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    Guest Interview:

   RBC Global Asset Management

    50 South Sixth Street, Suite 2350
    Minneapolis,MN 55402-1240

    Telephone: (612) 376-7000
    Fax: (612) 376-7007


    Interview Quarter: 1Q2001

 Charles F. Henderson


Voyageur Asset Management Inc., a Registered Investment Adviser was founded in 1983. Voyageur provides investment advisory services to a variety of clients, including Taft-Hartley pension plans, public entities, corporations, financial institutions, foundations and high net worth individuals. In addition to separate account management, Voyageur also contributes distinct strategies to select financial advisor “managed money” programs. Voyageur is committed to high-touch personal service. Clear and frequent communication with clients, and providing accurate and comprehensive account management and administration are our highest priorities. It is our belief that superior client service is as important as first-rate investment results.

About Charles F. Henderson...

Charlie Henderson joined Voyageur in 1999 and prior to that served as Executive Vice President and Chief Investment Officer for the Chicago Trust Company, where he oversaw all investment activities of that firm. Henderson began his career in the investment management business in 1965, and assembled the Voyageur growth equity team in 1994. Prior to his association with Voyageur Asset Management and Chicago Trust, Henderson was with Northern Trust Company, subsidiaries of Northern Trust Company, and Wright Investors Services. He earned a BA from Dartmouth College. Henderson is a member of the Association for Investment Management and Research.

Charles F. Henderson
Senior Managing Director, Chief Investment Officer:

Q: Please provide a brief description of your firm’s business goals and the strategy for achieving these goals.

A: Voyageur believes that the success of the firm is best measured in terms of both accomplishments of financial goals and by earning the continued trust of our clients. These goals are accomplished by attentiveness to customer service, carefully understanding client needs and then delivering on client’s financial goals through a well-articulated investment process. The success of the firm follows naturally from our success in serving our clients. We believe we have a competitive advantage in our team approach to asset management, accompanying rigorous peer review and our well-disciplined investment process. Our strategy is to focus exclusively on high quality domestic securities rather than striving to be “all things to all people.” By following this prescription we believe success will follow.

Q: How does your firm plan to staff for future growth?

A: Voyageur is committed to providing all resources necessary to continue our high level of client service and disciplined investment management. To that end, we consistently add investment management and analytical capacity, and the capital and human resources necessary to support them, ahead of growth in client assets and new client accounts.

Q: Does the firm have expertise in any particular group of equities?

A: We specialize in Large Cap Growth, Large Cap Core and Mid Cap Growth portfolios. Because of our emphasis on growth and a bottom-up stock picking style, we have developed a significant expertise in technology (especially networking, telecom equipment, and software), health care, finance, capital goods, and consumer stocks.

Q: What is your large cap growth strategy?

A: Our Large Cap Growth Equity strategy is focused on achieving consistent, superior performance without taking high levels of risk. We seek high quality growth companies with exceptional financial strength and proven growth characteristics through rigorous application of a disciplined investment style based on four cornerstones:

  • Independent Fundamental Research
  • We use the “Street” for information, but conduct our own fundamental in-house research to reach decisions independent of what the Street may be saying.
  • Careful Security Selection
  • Voyageur emphasizes stock selection and not market timing. We concentrate on issues with proven growth characteristics and strong financials and management.
  • Strict Risk Controls
  • We pay close attention to the risk that results from our investment process at both the individual security level and portfolio level. Voyageur seeks to minimize risk while maximizing potential long-term returns.
  • Disciplined Portfolio Construction
  • Through concentrated portfolios with an overlay of risk controls, our goal is portfolios that reflect our best ideas.

Q: Please describe how you manage risk and return?

A: Voyageur employs strict risk controls in our Large Cap Growth Equity strategy at both the individual security level and portfolio level. Our goal is to minimize risk while maximizing potential long-term returns.

Our style focuses on stock selection through fundamental bottom-up analysis, with the specific goal of positive portfolio returns with less-than-benchmark risk. The S&P 500 benchmark is employed to monitor on-going sector exposure. While our portfolios are built stock-by-stock, we are keenly aware of our sector exposure.

To enhance our alpha (stock selection ability), we begin with a screening process that creates a stock universe with fundamentals superior to those of the S&P 500. The screening process reveals companies that over the past five years have had higher growth in sales, earnings, return on equity, and earnings stability relative to the S&P 500 companies. The companies in our screened universe also have lower debt levels than those within the S&P 500.

In addition to adding alpha through positive screens for superior companies, we seek to preserve alpha through strict risk controls, including the following:

· No more than 5% of the portfolio in any one company.
· A purchase limit of 150% of an S&P 500 economic sector.
· Lower P/E to Expected Growth rates.

Our demonstrated superior alpha performance is a result of those factors, enhanced by our successful bottom-up stock picking and low portfolio turnover.

Q: Are securities in the portfolio typically distinguished by particular characteristics?

A: Securities in our Large Cap Growth portfolio are distinguished by the following characteristics:

· Market capitalization over $2 billion
· One-year ROE greater than the S&P 500
· Five-year sales and operating EPS growth greater than S&P 500
· Long-term debt to total capitalization lower than S&P 500
· Last five-year EPS volatility lower than the S&P 500

Q: What is Voyageur’s decision-making process?

A: Our equity group functions in a team environment, which we believe is structured to take advantage of the experience of our investment professionals. Fundamental research is conducted by members of the research analyst team, each of whom has specific areas of expertise in which they are responsible for finding companies that meet expectations for future growth and success. An Equity Committee, which convenes at least weekly, guides final issue selection. Our equity team is a tightly knit group of 9 individuals. Professional experience ranges from 7 to 35 years, and averages 20 years.

Q: Describe the composition of the investment committee?

A: Our Large Cap Growth Equity Committee consisting of four senior professionals, collaborates on portfolio strategy and makes final investment decisions strategy-wide based on recommendations emerging from our research process. The equity committee must have a majority agreement on investment decisions before any changes are made to the Large Cap Growth Equity strategy.

Q: Describe the mechanics of the investment committee’s decision-making process?

A: Investment ideas are developed from our working universe, which are the result of a series of computer screens applied against a universe of over 6,300 companies. These screens are designed to look for large cap companies, which have growth, quality, & risk characteristics superior to that of the market itself. While portfolio managers and research analysts can develop ideas on a preliminary basis, research analysts have the primary responsibility for following and reviewing companies in this working universe and for developing action recommendations (buy or sell ideas). These recommendations are presented to the equity committee, which determine what equities our organization will buy or sell. Once they reach a decision on the recommendation, individual portfolio managers implement the changes in the various portfolios they manage. We look to buy stocks which have passed our screens, been reviewed by our research team, and are expected to have strong EPS growth over the next 2 years.

Q: Describe the interaction between portfolio managers and research analysts?

A: Portfolio management is highly collaborative. Each portfolio is assigned a primary portfolio manager with ultimate responsibility for buy and sell actions. The primary manager is supported by a team of senior and associate portfolio managers to assure continuity in management of accounts. There is continual interaction between portfolio managers and research analysts.

Q: Describe your sell process?

A: A successful investment strategy must curb the human tendency to overreact to events, whether they are positive or negative. We exercise the discipline of selling stocks on any of the following criteria:

· Deterioration of a company’s long-term fundamentals,
· A company falls from our universe because it fails a quantitative screen,
· The stock violates our risk controls.
· Emergence of a better investment

Q: Which is the most appropriate index for this product and why?

A: Our approach utilizes quality- and growth-oriented strategies that are screened relative to the S&P 500. The best “style” specific benchmark would be either the S&P 500 or an alternative large cap index, such as the Russell 1000 Growth.

Q: Do you perform any performance attribution analysis?

A: We utilize attribution analysis to understand the nature of performance variance versus our benchmark. Additionally, attribution analysis is used for performance contribution within our portfolios.

Q: What portfolio characteristics does the firm seek with regard to residual and systematic risk and industry diversification?

A: We seek returns higher than the market while experiencing risk levels similar to the market. Our portfolios typically exhibit an R-squared of approximately 90%, positive alpha, and a Sharpe ratio greater than 1.0. We proactively diversify the portfolio across several sectors. While there is no absolute minimum weighting for an industry sector, we do not invest additional funds in any sector where the portfolio exceeds 150% of the S&P weighting for that sector. This is one of our key risk control methods.

Q: What is your market capitalization range?

A: We consider ourselves to be “large cap” investors; we use the entire range of capitalizations above our $2 billion minimum. We do, however, limit exposure to smaller issues ($2 to $10 billion) to no more than 25% of the portfolio. While we do invest in mega-caps (over $100 billion), 70% of our portfolio remains invested in companies ranging between $10 to $100 billion. Our research has found that companies within this range provide the most value added characteristics.

Q: Do you expect to place any limitations on the amount of assets accepted?

A: No, since our investment process relies on similar investment holdings across portfolios, we can manage a large pool of assets. Since our style invests in large capitalization companies we do not run into liquidity problems and we have no preset account or assets under management limits.

Q: Describe the systems used to evaluate investments and whether they are proprietary or purchased from an outside vendor.

A: We believe it is essential to compare a company’s current valuation to its historical levels, to its peers, and to the market as a whole. Approximately 70% of our research is conducted internally; the remainder is purchased from specialty brokerage firms and outside data sources such as Bloomberg, Moody’s, StockVal, ILX, First Call, Instinet, financial web sites and proprietary internal models.

Q: Have you made any enhancements to the process during the last five years?

A: We did adjust the minimum market capitalization from $1 billion to $2 billion during the last five years, due to market appreciation. No other changes have been made to the process since January 1994.

Q: Please describe any top-down analysis used in this process?

A: Our equity approach is almost entirely bottom-up. Of course to be successful, even our best bottom-up research must be applied within a broader economic, equity market and sector outlook. Our “top-down” outlooks come from in-house experience, and from analysis of purchased data and research into current markets and the economy’s position within the longer-term business cycle.

Q: Please describe the research completed on each security?

A: Our team examines a number of statistics to evaluate trends in margins and other financial characteristics. Relevant fundamental factors will vary slightly by sector and industry, but in general we most closely analyze the following:

· Five-Year Sales and Operating Earnings per Share Growth
· Trailing Five-Year EPS Volatility
· One-Year Return on Equity
· Long-Term Debt to Total Capital Ratio

  • Qualitative research examines several components of a potential holding, including market share, product supply/demand characteristics, product line diversification, operating efficiency, and other elements that we consider key to above-average growth. These include:
  • Company Management
  • Evaluation on industry experience, reliability, depth, incentive for performance, differentiation from competitors, and strategic vision.
  • Strategic Vision
  • Assess foresight of industry direction and ability to generate excess profits through strategic initiatives. May include innovative product development, unusual distribution channels or cost containment methods, and attractive, well-timed acquisitions.
  • Competitive Position
    Identify whether a company is a clearly defined industry leader or a rapidly climbing innovator. Companies should have a meaningful niche or strategic advantage.
  • Financial Superiority
  • Establish whether a company has superior or improving cash flow and/or operating margins, and how this results in a competitive advantage.
  • Industry Dynamics
  • Identify the changing nature of growth rates, competitive structure, and technological innovations taking place within the industry and how the company is positioned to fare in that environment.
  • Consistency and Predictability
  • Assess the company’s ability to continue its success in a consistent and predictable manner without taking unnecessary risks.

Q: Please describe any liquidity criteria required for stocks on the approved list?

A: Liquidity in our portfolio holdings is seldom a concern because of the high quality, large capitalization stocks we favor. We do, however, research trading volume of companies we are considering for inclusion in portfolios. Our goal is to ensure that a stock have sufficient liquidity to buy and sell positions in a timely manner.

Q: What is the average yearly turnover in this style?

A: Our turnover has averaged 30% over the past five years.

Q: Do you manage taxable accounts differently from tax-exempt portfolios?

A: Our Large Cap Growth portfolio has a long-term view with low turnover and low dividends. This makes the strategy naturally tax-efficient. Additionally, our "tax-aware" approach to gains and losses produces some additional value added to our taxable portfolios.

Q: How do you collect information and follow up on the companies in which you are investing?

A: Managers and analysts review data from databases, look at external research reports, review company materials, conduct on-site visits to company management and other knowledgeable sources, and produce internal recommendations.

Q: Describe the economic and market conditions under which you would expect your investment style to outperform the market. When would it underperform?

A: Our investment process has and will continue to emphasize successful bottom-up stock selection. We do not chase current or expected “hot” themes or market sectors. We believe our clients are best served over the long-term by careful stock selection and well-diversified portfolios rather than concentrated “bets” on a market “fad.” Over the past five years we have outperformed the S&P 500 in both up markets and down markets.

Q: In the last three years, have there been any ownership changes at your firm?

A: On December 8, 2000, Voyageur Asset Management was acquired by Dain Rauscher Corporation, which merged Voyageur with its existing investment advisor, Insight Investment Management. Voyageur is now a wholly owned subsidiary of Dain Rauscher, with over $14 billion in assets under management. On January 10, 2001 the Royal Bank of Canada acquired Dain Rauscher Corporation. Voyageur remains a wholly owned subsidiary of Dain Rauscher Corporation and will be the exclusive U.S. based investment management and advisory business within the RBC/Dain organization.

Q: What are the key factors that differentiate this product from others in the marketplace?

A: · The proven, disciplined, sustainable nature of our investment process.
· The consistency of our process and consistent superiority of our investment results, in both up and down markets.
· Our risk profile, which is lower, per unit of return, than that of many growth stock managers.
· Our ability to combine concentrated portfolios with strong risk controls.
· Our long-term orientation, as evidenced by low portfolio turnover and tax-efficiency.
· The experience of our staff of senior investment professionals.

Q: Provide any commentary you feel would communicate the uniqueness of your firm’s research efforts.

A: Voyageur equity strategies rely on long-term themes and fundamental sector and security analysis to choose portfolio holdings that are expected to outperform over long-term horizons. Our Large Cap Growth Equity strategy is steeped in the belief that sound fundamental analysis reveals those companies with superior earnings achievement and potential. Particular focus is paid to management strength, industry leadership, and the sustainability of a company’s competitive advantage. Voyageur’s equity management is highly collaborative. There are no “stars”–good ideas are shared.

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