issued published and private rulings
concerning the treatment of such put transactions for Federal income tax
purposes. The Fund's situation is distinguishable from those addressed in these
rulings; thus, there can be no assurance that the Fund will be treated as the
owner of the municipal obligations subject to the puts or that the interest on
such obligations received by the Fund will be exempt from Federal income tax. If
the Fund is not treated as the owner of the municipal obligations subject to the
puts, distributions of income derived from such obligations would be taxed as
ordinary income.
DISCOUNT
Certain of the bonds purchased by the Fund may be treated as bonds that
were originally issued at a discount. Original issue discount represents
interest for Federal income tax purposes and can generally be defined as the
difference between the price at which a security was issued and its stated
redemption price at maturity. Original issue discount is treated for Federal
income tax purposes as income earned by the Fund, although no cash is actually
received by the Fund, and therefore is subject to the distribution requirements
of the Code. The amount of income earned by the Fund generally is determined on
the basis of a constant yield to maturity that takes into account the
semi-annual compounding of accrued interest.
In addition, some of the bonds may be purchased by the Fund at a discount
that exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for Federal income tax purposes. The gain
realized on the disposition of any bond, including a tax-exempt bond, having
market discount will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such bond (unless the Fund elects for all
its debt securities acquired after the first day of the first taxable year to
which the election applies having a fixed maturity date of more than one year
from the date of issue to include market discount in income in tax years to
which it is attributable). Generally, market discount accrues on a daily basis
for each day the bond is held by the Fund at a constant rate over the time
remaining to the bond's maturity.
DISTRIBUTIONS
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders but there is no guarantee that the Fund will so qualify. The Fund
will be so qualified if, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of state and municipal
securities on which interest payments are exempt from Federal income tax and
such interest payments when distributed are designated as exempt-interest
dividends by the Fund. Exempt-interest dividends are excludable from a
shareholder's gross income for Federal income tax purposes. Exempt-interest
dividends, however, must be taken into account by shareholders in determining
whether their total incomes are large enough to result in taxation of up to 85%
of their social security benefits or certain railroad retirement benefits.
Exempt-interest dividends that are attributable to certain private activity
bonds may constitute an item of tax preference for purposes of the alternative
minimum tax. For corporate shareholders, exempt-interest dividends may comprise
all or part of an adjustment to alternative minimum taxable income, which may
result in the imposition or increase in such tax. The Fund will inform
shareholders annually as to the portion of the distributions from the Fund that
constituted exempt-interest dividends.
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Because no
portion of the Fund's income is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by the Fund is expected to be
eligible for the corporate dividends-received deduction. Distributions of net
capital gains, if any, that are designated as capital gain dividends are taxable
as long-term capital gains, whether paid in cash or in shares, regardless of how
long the shareholder has held the Fund's shares, and are not eligible for the
dividends received deduction. The tax treatment of distributions from the Fund
is the same whether the dividends are received in cash or in additional shares.
Shareholders receiving distributions in the form of newly issued shares will
have a cost basis in each share received equal to the net asset value of a share
of the Fund on the reinvestment date. A distribution of an amount in excess of
the Fund's current and accumulated earnings and profits will be treated by a
shareholder as a return of capital that is applied against and reduces the
shareholder's basis in his or her shares. To the extent that the amount of any
such distribution exceeds the shareholder's basis in his or her shares, the
excess will be treated by the shareholder as gain from a sale or exchange of the
shares. Shareholders will be notified annually as to the U.S. Federal tax status
of distributions and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution will be taxable (unless
it is an exempt-interest dividend) even though it represents a return of
invested capital. Investors should be careful to consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at
this time may reflect the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will receive a distribution that will
nevertheless be taxable to them (unless it is an exempt-interest dividend).
Deductions for interest expense incurred to acquire or carry shares of the
Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of the
Fund). In addition, a shareholder may not deduct that portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends, which bears the same ratio to the
total of such interest as the exempt- interest dividends bear to the total
dividends, excluding capital gain dividends received by the shareholder. Under
rules issued by the IRS for determining when borrowed funds are considered used
for the purposes of purchasing or carrying particular assets, the purchase of
shares may be considered to have been with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of shares.
Opinions relating to the validity of municipal securities and the exemption
of interest thereon from Federal income tax are rendered by bond counsel to the
issuers. The Fund, MIMI, MFC and their affiliates, and the Fund's counsel make
no review of proceedings relating to the issuance of state or municipal
securities and the bases of such opinions.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be disallowed
to the extent the shares disposed of are replaced (including through
reinvestment of dividends) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of Fund shares held by the shareholder for
six months or less will be treated as a long- term capital loss to the extent of
any distributions of net capital gains received or treated as having been
received by the shareholder with respect to such shares. Any loss realized by
shareholder on the redemption, sale or exchange of shares of the Fund with
respect to which exempt-interest dividends have been paid will, to the extent of
such exempt-interest dividends, be disallowed if such shares have been held by
the shareholder for six months or less.
In some cases, shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their stock. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of the Fund, (2) the
stock is disposed of before the 91st day after the date on which it was
acquired, and (3) the shareholder subsequently acquires the stock of the same or
another fund and the otherwise applicable sales charge is reduced under a
"reinvestment right" received upon the initial purchase of regulated investment
company shares. The term "reinvestment right" means any right to acquire stock
of one or more Funds without the payment of a sales charge or with the payment
of a reduced sales charge. Sales charges affected by this rule are treated as if
they were incurred with respect to the stock acquired under the reinvestment
right. This provision may be applied to successive acquisitions of Fund shares.
BACKUP WITHHOLDING
The Fund will be required to report to the IRS all distributions (other
than exempt-interest dividends) as well as gross proceeds from the redemption of
the Fund's shares, except in the case of certain exempt shareholders. All such
reportable distributions and proceeds will be subject to withholding of Federal
income tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number; (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect; or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
OTHER TAXATION
The foregoing discussion relates only to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Fund also
may be subject to state and local taxes, and their treatment under state and
local income tax laws may differ from the U.S. Federal income tax treatment. In
certain states, Fund distributions that are derived from interest on obligations
of that state or its municipalities or any political subdivisions thereof may be
exempt from state and local taxes. Fund distributions that are derived from
interest on obligations of the U.S. Government and certain of its agencies,
authorities and instrumentalities also may be exempt from state and local taxes
in certain states. Under current Florida law, shares of the Fund will be exempt
from the Florida intangible personal property tax if, on an annual valuation
date, the Fund's portfolio of assets contains only assets that are exempt from
the tax, including debt obligations issued by the State of Florida or any of its
political subdivisions or municipalities, debt obligations issued by the U.S.
Government or its agencies, and money, including money market accounts offered
by banks that are deposits of money. If, on the annual valuation date, the
Fund's portfolio of assets does not contain only exempt assets, the net asset
value of the shares on which the tax is based will be proportionately reduced by
that portion of the net asset value that is comprised of debt obligations of the
U.S. Government. Shareholders should consult their tax advisers with respect to
particular questions of U.S. Federal, state and local taxation. Persons who may
be "substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds should consult their tax advisers
before purchasing shares of the Fund. The term "substantial user" generally
includes any "non-exempt person" who regularly uses in his or her trade or
business a part of a facility financed by industrial development bonds.
Generally, an individual will not be a "related person" of a substantial user
under the Code unless the person or his or her immediate family owns directly or
indirectly in the aggregate more than a 50% equity interest in the substantial
user. Shareholders who are not U.S. persons should consult their tax advisers
regarding U.S. and foreign tax consequences of ownership of shares of the Fund,
including the likelihood that distributions to them would be subject to
withholding of U.S. Federal income tax at a rate of 30% (or at a lower rate
under a tax treaty).
PERFORMANCE INFORMATION
Performance information for the separate Classes of Fund shares may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, Dow
Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors
may compare the Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, a widely used independent research firm that ranks mutual funds by
overall performance, investment objectives and assets, or tracked by other
services, companies, publications, or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
In addition, the Trust may, from time to time, include various measures of
the Fund's performance including the current yield, the tax-equivalent yield and
the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility or
risk.
YIELD. Quotations of yield for a specific Class of Shares of the Fund will
be based on all investment income attributable to that Class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses attributable to that class accrued during the period ("net Investment
Income"), and will be computed by dividing the net Investment Income per share
of that Class earned during the period by the maximum offering price per share
(in the case of Class A shares) or the net asset value per share (in the case of
Class B shares) on the last day of the period, according to the following
formula:
6
YIELD = 2[({(a-b)/cd} + 1) -1]
Where: a = dividends and interest earned during the period
attributable to a specific Class of shares,
b = expenses accrued for the period attributable to that Class
(net of reimbursements),
c = the average daily number of shares of that Class
outstanding during the period that were entitled to receive
dividends, and
d = the maximum offering price per share (in the case of Class
A shares) or the net asset value per share (in the case of
Class B shares) on the last day of the period.
The yield for Class A and Class B shares of the Fund for the 30-day period
ended June 30, 1995 were 4.24% and 3.86%, respectively. The yield figures
reflect voluntary expense reimbursements by MIMI. Without the voluntary
reimbursements, the yield for Class A and Class B shares of the Fund for the
same 30-day period would have been 3.04% and 2.66%, respectively.
TAX-EQUIVALENT YIELD. Tax-equivalent yield for a specific Class of shares
of the Fund is the net annualized taxable yield needed to produce a specified
tax-exempt yield at a given tax rate based on a specified 30-day (or one month)
period assuming semi-annual compounding of income. Tax-equivalent yield is
calculated by dividing that portion of the Fund's yield (as computed in the
yield description above) that is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt. Thus, for example, for the thirty-day period ended
December 31, 1994, taxpayers with effective combined federal, state and/or city
marginal income tax rates of 28% and 31% would have had to have earned a taxable
yield of 5.89% and 6.14% (or 4.22% and 4.41% without the voluntary
reimbursements), respectively, to receive after-tax income equal to the 4.24%
(or 3.04% without the voluntary reimbursements) tax-free yield of Class A shares
of the Fund for that period. For the thirty-day period ended December 31, 1994,
taxpayers with effective combined federal, state and/or city marginal income tax
rates of 28% and 31% would have had to have earned a taxable yield of 5.36% and
5.59% (or 3.69% and 3.86% without the voluntary reimbursements), respectively,
to receive after-tax income equal to the 3.85% (or 2.66% without the voluntary
reimbursements) tax-free yield of Class B shares of the Fund for that period.
For a more detailed explanation of tax-equivalent yields, see Appendix B of this
SAI.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific Class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that Class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase
shares of a specific Class
T = the average annual total return of shares of that Class
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that all
dividends and capital gains distributions made by the Fund are reinvested at net
asset value in additional shares of the same Class during the designated period.
In calculating the ending redeemable value for Class A shares and assuming
complete redemption at the end of the applicable period, the maximum 3.00% sales
charge for the Fund is deducted from the initial $1,000 payment and, for Class B
shares, the applicable contingent deferred sales charge imposed upon redemption
of Class B shares held for the period is deducted. Standardized Return
quotations for the Fund do not take into account any required payments for
federal or state income taxes. Standardized Return quotations for Class B shares
for periods of over eight years will reflect conversion of the Class B shares to
Class A shares at the end of the eighth year. Standardized Return quotations are
determined to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor contingent deferred sales
charges are taken into account in calculating Non-Standardized Return; a sales
charge, if deducted, would reduce the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for Class A and Class B shares of the Fund for the
periods indicated. In determining the average annual total return for a specific
Class of Fund shares, recurring fees, if any, that are charged to all
shareholder accounts are taken into consideration. For any account fees that
vary with the size of the account of the Fund, the account fee used for purposes
of the following computations is assumed to be the fee that would be charged to
the mean account size of the Fund.
<TABLE>
<CAPTION>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
---------------------- ----------
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1995: 2.96% 0.61% 6.14% 5.61%
Inception[#] to
June 30, 1995: 4.12% 3.00% 6.72% 6.20%
- -------------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the deduction of
the maximum initial sales charge of 3.00%. The Standardized Return figures
for Class B shares reflect the deduction of the applicable contingent
deferred sales charge imposed on a redemption of Class B shares held for
the period.
[**] The Non-Standardized Return figures do not reflect the deduction of any
initial or contingent deferred sales charge.
[#] The inception date for Class A and Class B shares of the Fund was April 1,
1994.
[1] The Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for
Class A shares for the one year ended June 30, 1995 and the period from
inception through June 30, 1995 would have been 1.70% and 2.68%,
respectively. (Since the inception date for Class A shares of the Fund was
April 1, 1994, there were no Class A shares outstanding for the duration of
the five year period ending June 30, 1995.)
[2] The Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for
Class B shares for the one year ended June 30, 1995 and the period from
inception through June 30, 1995 would have been (0.62)% and 1.58%,
respectively. (Since the inception date for Class B shares of the Fund was
April 1, 1994, there were no Class B shares outstanding for the duration of
the five year period ending June 30, 1995.)
[3] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return
for Class A shares for the one year ended June 30, 1995 and the period from
inception through June 30, 1995 would have been 4.84% and 5.24%,
respectively. (Since the inception date for Class A shares of the Fund was
April 1, 1994, there were no Class A shares outstanding for the duration of
the five year period ending June 30, 1995.)
[4] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return
for Class B shares for the one year ended June 30, 1995 and the period from
inception through June 30, 1995 would have been 4.32% and 4.73%,
respectively. (Since the inception date for Class B shares of the Fund was
April 1, 1994, there were no Class B shares outstanding for the duration of
the five year period ending June 30, 1995.)
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific Class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific Class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (RV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of
$1,000 to purchase shares of a
specific Class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through June 30, 1995, assuming the maximum 3.00%
sales charge has been assessed.
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEARS[**] INCEPTION[*]
-------- -------------- ------------
<S> <C> <C> <C>
CLASS A 2.96% N/A 5.13%
CLASS B 0.61% N/A
3.73%
</TABLE>
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through June 30, 1995, assuming the maximum
3.00% sales charge has not been assessed.
SINCE
ONE YEAR FIVE YEARS[**] INCEPTION[*]
-------- -------------- ------------
CLASS A 5.13% N/A 8.39%
CLASS B 3.73% N/A 7.73%
- ---------------------------
[*] The inception date for Class A and Class B shares of the Fund was April 1,
1994.
[**] No Class A or Class B shares were outstanding for the duration of the time
period indicated.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods used
in calculating performance quotations should be considered when comparing
performance information regarding the Fund's shares with information published
for other investment companies and other investment vehicles. Performance
quotations should also be considered relative to changes in the value of the
Fund's shares and the risks associated with the Fund's investment objectives and
policies. At any time in the future, performance quotations may be higher or
lower than past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison their performance
rankings and listings reported in such newspapers or business or consumer
publications as, among others: AAII Journal, Barron's, Boston Business Journal,
Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide
Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter Nelson's Director of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of June 30, 1995, Statement of
Assets and Liabilities as of June 30, 1995, Statement of Operations for the
fiscal year ended June 30, 1995, Statement of Changes in Net Assets for the
fiscal year ended June 30, 1995 and the period from April 1, 1994 (commencement)
through June 30, 1994, Financial Highlights, Notes to Financial Statements, and
Reports of Independent Accountants are included in the Fund's June 30, 1995
Annual Report to Shareholders, which is incorporated by reference into this SAI.
Copies of the Fund's financial statements and this SAI may be obtained upon
request and without charge from MIMI at the address and telephone number
provided on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND,
COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investor Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1994
Issue (McGraw Hill, New York, 1994).]
(a) MOODY'S:
CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of
the best quality, carrying the smallest degree of investment risk. Interest
payments are protected by a large or exceptionally stable margin and principal
is secure. Bonds rated Aa are judged by Moody's to be of high quality by all
standards. Aa bonds are rated lower than Aaa bonds because margins of protection
may not be as large as those of Aaa bonds, or fluctuations of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than those applicable to
Aaa securities. Bonds which are rated A by Moody's possess many favorable
investment attributes and are considered as upper medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future.
Bonds rated Baa by Moody's are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue.
(b) S&P:
CORPORATE BONDS. An S&P corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA by S&P is considered by S&P to be the highest grade
obligation. Capacity to pay interest and repay principal is extremely strong.
Debt rated AA is judged by S&P to have a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in small
degree. Debt rated A by S&P has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days.
Commercial paper rated A by S&P has the following characteristics: (i)
liquidity ratios are adequate to meet cash requirements; (ii) long-term senior
debt rating should be A or better, although in some cases BBB credits may be
allowed if other factors outweigh the BBB; (iii) the issuer should have access
to at least one additional channel of borrowing; (iv) basic earnings and cash
flow should have an upward trend with allowances made for unusual circumstances;
and (v) typically the issuer's industry should be well established and the
issuer should have a strong position within its industry and the reliability and
quality of management should be unquestioned. Issues rated A are further
referred to by use of numbers 1, 2 and 3 to denote relative strength within this
highest classification. For example, the A-1 designation indicates that the
degree of safety regarding timely payment of debt is strong.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
II. MUNICIPAL OBLIGATIONS RATINGS
a) MOODY'S:
Aaa
Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A
Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds rated Baa are considered medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Moody's letter ratings may be modified by the addition of a numerical
modifier, which is used to show relative standing within the major rating
categories, except in the Aaa grade.
MIG Ratings: Moody's ratings for state and municipal short-term obligations
will be designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of the major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
VMIG Ratings: A short-term rating may also be assigned on an issue having a
demand feature. Such ratings will be designated as VMIG or, if the demand
feature is not rated, as NR. Short-term ratings on issues with demand features
are differentiated by the use of the VMIG symbol to reflect such characteristics
as payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3/VMIG 3
This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly regarded as
required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
(b) S&P:
S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions below are
weighted in determining the rating. Because revenue bonds in general are payable
from specifically pledged revenues, the essential element in the security for a
revenue bond is the quantity and quality of the pledged revenues available to
pay debt service.
Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating analysis
of a revenue bond, other factors are important, including particularly the
competitive position of the municipal enterprise under review and the basic
security covenants. Although a rating reflects S&P's judgment as to the issuer's
capacity for the timely payment of debt service, in certain instances it may
also reflect a mechanism or procedure for an assured and prompt cure of a
default, should one occur, i.e., an insurance program, Federal or State
guaranty, or the automatic withholding and use of State aid to pay the defaulted
debt service.
AAA
Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong, due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds, and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA
High Grade -- The investment characteristics of general obligation and
revenue bonds in this group differ in only small degrees from those of the prime
quality issues. Bonds rated "AA" have the second strongest capacity for payment
of debt service.
Good Grade -- Principal and interest payments on bonds in this category are
regarded as safe. This rating describes the third strongest capacity for payment
of debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
SP-1
These notes show a very strong or strong capacity to pay principal and
interest. Those issues with overwhelming safety characteristics will be given a
plus (+) designation.
SP-2
These notes show a satisfactory capacity to pay principal and interest.
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME
The following table illustrates the approximate taxable yields for individuals
that are equivalent to various tax-exempt yields, based upon 1995 Federal income
tax rates. The table illustrates the approximate yield you would have to earn on
taxable investments to equal a given tax-exempt yield in your income tax
bracket. Locate your taxable income, then locate your tax bracket based on joint
or single tax return filing. Read across to find the approximate equivalent
taxable yield you would need to match a given tax-exempt yield. There is, of
course, no assurance that an investment in the Fund will result in the
realization of any particular return.
1995[*]
<TABLE>
<CAPTION>
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
- -------------- ------- --------------------
Joint Single
Return Return 5% 6% 7%
- ------ ------ -- -- --
<C> <C> <C> <C> <C> <C>
$0-39,000 $0-23,350 15% 5.88% 7.06% 8.24%
$39,001- $23,351- 28 6.94 8.33 9.72
94,250 56,550
$94,251- $56,551- 31 7.25 8.70 10.14
143,600 117,950
$143,601- $117,951- 36 7.81 9.38 10.94
256,500 256,500
Over Over 39.6 8.28 9.93 11.59
$256,500 $256,500
</TABLE>
<TABLE>
<CAPTION>
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
- -------------- ------- --------------------
Joint Single
Return Return 8% 9% 10%
- ------ ------ -- -- ---
<C> <C> <C> <C> <C> <C>
$0-39,000 $0-23,350 15% 9.41% 10.59% 11.76%
$39,001- $23,351- 28 11.11 12.50 13.89
94,250 56,550
$94,251- $56,551- 31 11.59 13.04 14.49
143,600 117,950
$143,601- $117,951- 36 12.50 14.06 15.63
256,500 256,500
Over Over 39.6 13.25 14.90 16.56
$256,500 $256,500
</TABLE>
<TABLE>
<CAPTION>
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
- -------------- ------- --------------------
Joint Single
Return Return 11% 12%
- ------ ------ --- ---
<C> <C> <C> <C> <C>
$0-39,000 $0-23,350 15% 12.94% 14.12%
$39,001- $23,351- 28 15.28 16.67
94,250 56,550
$94,251- $56,551- 31 15.94 17.39
143,600 117,950
$143,601- $117,951- 36 17.19 18.75
256,500 256,500
Over Over 39.6 18.21 19.87
$256,500 $256,500
</TABLE>
[*] This table does not purport to deal with a shareholder's particular
situation. Shareholders are advised to consult their own tax advisor with
respect to the particular tax consequences to them of an investment in the
Fund. This table does not take into account any taxes other than the
regular Federal income tax. This table reflects certain assumptions,
including: (i) the Federal alternative minimum tax is not applicable, and
(ii) a shareholder has no net capital gain for the taxable year. Depending
upon the circumstances, a shareholder's effective marginal tax rate may
differ from his or her tax bracket rate. This can be attributable to a
variety of factors, including the phase out of personal exemptions and the
reduction of certain itemized deductions for taxpayers whose adjusted gross
incomes exceed specified thresholds.
JUNE 30, 1995 [MACKENZIE LOGO]
MACKENZIE
FLORIDA
LIMITED TERM
MUNICIPAL
FUND
- ----------------
ANNUAL REPORT
- ----------------
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Mackenzie Investment
Management Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
Dear Shareholder:
Over the 12 months ended June 30, 1995, the municipal bond market has shown
resiliency, overcoming repeated efforts by the Federal Reserve Board to contain
economic growth by raising short-term interest rates, as well as some
short-lived apprehension about the future of the economy.
In early April 1995, the municipal market reflected investors' concerns
about proposed tax reform and the effects it would have on the tax-free status
of municipal bonds. We believe that tax reform legislation is more apt to be a
political issue during next year'spresidential campaign than an economic
reality. The market soon shook off its uneasiness and resumed its participation
in the overall credit market rally.
Believing that interest rates were at or near their peak for the current
interest rate cycle, the manager of Mackenzie Florida Limited Term Municipal
Fund extended the average maturity of the Fund to approximately six years, which
allowed for greater participation in a bond market rally. Emphasis was also
placed on high-quality, liquid bonds as a means of minimizing interest rate risk
while avoiding the use of riskier derivative products.
For the 12 month period ended June 30, 1995, the total return of Mackenzie
Florida Limited Term Municipal Fund was 6.14% without sales charge. This
compares with the average of all Florida Intermediate Municipal Debt Funds
tracked by Lipper Analytical Services, Inc. which was 7.12% during this same
period (For the Fund's total return with a sales charge and performance
commentary please see the following page).
Federal Reserve Board chairman Alan Greenspan now appears to be focusing
his attention on bolstering a slowing economy by lowering short-term interest
rates rather than worrying about recurring inflation. The Federal Reserve Board
chairman approved a 0.25% rate cut in early July 1995.
Our outlook for the municipal bond market is that an already shrinking
supply of municipal bonds will be diminished even further as a large number of
bonds are expected to be called or reach maturity within a short time span. The
ultimate impact will likely have investors paying more for bonds that still
remain in the marketplace. Overall, the economy and the market should combine to
provide a positive future for municipal bonds.
As always, we will continue to actively manage Mackenzie Florida Limited
Term Municipal Fund in an effort to pay a higher dividend while maintaining as
much price stability as possible.
Sincerely,
/s/ Michael G. Landry
Michael G. Landry
President
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
JOHN S. ANDEREGG MICHAEL G. LANDRY, PRESIDENT MACKENZIE IVY INVESTOR MACKENZIE INVESTMENT
PAUL H. BROYHILL KEITH J. CARLSON, VICE SERVICES CORP. MANAGEMENT, INC.
STANLEY CHANWICK PRESIDENT P.O. BOX 3022 BOCA RATON, FL
FRANK W. DEFRIECE, JR. C WILLIAM FERRIS, BOCA RATON, FL
ROY J. GLAUBER SECRETARY/TREASURER 33431-0922 DISTRIBUTOR
MICHAEL G. LANDRY 1-800-777-6472 MACKENZIE IVY FUNDS
J. BRENDAN SWAN CUSTODIAN DISTRIBUTION, INC.
BROWN BROTHERS HARRIMAN & CO. AUDITORS VIA MIZNER FINANCIAL
LEGAL COUNSEL BOSTON, MA COOPERS & LYBRAND PLAZA
DECHERT PRICE & RHOADS FT. LAUDERDALE, FL 700 SOUTH FEDERAL
BOSTON, MA HIGHWAY
BOCA RATON, FL 33432
</TABLE>
<PAGE>
PERFORMANCE COMMENTARY
For the 12 months ended June 30, 1995, Mackenzie Florida Limited Term Municipal
Fund's total return was 6.14%. This compares with the average of all Florida
Intermediate Municipal Debt Funds tracked by Lipper Analytical Services, Inc.
which was 7.12% during this same period.
The Fund's less than average relative performance was due to the managers
conservative strategy of keeping the Fund's average maturity at less than six
years. This allowed for participation in a bond market rally without exposing
the Fund to the risks associated with longer maturity bonds. Emphasis was also
placed on high-quality, liquid bonds as a means of minimizing interest rate risk
while avoiding the use of riskier derivative products.
PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND
(CHART)
All figures mentioned in the President 's letter and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of Mackenzie Florida Limited Term Municipal Fund will fluctuate and at
redemption may be worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
FOR PERIOD ENDING 6/30/95
Class A*-with sales charge
Average Annual Class B
Total Return Average Annual Total Return
------------------------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
------------------------------------------------------------------------------
**CDSC w/o CDSC w/CDSC w/o CDSC
--------------------------------------------------
1 Yr. 2.96% 1.76% .61% 5.61% (.59)% 4.41%
- --------------------------------------------------------------------------------------------
Since Inception 4.12% 2.68% 3.00% 6.20% 1.58% 4.73%
- --------------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 3.00%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 3%.
- --------------------------------------------------------------------------------
<PAGE>
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- ----------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
A1 A+ Dade County Florida School District (GO)(NC), 7.00%, 07/01/99.......................... $250,000 $ 273,235
Aaa AA Florida State Board of Education (GO), 0.00%, 06/01/00 (Pre-refunded).................. 150,000 51,284
Aaa AAA Florida State Board (GO), 7.25%, 06/01/00 (Pre-refunded)............................... 250,000 283,325
A N/R Florida State Turnpike Authority, 7.50%, 07/01/01...................................... 250,000 277,098
Aaa AAA Hillsborough County Florida Utility (MBIA Insured), 9.75%, 12/01/03 (Escrowed to
Maturity)............................................................................ 250,000 312,140
Aaa AAA Hillsborough County Florida Port Authority (NC)(FSA Insured), 5.10%, 06/01/03.......... 250,000 252,748
Aa1 AA Jacksonville Florida Electric Authority Revenue, 7.40%, 10/01/01....................... 300,000 322,968
Aaa AAA Jacksonville Florida Port Authority (NC)(MBIA Insured), 7.625%, 11/01/02............... 200,000 233,492
Aaa AAA Kissimmee Water & Sewer System Revenue (AMBAC Insured), 5.80%, 10/01/02................ 300,000 315,540
Aaa AAA Leon County Florida Capital Improvement Revenue (MBIA Insured), 5.75%, 10/01/03
(Escrowed to maturity)............................................................... 50,000 53,165
Aaa AAA Orange County Florida (AMBAC Insured), 7.25%, 10/01/00 (Pre-refunded).................. 250,000 285,018
A A Palm Beach County Florida (NC), 7.90%, 07/01/97........................................ 150,000 160,285
A A Palm Beach County Florida Solid Waste Authority (NC), 9.15%, 12/01/95.................. 50,000 51,090
A A Palm Beach County Florida Solid Waste Authority (NC), 7.625%, 07/01/96................. 300,000 310,940
Aaa AAA Pasco County Florida School Board (NC) 6.10%, 08/01/01................................. 300,000 318,732
Aaa AAA Port St. Lucie Florida Stormwater Utility, 7.40%, 11/01/00 (Pre-refunded).............. 250,000 283,268
Baa1 A Puerto Rico Public Buildings Authority, 6.60%, 07/01/04................................ 300,000 324,405
Baa1 A Puerto Rico Commonwealth (GO), 5.10%, 07/01/02......................................... 300,000 299,648
Baa1 A Puerto Rico Commomwealth Aqueduct & Sewer Authority, 7.50%, 07/01/99................... 250,000 272,488
Baa1 A- Puerto Rico Electric Power Authority, 6.80%, 07/01/00.................................. 300,000 322,610
Baa1 A- Puerto Rico Municipal Finance Agency (GO), 5.70%, 07/01/03............................. 300,000 300,570
Aaa AAA Sunrise Florida Utility System Revenue (AMBAC Insured), 10.25%, 10/01/00
(Pre-refunded)....................................................................... 250,000 315,078
A NR Venice Florida Health Facilities Revenue (NC), 7.00%, 12/01/00......................... 250,000 268,198
Aaa AAA Volusia County School Board (NC)(FSA Insured), 10.00%, 08/01/00........................ 250,000 300,428
----------
TOTAL INVESTMENTS -- 95.6% (COST -- $6,130,740)*....................................... 6,187,753
OTHER ASSETS, LESS LIABILITIES -- 4.4%................................................. 282,972
----------
NET ASSETS -- 100%..................................................................... $6,470,725
==========
*Cost is approximately the same for Federal income tax purposes.
FEDERAL INCOME TAX INFORMATION:
At June 30, 1995, net unrealized appreciation based on cost for financial statement
and Federal income tax purposes is as follows:
Gross unrealized appreciation.......................................................... $ 229,583
Gross unrealized depreciation.......................................................... (172,570)
----------
Net unrealized appreciation............................................................ $ 57,013
==========
OTHER INFORMATION:
Purchases and sales of municipal securities aggregated $12,419,976 and $9,926,439,
respectively, for the period ended June 30, 1995.
AMBAC = AMBAC Indemnity Corporation
FSA = Financial Security Association
GO = General Obligations
MBIA = Municipal Bond Insurance Association
NC = Non-callable
</TABLE>
(See Notes to Financial Statements)
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $6,130,740)...... $6,187,753
Cash....................................................... 80,559
Interest receivable........................................ 132,519
Deferred organization expenses............................. 38,657
Other assets............................................... 51,925
----------
Total assets.............................................. 6,491,413
----------
LIABILITIES
Payables:
Distributions to shareholders............................. 5,992
Management fees........................................... 3,005
12b-1 service and distribution fees....................... 2,318
Administrative services fees.............................. 546
Fund accounting........................................... 1,125
Transfer agent............................................ 564
Manager for excess expense reimbursement.................. 3,621
Other accrued expenses and liabilities..................... 3,517
----------
Total liabilities......................................... 20,688
----------
NET ASSETS................................................. $6,470,725
=========
CLASS A:
Net asset value and redemption price per share
($4,165,838/409,973 shares outstanding)................... $ 10.16
=========
Maximum offering price per share ($10.16 X 100/97.00)*..... $ 10.47
=========
CLASS B:
Net asset value and offering price per share
($2,304,887/226,837 shares outstanding)**................. $ 10.16
=========
NET ASSETS CONSIST OF:
Capital paid-in........................................... $6,404,981
Accumulated net realized gain............................. 14,723
Accumulated undistributed net investment loss............. (5,992)
Net unrealized appreciation on investments................ 57,013
----------
NET ASSETS................................................. $6,470,725
=========
* On sales of more than $25,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share
less any applicable contingent deferred sales charge.
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Intest...................... $349,780
EXPENSES
Management fees............. $35,302
Transfer agent.............. 6,234
Administrative services
fees...................... 6,418
Blue Sky fees............... 13,585
Auditing and accounting
fees...................... 14,735
Shareholder reports......... 1,685
Amortization of organization
expenses.................. 8,115
Fund accounting............. 13,606
Trustees' fees.............. 2,807
12b-1 service and
distribution fees
Class A................... 9,998
Class B................... 18,151
Legal....................... 13,818
Other....................... 1,627
--------
146,081
Expenses reimbursed by
manager..................... (76,855)
--------
Net expenses................ 69,226
--------
Net investment income........ 280,554
--------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on
investments............... 46,024
Net unrealized appreciation
during the year on
investments............... 64,764
--------
Net gain on investments... 110,788
--------
Net increase in net assets
resulting from operations... $391,342
========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 1, 1994
YEAR ENDED (COMMENCEMENT)
JUNE 30, TO JUNE 30,
---------- --------------
1995 1994
---------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income............................................................................ $ 280,554 $ 19,532
Net realized gain on investments................................................................. 46,024 --
Net unrealized appreciation (depreciation) during the period on investments...................... 64,764 (7,751)
---------- --------------
Net increase resulting from operations......................................................... 391,342 11,781
---------- --------------
CLASS A:
Distributions from:
Net investment income............................................................................ (182,316 ) (14,396)
Net realized gain................................................................................ (25,987 ) --
---------- --------------
Total distributions to Class A shareholders.................................................... (208,303 ) (14,396)
---------- --------------
CLASS B:
Distributions from:
Net investment income............................................................................ (98,238 ) (4,861)
Net realized gain................................................................................ (15,726 ) --
---------- --------------
Total distributions to Class B shareholders.................................................... (113,964 ) (4,861)
---------- --------------
Fund share transactions (Note 9):
Net increase resulting from Fund share transactions
Class A........................................................................................ 1,775,916 2,308,875
Class B........................................................................................ 742,095 1,582,240
---------- --------------
Net increase resulting from Fund share transactions.......................................... 2,518,011 3,891,115
---------- --------------
Total increase in net assets...................................................................... 2,587,086 3,883,639
NET ASSETS
Beginning of period.............................................................................. 3,883,639 --
---------- --------------
End of period.................................................................................... $6,470,725 $3,883,639
=========== ==============
Accumulated undistributed net investment income (loss)............................................ $ (5,992 ) $ 275
=========== ==============
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE APRIL 1,
YEAR 1995
ENDED (COMMENCEMENT)
JUNE TO JUNE
CLASS A 30, 30,
---------- -------------
SELECTED PER SHARE DATA 1995 1994
---------- -------------
<S> <C> <C>
Net asset value, beginning of period............................................. $ 10.10 $ 10.00
----------- --------------
Income from investment operations
Net investment income(a)....................................................... .47 .11
Net gain on investments (both realized and unrealized)......................... .13 .10
----------- --------------
Total from investment operations............................................. .60 .21
----------- --------------
Less distributions from
Net investment income.......................................................... .47 .11
Net realized gain.............................................................. .07 --
----------- --------------
Total distributions.......................................................... .54 .11
----------- --------------
Net asset value, end of period................................................... $ 10.16 $ 10.10
============== ==============
Total return(%).................................................................. 6.14(b) 2.12(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)......................................... $ 4,166 $ 2,331
Ratio of expenses to average daily net assets
With expense reimbursement(%).................................................. .89 .89(d)
Without expense reimbursement(%)............................................... 2.09 2.87(d)
Ratio of net investment income to average daily net assets(%)(a)................. 4.56 4.40(d)
Portfolio turnover rate(%)....................................................... 164 0
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 1, 1995
YEAR ENDED (COMMENCEMENT)
CLASS B JUNE 30, TO JUNE 30,
----------- --------------
SELECTED PER SHARE DATA 1995 1994
----------- --------------
<S> <C> <C>
Net asset value, beginning of period............................................. $ 10.10 $ 10.00
----------- --------------
Income from investment operations
Net investment income(a)....................................................... .42 .10
Net gain on investments (both realized and unrealized)......................... .13 .10
----------- --------------
Total from investment operations............................................. .55 .20
----------- --------------
Less distributions from
Net investment income.......................................................... .42 .10
Net realized gain.............................................................. .07 --
----------- --------------
Total distributions.......................................................... .49 .10
----------- --------------
Net asset value, end of period................................................... $ 10.16 $ 10.10
============== ==============
Total return(%).................................................................. 5.61(b) 2.01(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)......................................... $ 2,305 $ 1,553
Ratio of expenses to average daily net assets
With expense reimbursement(%).................................................. 1.39 1.39(d)
Without expense reimbursement(%)............................................... 2.59 3.37(d)
Ratio of net investment income to average daily net assets(%)(a)................. 4.06 3.90(d)
Portfolio turnover rate(%)....................................................... 164 0
(a) Net investment income is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a sales charge.
(d) Annualized.
</TABLE>
(See Notes to Financial Statements)
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Mackenzie Florida Limited Term Municipal Fund (the Fund) is a series of
shares of Mackenzie Series Trust (MST). The shares of beneficial interest are
$.001 par value and an unlimited number of shares of Class A and Class B are
authorized. MST was organized as a Massachusetts business trust under a
Declaration of Trust dated April 22, 1985 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
a. Securities valuation -- Municipal securities are valued utilizing
primarily the latest bid prices or, if bid prices are not available, on the
basis of valuation based upon a matrix system (which considers factors such as
security prices, yields, maturities and ratings), both as furnished by an
independent pricing service approved by the Board of Trustees (the Board).
b. Securities transactions and investment income -- Securities transactions
are accounted for on the trade date. Interest income is accrued on a daily
basis. Realized gains and losses from securities transactions are calculated on
an identified cost basis for financial statement and Federal income tax
purposes.
c. Federal income taxes -- The Fund is a separate taxable entity and
intends to qualify for tax treatment applicable to regulated investment
companies under the Internal Revenue Code, as amended, and, among other things,
is required to make the requisite distributions to its shareholders which will
relieve it from Federal income or excise taxes. Therefore, no provision has been
recorded for Federal income or excise taxes.
d. Distributions to shareholders -- Normally, distributions from net
investment income are declared monthly and net realized capital gains, if any,
are declared semi-annually. In addition, distributions to Class A shareholders
are declared daily at the rate per share of the excess of 12b-1 fees of Class B
shares over Class A shares. Distributions are paid at the earlier of redemption
or the designated monthly or semi-annual date.
Of the distributions paid from net investment income for the Fund's taxable
year ended June 30, 1995, $280,554 constituted exempt interest dividends for
Federal income tax purposes.
e. Deferred organization expenses -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
f. Reclassifications -- The timing and characterization of certain income
and net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
2. MANAGEMENT AND DISTRIBUTION AGREEMENT
The Fund pays Mackenzie Investment Management Inc. (MIMI) a monthly
management fee at the annual rate of .55% of its average daily net assets.
Mackenzie Ivy Funds Distribution, Inc. (MIFDI), a wholly owned subsidiary
of MIMI, is the principal underwriter and national distributor of the Fund's
shares and, as such, purchases shares from the Fund at net asset value to settle
orders from investment dealers. For the year ended June 30, 1995, the net amount
of underwriting discount retained by MIFDI was $10,200.
If the Fund's total expenses in any fiscal year exceed the permissible
limits applicable to the Fund in any state in which its shares are then
qualified for sale, MIMI will bear the excess expenses. The most restrictive
state expense limitation provision limits a fund's annual expenses (excluding
interest, taxes, brokerage commissions, extraordinary expenses and other
expenses subject to approval by state securities administrators) to 2.5% of the
first $30 million of the average daily net assets; 2.0% of the next $70 million
of the average daily net assets; and 1.5% of the remaining average daily net
assets. Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.64% of its average daily net assets. The voluntary expense limitation may be
terminated or revised at any time. Expenses reimbursed by manager reflected in
the Statement of Operations consists of a voluntary reimbursement.
3. ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MIMI a monthly fee at the annual rate of .10% of its average daily net assets.
Such fees are reflected as Administrative services fees in the Statement of
Operations.
4. FUND ACCOUNTING SERVICES AGREEMENT
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus telephone, delivery and other
out-of-pocket expenses. The monthly fee is based upon the net assets of the Fund
at the preceding month end at the following rates: $1,000 when net assets are
$20 million and under; $1,500 when net assets are over $20 million to $75
million; $4,000 when net assets are over $75 million to $100 million; and $6,000
when net assets are over $100 million. Such fees and expenses are reflected as
Fund accounting in the Statement of Operations.
5. TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Mackenzie
Ivy Investor Services Corp. (MIISC), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. The Fund pays a monthly fee at an annual rate of
$20.75 per open account and $4.25 per account that is closed. In addition, the
Fund pays certain out-of-pocket expenses. Such fees and expenses are reflected
as Transfer agent in the Statement of Operations.
6. DISTRIBUTION PLANS
Pursuant to Service and Distribution Plans under Rule 12b-1 of the
Investment Company Act of 1940, as amended, the Fund reimburses MIFDI for
service fee payments made to brokers at an annual rate of .25% of its average
daily net assets. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .50% of the average daily net asset value of Class B
shares. MIFDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees are reflected as 12b-1 service and
distribution fees in the Statement of Operations.
7. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
8. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in debt obligations issued by the State of
Florida and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of Florida securities than is a municipal
bond fund that is not concentrated in these issuers to the same extent.
9. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994*
---------------------- --------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold............................ 359,438 $ 3,570,311 231,589 $2,316,454
Issued on reinvestment of
distributions.................. 13,013 129,513 928 9,388
Repurchased..................... (193,314) (1,923,908) (1,681) (16,967)
-------- ----------- ------- ----------
Net increase.................... 179,137 $ 1,775,916 230,836 $2,308,875
======== =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994*
---------------------- --------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold............................ 154,143 $ 1,547,909 153,410 $1,578,734
Issued on reinvestment of
distributions.................. 3,666 36,516 369 3,506
Repurchased..................... (84,751) (842,330) -- --
-------- ----------- ------- ----------
Net increase.................... 73,058 $ 742,095 153,779 $1,582,240
======== =========== ======= ==========
</TABLE>
* For the period April 1, 1994 (commencement) to June 30, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and
Board of Trustees of
Mackenzie Florida Limited Term Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of June 30, 1995, and
the related statement of operations for the year then ended, the statement of
changes in net assets for the period April 1, 1994 (commencement) to June 30,
1994 and the year ended June 30, 1995, and the financial highlights for the
periods included therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1995 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1995, the results of its operations for the year then ended,
the changes in its net assets for the period April 1, 1994 (commencement) to
June 30, 1994 and the year ended June 30, 1995, and the financial highlights for
the periods included therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 11, 1995
MFLTMF-2-895
DECEMBER 31, 1995 [MACKENZIE LOGO]
MACKENZIE
FLORIDA
LIMITED TERM
MUNICIPAL
FUND
- ------------
SEMI-ANNUAL
REPORT
- ------------
This report and the financial statements contained herein are
submitted for the general information of the share-holders. This
report is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective
prospectus.
Mackenzie Investment
Management Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[PHOTO OF CASTLE]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
Dear Shareholder:
Over the latter part of 1995 the municipal bond market remained relatively
unchanged as the Federal Reserve sought to manage interest rates and ongoing
government budget concerns seemed to dampen investor enthusiasm.
With time, the spread has narrowed between short-term municipal yields and
short-term treasury yields.
Against this backdrop, Mackenzie Florida Limited Term Municipal Fund has
continued to maintain its short-term position. By taking an active management
position with the Fund, we followed a disciplined approach in seeking to balance
the pursuit of yield with an acceptable level of risk.
At the same time, we have remained focused on portfolio quality. The
emphasis on investment grade bonds continues. As in the past, the Fund manager
avoids the purchase of derivative products.
With respect to 1996 being an election year, we believe that the municipal
market has already taken the issue of tax reform, and its impact, into
consideration. A further point to be made, is that regardless of what may happen
with tax reform most experts feel that it will reflect a more moderate rather
than an extreme adjustment.
We believe that the current interest rate environment, low inflationary
pressures and prospects for economic growth will continue to provide the
municipal markets with stability and predictability in the future.
As always we will continue to take an active role in the management of
Mackenzie Florida Limited Term Municipal Fund in order to seek as high a yield
as possible without compromising our commitment to minimizing risk.
Sincerely,
/s/ Michael G. Landry
Michael G. Landry
President
--------------------------------------
MACKENZIE FLORIDA LIMITED TERM
MUNICIPAL FUND IS PRIMARILY INVESTED
IN HIGH QUALITY SHORT-TERM BONDS.
THE MANAGER STRESSES NON-CALLABLE
BONDS TO PROVIDE THE FUND WITH CALL
PROTECTION AND REDUCES VOLATILITY
THROUGH DIVERSIFICATION BY ISSUE TYPE,
LOCAL GOVERNMENTS AND AGENCY ISSUERS,
LOCATION AND PURPOSE.
---------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, President Mackenzie Ivy Investor Mackenzie Investment Management Inc.
Paul H. Broyhill Keith J. Carlson, Vice President Services Corp. Boca Raton, FL
Stanley Channick C. William Ferris, P.O. Box 3022
Frank W. DeFriece, Jr. Secretary/Treasurer Boca Raton, FL 33431-0922 DISTRIBUTOR
Roy J. Glauber 1-800-777-6472 Mackenzie Ivy Funds
Michael G. Landry CUSTODIAN Distribution, Inc.
Joseph G. Rosenthal Brown Brothers Harriman & Co. AUDITORS Via Mizner Financial Plaza
J. Brendan Swan Boston, MA Coopers & Lybrand L.L.P. 700 South Federal Highway
Fort Lauderdale, FL Boca Raton, FL 33432
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
</TABLE>
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- ----------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 91.6% PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa3 AA- Dade County Florida Educational Facility Authority (St. Thomas University) (NC), 5.25%,
01/01/03............................................................................. $200,000 $209,417
A1 A+ Dade County Florida School District (GO)(NC), 7.00%, 07/01/99.......................... 250,000 273,792
Aaa AA Florida State Board of Education (GO), 0.00%, 06/01/00 (Pre-refunded).................. 150,000 54,306
Aaa AAA Florida State Board of Education (GO), 7.25%, 06/01/00 (Pre-refunded).................. 250,000 285,505
Aaa AAA Hillsborough County Florida Port Authority Revenue (NC) (FSA Insured), 5.10%,
06/01/03............................................................................. 250,000 260,487
Aaa AAA Hillsborough County Florida Utility Revenue (MBIA Insured), 9.75%, 12/01/03 (Escrowed
to Maturity)......................................................................... 150,000 191,285
Aa1 AA Jacksonville Florida Electric Authority Revenue, 7.40%, 10/01/01....................... 250,000 267,307
Aaa AAA Jacksonville Florida Port Authority (NC)(MBIA Insured), 7.625%, 11/01/02............... 200,000 237,706
Aaa AAA Kissimmee Florida Water and Sewer System Revenue (AMBAC Insured) 5.80%, 10/01/02....... 250,000 268,917
Aaa AAA Lee County Florida Solid Waste System (MBIA Insured), 6.80%, 10/01/02.................. 200,000 226,176
Aaa AAA Leon County Florida Capital Improvement Revenue (MBIA Insured) 5.75%,
10/01/03 (Escrowed to Maturity)...................................................... 50,000 54,391
Aaa AAA Orange County Florida (AMBAC Insured), 7.25%, 10/01/00 (Pre-refunded).................. 200,000 230,062
Aaa AAA Pasco County Florida School Board (NC) (FSA Insured), 6.10%, 08/01/01.................. 250,000 272,912
Aaa AAA Port St. Lucie Florida Stormwater Utility, 7.40%, 11/01/00 (Pre-refunded).............. 200,000 228,498
Baa1 A Puerto Rico Commonwealth (GO)(NC), 5.10%, 07/01/02..................................... 200,000 205,680
Baa1 A Puerto Rico Commonwealth (GO)(NC), 0.00%, 07/01/04..................................... 100,000 66,746
Baa1 A- Puerto Rico Electric Power Authority, 6.80%, 07/01/00.................................. 250,000 272,855
Baa1 A- Puerto Rico Municipal Finance Agency (GO), 5.70%, 07/01/03............................. 250,000 263,558
Baa1 A Puerto Rico Public Buildings Authority Revenue, 6.60%, 07/01/04........................ 200,000 221,760
Aaa AAA Sunrise Florida Utility System Revenue (AMBAC Insured), 10.25%, 10/01/13............... 200,000 251,822
Aaa AAA Volusia County Florida School Board (NC) (FSA Insured), 10.00%, 08/01/00............... 200,000 247,098
----------
TOTAL INVESTMENTS -- 91.6% (COST -- $4,459,755)*....................................... 4,590,280
OTHER ASSETS, LESS LIABILITIES -- 8.4%................................................. 423,206
----------
NET ASSETS -- 100%..................................................................... $5,013,486
==========
*Cost is approximately the same for Federal income tax purposes.
FEDERAL INCOME TAX INFORMATION:
At December 31, 1995, net unrealized appreciation based on cost for financial statement and Federal income tax
purposes is as follows:
Gross unrealized appreciation..................................................................... $ 187,968
Gross unrealized depreciation..................................................................... (57,443)
----------
Net unrealized appreciation....................................................................... $ 130,525
==========
OTHER INFORMATION:
Purchases and sales of municipal securities aggregated $1,291,560 and $2,973,852, respectively, for the period
ended December 31, 1995.
AMBAC -- AMBAC Indemnity Corporation
FSA -- Financial Security Association
GO -- General Obligations
MBIA -- Municipal Bond Insurance Association
NC -- Non Callable
(See Notes to Financial Statements)
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (identified cost -- $4,459,755)................................................................ $4,590,280
Cash................................................................................................................. 296,649
Receivables
Interest........................................................................................................... 85,346
Manager for expense reimbursement.................................................................................. 18,635
Deferred organization expenses....................................................................................... 33,799
----------
Total assets....................................................................................................... 5,024,709
----------
LIABILITIES
Payables:
Distributions to shareholders...................................................................................... 4,571
Management fee..................................................................................................... 2,374
12b-1 service and distribution fees................................................................................ 1,805
Administrative services fee........................................................................................ 432
Fund accounting.................................................................................................... 1,001
Transfer agent..................................................................................................... 425
Other accrued expenses and liabilities............................................................................... 615
----------
Total liabilities.................................................................................................. 11,223
----------
NET ASSETS........................................................................................................... $5,013,486
==========
CLASS A:
Net asset value and redemption price per share ($3,365,205 / 327,320 shares outstanding)............................. $ 10.28
==========
Maximum offering price per share ($10.28 x 100 / 97.00)*............................................................. $ 10.60
==========
CLASS B:
Net asset value and offering price per share ($1,648,281 / 160,307 shares outstanding)**............................. $ 10.28
==========
NET ASSETS CONSIST OF:
Capital paid-in.................................................................................................... $4,877,200
Accumulated net realized gain on investments....................................................................... 8,906
Accumulated undistributed net investment loss...................................................................... (3,145)
Net unrealized appreciation on investments......................................................................... 130,525
----------
NET ASSETS........................................................................................................... $5,013,486
==========
</TABLE>
* On sales of more than $25,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
(See Notes to Financial Statements)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Interest................................................................................................... $138,583
--------
EXPENSES
Management fee............................................................................................. $15,683
Transfer agent............................................................................................. 3,045
Administrative services fee................................................................................ 2,851
Custodian fees............................................................................................. 1,860
Blue Sky fees.............................................................................................. 7,908
Auditing and accounting fees............................................................................... 14,622
Shareholder reports........................................................................................ 1,558
Amortization of organization expenses...................................................................... 4,858
Fund accounting............................................................................................ 6,643
Trustees' fees............................................................................................. 2,212
12b-1 service and distribution fees
Class A.................................................................................................. 4,596
Class B.................................................................................................. 7,599
Legal...................................................................................................... 16,262
Other...................................................................................................... 391
--------
90,088
Expenses reimbursed by manager............................................................................. (57,786)
Fees paid indirectly....................................................................................... (1,860)
--------
Net expenses............................................................................................... 30,442
--------
Net investment income........................................................................................ 108,141
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments........................................................................... 44,284
Net unrealized appreciation during the year on investments................................................. 73,513
--------
Net gain on investments.................................................................................. 117,797
--------
Net increase in net assets resulting from operations......................................................... $225,938
========
</TABLE>
(See Notes to Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
------------ ----------
1995* 1995
------------ ----------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income............................................................................. $ 108,141 $ 280,554
Net realized gain on investments.................................................................. 44,284 46,024
Net unrealized appreciation during the period on investments...................................... 73,513 64,764
------------ ----------
Net increase resulting from operations.......................................................... 225,938 391,342
------------ ----------
CLASS A:
Distributions from
Net investment income............................................................................. (71,624 ) (182,316 )
Net realized gain................................................................................. (33,038 ) (25,987 )
------------ ----------
Total distributions to Class A shareholders..................................................... (104,662 ) (208,303 )
------------ ----------
CLASS B:
Distributions from
Net investment income............................................................................. (33,670 ) (98,238 )
Net realized gain................................................................................. (17,063 ) (15,726 )
------------ ----------
Total distributions to Class B shareholders..................................................... (50,733 ) (113,964 )
------------ ----------
Fund share transactions (Note 10):
Net increase (decrease) resulting from Fund share transactions
Class A......................................................................................... (845,963 ) 1,775,916
Class B......................................................................................... (681,819 ) 742,095
------------ ----------
Net increase (decrease) resulting from Fund share transactions................................ (1,527,782 ) 2,518,011
------------ ----------
Total increase (decrease) in net assets............................................................. (1,457,239 ) 2,587,086
NET ASSETS
Beginning of period............................................................................... 6,470,725 3,883,639
------------ ----------
End of period..................................................................................... $ 5,013,486 $6,470,725
============== ============
Accumulated undistributed net investment loss....................................................... $ (3,145 ) $ (5,992 )
============== ============
* Unaudited.
</TABLE>
(See Notes to Financial Statements)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE APRIL 1, 1994
MONTHS ENDED YEAR ENDED (COMMENCEMENT) TO
DECEMBER 31, JUNE 30, JUNE 30,
CLASS A ------------ ---------- -----------------
SELECTED PER SHARE DATA 1995* 1995 1994
------------ ---------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period...................................... $10.16 $10.10 $ 10.00
------ ---------- ------
Income from investment operations
Net investment income(a)................................................ .21 .47 .11
Net gain on investments (both realized and unrealized).................. .21 .13 .10
------ ---------- ------
Total from investment operations...................................... .42 .60 .21
------ ---------- ------
Less distributions from
Net investment income................................................... .21 .47 .11
Net realized gain....................................................... .09 .07 --
------ ---------- ------
Total distributions................................................... .30 .54 .11
------ ---------- ------
Net asset value, end of period............................................ $10.28 $10.16 $ 10.10
====== ========== ======
Total return(%)........................................................... 4.05(b) 6.14(c) 2.12(b)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................................. $3,365 $4,166 $ 2,331
Ratio of expenses to average daily net assets
With expense reimbursement and fees paid indirectly(%)(e)............... .89(d) .89 .89(d)
Without expense reimbursement and fees paid indirectly(%)(e)............ 2.98(d) 2.09 2.87(d)
Ratio of net investment income to average daily net assets(%)(a).......... 3.97(d) 4.56 4.40(d)
Portfolio turnover rate(%)................................................ 48(d) 164 0(d)
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE APRIL 1, 1994
MONTHS ENDED YEAR ENDED (COMMENCEMENT) TO
DECEMBER 31, JUNE 30, JUNE 30,
CLASS B ------------ ---------- -----------------
SELECTED PER SHARE DATA 1995* 1995 1994
------------ ---------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period...................................... $10.16 $10.10 $ 10.00
------ ---------- ------
Income from investment operations
Net investment income(a)................................................ .19 .42 .10
Net gain on investments (both realized and unrealized).................. .20 .13 .10
------ ---------- ------
Total from investment operations...................................... .39 .55 .20
------ ---------- ------
Less distributions from
Net investment income................................................... .19 .42 .10
Net realized gain....................................................... .08 .07 --
------ ---------- ------
Total distributions................................................... .27 .49 .10
------ ---------- ------
Net asset value, end of period............................................ $10.28 $10.16 $ 10.10
====== ========== ======
Total return(%)........................................................... 3.79(b) 5.61(c) 2.01(b)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................................. $1,648 $2,305 $ 1,553
Ratio of expenses to average daily net assets
With expense reimbursement and fees paid indirectly(%)(e)............... 1.39(d) 1.39 1.39(d)
Without expense reimbursement and fees paid indirectly(%)(e)............ 3.48(d) 2.59 3.37(d)
Ratio of net investment income to average daily net assets(%)(a).......... 3.47(d) 4.06 3.90(d)
Portfolio turnover rate(%)................................................ 48(d) 164 0(d)
(a) Net investment income is net of expenses reimbursed by manager.
(b) Total return represents aggregate total return and does not reflect a sales charge.
(c) Total return does not reflect a sales charge.
(d) Annualized.
(e) Beginning in July 1995, total expenses include fees paid indirectly through an expense offset arrangement.
* Unaudited.
</TABLE>
(See Notes to Financial Statements)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Mackenzie Florida Limited Term Municipal Fund (the Fund) is a series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates.
a. Securities valuation -- Municipal securities are valued utilizing
primarily the latest bid prices or, if bid prices are not available, on the
basis of valuation based upon a matrix system (which considers factors such as
security prices, yields, maturities and ratings), both as furnished by an
independent pricing service approved by the Board of Trustees (the Board).
b. Securities transactions and investment income -- Securities transactions
are accounted for on the trade date. Interest income is accrued on a daily
basis. Realized gains and losses from securities transactions are calculated on
an identified cost basis.
c. Federal income taxes -- The Fund is a separate taxable entity and
intends to qualify for tax treatment applicable to regulated investment
companies under the Internal Revenue Code, as amended, and, among other things,
is required to make the requisite distributions to its shareholders which will
relieve it from Federal income and excise taxes. Therefore, no provision has
been recorded for Federal income or excise taxes.
d. Distributions to shareholders -- Normally, distributions from net
investment income are declared monthly and net realized capital gains, if any,
are declared semi-annually. In addition, distributions to Class A shareholders
are declared daily at the rate per share of the excess of 12b-1 fees of Class B
shares over Class A shares. Distributions are paid at the earlier of redemption
or the designated monthly or semi-annual date.
e. Deferred organization expenses -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
f. Reclassifications -- The timing and characterization of certain income
and net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
g. Fees paid indirectly -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out of pocket expenses. For the period, custody fees were
reduced by $1,860 under this arrangement.
2. MANAGEMENT AND DISTRIBUTION
The Fund pays Mackenzie Investment Management Inc. (MIMI) a monthly
management fee at the annual rate of .55% of its average daily net assets.
Mackenzie Ivy Funds Distribution, Inc. (MIFDI), a wholly owned subsidiary
of MIMI, is the underwriter and distributor of the Fund's shares and, as such,
purchases shares from the Fund at net asset value to settle orders from
investment dealers. For the six months ended December 31, 1995, the net amount
of underwriting discount retained by MIFDI was $569.
If the Fund's total expenses in any fiscal year exceed the permissible
limits applicable to the Fund in any state in which its shares are then
qualified for sale, MIMI will bear the excess expenses. The most restrictive
state expense limitation provision limits a fund's annual expenses (excluding
interest, taxes, brokerage commissions, extraordinary expenses and other
expenses subject to approval by state securities administrators) to 2.5% of the
first $30 million of the average daily net assets; 2.0% of the next $70 million
of the average daily net assets; and 1.5% of the remaining average daily net
assets. Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.64% of its average daily net assets. The voluntary expense limitation may be
terminated or revised at any time. Expenses reimbursed by manager reflected in
the Statement of Operations consists of required and voluntary reimbursements of
$6,614 and $51,172, respectively.
3. ADMINISTRATIVE SERVICES
MIMI provides certain administrative services to the Fund. As compensation
for these services, the Fund pays MIMI a monthly fee at the annual rate of .10%
of its average daily net assets. Such fee is reflected as Administrative
services fee in the Statement of Operations.
4. FUND ACCOUNTING SERVICES
MIMI provides certain accounting and pricing services for the Fund. As
compensation for those services, the Fund pays MIMI a monthly fee plus
telephone, delivery and other out-of-pocket expenses. The monthly fee is based
upon the net assets of the Fund at the preceding month end at the following
rates: $1,000 when net assets are $20 million and under; $1,500 when net assets
are over $20 million to $75 million; $4,000 when net assets are over $75 million
to $100 million; and $6,000 when net assets are over $100 million. Such fee and
expenses are reflected as Fund accounting in the Statement of Operations.
5. TRANSFER AGENCY AND SHAREHOLDER SERVICE
Mackenzie Ivy Investor Services Corp. (MIISC), a wholly owned subsidiary of
MIMI, is the transfer and shareholder servicing agent for the Fund. The Fund
pays a monthly fee at an annual rate of $20.75 per open account and $4.36 per
account that is closed. In addition, the Fund pays certain out-of-pocket
expenses. Such fees and expenses are reflected as Transfer agent in the
Statement of Operations.
6. DISTRIBUTION PLANS
Under Service and Distribution Plans, the Fund reimburses MIFDI for service
fee payments made to brokers at an annual rate of .25% of its average daily net
assets. Class B shares are also subject to an ongoing distribution fee at an
annual rate of .50% of the average daily net asset value of Class B shares.
MIFDI may use such distribution fee for purposes of advertising and marketing
shares of the Fund. Such fees are reflected as 12b-1 service and distribution
fees in the Statement of Operations.
7. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
8. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in debt obligations issued by the State of
Florida and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of Florida securities than is a municipal
bond fund that is not concentrated in these issuers to the same extent.
9. SUBSEQUENT EVENT
On January 1, 1996, under a Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940, approved by the Fund's Board December 2, 1995,
the Fund discontinued its practice of declaring daily a dividend to Class A
shares at the rate per share of the excess 12b-1 fees of Class B shares over
Class A shares. As a result of this change, the net asset value per share of
Class A and Class B are expected to differ.
10. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 JUNE 30, 1995
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------ -------- ----------- -------- -----------
Sold.......................... 16,115 $ 164,844 359,438 $ 3,570,311
Issued on reinvestment of
distributions................ 6,426 65,658 13,013 129,513
Repurchased................... (105,194) (1,076,465) (193,314) (1,923,908)
-------- ----------- -------- -----------
Net increase (decrease)....... (82,653) $ (845,963) 179,137 $ 1,775,916
========== ============= ========== ============
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 JUNE 30, 1995
-------------------- ---------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------- ------- --------- ------- ----------
Sold............................ -- $ -- 154,143 $1,547,909
Issued on reinvestment of
distributions.................. 1,889 19,321 3,666 36,516
Repurchased..................... (68,419) (701,140) (84,751) (842,330)
------- --------- ------- ----------
Net increase (decrease)......... (66,530) $(681,819) 73,058 $ 742,095
======== =========== ======== ===========
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
INTRODUCTION TO PROPOSED FUND MERGER
DECEMBER 31, 1995
The accompanying unaudited Pro Forma combining Schedule of Investments and
Statements of Assets and Liabilities and the Statement of Operations reflect the
accounts of the Voyageur Florida Limited Term Tax Free Fund (Voyageur Fund) and
the Mackenzie Florida Limited Term Municipal Fund (Mackenzie Fund) at and for
the yuear ending December 31, 1995. These statements have been derived from the
annual report for the Voyageur Fund, dated December 31, 1995, and the underlying
accounting records utilized in calculating the daily net asset values for the
year ended December 31, 1995 for the Mackenzie Fund.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
PROFORMA COMBINING STATEMENTS OF ASSETS AND LIABLILTIES (UNAUDITED) DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
VOYAGEUR FLORIDA MACKENZIE FLORIDA
LIMITED TERM LIMITED TERM
TAX FREE FUND MUNICIPAL FUND PRO FORMA PRO FORMA
DECEMBER 31, 1995 DECEMBER 31, 1995 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- --------
ASSETS
<S> <C> <C> <C>
Investment in securities, at market value $854,931 $4,590,280 $5,445,211
(identified cost: $821,038, $4,459,755 and
$5,280,793, respectively)
Cash in bank on demand deposit 123,605 296,649 33,799 (b) 454,053
Accrued interest receivable 12,296 85,346 97,642
Other assets 30,714 52,434 (33,799) (b) 49,349
---------- ---------- ------- ----------
Total Assets $1,021,546 $5,024,709 $0 $6,046,255
---------- ---------- ------- ----------
Liabilities
Payable for securities purchased 49,683 -- 49,683
Management fees payable -- 2,374 2,374
Distribution fees payable 186 1,805 1,991
Dividends payable to shareholders 6,113 4,571 10,684
Accrued expenses and other liabilities 11,850 2,473 14,323
-------- ---------- ------- ----------
Total Liabilities 67,832 11,223 79,055
-------- ---------- ------- ----------
Net Assets $953,714 $5,013,486 $0 $5,967,200
======== ========== ======= ==========
Paid in capital $912,144 $4,877,200 $5,789,344
Undistributed/(overdistributed) net investment income 7,677 (3,145) 4,532
Accumulated net realized gain on investments -- 8,906 8,906
Net unrealized appreciation of investments 33,893 130,525 164,418
-------- ---------- ------- ----------
Net Assets $953,714 $5,013,486 $5,967,200
======== ========== ======= ==========
Net assets applicable to outstanding:
Class A Shares $859,162 $3,365,205 $4,224,367
Class B Shares $40,907 $1,648,281 $1,689,188
Class C Shares $53,645 -- $53,645
Outstanding Shares:
Class A 81,392 327,320 (8,677) (a) 400,035
Class B 3,875 160,307 (4,221) (a) 159,961
Class C 5,083 -- 5,083
Net Asset Value
Class A (and redemption price) $10.56 $10.28 $10.56
Class B $10.56 $10.28 $10.56
Class C $10.55 -- $10.55
See accompanying notes to financial statements.
</TABLE>
(a) Reflects new shares issued.
(b) Reflects writeoff of organizational costs to Mackenzie Fund to be absorbed
by Mackenzie Investment Management, Inc.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
PROFORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITIED)
- ---------------------------------------------------------------------------------------------------------------------------
VOYAGEUR FLORIDA MACKENZIE FLORIDA
LIMITED TERM LIMITED TERM
TAX FREE FUND TAX FREE FUND
DECEMBER 31, DECEMBER 31 PRO FORMA PRO FORMA
1995 1995 ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
Investment Income:
<S> <C> <C> <C> <C>
Interest $ 32,584 $ 343,015 $ 375,599
--------- --------- ----------- ---------
Expenses:
Investment advisory and management fees 2,665 34,835 (9,500) (a) 28,000
Dividend-disbursing, administrative and accounting
services fees 10,995 26,021 (15,547) (a) 21,469
Printing, postage and supplies 1,052 2,330 3,382
Audit and accounting fees 2,633 25,107 (22,740) (a) 5,000
Legal fees 671 16,877 (16,877) (a) 671
Distribution fees - Class A 1,536 10,251 11,787
Distribution fees - Class B 120 16,752 5,580 (a) 22,452
Distribution fees - Class C 402 -- 402
Trustee fees 133 3,716 (3,716) (a) 133
Registration fees 838 14,645 15,483
Custodian fees 6,702 1,860 8,562
Amortization of organizational costs 3,300 8,882 (8,882) (a) 3,300
Other 94 1,409 1,503
-- ----- -----
Total expenses 31,141 162,685 193,826
Less: Expenses waived or absorbed (26,419) (93,291) 71,682 (a) (48,028)
--------- --------- ----------- ---------
Net expenses before earnings credits on uninvested cash 4,722 69,394 74,116
Less: Earnings credits on uninvested cash (111) (1,860) (1,971)
Total net expenses 4,611 67,534 72,145
--------- --------- ----------- ---------
Investment income - net 27,973 275,481 303,454
--------- --------- ----------- ---------
Realized and unrealized gain on investments:
Realized gain on security transactions (note 2) 2,938 77,275 80,213
Net change in unrealized appreciation or
depreciation of investments 56,693 319,339 376,032
--------- --------- ----------- ---------
Net gain on investments 59,631 396,614 456,245
--------- --------- ----------- ---------
Net increase in net assets resulting from operations $ 87,604 $ 672,095 $0 $ 759,699
========= ========= ========== =========
</TABLE>
See accompanying notes to financial statements
(a) Reflects reductions in expenses and expenses waived or absorbed due to
elimination of duplicate services.
NOTES TO PROFORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995
(1) GENERAL
The accompanying unaudited pro forma financial statements are presented to
show the effect of the proposed acquisition of Mackenzie Florida Limited
Term Municipal Fund (Mackenzie Fund) by Voyageur Florida Limited Term Tax
Free Fund (Voyageur Fund), as if such acquisition had taken place as of
January 1, 1995.
Under the terms of the Plan of Reorganization, the combination of Voyageur
Fund and Mackenzie Fund will be taxed as a tax free business combination
and accordingly will be accounted for by a method of accounting for tax
free mergers of investment companies (sometimes referred to as the pooling
without restatement method). The acquisition would be accomplished by an
acquisition of the net assets of Mackenzie Fund in exchange for shares of
Voyageur Fund at net asset value. The statement of assets and liabilities
and the related statement of operations of Voyageur Fund and Mackenzie Fund
have been combined as of and for the period ended December 31, 1995.
The accompanying pro forma financial statements should be read in
conjunction with the financial statements and schedules of investments of
Mackenzie Fund and Voyageur Fund which are included in their respective
semi-annual and annual reports dated December 31, 1995 included as an
exhibit to this filing.
(2) SIGNIFICANT ACCOUNTING POLICIES
Voyageur Fund is a Massachusetts Business Trust, registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company.
The significant accounting policies consistently followed by Voyageur Fund
are (a) securities transactions are accounted for on the trade date (b)
securities are valued at fair value as determined by the Board of Trustees.
Determination of fair value involves, among other things, using pricing
services or prices quoted by independent brokers. Short-term investments
are valued at amortized cost which approximates market value (c) interest
income, including level yield amortization of premium and original issue
discount, is accrued daily (d) gains or losses on the sale of securities
are calculated by using the specific identification method (e) income,
expenses (other than expenses incurred under each class' Distribution
Agreement) and realized and unrealized gains or losses on investments are
allocated to each class of shares based upon its relative net assets (f)
dividends and distributions to shareholders are declared daily and payable
monthly (g) Voyageur Fund intends to comply with the requirements of the
Internal Revenue Code pertaining to regulated investment companies and to
make the required distributions to shareholders; therefore, no provision
for Federal income taxes has been made.
(3) PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements reflect changes in fund
shares as if the merger had taken place on December 31, 1995. Adjustments
made to expenses are for duplicated services that would not have been
incurred if the merger took place on January 1, 1995.
(4) MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Voyageur Fund Managers, Inc. (Fund Managers) acts as investment manager of
Voyageur Fund. Voyageur Fund pays Fund Managers a management fee calculated
at the annual rate of 0.40% of the aggregate average daily net assets. The
Voyageur Fund will also pay a fee to Fund Managers for acting as the
Voyageur Fund's dividend-disbursing, administrative and accounting services
agent. The fee is paid monthly and is equal to the sum of $1.33 per
shareholder account per month, a fixed monthly fee ranging from $1,000 to
$1,500 based on the level of each fund's average daily net assets and an
annualized percentage of average daily net assets at reducing rates from
.11% to .02%. All fees are calculated daily and paid monthly.
(5) CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of additional
shares of Voyageur Fund which would have been issued at December 31, 1995
in connection with the proposed reorganization. The pro forma number of
shares outstanding of 400,035 Class A Shares, 159,961 Class B Shares and
5,083 Class C Shares, consists of 318,643 additional Class A Shares and
156,086 additional Class B Shares from the Mackenzie Fund, all of which are
assumed to be issued in the reorganization plus 81,392 Class A Shares,
3,875 Class B Shares and 5,083 Class C Shares of Voyageur Fund outstanding
at December 31, 1995.
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
PROFORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
FACE AMOUNT ((000'S) HISTORICAL)
- -----------------------------------------------------------------------------------------------------------------------------------
VOYAGEUR MACKENZIE
FLORIDA FLORIDA
COUPON LIMITED TERM LIMITED TERM
SECURITY RATE TAX FREE FUND TAX FREE FUND COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boyton Beach Water & Sewer (AMBAC Insured) 7.40 % $50 $50
Dade County U of N Miami Education Facility (MBIA Insured) 7.10 25 25
Manatee County Water & Sewer 6.80 25 25
East County Water (Lee County Drain Revenue) 5.45 25 25
Orlando Waste Water System Revenue (AMBAC Insured) 4.70 25 25
Pensacola Gas Revenue (AMBAC Insured) 4.63 50 50
St. Lucie County Special Asset Revenue 5.60 100 100
Tallahassee Utilities System Revenue 5.50 50 50
Volusia County School Board COP (FSA Insured) 5.10 25 25
Broward County Airport System Revenue (AMBAC Insured) 4.70 25 25
Orange & Orlando County Expressway (FGIC Insured) 4.70 25 25
Orlando Aviation Airport Revenue (AMBAC Insured) 5.90 25 25
East County Water (Lee County Drain Revenue) 5.45 25 25
Dade County Health Facility Authority (AMBAC Insured) 6.10 25 25
Leesburg Regional Medical Center 5.30 50 50
Palm Beach County (Good Samaritan Health Systems) 5.70 50 50
Palm Beach County (Good Samaritan Health Systems) 6.00 25 25
Sarasota Health Facility Authority Revenue 5.50 (c) 50 50
Escambia County Housing Finance Authority 5.75 25 25
Brevard County Sales Tax Revenue (MBIA Insured) 5.20 25 25
Florida Department of General Services (MBIA Insured) 4.50 100 100
Orlando Capital Improvement Special Revenue 5.50 25 25
Dade County Florida Educational Facility Authority (St. Thomas University) 5.25 200 200
Dade County Florida School District (GO) 7.00 250 250
Florida State Board of Education (GO) (Pre-refunded) 0.00 150 150
Florida State Board of Education (GO) (Pre-refunded) 7.25 250 250
Hillsborough County Florida Port Authority Revenue (NC) (FSA Insured) 5.10 250 250
Hillsborough County Florida Utility Revenue (MBIA Insured) 9.75 150 150
Jacksonville Florida Electric Authority Revenue 7.40 250 250
Jacksonville Florida Port Authority (MBIA Insured) 7.63 200 200
Kissimmee Florida Water & Sewer System Revenue (AMBAC Insured) 5.80 250 250
Lee County Florida Solid Waste System (MBIA Insured) 8.80 200 200
Leon County Florida Capital Improvement Revenue (MBIA Insured) 5.75 50 50
Orange County Florida (AMBAC Insured) 7.25 200 200
Pasco County Florida School Board (FSA Insured) 6.10 250 250
Port St. Lucie Florida Stormwater Utility 7.40 200 200
Puerto Rico Commonwealth (GO) 5.10 200 200
Puerto Rico Commonwealth (GO) 0.00 100 100
Puerto Rico Electric Power Authority 6.80 250 250
Puerto Rico Municipal Finance Agency (GO) 5.70 250 250
Puerto Rico Public Buildings Authority Revenue 6.60 200 200
Florida State Board of Education (GO) (Pre-refunded) 7.25 250 250
Hillsborough County Florida Port Authority Revenue (NC) (FSA Insured) 5.10 250 250
Hillsborough County Florida Utility Revenue (MBIA Insured) 9.75 150 150
Jacksonville Florida Electric Authority Revenue 7.40 250 250
Jacksonville Florida Port Authority (MBIA Insured) 7.63 200 200
Sunrise Florida Utility System Revenue (AMBAC Insured) 10.25 200 200
Volusia County Florida School Board (FSA Insured) 10.00 200 200
---- ------ ------
Total Investment in Securities (cost: $5,280,793) (b) $825 $4,250 $5,075
==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
PROFORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
MARKET VALUE (HISTORICAL)
- ---------------------------------------------------------------------------------------------------------------------------------
VOYAGEUR MACKENZIE
FLORIDA FLORIDA
LIMITED TERM LIMITED TERM
TAX FREE FUND(a) TAX FREE FUND(a) COMBINED(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boyton Beach Water & Sewer (AMBAC Insured) $57,547 $57,547
Dade County U of N Miami Education Facility (MBIA Insured) 28,876 28,876
Manatee County Water & Sewer 27,619 27,619
East County Water (Lee County Drain Revenue) 26,366 26,366
Orlando Waste Water System Revenue (AMBAC Insured) 25,134 25,134
Pensacola Gas Revenue (AMBAC Insured) 49,727 49,727
St. Lucie County Special Asset Revenue 101,500 101,500
Tallahassee Utilities System Revenue 52,227 52,227
Volusia County School Board COP (FSA Insured) 25,021 25,021
Broward County Airport System Revenue (AMBAC Insured) 25,257 25,257
Orange & Orlando County Expressway (FGIC Insured) 25,000 25,000
Orlando Aviation Airport Revenue (AMBAC Insured) 27,277 27,277
East County Water (Lee County Drain Revenue) 26,366 26,366
Dade County Health Facility Authority (AMBAC Insured) 27,284 27,284
Leesburg Regional Medical Center 50,058 50,058
Palm Beach County (Good Samaritan Health Systems) 53,124 53,124
Palm Beach County (Good Samaritan Health Systems) 27,119 27,119
Sarasota Health Facility Authority Revenue 49,375 49,375
Escambia County Housing Finance Authority 25,963 25,963
Brevard County Sales Tax Revenue (MBIA Insured) 25,991 25,991
Florida Department of General Services (MBIA Insured) 98,654 98,654
Orlando Capital Improvement Special Revenue 25,812 25,812
Dade County Florida Educational Facility Authority (St. Thomas University) 209,417 209,417
Dade County Florida School District (GO) 273,792 273,792
Florida State Board of Education (GO) (Pre-refunded) 54,306 54,306
Florida State Board of Education (GO) (Pre-refunded) 285,505 285,505
Hillsborough County Florida Port Authority Revenue (NC) (FSA Insured) 260,487 260,487
Hillsborough County Florida Utility Revenue (MBIA Insured) 191,285 191,285
Jacksonville Florida Electric Authority Revenue 267,307 267,307
Jacksonville Florida Port Authority (MBIA Insured) 237,706 237,706
Kissimmee Florida Water & Sewer System Revenue (AMBAC Insured) 268,917 268,917
Lee County Florida Solid Waste System (MBIA Insured) 226,176 226,176
Leon County Florida Capital Improvement Revenue (MBIA Insured) 54,391 54,391
Orange County Florida (AMBAC Insured) 230,062 230,062
Pasco County Florida School Board (FSA Insured) 272,912 272,912
Port St. Lucie Florida Stormwater Utility 228,498 228,498
Puerto Rico Commonwealth (GO) 205,680 205,680
Puerto Rico Commonwealth (GO) 66,746 66,746
Puerto Rico Electric Power Authority 272,855 272,855
Puerto Rico Municipal Finance Agency (GO) 263,558 263,558
Puerto Rico Public Buildings Authority Revenue 221,760 221,760
Florida State Board of Education (GO) (Pre-refunded) 285,505 285,505
Hillsborough County Florida Port Authority Revenue (NC) (FSA Insured) 260,487 260,487
Hillsborough County Florida Utility Revenue (MBIA Insured) 191,285 191,285
Jacksonville Florida Electric Authority Revenue 267,307 267,307
Jacksonville Florida Port Authority (MBIA Insured) 237,706 237,706
Sunrise Florida Utility System Revenue (AMBAC Insured) 251,822 251,822
Volusia County Florida School Board (FSA Insured) 247,098 247,098
-------- ---------- ----------
Total Investment in Securities (cost: $5,280,793) (b) $854,931 $4,590,280 $5,445,211
======== ========== ==========
</TABLE>
VOYAGEUR FLORIDA LIMITED TERM TAX FREE FUND
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) Also represents the cost of securities for federal income tax purposes. The
aggregate gross unrealized appreciation and depreciation of securities
based on this cost were as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
Florida Limited Term Tax Free Fund $221,910 ($57,492) $164,418
</TABLE>
(c) At December 31, 1995, the cost of securities purchased on a when issued
basis was $49,424.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Incorporated by reference to Post-Effective Amendment No. 2 to the
Registrant's Registration
Statement on Form N-1A, File No. 33-75112, filed March 1, 1995.
ITEM 16. EXHIBITS.
1 Agreement and Declaration of Trust (a)
2 Bylaws (a)
3 Not applicable
4 Agreement and Plan of Reorganization is attached as Exhibit A to the
Prospectus/Proxy Statement included in Part A of this Registration
Statement on Form N-14.
5 See #1 above
6 Investment Advisory Agreement (b)
7.1 Distribution Agreement (b)
7.2 Form of Dealer Sales Agreement (a)
7.3 Form of Bank Agreement (a)
8 Not applicable
9 Custodian Agreement (b)
10 Plan of Distribution (b)
11 Opinion and Consent of Dorsey & Whitney LLP with respect to the
legality of the securities*
12 Opinion and Consent of Dorsey & Whitney LLP with respect to tax
matters *
13 Not applicable
14.1 Consent of KPMG Peat Marwick LLP *
14.2 Consent of Coopers & Lybrand L.L.P. *
15 Not applicable
16 Power of Attorney *
17.1 Rule 24f-2 Election of Registrant *
17.2 Form of Class A share proxy card *
17.3 Form of Class B share proxy card *
_______________________________
* Filed herewith.
(a) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement, File No. 33-75112, on Form N-1A filed
on April 20, 1994.
(b) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement, File No. 33-75112, on Form N-1A filed
on March 1, 1995.
(c) Incorporated by reference from Post-Effective Amendment No. 6 to the
Registration Statement of Voyageur Tax Free Funds, Inc., File No. 2-87910,
on Form N-1A filed on March 1, 1995.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of Minneapolis, State of
Minnesota, on the /s/26th day of /s/March 1996.
VOYAGEUR INVESTMENT TRUST II
By /S/ John G. Taft
---------------------------
John G. Taft, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/John G. Taft
- -------------------- President(Principal /s/March 26, 1996
John G. Taft Executive Officer)
/s/Kenneth R. Larsen
- -------------------- Treasurer (Principal /s/March 26, 1996
Kenneth R. Larsen Financial and Accounting
Officer)
James W. Nelson* Trustee
Clarence G. Frame* Trustee
Robert J. Odegard* Trustee
Richard F. McNamara* Trustee
Thomas F. Madison* Trustee
/s/Thomas J. Abood Attorney-in-Fact /s/March 26, 1996
-------------------
EXHIBIT 11
D O R S E Y & W H I T N E Y L L P
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Telephone: (612) 340-2600
Fax: (612) 340-2868
March 26, 1996
Voyageur Investment Trust II
90 South Seventh Street
Suite 4400
Minneapolis, Minnesota, 55402
Re: Voyageur Florida Limited Term Tax Free Fund (Series A of Voyageur
Investment Trust II) Shares to be Issued Pursuant to Agreement and Plan of
Reorganization
Ladies and Gentlemen:
We have acted as counsel to Voyageur Investment Trust II, a business trust
organized under the laws of the Commonwealth of Massachusetts (the "Trust"), in
connection with its authorization and proposed issuance of Series A, Class A and
Class B shares of beneficial interest, par value $.001 per share (the "Shares").
The Shares are to be issued pursuant to an Agreement and Plan of Reorganization
(the "Agreement"), by and between the Trust and Mackenzie Series Trust, a
business trust organized under the laws of the Commonwealth of Massachusetts,
the form of which Agreement is included as Exhibit A to the Prospectus/Proxy
Statement relating to the transactions contemplated by the Agreement included in
the Trust's Registration Statement on Form N-14 filed with the Securities and
Exchange Commission (the "Registration Statement").
In rendering the opinion hereinafter expressed, we have reviewed the
proceedings taken by the Trust in connection with the authorization and issuance
of the Shares, and we have reviewed such questions of law and examined copies of
such records of the Trust, certificates of public officials and of responsible
officers of the Trust, and other documents as we have deemed necessary as a
basis for such opinion. As to the various matters of fact material to such
opinion, we have, when such facts were not independently established, relied to
the extent we deem proper on certificates of public officials and of responsible
officers of the Trust. In connection with such review and examination, we have
assumed that all copies of documents provided to us conform to the originals;
that all signatures are genuine; and that prior to the consummation of the
transactions contemplated thereby, the Agreement will have been duly and validly
executed and delivered on behalf of each of the parties thereto in substantially
the form included in the Registration Statement.
Based on the foregoing, it is our opinion that the Shares, when issued and
delivered by the Trust pursuant to, and upon satisfaction of the conditions
contained in, the Agreement, will be duly authorized, validly issued, fully paid
and non-assessable by the Trust.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for obligations of or claims against the Trust and requires that notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or any officer or officers of the
Trust. The Agreement and Declaration of Trust provides for indemnification out
of the property of the Trust for all loss and expense of any shareholder held
personally liable solely by reason of his being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust would
itself be unable to meet its obligations.
In rendering the foregoing opinion (a) we express no opinion as to laws
other than the statutory law of the Commonwealth of Massachusetts governing
voluntary associations; and (b) we have assumed, with your concurrence, that the
conditions to closing set forth in the Agreement will have been satisfied.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Investment Trust's final Prospectus/Proxy Statement
relating to the Shares included in the Registration Statement.
Very truly yours,
/s/ Dorsey & Whitney LLP
D O R S E Y & W H I T N E Y L L P
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Telephone: (612) 340-2600
Fax: (612) 340-2868
March 26, 1996
Voyageur Investment Trust II
90 South Seventh Street
Suite 4400
Minneapolis, MN 55402
Mackenzie Series Trust
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
Ladies and Gentlemen:
We have acted as counsel to Voyageur Investment Trust II ("Voyageur
Trust"), in connection with the transfer of substantially all of the assets of
Mackenzie Florida Limited Term Municipal Fund ("Mackenzie Fund"), a series of
Mackenzie Series Trust ("Mackenzie Trust"), to Voyageur Florida Limited Term Tax
Free Fund ("Voyageur Fund"), a series of Voyageur Trust, pursuant to an
Agreement and Plan of Reorganization by and between Voyageur Trust and Mackenzie
Trust (the "Agreement").
You have asked for our opinion concerning certain federal income tax
consequences of the transfer of substantially all of the assets of Mackenzie
Fund to Voyageur Fund and the assumption by Voyageur Fund of the identified and
stated liabilities of Mackenzie Fund in exchange solely for Voyageur Fund shares
and the distribution of such shares to the shareholders of Mackenzie Fund upon
complete liquidation of Mackenzie Fund, all pursuant to the Agreement (the
"Reorganization"). In this regard we have examined (1) the form of the Agreement
included in the Registration Statement on Form N-14 to be filed with the
Securities and Exchange Commission on or about March 26, 1996, (the
"Registration Statement"), (2) the Registration Statement (including, but not
limited to, the Prospectus and Proxy Statement included therein) and such other
documents and records as we consider necessary in order to render this opinion.
Unless otherwise provided herein, capitalized terms used in this opinion shall
have the same meaning as set forth in the Prospectus and Proxy Statement or the
Agreement, as the case may be.
Pursuant to the Agreement, all or substantially all of the assets and all
of the identified and stated liabilities of Mackenzie Fund immediately prior to
the Effective Time shall be exchanged for that number of Voyageur Fund shares
having an aggregate value immediately prior to the Effective Time equal to the
net value of assets of Mackenzie Fund immediately prior to the Effective Time.
All Voyageur Fund shares then held by Mackenzie Fund, representing all of the
assets of Mackenzie Fund, will be distributed to Mackenzie Fund shareholders
pursuant to the Agreement (which includes the cancellation of all the shares of
Mackenzie Fund).
The Boards of Directors of both Mackenzie Fund and Voyageur Fund, including
all of the "non-interested" directors, have determined that the Reorganization
is advantageous to both Funds and is in the best interests of each Fund's
respective shareholders. In approving the Reorganization, the Boards considered,
among other things, the following factors: (1) as of December 31, 1995, VFM
served as manager to six closed-end and 29 open-end funds, administered numerous
private accounts and managed approximately $8.16 billion in assets, including 30
"single state" funds, including four Florida funds; (2) certain Mackenzie Fund
shareholders will experience a slightly lower expense ratio as shareholders of
Voyageur Fund, and the Reorganization should allow for certain fund expenses to
be spread over a larger asset base and may in the future result in economies of
scale for shareholders of Voyageur Fund; (3) the terms and conditions of the
Agreement, including that (i) the exchange of Mackenzie Fund shares for Voyageur
Fund shares will take place on a net asset value basis, and (ii) no sales charge
will be incurred by Mackenzie Fund shareholders in connection with their
acquisition of Voyageur Fund shares in the Reorganization; (4) Voyageur Fund
Managers, Inc. will pay the costs in connection with the Reorganization; and (5)
prior to the Effective time, Mackenzie Investment Management nc. will pay
Mackenzie Fund an amount in cash equal to the unamortized organizational
expenses on the books of Mackenzie Fund.
Our opinion is based upon existing law and currently applicable Treasury
Regulations, currently published administrative positions of the Internal
Revenue Service contained in Revenue Rulings and Revenue Procedures, and
judicial decisions, all of which are subject to change prospectively and
retroactively. It is not a guarantee of the current status of the law and should
not be accepted as a guarantee that a court of law or an administrative agency
will concur in the opinion.
Based on the Agreement, the other documents referred to
herein, the facts and assumptions stated above, as well as representations made
by Voyageur Fund in a Certificate dated March 26, 1996, representations made by
Mackenzie Fund in a Certificate dated March 26, 1996, representations made by
Voyageur Fund Managers, Inc. in a Certificate dated March 26, 1996,
representations made by Mackenzie Investment Management, Inc. in a certificate
dated March 26, 1996, the provisions of the Code and judicial and administrative
interpretations as in existence on the date hereof, and on the assumption that
the Agreement will be executed and the Reorganization will be carried out
pursuant to the Agreement, it is our opinion that the Reorganization will
constitute a reorganization within the meaning of Section 368(a)(1)(D) of the
Code, and that Voyageur Fund and Mackenzie Fund will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
On the basis of the foregoing opinion that the Reorganization will
constitute a reorganization within the meaning of Section 368 of the Code, it is
further our opinion that:
(i) the Mackenzie Fund shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of Voyageur Fund shares.
Mackenzie Fund shareholders subject to taxation will recognize income
upon receipt of any net investment income or net capital gains of
Mackenzie Fund which are distributed by Mackenzie Fund prior to the
Effective Time;
(ii) the tax basis of the Voyageur Fund shares received by each Mackenzie
Fund shareholder pursuant to the Reorganization will be equal to the
tax basis of the Mackenzie Fund shares exchanged therefor;
(iii) the holding period of the Voyageur Fund shares received by each
Mackenzie Fund shareholder pursuant to the Reorganization will include
the period during which Mackenzie Fund shareholder held the Mackenzie
Fund shares exchanged therefor, provided that Mackenzie Fund shares
were held as a capital asset at the Effective Time;
(iv) Mackenzie Fund will recognize no income, gain or loss by reason of the
Reorganization;
(v) Voyageur Fund will recognize no income, gain or loss by reason of the
Reorganization;
(vi) the tax basis of the assets received by Voyageur Fund pursuant to the
Reorganization will be the same as the basis of those assets in the
hands of Mackenzie Fund as of the Effective Time;
(vii) the holding period of the assets received by Voyageur Fund pursuant
to the Reorganization will include the period during which such assets
were held by Mackenzie Fund; and
(viii) Voyageur Fund will succeed to and take into account the earnings and
profits, or deficit in earning and profits, of Mackenzie Fund as of
the Effective Time.
We consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the reference to this firm under
the caption "Information About the Reorganization-Federal Income Tax
Consequences" in the Prospectus/Proxy Statement included in Part of the
Registration Statement.
Very truly yours,
/s/ Dorsey & Whitney LLP
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Trustees
Voyageur Investment Trust II:
We consent to the use of our report incorporated by reference herein and to the
reference to our firm under the heading "FINANCIAL STATEMENTS AND EXPERTS" in
Part A of this Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 19, 1996
Coopers Coopers & Lybrand L.L.P.
& Lybrand
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
To The Shareholders and
Board of Trustees of
Mackenzie Florida Limited Term Municipal Fund
We consent to the inclusion in the Registration Statement of Voyageur Investment
Trust II on Form N-14 of our report dated August 11, 1995, on our audit of the
financial statements and financial highlights of Mackenzie Florida Limited Term
Municipal Fund (a series of the Mackenzie Series Trust) appearing in the June
30, 1995 Annual Report to Shareholders of the Fund, which annual report is
incorporated by reference in the Registration Statement. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
March 26, 1996
Coopers & Lybrand, a registered limited liability partnership is a member firm
of Coopers & Lybrand (International).
VOYAGEUR INVESTMENT TRUST II
POWER OF ATTORNEY -- N-14 REGISTRATION STATEMENT
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John G. Taft, Kenneth R. Larsen
and Thomas J. Abood, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form N-14 of
Voyageur Investment Trust II, relating to the combination of the Mackenzie
Florida Limited Term Municipal Fund of Mackenzie Series Trust with and into the
Voyageur Florida Limited Term Tax Free Fund of Voyageur Investment Trust II, and
any and all amendments thereto, including post-effective amendments, and to file
the same with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission granting unto said attorneys-in-fact
and agents, each acting alone, full power and authority to do and perform to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
the substitutes for such attorneys-in-fact and agents, may lawfully do or cause
to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/John G. Taft President March 1, 1996
- ----------------------
John G. Taft
/s/Kenneth R. Larsen Treasurer March 12, 1996
- ----------------------
Kenneth R. Larsen
/s/Clarence G. Frame Director March 1, 1996
- ----------------------
Clarence G. Frame
/s/Richard F. McNamara Director March 12, 1996
- ----------------------
Richard F. McNamara
/s/Thomas F. Madison Director March 1, 1996
- ----------------------
Thomas F. Madison
/s/James W. Nelson Director March 1, 1996
- ----------------------
James W. Nelson
/s/Robert J. Odegard Director March 1, 1996
- ----------------------
Robert J. Odegard
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 24F-2
ANNUAL NOTICE OF SECURITIES SOLD
PURSUANT TO RULE 24F-2
READ INSTRUCTIONS AT END OF FORM BEFORE PREPARING FORM.
PLEASE PRINT OR TYPE.
- --------------------------------------------------------------------------------
1. Name and address of issuer:
Voyageur Investment Trust II
90 South Seventh Street, Suite 4400
Minneapolis, MN 55402
- --------------------------------------------------------------------------------
2. Name of each series or class of funds for which this notice is filed:
Voyageur Florida Limited Term Tax Free Fund
- --------------------------------------------------------------------------------
3. Investment Company Act File Number:
811-8350
Securities Act File Number:
33-75112
- --------------------------------------------------------------------------------
4. Last day of fiscal year for which this notice is filed:
December 31, 1995
- --------------------------------------------------------------------------------
5. Check box if this notice is being filed more than 180 days after the close
of the issuer's fiscal year for purposes of reporting securities sold after
the close of the fiscal year but before termination of the issuer's 24f-2
declaration:
N/A
- --------------------------------------------------------------------------------
6. Date of termination of issuer's declaration under rule 24f-2(a)(1), if
applicable (see instruction A.6):
N/A
- --------------------------------------------------------------------------------
7. Number and amount of securities of the same class or series which had been
registered under the Securities Act of 1933 other than pursuant to rule
24f-2 in a prior fiscal year, but which remained unsold at the beginning of
the fiscal year:
-0-
- --------------------------------------------------------------------------------
8. Number and amount of securities registered during the fiscal year other
than pursuant to rule 24f-2.
-0-
- --------------------------------------------------------------------------------
9. Number and aggregate sale price of securities sold during the fiscal year:
97,494 $992,734
- --------------------------------------------------------------------------------
10. Number and aggregate sale price of securities sold during the fiscal year
in reliance upon registration pursuant to rule 24f-2:
97,494 shares $992,734
- --------------------------------------------------------------------------------
11. Number and aggregate sale price of securities issued during the fiscal year
in connection with dividend reinvestment plans, if applicable (see
instruction B.7):
1,563 shares $15,928
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
12. Calculation of registration fee:
<S> <C>
(i) Aggregate sale price of securities sold during the fiscal year in
reliance on rule 24f-2 (from Item 10): $ 992,734
------------
(ii) Aggregate price of shares issued in connection with dividend
reinvestment plans (from Item 11, if applicable): + 15,928
------------
(iii) Aggregate price of shares redeemed or repurchased during the fiscal
year (if applicable): - 701,196
------------
(iv) Aggregate price of shares redeemed or repurchased and previously
applied as a reduction to filing fees pursuant to rule 24e-2 (if
applicable): + --
------------
(v) Net aggregate price of securities sold and issued during the fiscal
year in reliance on rule 24f-2 [line (i), plus line (ii), less line
(iii), plus line (iv)] (if applicable): 307,466
------------
(vi) Multiplier prescribed by Section 6(b) of the Securities Act of 1933 or
other applicable law or regulation (see Instruction C.6): X 1/29 OF 1%
------------
(vii) Fee due [line (i) or line (v) multiplied by line (vii)]: $ 106.02
============
INSTRUCTION: ISSUERS SHOULD COMPLETE LINES (ii), (iii), (iv), AND (v) ONLY
IFTHE FORM IS BEING FILED WITHIN 60 DAYS AFTER THE CLOSE OF THE
ISSUER'S FISCAL YEAR. See Instruction C.3.
- --------------------------------------------------------------------------------------------------
</TABLE>
13. Check box if fees are being remitted to the Commission's lockbox depository
as described in section 3a of the Commission's Rules of Informal and Other
Procedures (17 CFR 202.3a)
[ ]
Date of mailing or wire transfer of filing fees to the Commission's lockbox
depository:
Fed Wire on February 23, 1996
- --------------------------------------------------------------------------------
SIGNATURES
This report has been signed below by the following persons on behalf of
the issuer and in the capacities and on the date indicated.
By (Signature and Title)* /s/Kenneth R. Larsen
-----------------------------
KENNETH R. LARSEN - TREASURER
Date /s/02/23/93
-----------
*Please print the name and title of the signing officer below the signature.
DORSEY & WHITNEY
PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
PILLSBURY CENTER SOUTH
220 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-1498
(612) 340-2600
FAX (612) 340-2868
February 23, 1996
Voyageur Investment Trust II
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402
Re: Rule 24f-2 Notice for Voyageur Investment Trust II
(File Nos. 33-75112 and 811-8350)
Dear Sir or Madam:
We have acted as counsel to Voyageur Investment Trust II, a Massachusetts
business trust (the "Trust"), in connection with the Trust's Registration
Statement on Form N-1A (File Nos. 33-75112 and 811-8350). This opinion is
addressed to you in connection with a filing by the Trust of a notice (the
"Notice") pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. In that connection, we have examined such documents and have reviewed
such questions of law as we have considered necessary and appropriate for the
purpose of this opinion. Based thereon, we advise you that, in our opinion, the
99,057 common shares of beneficial interest, $.001 par value per share, sold by
the Trust during the fiscal year ended December 31, 1995, as set forth in the
Notice, were legally issued, have been fully paid, and are nonassessable, if
issued and sold upon the terms and in the manner set forth in the Registration
Statement of the Trust referred to above.
Very truly yours,
/s/Dorsey & Whitney P.L.L.P
KLP
EXHIBIT 17.2
CLASS A SHARES OF BENEFICIAL INTEREST
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
(A SERIES OF MACKENZIE SERIES TRUST)
VIA MIZNER FINANCIAL PLAZA, 700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF MACKENZIE SERIES TRUST
The undersigned appoints Thomas J. Abood, C. William Ferris and Joseph R.
Fleming and each of them, with power to act without the other and with the right
of substitution in each, as proxies of the undersigned and hereby authorizes
each of them to represent and to vote, as designated below, all the Class A
shares of Mackenzie Florida Limited Term Municipal Fund (the "Acquired Fund"), a
series of Mackenzie Series Trust, held of record by the undersigned on April 4,
1996, at the Special Meeting of shareholders of the Acquired Fund to be held on
May 28, 1996, or any adjournments or postponements thereof, with all powers the
undersigned would possess if present in person. All previous proxies given with
respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of all stated and identified liabilities of the Acquired Fund by
Voyageur Florida Limited Term Tax Free Fund (the "Acquiring Fund"), a separately
managed series of Voyageur Investment Trust II, in exchange for shares of
beneficial interest of the Acquiring Fund having an aggregate net asset value
equal to the aggregate value of the assets acquired (less the liabilities
assumed) of the Acquired Fund and (b) the liquidation of the Acquired Fund and
the pro rata distribution of the Acquiring Fund shares to Acquired Fund
shareholders. Under the Plan, Acquired Fund shareholders will receive the same
class of shares of the Acquiring Fund that they held in the Acquired Fund,
having a net asset value equal as of the effective time of the Plan to the net
asset value of their Acquired Fund shares.
FOR_____ AGAINST_____ ABSTAIN_____
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated:_____________________________, 1996
_________________________________________
_________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
EXHIBIT 17.3
CLASS B SHARES OF BENEFICIAL INTEREST
MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
(A SERIES OF MACKENZIE SERIES TRUST)
VIA MIZNER FINANCIAL PLAZA, 700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF MACKENZIE SERIES TRUST
The undersigned appoints Thomas J. Abood, C. William Ferris and Joseph R.
Fleming , and each of them, with power to act without the other and with the
right of substitution in each, as proxies of the undersigned and hereby
authorizes each of them to represent and to vote, as designated below, all the
Class B shares of Mackenzie Florida Limited Term Municipal Fund (the "Acquired
Fund"), a series of Mackenzie Series Trust, held of record by the undersigned on
April 4, 1996, at the Special Meeting of shareholders of the Acquired Fund to be
held on May 28, 1996, or any adjournments or postponements thereof, with all
powers the undersigned would possess if present in person. All previous proxies
given with respect to the Special Meeting are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the "Plan")
providing for (a) the acquisition of substantially all of the assets and the
assumption of all stated and identified liabilities of the Acquired Fund by
Voyageur Florida Limited Term Tax Free Fund (the "Acquiring Fund"), a separately
managed series of Voyageur Investment Trust II, in exchange for shares of
beneficial interest of the Acquiring Fund having an aggregate net asset value
equal to the aggregate value of the assets acquired (less the liabilities
assumed) of the Acquired Fund and (b) the liquidation of the Acquired Fund and
the pro rata distribution of the Acquiring Fund shares to Acquired Fund
shareholders. Under the Plan, Acquired Fund shareholders will receive the same
class of shares of the Acquiring Fund that they held in the Acquired Fund,
having a net asset value equal as of the effective time of the Plan to the net
asset value of their Acquired Fund shares.
FOR_____ AGAINST_____ ABSTAIN_____
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED "FOR" PROPOSAL 1 ABOVE. RECEIPT OF NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN, DATE, AND RETURN IN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED. PLEASE MAIL PROMPTLY TO SAVE FURTHER SOLICITATION
EXPENSE.
Dated:_____________________________, 1996
_________________________________________
_________________________________________
IMPORTANT: If the shares are held jointly, the signature
should include both names. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should give their full title as such.
