<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-57791
-----
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
-----
Pre-Effective Amendment No.
--------- -----
-----
Post-Effective Amendment No. 36 X
-------- -----
AND
-----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. 36
----------
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- -------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: April 29, 1996
--------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
-------
X on April 29, 1996 pursuant to paragraph (b)
-------
60 days after filing pursuant to paragraph (a)(1)
-------
on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
-------
on (date) pursuant to paragraph (a)(2) of Rule 485
-------
Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. The Rule 24f-2 Notice
for Registrant's most recent fiscal year was filed on March 27, 1996.
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
--- C O N T E N T S ---
This Post-Effective Amendment No. 36 to Registration File No. 2-57791
includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectus
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
CROSS-REFERENCE SHEET*
---------------------
PART A
------
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
<S> <C> <C>
Tax-Free Pennsylvania Fund
A Class/B Class/C Class
1 Cover Page...................................................... Cover
2 Synopsis........................................................ Synopsis, Summary of Expenses
3 Condensed Financial Information................................. Financial Highlights
4 General Description of Registrant .............................. Investment Objective and
Policies, Shares
5 Management of the Trust ........................................ Management of the Fund
6 Capital Stock and Other Securities ............................. Delaware Difference,
Dividends and Distributions,
Taxes, Shares
7 Purchase of Securities Being Offered............................ Cover, Buying Shares,
Calculation of
Offering Price and Net
Asset Value Per Share,
Management of the Fund
8 Redemption or Repurchase........................................ Buying Shares,
Redemption and Exchange
9 Legal Proceedings............................................... None
</TABLE>
* This filing relates to Registrant's Tax-Free Pennsylvania Fund A Class,
Tax-Free Pennsylvania Fund B Class and Tax-Free Pennsylvania Fund C
Class, which are combined in one prospectus. The three classes are
combined in one Part B and Part C.
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
CROSS-REFERENCE SHEET
---------------------
PART B
------
<TABLE>
<CAPTION>
Location in Statement of
Item No. Description of Additional Information
- -------- ----------- --------------------------
<S> <C> <C>
10 Cover Page...................................................... Cover
11 Table of Contents............................................... Table of Contents
12 General Information and History................................. General Information
13 Investment Objectives and Policies.............................. Investment Objective
and Policy
14 Management of the Registrant.................................... Officers and Trustees
15 Control Persons and Principal Holders of Securities............. Officers and Trustees
16 Investment Advisory and Other Services.......................... Plans Under Rule 12b-1
(under Purchasing Shares),
Investment Management
Agreement, Officers and
Trustees, General
Information, Financial
Statements
17 Brokerage Allocation............................................ Trading Practices and
Brokerage
18 Capital Stock and Other Securities.............................. Capitalization and
Noncumulative Voting
(under General
Information)
19 Purchase, Redemption and Pricing of
Securities Being Offered....................................... Purchasing Shares,
Determining Offering
Price and Net Asset
Value, Redemption and
Repurchase, Exchange
Privilege
20 Tax Status...................................................... Taxes
21 Underwriters ................................................... Purchasing Shares
22 Calculation of Performance Data................................. Performance Information
23 Financial Statements............................................ Financial Statements
</TABLE>
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
CROSS-REFERENCE SHEET
---------------------
PART C
------
<TABLE>
<CAPTION>
Item No. Description Location in Part C
- -------- ----------- ------------------
<S> <C> <C>
24 Financial Statements and Exhibits................................... Item 24
25 Persons Controlled by or under Common
Control with Registrant.......................................... Item 25
26 Number of Holders of Securities..................................... Item 26
27 Indemnification..................................................... Item 27
28 Business and Other Connections of Investment Adviser................ Item 28
29 Principal Underwriters.............................................. Item 29
30 Location of Accounts and Records.................................... Item 30
31 Management Services................................................. Item 31
32 Undertakings........................................................ Item 32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
---------------------------------------------------------
TAX-FREE PENNSYLVANIA FUND
---------------------------------------------------------
A CLASS
The Delaware Group ---------------------------------------------------------
includes funds with a wide
range of investment
objectives. Stock funds, B CLASS
income funds, tax-free funds,
money market funds, global and ---------------------------------------------------------
international funds and
closed-end equity funds give
investors the ability to C CLASS
create a portfolio that fits
their personal financial ---------------------------------------------------------
goals. For more information,
contact your financial adviser
or call Delaware Group at
800-523-4640.
P R O S P E C T U S
INVESTMENT MANAGER ---------------------------------------------------------
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103 APRIL 29, 1996
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
DELAWARE
GROUP
----------
</TABLE>
<PAGE>
(PA-ABC)
TAX-FREE PENNSYLVANIA FUND
A CLASS SHARES
B CLASS SHARES PROSPECTUS
C CLASS SHARES APRIL 29, 1996
- --------------------------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance: Nationwide 800-523-4640
Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2259
DMC Tax-Free Income Trust-Pennsylvania (which is known and does
business as Tax-Free Pennsylvania Fund) (the "Fund") is a professionally-managed
mutual fund. The Fund's objective is to seek a high level of current interest
income exempt from federal income tax and Pennsylvania state and local taxes,
consistent with preservation of capital.
The Fund currently offers three classes of shares: Tax-Free
Pennsylvania Fund A Class ("Class A Shares"), Tax-Free Pennsylvania Fund B Class
("Class B Shares") and Tax-Free Pennsylvania Fund C Class ("Class C Shares")
(individually, a "Class" and collectively, the "Classes"). These alternatives
permit an investor to choose the method of purchasing shares that is most
suitable for his or her needs.
Class A Shares may be purchased at the public offering price, which is
equal to the next determined net asset value per share, plus a front-end sales
charge. Class A Shares are subject to a maximum front-end sales charge of 4.75%
and annual 12b-1 Plan expenses of up to .30%.
Class B Shares may be purchased at a price equal to the next determined
net asset value per share. Class B Shares are subject to a contingent deferred
sales charge ("CDSC") which may be imposed on redemptions made within six years
of purchase and annual 12b-1 Plan expenses of 1%, which are assessed against the
Class B Shares for approximately eight years after purchase. See Automatic
Conversion of Class B Shares under Classes of Shares.
Class C Shares may be purchased at a price equal to the next determined
net asset value. Class C Shares are subject to a CDSC which may be imposed on
redemptions made within 12 months of purchase and annual 12b-1 Plan expenses of
1%, which are assessed against the Class C Shares for the life of the
investment.
In choosing the most suitable Class, an investor should consider the
differences among the Classes, including the effect of sales charges and 12b-1
Plan expenses, given the amount of the purchase and the length of time the
investor expects to hold the shares, among other circumstances. See Summary of
Expenses and Classes of Shares.
-1-
<PAGE>
(PA-ABC)
This Prospectus sets forth information that you should read and
consider before you invest. Please retain it for future reference. Part B of the
Fund's registration statement, dated April 29, 1996, as it may be amended from
time to time, contains additional information about the Fund and has been filed
with the Securities and Exchange Commission. Part B is incorporated by reference
into this Prospectus and is available, without charge, by writing to Delaware
Distributors, L.P. at the above address or by calling the above numbers. The
Fund's financial statements appear in its Annual Report which will accompany any
response to requests for Part B.
TABLE OF CONTENTS
Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and Distributions
Financial Highlights Taxes
Investment Objective and Policies Calculation of Offering Price and
Suitability Net Asset Value Per Share
Investment Strategy Management of the Fund
and Risk Factors Additional Information on Investment
The Delaware Difference Policies and Risk Considerations
Plans and Services Appendix A - Investment Illustrations
Classes of Shares
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.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND ARE NOT BANK
OR CREDIT UNION DEPOSITS.
-2-
<PAGE>
(PA-ABC)
SYNOPSIS
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") is the investment
manager for the Fund. The Manager or its affiliate, Delaware International
Advisers Ltd., also manages the other funds in the Delaware Group. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for the Fund
and for all of the other mutual funds in the Delaware Group. Delaware Service
Company, Inc. (the "Transfer Agent") is the shareholder servicing, dividend
disbursing and transfer agent for the Fund and for all of the other mutual funds
in the Delaware Group. See Management of the Fund.
Sales Charges
The price of the Class A Shares offered by this Prospectus includes a
maximum front-end sales charge of 4.75% of the offering price, which, based on
the net asset value of the Class A Shares as of the end of the Fund's most
recent fiscal year, is equivalent to 4.96% of the amount invested. The sales
charge is reduced on certain transactions of at least $100,000 but under
$1,000,000. There is no front-end sales charge on purchases of $1,000,000 or
more. Class A Shares are subject to annual 12b-1 Plan expenses.
The price of the Class B Shares is equal to the net asset value per
share. Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; and (iv) 1% if shares are redeemed during the sixth
year following purchase. Class B Shares are subject to annual 12b-1 Plan
expenses which are assessed against the Class B Shares for approximately eight
years after purchase. See Automatic Conversion of Class B Shares under Classes
of Shares.
The price of the Class C Shares is equal to the net asset value per
share. Class C Shares are subject to a CDSC of 1% if shares are redeemed within
12 months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses
for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Fund.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed the maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more of Class A
Shares, which are subject to lower annual 12b-1 Plan expenses than Class B
Shares and Class C Shares and generally are not subject to a CDSC.
See How to Buy Shares.
-3-
<PAGE>
(PA-ABC)
Investment Objective
The objective of the Fund is to seek a high level of current interest
income exempt from federal income tax and Pennsylvania state and local taxes,
consistent with preservation of capital. Although exempt from regular federal
income tax, interest paid on certain types of municipal obligations is deemed to
be a preference item under federal tax law and is subject to the federal
alternative minimum tax. Up to 20% of the Fund's net assets may be invested in
bonds, the income from which is subject to the federal alternative minimum tax.
For further details, see Investment Objective and Policies.
Open-End Investment Company
The Fund, a Pennsylvania business trust organized on November 23, 1976,
is an open-end management investment company, commonly known as a mutual fund.
The Fund's portfolio of assets is nondiversified as defined by the Investment
Company Act of 1940 (the "1940 Act"). See Shares under Management of the Fund.
Special Considerations
The Fund is a nondiversified investment company under the 1940 Act and
may be subject to greater risks than if the Fund were diversified. See
Diversification and Special Considerations Relating to Pennsylvania Tax-Exempt
Securities under Investment Strategy and Risk Factors.
Investment Management Fees
The Manager furnishes investment management services to the Fund,
subject to the supervision and direction of the Board of Trustees. Under the
Investment Management Agreement, the annual compensation paid to the Manager is
equal to .60% on the first $500 million of average daily net assets of the Fund,
.575% on the next $250 million and .55% on the average daily net assets in
excess of $750 million, less a proportionate share of all trustees' fees paid to
the unaffiliated trustees by the Fund. See Management of the Fund.
Redemption and Exchange
Class A Shares of the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.
-4-
<PAGE>
(PA-ABC)
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................... 4.75% None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price)................. None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, whichever is lower)...................... None* 4.00%* 1.00%*
Redemption Fees............................................... None** None** None**
Annual Operating Expenses Class A Class B Class C
(as a percentage of average daily net assets) Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------
Management Fees............................................... 0.58% 0.58% 0.58%
12b-1 Expenses (including service fees)....................... 0.19%***/+ 1.00%+ 1.00%+
Other Operating Expenses...................................... 0.13% 0.13% 0.13%++
----- ----- -----
Total Operating Expenses.......................... 0.90%*** 1.71% 1.71%
===== ===== =====
</TABLE>
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in each Class will
bear directly or indirectly.
*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class C Shares are subject to a CDSC
of 1% if the shares are redeemed within 12 months of purchase. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange; Deferred Sales Charge Alternative -
Class B Shares and Level Sales Charge Alternative - Class C Shares under Classes
of Shares.
-5-
<PAGE>
(PA-ABC)
**CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.
***The actual 12b-1 Plan expenses to be paid and, consequently, the
"Total Operating Expenses" of Class A Shares, may vary because of the formula
adopted by the Board of Trustees for use in calculating the 12b-1 Plan expenses
for this Class beginning June 1, 1992; however, the 12b-1 Plan expenses will not
be more than .30% nor less than .10%. See Distribution (12b-1) and Service under
Management of the Fund.
+Class A Shares, Class B Shares and Class C Shares are subject to
separate 12b-1 Plans. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc. (the "NASD"). See Distribution
(12b-1) and Service under Management of the Fund.
++"Other Operating Expenses" for Class C Shares are estimates based upon
the actual expenses incurred by Class A Shares for the fiscal year ended
February 29, 1996.
The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, (2) redemption at the end of each time period and (3) for Class B
Shares and Class C Shares, payment of a CDSC at the time of redemption, if
applicable.
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $56(1) $75 $95 $153 $56 $75 $95 $153
Class B Shares $57 $84 $113 $180(2) $17 $54 $93 $180(2)
Class C Shares $27 $54 $93 $202 $17 $54 $93 $202
</TABLE>
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed in the event of
certain redemptions within 12 months of purchase. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
assumes conversion of Class B Shares at the end of the eighth year.
However, the conversion may occur as late as three months after the
eighth anniversary of purchase, during which time the higher 12b-1 Plan
fees payable by Class B Shares will continue to be assessed. Information
for the ninth and tenth years reflects expenses of the Class A Shares.
See Automatic Conversion of Class B Shares under Classes of Shares for a
description of the automatic conversion feature.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
-6-
<PAGE>
(PA-ABC)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
DMC Tax-Free Income Trust-Pennsylvania and have been audited by Ernst & Young
LLP, independent auditors. The data should be read in conjunction with the
financial statements, related notes, and the report of Ernst & Young LLP
covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about the Fund's
performance is contained in its Annual Report to shareholders. A copy of the
Fund's Annual Report (including the report of Ernst & Young LLP) may be obtained
from the Fund upon request at no charge.
- --------------------------------------------------------------------------------
-7-
<PAGE>
PA-CHT
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------------------------
Year Ended
2/29/96(1) 2/28/95(1) 2/28/94(1) 2/28/93(1) 2/29/92
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $8.180 $8.610 $8.630 $8.110 $7.800
Income From Investment Operations
- ---------------------------------
Net Investment Income........................................ 0.476 0.494 0.496 0.514 0.532
Net Gains (Losses) on Securities
(both realized and unrealized)..................... 0.330 (0.430) (0.020) 0.520 0.310
----- ------- ------- ------ ------
Total From Investment Operations......................... 0.806 0.064 0.476 1.034 0.842
----- ------- ------- ------ ------
Less Distributions
- ------------------
Dividends from Net Investment Income......................... (0.476) (0.494) (0.496) (0.514) (0.532)
Distributions from Capital Gains............................. (0.050) -- -- -- --
Returns of Capital........................................... -- -- -- -- --
----- ------- ------- ------ ------
Total Distributions...................................... (0.526) (0.494) (0.496) (0.514) (0.532)
------ ------ ------ ------ ------
Net Asset Value, End of Period............................... $8.460 $8.180 $8.610 $8.630 $8.110
====== ====== ====== ====== ======
- -------------------------------------------------------------
Total Return(2).............................................. 10.08% 0.91% 5.64% 13.20% 11.11%
- ------------
- -------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted).................... $1,002,888 $976,313 $1,026,903 $940,616 $766,625
Ratio of Expenses to Average Daily Net Assets................ 0.90% 0.90% 0.88% 0.83% 0.72%
Ratio of Net Investment Income to Average Daily
Net Assets.............................................. 5.67% 6.03% 5.70% 6.18% 6.65%
Portfolio Turnover Rate...................................... 25% 18% 14% 11% 7%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
-----------------------------------------------------
Year Ended
2/28/91 2/28/90 2/28/89 2/29/88 2/28/87
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $7.800 $7.700 $7.730 $8.210 $7.850
Income From Investment Operations
- ---------------------------------
Net Investment Income........................................ 0.542 0.554 0.554 0.559 0.584
Net Gains (Losses) on Securities
(both realized and unrealized)..................... -- 0.100 (0.030) (0.480) 0.360
------ ------ ------ ------ ------
Total From Investment Operations......................... 0.542 0.654 0.524 0.079 0.944
------ ------ ------ ------ ------
Less Distributions
- ------------------
Dividends from Net Investment Income......................... (0.542) (0.554) (0.554) (0.559) (0.584)
Distributions from Capital Gains............................. -- -- -- -- --
Returns of Capital........................................... -- -- -- -- --
------ ------ ------ ------ ------
Total Distributions...................................... (0.542) (0.554) (0.554) (0.559) (0.584)
------ ------ ------ ------ ------
Net Asset Value, End of Period............................... $7.800 $7.800 $7.700 $7.730 $8.210
====== ====== ====== ====== ======
- -------------------------------------------------------------
Total Return(2).............................................. 7.24% 8.67% 7.08% 1.39% 12.57%
- ------------
- -------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted).................... $668,345 $613,223 $534,287 $472,648 $419,768
Ratio of Expenses to Average Daily Net Assets................ 0.72% 0.73% 0.77% 0.78% 0.75%
Ratio of Net Investment Income to Average Daily
Net Assets.............................................. 7.00% 7.03% 7.24% 7.38% 7.20%
Portfolio Turnover Rate...................................... 31% 22% 8% 31% 36%
</TABLE>
- ------------
(1) Reflects 12b-1 distribution expenses beginning June 1, 1992.
(2) Does not reflect the maximum sales charge of 4.75%, nor the 1% Limited
CDSC that would apply in the event of certain redemptions within 12
months of purchase. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value.
-8-
<PAGE>
PA-CHT
<TABLE>
<CAPTION>
Class B Shares Class C Shares
------------------------ --------------
Period Period
Year 5/2/94(1) 11/29/95(1)
Ended through through
2/29/96 2/28/95 2/29/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $8.180 $8.310 $8.510
Income From Investment Operations
- ---------------------------------
Net Investment Income......................................... 0.408 0.353 0.102
Net Gains (Losses) on Securities
(both realized and unrealized)...................... 0.330 (0.130) --
----- ------- ------
Total From Investment Operations.......................... 0.738 0.223 0.102
----- ------- ------
Less Distributions
- ------------------
Dividends from Net Investment Income.......................... (0.408) (0.353) (0.102)
Distributions from Capital Gains.............................. (0.050) -- (0.050)
Returns of Capital............................................ -- -- --
----- ------- ------
Total Distributions....................................... (0.458) (0.353) (0.152)
----- ------- ------
Net Asset Value, End of Period................................ $8.460 $8.180 $8.460
====== ====== ======
- --------------------------------------------
Total Return(2)............................................... 9.19% 2.79% 1.19%
- ------------
- --------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)..................... $20,861 $10,239 $123
Ratio of Expenses to Average Daily Net Assets................. 1.71% 1.73% 1.71%
Ratio of Net Investment Income to Average Daily Net Assets.... 4.86% 5.20% 4.86%
Portfolio Turnover Rate....................................... 25% 18% 25%
</TABLE>
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Does not reflect the contingent deferred sales charge which varies depending
upon holding period.
-9-
<PAGE>
INVESTMENT OBJECTIVE AND
POLICIES
The objective of the Fund is to seek as high a level of current interest
income exempt from federal income tax and certain Pennsylvania state and local
taxes as is available from municipal bonds and as is consistent with
preservation of capital. This objective cannot be changed without shareholder
approval.
The Fund will invest primarily in municipal bonds and notes that are
exempt from federal and Pennsylvania income taxes. Municipal securities are debt
obligations issued by state and local governments to raise funds for various
public purposes such as hospitals, schools and general operating expenses.
The Fund will invest its assets in securities of varying maturities,
without limitation, depending on market conditions. Typically, the remaining
maturity of municipal bonds will range between five and 30 years. The Manager
will attempt to adjust the maturity structure of the portfolio to provide a high
level of tax-exempt income consistent with preservation of capital.
SUITABILITY
The Fund may be suitable for the longer-term investor who is a resident
subject to Pennsylvania income tax. The investor should be willing to accept the
risks of investment in municipal bonds in general and Pennsylvania bonds in
particular. The net asset value of the Fund's shares can generally be expected
to fluctuate inversely to changes in interest rates.
The risks associated with an investment in the Fund are discussed below
under Investment Strategy and Risk Factors. The risks inherent in an investment
in a fund that invests in obligations of a specific state, such as the Fund, are
described below under Diversification and Special Considerations Relating to
Pennsylvania Tax-Exempt Securities.
INVESTMENT STRATEGY AND RISK FACTORS
Tax-Exempt Investments
The Fund invests primarily in municipal securities paying interest income
which, in the opinion of the bond issuer's counsel, is exempt from federal and
Pennsylvania income taxes. These securities include debt obligations of the
Commonwealth of Pennsylvania and its political subdivisions, agencies,
authorities and instrumentalities and also other qualifying issuers such as
Puerto Rico and the Virgin Islands.
The Fund will, as a fundamental policy, invest at least 80% of its net
assets in the types of tax-exempt securities listed above. Many of the
securities in which the Fund invests generate income that is exempt from
Pennsylvania state or local income taxes. In order to obtain the tax benefit of
these securities for pass-through to shareholders, the Fund will invest in
securities for income rather than trading for profit. However, the Fund may sell
securities held in its portfolio and, as a result, realize capital gain or loss,
in order to reinvest the earnings from portfolio securities in like securities
and eliminate investments not consistent with the preservation of the capital or
the tax status of the Fund; honor redemption orders, meet anticipated redemption
requirements, and negate gains from discount purchases; eliminate unsafe
investments; or defray normal administrative expenses. The Fund will generally
not exceed a portfolio turnover rate of 100%.
The Fund may invest up to 20% of its net assets in bonds the income from
which is subject to the federal alternative minimum tax. Although exempt from
regular federal income tax, interest paid on certain types of municipal
obligations (commonly referred to as "private activity" or "private purpose"
bonds) is deemed to be a preference item under federal tax law and is subject to
the federal alternative minimum tax. See Other Considerations.
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<PAGE>
Quality Restrictions
The Fund intends to invest at least 80% of its net assets in debt
obligations that are rated in the top four grades by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") at the time of
purchase. The Fund may include in that 80% portion securities that have not been
rated, but which in the opinion of the Manager are comparable in quality to the
top four grades. The fourth grade is considered medium grade and may have
speculative characteristics. The Fund may invest up to 20% of its net assets in
securities with a rating lower than the top four grades and in comparable
unrated securities. These securities, commonly known as "junk bonds," are
speculative and may involve greater risks and have higher yields. Part B sets
forth descriptions of Moody's and S&P ratings.
The Fund may invest in both "general obligation" and "revenue" bonds, the
two principal classifications of municipal 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 tax or other specific revenue
source, but not from the general taxing power. Tax-exempt industrial development
bonds, in most cases, are revenue bonds and do not generally carry the pledge of
credit of the issuing municipality. See Municipal Bonds in Part B.
Diversification
The Fund is a nondiversified investment company. This means that the
Manager has the flexibility to invest as much as 50% of the Fund's assets in as
few as two issuers provided no single issuer accounts for more than 25% of the
portfolio. The remaining 50% of the portfolio must be diversified so that no
more than 5% of the Fund's assets is invested in the securities of a single
issuer. The Fund may invest without limitation in U.S. Government and government
agency securities backed by the U.S. Government, its agencies or
instrumentalities. Because the Fund may invest its assets in fewer issuers, the
value of Fund shares may increase or decrease more rapidly than if the Fund were
fully diversified. If the Fund were to invest more than 5% of its assets in a
single issuer, the Fund would be affected more than a fully-diversified fund in
the event that issuer encountered difficulties in satisfying its financial
obligations.
Various municipal issuers may obtain insurance for their obligations. At
different times a substantial portion of the Fund's portfolio may consist of
municipal bonds that are insured by a single insurance company. In the event of
a default, the insurer is required to make payments of interest and principal
when due to the bondholders. There is no assurance that the insurance company
will meet its obligations. The Manager does not look to the creditworthiness of
a private insurer. Instead the Manager reviews the creditworthiness of the
actual issuer and its ability to pay interest and principal. However, because
insured obligations are typically rated in the top grades by Moody's and S&P,
they will usually qualify for investment under the ratings standards of the Fund
described above.
Other Considerations
The Fund may invest without limit in short-term, tax-free instruments
such as tax-exempt commercial paper and general obligation, revenue and project
notes, as well as variable and floating rate demand obligations.
Under abnormal conditions, the Fund may invest in taxable instruments for
temporary defensive purposes. These would include instruments of the U.S.
Government, its agencies and instrumentalities.
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<PAGE>
The Tax Reform Act of 1986 (the "Act") limits the amount of new "private
purpose" bonds that each state can issue and subjects interest income from these
bonds to the federal alternative minimum tax. "Private purpose" bonds are issues
whose proceeds are used to finance certain nongovernment activities, and could
include some types of industrial revenue bonds such as privately-owned sports
and convention facilities. The Act also makes the tax-exempt status of certain
bonds depend on the issuer's compliance with specific requirements after the
bonds are issued.
If the Fund invests in newly-issued "private purpose" bonds, a portion of
the Fund's distributions would be subject to the federal alternative minimum tax
applicable to certain shareholders. The Fund may invest up to 20% of its assets
in bonds the income from which is subject to the federal alternative minimum
tax.
The Fund may invest in "when-issued securities." When-issued securities
involve commitments to buy a new issue with settlement up to 45 days later.
During the time between the commitment and settlement the Fund does not accrue
interest, but the market value may fluctuate. This can result in the Fund's
share value increasing or decreasing. If the Fund invests in securities of this
type, it will maintain a segregated account to pay for them and mark them to
market daily.
The Fund may also invest in repurchase agreements and restricted
securities which are described more fully under Additional Information on
Investment Policies and Risk Considerations.
While the Fund is permitted to borrow money and invest in repurchase
agreements, the Fund normally does not do so. The Fund will not normally
purchase investment securities while it has an outstanding borrowing.
Municipal Leases
The Fund may also invest in municipal lease obligations primarily through
certificates of participation ("COPs") which are described more fully under
Additional Information on Investment Policies and Risk Considerations. As with
its other investments, the Fund expects that its investments in municipal lease
obligations will consist of such obligations which are exempt from regular
federal income taxes.
Special Considerations Relating to
Pennsylvania Tax-Exempt Securities
The Fund concentrates its investments in the Commonwealth of
Pennsylvania. Therefore, there are risks associated with the Fund that would not
be present if the Fund were diversified nationally. These risks include any new
legislation that would adversely affect Pennsylvania tax-exempt obligations,
regional or local economic conditions that could adversely affect these
obligations, and differing levels of supply and demand for municipal bonds
particular to the Commonwealth of Pennsylvania.
Pennsylvania and certain of its counties, cities, school districts and
public bodies (most notably the City of Philadelphia) have in the recent past
encountered financial difficulties which have adversely affected their
respective credit standings. Federal budget cuts have placed additional
financial burdens on state and local governments. Such difficulties could affect
outstanding obligations of such entities, including obligations held by the
Fund. Financial conditions in Pennsylvania during the fiscal years 1990 through
1994 were distinguished by slow economic growth and a rapid expansion of the
costs of certain governmental programs that together produced a significant
stress on the Commonwealth's budget. Although economic conditions have recently
improved, Pennsylvania's growth rate still lags the national averages.
Employment growth in Pennsylvania has shifted to the trade and services sector,
with losses in more high-paying manufacturing jobs. The Fund monitors these
developments and takes them into consideration in managing its portfolio.
See Part B for a more detailed discussion of the risks attendant to
Pennsylvania obligations.
* * *
Part B sets forth other more specific investment restrictions and
descriptions of Moody's and S&P ratings. A brief discussion of those factors
that materially affected the Fund's performance during its most recently
completed fiscal year appears in the Fund's Annual Report.
-12-
<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information
Literature
Price, Yield and
Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing
Regular Investment
Accounts and
Retirement
Plan Accounts
Wire Investments
Wire Liquidations
Telephone Liquidations
Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your account,
the Fund, the various service features and other funds in the Delaware Group.
Performance Information
During business hours, you can call the Investor Information Center for
current yield information. Current yield and total return information may also
be included in advertisements and information given to shareholders. Yields are
computed on an annual basis over a 30-day period.
Delaphone Service
Delaphone is an account inquiry service for investors with Touch-Tone(R)
phone service. It enables you to get information on your account faster than the
mailed statements and confirmations. Delaphone also provides current performance
information on the Fund, as well as other funds in the Delaware Group. Delaphone
is available seven days a week, 24 hours a day.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
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<PAGE>
Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations.
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
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<PAGE>
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of the other funds in the Delaware Group, subject to
certain exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to have amounts in your account automatically invested in
shares of other funds in the Delaware Group. Investments under this feature are
exchanges and are therefore subject to the same conditions and limitations as
other exchanges of Class A, Class B and Class C Shares. See Redemption and
Exchange.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature allows
you to combine the value of your current holdings of Class A Shares, Class B
Shares and Class C Shares of the Fund with the dollar amount of new purchases of
Class A Shares to qualify for a reduced front-end sales charge on such purchases
of Class A (PA-ABC) Shares. Under the Combined Purchases Privilege, you may also
include certain shares that you own in other funds in the Delaware Group. See
Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced front-end
sales charge on purchases of Class A Shares by aggregating certain of your
purchases of Delaware Group fund shares over a 13-month period. See Classes of
Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds from
a redemption of Class A Shares within one year of the date of the redemption,
without paying a front-end sales charge. See Part B.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
you, working with a professional financial adviser, the ability to more easily
design and maintain investments in a diversified selection of Delaware Group
mutual funds. The Asset Planner service offers a choice of four predesigned
allocation strategies (each with a different risk/reward profile) made up of
separate investments in predetermined percentages of Delaware Group funds. With
the guidance of a financial adviser, you may also tailor an allocation strategy
that meets your personal needs and goals. See How to Buy Shares.
MoneyLine Direct Deposit Service
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may choose
the MoneyLine Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. Your funds will normally be credited to your bank
account two business days after the payment date. There are no fees for this
service. See Systematic Withdrawal Plans under Redemption and Exchange. You can
initiate the MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If your name and address are not identical to the name and address on
your Fund account, you must have your signature guaranteed.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. The Fund's fiscal year ends on the last
day of February.
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<PAGE>
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net asset
value per share, subject to a sales charge which may be imposed, at the election
of the purchaser, at the time of purchase for Class A Shares ("front-end sales
charge alternative"), or on a contingent deferred basis for Class B Shares
("deferred sales charge alternative") or Class C Shares ("level sales charge
alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares. Class A Shares incur a sales charge when
they are purchased but generally are not subject to any sales charge when they
are redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to
a maximum of .30% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See Front-End
Sales Charge Alternative - Class A Shares, below. See also Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value and Distribution (12b-1) and Service.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when are purchased, but are subject to a contingent deferred sales charge if
they are redeemed within six years of purchase. Class B Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for approximately eight years after purchase. Class B Shares permit
all of the investor's dollars to work from the time the investment is made. The
higher 12b-1 Plan expenses paid by Class B Shares will cause such shares to have
a higher expense ratio and to pay lower dividends than Class A Shares. At the
end of approximately eight years after purchase, Class B Shares are
automatically converted into Class A Shares of the Fund. See Automatic
Conversion of Class B Shares, below.
Class C Shares. An investor who elects the level sales charge alternative
acquires Class C Shares, which do not incur a front-end sales charge when they
are purchased, but are subject to a contingent deferred sales charge if they are
redeemed within 12 months of purchase. Class C Shares are subject to annual
12b-1 Plan expenses of up to a maximum of 1% (.25% of which are service fees to
be paid to the Distributor, dealers or others for providing personal service
and/or maintaining shareholder accounts) of average daily net assets of such
shares for the life of the investment. The higher 12b-1 Plan expenses paid by
Class C Shares will cause such shares to have a higher expense ratio and to pay
lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares do
not convert to another class.
The alternative purchase arrangements described above permit investors to
choose the method of purchasing shares that is most suitable given the amount of
their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. In comparing Class B Shares to Class C
Shares, investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.
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<PAGE>
(PA-ABC)
As an illustration, investors who qualify for significantly reduced
front-end sales charges on purchases of Class A Shares, as described below,
might choose the front-end sales charge alternative because similar sales charge
reductions are not available under either the deferred sales charge alternative
or the level sales charge alternative. Moreover, shares acquired under the
front-end sales charge alternative are subject to annual 12b-1 Plan expenses of
up to .30%, whereas Class B Shares acquired under the deferred sales charge
alternative are subject to annual 12b-1 Plan expenses of up to 1% for
approximately eight years after purchase (see Automatic Conversion of Class B
Shares), and Class C Shares acquired under the level sales charge alternative
are subject to annual 12b-1 Plan expenses of up to 1% for the life of the
investment. However, because front-end sales charges are deducted from the
purchase amount at the time of purchase, investors who buy Class A Shares will
not have their full purchase amount invested initially in the Fund.
Other investors might determine it to be more advantageous to purchase
Class B Shares and have all their money invested initially, even though they
would be subject to a CDSC for up to six years after purchase, and annual 12b-1
Plan expenses of up to 1% until the shares are automatically converted into
Class A Shares. Still other investors might determine it to be more advantageous
to purchase Class C Shares and have all of their funds invested initially,
recognizing that they would be subject to a CDSC for just 12 months after
purchase, but that Class C Shares do not offer a conversion feature, so their
shares would be subject to annual 12b-1 Plan expenses of up to 1% for the life
of the investment. The higher 12b-1 Plan expenses on Class B Shares and Class C
Shares will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money.
Prospective investors should refer to Appendix A to this Prospectus for
an illustration of the potential effect that each of the purchase options may
have on a long-term shareholder's investment.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, the Distributor and others will be paid, in the
case of the Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares and the Class C Shares,
from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred
upon redemption. Financial advisers may receive different compensation for
selling Class A, Class B and Class C Shares. Investors should understand that
the purpose and function of the respective 12b-1 Plans and the CDSCs applicable
to Class B Shares and Class C Shares are the same as those of the 12b-1 Plan and
the front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
12b-1 Distribution Plans - Class A, Class B and Class C Shares.
Dividends paid on Class A, Class B and Class C Shares, to the extent any
dividends are paid, 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 additional amount
of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will be
borne exclusively by such shares. See Calculation of Offering Price and Net
Asset Value Per Share.
The NASD has adopted certain rules relating to investment company sales
charges. The Fund and the Distributor intend to operate in compliance with these
rules.
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
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<PAGE>
(PA-ABC)
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
<TABLE>
<CAPTION>
Tax-Free Pennsylvania Fund A Class
- --------------------------------------------------------------------------------------------------------------------------
Front-End Sales Charge as % of Dealer's
Commission***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.96% 4.00%
$100,000 but under $250,000 3.75 3.90 3.00
$250,000 but under $500,000 2.50 2.60 2.00
$500,000 but under $1,000,000* 2.00 2.01 1.60
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.
** Based on the net asset value per share of the Class A Shares as of the
end of the Fund's most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of the
front-end sales charge shown above. In addition, certain dealers who
enter into an agreement to provide extra training and information on
Delaware Group products and services and who increase sales of Delaware
Group funds may receive an additional commission of up to .15% of the
offering price. Dealers who receive 90% or more of the sales charge may
be deemed to be underwriters under the Securities Act of 1933.
-------------------------------------------------------------------------
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<PAGE>
For initial purchases of Class A Shares of $1,000,000 or more, a dealer's
commission may be paid by the Distributor to financial advisers through whom
such purchases are made in accordance with the following schedule:
Dealer's
Commission
--------------
(as a percent-
Amount age of amount
of Purchase purchased)
- -----------
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of the Class A Shares
of the Fund. Financial advisers also may be eligible for a dealer's commission
in connection with certain purchases made under a Letter of Intention or
pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for payment
of the dealer's commission, unless a dealer's commission or similar payment has
not been previously paid on the assets being exchanged. The schedule and program
for payment of the dealer's commission are subject to change or termination at
any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of Class
B Shares and/or Class C Shares of the Fund and shares of the other funds in the
Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
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<PAGE>
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under the
Delaware Group Dividend Reinvestment Plan and, under certain circumstances, the
Exchange Privilege and the 12-Month Reinvestment Privilege. See The Delaware
Difference and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by current and
former officers, trustees and employees (and members of their families) of the
Manager, any affiliate, any of the funds in the Delaware Group, certain of their
agents and registered representatives and employees of authorized investment
dealers and by employee benefit plans for such entities. Individual purchases,
including those in retirement accounts, must be for accounts in the name of the
individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within six
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other redemption charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager or any of its affiliates may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs.
Class A Shares of the Fund may be purchased at net asset value by any
investor within 90 days after a redemption of shares from a fund outside the
Delaware Group of funds provided that: 1) the redeemed shares were purchased no
more than five years before the proposed purchase of Class A Shares of the Fund;
and 2) a front-end sales charge was paid in connection with the purchase of the
redeemed shares or a contingent deferred sales charge was paid upon their
redemption.
Investors who held shares in any class of any Delaware Group fund as of
December 1, 1995, may currently purchase Class A Shares at net asset value
through the Delaware Group Asset Planner service if such shares are being
purchased with proceeds from the redemption of shares of a fund (other than a
money market fund) outside of the Delaware Group of funds. The Investment
Application and check for such a transaction should note that the investment is
being made under the "NAV/Asset Planner Accommodation Program." Prior notice
will be given should this program be discontinued. See Delaware Group Asset
Planner under How to Buy Shares.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. As discussed below, however, Class B Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within six years of purchase, a
CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for the Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
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Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class B Shares
described in this Prospectus, even after exchange. Such CDSC schedule may be
higher than the CDSC schedule relating to the Class B Shares acquired as a
result of the exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the Fund will invest the full amount of the
investor's purchase payment. The Distributor currently anticipates compensating
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, however, Class C Shares are subject to annual 12b-1 Plan
expenses and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B
Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price. Nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of the Class B Shares or the Class C Shares of the Fund,
even if those shares are later exchanged for shares of another Delaware Group
fund. In the event of an exchange of the shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares that
were acquired in the exchange.
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The following table sets forth the rates of the CDSC for Class B Shares
of the Fund:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
- ------------------------ -------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which the Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of .30% of
average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B Shares,
it will be assumed that shares held for more than six years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
12b-1 Distribution Plans - Class A, Class B and Class C Shares
Under the distribution plans adopted by the Fund in accordance with Rule
12b-1 under the 1940 Act, the Fund is permitted to pay the Distributor annual
distribution fees of up to .30% of the average daily net assets of the Class A
Shares, and 1% of the average daily net assets of each of the Class B Shares and
the Class C Shares. These fees, which are payable monthly, compensate the
Distributor for providing distribution and related services and bearing certain
expenses of each of the Classes. The 12b-1 Plans applicable to Class B Shares
and the Class C Shares are designed to permit an investor to purchase these
shares through dealers or brokers without paying a front-end sales charge while
enabling the Distributor to compensate dealers and brokers for the sale of such
shares. For a more detailed discussion of the 12b-1 Plans relating to the Class
A, Class B and Class C Shares, see Distribution (12b-1) and Service under
Management of the Fund.
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Other Payments to Dealers -- Class A, Class B
and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to .25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
Subject to pending amendments to the NASD's Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Rules of Fair Practice will be amended such that
the ability of the Distributor to pay non-cash compensation as described above
will be restricted in some fashion. The Distributor intends to comply with the
NASD's Rules of Fair Practice as they may be amended.
Classes Offered
The following funds currently offer Class A, Class B and Class C Shares:
Delaware Group Delchester High-Yield Bond Fund, Inc., Delaware Group Government
Fund, Inc., Limited-Term Government Fund of Delaware Group Limited-Term
Government Funds, Inc., Delaware Group Cash Reserve, Inc., Tax-Free USA Fund,
Tax-Free Insured Fund and Tax-Free USA Intermediate Fund of Delaware Group
Tax-Free Fund, Inc., Delaware Group DelCap Fund, Inc., Delaware Fund and Devon
Fund of Delaware Group Delaware Fund, Inc., Delaware Group Value Fund, Inc.,
Decatur Income Fund and Decatur Total Return Fund of Delaware Group Decatur
Fund, Inc., Delaware Group Trend Fund, Inc., International Equity Series, Global
Bond Series and Global Assets Series of Delaware Group Global & International
Funds, Inc., and the Fund. In addition, Delaware Group Cash Reserve, Inc. offers
Consultant Class shares.
U.S. Government Money Series of Delaware Group Limited-Term Government
Funds, Inc. and Delaware Group Tax-Free Money Fund, Inc. offer only Class A and
Consultant Class shares.
HOW TO BUY SHARES
Purchase Amounts
The minimum initial purchase is generally $1,000 for each Class.
Subsequent purchases must generally be $100 or more. For purchases under a
Uniform Gifts to Minors Act or Uniform Transfers to Minors Act or through an
Automatic Investing Plan, there is a minimum initial purchase of $250 and a
minimum subsequent purchase of $25. There is a maximum purchase limitation of
$250,000 on each purchase of Class B Shares. For Class C Shares, each purchase
must be in an amount that is less than $1,000,000. An investor may exceed these
maximum purchase limitations by making cumulative purchases over a period of
time. In doing so, an investor should keep in mind that reduced front-end sales
charges are available on investments of $100,000 or more in Class A Shares, and
that Class A Shares (i) are subject to lower annual 12b-1 Plan expenses than
Class B Shares and Class C Shares and (ii) generally are not subject to a CDSC.
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Investing through Your Investment Dealer
You can make a purchase of shares of the Fund through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, we
can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check payable to Tax-Free Pennsylvania Fund A Class, Tax-Free
Pennsylvania Fund B Class or Tax-Free Pennsylvania Fund C Class at 1818 Market
Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to Tax-Free Pennsylvania Fund A Class, Tax-Free Pennsylvania
Fund B Class or Tax-Free Pennsylvania Fund C Class. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from the Fund. Use of this investment
slip can help expedite processing of your check when making additional
purchases. Your investment may be delayed if you send additional purchases by
certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by wire
to CoreStates Bank, N.A., ABA #031000011, account number 0114-2596 (include your
name(s) and your Fund account number in the wire).
1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application to Tax-Free Pennsylvania Fund A Class, Tax-Free Pennsylvania Fund B
Class or Tax-Free Pennsylvania Fund C Class at 1818 Market Street, Philadelphia,
PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset Planner
asset allocation service, you should complete a Delaware Group Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer.
As previously described, the Delaware Group Asset Planner service offers
a choice of four predesigned asset allocation strategies (each with a different
risk/reward profile) in predetermined percentages in Delaware Group funds. Or,
with the help of a financial adviser, you may design a customized asset
allocation strategy.
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The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange, below. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available through the Asset Planner service; however, only shares within the
same class may be used within the same Strategy.
An annual maintenance fee, currently $35 per Strategy, is due at the time
of initial investment and by September 30th of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30th.
See Part B.
Investors will receive a customized quarterly Strategy Report summarizing
all Delaware Group Asset Planner investment performance and account activity
during the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of the Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of the Fund or of any other fund in the Delaware Group. Holders
of Class B Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other Delaware Group
funds. Class B Shares of the Fund and Class C Shares of the Fund acquired by
exchange will continue to carry the CDSC and, in the case of Class B Shares, the
automatic conversion schedule of the fund from which the exchange is made. The
holding period of Class B Shares of the Fund acquired by exchange will be added
to that of the shares that were exchanged for purposes of determining the time
of the automatic conversion into Class A Shares of the Fund.
Permissible exchanges into Class A Shares of the Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Fund will be made without the imposition of a
CDSC by the fund from which the exchange is being made at the time of the
exchange.
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize the Fund to
transfer a designated amount monthly from your checking account to your Fund
account. Shareholders should allow a reasonable amount of time for initial
purchases and changes to these plans to become effective.
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<PAGE>
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your account for you (for example: payroll deduction, pay by phone, annuity
payments). The Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
* * *
Should investments through an Automatic Investing Plan or by direct
deposit be reclaimed or returned for some reason, the Fund has the right to
liquidate your shares to reimburse the government or transmitting bank. If there
are insufficient funds in your account, you are obligated to reimburse the Fund.
3. Wealth Builder Option
You can use the Wealth Builder Option to invest in the Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group, subject to the same conditions and limitations as other exchanges noted
above.
You also may elect to invest in other mutual funds in the Delaware Group
through our Wealth Builder Option through exchanges from your Fund account.
Under this automatic exchange program, you can authorize regular monthly
investments (minimum of $100 per fund) to be liquidated from your Fund account
and invested automatically into an account in one or more Delaware Group funds.
If, in connection with the Wealth Builder Option, you wish to open a new account
in such other fund or funds to receive the automatic investment, such new
account must meet such other fund's minimum initial purchase requirements.
Investments under this option are exchanges and are therefore subject to the
same conditions and limitations as other exchanges noted above.
You can terminate your participation at any time by written notice to the
Fund. See Redemption and Exchange.
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4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your account. Or, you may invest
your distributions in certain other funds in the Delaware Group, subject to the
exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of the Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of the Fund or of other
Delaware Group funds or into Class C Shares of the Fund or of other Delaware
Group funds are also made without any sales charge and will not be subject to a
CDSC if those shares are later redeemed. See Automatic Conversion of Class B
Shares under Classes of Shares for information concerning the automatic
conversion of Class B Shares acquired by reinvesting dividends.
Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Fund. Holders of Class B Shares of the Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
which offer that class of shares (the "Class B Funds"). Similarly, holders of
Class C Shares of the Fund may reinvest their distributions only into Class C
Shares of the funds in the Delaware Group which offer that class of shares (the
"Class C Funds"). See Classes Offered under Classes of Shares for a list of the
funds offering those classes of shares. For more information about
reinvestments, call the Shareholder Service Center.
Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class B and Class
C Shares are determined as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The effective date of a purchase made through an investment dealer is the
date the order is received by the Fund. The effective date of a direct purchase
is the day your wire, electronic transfer or check is received unless it is
received after the time the offering price of shares is determined, as noted
above. Purchase orders received after such time will be effective the next
business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase order. If a purchase
is canceled because your check is returned unpaid, you are responsible for any
loss incurred. The Fund can redeem shares from your account(s) to reimburse
itself for any loss, and you may be restricted from making future purchases in
any of the funds in the Delaware Group. The Fund reserves the right to reject
purchase orders paid by third-party checks or checks that are not drawn on a
domestic branch of a United States financial institution. If a check drawn on a
foreign financial institution is accepted, you may be subject to additional bank
charges for clearance and currency conversion.
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The Fund also reserves the right, following shareholder notification, to
charge a service fee on accounts that have remained below the minimum stated
account balance for a period of three or more consecutive months. Holders of
such accounts may be notified of their insufficient account balance and advised
that they have until the end of the current calendar quarter to raise their
balance to the stated minimum. If the account has not reached the minimum
balance requirement by that time, the Fund will charge a $9 fee for that quarter
and each subsequent calendar quarter until the account is brought up to the
minimum balance. The service fee will be deducted from the account during the
first week of each calendar quarter for the previous quarter, and will be used
to help defray the cost of maintaining low-balance accounts. No fees will be
charged without proper notice and no CDSC will apply to such assessments.
The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other tax-advantaged funds, equity funds, bond funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each fund
and all exchanges of shares constitute taxable events. See Taxes. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
the Delaware Group will best meet your changing objectives and the consequences
of any exchange transaction. You may also call the Delaware Group directly for
fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
Redemption or exchange requests received in good order after the time the
offering price of shares is determined, as noted above, will be processed on the
next business day. See Purchase Price and Effective Date under How to Buy
Shares. A shareholder submitting a redemption request may indicate that he or
she wishes to receive redemption proceeds of a specific dollar amount. In the
case of such a request, and in the case of certain redemptions from retirement
plan accounts, the Fund will redeem the number of shares necessary to deduct the
applicable CDSC in the case of Class B or Class C Shares or, if applicable, the
Limited CDSC in the case of Class A Shares and tender to the shareholder the
requested amount, assuming the shareholder holds enough shares in his or her
account for the redemption to be processed in this manner. Otherwise, the amount
tendered to the shareholder upon redemption will be reduced by the amount of the
applicable CDSC or Limited CDSC.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Shareholder Service Center at 800- 523-1918. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
The Fund will honor written redemption requests of shareholders who
recently purchased shares by check, but will not mail the proceeds until it is
reasonably satisfied that the purchase check has cleared, which may take up to
15 days from the purchase date. Telephone redemptions for shares recently
purchased by check will not be honored unless the Fund is reasonably satisfied
that the purchase check has cleared. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. The Fund reserves the right to reject a
written or telephone redemption request or delay payment of redemption proceeds
if there has been a recent change to the shareholder's address of record.
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There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for transfers involving assets that were
previously invested in a fund with a front-end sales charge and/or transfers
involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for Class B Shares of other Class B Funds or Class C Shares
of other Class C Funds, as applicable (in each case, "New Shares"), will not be
subject to a CDSC that might otherwise be due upon redemption of the Original
Shares. However, such shareholders will continue to be subject to the CDSC and,
in the case of Class B Shares, the automatic conversion schedule of the Original
Shares as described in this Prospectus and any CDSC assessed upon redemption
will be charged by the Fund. In an exchange of Class B Shares, the Fund's CDSC
schedule may be higher than the CDSC schedule relating to the New Shares
acquired as a result of the exchange. For purposes of computing the CDSC that
may be payable upon a disposition of the New Shares, the period of time that an
investor held the Original Shares is added to the period of time that an
investor held the New Shares. With respect to Class B Shares, the automatic
conversion schedule of the Original Shares may be longer than that of the New
Shares. Consequently, an investment in New Shares by exchange may subject an
investor to the higher 12b-1 fees applicable to Class B Shares of the Fund for a
longer period of time than if the investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund or its agent.
Written Redemption
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Fund requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day, but no later than seven
days, after receipt of your redemption request. If your Class A Shares are in
certificate form, the certificate must accompany your request and also be in
good order. Certificates are issued for Class A Shares only if a shareholder
submits a specific request. Certificates are not issued for Class B Shares or
Class C Shares.
Written Exchange
You may also write to the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in the Delaware Group subject to the same conditions and limitations as
other exchanges noted above.
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Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption--Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are automatically
provided unless you notify the Fund in writing that you do not wish to have such
service available with respect to your account. The Fund reserves the right to
modify, terminate or suspend these procedures upon 60 days' written notice to
shareholders. It may be difficult to reach the Fund by telephone during periods
when market or economic conditions lead to an unusually large volume of
telephone requests.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day, but no later than seven days, after receipt of the request. This service is
only available to individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption. If you ask for a check, it will normally be mailed the next business
day, but no later than seven days, after receipt of your request to your
predesignated bank account. Except for any CDSC which may be applicable to Class
B and Class C Shares and the Limited CDSC which may be applicable to certain
Class A Shares, there are no fees for this redemption method, but the mail time
may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
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If expedited payment by check or wire could adversely affect the Fund,
the Fund may take up to seven days to pay.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or quarterly)
payment. This is particularly useful to shareholders living on fixed incomes,
since it provides them with a stable supplemental amount. With accounts of at
least $5,000, you may elect monthly withdrawals of $25 (quarterly $75) or more.
The Fund does not recommend any particular monthly amount, as each shareholder's
situation and needs vary. Payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine Direct Deposit
Service. Except for the Limited CDSC which may be applicable to Class A Shares
and the CDSC which may be applicable to Class B Shares and Class C Shares as
noted below, there are no fees for this redemption method. See MoneyLine Direct
Deposit Service under The Delaware Difference for more information about this
service.
* * *
Shareholders should not purchase additional shares while participating in
a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission has been
paid on that purchase. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value, below.
The applicable CDSC for Class B Shares and Class C Shares redeemed via a
Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge - Class B Shares and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the Shareholder
Service Center.
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Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at
Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described. See
Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to the
lesser of 1% of: (1) the net asset value at the time of purchase of the Class A
Shares being redeemed; or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of the Class A Shares
even if those shares are later exchanged for shares of another Delaware Group
fund and, in the event of an exchange of Class A Shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of the Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation. All investments made during a
calendar month, regardless of what day of the month the investment occurred,
will age one month on the last day of that month and each subsequent month.
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Waiver of Limited Contingent Deferred Sales Charge -- Class A
Shares The Limited CDSC for Class A Shares on which a
dealer's commission has been paid will be waived in the
following instances: (i) redemptions that result from the
Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the shares held in the
account is less than the then-effective minimum account
size; and (ii) redemptions by the classes of shareholders
who are permitted to purchase shares at net asset value,
regardless of the size of the purchase (see Buying Class A
Shares at Net Asset Value under Classes of Shares).
Waiver of Contingent Deferred Sales Charge --
Class B Shares and Class C Shares
The CDSC on certain redemptions of Class B Shares is waived in connection
with the following redemptions: (i) redemptions that result from the Fund's
right to liquidate a shareholder's account if the aggregate net asset value of
the shares held in the account is less than the then-effective minimum account
size; and (ii) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Internal Revenue Code) of all registered owners occurring after the purchase of
the shares being redeemed.
The CDSC on certain redemptions of Class C Shares is waived in connection
with the following redemptions: (i) redemptions that result from the Fund's
right to liquidate a shareholder's account if the aggregate net asset value of
the shares held in the account is less than the then-effective minimum account
size; and (ii) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Internal Revenue Code) of all registered owners occurring after the purchase of
the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.
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DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly on the first business day
following the end of each month. Payment by check of cash dividends will
ordinarily be mailed within three business days after the payable date. Any
distributions from net realized securities profits will be distributed annually
in the quarter following the close of the fiscal year.
Purchases of shares by wire begin earning dividends when converted into
Federal Funds and available for investment, normally the next business day after
receipt. However, if the Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Purchases by check earn dividends upon conversion to
Federal Funds, normally one business day after receipt.
Each business day, the Fund declares a dividend to all shareholders of
record at the time the offering price of shares is determined. See Purchase
Price and Effective Date under How to Buy Shares. Thus, when redeeming shares,
dividends continue to be credited up to and including the date of redemption.
Each Class will share proportionately in the investment income and
expenses of the Fund, except that the per share dividends from net investment
income on the Class A Shares, the Class B Shares and the Class C Shares will
vary due to the expenses under the 12b-1 Plan applicable to each Class.
Generally, the dividends per share on Class B Shares and Class C Shares can be
expected to be lower than the dividends per share on Class A Shares because the
expenses under the 12b-1 Plans relating to Class B and Class C Shares will be
higher than the expenses under the 12b-1 Plan relating to Class A Shares. See
Distribution (12b-1) and Service under Management of the Fund.
Both dividends and distributions, if any, are automatically reinvested in
your account at net asset value unless you elect otherwise. See The Delaware
Difference for more information on reinvestment options.
If you elect to take your dividends and distributions in cash and such
dividends and distributions are in an amount of $25 or more, you may choose the
MoneyLine Direct Deposit Service and have such payments transferred from your
Fund account to your predesignated bank account. See MoneyLine Direct Deposit
Service under The Delaware Difference for more information about this service.
Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest.
The Fund anticipates that substantially all of its dividends paid to
shareholders will be exempt from federal income tax. For the fiscal year ended
February 29, 1996, the Fund had a capital gain of $13,526,639.
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TAXES
The tax discussion set forth below is included for general information
only. Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in the Fund.
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). As such, the Fund will not be subject to federal income tax, or to
any excise tax, to the extent its earnings are distributed as provided in the
Code. The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any.
The Fund intends to invest a sufficient portion of its assets in
municipal bonds and notes so that it will qualify to pay "exempt-interest
dividends" to shareholders. Such exempt-interest dividends distributed to
shareholders are excluded from a shareholder's gross income for federal tax
purposes. A portion of the Fund's dividends may, however, be derived from income
on "private activity" municipal bonds and therefore may be a preference item
under federal tax law and subject to the federal alternative minimum tax.
To the extent dividends are derived from taxable income on temporary
investments or short-term capital gains, they are treated as ordinary income,
whether received in cash or in additional shares. In addition, gain from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of the accrued market discount. No portion of the
Fund's distributions will be eligible for the dividends-received deduction for
corporations.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Fund does not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a byproduct of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in the Fund are made
shortly before the record date for a capital gains distribution, a portion of
the investment will be returned as taxable distribution.
Dividends or capital gains which are declared in October, November or
December to shareholders of record in such a month but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared.
The sale of shares of the Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two series or portfolios of a mutual fund). Any loss
incurred on a sale or exchange of the Fund's shares that had been held for six
months or less will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares and will be
disallowed to the extent of exempt-interest dividends paid with respect to such
shares. All or a portion of the sales charge incurred in acquiring Fund shares
will be excluded from the federal tax basis of any of such shares sold or
exchanged within 90 days of their purchase (for purposes of determining gain or
loss upon sale of such shares) if the sale proceeds are reinvested in the Fund
or in another fund in the Delaware Group of funds and a sales charge that would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of
such sales charge excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment.
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Exempt-interest dividends paid by the Fund, although exempt from regular
federal income tax in the hands of a shareholder, are includable in the tax base
for determining the extent to which a shareholder's Social Security benefits
would be subject to federal income tax. Shareholders are required to disclose
their receipt of tax-exempt interest on their federal income tax returns.
The automatic conversion of Class B Shares into Class A Shares at the end
of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.
Interest income derived from Pennsylvania state and municipal obligations
and other qualifying obligations, and U.S. Government obligations, if any, that
are distributed to shareholders will be exempt from Pennsylvania personal income
tax. Should the Fund invest in municipal bonds other than those issued by
Pennsylvania or other exempt issuers, the income distributed from these
investments may be subject to Pennsylvania personal income tax. Shareholders of
the Fund will receive notification from the Fund annually as to the taxability
of such distributions in Pennsylvania. For shareholders who are residents of
Philadelphia, distributions that are derived from interest on Pennsylvania state
and municipal obligations and other qualifying obligations, and U.S. Government
obligations, if any, will be exempt from Philadelphia School District Income
Tax. Distributions designated as capital gain dividends for federal income tax
purposes will also be exempt from the Philadelphia School District Income Tax.
Shares of the Fund will be exempt from Pennsylvania county personal property
tax.
Each year, the Fund will mail to you information on the tax status of the
Fund's dividends and distributions.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Taxes in Part B for additional information on tax matters relating to
the Fund and its shareholders.
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CALCULATION OF OFFERING PRICE
AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced at fair value by an independent pricing
service using methods approved by the Board of Trustees. Short-term investments
having a maturity of less than 60 days are valued at amortized cost, which
approximates market value. All other securities are valued at their fair value
as determined in good faith and in a method approved by the Board of Trustees.
Class A Shares are purchased at the offering price per share, while Class
B Shares and Class C Shares are purchased at the NAV per share. The offering
price per share of Class A Shares consists of the NAV per share next computed
after the order is received, plus any applicable front-end sales charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each Class of the Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that Class. All income earned and expenses incurred by the Fund will be borne on
a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that shares of the Classes will bear only those 12b-1 Plan expenses
payable under their respective Plans. Due to the specific distribution expenses
and other costs that will be allocable to each Class, the dividends paid to each
Class of the Fund may vary. However, the NAV per share of each class is expected
to be equivalent.
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MANAGEMENT OF THE FUND
Trustees
The business and affairs of the Fund are managed under the direction of
its Board of Trustees. Part B contains additional information regarding the
trustees and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On February 29, 1996, the Manager and its affiliate,
Delaware International Advisers Ltd., were supervising in the aggregate more
than $29 billion in assets in the various institutional (approximately
$18,852,783,000) and investment company (approximately $10,645,322,000)
accounts.
The Manager is an indirect, wholly-owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly-owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now wholly-owned subsidiaries, and subject to
the ultimate control, of Lincoln National. Lincoln National, with headquarters
in Fort Wayne, Indiana, is a diversified organization with operations in many
aspects of the financial services industry, including insurance and investment
management. In connection with the merger, a new Investment Management Agreement
between the Fund and the Manager was executed following shareholder approval.
The Manager manages the Fund's portfolio and makes investment decisions
which are implemented by the Fund's Trading Department. The Manager also
administers the Fund's affairs and pays the salaries of all the trustees,
officers and employees of the Fund who are affiliated with the Manager. The
annual compensation paid by the Fund for investment management services is equal
to .60% on the first $500 million of average daily net assets of the Fund, .575%
on the next $250 million and .55% on the average daily net assets in excess of
$750 million, less all trustees' fees paid to the unaffiliated trustees.
Investment management fees paid by the Fund for the fiscal year ended February
29, 1996 were 0.58% of average daily net assets.
J. Michael Pokorny has primary responsibility for making day-to-day
investment decisions for the Fund. He has been the Fund's senior portfolio
manager since 1980. A graduate of William and Mary, Mr. Pokorny joined Delaware
Group in 1978 and has over 30 years of fixed income experience.
In making investment decisions for the Fund, Mr. Pokorny regularly
consults with Patrick P. Coyne, Paul E. Suckow and other members of Delaware's
fixed income department. Mr. Coyne has worked closely with Mr. Pokorny since
1990 when he joined Delaware Group's fixed income department. He is a graduate
of Harvard University with an MBA from the University of Pennsylvania's Wharton
School. Mr. Suckow is Delaware's Chief Investment Officer for fixed income. He
is a graduate of Bradley University with an MBA from Western Illinois
University. Mr. Suckow was a fixed income portfolio manager at Delaware Group
from 1981 to 1985. He returned to Delaware in 1993 after eight years with
Oppenheimer Management Corporation.
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Portfolio Trading Practices
The Fund may sell securities without regard to the length of time they
have been held. Trading will be undertaken principally to achieve the Fund's
objective in light of expected changes in interest rates. The degree of trading
activity will affect brokerage costs of the Fund and may affect taxes payable by
the Fund's shareholders. Given the Fund's investment objective, its annual
portfolio turnover rate is not expected to exceed 100%. During the past two
fiscal years, the Fund's portfolio turnover rates were approximately 18% for
1995 and 25% for 1996.
The Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, the Fund may consider a
broker/dealer's sales of Fund shares in placing portfolio orders and may place
orders with broker/dealers that have agreed to defray certain Fund expenses such
as custodian fees.
Performance Information
From time to time, the Fund may quote yield or total return performance
of its Classes in advertising and other types of literature.
The current yield for each of the Classes is calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period. The Fund may also publish a tax-equivalent yield
concerning a Class based on federal and, if applicable, state tax rates, which
demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to such Class' yield.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year periods, as relevant. The Fund may also advertise
aggregate and average total return information concerning a Class over
additional periods of time. In addition, the Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return would be more
favorable than total return information that includes deductions of the maximum
front-end sales charge or any applicable CDSC.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not a guarantee of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), serves as the national distributor for
the Fund under a Distribution Agreement dated April 3, 1995, as amended on
November 29, 1995.
The Fund has adopted a separate distribution plan under Rule 12b-1 for
each of the Class A Shares, the Class B Shares and the Class C Shares (the
"Plans"). Each Plan permits the Fund to pay the Distributor from the assets of
the respective Classes a monthly fee for the Distributor's services and expenses
in distributing and promoting sales of shares. These expenses include, among
other things, preparing and distributing advertisements, sales literature, and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, holding special promotions for specified periods of time,
and paying distribution and maintenance fees to brokers, dealers and others. In
connection with the promotion of Class A, Class B and Class C Shares, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, and reimburse dealers for expenses incurred in
connection with preapproved seminars, conferences and advertising. The
Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning each Class and increase sales of each Class. In
addition, the Fund may make payments from the assets of the respective Class
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directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
the Fund.
The 12b-1 Plan expenses relating to each of the Class B Shares and the
Class C Shares are also used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by the Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed .30% of the
Class A Shares' average daily net assets in any year, and 1% (.25% of which are
service fees to be paid by the Fund to the Distributor, dealers and others, for
providing personal service and/or maintaining shareholder accounts) of the Class
B Shares' and the Class C Shares' average daily net assets in any year. The
Class A, Class B and Class C Shares will not incur any distribution expenses
beyond these limits, which may not be increased without shareholder approval.
The Distributor may, however, incur additional expenses and make additional
payments to dealers from its own resources to promote the distribution of shares
of the Classes.
Effective June 1, 1992, the Board of Trustees had determined that the
annual fee, payable on a monthly basis, under the Plan relating to the Class A
Shares will be equal to the sum of: (i) the amount obtained by multiplying .30%
by the average daily net assets represented by the Class A Shares that were or
are acquired by shareholders on or after June 1, 1992, and (ii) the amount
obtained by multiplying .10% by the average daily net assets represented by the
Class A Shares that were acquired before June 1, 1992. While this is the method
for calculating the Class A Shares' 12b-1 expense, such expense is a Class A
Shares' expense so that all shareholders of the Class A Shares, regardless of
when they purchased their shares, will bear 12b-1 expenses at the same per share
rate. As Class A Shares are sold on or after June 1, 1992, the initial rate of
at least .10% will increase over time. Thus, as the proportion of Class A Shares
purchased on or after June 1, 1992 to Class A Shares outstanding prior to June
1, 1992 increases, the expenses attributable to payments under such Plan will
also increase (but will not exceed .30% of average daily net assets). While this
describes the current formula for calculating the expenses which will be payable
under the Plan relating to the Class A Shares, such Plan permits the Class A
Shares to pay a full .30% on all assets at any time following Board approval.
While payments pursuant to the Plans may not exceed .30% annually with
respect to the Class A Shares and 1% annually with respect to each of the Class
B Shares and the Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The monthly fees paid to the Distributor are subject to the
review and approval of the Fund's unaffiliated trustees who may reduce the fees
or terminate the Plans at any time.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund under
an Agreement dated June 29, 1988. The trustees annually review service fees paid
to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.
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Expenses
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The ratios of expenses to
average daily net assets of Class A Shares and Class B Shares for the fiscal
year ended February 29, 1996 were 0.90% and 1.71%, respectively. The Fund
anticipates that the expense ratio for Class C Shares will be approximately
equal to the expense ratio for Class B Shares. The ratio of each Class reflects
the impact of its 12b-1 Plan.
Shares
The Fund is an open-end management investment company. The Fund's
portfolio of assets is nondiversified as defined by the 1940 Act. Commonly known
as a mutual fund, the Fund is a Pennsylvania business trust organized on
November 23, 1976. The Fund has an unlimited authorized number of shares of
beneficial interest with no par value per share allocated to each Class. All
shares have equal voting rights, except as noted below, and are equal in all
other respects.
Shares of each Class represent a proportionate interest in the assets of
the Fund and have the same voting and other rights and preferences, except that,
as a general matter, the shareholders of Class A Shares, Class B Shares and
Class C Shares may vote only on matters affecting the 12b-1 Plan that relates to
the class of shares that they hold. However, Class B Shares may vote on any
proposal to increase materially the fees to be paid by the Fund under the 12b-1
Plan relating to Class A Shares.
All Fund shares have noncumulative voting rights which means that the
holders of more than 50% of the Fund's shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so.
Prior to May 2, 1994, Tax-Free Pennsylvania Fund A Class was known as
Tax-Free Pennsylvania Fund.
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ADDITIONAL INFORMATION ON
INVESTMENT POLICIES AND RISK
CONSIDERATIONS
Repurchase Agreements and Restricted Securities
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers such as the Fund. The Fund may invest no more than 10% of
the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Trustees has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of the Fund's 10% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 10% limit on investments in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.
Certificates of Participation
Certificates of Participation, which are widely used by state and local
governments to finance the purchase of property, function much like installment
purchase agreements. For example, a COP may be created when long-term lease
revenue bonds are issued by a governmental corporation to pay for the
acquisition of property or facilities which are then leased to a municipality.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. The lessor is, in effect, a lender secured by the property being
leased. This lease format is generally not subject to constitutional limitations
on the issuance of state debt and COPs enable a governmental issuer to increase
government liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that the lease
which is the subject of the transaction typically contains a "nonappropriation"
or "abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the municipality
may terminate the lease without penalty if the municipality's appropriating body
does not allocate the necessary funds. Substantially all of the COPs purchased
by the Fund are expected to contain a "nonappropriation" or "abatement" clause.
Local administrations, being faced with increasingly tight budgets, therefore,
have more discretion to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate sufficient monies to
make lease payments, the lessor, or its agent, is typically entitled to
repossess the property. In most cases, however, the private sector value of the
property will be less than the amount the government lessee was paying.
While the risk of nonappropriation is inherent to COP financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories of Moody's, S&P or Fitch
Investors Service, Inc., or in unrated COPs believed to be of comparable
quality. Criteria considered by the rating agencies and the Manager in assessing
such risk include the issuing municipality's credit rating, the importance of
the leased property to the municipality and the term of the lease compared to
the useful life of the leased property.
-43-
<PAGE>
PA-CHT
APPENDIX A
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+
2 10,905 11,300 11,300
3 11,669 12,012 12,012
4 12,485 12,768 12,768
5 13,359 13,573 13,573
6 14,294 14,428 14,428
7 15,295 15,337 15,337
8 16,366+ 16,303 16,303
9 17,511 17,444* 17,330
10 18,737 18,665* 18,442
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------- ----------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,630 10,630
2 10,905 11,300 11,300 10,905 11,300 11,300
3 11,669 11,712 12,012+ 11,669 12,012 12,012
4 12,485 12,768 12,768
5 13,359 13,373 13,573+
6
7
8
9
10
</TABLE>
* This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.
<PAGE>
<TABLE>
<CAPTION>
$250,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+
2 279,069 282,492 282,492
3 298,604 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 339,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
----------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 292,789 300,289+ 298,064 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 334,318 339,318
6
7
8
9
10
</TABLE>
* This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.
Assumes a hypothetical return for Class A of 7% per year, a hypothetical return
for Class B of 6.3% for years 1-8 and 7% for years 9-10, and a hypothetical
return for Class C of 6.3% per year.
Hypothetical returns vary due to the different expense structure for each Class
and do not represent actual performance.
Class A purchase subject to appropriate sales charge breakpoint (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).
Class B purchase assessed appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1%
in years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which Class offers the greater return potential
based on the investment amount, the holding period and the expense structure of
each Class.
<PAGE>
(SAI-PA/PART B)
-----------------------------------
TAX-FREE PENNSYLVANIA FUND
-----------------------------------
The Delaware Group includes A CLASS
funds with a wide range of investment -----------------------------------
objectives. Stock funds, income funds, B CLASS
tax-free funds, money market funds, -----------------------------------
global and international funds and C CLASS
closed-end equity funds give investors ===================================
the ability to create a portfolio that CLASSES OF TAX-FREE PENNSYLVANIA
fits their personal financial goals. FUND
For more information, contact your -----------------------------------
financial adviser or call Delaware
Group at 800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc. PART B
One Commerce Square
Philadelphia, PA 19103 STATEMENT OF
NATIONAL DISTRIBUTOR ADDITIONAL INFORMATION
Delaware Distributors, L.P.
1818 Market Street -----------------------------------
Philadelphia, PA 19103 APRIL 29, 1996
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York DELAWARE
60 Wall Street GROUP
New York, NY 10260 ---------
<PAGE>
(SAI-PA/PART B)
- ------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
APRIL 29, 1996
- ------------------------------------------------------------------------------
TAX-FREE PENNSYLVANIA FUND
- ------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- ------------------------------------------------------------------------------
For Prospectus and Performance: Nationwide 800-523-4640
Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Cover Page
- -------------------------------------------------------------------------------
Investment Objective and Policy
- -------------------------------------------------------------------------------
Performance Information
- -------------------------------------------------------------------------------
Trading Practices and Brokerage
- -------------------------------------------------------------------------------
Purchasing Shares
- -------------------------------------------------------------------------------
Investment Plans
- -------------------------------------------------------------------------------
Determining Offering Price and
Net Asset Value
- -------------------------------------------------------------------------------
Redemption and Repurchase
- -------------------------------------------------------------------------------
Dividends and Distributions
- -------------------------------------------------------------------------------
Taxes
- -------------------------------------------------------------------------------
Investment Management Agreement
- -------------------------------------------------------------------------------
Officers and Trustees
- -------------------------------------------------------------------------------
Exchange Privilege
- -------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------
Appendix A--Description of Ratings
- -------------------------------------------------------------------------------
Appendix B--Tax Exempt vs Taxable Yields
- -------------------------------------------------------------------------------
Appendix C--Investing in Pennsylvania Tax-Exempt Obligations
- -------------------------------------------------------------------------------
Financial Statements
- -------------------------------------------------------------------------------
-1-
<PAGE>
(SAI-PA/PART B)
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus of
DMC Tax-Free Income Trust-Pennsylvania (which is known and does business as
Tax-Free Pennsylvania Fund) (the "Fund") dated April 29, 1996, as it may be
amended from time to time. It should be read in conjunction with the Fund's
Prospectus. Part B is not itself a prospectus but is, in its entirety,
incorporated by reference into the Prospectus. The Fund's Prospectus may be
obtained by writing or calling your investment dealer or by contacting the
Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"),
1818 Market Street, Philadelphia, PA 19103.
The Fund offers three classes of shares (individually, a "Class" and
collectively, the "Classes"): Tax-Free Pennsylvania Fund A Class ("Class A
Shares"), Tax-Free Pennsylvania Fund B Class ("Class B Shares") and Tax-Free
Pennsylvania Fund C Class ("Class C Shares"). Class B Shares and Class C Shares
may be purchased at a price equal to the next determined net asset value per
share. Class A Shares may be purchased at the public offering price, which is
equal to the next determined net asset value per share, plus a front-end sales
charge. Class A Shares are subject to a maximum front-end sales charge of 4.75%
and annual 12b-1 Plan expenses of up to .30%. Class B Shares are subject to a
contingent deferred sales charge ("CDSC") which may be imposed on redemptions
made within six years of purchase and annual 12b-1 Plan expenses of up to 1%
which are assessed against Class B Shares for approximately eight years after
purchase. See Automatic Conversion of Class B Shares under Classes of Shares in
the Classes' Prospectus. Class C Shares are subject to a CDSC which may be
imposed on redemptions made within 12 months of purchase and annual 12b-1 Plan
expenses of up to 1%, which are assessed against Class C Shares for the life of
the investment. All references to "shares" in this Part B refer to all Classes
of shares of the Fund, except where noted.
-2-
<PAGE>
INVESTMENT OBJECTIVE AND POLICY
The objective of the Fund is to seek as high a level of current
interest income exempt from federal income tax and certain Pennsylvania state
and local taxes as is available from municipal bonds and as is consistent with
preservation of capital. There is no assurance that this objective can be
achieved. This objective is a matter of fundamental policy and may not be
changed without shareholder approval.
The Fund seeks to achieve this objective by investing its assets in a
nondiversified portfolio of debt obligations issued by or on behalf of the
Commonwealth of Pennsylvania and its political subdivisions, agencies,
authorities and instrumentalities, certain interstate agencies, Puerto Rico, the
Virgin Islands and certain other territories and qualified obligations of the
United States that pay interest income which, in the opinion of counsel, is
exempt from federal income taxes and from certain Pennsylvania state and local
taxes. However, the Fund may invest not more than 20% of its assets in debt
obligations issued by other states.
The Fund intends to invest at least 80% of its net assets in
Pennsylvania tax-exempt debt obligations which are rated by Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") at the time
of purchase as being within their top four grades, or which are unrated but
considered by Delaware Management Company, Inc. (the "Manager") to be comparable
in quality to the top four grades. The fourth grade is considered medium grade
and may have speculative characteristics. The Fund may also invest up to 20% of
its net assets in securities with grades lower than the top four grades of S&P
or Moody's, and in comparable unrated securities. These securities are
speculative and may involve greater risk and have higher yields.
See Appendix A for a description of S&P and Moody's ratings.
The Fund may invest more than 25% of its assets in municipal
obligations relating to similar types of projects or with other similar
economic, business or political characteristics (such as bonds of housing
finance agencies or health care facilities). In addition, the Fund may invest
more than 25% of its assets in industrial development bonds or pollution control
bonds which may be backed only by the assets and revenues of a nongovernmental
user.
The Fund may invest in restricted securities, including unregistered
securities eligible for resale without registration pursuant to Rule 144A ("Rule
144A Securities") under the Securities Act of 1933 (the "1933 Act"). Rule 144A
Securities may be freely traded among qualified institutional investors without
registration under the 1933 Act.
Investing in Rule 144A Securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a Rule 144A Security, however, the Board of Trustees and the
Manager will continue to monitor the liquidity of that security to ensure that
the Fund has no more than 10% of its net assets in illiquid securities.
The Fund may also invest in "when-issued securities" for which the Fund
will maintain a segregated account containing cash or high-grade debt
obligations which it will mark to market daily. When-issued securities involve
commitments to purchase new issues of securities which are offered on a
when-issued basis which usually involve delivery and payment up to 45 days after
the date of transaction. During this period between the date of commitment and
the date of delivery, the Fund does not accrue interest on the investment, but
the market value of the bonds could fluctuate. This would result in the Fund
having unrealized appreciation or depreciation which would affect the net asset
value of its shares.
The Fund will invest its assets in securities of varying maturities,
without limitation, depending on market conditions. Typically, the remaining
maturity of municipal bonds will range between five and 30 years. From time to
time, the Fund may also invest in short-term, tax-free instruments such as
tax-exempt commercial paper and general obligation, revenue and project notes.
The Fund may also invest in variable and floating rate demand obligations
(longer-term instruments with an interest rate that fluctuates and a demand
-3-
<PAGE>
(SAI-PA/PART B)
feature that allows the holder to sell the instruments back to the issuer from
time to time) but does not intend to invest more than 5% of its net assets in
these instruments. The Manager will attempt to adjust the maturity structure of
the portfolio to provide a high level of tax-exempt income consistent with
preservation of capital.
Under abnormal conditions, the Fund may invest in taxable instruments
for temporary defensive purposes. These would include obligations of the U.S.
Government, its agencies and instrumentalities.
The principal risk to which the Fund is subject is price fluctuation
due to changes in interest rates caused by government policies and economic
factors which are beyond the control of the investment manager. In addition,
although some municipal bonds are government obligations backed by the issuer's
full faith and credit, others are only secured by a specific revenue source and
not by the general taxing power. The Fund will invest in both types.
The Fund is registered as a nondiversified investment company. The Fund
has the ability to invest as much as 50% of its assets in as few as two issuers
provided that no single issuer accounts for more than 25% of the portfolio. The
remaining 50% must be diversified so that no more than 5% is invested in the
securities of a single issuer. Because the Fund may invest its assets in fewer
issuers, the value of Fund shares may fluctuate more rapidly than if the Fund
were fully diversified. In the event the Fund invests more than 5% of its assets
in a single issuer, it would be affected more than a fully-diversified fund if
that issuer encounters difficulties in satisfying its financial obligations. The
Fund may invest without limitation in U.S. Government and government agency
securities backed by the U.S. Government or its agencies or instrumentalities.
The Fund will invest in securities for income earnings rather than
trading for profit. The Fund will not vary portfolio investments, except to:
1. eliminate unsafe investments and investments not consistent with
the preservation of the capital or the tax status of the investments of the
Fund;
2. honor redemption orders, meet anticipated redemption
requirements, and negate gains from discount purchases;
3. reinvest the earnings from securities in like securities; or
4. defray normal administrative expenses.
Repurchase Agreements--While the Fund is permitted to do so, it
normally does not invest in repurchase agreements, except under some
circumstances to invest cash balances.
The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the Investment Company Act of
1940 (the "1940 Act") to allow the Delaware Group funds jointly to invest cash
balances. The Fund may invest cash balances in a joint repurchase agreement in
accordance with the terms of the Order and subject generally to the conditions
described below.
A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the purchaser's holding period. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Fund, if any, would be the difference between the repurchase price and the
market value of the security. The Fund will limit its investments in repurchase
agreements to those which the Manager, under the guidelines of the Board of
Trustees, determines to present minimal credit risks and which are of high
quality. In addition, the Fund must have collateral of at least 100% of the
repurchase price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis.
Municipal Bonds
The term "municipal bonds" is generally understood to include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal bonds may be issued
include the refunding of outstanding obligations, obtaining funds for general
-4-
<PAGE>
(SAI-PA/PART B)
operating expenses and the obtaining of funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide privately-operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste
disposals. Such obligations are included within the term "municipal bonds"
provided that the interest paid thereon qualifies as exempt from federal income
tax in the opinion of bond counsel to the issuer. In addition, the interest paid
on industrial development bonds, the proceeds from which are used for the
construction, equipment, repair or improvement of privately-operated industrial
or commercial facilities, may be exempt from federal income tax, although
current federal tax laws place substantial limitations on the size of such
issues.
The practice has developed among municipal issuers of having their
issues insured by various companies. In particular, the Municipal Bond Insurance
Association ("MBIA") and its affiliate, Municipal Bond Investors Assurance
Corporation ("MBIA Corp."), Financial Guaranty Insurance Company ("FGIC") and
the AMBAC Indemnity Corporation ("AMBAC") are presently insuring a great many
issues. It is expected that other insurance associations or companies will enter
this field, and that a substantial portion of municipal bond issues available
for investment by companies such as the Fund will be insured. Accordingly, from
time to time a substantial portion of the Fund's assets may be invested in
municipal bonds insured as to payment of principal and interest when due by a
single insurance company. The Manager will review the creditworthiness of the
issuer and its ability to meet its obligations to pay interest and repay
principal and not the creditworthiness of the private insurer. However, since
insured obligations are typically rated in the top grades by Moody's and S&P,
most insured obligations will qualify for investment under the Fund's ratings
standards discussed above. If the issuer defaults on payment of interest or
principal, the trustee and/or payment agent of the issuer will notify the
insurer who will make payment to the bondholders. There is no assurance that any
insurance company will meet its obligations. The Fund believes such investments
are consistent with its fundamental investment policies and restrictions.
The two principal classifications of municipal bonds are "general
obligation" 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 only 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. Tax-exempt industrial development bonds are in most
cases revenue bonds and do not generally carry the pledge of the credit of the
issuer of such bonds. There are, of course, variations in the security of
municipal bonds, both within a particular classification and between
classifications.
The yields on municipal bonds are dependent on a variety of factors,
including general money market conditions, general conditions of the municipal
bond market, size of a particular offering, maturity of the obligations and
rating of the issue. The imposition of the Fund's management fee, as well as
other operating expenses, will have the effect of reducing the yield to
investors.
The Tax Reform Act of 1986 (the "Act") limits the amount of new
"private purpose" bonds that each state can issue and subjects interest income
from these bonds to the federal alternative minimum tax. "Private purpose" bonds
are issues whose proceeds are used to finance certain nongovernment activities,
and could include some types of industrial revenue bonds such as privately-owned
sports and convention facilities. The Act also makes the tax-exempt status of
certain bonds depend upon the issuer's compliance with specific requirements
after the bonds are issued.
The Fund intends to seek to achieve a high level of tax-exempt income.
However, if the Fund invests in newly-issued private purpose bonds, a portion of
Fund distributions would be subject to the federal alternative minimum tax
applicable to certain shareholders.
-5-
<PAGE>
(SAI-PA/PART B)
Municipal Leases
As stated in the Prospectus, a portion of the Fund's assets may be
invested in municipal lease obligations, primarily through certificates of
participation ("COPs"). COPs function much like installment purchase agreements
and are widely used by state and local governments to finance the purchase of
property. The lease format is generally not subject to constitutional
limitations on the issuance of state debt, and COPs enable a governmental issuer
to increase government liabilities beyond constitutional debt limits. A
principal distinguishing feature separating COPs from municipal debt is the
lease, which contains a "nonappropriation" or "abatement" clause. This clause
provides that, although the municipality will use its best efforts to make lease
payments, it may terminate the lease without penalty if its appropriating body
does not allocate the necessary funds. The Fund will invest only in COPs rated
within the four highest rating categories of Moody's, S&P or Fitch Investors
Service, Inc., or in unrated COPs believed to be of comparable quality.
The Fund follows certain guidelines to determine whether the COPs held
in the Fund's portfolio constitute liquid investments. These guidelines set
forth various factors to be reviewed by the Manager and which will be monitored
by the Board. Such factors include (a) the credit quality of such securities and
the extent to which they are rated; (b) the size of the municipal securities
market for the Fund both in general and with respect to COPs; and (c) the extent
to which the type of COPs held by the Fund trade on the same basis and with the
same degree of dealer participation as other municipal bonds of comparable
credit rating or quality.
Investment Restrictions--The Fund has adopted the following
restrictions which, along with its investment objective, cannot be changed
without approval by the holders of a "majority of the outstanding voting shares"
of the Fund, which is a vote by the holders of the lesser of a) 67% or more of
the voting securities present in person or by proxy at a meeting, if the holders
of more than 50% of the outstanding voting securities are present or represented
by proxy; or b) more than 50% of the outstanding voting securities. The
percentage limitations contained in the restrictions and policies set forth
herein apply at the time of purchase of securities.
The Fund shall not:
1. Purchase securities other than municipal bonds and taxable
short-term investments as defined above.
2. Borrow money in excess of 10% of the value of its assets and then
only as a temporary measure for extraordinary purposes. Any borrowing will be
done from a bank and to the extent that such borrowing exceeds 5% of the value
of the Fund's assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sunday or holidays) or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
issue senior securities as defined in the 1940 Act, except for notes to banks.
Investment securities will not normally be purchased while there is an
outstanding borrowing.
3. Sell securities short.
4. Write or purchase put or call options.
5. Underwrite the securities of other issuers, except that the Fund
may participate as part of a group in bidding for the purchase of municipal
bonds directly from an issuer for its own portfolio in order to take advantage
of the lower purchase price available to members of such a group; nor invest
more than 10% of the value of the Fund's net assets in illiquid assets.
6. Purchase or sell commodities or commodity contracts.
7. Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal bonds secured by real estate or interests therein.
8. Make loans to other persons except through the use of repurchase
agreements or the purchase of commercial paper. For these purposes the purchase
of a portion of debt securities which is part of an issue to the public shall
-6-
<PAGE>
(SAI-PA/PART B)
not be considered the making of a loan. Not more than 10% of the Fund's total
assets will be invested in repurchase agreements and other assets maturing in
more than seven days.
9. With respect to 50% of the value of the assets of the Fund, invest
more than 5% of its assets in the securities of any one issuer or invest in more
than 10% of the outstanding voting securities of any one issuer, except that
U.S. Government and government agency securities backed by the U.S. Government
or its agencies or instrumentalities may be purchased without limitation. For
the purposes of this limitation, the Fund will regard the state and each
political subdivision, agency or instrumentality of the state, and each
multistate agency of which the state is a member as a separate issuer.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
12. Invest more than 25% of its total assets in any particular industry
or industries, except that the Fund may invest more than 25% of the value of its
total assets in municipal bonds, including industrial development and pollution
control bonds, and in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
Although not a fundamental investment restriction, the Fund currently
does not invest its assets in real estate limited partnerships or oil, gas and
other mineral leases.
From time to time, more than 10% of the Fund's assets may be invested
in municipal bonds insured as to payment of principal and interest by a single
insurance company. The Fund believes such investments are consistent with the
foregoing restrictions. If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentages resulting from change in
value of net assets will not result in a violation of the restrictions.
Special Considerations Relating to Pennsylvania Tax-Exempt Securities
The Fund concentrates its investments in the Commonwealth of
Pennsylvania. Therefore, there are risks associated with the Fund that would not
be present if the Fund were diversified nationally. These risks include any new
legislation that would adversely affect Pennsylvania tax-exempt obligations,
regional or local economic conditions that could adversely affect these
obligations, and differing levels of supply and demand for municipal bonds
particular to the Commonwealth of Pennsylvania.
-7-
<PAGE>
(SAI-PA/PART B)
PERFORMANCE INFORMATION
From time to time, the Fund may state total return for each Class in
advertisements and other types of literature. Any statement of total return
performance data will be accompanied by information on the Fund's average annual
compounded total rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life of fund, if applicable) periods. The
Fund may also advertise aggregate and average total return information for each
Class over additional periods of time.
The average annual total rate of return for a Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase
order of $1,000 from which, in
the case of only Class A
Shares, the maximum front-end
sales charge, if any, is
deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical $1,000 purchase
at the end of the period after the deduction of the
applicable CDSC, if any, with respect to Class B Shares
and Class C Shares.
In presenting performance information for Class A Shares, the
Limited CDSC, applicable only to certain redemptions of those shares, will not
be deducted from any computation of total return. See the Prospectus for the
Classes for a description of the Limited CDSC and the limited instances in which
it applies. All references to contingent deferred sales charge or a CDSC in this
Performance Information section will apply to Class B Shares or Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to the Class A Shares and that all
distributions are reinvested at net asset value and, with respect to the Class B
Shares and Class C Shares, reflects the deduction of the CDSC that would be
applicable upon complete redemption of such shares. In addition, the Fund may
present total return information that does not reflect the deduction of the
maximum front-end sales charge or any applicable CDSC.
The performance of Class A Shares and Class B Shares, as shown below,
is the average annual total return quotations through February 29, 1996. The
average annual total return for Class A Shares at offer reflects the maximum
front-end sales charges paid on the purchase of shares. The average annual total
return for Class A Shares at net asset value (NAV) does not reflect the payment
of the maximum front-end sales charge of 4.75%.
The average annual total return for Class B Shares including deferred
sales charge reflects the deduction of the applicable CDSC that would be paid if
the shares were redeemed at February 29, 1996. The average annual total return
for Class B Shares excluding deferred sales charge assumes the shares were not
redeemed at February 29, 1996 and therefore does not reflect the deduction of a
CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
-8-
<PAGE>
(SAI-PA/PART B)
Average Annual Total Return
Class A Shares(1) Class A Shares(1)
(at Offer) (at NAV)
1 year
ended
2/29/96 4.82% 10.08%
3 years
ended
2/29/96 3.77% 5.47%
5 years
ended
2/29/96 7.04% 8.09%
10 years
ended
2/29/96 7.19% 7.71%
15 years
ended
2/29/96 9.47% 9.82%
Period
3/23/77(2)
through
2/29/96 6.49% 6.77%
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) Date of initial public offering of Class A Shares.
Average Annual Total Return
Class B Shares Class B Shares
(Including (Excluding
Deferred Sales Deferred Sales
Charge) Charge)
1 year
ended
2/29/96 5.19% 9.19%
Period
5/2/94(1)
through
2/29/96 4.42% 6.51%
(1) Date of initial public offering of Class B Shares.
The performance of Class C Shares, as shown below, is the aggregate
total return quotation through February 29, 1996. The aggregate total return for
Class C Shares including deferred sales charge reflects the deduction of the
applicable CDSC that would be paid if the shares were redeemed at February 29,
1996. The aggregate total return for Class C Shares excluding deferred sales
charge assumes the shares were not redeemed at February 29, 1996 and therefore
does not reflect the deduction of a CDSC.
<PAGE>
Aggregate Total Return
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period
11/29/95(1)
through
2/29/96 0.20% 1.19%
(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer-term results.
As stated in the Prospectus, the Fund may also quote its current yield
for each Class in advertisements and investor communications.
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a -- b
------- 6
YIELD = 2[( 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;
d = the maximum offering price per
share on the last day of the
period.
-9-
<PAGE>
(SAI-PA/PART B)
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30-day periods identified in advertising by the
Fund. The yields of Class A Shares, Class B Shares and Class C Shares as of
February 29, 1996 using this formula were 4.59%, 4.03% and 4.03%, respectively.
Yield calculations assume the maximum front-end sales charge, if any, and does
not reflect the deduction of any CDSC or Limited CDSC. Actual yield may be
affected by variations in sales charges on investments.
Past performance, such as is reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any Class of the Fund in the future.
The Fund may also publish a tax-equivalent yield concerning a Class
based on federal and, if applicable, state tax rates, which demonstrates the
taxable yield necessary to produce an after-tax yield equivalent to such Class'
yield. For the 30-day period ended February 29, 1996, the tax-equivalent yield
of Class A Shares, Class B Shares and Class C Shares was 6.65%, 5.84% and 5.84%,
respectively, assuming a federal income tax rate of 31%. These yields were
computed by dividing that portion of a Class' yield which is tax-exempt by one
minus a stated income tax rate (in this case, a federal income tax rate of 31%)
and adding the product to that portion, if any, of the yield that is not
tax-exempt. In addition, the Fund may advertise a tax-equivalent yield assuming
other income tax rates, when applicable.
Investors should note that the income earned and dividends paid by the
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the Fund may change. Unlike money market
funds, the Fund invests in longer-term securities that fluctuate in value and do
so in a manner inversely correlated with changing interest rates. The Fund's net
asset value will tend to rise when interest rates fall. Conversely, the Fund's
net asset value will tend to fall as interest rates rise. Normally, fluctuations
in interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in the Fund will vary from day to day and investors
should consider the volatility of the Fund's net asset value as well as its
yield before making a decision to invest.
See Appendix B for additional yield information.
Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these organizations,
may also be used in the promotion of sales in the Fund. Any indices used are not
managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and
Morningstar, Inc. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse universe of
independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety
of historical data including total return, capital appreciation and
income on the stock market as well as other investment asset classes,
and inflation. With their permission, this information will be used
primarily for comparative purposes and to illustrate general financial
planning principles.
Interactive Data Corporation is a statistical access service that
maintains a database of various international industry indicators, such
as historical and current price/earning information, individual equity
and fixed income price and return information.
-10-
<PAGE>
(SAI-PA/PART B)
Compustat Industrial Databases, a service of Standard & Poor's, may
also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that provide
financial, statistical and market information covering more than 7,000
industrial and non-industrial companies.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate
and government-issued securities of various maturities. This
information, as well as unmanaged indices compiled and maintained by
these firms, will be used in preparing comparative illustrations.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. Also, current rate information on municipal
debt obligations of various durations, as reported daily by The Bond Buyer, may
also be used. The Bond Buyer is published daily and is an industry-accepted
source for current municipal bond market information.
From time to time, the Fund may also quote actual yield and/or total
return performance for each Class in advertising and other types of literature
compared to indices or averages of alternative financial products available to
prospective investors.
For example, the performance comparisons may include the average return
of various bank instruments, some of which may carry certain return guarantees
offered by leading banks and thrifts as monitored by Bank Rate Monitor, and
those of corporate bond and government security price indices of various
durations prepared by Lehman Brothers and Salomon Brothers, Inc. These indices
are not managed for any investment goal. Comparative information on the Consumer
Price Index and the CDA Municipal Bond Index may also be included. The Consumer
Price Index, as prepared by the U.S. Bureau of Labor Statistics, is the most
commonly used measure of inflation. It indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return from an
investment. The CDA Municipal Bond Index was developed and is maintained by CDA
Technologies, Inc. The Index is comprised of 115 separately-managed municipal
bond mutual funds and tracks the performance of each fund, reflecting the
reinvestment of any dividend and capital gains distributions paid during a
specified period.
The total return performance for a Class will reflect the appreciation
or depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period and the impact of the maximum
front-end sales charge or contingent deferred sales charge, if any, paid on the
illustrated investment amount, annualized. The results will not reflect any
income taxes, if applicable, payable by shareholders on the reinvested
distributions included in the calculations. The net asset value of the Fund
fluctuates so shares, when redeemed, may be worth more or less than the original
investment and past Fund performance should not be considered as representative
of future results.
The following tables are examples, for purposes of illustration only,
of cumulative total return performance for Class A Shares, Class B Shares and
Class C Shares through February 29, 1996. Comparative information on the
Consumer Price Index is also included.
The performance of the Class A Shares as shown below, reflects maximum
front-end sales charges. The performance of the Class B Shares and Class C
Shares is calculated both with the applicable CDSC included and excluded. The
performance does not reflect any income taxes payable by shareholders on the
reinvested distributions included in the calculations. The net asset value of a
Class fluctuates so shares, when redeemed, may be worth more or less than the
original investment, and a Class' results should not be considered as
representative of future performance.
-11-
<PAGE>
(SAI-PA/PART B)
Cumulative Total Return
Class A Shares(1) Consumer
(at Offer) Price Index(2)
3 months
ended
2/29/96 (3.96%) 0.85%
6 months
ended
2/29/96 (0.73%) 1.31%
9 months
ended
2/29/96 0.48% 1.77%
1 year
ended
2/29/96 4.82% 2.65%
3 years
ended
2/29/96 11.75% 8.25%
5 years
ended
2/29/96 40.52% 14.91%
10 years
ended
2/29/96 100.20% 41.69%
15 years
ended
2/29/96 288.54% 76.30%
Period
3/23/77(3)
through
2/29/96 229.28% 160.40%
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) Source--Department of Labor.
(3) Date of initial public offering of Class A Shares.
<PAGE>
Cumulative Total Return
Class B Shares Class B Shares
(Including (Excluding Consumer
Deferred Sales Deferred Sales Price
Charge) Charge) Index(1)
3 months
ended
2/29/96 (3.40%) 0.58% 0.85%
6 months
ended
2/29/96 (0.17%) 3.83% 1.31%
9 months
ended
2/29/96 0.86% 4.86% 1.77%
1 year
ended
2/29/96 5.19% 9.19% 2.65%
Period
5/2/94(2)
through
2/29/96 8.23% 12.23% 5.09%
(1) Source: Department of Labor.
(2) Date of initial public offering of Class B Shares.
Cumulative Total Return
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred Consumer
Sales Sales Price
Charge) Charge) Index(2)
Period
11/29/95(1)
through
2/29/96 0.20% 1.19% 0.85%
(1) Date of initial offering of Class C Shares; total return for this short
of a time period may not be representative of longer-term results.
(2) Source--Department of Labor.
-12-
<PAGE>
(SAI-PA/PART B)
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds in the Delaware
Group, will provide general information about investment alternatives and
scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts the Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important
things to remember. Dollar-cost averaging works best over longer time periods,
and it doesn't guarantee a profit or protect against losses in declining
markets. If you need to sell your investment when prices are low, you may not
realize a profit no matter what investment strategy you utilize. That's why
dollar-cost averaging can make sense for long-term goals. Since the potential
success of a dollar-cost averaging program depends on continuous investing, even
through periods of fluctuating prices, you should consider your dollar-cost
averaging program a long-term commitment and invest an amount you can afford and
probably won't need to withdraw. Investors also should consider their financial
ability to continue to purchase shares during periods of low fund share prices.
Delaware Group offers three services -- Automatic Investing Program, Direct
Deposit Program and the Wealth Builder Option -- that can help to keep your
regular investment program on track. See Investing by Electronic Fund Transfer -
Direct Deposit Purchase Plan and Automatic Investing Plan under Investment Plans
and Wealth Builder Option under Redemption and Repurchase for a complete
description of these services including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
- -------------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to represent
the actual performance of the Fund.
-13-
<PAGE>
(SAI-PA/PART B)
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding and the following chart illustrates just how powerful
it can be.
COMPOUNDED RETURNS
Results at various assumed fixed rates of return on a $10,000
investment compounded monthly tax-free for 10 years:
5% 6% 7% 8%
Rate of Rate of Rate of Rate of
Return Return Return Return
1 Year $10,512 $10,617 $10,723 $10,830
2 Years $11,049 $11,272 $11,498 $11,729
3 Years $11,615 $11,967 $12,330 $12,702
4 Years $12,209 $12,705 $13,221 $13,757
5 Years $12,833 $13,488 $14,177 $14,898
6 Years $13,490 $14,320 $15,201 $16,135
7 Years $14,180 $15,203 $16,300 $17,474
8 Years $14,906 $16,141 $17,479 $18,924
9 Years $15,668 $17,137 $18,743 $20,495
10 Years $16,470 $18,194 $20,097 $22,196
These figures are calculated on a fixed interest rate and assume no
fluctuation in the value of principal. These figures are not intended to be a
projection of investment results and do not reflect any sales charges or any
actual performance results of any of the Classes.
-14-
<PAGE>
(SAI-PA/PART B)
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers, dealers and banks to execute transactions for
the purchase or sale of portfolio securities on the basis of its judgment of
their professional capability to provide the service. The primary consideration
is to have brokers, dealers or banks execute transactions at best price and
execution. Best price and execution refers to many factors, including the price
paid or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. In nearly all instances, trades are made on a net basis where the
Fund either buys the securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged, but there is
a spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, the Fund pays a minimal share
transaction cost when the transaction presents no difficulty.
During the past three fiscal years of the Fund there were no brokerage
commissions paid.
The Manager may allocate out of all commission business generated by all
of the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These services include
advice, either directly or through publications or writings, 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;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software and hardware used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 and the Fund's
Investment Management Agreement, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
-15-
<PAGE>
(SAI-PA/PART B)
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and the Board of
Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Fund may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of its shares as a factor in the
selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of interest
rates. The Fund is free to dispose of portfolio securities at any time, subject
to complying with the Internal Revenue Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. Portfolio transactions will be undertaken only to
accomplish the Fund's objectives and not for the purpose of realizing capital
gains, although capital gains may be realized on certain portfolio transactions.
For example, capital gains may be realized when a security is sold: (1) so that,
provided capital is preserved or enhanced, another security can be purchased to
obtain a higher yield; (2) to take advantage of what the Manager believes to be
a temporary disparity in the normal yield relationship between the two
securities to increase income or improve the quality of the portfolio; (3) to
purchase a security which the Manager believes is of higher quality than its
rating or current market value would indicate; or (4) when the Manager
anticipates a decline in value due to market risk or credit risk. The Fund
anticipates the portfolio turnover rate will ordinarily be less than 100%.
During the past two fiscal years, the Fund's portfolio turnover rates were
18% for 1995 and 25% for 1996. The Fund's portfolio turnover rate is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the particular fiscal year, exclusive of
securities whose maturities at the time of acquisition are one year or less.
-16-
<PAGE>
(SAI-PA/PART B)
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's shares,
and has agreed to use its best efforts to sell shares of the Fund. See the
Prospectus for additional information on how to invest. Shares of the Fund are
offered on a continuous basis, and may be purchased through authorized
investment dealers or directly by contacting the Fund or its agent.
The minimum initial purchase is generally $1,000 for each Class.
Subsequent purchases must generally be at least $100. The initial and subsequent
investment minimums for Class A Shares will be waived for purchases by officers,
directors and employees of any Delaware Group fund, the Manager or any of the
Manager's affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act and shares purchased in connection with an
Automatic Investing Plan are subject to a minimum initial purchase of $250 and a
minimum subsequent purchase of $25. Accounts opened under a Delaware Group Asset
Planner Service are subject to a minimum initial investment of $2,000 per Asset
Planner strategy selected.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that does not exceed $1,000,000. The Fund will reject any purchase order for
more than $250,000 of Class B Shares and $1,000,000 or more of Class C Shares.
An investor may exceed these limitations by making cumulative purchases over a
period of time. In doing so, an investor should keep in mind, however, that
reduced front-end sales charges apply to investments of $100,000 or more in
Class A Shares, which are subject to lower annual 12b-1 Plan expenses than Class
B Shares and Class C Shares and generally are not subject to a CDSC. Selling
dealers have the responsibility of transmitting orders promptly. The Fund
reserves the right to reject any order for the purchase of its shares if in the
opinion of management such rejection is in the Fund's best interest.
The NASD has adopted amendments to its Rules of Fair Practice relating to
investment company sales charges. The Fund and the Distributor intend to operate
in compliance with these rules.
Class A Shares are purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also subject
to annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
also subject to annual 12b-1 Plan expenses which are higher than those to which
Class A Shares are subject and are assessed against Class B Shares approximately
eight years after purchase.
Class C Shares are purchased at net asset value and are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. Class C Shares
are also subject to annual 12b-1 Plan expenses for the life of the investment
which are equal to those to which Class B Shares are subject.
See Automatic Conversion of Class B Shares in the Prospectus, and
Determining Offering Price and Net Asset Value and Plans Under Rule 12b-1 in
this Part B.
Certificates representing shares purchased are not ordinarily issued
unless a shareholder submits a specific request. Certificates are not issued in
the case of Class B Shares or Class C Shares. However, purchases not involving
the issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing shares
-17-
<PAGE>
(SAI-PA/PART B)
purchased by sending a letter to the Transfer Agent requesting the certificate.
No charge is assessed by the Fund for any certificate issued. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable for their needs given the amount of their purchase, the length of time
they expect to hold their shares and other relevant circumstances. Investors
should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of .30% of average daily net
assets of Class A Shares or to purchase either Class B or Class C Shares and
have the entire initial purchase amount invested in the Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B Shares are
subject to a CDSC if the shares are redeemed within six years of purchase, and
Class C Shares are subject to a CDSC if the shares are redeemed within 12 months
of purchase. Class B and Class C Shares are each subject to annual 12b-1 Plan
expenses of up to a maximum of 1% (.25% of which are service fees to be paid to
the Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of the respective
Class. Class B Shares will automatically convert to Class A Shares at the end of
approximately eight years after purchase and, thereafter, be subject to annual
12b- 1 Plan expenses of up to a maximum of .30% of average daily net assets of
such shares. Unlike Class B Shares, Class C Shares do not convert into another
class.
-18-
<PAGE>
(SAI-PA/PART B)
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, and
may include a series of purchases over a 13-month period under a Letter of
Intention signed by the purchaser. See Special Purchase Features - Class A
Shares, below, for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
<TABLE>
<CAPTION>
Class A Shares
- -----------------------------------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge as % of Commission***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.96% 4.00%
$100,000 but under $250,000 3.75 3.90 3.00
$250,000 but under $500,000 2.50 2.60 2.00
$500,000 but under $1,000,000* 2.00 2.01 1.60
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% contingent
deferred sales charge may apply upon redemption of such shares. The
contingent deferred sales charge ("Limited CDSC") that may be applicable
arises only in the case of certain shares that were purchased at net asset
value and triggered the payment of a dealer's commission.
** Based upon the net asset value per share of Class A Shares as of the end of
the Fund's most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
- -------------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the
front-end sales charge shown above. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the 1933 Act.
- -------------------------------------------------------------------------------
-19-
<PAGE>
(SAI-PA/PART B)
Certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group funds may receive an additional commission of up to .15% of
the offering price in connection with sales of Class A Shares. Such dealers must
meet certain requirements in terms of organization and distribution capabilities
and their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and circumstances
upon which the additional commission will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.
Dealer's Commission
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are effected in accordance with the following schedule:
Dealer's
Commission
--------------
(as a percent-
Amount age of amount
of Purchase purchased)
- -----------
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds, as to
which a Limited CDSC applies (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Fund's Prospectus) may be aggregated with those of the Class A
Shares of the Fund. Financial advisers also may be eligible for a dealer's
commission in connection with certain purchases made under a Letter of Intention
or pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
<PAGE>
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price. Nor will a CDSC be assessed on redemptions of shares acquired
through reinvestment of dividends or capital gains distributions. See Waiver of
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Redemption and Exchange in the Prospectus for a list of the instances in which
the CDSC is waived.
The following table sets forth the rates of the CDSC for Class B Shares
of the Fund:
Contingent Deferred
Sales Charge (as a
Percentage of Dollar
Amount Subject
Year After Purchase Made to Charge)
- ------------------------ --------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase, and thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
-20-
<PAGE>
(SAI-PA/PART B)
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the Fund.
See Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus. Such conversion will constitute a tax-free exchange for federal
income tax purposes. See Taxes in the Prospectus.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a
separate plan for each of Class A Shares, Class B Shares and Class C Shares of
the Fund (the "Plans"). Each Plan permits the Fund to pay for certain
distribution, promotional and related expenses involved in the marketing of only
the Class to which the Plan applies.
The Plans permit the Fund, pursuant to the Distribution Agreement, to
pay out of the assets of Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The 12b-1
Plan expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Fund may make payments out of the assets of Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.
The maximum aggregate fee payable by the Fund under the Plans, and the
Fund's Distribution Agreement, is on an annual basis up to .30% of Class A
Shares' average daily net assets for the year, and up to 1% (.25% of which are
service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of Class B
Shares' and Class C Shares' average daily net assets for the year. The Fund's
Board of Trustees may reduce these amounts at any time.
Effective June 1, 1992, the Board of Trustees has determined that the
annual fee payable on a monthly basis for the Class A Shares, pursuant to its
Plan, will be equal to the sum of: (i) the amount obtained by multiplying .30%
by the average daily net assets represented by Class A Shares that were acquired
by shareholders on or after June 1, 1992, and (ii) the amount obtained by
multiplying .10% by the average daily net assets represented by Class A Shares
that were acquired before June 1, 1992. While this is the method for calculating
Class A Shares' 12b-1 expense, such expense is a Class expense so that all such
shareholders of the Class, regardless of when they purchased their shares, will
bear 12b-1 expenses at the same rate per share. As Class A Shares are sold on or
after June 1, 1992, the initial rate of at least .10% will increase over time.
Thus, as the proportion of Class A Shares purchased on or after June 1, 1992 to
Class A Shares outstanding prior to June 1, 1992 increases, the expenses
attributable to payments under the Plan relating to Class A Shares will also
increase (but will not exceed .30% of average daily net assets). While this
describes the current formula for calculating the fees which will be payable
under the Plan relating to Class A Shares, such Plan permits the Fund to pay a
full .30% on all assets of Class A Shares at any time.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from the Classes. Subject to seeking best price and execution, the
Classes may, from time to time, buy or sell portfolio securities from or to
firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreement, as amended, have been
approved by the Board of Trustees, including a majority of the trustees who are
not "interested persons" (as defined in the 1940 Act) of the Fund and who have
-21-
<PAGE>
(SAI-PA/PART B)
no direct or indirect financial interest in the Plans, by vote cast in person at
a meeting duly called for the purpose of voting on the Plans and such
Distribution Agreement. Continuation of the Plans and the Distribution
Agreement, as amended, must be approved annually by the Board of Trustees in the
same manner, as specified above.
Each year, the trustees must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, the Class A
Shares, Class B Shares and Class C Shares and that there is a reasonable
likelihood of the Plan relating to a Class providing a benefit to that Class.
The Plans and the Distribution Agreement, as amended, may be terminated at any
time without penalty by a majority of those trustees who are not "interested
persons" or by a majority vote of the outstanding voting securities of the
relevant Class. Any amendment materially increasing the percentage payable under
the Plans must likewise be approved by a majority vote of the outstanding voting
securities of the relevant Class, as well as by a majority vote of those
trustees who are not "interested persons." With respect to the Class A Shares'
Plan, any material increase in the maximum percentage payable thereunder must
also be approved by a majority of the outstanding voting Class B Shares. Also,
any other material amendment to the Plans must be approved by a majority vote of
the trustees including a majority of the noninterested trustees having no
interest in the Plans. In addition, in order for the Plans to remain effective,
the selection and nomination of trustees who are not "interested persons" of the
Fund must be effected by the trustees who themselves are not "interested
persons" and who have no direct or indirect financial interest in the Plans.
Persons authorized to make payments under the Plans must provide written reports
at least quarterly to the Board of Trustees for their review.
During the fiscal year ended February 29, 1996, payments from Class A
Shares pursuant to its Plan amounted to $1,914,966 and such amount was used for
the following purposes: Advertising - $1,105; Annual/Semi-Annual Reports -
$12,122; Broker Trails - $1,569,922; Commissions to Wholesalers - $108,644;
Dealer Service Expenses - $12,400; Promotional-Broker Meetings - $51,888;
Promotional-Other - $42,219; Prospectus Printing - $18,966; Telephone - $19,187;
and Wholesaler Expenses - $78,513.
During the fiscal year ended February 29, 1996, payments from Class B
Shares pursuant to its Plan amounted to $163,170 and such amount was used for
the following purposes: Broker Sales Charges - $56,926; Broker Trails - $40,772;
Commissions to Wholesalers - $7,359; Interest on Broker Sales Charges - $57,294;
Promotional-Broker Meetings - $742; and Telephone - $77.
During the period November 29, 1995 (date of initial public offering)
through February 29, 1996, payments from Class C Shares pursuant to its Plan
amounted to $176 and such amount was used for the following purposes: Broker
Sales Charges - $163; and Interest on Broker Sales Charges - $13.
The staff of the Securities and Exchange Commission ("SEC") has
proposed amendments to Rule 12b-1 and other related regulations that could
impact Rule 12b-1 Distribution Plans. The Fund intends to amend the Plans, if
necessary, to comply with any new rules or regulations the SEC may adopt with
respect to Rule 12b-1.
Other Payments to Dealers - Class A, Class B and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits as set
by the Distributor, may receive from the Distributor an additional payment of up
to .25% of the dollar amount of such sales. The Distributor may also provide
additional promotional incentives or payments to dealers that sell shares of the
Delaware Group of funds. In some instances, these incentives or payments may be
offered only to certain dealers who maintain, have sold or may sell certain
amounts of shares.
-22-
<PAGE>
(SAI-PA/PART B)
Payments to dealers made in connection with seminars, conferences or
contests relating to the promotion of fund shares may be in an amount up to 100%
of the expenses incurred or awards made. The Distributor may also pay a portion
of the expense of preapproved dealer advertisements promoting the sale of
Delaware Group fund shares.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12- Month Reinvestment Privilege.
Current and former officers, trustees and employees of the Fund, any
other fund in the Delaware Group, the Manager or any of the Manager's affiliates
that may in the future be created, legal counsel to the funds and registered
representatives and employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares of the Fund and any
of the funds in the Delaware Group, including any fund that may be created, at
net asset value per share. Family members of such persons at their direction,
and any employee benefit plan established by any of the foregoing funds,
corporations, counsel or broker/dealers may also purchase Class A Shares at net
asset value. Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net asset value
within 12 months after the registered representative changes employment, if the
purchase is funded by proceeds from an investment where a front-end sales
charge, contingent deferred sales charge or other sales charge has been
assessed. Purchases of Class A Shares may also be made at net asset value by
bank employees who provide services in connection with agreements between the
bank and unaffiliated brokers or dealers concerning sales of shares of Delaware
Group funds. Officers, directors and key employees of institutional clients of
the Manager, or any of its affiliates, may purchase Class A Shares at net asset
value. Moreover, purchases may be effected at net asset value for the benefit of
the clients of brokers, dealers and registered investment advisers affiliated
with a broker or dealer, if such broker, dealer or investment adviser has
entered into an agreement with the Distributor providing specifically for the
purchase of Class A Shares in connection with special investment products, such
as wrap accounts or similar fee based programs. Such purchasers are required to
sign a letter stating that the purchase is for investment only and that the
securities may not be resold except to the issuer. Such purchasers may also be
required to sign or deliver such other documents as the Fund may reasonably
require to establish eligibility for purchase at net asset value. The Fund must
be notified in advance that the trade qualifies for purchase at net asset value.
Beginning December 1, 1994, Class A Shares of the Fund may be purchased
at net asset value within 90 days after a redemption of shares from a fund
outside the Delaware Group of funds provided that: 1) the redeemed shares were
purchased no more than five years before the proposed purchase of Class A Shares
of the Fund; and 2) a front-end sales charge was paid in connection with the
purchase of the redeemed shares or a contingent deferred sales charge was paid
upon their redemption.
Investors who held shares in any class of any Delaware Group fund as of
December 1, 1995, may purchase Class A Shares at net asset value through the
Delaware Group Asset Planner service if such shares are being purchased with
proceeds from the redemption of shares of a fund (other than a money market
fund) outside of the Delaware Group of funds. The Investment Application and
check for such a transaction should note that the investment is being made under
the "NAV/Asset Planner Accommodation Program." See Delaware Group Asset Planner
under How To Buy Shares in the Prospectus.
Letter of Intention
The reduced front-end sales charges described above with respect to the
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or the Fund, which provides for
-23-
<PAGE>
(SAI-PA/PART B)
the holding in escrow by the Transfer Agent of 5% of the total amount of Class A
Shares intended to be purchased until such purchase is completed within the
13-month period. A Letter of Intention may be dated to include shares purchased
up to 90 days prior to the date the Letter is signed. The 13-month period
begins on the date of the earliest purchase. If the intended investment is not
completed, except as noted below, the purchaser will be asked to pay an amount
equal to the difference between the front-end sales charge on the Class A Shares
purchased at the reduced rate and the front-end sales charge otherwise
applicable to the total shares purchased. If such payment is not made within 20
days following the expiration of the 13-month period, the Transfer Agent will
surrender an appropriate number of the escrowed shares for redemption in order
to realize the difference. Such purchasers may include the value (at offering
price at the level designated in their Letter of Intention) of all their shares
of the Fund and of any class of any of the other mutual funds in the Delaware
Group (except shares of any Delaware Group fund which do not carry a front-end
sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a
Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC) previously purchased and still held as of the date of their Letter of
Intention toward the completion of such Letter. For purposes of satisfying an
investor's obligation under a Letter of Intention, Class B Shares and Class C
Shares of the Fund and the corresponding class of shares of other Delaware Group
funds which offer such shares may be aggregated with Class A Shares of the Fund
and the corresponding class of shares of the other Delaware Group funds.
Combined Purchases Privilege
In determining the availability of the
reduced front-end sales charge previously set forth with respect to Class A
Shares, purchasers may combine the total amount of any combination of Class B
Shares and/or Class C Shares of the Fund, as well as shares of any other class
of any of the other Delaware Group funds (except shares of any Delaware Group
fund which do not carry a front-end sales charge, CDSC or Limited CDSC, other
than shares of Delaware Group Premium Fund, Inc. beneficially owned in
connection with the ownership of variable insurance products, unless they were
acquired through an exchange from a Delaware Group fund which carried a
front-end sales charge, CDSC or Limited CDSC).
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of the Fund, as
well as shares of any other class of any of the other Delaware Group funds which
offer such classes (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
shares from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC). If, for example, any such purchaser has previously purchased
and still holds Class A Shares and/or shares of any other of the classes
described in the previous sentence with a value of $40,000 and subsequently
purchases $60,000 at offering price of additional shares of Class A Shares, the
charge applicable to the $60,000 purchase would be 3.75%. For the purpose of
this calculation, the shares presently held shall be valued at the public
offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges for Class A Shares to determine the applicability of the Right of
Accumulation to their particular circumstances.
-24-
<PAGE>
(SAI-PA/PART B)
12-Month Reinvestment Privilege
Holders of Class A Shares who redeem
such shares of the Fund have one year from the date of redemption to reinvest
all or part of their redemption proceeds in Class A Shares of the Fund or in
Class A Shares of any of the other funds in the Delaware Group, subject to
applicable eligibility and minimum purchase requirements, in states where shares
of such other funds may be sold, at net asset value without the payment of a
front-end sales charge. This privilege does not extend to Class A Shares where
the redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of either Class B or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus) in connection with the features
described above.
-25-
<PAGE>
(SAI-PA/PART B)
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Class (based on the net asset value in effect on the payable date) and credited
to the shareholder's account on that date. Confirmations of each dividend
payment from net investment income and of any distributions from realized
securities profits will be mailed to shareholders in the first quarter of the
fiscal year. Under the Reinvestment Plan/Open Account, shareholders may purchase
and add full and fractional shares to their plan accounts at any time either
through their investment dealers or by sending a check or money order to the
Fund. Such purchases, which must meet the minimum subsequent purchase
requirements stated in the Prospectus and this Part B, are made for Class A
Shares at the public offering price and for Class B and Class C Shares at the
net asset value, at the end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum initial purchase
requirements of each fund and the limitations set forth below, holders of Class
A, Class B and Class C Shares may automatically reinvest their dividends and/or
distributions in any of the mutual funds in the Delaware Group, including the
Fund, in states where their shares may be sold. Such investments will be at net
asset value at the close of business on the reinvestment date without any
front-end sales charge or service fee. The shareholder must notify the Transfer
Agent in writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account, will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
proposed to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Additional Methods of Adding to Your Investment Dividend Reinvestment Plan
under How to Buy Shares in the Prospectus.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of the Fund at
net asset value, provided an account has been established. Dividends from Class
A Shares may not be directed to Class B or Class C Shares. Likewise, dividends
from Class B Shares may only be directed to other Class B Shares and dividends
from Class C Shares may only be directed to other Class C Shares. See Classes
Offered under Classes of Shares in the Prospectus for the funds in the Delaware
Group that are eligible for investment by holders of Fund shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for the Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan--Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following two
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
-26-
<PAGE>
(SAI-PA/PART B)
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to the Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. The Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact the Fund for proper
instructions.
-27-
<PAGE>
(SAI-PA/PART B)
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated after receipt of the order by the Fund or its agent.
Orders for purchases of Class B Shares and Class C Shares are effected at the
net asset value per share next calculated by the Fund after receipt of the order
by the Fund or its agent. Selling dealers have the responsibility of
transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, the Fund will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
An example showing how to calculate the net asset value per share and,
in the case of the Class A Shares, the offering price per share, is included in
the Fund's financial statements which are incorporated by reference into this
Part B.
The Fund's net asset value per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities and
dividing by the number of Fund shares outstanding. In determining the Fund's
total net assets, portfolio securities are valued at fair value, using methods
determined in good faith by the trustees. This method utilizes the services of
an independent pricing organization which employs a combination of methods
including, among others, the obtaining of market valuations from dealers who
make markets and deal in such securities, and by comparing valuations with those
of other comparable securities in a matrix of such securities. A pricing
service's activities and results are reviewed by the officers of the Fund. In
addition, money market instruments having a maturity of less than 60 days are
valued at amortized cost. Expenses and fees are accrued daily.
Each Class of the Fund will bear, pro-rata, all of the common expenses
of the Fund. The net asset values of all outstanding shares of each Class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that the Class A, Class B and Class C Shares alone will bear the 12b-1
Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that would be allocable to each Class, the
dividends paid to each Class of the Fund may vary. However, the net asset value
per share of each Class is expected to be equivalent.
-28-
<PAGE>
(SAI-PA/PART B)
REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for the
Class A Shares only if a shareholder specifically requests them. Certificates
are not issued for Class B Shares or Class C Shares. If stock certificates have
been issued for shares being redeemed, they must accompany the written request.
For redemptions of $50,000 or less paid to the shareholder at the address of
record, the request must be signed by all owners of the shares or the investment
dealer of record, but a signature guarantee is not required. When the redemption
is for more than $50,000, or if payment is made to someone else or to another
address, signatures of all record owners are required and a signature guarantee
is required. Each signature guarantee must be supplied by an eligible guarantor
institution. The Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. The Fund may
request further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.
In addition to redemption of shares by the Fund, the Distributor,
acting as agent of the Fund, offers to repurchase Fund shares from
broker/dealers acting on behalf of shareholders. The redemption or repurchase
price, which may be more or less than the shareholder's cost, is the net asset
value per share next determined after receipt of the request in good order by
the Fund or its agent, subject to any applicable CDSC or Limited CDSC. This is
computed and effective at the time the offering price and net asset value are
determined. See Determining Offering Price and Net Asset Value. The Fund and the
Distributor end their business days at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further notice by the
Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to any applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund's Prospectus. Redemptions of Class B Shares
are subject to the following CDSC: (i) 4% if shares are redeemed within two
years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge under Classes of Shares in the Fund's Prospectus. Except for the
applicable CDSC or Limited CDSC, and with respect to the expedited payment by
wire described below, for which there is currently a $7.50 bank wiring cost,
neither the Fund nor its Distributor charges a fee for redemptions or
repurchases, but such fees could be charged at any time in the future.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order.
If a shareholder who recently purchased shares by check seeks to redeem
all or a portion of those shares in a written request, the redemption request
will be honored but the proceeds will not be mailed until the Fund is reasonably
satisfied of the collection of the investment check. This potential delay can be
avoided by making investments by wiring Federal Funds.
-29-
<PAGE>
(SAI-PA/PART B)
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the Securities and Exchange Commission has provided
for such suspension for the protection of shareholders, the Fund may postpone
payment or suspend the right of redemption or repurchase. In such case, the
shareholder may withdraw the request for redemption or leave it standing as a
request for redemption at the net asset value next determined after the
suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, the Fund has
elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder.
The value of the Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.
Small Accounts
Before the Fund involuntarily redeems shares from an account that,
under the circumstances listed in the Prospectus, has remained below the minimum
amounts required by the Fund's Prospectus and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than $1,000 and will be allowed 60 days from that
date of notice to make an additional investment to meet the required minimum of
$1,000. See The Conditions of Your Purchase under Buying Shares in the
Prospectus. Any redemption in an inactive account established with a minimum
investment may trigger mandatory redemption. No CDSC or Limited CDSC will apply
to the redemptions described in this paragraph.
* * *
The Fund has made available certain redemption privileges, as described
below. The Fund reserves the right to suspend or terminate these expedited
payment procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders or their investment dealers of record wishing to redeem
any amount of shares of $50,000 or less for which certificates have not been
issued may call the Shareholder Service Center at 800-523-1918 prior to the time
the offering price and net asset value are determined, as noted above, and have
the proceeds mailed to them at the record address. Checks payable to the
shareholder(s) of record will normally be mailed the next business day, but no
later than seven days, after the receipt of the redemption request. This option
is only available to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
number listed above. An authorization form must have been completed by the
shareholder and filed with the Fund before the request is received. Payment will
be made by wire or check to the bank account designated on the authorization
form as follows:
-30-
<PAGE>
(SAI-PA/PART B)
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the Fund
and a signature guarantee may be required. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
Telephone redemptions for shares recently purchased by check will not
be honored unless the Fund is reasonably satisfied that the purchase check has
cleared.
If expedited payment under these procedures could adversely affect the
Fund, the Fund may take up to seven days to pay the shareholder.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by Fund
shareholders are generally tape recorded. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price or net asset
value, as applicable for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Fund does not recommend any specific
amount of withdrawal. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend) and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may in time be depleted, particularly in a declining market.
-31-
<PAGE>
(SAI-PA/PART B)
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated.
Withdrawals under this plan made concurrently with the purchases of
additional shares of the same fund may be disadvantageous to the shareholder.
Purchases of Class A Shares through a periodic investment program in a fund
managed by the Manager must be terminated before a Systematic Withdrawal Plan
with respect to such shares can take effect, except if the shareholder is a
participant in one of our Retirement Plans or is investing in Delaware Group
funds which do not carry a sales charge. Redemptions of Class A Shares pursuant
to a Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase
was made at net asset value and a dealer's commission has been paid on that
purchase.
Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount
selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge Class B And Class C Shares and Waiver of Limited
Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange
in the Prospectus. Shareholders should consult their financial adviser to
determine whether a Systematic Withdrawal Plan would be suitable for them.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
Wealth Builder Option
Shareholders of the Fund may elect to invest in one or more of the
other mutual funds in the Delaware Group through our Wealth Builder Option.
Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Prospectus.
See Wealth Builder Option and Redemption and Exchange in the Prospectus.
The investment will be made on the 20th day of each month (or, if the
fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges.
Shareholders can also use the Wealth Builder Option to invest in the
Fund through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group, subject to the conditions and limitations described
in the Fund's Prospectus. Shareholders can terminate their participation at any
time by written notice to the Fund.
-32-
<PAGE>
(SAI-PA/PART B)
DIVIDENDS AND DISTRIBUTIONS
The Fund declares a dividend to shareholders of net investment income
on a daily basis. Dividends are declared each day the Fund is open and are paid
monthly on the first business day following the end of each month. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. Net investment income earned on days when the Fund is
not open will be declared as a dividend on the next business day. Purchases of
Fund shares by wire begin earning dividends when converted into Federal Funds
and available for investment, normally the next business day after receipt.
However, if the Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Investors desiring to guarantee wire payments must have an
acceptable financial condition and credit history in the sole discretion of the
Fund. The Fund reserves the right to terminate this option at any time.
Purchases by check earn dividends upon conversion to Federal Funds, normally one
business day after receipt.
Each Class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that each Class will alone incur
distribution fees under its 12b-1 Plan.
See Plans Under Rule 12b-1.
Dividends are automatically reinvested in additional shares at net
asset value on the payable date, unless an election to receive dividends in cash
has been made. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid by separate check
at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above. Any check in payment of dividends
or other distributions which cannot be delivered by the United States Post
Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. The Fund may deduct
from a shareholder's account the costs of the Fund's effort to locate a
shareholder if a shareholder's mail is returned by the Post Office or the Fund
is otherwise unable to locate the shareholder or verify the shareholder's
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for their location services.
Any distributions from net realized securities profits will be made
annually during the quarter following the close of the fiscal year. Such
distributions will be reinvested in shares at the net asset value in effect on
the first business day after month end, unless the shareholder elects to receive
them in cash. The Fund will mail a quarterly statement showing dividends paid
and all the transactions made during the period.
The Fund anticipates that substantially all dividends paid to
shareholders will be exempt from federal and Pennsylvania income taxes and from
certain Pennsylvania state and local taxes. Information concerning the tax
status of dividends and distributions will be mailed to shareholders annually,
including what portion, if any, of the Fund's distribution is subject to the
federal alternative minimum tax should the Fund invest in "private purpose"
bonds.
-33-
<PAGE>
(SAI-PA/PART B)
TAXES
Federal Income Tax Aspects
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended, so as not to be liable for federal income tax to the extent
its earnings are distributed. The term "regulated investment company" does not
imply the supervision of management or investment practices or policies by any
government agency.
Distributions by the Fund representing net interest received on
municipal bonds are considered tax-exempt and are not includable by shareholders
in gross income for federal income tax purposes because the Fund intends to meet
the requirements of the Internal Revenue Code applicable to regulated investment
companies distributing exempt-interest dividends. Although exempt from regular
federal income tax, interest paid on certain types of municipal obligations is
deemed to be a preference item under federal tax law and is subject to the
federal alternative minimum tax.
For federal income tax purposes, the Fund's portfolio securities had
net unrealized appreciation at February 29, 1996 of $64,604,249 on the basis of
specific cost.
Distributions representing net interest income received by the Fund
from certain temporary investments (such as certificates of deposit, commercial
paper and obligations of the U.S. Government, its agencies and
instrumentalities) and net short-term capital gains realized by the Fund, if
any, will be taxable to shareholders as ordinary income and will not qualify for
the deduction for dividends-received by corporations. Distributions of long-term
capital gains realized by the Fund, if any, will be taxable to shareholders as
long-term capital gains regardless of the length of time an investor has held
such shares, and these gains are currently taxed at long-term capital gain
rates. The tax status of dividends and distributions paid to shareholders will
not be affected by whether they are paid in cash or in additional shares.
Statements as to the tax status of each investor's dividends or distributions
will be mailed annually. The percentage of taxable income at the end of the year
will not necessarily bear relationship to the experience over a shorter period
of time. Shareholders may incur a tax liability for federal, state and local
taxes upon the sale or redemption of shares of the Fund.
Section 265 of the Internal Revenue Code provides that interest paid on
indebtedness incurred or continued to purchase or carry obligations the interest
on which is tax-exempt, and certain expenses associated with tax-exempt income,
are not deductible. It is probable that interest on indebtedness incurred or
continued to purchase or carry shares of the Fund is not deductible.
The Fund may not be an appropriate investment for persons who are
"substantial users" of facilities financed by "industrial development bonds" or
for investors who are "related persons" thereof within the meaning of Section
103 of the Internal Revenue Code. Persons who are or may be considered
"substantial users" should consult their tax advisers in this matter before
purchasing shares of the Fund.
The Fund intends to use the "average annual" method of allocation in
the event the Fund realizes any taxable interest income. Under this approach,
the percentage of interest income earned that is deemed to be taxable in any
year will be the same for each shareholder who held shares of the Fund at any
time during the year.
State and Local Taxes
See Taxes in the Prospectus for a discussion of Pennsylvania taxation.
Shares of the Fund may be taxable for purposes of Pennsylvania inheritance and
estate tax.
Shareholders of the Fund who are residents of the City of Pittsburgh
may be required to pay Pittsburgh School District and City personal property tax
on their equitable interest of that portion of the assets of the Fund which are
not exempt from such tax. However, since the Fund's inception, none of its
assets have been liable for such tax.
Distributions by the Fund may not be exempt from state or local income
tax in states other than Pennsylvania. Shareholders of the Fund are advised to
consult their own tax adviser in this regard.
-34-
<PAGE>
(SAI-PA/PART B)
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the supervision
and direction of the Fund's Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. The aggregate assets of these funds on February 29,
1996 were approximately $10,645,322,000. Investment advisory services are also
provided to institutional accounts with assets on February 29, 1996 of
approximately $18,852,783,000.
The Investment Management Agreement for the Fund is dated April 3, 1995
and was approved by shareholders on March 29, 1995.
The Agreement has an initial term of two years and may be renewed each
year only so long as such renewal and continuance are specifically approved at
least annually by the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund, and only if the terms and the renewal
thereof have been approved by the vote of a majority of trustees of the Fund who
are not parties thereto or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Agreement is
terminable without penalty on 60 days' notice by the trustees of the Fund or by
the Manager. The Agreement will terminate automatically in the event of its
assignment.
The Investment Management Agreement provides that the Fund shall pay
the Manager a management fee equal to (on an annual basis) .60% on the first
$500 million of the Fund's average daily net assets, .575% on the next $250
million and .55% on the average daily net assets in excess of $750 million, less
all trustees' fees paid to the unaffiliated trustees of the Fund.
On February 29, 1996, the total net assets of the Fund were
$1,023,872,263. Investment management fees paid by the Fund for the past three
fiscal years were $5,790,585 for 1994, $5,743,977 for 1995 and $5,877,033 for
1996.
Under the general supervision of the Board of Trustees, the Manager
makes all investment decisions which are implemented by the Fund. The Manager
pays the salaries of all trustees, officers and employees of the Fund who are
affiliated with the Manager. The Fund pays all of its other expenses, including
its proportionate share of rent and certain other administrative expenses. The
ratios of expenses to average daily net assets for Class A Shares and Class B
Shares for the fiscal year ended February 29, 1996 were 0.90% and 1.71%,
respectively. Each ratio reflects the impact of each Class' respective 12b-1
Plan. The Fund anticipates that the ratio of expenses to average daily net
assets of Class C Shares will be approximately equal to that of the Class B
Shares.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor under a Distribution
Agreement dated April 3, 1995, as amended on November 29, 1995. The Distributor
is an affiliate of the Manager and bears all of the costs of promotion and
distribution, except for payments by Class A Shares, Class B Shares and Class C
Shares under their respective 12b-1 Plans. Prior to January 3, 1995, Delaware
Distributors, Inc. ("DDI") served as the national distributor of the Fund's
shares. On that date, Delaware Distributors, L.P., a newly formed limited
partnership, succeeded to the business of DDI. All officers and employees of
DDI became officers and employees of Delaware Distributors, L.P. DDI is the
corporate general partner of Delaware Distributors, L.P. and both DDI and
Delaware Distributors, L.P. are indirect, wholly-owned subsidiaries of Delaware
Management Holdings, Inc.
-35-
<PAGE>
(SAI-PA/PART B)
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
the Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement dated June 29, 1988. The Transfer
Agent is also an indirect, wholly-owned subsidiary of Delaware Management
Holdings, Inc.
-36-
<PAGE>
(SAI-PA/PART B)
OFFICERS AND TRUSTEES
The business and affairs of the Fund are managed under the direction of
its Board of Trustees.
Certain officers and trustees of the Fund hold identical positions in
each of the other funds in the Delaware Group. On March 31, 1996, the Fund's
officers and trustees, as a group, owned less than 1% of the outstanding shares
of the Class A Shares, Class B Shares and Class C Shares, respectively.
As of March 29, 1996, management believes Merrill, Lynch, Pierce,
Fenner & Smith Inc., Mutual Fund Operations, P.O. Box 41621, Jacksonville, FL
32203 held of record for the benefit of others 7,199,531 shares (6.11%) of the
outstanding shares of the Class A Shares. As of the same date, management
believes Merrill, Lynch, Pierce, Fenner & Smith Inc., Mutual Fund Operations,
Attention Book Entry, 4800 Deer Lake Drive East, 3rd Fl., Jacksonville, FL 32246
held of record for the benefit of others 158,405 shares (6.15%) of the
outstanding shares of the Class B Shares. Also, as of the same date, management
believes Jerry Tomchick and Madeline R. Tomchick, 668 South 5th Ave.,
Royersford, PA 19468 held 11,554 shares (36.72%); Luis Vera and Ana Arreaga,
12601 Chilton Rd., Philadelphia, PA 19154 held 7,101 shares (22.56%); Alan
Toltzis and Claudia Rosenberg, 664 Leslie Ln., Yardley, PA 19067 held 3,559
shares (11.31%); Delaware Management Company, Inc., Attn. Joseph H. Hastings,
1818 Market Street, Philadelphia, PA 19103 held for the benefit of others 2,983
shares (9.48%); and Robert L. DiPaolo and Lucia V. DiPaolo, 1204 Dogwood Dr.,
Reading, PA 19609 held 2,947 shares (9.37%) of the outstanding shares of the
Class C Shares.
DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings Ltd., Founders
Holdings, Inc., Delaware International Advisers Ltd., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc. are direct
or indirect, wholly-owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly-owned subsidiary of
Lincoln National Corporation ("Lincoln National") was completed. In connection
with the merger, a new Investment Management Agreement between the Fund and the
Manager was executed following shareholder approval. DMH and the Manager are now
wholly-owned subsidiaries, and subject to the ultimate control of, Lincoln
National. Lincoln National, with headquarters in Fort Wayne, Indiana, is a
diversified organization with operations in many aspects of the financial
services industry, including insurance and investment management.
Trustees and principal officers of the Fund are noted below along with
their ages and their business experience for the past five years. Unless
otherwise noted, the address of each officer and trustee is One Commerce Square,
Philadelphia, PA 19103.
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(SAI-PA/PART B)
*Wayne A. Stork (58)
Chairman, President, Chief Executive Officer, Trustee and/or Director
of the Fund, 15 other investment companies in the Delaware Group
(which excludes Delaware Pooled Trust, Inc.), Delaware Management
Holdings, Inc., DMH Corp., Delaware International Holdings Ltd.
and Founders Holdings, Inc.
Chairman and Director of Delaware Pooled Trust, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
Winthrop S. Jessup (50)
Executive Vice President of the Fund and 15 other investment companies
in the Delaware Group (which excludes Delaware Pooled Trust,
Inc.) and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Capital Management, Inc.
Executive Vice President and Director of DMH Corp., Delaware Management
Company, Inc., Delaware International Holdings Ltd. and Founders
Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc., Delaware International
Advisers Ltd., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various executive
capacities at different times within the Delaware organization.
Richard G. Unruh, Jr. (56)
Executive Vice President of the Fund and each of the other 16
investment companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company,
Inc.
Senior Vice President of Delaware Management Holdings, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.
*Trustee affiliated with the Fund's investment manager and considered an
"interested person" as defined in the Investment Company Act of 1940.
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(SAI-PA/PART B)
Paul E. Suckow (48)
Executive Vice President/Chief Investment Officer, Fixed Income of the
Fund, each of the other 16 investment companies in the Delaware
Group and Delaware Management Company, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of
Delaware Management Holdings, Inc.
Senior Vice President and Director of Founders Holdings, Inc.
Director of Founders CBO Corporation.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed income portfolio
manager for the Delaware Group.
Walter P. Babich (68)
Trustee and/or Director of the Fund and each of the other 16 investment
companies in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
Anthony D. Knerr (57)
Trustee and/or Director of the Fund and each of the other 16 investment
companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989,
he was also a lecturer in English at the University. In addition,
Mr. Knerr was Chairman of The Publishing Group, Inc., New York,
from 1988 to 1990. Mr. Knerr founded The Publishing Group, Inc.
in 1988.
Ann R. Leven (55)
Trustee and/or Director of the Fund and each of the other 16 investment
companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of
the Smithsonian Institution, Washington, DC, and from 1975 to
1992, she was Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (75)
Trustee and/or Director of the Fund and each of the other 16 investment
companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
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(SAI-PA/PART B)
Charles E. Peck (70)
Trustee and/or Director of the Fund and each of the other 16 investment
companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer
of The Ryland Group, Inc., Columbia, MD.
David K. Downes (56)
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of the Fund, each of the other 16 investment companies in
the Delaware Group and Delaware Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer/Treasurer of Delaware Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director of
DMH Corp.
Senior Vice President/Chief Administrative Officer and Director of
Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware
Distributors, L.P.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer and Director of Delaware Service Company, Inc.
Chief Financial Officer and Director of Delaware International Holdings
Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware
Capital Management, Inc.
Senior Vice President and Director of Founders Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer of
Equitable Capital Management Corporation, New York, from December
1985 through August 1992, Executive Vice President from December
1985 through March 1992 and Vice Chairman from March 1992 through
August 1992.
George M. Chamberlain, Jr. (49)
Senior Vice President and Secretary of the Fund, each of the other 16
investment companies in the Delaware Group, Delaware Management
Holdings, Inc. and Delaware Distributors, L.P.
Executive Vice President, Secretary and Director of Delaware Management
Trust Company.
Senior Vice President, Secretary and Director of DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc., Delaware
Service Company, Inc., Delaware Investment & Retirement Services,
Inc. and Delaware Capital Management, Inc.
Corporate Vice President, Secretary and Director of Founders Holdings,
Inc.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware organization.
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(SAI-PA/PART B)
J. Michael Pokorny (56)
Vice President/Senior Portfolio Manager of the Fund, of nine other
income (including tax-exempt) investment companies in the
Delaware Group and of Delaware Management Company, Inc.
During the past five years, Mr. Pokorny has served in such capacities
within the Delaware organization.
Joseph H. Hastings (46)
Vice President/Corporate Controller of the Fund, each of the other 16
investment companies in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Capital Management,
Inc., Founders Holdings, Inc. and Delaware International Holdings
Ltd.
Chief Financial Officer/Treasurer of Delaware Investment & Retirement
Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief
Financial Officer for Prudential Residential Services, L.P., New
York, NY from 1989 to 1992. Prior to that, Mr. Hastings served as
Controller and Treasurer for Fine Homes International, L.P.,
Stamford, CT from 1987 to 1989.
Michael P. Bishof (33)
Vice President/Treasurer of the Fund, each of the other 16 investment
companies in the Delaware Group, Delaware Management Company,
Inc., Delaware Distributors, Inc., Delaware Distributors, L.P.,
Delaware Service Company, Inc., Founders Holdings, Inc. and
Founders CBO Corporation.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from 1987
to 1993.
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(SAI-PA/PART B)
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from the Fund and
the total compensation received from all Delaware Group funds for the fiscal
year ended February 29, 1996 and an estimate of annual benefits to be received
upon retirement under the Delaware Group Retirement Plan for Directors/Trustees
as of February 29, 1996.
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued Benefits from all 17
Compensation as Part of Upon Delaware
Name from Fund Fund Expenses Retirement* Group Funds
<S> <C> <C> <C> <C>
W. Thacher Longstreth $3,220 None $18,100 $51,916
Ann R. Leven $3,723 None $18,100 $60,052
Walter P. Babich $3,618 None $18,100 $57,916
Anthony D. Knerr $3,657 None $18,100 $59,052
Charles E. Peck $3,220 None $18,100 $51,916
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for Directors/
Trustees, each disinterested trustee who, at the time of his or her
retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund in the Delaware Group for a period equal to the lesser of
the number of years that such person served as a trustee/director or the
remainder of such person's life. The amount of such payments will be equal,
on an annual basis, to the amount of the annual retainer that is paid to
trustees/directors of each fund at the time of such person's retirement. If
an eligible trustee/director retired as of February 29, 1996, he or she
would be entitled to annual payments totaling $18,100, in the aggregate,
from all of the funds in the Delaware Group, based on the number of funds
in the Delaware Group as of that date.
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(SAI-PA/PART B)
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Group are set forth
in the relevant prospectuses for such classes. The following supplements that
information. The Fund may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting such an exchange will be sent a current
prospectus and an authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Group. This service is
automatically provided unless the Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 to effect an exchange. The
shareholder's current Fund account number must be identified, as well as the
registration of the account, the share or dollar amount to be exchanged and the
fund into which the exchange is to be made. Requests received on any day after
the time the offering price and net asset value are determined will be processed
the following day. See Determining Offering Price and Net Asset Value. Any new
account established through the exchange will automatically carry the same
registration, shareholder information and dividend option as the account from
which the shares were exchanged. The exchange requirements of the fund into
which the exchange is being made, such as sales charges, eligibility and
investment minimums, must be met. (See the prospectus of the fund desired or
inquire by calling the Transfer Agent.)
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and the Fund reserve the right to
record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
As described in the Fund's Prospectus, neither the Fund nor its
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.
Right to Refuse Timing Accounts
With regard to accounts that are
administered by market timing services ("Timing Firms") to purchase or redeem
shares based on changing economic and market conditions ("Timing Accounts"), the
Fund will refuse any new timing arrangements, as well as any new purchases (as
opposed to exchanges) in Delaware Group funds from Timing Firms. The Fund
reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any person whose
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(SAI-PA/PART B)
transactions seem to follow a timing pattern who: (i) makes an exchange request
out of the Fund within two weeks of an earlier exchange request out of the Fund,
(ii) makes more than two exchanges out of the Fund per calendar quarter, or
(iii) exchanges shares equal in value to at least $5 million, or more than 1/4
of 1% of the Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase shares based upon
certain predetermined market indicators, will be aggregated for purposes of the
exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Group funds: (1) Decatur
Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term
Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) the Fund. No other Delaware Group funds will be
available for timed exchanges. Assets redeemed or exchanged out of Timing
Accounts in Delaware Group funds not listed above may not be reinvested back
into that Timing Account. The Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
time pattern (as described above).
The Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other
Delaware Group funds:
Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.
Value Fund seeks capital appreciation by investing primarily in common
stocks whose market values appear low relative to their underlying value or
future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Decatur Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Decatur Total Return Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
Government securities and commercial paper.
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
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(SAI-PA/PART B)
guaranteed by the U.S. Government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. Tax-Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.
Tax-Free Money Fund seeks high current income, exempt from federal income
tax, by investing in short-term municipal obligations, while maintaining a
stable net asset value.
International Equity Fund seeks to achieve long-term growth without undue
risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth.
Delaware Group Premium Fund offers nine funds available exclusively as
funding vehicles for certain insurance company separate accounts. Equity/Income
Series seeks the highest possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while providing higher than
average dividend income. High Yield Series seeks as high a current income as
possible by investing in rated and unrated corporate bonds, U.S. Government
securities and commercial paper. Capital Reserves Series seeks a high stable
level of current income while minimizing fluctuations in principal by investing
in a diversified portfolio of short- and intermediate-term securities. Money
Market Series seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Growth Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. Multiple Strategy Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Emerging Growth Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
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(SAI-PA/PART B)
For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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(SAI-PA/PART B)
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager or its
affiliate, Delaware International Advisers Ltd., also manages the other funds in
the Delaware Group. The Manager, through a separate division, also manages
private investment accounts. While investment decisions for the Fund are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Fund.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Fund and for the
other mutual funds in the Delaware Group. As previously described, prior to
January 3, 1995, DDI served as the national distributor for the Fund. The
Distributor, and, in its capacity as such, DDI, received net commissions from
the Fund on behalf of Class A Shares after reallowances to dealers, as follows:
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commissions to Dealers to DDLP/DDI
- -------- --------------- ---------- -----------
2/29/96 $1,812,149 $1,508,209 $303,940
2/28/95 2,314,576 1,933,079 381,497
2/28/94 5,279,191 4,394,782 884,409
For the fiscal year ended February 28, 1994, there were no Limited CDSC
payments received with respect to Class A Shares. For the fiscal year ended
February 28, 1995, the Distributor, and, in its capacity as the Fund's national
distributor, DDI, received Limited CDSC payments in the aggregate amount of
$9,359 with respect to the Class A Shares. For the fiscal year ended February
29, 1996, there were no Limited CDSC payments received with respect to Class A
Shares.
For the period May 2, 1994 (date of initial public offering) through
February 28, 1995, the Distributor, and, in its capacity as the Fund's national
distributor, DDI, received CDSC payments in the aggregate amount of $4,941 with
respect to the Class B Shares. For the fiscal year ended February 29, 1996, the
Distributor received CDSC payments in the amount of $47,610 with respect to
Class B Shares.
For the period November 29, 1995 (date of initial public offering)
through February 29, 1996, there were no CDSC payments received with respect to
Class C Shares.
Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Group. The Transfer Agent is paid a fee by the Fund
for providing these services consisting of an annual per account charge of
$11.00 plus transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Trustees, including
a majority of the unaffiliated trustees.
Morgan Guaranty Trust Company of New York ("Morgan"), 60 Wall Street,
New York, NY 10260, is custodian of the Fund's securities and cash. As custodian
for the Fund, Morgan maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account of the Fund;
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(SAI-PA/PART B)
receives and disbursements of money on behalf of the Fund; and collects and
receives income and other payments and distributions on account of the Fund's
portfolio securities.
Shareholder and Trustee Liability
Under Pennsylvania law, shareholders of the Fund may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the trustees, but this disclaimer may not be effective
in some jurisdictions or as to certain types of claims. The Declaration of Trust
provides for indemnification out of the Fund property of any shareholder held
personally liable for the obligations of the Fund. The Declaration of Trust also
provides that the Fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the 1940 Act, has been passed upon for the Fund by
Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania.
Capitalization
DMC Tax-Free Income Trust-Pennsylvania (which, as of May 18, 1992, is
known and does business as Tax-Free Pennsylvania Fund) offers three classes of
shares, Class A Shares, Class B Shares and Class C Shares, and has an unlimited
authorized number of shares of beneficial interest with no par value allocated
to each Class. All shares have equal voting rights, no preemptive rights, are
fully transferable and, when issued, are fully paid and nonassessable. Class A
Shares, Class B Shares and Class C Shares represent a proportionate interest in
the assets of the Fund and have the same voting and other rights and
preferences, except that shareholders of the Class A Shares, Class B Shares and
Class C Shares may vote only on matters affecting the 12b-1 Plan that relates to
the class of shares that they hold. However, Class B Shares may vote on any
proposal to increase materially the fees to be paid by the Fund under the Plan
relating to Class A Shares. General expenses of the Fund will be allocated on a
pro-rata basis to the Classes according to asset size, except that expenses of
the 12b-1 Plans of Class A Shares, Class B Shares and Class C Shares will be
allocated solely to those classes.
Prior to May 2, 1994, Tax-Free Pennsylvania Fund A Class was known as
Tax-Free Pennsylvania Fund class.
Noncumulative Voting
The Fund's shares have noncumulative voting rights which means that the
holders of more than 50% of the shares of the Fund voting for the election of
trustees can elect all the trustees if they choose to do so, and, in such event,
the holders of the remaining shares will not be able to elect any trustees.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.
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(SAI-PA/PART B)
APPENDIX A--DESCRIPTION OF RATINGS
Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to
be the best quality. They carry the smallest degree of investment risk;
Aa--judged to be of high quality by all standards; A--possess favorable
attributes and are considered "upper medium" grade obligations; Baa--considered
as medium grade obligations. 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; Ba--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--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--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.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--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 and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
State and Municipal Notes
MIG-1/VMIG-1--Notes bearing either of these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2--Notes bearing either of these designations are of high
quality, with margins of protection ample although not so large as in the
preceding group.
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
-49-
<PAGE>
SAI-PA-CHT
APPENDIX B-TAX EXEMPT vs TAXABLE YIELDS
<TABLE>
<CAPTION>
1996 Rates Tax Free Yield--5.0%
---------------------- -----------------------------------------------------
Taxable Income Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Single Return Joint Return Fed State Income Equivalent Equivalent Equivalent(1) Equivalent(2)
- --------------------- ------------------- ------ ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 15% 2.8% 5.88% 6.46% 7.29% 6.81%
$24,001-58,150 $40,101-96,900 28% 2.8% 6.94% 7.56% 8.38% 7.96%
$58,151-121,300 $96,901-147,700 31% 2.8% 7.25% 7.87% 8.69% 8.29%
$121,301-263,750 $147,701-263,750 36%+ 2.8% 7.81% 8.45% 9.27% 8.90%
Over $263,750 Over $263,750 39.6%+ 2.8% 8.28% 8.93% 9.75% 9.41%
Tax Free Yield--6.0%
------------------------------------------------------
Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Equivalent Equivalent Equivalent(1) Equivalent(2)
---------- ---------- ------------- -------------
<C> <C> <C> <C>
7.06% 7.67% 8.50% 8.09%
8.33% 8.98% 9.81% 9.47%
8.70% 9.36% 10.18% 9.86%
9.38% 10.06% 10.88% 10.60%
9.93% 10.63% 11.45% 11.20%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 Rates Tax Free Yield--7.0%
---------------------- -----------------------------------------------------
Taxable Income Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Single Return Joint Return Fed State Income Equivalent Equivalent Equivalent(1) Equivalent(2)
- --------------------- ------------------- ------ ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-24,000 $0-40,100 15% 2.8% 8.24% 8.88% 9.71% 9.36%
$24,001-58,150 $40,101-96,900 28% 2.8% 9.72% 10.41% 11.24% 10.97%
$58,151-121,300 $96,901-147,700 31% 2.8% 10.14% 10.85% 11.67% 11.43%
$121,301-263,750 $147,701-263,750 36%+ 2.8% 10.94% 11.66% 12.49% 12.29%
Over $263,750 Over $263,750 39.6%+ 2.8% 11.59% 12.33% 13.16% 13.00%
Tax Free Yield--8.0%
-----------------------------------------------------
Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Equivalent Equivalent Equivalent(1) Equivalent(2)
---------- ---------- ------------- -------------
<C> <C> <C> <C>
9.41% 10.09% 10.92% 10.64%
11.11% 11.84% 12.67% 12.48%
11.59% 12.34% 13.16% 13.00%
12.50% 13.27% 14.09% 13.99%
13.25% 14.04% 14.86% 14.79%
</TABLE>
Equivalent yields are based on a fixed $1,000 investment with all taxes
deducted from income. Included in all areas are the effects of: federal
income tax minus savings from itemizing state and local taxes, a 2.8%
Pennsylvania income tax and a 4 mill county personal property tax. (1)
Pittsburgh equivalent yields also include 4 mill city and 4 mill school
property taxes. (2) Philadelphia equivalent yields also include the 4.96%
school income tax. While it is expected that the Fund will invest primarily
in obligations exempt from taxes, other income received by the Fund may be
taxable. The yield used in the illustration should not be considered
representative of the Fund's yield at any specific time.
+ For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
<PAGE>
(SAI-PA/PART B)
APPENDIX C
Investing in Pennsylvania Tax-Exempt Obligations
The following information constitutes only a brief summary, does not
purport to be a complete description, and is derived from official statements
prepared in connection with the issuance of bonds and notes of the Commonwealth
of Pennsylvania (the "Commonwealth") and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of the
Commonwealth or of local government units located in the Commonwealth. The Fund
has not independently verified this information.
The fiscal years 1990 through 1994 were marked by public health and welfare
costs growing at a rate double the growth rate for all state expenditures.
During this period, public health and welfare costs rose by an average annual
rate of 9.4% while tax revenues were growing at an average annual rate of 5.8%.
Consequently, spending on other budget programs was restrained to a growth rate
of 4.7%, and sources of revenues other than taxes (including transfers from
other Commonwealth funds and hospital and nursing home pooling of contributions
to use as federal matching funds) became larger components of fund revenues.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in its fiscal year-end unappropriated General Fund balance.
The fiscal 1995 unappropriated surplus (prior to reserves for transfer to the
Tax Stabilization Fund) was $540 million, an increase of $204.2 million over the
fiscal 1994 unappropriated surplus (prior to transfers). Commonwealth revenues
totalled $16,224.6 million, $459.4 million (2.9%) above the estimate of revenues
used at the time the budget was enacted. The higher than estimated revenues from
tax sources were due to faster economic growth in the national and state economy
than had been projected when the budget was adopted. Expenditures from
Commonwealth revenues (excluding pooled financing expenditures), including $65.5
million of supplemental appropriations enacted at the close of the 1995 fiscal
year, totaled $15,674 million, representing an increase of 5% over spending
during fiscal 1994.
The enacted fiscal 1996 budget provides for expenditures from Commonwealth
revenues of $16,161.7 million, a 2.7% increase over total appropriations from
Commonwealth revenues in fiscal 1995. The fiscal 1996 budget is based on
anticipated Commonwealth revenues, net of enacted tax changes but prior to tax
refunds, of $16.27 billion, an increase over actual fiscal 1995 Commonwealth
revenues of .3%. Excluding the estimated effects of the tax changes enacted in
1994 and 1995, Commonwealth revenues for fiscal 1996 are estimated to increase
by approximately 2.9%. Tax changes (reductions) enacted with the fiscal 1996
budget totaled $282.9 million, representing an approximate 1.7% of base
revenues. The largest dollar value changes were in the corporate net income tax
where the scheduled 1997 reduction of the tax rate to 9.99% was accelerated to
the 1995 tax year; a double weighing was provided for the sales factor of the
corporate net income tax apportionment calculation; and the maximum allowance
for the net operating loss deduction was increased from $500,000 to $1 million.
The fiscal 1996 cost of these corporate net income tax changes is estimated to
be $210.8 million. Other major components of the tax reduction include a $12.1
million decrease for the capital stock and franchise tax from an increase in the
exemption amount; $24.7 million from the repeal of the tax on annuities; and
$27.9 million from an acceleration of the scheduled phase-out of the inheritance
tax on transfers of certain property to a surviving spouse. A 90-day amnesty
program was also authorized in the tax bill and will be available to taxpayers
from mid-October 1995 through mid-January 1996.
Nonagricultural employment in the Commonwealth declined by 5.1% during
the recessionary period from 1980 to 1983. In 1984, the declining trend was
reversed as employment grew by 2.9% over 1983 levels. From 1983 to 1990,
Commonwealth employment continued to grow each year, increasing an additional
-50-
<PAGE>
(SAI-PA/PART B)
14.3%. For the last three years, employment in the Commonwealth has increased
2.0%. The unemployment rate in Pennsylvania as of October 1995 stood at a
seasonally adjusted rate of 5.1%. The seasonally adjusted national unemployment
rate for October 1995 was 5.5%.
The current Constitutional provisions pertaining to Commonwealth debt
permit the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster; (ii)
electorate-approved debt; (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years; and (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes must be
amortized in substantial and regular amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that
issued for highway purposes or the benefit of other special revenue funds, is
payable from Pennsylvania's General Fund, which receives all Commonwealth
revenues that are not specified by law to be deposited elsewhere. As of June 30,
1995, the Commonwealth had $5,045 million of general obligation debt
outstanding.
Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania Housing Finance Agency
("PHFA"), a state agency which provides financing for housing for lower and
moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally handicapped. PHFA's bonds, but
not its notes, are partially secured by a capital reserve fund required to be
maintained by PHFA in an amount equal to the maximum annual debt service on its
outstanding bonds in any succeeding calendar year. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital reserve
fund.
Certain state-created agencies have statutory authorization to incur
debt for which state appropriations to pay debt service thereon is not required.
The debt of these agencies is supported by assets of, or revenues derived from,
the various projects financed and is not an obligation of the Commonwealth. Some
of these agencies, however, are indirectly dependent on Pennsylvania
appropriations. In addition, the Commonwealth maintains pension plans covering
state employees, public school employees and employees of certain state-related
organizations. For their fiscal years ended in 1994 the State Employees'
Retirement System had a $249 million surplus and the Public School Employees'
Retirement System had a total unfunded actuarial accrued liability of $3,797
million.
The City of Philadelphia is the largest city in the Commonwealth with
an estimated population of 1,585,577 according to the 1990 Census. Legislation
providing for the establishment of Pennsylvania Intergovernmental Cooperation
Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
enacted by the Pennsylvania General Assembly and approved by the Governor in
June 1991. PICA is designed to provide assistance through the issuance of
funding debt and to make factual findings and recommendations to Philadelphia
concerning its budgetary and fiscal affairs. At this time, Philadelphia is
operating under a five year fiscal plan approved by PICA on April 17, 1995, as
modified in July 1995.
To date, PICA has issued $1.42 billion of its Special Tax Revenue
Bonds. This financial assistance has included the refunding of certain general
obligation bonds, funding of capital projects and the liquidation of the
cumulative General Fund balance deficit as of June 30, 1992 of $224.9 million.
The audited General Fund balance of Philadelphia as of June 30, 1994 reflects a
surplus of approximately $15.4 million, up from approximately $3 million as of
June 30, 1993. Preliminary unaudited financial statements as of June 30, 1995
projected a surplus approximating $59.6 million and published news accounts
indicate that the official surplus was $80.5 million.
-51-
<PAGE>
(SAI-PA/PART B)
There is various litigation pending against the Commonwealth, its
officers and employees. In 1978, the Pennsylvania General Assembly approved a
limited waiver of sovereign immunity. Damages for any loss are limited to
$250,000 for each person and $1 million for each accident. The Supreme Court
held that this limitation is constitutional. Approximately 3,500 suits against
the Commonwealth are pending, some of which, if decided adversely to the
Commonwealth, could have a material adverse impact on governmental operations.
-52-
<PAGE>
(SAI-PA/PART B)
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for the Fund and,
in its capacity as such, audits the financial statements contained in the Fund's
Annual Report. The Fund's Statement of Net Assets, Statement of Operations,
Statements of Changes in Net Assets, and Notes to Financial Statements, as well
as the report of Ernst & Young LLP, independent auditors, for the fiscal year
ended February 29, 1996, are included in the Fund's Annual Report to
shareholders. The financial statements, the notes relating thereto and the
report of Ernst & Young LLP listed above are incorporated by reference from the
Annual Report into this Part B.
-53-
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
PART C
------
Other Information
-----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Accountant's Report
* The financial statements and Accountant's Report listed above
are incorporated by reference into Part B from the
Registrant's Annual Report for the fiscal year ended February
29, 1996.
(b) Exhibits:
(1) Declaration of Trust. Declaration of Trust, as amended
through November 27, 1995, incorporated into this filing by
reference to Post-Effective Amendment No. 35 filed November
27, 1995.
(2) Procedural Guidelines.
(a) Procedural Guidelines, as amended through November 27,
1995 incorporated into this filing by reference to
Post-Effective Amendment No. 34 filed April 28, 1995.
(b) Amendment to Procedural Guidelines (April 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(3) Voting Trust Agreement. Inapplicable.
i
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
(4) Copies of All Instruments Defining the Rights of Holders.
(a) Declaration of Trust. Articles V and IX of the Declaration
of Trust (February 28, 1977) and Article V, as amended
(February 17, 1994), of the Declaration of Trust
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(b) Procedural Guidelines. Articles II, IV, as amended, and
VII of the Procedural Guidelines incorporated into this
filing by reference to Post-Effective Amendment No. 34
filed April 28, 1995.
(5) Investment Management Agreement. Investment Management
Agreement between Delaware Management Company, Inc. and the
Registrant dated April 3, 1995 incorporated into this filing
by reference to Post-Effective Amendment No. 34 filed April
28, 1995.
(6) (a) Distribution Agreement.
(i) Form of Distribution Agreement (April 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27,
1995.
(ii) Form of Amendment No. 1 to Distribution Agreement
(November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 35 filed
November 27, 1995.
(b) Administration and Service Agreement. Form of
Administration and Service Agreement (as amended November
1995) incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(c) Dealer's Agreement. Dealer's Agreement (as amended
November 1995) incorporated into this filing by reference
to Post-Effective Amendment No. 35 filed November 27,
1995.
(d) Mutual Fund Agreement for the Delaware Group of Funds (as
amended November 1995) included as Module.
ii
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
(7) Bonus, Profit Sharing, Pension Contracts.
(a) Amended and Restated Profit Sharing Plan (November 17,
1994) incorporated into this filing by reference to
Post-Effective Amendment No. 34 filed April 28, 1995.
(b) Amendment to Profit Sharing Plan (December 21, 1995)
included as Module.
(8) Custodian Agreement. Incorporated into this filing by
reference to Post-Effective Amendment No. 24 filed February
28, 1989 and Post-Effective Amendment No. 26 filed April 27,
1990.
(9) Other Material Contracts. Shareholders Services Agreement
incorporated into this filing by reference to Post-Effective
Amendment No. 24 filed February 28, 1989.
(10) Opinion of Counsel. Filed with letter relating to Rule 24f-2
on March 27, 1996.
(11) Consent of Auditors. Attached as Exhibit.
(12-14) Inapplicable.
(15) Plans under Rule 12b-1.
(a) Form of Plan under Rule 12b-1 for Class A (November 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(b) Form of Plan under Rule 12b-1 for Class B (November 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(c) Form of Plan under Rule 12b-1 for Class C (November 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(16) Schedules of Computation for each Performance Quotation.
Incorporated into this filing by reference to Post-Effective
Amendment No. 34 filed April 28, 1995 and Post-Effective
Amendment No. 35 filed November 27, 1995.
Schedules of Computation for each Performance Quotation for
periods not previously electronically filed attached as
Exhibit.
(17) Financial Data Schedules. Attached as Exhibit.
iii
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
(18) Inapplicable.
(19) Other: Trustees' Power of Attorney. Incorporated into this
filing by reference to Post-Effective Amendment No. 34
filed April 28, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant. None.
--------------------------------------------------------------
Item 26. Number of Holders of Securities.
--------------------------------
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
DMC Tax-Free Income Trust - Pennsylvania's:
Tax-Free Pennsylvania Fund A Class
Shares of Beneficial Interest 23,388 Accounts as
with No Par Value Per Share of March 31, 1996
Tax-Free Pennsylvania Fund B Class
Shares of Beneficial Interest 798 Accounts as
with No Par Value Per Share of March 31, 1996
Tax-Free Pennsylvania Fund C Class
Shares of Beneficial Interest 8 Accounts as of
with No Par Value Per Share March 31, 1996
Item 27. Indemnification. Incorporated into this filing by reference to
Post-Effective Amendment No. 10 filed May 12, 1980.
iv
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
Item 28. Business and Other Connections of Investment Adviser.
----------------------------------------------------
Delaware Management Company, Inc. (the "Manager") or its affiliate,
Delaware International Advisers Ltd., also serves as investment manager or
sub-adviser to the other funds in the Delaware Group (Delaware Group Delaware
Fund, Inc., Delaware Group Trend Fund, Inc., Delaware Group Value Fund, Inc.,
Delaware Group DelCap Fund, Inc., Delaware Group Decatur Fund, Inc., Delaware
Group Delchester High-Yield Bond Fund, Inc., Delaware Group Government Fund,
Inc., Delaware Group Limited-Term Government Funds, Inc., Delaware Group Cash
Reserve, Inc., Delaware Group Tax-Free Fund, Inc., Delaware Group Tax-Free Money
Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Dividend
and Income Fund, Inc., and Delaware Group Global Dividend and Income Fund, Inc.)
and provides investment advisory services to institutional accounts, primarily
retirement plans and endowment funds. In addition, certain directors of the
Manager also serve as directors/trustees of the other Delaware Group funds, and
certain officers are also officers of these other funds. A company indirectly
owned by the Manager's parent company acts as principal underwriter to the
mutual funds in the Delaware Group (see Item 29 below) and another such company
acts as the shareholder servicing, dividend disbursing and transfer agent for
all of the mutual funds in the Delaware Group.
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management Company, Inc.; President,
Chief Executive Officer, Chairman of the Board and Trustee of the
Registrant; President, Chief Executive Officer, Chairman of the Board and
Director of each of the other funds in the Delaware Group and, with the
exception of Delaware Pooled Trust, Inc., Delaware Management Holdings,
Inc., DMH Corp., Delaware International Holdings Ltd. and Founders
Holdings, Inc.; Chairman of the Board and Director of Delaware Pooled
Trust, Inc., Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Chairman, Chief Executive Officer and Director of
Delaware International Advisers Ltd.; and Director of Delaware Distributors,
Inc. and Delaware Service Company, Inc.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
v
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
Winthrop S. Jessup Executive Vice President and Director of Delaware Management Company, Inc., DMH
Corp., Delaware International Holdings Ltd. and Founders Holdings, Inc.;
Executive Vice President of the Registrant and, with the exception of Delaware
Pooled Trust, Inc., each of the other funds in the Delaware Group and Delaware
Management Holdings, Inc.; President and Chief Executive Officer of Delaware
Pooled Trust, Inc.; Vice Chairman of Delaware Distributors, L.P.; Vice Chairman
and Director of Delaware Distributors, Inc.; Director of Delaware Service
Company, Inc., Delaware Management Trust Company, Delaware International Advisers
Ltd. and Delaware Investment & Retirement Services, Inc.; and President and
Director of Delaware Capital Management, Inc.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management Company, Inc.;
Executive Vice President of the Registrant and each of the other funds in the
Delaware Group; Senior Vice President of Delaware Management Holdings, Inc.; and
Director of Delaware International Advisers Ltd.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company
since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Chairman of
Finance Committee, Mid Atlantic, Inc. since 1989, 2040 Market Street,
Philadelphia, PA
Paul E. Suckow Executive Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Company, Inc., the Registrant and each of the other funds in the
Delaware Group; Senior Vice President/Chief Investment Officer, Fixed Income of
Delaware Management Holdings, Inc.; Senior Vice President and Director of
Founders Holdings, Inc.; and Director of Founders CBO Corporation
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
vi
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
David K. Downes Senior Vice President, Chief Administrative Officer and Chief Financial Officer
of Delaware Management Company, Inc., the Registrant and each of the other funds
in the Delaware Group; Chairman and Director of Delaware Management Trust
Company; Senior Vice President, Chief Administrative Officer, Chief Financial
Officer and Treasurer of Delaware Management Holdings, Inc.; Senior Vice
President, Chief Financial Officer, Treasurer and Director of DMH Corp.; Senior
Vice President, Chief Administrative Officer and Director of Delaware
Distributors, Inc.; Senior Vice President and Chief Administrative Officer of
Delaware Distributors, L.P.; Senior Vice President, Chief Administrative Officer,
Chief Financial Officer and Director of Delaware Service Company, Inc.; Chief
Financial Officer and Director of Delaware International Holdings Ltd.; Senior
Vice President, Chief Financial Officer and Treasurer of Delaware Capital
Management, Inc.; Senior Vice President, Chief Financial Officer and Director of
Founders Holdings, Inc.; Chief Executive Officer and Director of Delaware
Investment & Retirement Services, Inc.; and Director of Delaware International
Advisers Ltd.
Chief Executive Officer, Chief Financial Officer and Treasurer of Forewarn, Inc.
since 1992, 8 Clayton Place, Newtown Square, PA
George M. Chamberlain, Jr. Senior Vice President, Secretary and Director of Delaware Management Company,
Inc., DMH Corp., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Founders Holdings, Inc. and Delaware Investment & Retirement Services, Inc.;
Senior Vice President and Secretary of the Registrant, each of the other funds in
the Delaware Group, Delaware Distributors, L.P., Delaware Capital Management,
Inc. and Delaware Management Holdings, Inc.; Executive Vice President, Secretary
and Director of Delaware Management Trust Company; Secretary and Director of
Delaware International Holdings Ltd.; and Director of Delaware International
Advisers Ltd.
Director of ICI Mutual Insurance Co. since 1992, P.O. Box 730, Burlington, VT
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
vii
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
Richard J. Flannery Managing Director/Corporate Tax & Affairs of Delaware Management Company, Inc.,
Delaware Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware Management
Trust Company, Delaware Capital Management, Inc., Delaware Investment &
Retirement Services, Inc. and Founders CBO Corporation; Vice President of the
Registrant and each of the other funds in the Delaware Group; Managing
Director/Corporate Tax & Affairs and Director of Founders Holdings, Inc.;
Managing Director and Director of Delaware International Holdings Ltd.; and
Director of Delaware International Advisers Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA;
Director and Member of Executive Committee of Stonewall Links, Inc. since 1991,
Bulltown Rd., Elverton, PA
Michael P. Bishof/1/ Vice President and Treasurer of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc. and Founders
Holdings, Inc.; Assistant Treasurer of Founders CBO Corporation; and Vice
President and Manager of Investment Accounting of Delaware International Holdings
Ltd.
Eric E. Miller Vice President and Assistant Secretary of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company, Delaware
Capital Management, Inc., Founders Holdings, Inc. and Delaware Investment &
Retirement Services, Inc.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
viii
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
Richelle S. Maestro Vice President and Assistant Secretary of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Management
Holdings, Inc., Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., DMH Corp., Delaware Management Trust Company,
Delaware Capital Management, Inc., Delaware Investment & Retirement Services,
Inc. and Founders Holdings, Inc.; and Assistant Secretary of Founders CBO
Corporation and Delaware International Holdings Ltd.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Ln.,
Philadelphia, PA
John M. Zerr/2/ Vice President and Assistant Secretary of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.
Secretary and Counsel of Renovisions, Inc. since 1990, 4284 South Dixi Road,
Resaca, GA
Joseph H. Hastings Vice President/Corporate Controller of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Capital Management, Inc., Founders
Holdings, Inc. and Delaware International Holdings Ltd.; Executive Vice
President, Chief Financial Officer and Treasurer of Delaware Management Trust
Company; Chief Financial Officer and Treasurer of Delaware Investment &
Retirement Services, Inc.; and Assistant Treasurer of Founders CBO Corporation
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
ix
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
Bruce A. Ulmer Vice President/Director of Internal Audit of Delaware Management Company, Inc.,
the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp. and Delaware Management Trust Company; and
Vice President/Internal Audit of Delaware Investment & Retirement Services, Inc.
Steven T. Lampe/3/ Vice President/Taxation of Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Management Trust Company, Founders
Holdings, Inc., Founders CBO Corporation and Delaware Capital Management, Inc.
Lisa O. Brinkley/4/ Vice President/Compliance of Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group, DMH Corp., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.
Rosemary E. Milner Vice President/Legal of Delaware Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group, Delaware Distributors, L.P. and
Delaware Distributors, Inc.
Douglas L. Anderson Vice President/Operations of Delaware Management Company, Inc., Delaware Service
Company, Inc. and Delaware Investment & Retirement Services, Inc.; and Vice
President/Operations and Director of Delaware Management Trust Company
Michael T. Taggart Vice President/Facilities Management and Administrative Services of Delaware
Management Company, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders Holdings,
Inc.; and Treasurer and Director of Founders CBO Corporation
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
x
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
J. Michael Pokorny Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management, Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders Holdings,
Inc.; and Secretary and Director of Founders CBO Corporation
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group
Roger A. Early/5/ Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group
Edward N. Antoian Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant and each of the equity funds in the Delaware Group
General Partner of Zeke Investment Partners since 1991, 569 Canterbury Lane,
Berwyn, PA
George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant and each of the equity funds in the Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant and each of the equity funds in the Delaware Group and Delaware
Capital Management, Inc.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
xi
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
<S> <C>
David C. Dalrymple Vice President/Senior Portfolio Manager of Delaware Management Company, Inc., the
Registrant and each of the equity funds in the Delaware Group
Faye P. Staples/6/ Vice President/Human Resources of Delaware Management Company, Inc., Delaware
Distributors, L.P. and Delaware Distributors, Inc.; and Vice President/Director
of Human Resources of Delaware Service Company, Inc.
</TABLE>
1 VICE PRESIDENT/GLOBAL INVESTMENT MANAGEMENT OPERATIONS, Bankers Trust and
VICE PRESIDENT, CS First Boston Investment Management prior to June 1995.
2 ATTORNEY, Ballard, Spahr, Andrews & Ingersoll prior to July 1995.
3 TAX MANAGER, Price Waterhouse prior to October 1995.
4 VICE PRESIDENT AND COMPLIANCE OFFICER, Banc One Securities Corporation
prior to June 1994 and ASSISTANT VICE PRESIDENT AND COMPLIANCE OFFICER,
Aetna Life and Casualty prior to March 1993.
5 SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER, Federated Investors prior to
July 1994.
6 VICE PRESIDENT/HUMAN RESOURCES, Nova Care prior to September 1995.
Item 29. Principal Underwriters.
-----------------------
(a) Delaware Distributors, L.P. serves as principal underwriter for all
the mutual funds in the Delaware Group. Delaware Distributors, L.P.
also serves as underwriter for Lincoln Advisor Funds, Inc.
(b) Information with respect to each director, officer or partner of
principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- --------------------------- --------------------- ------------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Winthrop S. Jessup Vice Chairman Executive Vice President
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
xii
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- --------------------------- --------------------- ------------------------
<S> <C> <C>
Keith E. Mitchell President and Chief None
Executive Officer
David K. Downes Senior Vice President and Senior Vice President/Chief
Chief Administrative Officer Administrative Officer/Chief
Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
J. Lee Cook Senior Vice President/ None
Eastern Sales Division
Stephen H. Slack Senior Vice President/ None
Wholesaler
William F. Hostler Senior Vice President/ None
Marketing Services
Minette van Noppen Senior Vice President/ None
Retirement Services
Thomas E. Sawyer Senior Vice President/ None
Western Sales Division
Dana B. Hall Senior Vice President/ None
Key Accounts
J. Chris Meyer Senior Vice President/ None
Product Development
Richard J. Flannery Managing Director/Corporate Vice President
& Tax Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
xiii
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- --------------------------- --------------------- ------------------------
<S> <C> <C>
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
John M. Zerr Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
Diane M. Anderson Vice President/ None
Retirement Services
Daniel H. Carlson Vice President/Marketing None
Denise F. Guerriere Vice President/Client None
Services
Julia R. Vander Els Vice President/ None
Retirement Services
Jerome J. Alrutz Vice President/ None
Retirement Services
Joanne A. Mettenheimer Vice President/ None
National Accounts
Christopher H. Price Vice President/Annuity None
Marketing & Administration
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
xiv
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- --------------------------- --------------------- ------------------------
<S> <C> <C>
Stephen J. DeAngelis Vice President/ None
Product Development
Susan T. Friestedt Vice President/ None
Customer Service
Dinah J. Huntoon Vice President/ None
Product Management
Jodie L. Johnson Vice President/ None
National Accounts
Ellen M. Krott Vice President/ None
Communications
Holly W. Reimel Vice President/ None
Telemarketing
Thomas S. Butler Vice President/ None
DDI Administration
Frank Albanese Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William S. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Alan D. Kessler Vice President/Wholesaler None
William M. Kimbrough Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
xv
<PAGE>
Form N-1A
File No. 2-57791
DMC Tax-Free Income Trust-Pennsylvania
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- --------------------------- --------------------- ------------------------
<S> <C> <C>
Patrick L. Murphy Vice President/Wholesaler None
Henry W. Orvin Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Michael W. Rose Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Faye P. Staples Vice President/Human None
Resources
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Not Applicable.
Item 30. Location of Accounts and Records.
---------------------------------
All accounts and records are maintained in Philadelphia at 1818 Market
Street, Philadelphia, PA 19103 or One Commerce Square, Philadelphia, PA
19103.
Item 31. Management Services. None.
--------------------
Item 32. Undertakings.
-------------
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual
report to shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal
of any director when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares.
xvi
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 26th day of April, 1996.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
By/s/Wayne A. Stork
--------------------------------------
Wayne A. Stork
Chairman of the Board, President,
Chief Executive Officer and Trustee
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ----------------------------- ----------------------------------- --------------
Chairman of the Board, President,
/s/Wayne A. Stork Chief Executive Officer and Trustee April 26, 1996
- -----------------------------
Wayne A. Stork
Senior Vice President/Chief Financial
Officer/Chief Administrative Officer
(Principal Financial Officer and
/s/David K. Downes Principal Accounting Officer) April 26, 1996
- -----------------------------
David K. Downes
/s/Walter P. Babich * Trustee April 26, 1996
- -----------------------------
Walter P. Babich
/s/Anthony D. Knerr * Trustee April 26, 1996
- -----------------------------
Anthony D. Knerr
/s/Ann R. Leven * Trustee April 26, 1996
- -----------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Trustee April 26, 1996
- -----------------------------
W. Thacher Longstreth
/s/Charles E. Peck * Trustee April 26, 1996
- -----------------------------
Charles E. Peck
</TABLE>
*By/s/Wayne A. Stork
---------------------------------
Wayne A. Stork
as Attorney-in-Fact
for each of the persons indicated
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.B6D Mutual Fund Agreement for the Delaware Group of Funds (as
(Module Name amended November 1995)
MFAGMT95)
EX-99.B7B Amendment to Profit Sharing Plan (December 21, 1995)
(Module Name
AMEND_PROF_SHAR)
EX-99.B11 Consent of Auditors
EX-99.B16 Schedules of Computation for each Performance Quotation for
periods not previously electronically filed
EX-27 Financial Data Schedules
<PAGE>
MUTUAL FUND AGREEMENT
FOR THE DELAWARE GROUP OF FUNDS
Gentlemen:
We are the national distributor for the Delaware Group of Funds with exclusive
right to sell and distribute Fund shares. (The term "Funds" in this Agreement
refers to each or any of the Funds that from time to time comprise the Delaware
Group and for whom we act as distributor.) You have indicated that you wish to
act as agent for your customers in connection with the purchase, sale and
redemption of Fund shares and desire to provide certain services to your
customers relating to their ownership of Fund shares, all in accordance with the
terms of this Agreement.
AGENT FOR CUSTOMERS: In placing orders for the purchase and sale of Fund shares,
you will be acting as agent for your customers and will not have any authority
to act as agent for us, any of the Funds or any of our affiliates or
representatives. Neither you nor any of your employees or agents are authorized
to make any representations concerning the Funds or Fund shares except those
contained in the then current "Prospectus" and in written information issued by
the Fund or by us as a supplement to the Prospectus. In purchasing Fund shares
your customers may rely on such authorized information.
OFFERING PRICE TO PUBLIC: Orders for shares received from you and accepted by
the Fund or its agent, Delaware Service Co., Inc., will be at the public
offering price applicable to each order as set forth in the Prospectus. The
manner of computing the net asset value, the public offering price and the
effective time of orders received from you are described in the Prospectus for
each Fund. We reserve the right at any time, without notice, to suspend the sale
of Fund shares or withdraw the public offering.
SALES, ORDERS AND CONFIRMATIONS: All orders must be made subject to
confirmation. Your orders must be wired, telephoned or written to the Fund or
its agent. You agree to place orders on behalf of your customers for the number
of shares, and at the price, as in bona fide orders from your customers. We will
not accept any conditional orders. We will send a written confirmation of each
trade indicating that the trade was on a fully disclosed basis to your customer.
It is agreed and understood that, whether shares are registered in the
purchaser's name, in your name or in the name of your nominee, your customer
will have full beneficial ownership of the Fund shares.
AGENCY FEES: On each order accepted by us for a Fund with a sales charge, we
understand that you will charge your customer an agency commission or agency
transaction fee ("agency fee") as set forth in the schedule of sales concessions
and agency fees set forth in that Fund's Prospectus, as it may be amended from
time to time. This fee shall be subject to the provisions of all terms set forth
in the Prospectus for volume purchases and special plans and accounts (e.g.
retirement plans, letters of intent, etc.) You will not receive from us a
<PAGE>
dealer's concession or similar allowance out of the sales charge. In accordance
with interpretations by the Staff of the Securities and Exchange Commission (the
"Commission"), the agency fee will be your sole charge to your customers for
placing such orders. You may elect to make payments in either of two ways: (a)
you may send us the public offering price for the Fund shares purchased less the
amount of the agency fee due you or (b) you or your customer may send us the
entire public offering price for the Fund shares and we will, on a periodic
basis, remit to you the agency fee due. You will notify us in writing of which
method of payment you elect. If any shares sold to your customer under the terms
of this Agreement are repurchased by the Fund or by us, or are tendered to a
Fund for redemption or repurchase, within seven (7) business days after the date
of the confirmation of the original purchase order, you will promptly refund to
us full agency fee paid or allowed to you on such shares.
PAYMENT AND ISSUANCE OF CERTIFICATES: Regardless of the payment method elected,
Fund shares purchased by you for your customers hereunder shall be paid for in
full by check payable to the Fund at its office within three business days after
our acceptance of your order. If not so paid, the Fund reserves the right,
without notice, to cancel the sale and to hold you responsible for any loss,
including lost profit, sustained by us or the Fund in consequence. Certificates
representing Fund shares will not be issued unless a specific request is
received from you or your customer. Certificates, if requested, will be issued
in the names indicated by registration instructions accompanying payment.
REDEMPTION: The Prospectus describes the provisions whereby the Fund, under all
ordinary circumstances, will repurchase its shares from shareholders on demand.
You agree that you will not make any representations to shareholders relating to
the purchase of their Fund shares other than the statements contained in the
Prospectus and the underlying organizational documents of the Fund, to which it
refers, and that you will quote to your customers as the redemption price only
the price determined by the Fund.
12b-1 PLAN: With respect to any Fund that has a Distribution Plan under Rule
12b-1 (a "12b-1Plan") of the Investment Company Act of 1940 (the "1940 Act"), we
expect you will provide shareholder and administrative services to your
customers who own Fund shares, such as: answering inquiries regarding the Fund;
assisting in changing dividend options, account designations and addresses;
establishing and maintaining shareholder accounts and records; arranging for
bank wires; or such other services as the Fund may require to the extent
permitted by applicable statutes, rules or regulations. You will promptly answer
all written complaints received by you relating to Fund accounts or promptly
forward such complaints to us and assist us in answering such complaints. For
such services we will pay you a fee as set by us from time to time, based on a
portion of the net asset value of the accounts of your clients in the Fund. We
are permitted to make this payment under the terms of the 12b-1 Plan adopted by
2
<PAGE>
certain of the Funds, as such 12b-1 Plans may be in effect from time to time.
Each Fund reserves the right, at any time, to suspend payments under its 12b-1
Plan. You will furnish the Fund and us with such information as may be
reasonably requested by the Fund or its directors or trustees or by us with
respect to fees paid to you pursuant to this Agreement. In accordance with
interpretations and rulings to the Staff of the Commission, you will not charge
your customers any fees for services for which you are being compensated under a
12b-1 Plan of a Fund.
SALES OF NO-LOAD - NON 12b-1 PLAN FUNDS: In connection with any orders placed by
you on behalf of your customers for shares of Funds that do not charge a sales
load and do not have a 12b-1 Plan, we understand that you may charge your
customers a limited service or transaction fee, in accordance with
interpretations and rulings of the Staff of the Commission.
LEGAL COMPLIANCE: This Agreement and any transaction with or payment to you
pursuant to the terms hereof is conditioned on your representation to us that,
as of the date of this Agreement you are and at all times during its
effectiveness you will be (a) a registered broker-dealer under the Securities
Exchange Act of 1934 and qualified under applicable state securities laws, if
any, to act as a broker or dealer in securities, and a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD"); or (b) a
"bank" as defined in Section 3(a)(6) of the Securities and Exchange Act of 1934
(or other financial institution) and not otherwise required to register as a
broker or dealer under such Act. You agree to notify us promptly in writing if
this representation ceases to be true. You also agree that you will comply with
the rules of the NASD including, in particular, Sections 2 and 26 of Article III
thereof, to the extent applicable, that you will maintain adequate records with
respect to your customers and their transactions, and that such transactions
will be without recourse against you by your customers. We recognize that, in
addition to applicable provisions of state and federal securities laws, you may
be subject to the provisions of the Glass-Steagall Act and other laws governing,
among other things, the conduct of activities by federal and state chartered and
supervised financial institutions and their affiliated organizations. Because
you will be the only one having a direct relationship with the customer, you
will be responsible in that relationship for insuring compliance with all laws
and regulations, including those of all applicable federal and state regulatory
authorities and bodies having jurisdiction over you or your customers to the
extent applicable to securities purchases hereunder.
BLUE SKY MATTERS: We shall have no obligation or responsibility with respect to
your right to sell Fund shares in any state or jurisdiction. From time to time
we shall furnish you with information identifying the states under the
securities laws of which it is believed a Fund's shares may be sold. You will
not transact orders for Fund shares in states which we indicate Fund shares may
not be sold.
LITERATURE: We will furnish you with copies of each Fund's Prospectus, sales
literature and other information made publicly available by the Fund, in
3
<PAGE>
reasonable quantities upon your request. We shall file Fund sales literature and
promotional material with the NASD and SEC as required. You may not publish or
use any sales literature or promotional material with respect to the Funds
without our prior review and written approval.
CUSTOMERS: The name of your customers will remain your sole property and will
not be used by us except for servicing or informational mailings and other
correspondence in the normal course of business.
NOTICES AND COMMUNICATIONS: All communications from you should be addressed to
us at 1818 Market Street, Philadelphia, PA 19103. Any notice from us to you
shall be deemed to have been duly given if mailed or telegraphed to you at the
address set forth above. Each of us may change the address to which notices
shall be sent by notice to the other in accordance with the terms hereof.
TERMINATION: This Agreement may be terminated by either party at any time by
written notice to that effect. Notwithstanding the termination of this
Agreement, you shall remain liable for any amounts otherwise owing to us or the
Fund and for your portion of any transfer tax or other liability which may be
asserted or assessed against the Fund, us or any one or more of our dealers,
based upon the claim that you and such dealers or any of them constitute a
partnership, an unincorporated business or other separate entity.
AMENDMENT: This Agreement may be amended or revised at any time by us upon
notice to you and, unless you promptly notify us in writing to the contrary, you
will be deemed to have accepted such modifications.
GENERAL: Your acceptance hereof will constitute an obligation on your part to
observe all the terms and conditions hereof. In the event you breach any of the
terms and conditions of this Agreement, you will indemnify us, the Funds, and
our affiliates for any damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of or relating to such breach. Nothing contained
herein shall constitute you, us and any dealers an association or partnership.
All references in this Agreement to the "Prospectus" include the Statement of
Additional Information incorporated by reference therein and any stickers or
supplements thereto, provided that any requirement in this Agreement to deliver
a copy of the Prospectus shall not include the Statement of Additional
Information unless requested by the customer. This Agreement is to be construed
in accordance with the laws of the State of Delaware.
4
<PAGE>
Please confirm this Agreement by executing one copy of this Agreement below and
returning it to us. Keep the enclosed duplicate copy for your records.
Date: DELAWARE DISTRIBUTORS, L.P.
----------------------------
BY: DELAWARE DISTRIBUTORS, INC.
General Partner
BY:
--------------------------------
Accepted and Agreed to:
- ---------------------------------
(Name of Firm)
BY:
------------------------------
Name:
Title:
5
AMENDMENT NO. 1
TO THE
SECOND AMENDMENT AND RESTATEMENT OF THE
PROFIT SHARING PLAN OF
DELAWARE GROUP DELAWARE FUND, INC.
EFFECTIVE APRIL 1, 1989
This Amendment is made this 21st day of December, 1995, by Delaware
Group Delaware fund, Inc. (the "Employer").
WITNESSETH:
-----------
WHEREAS, the Employer adopted the second amendment and restatement of
the Profit Sharing Plan of Delaware Management Company, Inc. (the "Plan"),
effective April 1, 1989; and
WHEREAS, the Employer desires to clarify the provisions of the Plan
pertaining to the crediting of service for vesting purposes.
NOW THEREFORE, Section 2.28 of the Plan is hereby amended as follows:
"2.28 "Year of Service" shall mean the completion by an Employee of
1,000 or more Hours of Service during his initial Eligibility
Computation Period and during any Plan Year, beginning with the Plan
Year which commences after the Employee first performs an Hour of
Service. However, for the period from October 1, 1988 through March 31,
1990, an Employee shall be given credit for a Year of Service if he
completes 1,000 Hours of Service during the period October 1, 1988 to
September 30, 1989 and shall be given credit for an additional Year of
Service if he completes 1,000 Hours of Service during the period April
1, 1989 to March 31, 1990. For purposes of determining a Participant's
nonforfeitable right to his Employer Contribution Account, Years of
Service shall include an Employee's prior service with Delaware
Management Company, Inc. or any other Entity required to be aggregated
with Delaware Management Company, Inc. under Sections 414(b) or (c) of
the Code."
IN WITNESS WHEREOF, the Employer has caused this Amendment to be
executed by its duly authorized officers and its corporate seal to be impressed
hereon the date first written above.
ATTEST: DELAWARE GROUP DELAWARE FUND, INC.
/s/ George M. Chamberlain, Jr. By: /s/ Wayne A. Stork
- ------------------------------- -------------------------
Senior Vice President/Secretary Chairman
<PAGE>
Consent of Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 36 to the Registration Statement (Form N-1A) (No.
2-57791) of DMC Tax-Free Income Trust - Pennsylvania of our report dated April
2, 1996, included in the 1996 Annual Report to Shareholders of the DMC Tax-Free
Income Trust - Pennsylvania.
/s/ Ernst & Young LLP
-------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
April 24, 1996
<PAGE>
Report of Independent Auditors
To the Trustees and Beneficial Shareholders
DMC Tax-Free Income Trust - Pennsylvania
We have audited the accompanying statement of net assets of DMC Tax-Free Income
Trust - Pennsylvania as of February 29, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
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 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
February 29, 1996, by correspondence with the custodian and brokers. 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 financial highlights referred to
above present fairly, in all material respects, the financial position of DMC
Tax-Free Income Trust - Pennsylvania at February 29, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
---------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
April 2, 1996
<PAGE>
DELAWARE GROUP TAX-FREE PA CLASS C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $8.51
Initial Shares 117.509
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------
1995 117.509 $0.152 2.104 119.613
- --------------------------------------------------------
Ending Shares 119.613
Ending NAV x $8.46
----------
Investment Return $1,011.93
Less: CDSC ($9.95)
---------
Investment Return $1,001.98
Total Return Performance
- ------------------------
Investment Return $1,001.98
Less Initial Investment $1,000.00
----------
$1.98 /$1,000.00 x 100
Total Return: 0.20%
<PAGE>
DELAWARE GROUP TAX-FREE PA CLASS C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $8.51
Initial Shares 117.509
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------
1995 117.509 $0.152 2.104 119.613
- --------------------------------------------------------
Ending Shares 119.613
Ending NAV x $8.46
---------
Investment Return $1,011.93
Total Return Performance
- ------------------------
Investment Return $1,011.93
Less Initial Investment $1,000.00
---------
$11.93 /$1,000.00 x 100
Total Return: 1.19%
<PAGE>
Delaware Group Tax-Free PA
(Class C)
Yield Quotation for the Month Ended February 29, 1996
Interest Earned $564
Expenses Accrued $166
Net Income $398
Average Shares Outstanding 14,117
Maximum Offering Price
February 29, 1996 $8.46
Yield 4.03%
Tax-Free PA 2 [( 564 - 166 + 1) 6 - 1] = 4.03%
(Class C) Yield --------- ) ]
[(14,117 x 8.46
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