DENVER -- Minneapolis-based Voyageur Fund Managers introduced its first closed-end Colorado bond fund last week, the company said in a statement.

Citing ravenous investor demand, Voyageur closed the underwriting at $63 million and promised to roll out another Colorado municipal bond fund early next year.

The new fund, the Colorado Insured Municipal Income Fund, began trading on the American Stock Exchange last Thursday at $15 a share, trading under the symbol VCF. It will be managed by Andrew McCullagh Jr., who manages 11 of Voyageur's 22 mutual funds.

Voyageur has a stock, government securities, and money market fund, but specializes in state-specific municipal bond funds. Voyageur also manages portfolios for institutional clients. Total assets under management, including $2.5 billion in mutual funds, are $5.5 billion.

McCullagh also manages the $316 million Voyageur Colorado Tax-Free fund, an open-end fund that has grown from less than $50 million the last two years. It has ranked high in performance and quality ratings while investing in AA- or above-rated bonds.

Voyageur officials attribute the growing demand for bond mutual funds to lack of individual investor access to the bond market. In short, high demand and short supply for Colorado bonds in the wake of a spending and revenue limitation amendment passed last fall created a situation where bond funds can elbow out the little guys and their odd lot purchases when investment houses dole out their bond supplies.

"Colorado investors have found it difficult to buy Colorado municipal bonds because of Amendment 1. which has reduced issuance of Colorado municipal bonds by more than 30% this year." McCullagh said.

"As bond specialists, we are able to buy Colorado bonds in both the primary and secondary markets and expect this fund to be fully invested within 60 days." he said.

Last spring, Voyageur added closed-end funds in Arizona, Florida, and Minnesota, states where the group already had open-end funds. Out of 22 funds, five are closed-end funds.

Merrill Lynch & Co. leads the underwriting group for the Colorado fund, which will only invest in AAA-rated, insured municipal bonds. Another $10.2 million in "green shoe" shares have also been sold. Provisions governing those shares require that if there are no redemptions within the next two months, the extra 680,000 shares will be allotted.

The fund expects to issue preferred stock equal to half the common shares during the next three months. The preferred is expected to pay 2.5% interest and be backed by the fund's holdings.

Voyageur president John Taft said there is not much difference in yield between a AAA-rated fund and one that invests in AA-rated bonds.

"This is the unbelievable beauty of this fund. Because demand for municipal bonds is so high, the difference between interest rates on AAA-investment quality bonds and lesser rated bonds is almost non-existent. Today, you're simply not being paid to take credit risk.

"We are an extremely conservative, defensive manager. This product is right in line with the kind of investing we do." Taft said.

Voyageur has 80 employees in Minneapolis and another eight in Denver including McCullagh and his associate portfolio manager. Steve Foster.

Taft said the closed-end and open funds complement each other. Closed-end investors tend to like higher-rated funds, he said.

"In states where we have had goods performance in our open-end funds, we have been introducing closed-end products to supplement them," Taft said.

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