<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-57791
File No. 811-2715
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 38 [X]
----
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 38 [X]
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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: September 2, 1997
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It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
X 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 April 21, 1997.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 38 to Registration File No. 2-57791 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses*
5. Part B - Statements of Additional Information*
6. Part C - Other Information
7. Signatures
* This Post-Effective Amendment relates to the Registrant's three
series of shares and their classes: Tax-Free Pennsylvania Fund A
Class, Tax-Free Pennsylvania Fund B Class, Tax-Free Pennsylvania
Fund C Class, Tax-Free New Jersey Fund A Class, Tax-Free New Jersey
Fund B Class, Tax-Free New Jersey Fund C Class, Tax-Free Ohio Fund
A Class, Tax-Free Ohio Fund B Class and Tax-Free Ohio Fund C Class.
Shares of each Fund are described in separate prospectuses and
Statements of Additional Information, however, the three funds (and
nine classes) share a common Part C. The Registrant's Tax-Free
Pennsylvania Fund A Class, B Class and C Class Prospectus and
Statement of Additional Information, each dated April 29, 1997, are
incorporated into this filing by reference to the electronic filing
of this Prospectus and Statement of Additional Information made
pursuant to Rule 485(b) on April 29, 1997. The Supplement dated
June 9, 1997, and filed with the Commission on June 6, 1997 under
Rule 497(e), for the Tax-Free Pennsylvania Fund A Class, B Class and
C Class Prospectus is incorporated into this filing by reference.
<PAGE>
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 Page
2 Synopsis............................................................ Synopsis; Summary of
Expenses
3 Condensed Financial Information..................................... Financial Highlights
4 General Description of Registrant .................................. Investment Objective
and Policies; Shares;
Additional Information
on Investment Policies
and Risk Considerations
5 Management of the Fund ............................................. Management of the Fund
6 Capital Stock and Other Securities ................................. The Delaware Difference;
Dividends and Distributions;
Taxes; Shares
7 Purchase of Securities Being Offered................................ Cover; How to Buy
Shares; Calculation of
Offering Price and Net
Asset Value; Management
of the Fund
8 Redemption or Repurchase............................................ How to Buy Shares;
Redemption and Exchange
9 Pending Legal Proceedings........................................... None
</TABLE>
* This filing relates to Registrant's Tax-Free Pennsylvania Fund A Class, Tax-
Free Pennsylvania Fund B Class, Tax-Free Pennsylvania Fund C Class, Tax-Free
New Jersey Fund A Class, Tax-Free New Jersey Fund B Class, Tax-Free New
Jersey Fund C Class, Tax-Free Ohio Fund A Class, Tax-Free Ohio Fund B Class
and Tax-Free Ohio Fund C Class. Shares of each Fund are described in separate
prospectuses and Statements of Additional Information, however, the three
funds (and nine classes) are combined in one Part C.
** The Registrant's Tax-Free Pennsylvania Fund A Class, B Class and C Class
Prospectus and Statement of Additional Information, each dated April 29,
1997, are incorporated into this filing by reference to the electronic filing
of this Prospectus and Statement of Additional Information made pursuant to
Rule 485(b) on April 29, 1997. The Supplement dated June 9, 1997 and filed
with the Commission on June 6, 1997 under Rule 497(e) for Tax-Free
Pennsylvania Fund A Class, B Class and C Class Prospectus is incorporated
into this filing by reference.
<PAGE>
CROSS-REFERENCE SHEET*
---------------------
PART A
------
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- ------- ----------- ----------------------
<S> <C> <C>
Tax-Free New Jersey Fund
A Class/B Class/C Class
1 Cover Page.......................................................... Cover Page
2 Synopsis............................................................ Synopsis; Summary of
Expenses
3 Condensed Financial Information..................................... N/A
4 General Description of Registrant .................................. Investment Objective
and Policies; Shares;
Additional Information
on Investment Policies
and Risk Considerations
5 Management of the Fund ............................................. Management of the Fund
6 Capital Stock and Other Securities ................................. The Delaware Difference;
Dividends and Distributions;
Taxes; Shares
7 Purchase of Securities Being Offered................................ Cover; How to Buy
Shares; Calculation of
Offering Price and Net
Asset Value; Management
of the Fund
8 Redemption or Repurchase............................................ How to Buy Shares;
Redemption and Exchange
9 Pending Legal Proceedings........................................... None
</TABLE>
* This filing relates to Registrant's Tax-Free Pennsylvania Fund A
Class, Tax-Free Pennsylvania Fund B Class, Tax-Free Pennsylvania
Fund C Class, Tax-Free New Jersey Fund A Class, Tax-Free New Jersey
Fund B Class, Tax-Free New Jersey Fund C Class, Tax-Free Ohio Fund
A Class, Tax-Free Ohio Fund B Class and Tax-Free Ohio Fund C Class.
Shares of each Fund are described in separate prospectuses and
Statements of Additional Information, however, the three funds (and
nine classes) are combined in one Part C.
<PAGE>
CROSS-REFERENCE SHEET*
---------------------
PART A
------
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
<S> <C> <C>
Tax-Free Ohio Fund
A Class/B Class/C Class
1 Cover Page.......................................................... Cover Page
2 Synopsis............................................................ Synopsis; Summary of
Expenses
3 Condensed Financial Information..................................... N/A
4 General Description of Registrant .................................. Investment Objective
and Policies; Shares;
Additional Information
on Investment Policies
and Risk Considerations
5 Management of the Fund ............................................. Management of the Fund
6 Capital Stock and Other Securities ................................. The Delaware Difference;
Dividends and Distributions;
Taxes; Shares
7 Purchase of Securities Being Offered................................ Cover; How to Buy
Shares; Calculation of
Offering Price and Net
Asset Value; Management
of the Fund
8 Redemption or Repurchase............................................ How to Buy Shares;
Redemption and Exchange
9 Pending Legal Proceedings........................................... None
</TABLE>
* This filing relates to Registrant's Tax-Free Pennsylvania Fund A
Class, Tax-Free Pennsylvania Fund B Class, Tax-Free Pennsylvania
Fund C Class, Tax-Free New Jersey Fund A Class, Tax-Free New Jersey
Fund B Class, Tax-Free New Jersey Fund C Class, Tax-Free Ohio Fund
A Class, Tax-Free Ohio Fund B Class and Tax-Free Ohio Fund C Class.
Shares of each Fund are described in separate prospectuses and
Statements of Additional Information, however, the three funds (and
nine classes) are combined in one Part C.
<PAGE>
CROSS-REFERENCE SHEET
---------------------
PART B
------
<TABLE>
<CAPTION>
Location in Statement
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 Objectives
and Policies
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
for the Fund Classes
(under Purchasing Shares);
Investment Management
Agreements; 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
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
---------------------
PART B
(Continued)
<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- ------- ----------- --------------------------
<S> <C> <C>
21 Underwriters .................................................. Purchasing Shares
22 Calculation of Performance Data................................ Performance Information
23 Financial Statements........................................... Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
---------------------
PART C
------
<TABLE>
<CAPTION>
Location
Item No. Description 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>
TAX-FREE NEW JERSEY FUND PROSPECTUS
A CLASS SHARES SEPTEMBER 2, 1997
B CLASS SHARES
C CLASS SHARES
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 800-659-2265
This Prospectus describes the shares of the Tax-Free New Jersey Fund Series
(the "Fund") of DMC Tax-Free Income Trust (the "Trust"), 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 New Jersey state
and local taxes, consistent with preservation of capital.
The Fund offers Tax-Free New Jersey Fund A Class ("Class A Shares"),
Tax-Free New Jersey Fund B Class ("Class B Shares") and Tax-Free New Jersey Fund
C Class ("Class C Shares") (individually, a "Class" and collectively, the
"Classes").
This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's Statement of Additional Information ("Part
B" of the Fund's registration statement), dated September 2, 1997, 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.
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<PAGE>
TABLE OF CONTENTS
COVER PAGE
SYNOPSIS
SUMMARY OF EXPENSES
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVE AND POLICIES
Suitability
Investment Strategy
and Risk Factors
THE DELAWARE DIFFERENCE
Plans and Services
CLASSES OF SHARES
HOW TO BUY SHARES
REDEMPTION AND EXCHANGE
DIVIDENDS AND DISTRIBUTIONS
TAXES
CALCULATION OF OFFERING PRICE
AND NET ASSET VALUE PER SHARE
MANAGEMENT OF THE FUND
ADDITIONAL INFORMATION ON INVESTMENT
POLICIES AND RISK CONSIDERATIONS
APPENDIX A - INVESTMENT ILLUSTRATIONS
APPENDIX B - CLASSES OFFERED
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>
SYNOPSIS
Investment Objective
The investment objective of the Fund is to seek a high level of current
interest income exempt from federal income tax and New Jersey 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 and
Additional Information on Investment Policies and Risk Considerations.
Risk Factors and Special Considerations
The Fund is considered a nondiversified investment company under the
Investment Company Act of 1940 (the "1940 Act") and may be subject to greater
risks than if the Fund were diversified. See Diversification and Special
Considerations Relating to New Jersey Tax-Exempt Securities under Investment
Strategy and Risk Factors.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of the
Board of Trustees. The Manager also provides investment management services to
certain of 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, accounting
services and transfer agent for the Fund and for all of the other mutual funds
in the Delaware Group. See Summary of Expenses and Management of the Fund for
further information regarding the Manager and the fees payable under the Fund's
Investment Management Agreement.
Sales Charges
The price of the Class A Shares includes a maximum front-end sales charge of
3.75% of the offering price. The sales charge is reduced on certain transactions
of at least $100,000 but under $1,000,000. For purchases of $1,000,000 or more,
the front-end sales charge is eliminated. 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 contingent deferred sales charge ("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 Deferred Sales Charge
Alternative--Class B Shares and Automatic Conversion of Class B Shares under
Classes of Shares.
-3-
<PAGE>
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.
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.
Open-End Investment Company
The Fund is a series of DMC Tax-Free Income Trust (the "Trust"). The Trust
was organized as a Pennsylvania business trust on November 23, 1976 and is an
open-end management investment company. See Shares under Management of the Fund.
-4-
<PAGE>
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, as applicable)................... None* 4.00%* 1.00%*
Redemption Fees....................................... None** None** None**
</TABLE>
*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.
**CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.
-5-
<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses Class A Class B Class C
(as a percentage of average daily net assets) Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees (after voluntary waivers)............ [ ]% [ ]% [ ]%
12b-1 Expenses (including service fees).............. 0.25%*** 1.00%*** 1.00%***
Other Operating Expenses (after
expense limitations)+........................... [ ]% [ ]% [ ]%
Total Operating Expenses (after voluntary
waivers and expense limitations)+......... 1.00% 1.75% 1.75%
===== ===== =====
</TABLE>
***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"). The annual 12b-1
Plan expenses for the Class A Shares have been set by the Board of Trustees
at 0.25% of the average daily net assets of such Class, although the maximum
annual 12b-1 Plan expenses permitted under the 12b-1 Plan for Class A Shares are
0.30% of the average daily net assets of such Class. See Distribution (12b-1)
and Service under Management of the Fund.
+"Other Operating Expenses" and "Total Operating Expenses" of each Class
during the first full fiscal year of the Classes, after giving effect to the
voluntary fee waiver and payments. The Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by the Fund and to
pay certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses (after voluntary waivers and payments) of each Class of
the Fund does not exceed 0.75% (in all cases exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and 12b-1 fees) during the
commencement of the public offering of the Fund through ______________. If the
voluntary fee waivers or payments were not in effect, the Total Operating
Expenses of Class A Shares, Class B Shares and Class C Shares for the first full
fiscal year, as a percentage of average daily net assets, would be .[ ]%, .[ ]%
and .[ ]%, respectively, reflecting Management Fees of .60%.]
Unless waived, investors utilizing the Delaware Group Asset Planner asset
allocation service will incur an annual maintenance fee of $35 per Strategy. See
How to Buy Shares--Delaware Group Asset Planner.
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 and no 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. The following example assumes the voluntary waiver of
the management fee by the Manager as discussed in this Prospectus.
-6-
<PAGE>
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Class A Shares $[](1) $[] $[] $[]
Class B Shares(2) $[] $[] $[] $[]
Class C Shares $[] $[] $[] $[]
</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
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B Shares
under Classes of Shares for a description of the automatic conversion
feature.
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.
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.
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 New Jersey state and local
taxes as is available from municipal bonds and as is consistent with
preservation of capital. The objective of the Fund cannot be changed without
shareholder approval.
The Fund will invest primarily in municipal bonds and notes that are
exempt from federal and New Jersey 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 New Jersey income tax. The investor should be willing to accept the
risks of investment in municipal bonds in
-7-
<PAGE>
general and New Jersey 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 New
Jersey 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
New Jersey income taxes. These securities include debt obligations of the State
of New Jersey 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 New
Jersey 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. For more information on the alternative
minimum tax please see Private Purpose Bonds under Other Considerations below.
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"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch") 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. Please see High Yield, High Risk Securities under Additional
Information on Investment
-8-
<PAGE>
Policies and Risk Considerations and see Appendix B for descriptions of Moody's,
S&P and Fitch ratings.
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.
Concentration
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 issuer. The Fund
will not, however, invest more than 25% of its total assets in bonds issued for
companies in the same industry.
Percentage limitations outlined above are determined at the time an
investment is made.
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, advance refunded bonds, as well as variable and floating rate demand
obligations. Advanced refunded bonds and variable rate obligations are described
more fully under Additional Information on Investment Policies and Risk
Considerations.
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. These securities will be rated
in the top [two] categories by an independent rating organization at the time of
purchase.
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.
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<PAGE>
Municipal Bond Insurance
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 evaluate the creditworthiness of
a private insurer. But the Manager focuses first on the creditworthiness of the
actual issuer and its ability to pay interest and principal. 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. Similar insurance is available to the Fund for uninsured obligations, and
the Fund may acquire such obligations and purchase such insurance directly, but
only if that would result in a comparable benefit to the Fund from such a
security. Municipal bond insurance is discussed more fully in Part B.
Private Purpose Bonds
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.
When-Issued Securities [CONFIRM: SRSY RECEIVED CONFLICTING RESPONSES]
The Fund may invest in "when-issued securities." When-issued securities
involve commitments to buy a new issue of securities with delivery and payment
for the securities taking place up to 45 days later. During the time between the
commitment to buy the securities and the actual delivery of the securities the
Fund does not accrue interest, but the market value of the securities may
fluctuate. This can result in the value of the securities increasing or
decreasing above or below the purchase price to which the Fund has committed. If
the Fund invests in securities of this type, it will maintain in a segregated
account cash or liquid securities in an amount sufficient to pay for them and
mark them to market daily.
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 it will invest in municipal lease
obligations which are exempt from regular federal income taxes.
Options and Futures [CONFIRM: SRSY RECEIVED CONFLICTING RESPONSES]
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The Fund has the right to engage in options and futures transactions for
hedging purposes, to counterbalance portfolio volatility and, in connection with
futures transactions, will maintain certain collateral in special accounts
established by futures commission merchants in the care of Bankers Trust Company
(the "Custodian Bank"). While the Fund does not engage in options and futures
for speculative purposes, there are risks that result from the use of these
instruments by the Fund, and an investor should carefully review the
descriptions of such in this Prospectus. Certain options and futures may be
considered to be derivative securities. The Fund is not registered as a
commodity pool operator nor is the Manager registered as a commodities trading
adviser, in reliance upon various exemptive rules. See Options and Futures under
Additional Information on Investment Policies and Risk Considerations.
Inverse Floaters
The Fund may invest up to 10% of its assets in inverse floaters which may
be considered to be derivative securities. The interest rates attributable to
inverse floaters typically move in the opposite direction to short-term interest
rates at an accelerated speed. This may cause rapid fluctuations in the value of
such securities. See Inverse Floaters under Additional Information on Investment
Policies and Risk Considerations.
Zero-Coupon Bonds
The Fund may also invest in zero-coupon bonds which do not entitle the
Fund to payment of interest until maturity or a specified date. See Zero-Coupon
Bonds under Additional Information on Investment Policies and Risk
Considerations.
Derivative Tax Exempt Obligations
The Fund may invest in Derivative Tax Exempt Obligations which are
described more fully under Additional Information on Investment Policies and
Risk Considerations.
Borrowing, Repurchase Agreements and Restricted Securities [CONFIRM: SRSY
RECEIVED CONFLICTING RESPONSES]
While the Fund is permitted to borrow money and invest in repurchase
agreements, the Fund normally does not do so. As a temporary measure for
extraordinary purposes, the Fund may borrow up to 10% of the value of its
assets. The Fund will not normally purchase investment securities while it has
an outstanding borrowing.
The Fund may also invest in repurchase agreements, which are described
more fully in Part B, and restricted securities which are described more fully
under Additional Information on Investment Policies and Risk Considerations.
Special Considerations Relating to New Jersey Tax-Exempt Securities
The Fund concentrates its investments in the State of New Jersey.
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 New Jersey 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 State of New
Jersey.
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<PAGE>
New Jersey as well as the rest of the Northeast slipped into an economic
slowdown and then a recession which officially began in July 1990. Economic
growth in New Jersey has continued at a moderate rate since a rapid recovery
which occurred in 1994. The economic forecast and revenue projections underlying
the Governor's Fiscal Year 1998 Budget predicts that the New Jersey economy will
continue on a moderate growth course. However, inflation or a loss of consumer
confidence could adversely affect New Jersey's economy. Also, Federal budget
cuts have placed additional financial burdens on state and local governments.
Such difficulties could affect outstanding obligations of the State of New
Jersey and its local governments, including obligations held by the Fund. 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 New
Jersey obligations.
* * *
Part B sets forth other more specific investment restrictions and
descriptions of Moody's and S&P ratings.
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; Wire Investments;
Wire Liquidations;
Telephone Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
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
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<PAGE>
information given to shareholders. Yields are computed on an annualized basis
over a 30-day period.
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.
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.
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.
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. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If the name and address on your designated bank account
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<PAGE>
are not identical to the name and address on your Fund account, you must have
your signature guaranteed.
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 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.
Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your shares
into shares of other mutual 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 invest in the Fund through regular liquidations of
shares in your accounts in 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 the Fund. See Additional Methods of Adding to
Your Investment -- Wealth Builder Option and Investing by Exchange under How to
Buy Shares and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives you,
when 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.
Financial Information about the Fund
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<PAGE>
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, which 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 0.30% (currently, no more than 0.25% pursuant to Board
action) 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% (0.25% 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 and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% (currently, no more than 0.25% pursuant to Board action) for the Class A
Shares will apply. 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% (0.25% 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,
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<PAGE>
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. 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 and the effect of earning a
return on such additional money will diminish over time. 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.
Prospective investors should refer to Appendix A --Investment
Illustrations in 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 3.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
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<PAGE>
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
Tax-Free New Jersey Fund A Class
Front-End Sales Charge as % of
Dealer's
Front-End Sales Charge as % of Commission***
Offering Amount as % of
Amount of Purchase Price Invested** Offering Price
- ------------------ -------- ---------- --------------
Less than $100,000 3.75% 0.00% 3.25%
$100,000 but under $250,000 3.00 0.00 2.50
$250,000 but under $500,000 2.50 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 1.75
* 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 an initial net asset value of $0.00 per share of the Class A
Shares.
*** 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 0.15% 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 percentage of
Amount of Purchase amount purchased)
------------------ -------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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.
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<PAGE>
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.
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 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.
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
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<PAGE>
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. In addition, 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 pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. 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.
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
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<PAGE>
Class C 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 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.
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
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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 0.30%
(currently, no more than 0.25% pursuant to Board action) 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.
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 0.25% 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 Conduct Rules, 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
Conduct Rules 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 Conduct Rules as they may be
amended.
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<PAGE>
HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is generally $1,000 for Class A
Shares, Class B Shares and Class C Shares. Subsequent purchases of shares of any
Class generally must 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.
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 New Jersey Fund A Class, Tax-Free New
Jersey Fund B Class or Tax-Free New Jersey Fund C Class to Delaware Group 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 New Jersey Fund A Class, Tax-Free New Jersey Fund B
Class or Tax-Free New Jersey 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 1412893401 (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 New Jersey Fund A Class, Tax-Free New Jersey Fund B
Class or Tax-Free New Jersey Fund C Class at 1818 Market Street, Philadelphia,
PA 19103.
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<PAGE>
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.
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 of the Fund 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. See Appendix B-- Classes Offered for a list of Delaware Group funds and
the classes they offer. 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. Many shareholders use this as an automatic savings plan. Shareholders
should allow a reasonable amount of time for initial purchases and changes to
these plans to become effective.
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
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<PAGE>
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. You also may elect to invest in other mutual funds in the Delaware Group
through the 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 account in one
or more funds in the Delaware Group and invested automatically into any other
account in a Delaware Group mutual fund that you may specify. If in connection
with the election of the Wealth Builder Option, you wish to open a new account
to receive the automatic investment, such new account must meet the minimum
initial purchase requirements described in the prospectus of the fund that you
select. All 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 in Wealth Builder at any time by giving
written notice to the fund from which the exchanges are made. See Redemption and
Exchange.
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 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. Similarly, holders of Class C Shares of the
Fund
-26-
<PAGE>
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix B--Classes Offered
for a list of the funds offering those classes of shares. For more information
about reinvestments, call the Shareholder Service Center.
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 under The Delaware Difference, 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.
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, above. 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. Generally, only shares within the same class
may be used within the same Strategy. However, Class A Shares of the Fund and of
other funds in the Delaware Group may be used in the same Strategy with
consultant class shares that are offered by certain other Delaware Group funds.
See Appendix B--Classes Offered for the funds in the Delaware Group that offer
consultant class shares.
An annual maintenance fee, currently $35 per Strategy, is typically 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. However, the annual fee is waived until further notice.
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.
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.
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<PAGE>
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.
The Fund also reserves the right, following shareholder notification, to
charge a service fee on accounts that, as a result of a redemption, 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.
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.
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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 and Class C Shares and, 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. Redemption proceeds will be distributed
promptly, as described below, but not later than seven days after receipt of a
redemption request.
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 process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the purchase check has cleared, which may take
up to 15 days from the purchase date. 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.
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 exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
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Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, 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 from which the Original Shares were exchanged. In an exchange of Class B
Shares from the Fund, 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 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.
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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.
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
services 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 after receipt of the redemption 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 after receipt of your redemption request to your predesignated bank
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account. 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.
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. Your funds will normally be credited to your bank account two business
days after the payment date. There are no separate 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
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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.
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.
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).
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Waiver of Contingent Deferred Sales Charge -- Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares 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 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.
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.
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Each Class of the Fund 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. 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 your account at the then-current net asset value and the
dividend option may be changed from cash to reinvest. 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.
TAXES
The tax discussion set forth below is included for general information
only. 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 taxable to shareholders 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.
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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 by-product 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
the Fund and any other fund in the Delaware Group. Any loss incurred on a sale
or exchange of Fund 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 the Fund's 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.
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.
The Fund intends to qualify as a "qualified investment fund" under the
New Jersey gross income tax law except when investing for defensive purposes
under certain circumstances. As long as the Fund is a qualified investment fund
and to the extent its distributions are derived from interest or net gains on
tax-exempt securities, such distributions will be exempt from the New Jersey
gross income tax. The exemption from the New Jersey gross income tax will also
extend to interest or net gains on obligations of the United States, its
territories and certain of its agencies and instrumentalities which pay interest
free from state or local taxation under any laws of New Jersey or under the
Constitution
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or other laws of the United States. Gains resulting from the redemption or sale
of shares of the Fund will also be exempt from New Jersey gross income tax.
In order to be a qualified investment fund, at least 80% of the aggregate
principal amount of the Fund's investments at the end of each calendar quarter
(excluding financial options, futures, forward contracts, or other similar
financial instruments related to interest-bearing obligations, obligations
issued at a discount or bond indexes related thereto to the extent such
instruments are authorized under the regulated investment company rules under
the Internal Revenue Code, and cash and cash items, which cash items shall
include receivables) will consist of the exempt obligations referred to above,
and the Fund will have no investments other than interest-bearing obligations,
obligations issued at a discount, and cash and cash items (including
receivables) and financial options, futures, forward contracts or certain other
similar instruments related to interest-bearing, obligations issued at a
discount or bond indexes related thereto. If the Fund fails to be a qualified
investment fund, as a result of employing alternative investment strategies or
otherwise, none of its distributions for the entire taxable year will qualify
for tax- exempt status under New Jersey law.
For New Jersey gross income tax purposes, distributions derived by the
fund from income or net gains on investments other than tax-exempt securities
and obligations of the United States, its territories and certain of its
agencies and instrumentalities will be taxable as ordinary income, whether paid
in cash or reinvested in additional shares.
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.
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 Trust's 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 Trust's 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
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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.
MANAGEMENT OF THE FUND
Trustees
The business and affairs of the Fund are managed under the direction of
the Trust's Board of Trustees. Part B contains additional information regarding
the Trust's trustees and officers.
Investment Manager
The Delaware Management Company, Inc. (the "Manager"), 2005 Market
Street, Philadelphia, PA 19103, 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 28, 1997], the Manager and its
affiliates within the Delaware Group were managing in the aggregate more than
[$32] billion in assets in the various institutional or separately managed
(approximately [$20,548,345,000]) and investment company (approximately
[$12,216,382,000]) 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 indirect, 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.
The Manager manages the Fund's portfolio and makes investment decisions
for the Fund 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.
[(Delaware to confirm:) The annual compensation paid by the Fund for investment
management services is equal to [0.60%] on the first $500 million of average
daily net
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assets of the Fund, [0.575%] on the next $250 million and [0.55%] on the average
daily net assets in excess of $750 million, less all trustees' fees paid to the
unaffiliated trustees.]
Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager of the Fund, have primary responsibility for making day-to-day
investment decisions for the Fund. Mr. Coyne and Mr. Conery have managed the
Fund since its inception. A graduate of Harvard University with an MBA from the
University of Pennsylvania's Wharton School, Mr. Coyne joined the Delaware
Group's fixed-income department in 1990. Prior to joining the Delaware Group, he
was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in
trading high grade municipal bonds and municipal futures contracts. Mr. Coyne is
a member of the Municipal Bond Club of Philadelphia. Mr. Conery joined Delaware
Group in January 1997. Mr. Conery holds a bachelor's degree from Boston
University and an MBA in Finance from the State University of New York at
Albany. He has served as an investment officer with Travelers Insurance and as a
research analyst with CS First Boston and MBIA Corporation.
In making investment decisions for the Fund, Mr. Coyne and Mr. Conery
regularly consult with Paul E. Suckow and other members of Delaware's
fixed-income department. Mr. Suckow is Executive Vice President/Chief Investment
Officer, Fixed Income of the Fund. He is a CFA charterholder and a graduate of
Bradley University with an MBA from Western Illinois University. Mr. Suckow was
a fixed-income portfolio manager at the Delaware Group from 1981-1985. He
returned to the Delaware Group in 1993 after eight years with Oppenheimer
Management Corporation where he served as Executive Vice President and Director
of Fixed Income.
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%.
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 shares of funds in the Delaware Group of funds in
placing portfolio orders and may place orders with broker/dealers that have
agreed to defray certain expenses of such funds, 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
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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 or life-of-fund 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. serves as the national
distributor for the Fund's shares under a Distribution Agreement dated
[ ].
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 of the
Fund (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 shares of the
Classes, 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 a Class and increase sales of the Class. In addition,
the Fund may make payments from the 12b-1 Plan fees of its respective Classes
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 of the Fund are also used to pay the Distributor for advancing
the commission costs to dealers with respect to the initial sale of such shares.
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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 (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1.0%
(0.25% 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 Fund's 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.
Although the maximum fee payable under the Plan relating to the Class A
Shares is 0.30% of average daily net assets, the Board of Directors has
currently set the annual fee for the Class at 0.25% of the average daily net
assets. The Board of Trustees may increase the fee to the full 0.30% on all
Class A Shares' assets at any time. See Shares.
While payments pursuant to the Plans may not exceed 0.30% 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 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. 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 [ ]. The Transfer Agent also provides accounting
services to the Fund pursuant to the terms of a separate Fund Accounting
Agreement. The trustees of the Fund annually review service fees paid to the
Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
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 expense ratio of each
Class will reflect 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 series of DMC Tax-Free Income Trust (the
"Trust") which is a Pennsylvania business trust organized on November 23, 1976.
In addition to the Fund, the Trust presently offers two other series of shares,
Tax-Free Pennsylvania Fund series and Tax-Free Ohio Fund series. The Trust has
an unlimited authorized number of shares of beneficial interest with no par
value per share. All shares have equal voting rights, except as noted below, and
are equal in all other respects.
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The assets received by the Trust for the issue or sale of shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such series, and constitute the
underlying assets of such series. The underlying assets of each series are
required to be segregated on the books of account, and are to be charged with
the expenses in respect to such series and with a share of the general expenses
of the Trust. Any general expenses of the Trust not readily identifiable as
belonging to a particular series or class shall be allocated among the series or
classes based upon the relative net assets of the series or class at the time
such expenses were accrued. The Trust's Declaration of Trust limits the
liability of the Trustees to the fullest extent permitted by law. For a further
discussion, see General Information in Part B.
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 Trust shares have noncumulative voting rights which means that the
holders of more than 50% of the Trust's shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so.
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ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK
CONSIDERATIONS
High Yield, High Risk Securities
The Fund may invest up to 20% of its net assets in high yield, high risk
fixed-income securities. These securities are rated lower than BBB by Standard &
Poor's Ratings Group ("S&P"), Baa by Moody's Investors Service, Inc. ("Moody's")
and/or rated similarly by another rating agency, or, if unrated, are considered
by the Manager to be of equivalent quality. The Fund will not invest in
securities which are rated lower than [C] by S&P, [Ca] by Moody's or similarly
by another rating agency, or, if unrated, are considered by the Manager to be of
a quality that is lower than such ratings. See Appendix B---Ratings to this
Prospectus for more rating information. Fixed- income securities of this type
are considered to be of poor standing and predominantly speculative. Such
securities are subject to a substantial degree of credit risk.
In the past, in the opinion of the Manager, the high yields from these
bonds have more than compensated for their higher default rates. There can be no
assurance, however, that yields will continue to offset default rates on these
bonds in the future. The Manager intends to maintain an adequately diversified
portfolio of these bonds. While diversification can help to reduce the effect of
an individual default on the Fund, there can be no assurance that
diversification will protect the Fund from widespread bond defaults brought
about by a sustained economic downturn. [Is this paragraph accurate for a
non-diversified, state-specific fund?]
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) issuers, which are generally less able than more financially stable
issuers to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.
The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.
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
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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 [10/15]% 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 [10/15]% 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 [10/15]% 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.
Variable Rate Obligations
The Fund may purchase "floating-rate" and "variable-rate" obligations.
These obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on predesigned dates.
Advance Refunded Bonds
Escrow secured bonds or defeased bonds are created when an issuer refunds
in advance of maturity (or pre-refunds) an outstanding bond issue which is not
immediately callable, and it becomes necessary or desirable to set aside funds
for redemption of the bonds at a future date. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive
the highest rating from S&P and Moody's.
Certificates of Participation
Certificates of Participation are widely used by state and local
governments to finance the purchase of property and facilities. COPs function
much like installment purchase agreements. For example, a governmental
corporation may create a COP when it issues long-term bonds to pay for the
acquisition of property or facilities. The property or facilities are then
leased to a municipality which makes lease payment to repay interest and
principal to the holders of the bonds. Once these lease payments are completed,
the municipality gains ownership of the property for a nominal sum. This lease
format is generally not subject to constitutional limitations on the issuance of
state debt so that COPs enable a governmental issuer to increase government
liabilities beyond constitutional debt limits.
-44-
<PAGE>
A feature which distinguishes COPs from municipal debt is that the lease
typically contains a "nonappropriation" or "abatement" clause. This means that
the municipality leasing the property or facility must use its best efforts to
make lease payments, but that the municipality may terminate the lease without
penalty if its appropriating body does not allocate the necessary monies.
Therefore, if the municipal government 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 market value of the property
will be less than the amount the municipality was paying.
While the risk of nonappropriation exists, 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. In assessing such risk the
rating agencies and the Manager consider, among other things, 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.
COPs will be considered illiquid under the Fund's [10/15]% limitation on
investments in illiquid securities, unless the Manager determines that they are
liquid. The Manager will determine the liquidity by considering factors as
described above under Restricted Securities.
Options
The Fund may write put and call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes. The Fund may
write covered call options and secured put options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. The Fund may
also purchase [(i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets].
Futures
The Fund may invest in futures contracts and options on such futures
contracts subject to certain limitations. Futures contracts are agreements for
the purchase or sale for future delivery of securities. When a futures contract
is sold, the Fund incurs a contractual obligation to deliver the securities
called for by the contract at a specified price on a specified future date. When
the Fund purchases a futures contract, it obtains the right to acquire the
securities called for by the contract at a specified price and date.
Inverse Floaters
The Fund may invest up to 10% of its assets in inverse floaters. Inverse
floaters are instruments with floating or variable interest rates that move in
the opposite direction, usually at an accelerated speed, to short-term interest
rates or interest rate indices. Consequently, the market values of inverse
floaters will generally be more volatile than other tax-exempt investments and
may increase the volatility of the value of shares of the Fund.
-45-
<PAGE>
Zero-Coupon Bonds
The Fund may invest in zero-coupon and payment-in-kind bonds. Zero-coupon
bonds do not entitle the holder to any periodic payment of interest prior to
maturity or a specified date when the securities begin paying current interest.
They are issued and traded at a discount, which discount varies depending on the
time remaining until cash payments begin, prevailing interest rates, liquidity
of the security and the perceived credit quality of the issuer. Since the Fund
must distribute at least 90% of its investment income each year, in order to
maintain its desired tax treatment, the Fund may be required to borrow or to
liquidate portfolio securities in order to distribute income which has been
attributed to zero-coupon bonds but which the Fund has not yet received.
Payment-in-kind securities are securities that pay interest through the issuance
of additional securities. Such securities generally are more volatile in
response to changes in interest rates and are more speculative investments than
are securities that pay interest periodically in cash.
Derivative Tax Exempt Obligations
The Fund may also acquire Derivative Tax Exempt Obligations, which are
custodial receipts or certificates that evidence ownership of future interest
payments, principal payments or both on certain tax exempt securities. The
sponsor of these certificates or receipts typically purchases and deposits the
securities in an irrevocable trust or custodial account with a custodian bank,
which then issues the receipts or certificates that evidence ownership. Although
the Fund typically would be authorized to assert its rights directly against the
issuer of the underlying obligation, the Fund could be required to assert such
rights through the custodian bank. Thus, in the event of a default, the Fund may
be subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of the issuer.
In addition, if the trust or custodial account in which the underlying
security had been deposited is determined to be a taxable entity, it would be
subject to state income tax on the income earned on the underlying security.
Furthermore, amounts paid by the trust or custodial account to the Fund would
become taxable in the hands of the Fund and its shareholders. However, the Fund
will only invest in custodial receipts which are accompanied by a tax opinion
stating that interest payable on the receipts is tax exempt. Also, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.
-46-
<PAGE>
APPENDIX B--CLASSES OFFERED
<TABLE>
<CAPTION>
Growth of Capital A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Quantum Fund x x x -
Total Return
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
Blue Chip Fund x x x -
International Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
International Equity Fund x x x -
World Growth Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Limited-Term Government Fund x x x -
Tax-Free Current Income
Tax-Free Pennsylvania Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Tax-Free New Jersey Fund x x x -
Tax-Free Ohio Fund x x x -
Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
-47-
<PAGE>
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, national and state- specific tax-free funds, money
market funds, global and international funds and closed-end equity funds give
investors the ability to create a portfolio that fits their personal financial
goals. For more information, contact your financial adviser or call Delaware
Group at 800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES SUBJECT TO COMPLETION
AND TRANSFER AGENT
Delaware Service Company, Inc. INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT.
1818 Market Street A REGISTRATION STATEMENT RELATING
Philadelphia, PA 19103 TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE
LEGAL COUNSEL COMMISSION. THESE SECURITIES MAY
Stradley, Ronon, Stevens & Young, LLP NOT BE SOLD NOR MAY OFFERS TO BUY
One Commerce Square BE ACCEPTED PRIOR TO THE TIME THE
Philadelphia, PA 19103 REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL
INDEPENDENT AUDITORS NOT CONSTITUTE AN OFFER TO SELL OR
Ernst & Young LLP THE SOLICITATION OF AN OFFER TO BUY
Two Commerce Square NOR SHALL THERE BE ANY SALE OF
Philadelphia, PA 19103 THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR
CUSTODIAN SALE WOULD BE UNLAWFUL PRIOR TO
Bankers Trust Company REGISTRATION OR QUALIFICATION UNDER
One Bankers Trust Plaza THE SECURITIES LAWS OF ANY SUCH
New York, NY 10006 STATE.
-48-
<PAGE>
TAX-FREE NEW JERSEY FUND
A CLASS
B CLASS
C CLASS
P R O S P E C T U S
SEPTEMBER 2, 1997
DELAWARE
GROUP
-49-
<PAGE>
APPENDIX A
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
-50-
<PAGE>
APPENDIX B--RATINGS
The Fund has the ability to invest up to 20% of its net assets in high
yield, high risk fixed-income securities. The table set forth below shows the
assets composition, based on rating categories, of such securities held by the
Fund. Certain securities may not be rated because the rating agencies were
either not asked to provide ratings (e.g., many issuers of privately placed
bonds do not seek ratings) or because the rating agencies declined to provide a
rating for some reason, such as insufficient data. The paragraphs following the
table contain excerpts from Moody's and S&P's rating descriptions. These credit
ratings evaluate only the safety of principal and interest and do not consider
the market value risk associated with high yield securities.
General Rating Information
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, C--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.
-51-
<PAGE>
Excerpts from Fitch's description of its bond ratings: AAA--highest
credit quality, obligor has exceptionally strong ability to pay interest and
repay principal; AA--very high credit quality, obligor's ability to repay
interest and repay principal is very strong; A--high credit quality, obligor's
ability to repay interest and repay principal is strong but more vulnerable to
adverse economic conditions than higher rated bonds; BBB-- satisfactory credit
quality, obligor's ability to pay interest and repay principal is adequate,
adverse market conditions could impair timely payment; BB, B, CCC--on
balance, regarded as being increasingly speculative, with the obligor's ability
to pay interest and repay principal very vulnerable to adverse economic
conditions or a limited debt service safety margin; CC-- minimal protection,
default in payment of interest or principal seem probable over time; C--bonds
are in imminent default in payment of interest and principal; DDD,DD,D--in
default, with decreasing potential for recovery of interest and/or principal.
-52-
<PAGE>
TAX-FREE OHIO FUND PROSPECTUS
A CLASS SHARES SEPTEMBER 2, 1997
B CLASS SHARES
C CLASS SHARES
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 800-659-2265
This Prospectus describes the shares of the Tax-Free Ohio Fund series (the
"Fund") of DMC Tax-Free Income Trust (the "Trust"), 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 Ohio state and local taxes, consistent
with preservation of capital.
The Fund offers Tax-Free Ohio Fund A Class ("Class A Shares"), Tax-Free Ohio
Fund B Class ("Class B Shares") and Tax-Free Ohio Fund C Class ("Class C
Shares") (individually, a "Class" and collectively, the "Classes").
This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's Statement of Additional Information ("Part
B" of the Fund's registration statement), dated September 2, 1997, 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.
<PAGE>
TABLE OF CONTENTS
COVER PAGE
SYNOPSIS
SUMMARY OF EXPENSES
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVE AND POLICIES
Suitability
Investment Strategy
and Risk Factors
THE DELAWARE DIFFERENCE
Plans and Services
CLASSES OF SHARES
HOW TO BUY SHARES
REDEMPTION AND EXCHANGE
DIVIDENDS AND DISTRIBUTIONS
TAXES
CALCULATION OF OFFERING PRICE
AND NET ASSET VALUE PER SHARE
MANAGEMENT OF THE FUND
ADDITIONAL INFORMATION ON INVESTMENT
POLICIES AND RISK CONSIDERATIONS
APPENDIX A - INVESTMENT ILLUSTRATIONS
APPENDIX B - CLASSES OFFERED
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>
SYNOPSIS
Investment Objective
The investment objective of the Fund is to seek a high level of current
interest income exempt from federal income tax and Ohio 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 and Additional
Information on Investment Policies and Risk Considerations.
Risk Factors and Special Considerations
The Fund is considered a nondiversified investment company under the
Investment Company Act of 1940 (the "1940 Act") and may be subject to greater
risks than if the Fund were diversified. See Diversification and Special
Considerations Relating to Ohio Tax-Exempt Securities under Investment Strategy
and Risk Factors.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of the
Board of Trustees. The Manager also provides investment management services to
certain of 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, accounting
services and transfer agent for the Fund and for all of the other mutual funds
in the Delaware Group. See Summary of Expenses and Management of the Fund for
further information regarding the Manager and the fees payable under the Fund's
Investment Management Agreement.
Sales Charges
The price of the Class A Shares includes a maximum front-end sales charge of
3.75% of the offering price. The sales charge is reduced on certain transactions
of at least $100,000 but under $1,000,000. For purchases of $1,000,000 or more,
the front-end sales charge is eliminated. 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 contingent deferred sales charge ("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 Deferred Sales Charge
Alternative--Class B Shares and Automatic Conversion of Class B Shares under
Classes of Shares.
-3-
<PAGE>
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.
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.
Open-End Investment Company
The Fund is a series of DMC Tax-Free Income Trust (the "Trust"). The Trust
was organized as a Pennsylvania business trust on November 23, 1976 and is an
open-end management investment company. See Shares under Management of the Fund.
-4-
<PAGE>
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, as applicable)...............................None*............4.00%*........1.00%*
Redemption Fees...................................................None**...........None**........None**
</TABLE>
*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.
**CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.
-5-
<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses Class A Class B Class C
(as a percentage of average daily net assets) Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees (after voluntary waivers).........................[ ]% [ ]% [ ]%
12b-1 Expenses (including service fees)...........................0.25%*** 1.00%*** 1.00%***
Other Operating Expenses (after
expense limitations)+........................................[ ]% [ ]% [ ]%
Total Operating Expenses (after voluntary
waivers and expense limitations)+.....................1.00% 1.75% 1.75%
===== ===== =====
</TABLE>
***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"). The annual 12b-1
Plan expenses for the Class A Shares have been set by the Board of Trustees at
0.25% of the average daily net assets of such Class, although the maximum annual
12b-1 Plan expenses permitted under the 12b-1 Plan for Class A Shares are 0.30%
of the average daily net assets of such Class. See Distribution (12b-1) and
Service under Management of the Fund.
+"Other Operating Expenses" and "Total Operating Expenses" of each
Class during the first full fiscal year of the Classes, after giving effect to
the voluntary fee waiver and payments. The Manager has elected voluntarily to
waive that portion, if any, of the annual management fees payable by the Fund
and to pay certain expenses of the Fund to the extent necessary to ensure that
the Total Operating Expenses (after voluntary waivers and payments) of each
Class of the Fund does not exceed 0.75% (in all cases exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and 12b-1 fees) during
the commencement of the public offering of the Fund through ______________. If
the voluntary fee waivers or payments were not in effect, the Total Operating
Expenses of Class A Shares, Class B Shares and Class C Shares for the first full
fiscal year, as a percentage of average daily net assets, would be .[ ]%, .[ ]%
and .[ ]%, respectively, reflecting Management Fees of .60%.]
Unless waived, investors utilizing the Delaware Group Asset Planner
asset allocation service will incur an annual maintenance fee of $35 per
Strategy. Investors who utilize the Asset Planner for an Individual Retirement
Account ("IRA") will pay an annual IRA fee of $15 per Social Security number.
See How to Buy Shares--Delaware Group Asset Planner.
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 and no 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. The following example assumes the voluntary
waiver of the management fee by the Manager as described in this Prospectus.
-6-
<PAGE>
Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
Class A Shares $[](1) $[] $[] $[]
Class B Shares(2) $[] $[] $[] $[]
Class C Shares $[] $[] $[] $[]
(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
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B Shares
under Classes of Shares for a description of the automatic conversion
feature.
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.
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.
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 Ohio state and local taxes as
is available from municipal bonds and as is consistent with preservation of
capital. The objective of the Fund cannot be changed without shareholder
approval.
The Fund will invest primarily in municipal bonds and notes that are
exempt from federal and Ohio 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 Ohio income tax. The investor should be willing to accept the risks
of investment in municipal bonds in
-7-
<PAGE>
general and Ohio 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
Ohio 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
Ohio income taxes. These securities include debt obligations of the State of
Ohio 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 Ohio
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. For more information on the alternative
minimum tax please see Private Purpose Bonds under Other Considerations below.
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"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch") 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. Please see High Yield, High Risk Securities under Additional
Information on Investment
-8-
<PAGE>
Policies and Risk Considerations and see Appendix B for descriptions of Moody's,
S&P and Fitch ratings.
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.
Concentration
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 issuer. The Fund
will not, however, invest more than 25% of its total assets in bonds issued for
companies in the same industry.
Percentage limitations outlined above are determined at the time an
investment is made.
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, advance refunded bonds, as well as variable and floating rate demand
obligations. Advanced refunded bonds and variable rate obligations are described
more fully under Additional Information on Investment Policies and Risk
Considerations.
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. These securities will be rated
in the top [two] categories by an independent rating organization at the time of
purchase.
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.
-9-
<PAGE>
Municipal Bond Insurance
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 evaluate the creditworthiness of
a private insurer. But the Manager focuses first on the creditworthiness of the
actual issuer and its ability to pay interest and principal. 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. Similar insurance is available to the Fund for uninsured obligations, and
the Fund may acquire such obligations and purchase such insurance directly, but
only if that would result in a comparable benefit to the Fund from such a
security. Municipal bond insurance is discussed more fully in Part B.
Private Purpose Bonds
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.
When-Issued Securities [CONFIRM: SRSY RECEIVED CONFLICTING RESPONSES]
The Fund may invest in "when-issued securities." When-issued securities
involve commitments to buy a new issue of securities with delivery and payment
for the securities taking place up to 45 days later. During the time between the
commitment to buy the securities and the actual delivery of the securities the
Fund does not accrue interest, but the market value of the securities may
fluctuate. This can result in the value of the securities increasing or
decreasing above or below the purchase price to which the Fund has committed. If
the Fund invests in securities of this type, it will maintain in a segregated
account cash or liquid securities in an amount sufficient to pay for them and
mark them to market daily.
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 it will invest in municipal lease
obligations which are exempt from regular federal income taxes.
Options and Futures [CONFIRM: SRSY RECEIVED CONFLICTING RESPONSES]
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<PAGE>
The Fund has the right to engage in options and futures transactions for
hedging purposes, to counterbalance portfolio volatility and, in connection with
futures transactions, will maintain certain collateral in special accounts
established by futures commission merchants in the care of Bankers Trust Company
(the "Custodian Bank"). While the Fund does not engage in options and futures
for speculative purposes, there are risks that result from the use of these
instruments by the Fund, and an investor should carefully review the
descriptions of such in this Prospectus. Certain options and futures may be
considered to be derivative securities. The Fund is not registered as a
commodity pool operator nor is the Manager registered as a commodities trading
adviser, in reliance upon various exemptive rules. See Options and Futures under
Additional Information on Investment Policies and Risk Considerations.
Inverse Floaters
The Fund may invest up to 10% of its assets in inverse floaters which may
be considered to be derivative securities. The interest rates attributable to
inverse floaters typically move in the opposite direction to short-term interest
rates at an accelerated speed. This may cause rapid fluctuations in the value of
such securities. See Inverse Floaters under Additional Information on Investment
Policies and Risk Considerations.
Zero-Coupon Bonds
The Fund may also invest in zero-coupon bonds which do not entitle the
Fund to payment of interest until maturity or a specified date. See Zero-Coupon
Bonds under Additional Information on Investment Policies and Risk
Considerations.
Derivative Tax Exempt Obligations
The Fund may invest in Derivative Tax Exempt Obligations which are
described more fully under Additional Information on Investment Policies and
Risk Considerations.
Borrowing, Repurchase Agreements and Restricted Securities [CONFIRM: SRSY
RECEIVED CONFLICTING RESPONSES]
While the Fund is permitted to borrow money and invest in repurchase
agreements, the Fund normally does not do so. As a temporary measure for
extraordinary purposes, the Fund may borrow up to 10% of the value of its
assets. The Fund will not normally purchase investment securities while it has
an outstanding borrowing.
The Fund may also invest in repurchase agreements, which are described
more fully in Part B, and restricted securities which are described more fully
under Additional Information on Investment Policies and Risk Considerations.
Special Considerations Relating to Ohio Tax-Exempt Securities
The Fund concentrates its investments in the State of Ohio. 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 Ohio 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 State of Ohio.
-11-
<PAGE>
Economic activity in Ohio, as in many other industrially developed
states, tends to be more cyclical than in some other states and in the nation as
a whole. Also, federal budget cuts have placed financial burdens on state and
local governments. Such difficulties could affect outstanding obligations of
such entities, including obligations held by the Fund. In Ohio, state and
national fiscal uncertainties during the fiscal years 1991 through 1993 required
several executive and legislative measures to address anticipated shortfalls in
revenue and increases in expenditures. However, no measures relating to
expenditures were applied to appropriations needed for debt service on or lease
payments relating to any State obligations. While the economic forecast
underlying revenue projections for Ohio's Fiscal Year 1998-1999 Executive Budget
do not predict a recession, economic growth is expected to continue to be fairly
slow and to produce slower growth in State revenues. 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 Ohio
obligations.
* * *
Part B sets forth other more specific investment restrictions and
descriptions of Moody's and S&P ratings.
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; Wire
Investments; Wire Liquidations;
Telephone Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
-12-
<PAGE>
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 annualized basis over a 30-day period.
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.
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.
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.
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. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by
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<PAGE>
completing an Authorization Agreement. If the name and address on your
designated bank account are not identical to the name and address on your Fund
account, you must have your signature guaranteed.
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 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.
Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your shares
into shares of other mutual 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 invest in the Fund through regular liquidations of
shares in your accounts in 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 the Fund. See Additional Methods of Adding to
Your Investment -- Wealth Builder Option and Investing by Exchange under How to
Buy Shares and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives you,
when 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.
Financial Information about the Fund
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<PAGE>
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, which 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 0.30% (currently, no more than 0.25% pursuant to Board
action) 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% (0.25% 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 and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% (currently, no more than 0.25% pursuant to Board action) for the Class A
Shares will apply. 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% (0.25% 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,
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<PAGE>
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. 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 and the effect of earning a
return on such additional money will diminish over time. 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.
Prospective investors should refer to Appendix A --Investment
Illustrations in 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 3.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
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<PAGE>
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
Tax-Free Ohio Fund A Class
<TABLE>
<CAPTION>
Dealer's
Front-End Sales Charge as % of Commission***
Offering Amount as % of
Amount of Purchase Price Invested** Offering Price
- ------------------ ----- ---------- --------------
<S> <C> <C> <C> <C>
Less than $100,000 3.75% 0.00% 3.25%
$100,000 but under $250,000 3.00 0.00 2.50
$250,000 but under $500,000 2.50 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 1.75
</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 an initial the net asset value of $0.00 per share of the Class A
Shares.
*** 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 0.15% 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 percentage of
Amount of Purchase amount purchased)
------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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.
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<PAGE>
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.
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 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.
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
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<PAGE>
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. In addition, 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 pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. 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.
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.
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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 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 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 0.30%
(currently, no more than 0.25% pursuant to Board action) 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.
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 0.25% 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 Conduct Rules, 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
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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 Conduct Rules 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
Conduct Rules as they may be amended.
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HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is generally $1,000 for Class A
Shares, Class B Shares and Class C Shares. Subsequent purchases of shares of any
Class generally must 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.
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 Ohio Fund A Class, Tax-Free Ohio Fund B
Class or Tax-Free Ohio Fund C Class to Delaware Group 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 Ohio Fund A Class, Tax-Free Ohio Fund B Class or
Tax-Free Ohio 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 1412893401 (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 Ohio Fund A Class, Tax-Free Ohio Fund B Class or
Tax-Free Ohio Fund C Class at 1818 Market Street, Philadelphia, PA 19103.
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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.
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 of the Fund 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. See Appendix B-- Classes Offered for a list of Delaware Group funds and
the classes they offer. 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. Many shareholders use this as an automatic savings plan. Shareholders
should allow a reasonable amount of time for initial purchases and changes to
these plans to become effective.
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
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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. You also may elect to invest in other mutual funds in the Delaware Group
through the 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 account in one
or more funds in the Delaware Group and invested automatically into any other
account in a Delaware Group mutual fund that you may specify. If in connection
with the election of the Wealth Builder Option, you wish to open a new account
to receive the automatic investment, such new account must meet the minimum
initial purchase requirements described in the prospectus of the fund that you
select. All 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 in Wealth Builder at any time by giving
written notice to the fund from which the exchanges are made. See Redemption and
Exchange.
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 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. Similarly, holders of Class C Shares of the
Fund
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may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix B--Classes Offered
for a list of the funds offering those classes of shares. For more information
about reinvestments, call the Shareholder Service Center.
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 under The Delaware Difference, 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.
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, above. 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. Generally, only shares within the same class
may be used within the same Strategy. However, Class A Shares of the Fund and of
other funds in the Delaware Group may be used in the same Strategy with
consultant class shares that are offered by certain other Delaware Group funds.
See Appendix B--Classes Offered for the funds in the Delaware Group that offer
consultant class shares.
An annual maintenance fee, currently $35 per Strategy, is typically 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. However, the annual fee is waived until further notice.
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.
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.
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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.
The Fund also reserves the right, following shareholder notification, to
charge a service fee on accounts that, as a result of a redemption, 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.
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.
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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 and Class C Shares and, 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. Redemption proceeds will be distributed
promptly, as described below, but not later than seven days after receipt of a
redemption request.
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 process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the purchase check has cleared, which may take
up to 15 days from the purchase date. 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.
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 exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
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Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, 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 from which the Original Shares were exchanged. In an exchange of Class B
Shares from the Fund, 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 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.
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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.
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
services 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 after receipt of the redemption 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 after receipt of your redemption request to your predesignated bank
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account. 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.
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. Your funds will normally be credited to your bank account two business
days after the payment date. There are no separate 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
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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.
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.
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).
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Waiver of Contingent Deferred Sales Charge -- Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares 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 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.
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.
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Each Class of the Fund 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. 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 your account at the then-current net asset value and the
dividend option may be changed from cash to reinvest. 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.
TAXES
The tax discussion set forth below is included for general information
only. 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 taxable to shareholders 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.
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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 by-product 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
the Fund and any other fund in the Delaware Group. Any loss incurred on a sale
or exchange of Fund 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 the Fund's 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.
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.
Distributions received from the Fund are exempt from Ohio personal income
tax and school district and municipal income taxes in Ohio to the extent they
are properly attributable to interest on obligations issued by the State of
Ohio, political subdivisions thereof, or agencies or instrumentalities thereof
("Ohio Obligations"), provided that the Fund continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Fund consists of Ohio
Obligations or similar obligations of other states or their subdivisions. It is
assumed for purposes of this discussion of Ohio taxation that these requirements
are satisfied. All distributions received from the Fund are excluded from the
net
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income base of the Ohio corporation franchise tax to the extent that they (a)
are properly attributable to interest on Ohio Obligations, or (b) represent
exempt-interest dividends for federal income tax purposes. The Fund's shares
will be included in a shareholder's tax base for purposes of computing the Ohio
franchise tax on the net worth basis.
Distributions of capital gain received from the Fund will be exempt from
Ohio personal income tax and school district income taxes and municipal income
taxes in Ohio and will be excluded from the net income base of the Ohio
corporation franchise tax, in each case to the extent that such distributions
are properly attributable to profit made on the sale, exchange or other
disposition by the Fund of Ohio Obligations.
Distributions properly attributable to interest on obligations of the
United States or of any authority, commission, or instrumentality of the United
States or obligations of Puerto Rico, the Virgin Islands, or Guam or their
authorities or instrumentalities will be exempt from Ohio personal income tax
and school district and municipal income taxes in Ohio, and are excluded from
the net income base of the Ohio corporation franchise 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 Trust's 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 Trust's 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.
MANAGEMENT OF THE FUND
Trustees
The business and affairs of the Fund are managed under the direction of
the Trust's Board of Trustees. Part B contains additional information regarding
the Trust's trustees and officers.
Investment Manager
Delaware Management Company, Inc. (the "Manager"), 2005 Market Street,
Philadelphia, PA 19103, 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 28, 1997], the Manager and its
affiliates within the Delaware Group were managing in the aggregate more than
[$32] billion in assets in the various institutional or separately managed
(approximately [$20,548,345,000]) and investment company (approximately
[$12,216,382,000]) accounts.
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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 indirect, 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.
The Manager manages the Fund's portfolio and makes investment decisions
for the Fund 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.
[(Delaware to confirm:) The annual compensation paid by the Fund for investment
management services is equal to [0.60%] on the first $500 million of average
daily net assets of the Fund, [0.575%] on the next $250 million and [0.55%] on
the average daily net assets in excess of $750 million, less all trustees' fees
paid to the unaffiliated trustees.]
Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager of the Fund, have primary responsibility for making day-to-day
investment decisions for the Fund. Mr. Coyne and Mr. Conery have managed the
Fund since its inception. A graduate of Harvard University with an MBA from the
University of Pennsylvania's Wharton School, Mr. Coyne joined the Delaware
Group's fixed-income department in 1990. Prior to joining the Delaware Group, he
was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in
trading high grade municipal bonds and municipal futures contracts. Mr. Coyne is
a member of the Municipal Bond Club of Philadelphia. Mr. Conery joined Delaware
Group in January 1997. Mr. Conery holds a bachelor's degree from Boston
University and an MBA in Finance from the State University of New York at
Albany. He has served as an investment officer with Travelers Insurance and as a
research analyst with CS First Boston and MBIA Corporation.
In making investment decisions for the Fund, Mr. Coyne and Mr. Conery
regularly consult with Paul E. Suckow and other members of Delaware's
fixed-income department. Mr. Suckow is Executive Vice President/Chief Investment
Officer, Fixed Income of the Fund. He is a CFA charterholder and a graduate of
Bradley University with an MBA from Western Illinois University. Mr. Suckow was
a fixed-income portfolio manager at the Delaware Group from 1981-1985. He
returned to the Delaware Group in 1993 after eight years with Oppenheimer
Management Corporation where he served as Executive Vice President and Director
of Fixed Income.
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%.
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
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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 shares of funds in
the Delaware Group of funds in placing portfolio orders and may place orders
with broker/dealers that have agreed to defray certain expenses of such funds,
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 or life-of-fund 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. serves as the national
distributor for the Fund's shares under a Distribution Agreement dated
[ ].
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 of the
Fund (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
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maintenance fees to brokers, dealers and others. In connection with the
promotion of shares of the Classes, 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 a Class and
increase sales of the Class. In addition, the Fund may make payments from the
12b-1 Plan fees of its respective Classes 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 of the Fund 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 (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1.0%
(0.25% 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 Fund's 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.
Although the maximum fee payable under the Plan relating to the Class A
Shares is 0.30% of average daily net assets, the Board of Trustees has currently
set the annual fee for the Class at 0.25% of the average daily net assets. The
Board of Trustees may increase the fee to the full 0.30% on all Class A Shares'
assets at any time. See Shares.
While payments pursuant to the Plans may not exceed 0.30% 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 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. 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 [ ]. The Transfer Agent also provides accounting services to
the Fund pursuant to the terms of a separate Fund Accounting Agreement. The
trustees of the Fund 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 expense ratio of each
Class will reflect 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 series of DMC Tax-Free Income Trust (the
"Trust") which is a Pennsylvania business trust organized on November 23, 1976.
In addition to the Fund, the Trust presently offers two other series of shares,
Tax-Free Pennsylvania Fund series and Tax-Free New Jersey Fund series. The Trust
has an unlimited authorized number of shares of beneficial interest with no par
value per share with [series and class allocation to be described]. All shares
have equal voting rights, except as noted below, and are equal in all other
respects.
The assets received by the Trust for the issue or sale of shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such series, and constitute the
underlying assets of such series. The underlying assets of each series are
required to be segregated on the books of account, and are to be charged with
the expenses in respect to such series and with a share of the general expenses
of the Trust. Any general expenses of the Trust not readily identifiable as
belonging to a particular series or class shall be allocated among the series or
classes based upon the relative net assets of the series or class at the time
such expenses were accrued. The Trust's Declaration of Trust limits the
liability of the Trustees to the fullest extent permitted by law. For a further
discussion, see General Information in Part B.
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 Trust shares have noncumulative voting rights which means that the
holders of more than 50% of the Trust's shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so.
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ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK
CONSIDERATIONS
High Yield, High Risk Securities
The Fund may invest up to 20% of its net assets in high yield, high risk
fixed-income securities. These securities are rated lower than BBB by Standard &
Poor's Ratings Group ("S&P"), Baa by Moody's Investors Service, Inc. ("Moody's")
and/or rated similarly by another rating agency, or, if unrated, are considered
by the Manager to be of equivalent quality. The Fund will not invest in
securities which are rated lower than [C] by S&P, [Ca] by Moody's or similarly
by another rating agency, or, if unrated, are considered by the Manager to be of
a quality that is lower than such ratings. See Appendix B---Ratings to this
Prospectus for more rating information. Fixed- income securities of this type
are considered to be of poor standing and predominantly speculative. Such
securities are subject to a substantial degree of credit risk.
In the past, in the opinion of the Manager, the high yields from these
bonds have more than compensated for their higher default rates. There can be no
assurance, however, that yields will continue to offset default rates on these
bonds in the future. The Manager intends to maintain an adequately diversified
portfolio of these bonds. While diversification can help to reduce the effect of
an individual default on the Fund, there can be no assurance that
diversification will protect the Fund from widespread bond defaults brought
about by a sustained economic downturn. [Is this paragraph accurate for a
non-diversified, state-specific fund?]
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) issuers, which are generally less able than more financially stable
issuers to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.
The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.
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
-44-
<PAGE>
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 [10/15]% 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 [10/15]% 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 [10/15]% 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.
Variable Rate Obligations
The Fund may purchase "floating-rate" and "variable-rate" obligations.
These obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on predesigned dates.
Advance Refunded Bonds
Escrow secured bonds or defeased bonds are created when an issuer refunds
in advance of maturity (or pre-refunds) an outstanding bond issue which is not
immediately callable, and it becomes necessary or desirable to set aside funds
for redemption of the bonds at a future date. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive
the highest rating from S&P and Moody's.
Certificates of Participation
Certificates of Participation are widely used by state and local
governments to finance the purchase of property and facilities. COPs function
much like installment purchase agreements. For example, a governmental
corporation may create a COP when it issues long-term bonds to pay for the
acquisition of property or facilities. The property or facilities are then
leased to a municipality which makes lease payment to repay interest and
principal to the holders of the bonds. Once these lease payments are completed,
the municipality gains ownership of the property for a nominal sum. This lease
format is generally not subject to constitutional limitations on the issuance of
state debt so that COPs enable a governmental issuer to increase government
liabilities beyond constitutional debt limits.
-45-
<PAGE>
A feature which distinguishes COPs from municipal debt is that the lease
typically contains a "nonappropriation" or "abatement" clause. This means that
the municipality leasing the property or facility must use its best efforts to
make lease payments, but that the municipality may terminate the lease without
penalty if its appropriating body does not allocate the necessary monies.
Therefore, if the municipal government 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 market value of the property
will be less than the amount the municipality was paying.
While the risk of nonappropriation exists, 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. In assessing such risk the
rating agencies and the Manager consider, among other things, 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.
COPs will be considered illiquid under the Fund's [10/15]% limitation on
investments in illiquid securities, unless the Manager determines that they are
liquid. The Manager will determine the liquidity by considering factors as
described above under Restricted Securities.
Options
The Fund may write put and call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes. The Fund may
write covered call options and secured put options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. The Fund may
also purchase [(i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets].
Futures
The Fund may invest in futures contracts and options on such futures
contracts subject to certain limitations. Futures contracts are agreements for
the purchase or sale for future delivery of securities. When a futures contract
is sold, the Fund incurs a contractual obligation to deliver the securities
called for by the contract at a specified price on a specified future date. When
the Fund purchases a futures contract, it obtains the right to acquire the
securities called for by the contract at a specified price and date.
Inverse Floaters
The Fund may invest up to 10% of its assets in inverse floaters. Inverse
floaters are instruments with floating or variable interest rates that move in
the opposite direction, usually at an accelerated speed, to short-term interest
rates or interest rate indices. Consequently, the market values of inverse
floaters will generally be more volatile than other tax-exempt investments and
may increase the volatility of the value of shares of the Fund.
Zero-Coupon Bonds
-46-
<PAGE>
The Fund may invest in zero-coupon and payment-in-kind bonds. Zero-coupon
bonds do not entitle the holder to any periodic payment of interest prior to
maturity or a specified date when the securities begin paying current interest.
They are issued and traded at a discount, which discount varies depending on the
time remaining until cash payments begin, prevailing interest rates, liquidity
of the security and the perceived credit quality of the issuer. Since the Fund
must distribute at least 90% of its investment income each year, in order to
maintain its desired tax treatment, the Fund may be required to borrow or to
liquidate portfolio securities in order to distribute income which has been
attributed to zero-coupon bonds but which the Fund has not yet received.
Payment-in-kind securities are securities that pay interest through the issuance
of additional securities. Such securities generally are more volatile in
response to changes in interest rates and are more speculative investments than
are securities that pay interest periodically in cash.
Derivative Tax Exempt Obligations
The Fund may also acquire Derivative Tax Exempt Obligations, which are
custodial receipts or certificates that evidence ownership of future interest
payments, principal payments or both on certain tax exempt securities. The
sponsor of these certificates or receipts typically purchases and deposits the
securities in an irrevocable trust or custodial account with a custodian bank,
which then issues the receipts or certificates that evidence ownership. Although
the Fund typically would be authorized to assert its rights directly against the
issuer of the underlying obligation, the Fund could be required to assert such
rights through the custodian bank. Thus, in the event of a default, the Fund may
be subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of the issuer.
In addition, if the trust or custodial account in which the underlying
security had been deposited is determined to be a taxable entity, it would be
subject to state income tax on the income earned on the underlying security.
Furthermore, amounts paid by the trust or custodial account to the Fund would
become taxable in the hands of the Fund and its shareholders. However, the Fund
will only invest in custodial receipts which are accompanied by a tax opinion
stating that interest payable on the receipts is tax exempt. Also, it is
possible that a portion of the discount at which the Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.
-47-
<PAGE>
APPENDIX B--CLASSES OFFERED
<TABLE>
<CAPTION>
Growth of Capital A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Quantum Fund x x x -
Total Return
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
Blue Chip Fund x x x -
International Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
International Equity Fund x x x -
World Growth Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Limited-Term Government Fund x x x -
Tax-Free Current Income
Tax-Free Pennsylvania Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Tax-Free New Jersey Fund x x x -
Tax-Free Ohio Fund x x x -
Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
-48-
<PAGE>
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, national and state-specific tax-free funds, money
market funds, global and international funds and closed-end equity funds give
investors the ability to create a portfolio that fits their personal financial
goals. For more information, contact your financial adviser or call Delaware
Group at 800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES SUBJECT TO COMPLETION
AND TRANSFER AGENT
Delaware Service Company, Inc. INFORMATION CONTAINED HEREIN IS
1818 Market Street SUBJECT TO COMPLETION OR AMENDMENT.
Philadelphia, PA 19103 A REGISTRATION STATEMENT RELATING
TO THESE SECURITIES HAS BEEN FILED
LEGAL COUNSEL WITH THE SECURITIES AND EXCHANGE
Stradley, Ronon, Stevens & Young, LLP COMMISSION. THESE SECURITIES MAY
One Commerce Square NOT BE SOLD NOR MAY OFFERS TO BUY
Philadelphia, PA 19103 BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES
INDEPENDENT AUDITORS EFFECTIVE. THIS PROSPECTUS SHALL
Ernst & Young LLP NOT CONSTITUTE AN OFFER TO SELL OR
Two Commerce Square THE SOLICITATION OF AN OFFER TO BUY
Philadelphia, PA 19103 NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN
CUSTODIAN WHICH SUCH OFFER, SOLICITATION OR
Bankers Trust Company SALE WOULD BE UNLAWFUL PRIOR TO
One Bankers Trust Plaza REGISTRATION OR QUALIFICATION UNDER
New York, NY 10006 THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
TAX-FREE OHIO FUND
A CLASS
B CLASS
C CLASS
P R O S P E C T U S
SEPTEMBER 2, 1997
DELAWARE
GROUP
-49-
<PAGE>
APPENDIX A
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
-50
<PAGE>
APPENDIX B--RATINGS
The Fund has the ability to invest up to 20% of its net assets in high
yield, high risk fixed-income securities. The table set forth below shows the
assets composition, based on rating categories, of such securities held by the
Fund. Certain securities may not be rated because the rating agencies were
either not asked to provide ratings (e.g., many issuers of privately placed
bonds do not seek ratings) or because the rating agencies declined to provide a
rating for some reason, such as insufficient data. The paragraphs following the
table contain excerpts from Moody's and S&P's rating descriptions. These credit
ratings evaluate only the safety of principal and interest and do not consider
the market value risk associated with high yield securities.
General Rating Information
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, C--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.
Excerpts from Fitch's description of its bond ratings: AAA--highest
credit quality, obligor has exceptionally strong ability to pay interest and
repay principal; AA--very high credit quality, obligor's ability to repay
interest and repay principal is very strong; A--high credit quality, obligor's
ability to repay interest and repay principal is strong but more vulnerable to
adverse economic conditions than higher rated bonds; BBB--satisfactory credit
quality, obligor's ability to pay interest and repay principal is adequate,
adverse market conditions could impair timely payment; BB, B, CCC, C--on
balance, regarded as being increasingly speculative, with the obligor's ability
to pay interest and repay principal very vulnerable to adverse economic
conditions or a limited debt service safety margin; CC--minimal protection,
default in payment of interest or principal seem probable over time; C--bonds
are in imminent default in payment of interest and principal; DDD, DD, D-- in
default, with decreasing potential for recovery of interest and/or principal.
-51-
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
TAX-FREE NEW JERSEY 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 1
Investment Objective and Policy 3
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
<PAGE>
Officers and Trustees
Exchange Privilege
General Information
Appendix A--Description of Ratings
Appendix B--Tax Exempt vs Taxable Yields
Appendix C--Investing in New Jersey Tax-Exempt Obligations
Financial Statements
2
<PAGE>
DMC Tax-Free Income Trust (the "Trust") is a professionally managed
mutual fund of the series type. This Statement of Additional Information
("Part B" of the registration statement) supplements the information contained
in the current Prospectus of Tax-Free New Jersey Fund (the "Fund") dated
September 2, 1997, as it may be amended from time to time. Part B 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 New Jersey Fund A Class ("Class A
Shares"), Tax-Free New Jersey Fund B Class ("Class B Shares") and Tax-Free New
Jersey Fund C Class ("Class C Shares") (Class A Shares, Class B Shares and Class
C Shares together referred to as the "Fund Classes"). 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
3.75% and annual 12b-1 Plan expenses of up to 0.30% which have currently been
fixed by the Board at 0.25%. 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.
3
<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 New Jersey 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 State
of New Jersey 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 New Jersey 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 New Jersey
tax-exempt debt obligations which are rated by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch Investors Service,
Inc. ("Fitch") 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, Moody's or Fitch, 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, Moody's and Fitch 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 [15]% 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
4
<PAGE>
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
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.
5
<PAGE>
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
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 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
6
<PAGE>
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.
Private Purpose Bonds
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.
Municipal Bond Insurance
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"),
Financial Security Assurance ("FSA") 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.
Options
The Fund may write put and call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes. The Fund may
write covered call options and secured put options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. The Fund may
also [purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets.]
A. Covered Call Writing - A call option gives the purchaser of such
option the right to buy, and the writer, in this case the Fund, the obligation
to sell the underlying security at the exercise price during the option period.
There is no percentage limitation on writing covered call options.
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The advantage to the Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that if the
security rises in value the Fund will lose the appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Call options will be written only on a covered basis, which means that
the Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, the
Fund would be required to continue to hold a security which it might otherwise
wish to sell. Options written by the Fund will normally have expiration dates
between three and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
B. Purchasing Call Options - The Fund may purchase call options [to the
extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets]. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund obtains the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who receives
the premium upon writing the option, has the obligation, upon exercise of the
option, to deliver the underlying security against
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<PAGE>
payment of the exercise price. The advantage is that the Fund may hedge against
an increase in the price of securities which it ultimately wishes to buy.
However, the premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon exercise of the option.
The Fund may, following the purchase of a call option, liquidate its
position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. The
Fund will realize a profit from a closing sale transaction if the price received
on the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market may exist. In such event, it may not be possible to
effect closing transactions in particular options, with the result that the Fund
would be required to exercise its options in order to realize any profit and
would incur brokerage commissions upon the exercise of such options and upon the
subsequent disposition of the underlying securities acquired through the
exercise of such options. Further, unless the price of the underlying security
changes sufficiently, a call option purchased by the Fund may expire without any
value to the Fund.
C. Secured Put Writing - A put option gives the purchaser of the option
the right to sell, and the writer, in this case the Fund, the obligation to buy
the underlying security at the exercise price during the option period. During
the option period, the writer of a put option may be assigned an exercise notice
by the broker/dealer through whom the option was sold requiring the writer to
make payment of the exercise price against delivery of the underlying security.
In this event, the exercise price will usually exceed the then-market value of
the underlying security. This obligation terminates upon expiration of the put
option or at such earlier time at which the writer effects a closing purchase
transaction. The operation of put options in other respects is substantially
identical to that of call options. [Premiums on outstanding put options written
or purchased by the Fund may not exceed 2% of its total assets.]
The advantage to the Fund of writing such options is that it receives
premium income. The disadvantage is that the Fund may have to purchase
securities at higher prices than the current market price when the put is
exercised.
Put options will be written only on a secured basis, which means that the
Fund will maintain in a segregated account with its Custodian, the Bankers Trust
Company of New York, cash or U.S. Government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. Government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Manager wishes to purchase
the underlying security for the Fund's portfolio at a price lower than the
current market price of the security. In such event, the Fund would write a
secured put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay.
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<PAGE>
D. Purchasing Put Options - The Fund may purchase put options [to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets]. The Fund will, at all times during which it holds a put option, own the
security covered by such option.
The Fund intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund will continue to receive interest income on the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased prior to
the sale of the securities underlying such option. Such sales will result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option which
is sold.
Futures
The Fund may enter into contracts for the purchase or sale for future
delivery of securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into an offsetting transaction. When the Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by the
futures commission merchant in an account at the Fund's Custodian Bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund from, such account in accordance with controls set for such accounts,
depending upon changes in the price of the underlying securities subject to the
futures contract.
The Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts for the Fund,
which consists of a substantial number of municipal securities, is to protect
the Fund against the adverse effects of fluctuations in interest rates without
actually buying or selling such securities. Similarly, when it is expected that
interest rates may decline, futures contracts may be purchased to hedge in
anticipation of subsequent purchases of municipal securities at higher prices.
With respect to options on futures contracts, when the Fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The writing of a call option on
a futures contract constitutes a partial hedge against declining prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any increase in the price
of municipal securities which the Fund intends to purchase.
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To the extent that the Fund purchases an option on a futures contract and
fails to exercise the option prior to the exercise date, it will suffer a loss
of the premium paid. Further, with respect to options on futures contracts, the
Fund may seek to close out an option position by writing or buying an offsetting
position covering the same securities or contracts and have the same exercise
price and expiration date. The ability to establish and close out positions on
options will be subject to the maintenance of a liquid secondary market, which
cannot be assured.
[The Fund will not enter into futures contracts to the extent that more
than 5% of the Fund's assets are required as futures contract margin deposits
and will not invest in futures contracts or options thereon to the extent that
obligations relating to such transactions exceed 20% of the Fund's assets].
In addition, when the Fund engages in futures transactions, to the extent
required by the SEC, it will maintain with its custodian, assets in a segregated
account to cover its obligations with respect to such contracts, which assets
will consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the margin payments
made by the Fund with respect to such futures contracts.
The Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling the securities. For example, if interest rates are expected to increase,
the Fund might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Fund. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt securities,
the Fund could take advantage of the anticipated rise in value of debt
securities without actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund could then buy debt
securities on the cash market.
With respect to options on futures contracts, when the Fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based, or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested, it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against the declining price of the security which is deliverable upon
exercise of the futures contract. If the futures price at the expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against the increasing price of the
security which is deliverable upon exercise of the futures contract. If
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<PAGE>
the futures price at the expiration of the option is higher than the exercise
price, the Fund will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the Fund
intends to purchase.
If a put or call option the Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities. For example, the Fund will purchase a
put option on a futures contract to hedge the Fund's portfolio against the risk
of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if the Fund had insufficient
cash, it may be required to sell securities from its portfolio to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. The Fund
may be required to sell securities at a time when it may be disadvantageous to
do so.
Further, with respect to options on futures contracts, the Fund may seek
to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Variable or Floating Rate Demand Notes
Variable or floating rate demand notes ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the unpaid
principal balance plus accrued interest upon a short notice period (generally up
to 30 days) prior to specified dates, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to such
instrument. The interest rates are adjustable at intervals ranging from daily to
up to six months to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the price rate of a bank or some other
appropriate interest rate adjustment index. The Manager will decide which
variable or floating rate demand instruments the Fund will purchase in
accordance with procedures prescribed by the Board of Trustees to minimize
credit risks. Any VRDN must be of high quality as determined by the Manager and
subject to review by the Board, with respect to both its long-term and
short-term aspects, except where credit support for the instrument is provided
even in the event of default on the underlying security, the Fund may rely only
on the high quality character of the short-term aspect of the demand instrument,
i.e., the demand feature. A VRDN which is unrated must have high quality
characteristics similar to those rated in accordance with policies and
guidelines determined by the Board. If the quality of any VRDN falls below the
quality level required by the
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<PAGE>
Board and any applicable rules adopted by the Securities and Exchange
Commission, the Fund must dispose of the instrument within a reasonable period
of time by exercising the demand feature or by selling the VRDN in the secondary
market, whichever is believed by the Manager to be in the best interests of the
Fund and its shareholders.
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].
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
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<PAGE>
not normally be purchased while there is an outstanding borrowing.
3. Make short sales of securities, or purchase securities on margin,
except that the Fund may satisfy margin requirements with respect to futures
transactions.
4. 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;
5. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements) in accordance with the Fund's investment
objective and policies are considered loans.
6. 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.
7. Invest in securities of other investment companies, except as part of
a merger, consolidation or other acquisition, or in accordance with the
limitations contained in the Investment Company Act of 1940, as amended (the
"1940 Act").
8. 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.
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. As a matter of non-fundamental policy, no more than
[15]% of the Fund's total assets will be invested in repurchase agreements and
other assets maturing in more than seven days, or invest in companies for the
purpose of exercising control. 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 New Jersey Tax-Exempt Securities
The Fund concentrates its investments in the State of New Jersey.
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 New Jersey 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 State of New
Jersey.
PERFORMANCE INFORMATION
From time to time, the Fund may state its Classes total return in
advertisements and other types of
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<PAGE>
literature. Any statement of total return performance data for a Class 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 its Classes 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 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.
Past results should not be considered as representative of future
performance.
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:
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a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
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.
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. 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. These yields are computed by dividing that portion of a Class' yield
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield that is not tax-exempt.
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
16
<PAGE>
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.
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. In
addition, the performance of multiple indices compiled and maintained
by these firms may be combined to create a blended performance result
for comparative purposes. Generally, the indices selected will be
representative of the types of securities in which the Fund may invest
and the assumptions that were used in calculating the blended
performance will be described.
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,
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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.
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. You also should consider your 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
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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.
Investment Price Per Number 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.
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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.
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers, dealers and banks to execute transactions on
behalf of the Fund 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.
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
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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.
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 Conduct Rules 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 expenses of the funds in the Delaware Group of funds, such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of such funds shares as a factor in the selection of brokers and
dealers to execute Fund portfolio transactions.
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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%.
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's three
classes of shares--Class A Shares, Class B Shares and Class C 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 the Distributor.
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, and that Class A Shares 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 are responsible for 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.
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<PAGE>
The NASD has adopted Conduct Rules, as amended, 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 3.75%; 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 for the life of the investment.
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 the Class B Shares
approximately eight years after purchase. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus.
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.
Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in the Fund's assets and will receive a proportionate
interest in the Fund's income, before application, as to the Class A, Class B
and Class C Shares, of any expenses under the Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
Certificates are not issued in the case of Class B Shares or Class C Shares or
in the case of any retirement plan account including self-directed IRAs.
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 full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by the Fund for any certificate issued. A
shareholder may be subject to fees for replacement of a lost or stolen
certificate under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Fund for further
information. 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 (currently, no more than .25% of average daily net
assets pursuant to Board action) 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
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<PAGE>
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% (0.25% 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.
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.
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Class A Shares
Dealer's
Front-End Sales Charge as % of Commission***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
Less than $100,000 3.75% 0.00% 3.25%
$100,000 but under $250,000 3.00 0.00 2.50
$250,000 but under $500,000 2.50 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 1.75
* There is no front-end sales charge on purchases of $1 million or more of
Class A Shares 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 on an initial net asset value of $0.00 per share of Class A Shares.
*** 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.
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 0.15% 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.
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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 percentage of
Amount of Purchase amount purchased)
------------------ -------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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.
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.
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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
Year After Purchase Made Amount 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. 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, the Class B Shares and the 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 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 0.30% of Class A
Shares' average daily net assets for the year, and up to 1% (0.25% 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 Trust's
Board of Trustees may reduce these amounts at any time.
Although the maximum fee payable under the 12b-1 Plan for the Class A
Shares is 0.30%, the Board of Trustees has set the maximum aggregate fee payable
by the Class A Shares at 0.25%.
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<PAGE>
However, the Board may increase the amount to the maximum of .30% 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 Fund 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 of the Trust, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of the Fund and who
have 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
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 Fund 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 maximum percentage payable under
the Plans must likewise be approved by a majority vote of the outstanding voting
securities of the relevant Fund Class, as well as by a majority vote of those
trustees who are not "interested persons." With respect to the Class A Share
Plan, any material increase in the maximum percentage payable thereunder must
also be approved by a majority of the outstanding voting securities of the 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
of the Fund 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.
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 Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% 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. The Distributor may
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<PAGE>
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. Class A Shares may also be purchased at net asset value by current
and former officers, directors and employees (and members of their families) of
the Dougherty Financial Group LLC. 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.
Investors in Delaware - Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.
The Fund must be notified in advance that the trade qualifies for
purchase at net asset value.
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
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
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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.
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 A Shares, 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.
12-Month Reinvestment Privilege
Holders of Class A Shares of the Fund who redeem such shares 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
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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 Shares 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 intended 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.
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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
Fund Class (based on the net asset value in effect on the payable date) and will
be credited to the shareholder's account on that date. A confirmation of each
dividend payment from net investment income will be mailed to shareholders
quarterly. A confirmation 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 Shares 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
intended 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,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. 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 Appendix B-Classes Offered 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.
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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
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
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.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group. Shareholders of the Fund Classes may elect to
invest in one or more of the other mutual funds in the Delaware Group through
the Wealth Builder Option. See Wealth Builder Option and Redemption and Exchange
in the Prospectus for the Fund Classes.
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 Fund Classes'
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
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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 terminate their participation at any time by written
notice to their Fund.
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
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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.
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 Fund shares, 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
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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; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.
The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already been
settled. The Fund will honor the redemption requests as to shares for which a
check was tendered as payment, but the Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared. This potential
delay can be avoided by making investments by wiring Federal Funds.
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 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
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an additional investment to meet the required minimum of $1,000. See The
Conditions of Your Purchase under How to Buy 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.
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Expedited Telephone Redemptions
Shareholders of the Fund Classes 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 address of record.
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:
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.
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
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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.
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 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
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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.
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 New Jersey income taxes and from
certain New Jersey state and local taxes. Information concerning the tax status
of dividends and distributions will be mailed to shareholders annually,
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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.
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.
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.
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State and Local Taxes
See Taxes in the Prospectus for a discussion of New Jersey taxation.
Shares of the Fund may be taxable for purposes of New Jersey inheritance and
estate tax.
Distributions by the Fund may not be exempt from state or local income
tax in states other than New Jersey. Shareholders of the Fund are advised to
consult their own tax adviser in this regard.
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. On [February 28, 1997], the Manager and its
affiliates within the Delaware Group, including Delaware International Advisers
Ltd., were managing in the aggregate more than $[32] billion in assets in the
various institutional or separately managed (approximately $[20,548,345,000])
and investment company (approximately $[12,216,382,000]) accounts.
The Investment Management Agreement for the Fund is dated [ ]. 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) 0.60% on the first $500
million of the Fund's average daily net assets, 0.575% on the next $250 million
and 0.55% on the average daily net assets in excess of $750 million, less all
trustees' fees paid to the unaffiliated trustees of the Fund. The Manager has
elected voluntarily to waive that portion, if any, of the annual management fees
payable by the Fund and to reimburse the Fund's expenses to the extent necessary
to ensure that the Total Operating Expenses (after voluntary waivers and
payments) of the Class A Shares of the Fund do not exceed 1.00% and each of the
Class B Shares and Class C Shares do not exceed 1.75% (in all cases, exclusive
of taxes, interest, brokerage commissions and extraordinary expenses, but
inclusive of Rule 12b-1 fees), during the Fund's first fiscal year.
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.
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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 [ ]. The Distributor is an affiliate of the Manager and bears
all of the costs of promotion and distribution, except for payments by the Fund
on behalf of the Class A Shares, Class B Shares and Class C Shares under their
respective 12b-1 Plans. Delaware Distributors, Inc. ("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.
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 [ ]. The Transfer Agent also provides
accounting services to the Fund pursuant to the terms of a separate Fund
Accounting Agreement. The Transfer Agent is also an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
OFFICERS AND TRUSTEES
The business and affairs of the Fund are managed under the direction of
the Trust's Board of Trustees.
Certain officers and trustees of the Fund hold identical positions in
each of the other funds in the Delaware Group. As of [ ], the Fund's officers
and trustees, as a group, owned less than 1% of the outstanding shares of any
Class of the Fund.
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"). DMH and the Manager are indirect, 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.
*Wayne A. Stork (59)
Chairman, President, Chief Executive Officer, Chairman and Director and/or
Trustee of the Fund, 32 other investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware International
Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Distributors, Inc. and Delaware Capital
Management, Inc.
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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. and Delaware Investment & Retirement
Services, Inc.
During the past five years, Mr. Stork has served in various executive capacities
at different times within the Delaware organization.
Richard G. Unruh, Jr. (57)
Executive Vice President of the Fund and each of the other 32 investment
companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company, Inc.
Senior Vice President of Delaware Management Holdings, Inc. and Delaware Capital
Management, 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.
- ----------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
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<PAGE>
Paul E. Suckow (49)
Executive Vice President/Chief Investment Officer, Fixed Income of the Fund,
each of the other 32 investment companies in the Delaware Group and
Delaware Management Company, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Holdings, Inc.
Senior Vice President of Delaware Capital Management, Inc.
Director of Founders CBO Corporation.
Director of HYPPCO Finance Company Ltd.
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 (69)
Director and/or Trustee of the Fund and each of the other 32 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 (58)
Director and/or Trustee of the Fund and each of the other 32 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 (56)
Director and/or Trustee of the Fund and each of the other 32 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 (76)
Director and/or Trustee of the Fund and each of the other 32 investment
companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Thomas F. Madison (61)
Director and/or Trustee of the Fund and each of the other 32 investment
companies in the Delaware Group.
President and Chief Executive Officer, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402.
Mr. Madison had also been chairman of the Board of Communications Holdings,
Inc. since 1996. From February to September 1994, Mr. Madison served as
Vice Chairman--Office of the CEO of The Minnesota Mutual Life Insurance
Company and from 1988- 1993, he was President of U.S. WEST
Communications--Markets.
*Jeffrey J. Nick (44)
Director and/or Trustee of the Fund and each of the other 32 investment
companies in the Delaware Group.
President, Chief Executive Office and Director of Lincoln National Investment
Companies, Inc.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK plc and
from 1989 to 1992, he was Senior Vice President responsible for corporate
planning and development for Lincoln National Corporation.
Charles E. Peck (71)
Director and/or Trustee of the Fund and each of the other 32 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 (57)
Executive Vice President/Chief Operating Officer/Chief Financial Officer of the
Fund, each of the other 32 investment companies in the Delaware Group,
Delaware Capital Management, Inc., Delaware Management Holdings, Inc.
and Founders CBO Corporation.
- -------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
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<PAGE>
Chairman and Director of Delaware Management Trust Company.
Chairman and Director of Delaware Investment & Retirement Services, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial Officer and
Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings,
Inc. and Delaware International Holdings Ltd.
President/Chief Executive Officer/Chief Financial Officer and Director of
Delaware Service Company, Inc.
Senior Vice President/Chief Administrative Officer/ Chief Financial Officer of
Delaware Distributors, L.P.
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. (50)
Senior Vice President and Secretary of the Fund, each of the other 32 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., Founders Holdings, Inc., Delaware Investment & Retirement Services,
Inc. and Delaware Capital Management, 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.
Patrick P. Coyne (34)
Vice President/Senior Portfolio Manager of the Fund, and each of the
tax-exempt and the fixed-income funds in the Delaware Group and Delaware
Capital Management, Inc.
During the past five years, Mr. Coyne has served in various capacities at
different times within the Delaware organization.
Mitchell L. Conery (38)
Vice President/Senior Portfolio Manager of the Fund, each of the
tax-exempt and the fixed-income funds in the Delaware Group and Delaware
Management Company, Inc.
Before joining the Delaware Group in 1997, Mr. Conery was an investment officer
with Travelers Insurance from 1995 through 1996 and a research analyst
with CS First Boston from 1992 to 1995.
Joseph H. Hastings (47)
Vice President/Corporate Controller of the Fund, each of the other 32 investment
companies in the Delaware Group, Delaware Distributors, L.P., Delaware
Service Company, Inc., and Delaware International Holdings Ltd.
Senior Vice President/Corporate Controller and Treasurer of Delaware Management
Holdings, Inc., DMH Corp. and Delaware Management Company, Inc.
Senior Vice President and Treasurer of Delaware Distributors, Inc.
Senior Vice President/Corporate Controller of Founders Holdings, Inc.
Vice President and Treasurer of Delaware Capital Management, Inc.
Executive Vice President, Chief Financial Officer and Treasurer of Delaware
Management Trust Company.
Chief Financial Officer and Treasurer of Delaware Investment & Retirement
Services, Inc.
Assistant Treasurer of Founders CBO Corporation
1818 Market Street, Philadelphia, PA 19103.
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<PAGE>
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 (34)
Vice President/Treasurer of the Fund, each of the other 32 investment companies
in the Delaware Group, Delaware Distributors, L.P., Delaware Service
Company, Inc. and Founders Holdings, Inc.
Senior Vice President of Delaware Management Company, Inc. and Delaware
Distributors, Inc.
Vice President/Manager of Investment Accounting of Delaware International
Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
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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The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from the Trust and
the total compensation received from all Delaware Group investment companies
for the fiscal year ended February 28, 1997 and an estimate of annual benefits
to be received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of February 28, 1997.
Total
Pension or Compensation
Retirement Estimated from all 33
Benefits Annual Delaware
Aggregate Accrued Benefits Group
Compensation as Part of Upon Investment
Name from Trust Fund Expenses Retirement* Companies
W. Thacher Longstreth $3,788 None $30,000 $51,315
Ann R. Leven $4,206 None $30,000 $55,814
Walter P. Babich $4,122 None $30,000 $54,815
Anthony D. Knerr $4,122 None $30,000 $54,815
Charles E. Peck $3,785 None $30,000 $49,542
* 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 28, 1997, he or she would be entitled to annual payments
totaling $30,000, 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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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.
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<PAGE>
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 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) Tax-Free Pennsylvania 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
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<PAGE>
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.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Quantum Fund seeks to achieve long-term capital appreciation.
It seeks to achieve this objective by investing primarily in equity securities
of medium- to large-sized companies expected to grow over time that meet the
fund's "Social Criteria" strategy.
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. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities.
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
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
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<PAGE>
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. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
Enterprise Fund seeks to provide maximum appreciation of capital by
investing in medium-sized companies which have a dominant position within their
industry, are undervalued, or have potential for growth in earnings. U.S. Growth
Fund seeks to maximize capital appreciation by investing in companies of all
sizes which have low dividend yields, strong balance sheets and high expected
earnings growth rates relative to their industry. World Growth Fund seeks to
maximize total return (capital appreciation and income), principally through
investments in an internationally diversified portfolio of equity securities.
New Pacific Fund seeks long-term capital appreciation by investing primarily in
companies which are domiciled in or have their principal business activities in
the Pacific Basin. Federal Bond Fund seeks to maximize current income consistent
with preservation of capital. The fund attempts to achieve this objective by
investing primarily in securities issued by the U.S. government, its agencies
and instrumentalities. Corporate Income Fund seeks to provide high current
income consistent with preservation of capital. The fund attempts to achieve
this objective primarily by investing in a diversified portfolio of
investment-grade fixed-income securities issued by U.S.
corporations.
Delaware Group Premium Fund, Inc. offers 15 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return 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. Delchester 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.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware 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
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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. Trend 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. Global Bond Series 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. Strategic Income Series seeks high current income and total return
by using a multi-sector investment approach, investing primarily in three
sectors of the fixed-income securities markets: high-yield, higher risk
securities; investment grade fixed-income securities; and foreign government and
other foreign fixed-income securities. Devon Series seeks current income and
capital appreciation by investing primarily in income-producing common stocks,
with a focus on common stocks that the investment manager believes have the
potential for above-average dividend increases over time. Emerging Markets
Series seeks to achieve long-term capital appreciation by investing primarily in
equity securities of issuers located or operating in emerging countries.
Convertible Securities Series seeks a high level of total return on its assets
through a combination of capital appreciation and current income by investing
primarily in convertible securities. Quantum Series seeks to achieve long-term
capital appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy.
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).
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain 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.
The Manager, or its affiliate Delaware International Advisers Ltd., also
manages the investment options for Delaware Medallion[sm] III Variable Annuity.
Medallion is issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and Hawaii).
Delaware Medallion offers 10 different investment series ranging from domestic
equity funds, international equity and bond funds and domestic fixed income
funds. Each investment series available through Medallion utilizes an investment
strategy and discipline the same as or similar to one of the Delaware Group
mutual funds available outside the annuity. See Delaware Group Premium Fund,
Inc., above.
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
53
<PAGE>
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.
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.
The Transfer Agent also provides accounting services to the Fund. Those
services include performing all functions related to calculating the Fund's net
asset value and providing all financial reporting services, regulatory
compliance testing and other related accounting services. For its services, the
Transfer Agent is paid a fee based on total assets of all funds in the Delaware
Group for which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including the Fund, on an aggregate
pro-rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculated by determining the total number of investment
portfolios and associated classes.
Bankers Trust Company ("Bankers Trust"), One Bankers Trust Plaza, New
York, NY 10006, is custodian of the Fund's securities and cash. As custodian for
the Fund, Bankers Trust maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account of the Fund;
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.
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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 currently offers three series of shares,
Tax-Free New Jersey Fund (the "Fund"), Tax-Free Pennsylvania Fund and Tax-Free
Ohio Fund. The Fund currently offers three classes of shares and has a present
unlimited authorized number of shares of beneficial interest with no par value
allocated to each Class. All shares have equal voting rights, except as noted
below, 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, as the other classes. As a general matter,
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 Rule 12b-1
Plans of Class A Shares, Class B Shares and Class C Shares will be allocated
solely to those classes.
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.
55
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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.
Excerpts from Fitch's description of its bond ratings: AAA--highest
credit quality, obligor has exceptionally strong ability to pay interest and
repay principal; AA--very high credit quality, obligor's ability to repay
interest and repay principal is very strong; A--high credit quality, obligor's
ability to repay interest and repay principal is strong but more vulnerable to
adverse economic conditions than higher rated bonds; BBB--satisfactory credit
quality, obligor's ability to pay interest and repay principal is adequate,
adverse market conditions could impair timely payment; BB, B, CCC, C--on
balance, regarded as being increasingly speculative, with the obligor's ability
to pay interest and repay principal very vulnerable to adverse economic
conditions or a limited debt service safety margin; CC--minimal protection,
default in payment of interest or principal seem probable over time; C--bonds
are in imminent default in payment of interest and principal; DDD, DD, D--in
default, with decreasing potential for recovery of interest and/or principal.
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.
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<PAGE>
SP-2--Satisfactory capacity to pay principal and interest.
F-1+/F-1--Exceptionally strong or very strong credit quality, strongest
degree of assurance for timely payment.
F-2--Good credit quality, satisfactory degree of assurance for timely
payment.
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APPENDIX C
Investing in New Jersey 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 State of New
Jersey) 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 State or of local government
units located in New Jersey. The Fund has not independently verified this
information.
[INSERT NEW JERSEY INFORMATION FROM OFFICIAL STATEMENT OF NEXT BOND ISSUE]
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FINANCIAL STATEMENTS
The Delaware Group includes funds
with a wide range of investment
objectives. Stock funds, income funds,
national and state-specific tax-free
funds, money market funds, global and
international funds and closed-end
equity funds give investors the
ability to create a portfolio that
fits their personal financial goals.
For more information, contact your
financial adviser or call Delaware
Group at 800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
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
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
59
<PAGE>
TAX-FREE NEW JERSEY FUND
A CLASS
B CLASS
C CLASS
CLASSES OF TAX-FREE NEW JERSEY FUND
PART B
STATEMENT OF
ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
DELAWARE
GROUP
--------
60
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APPENDIX B--TAX EXEMPT vs TAXABLE YIELDS
61
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
TAX-FREE OHIO 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 1
Investment Objective and Policy 3
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
<PAGE>
Officers and Trustees
Exchange Privilege
General Information
Appendix A--Description of Ratings
Appendix B--Tax Exempt vs Taxable Yields
Appendix C--Investing in Ohio Tax-Exempt Obligations
Financial Statements
2
<PAGE>
DMC Tax-Free Income Trust (the "Trust") is a professionally managed
mutual fund of the series type. This Statement of Additional Information ("Part
B" of the registration statement) supplements the information contained in the
current Prospectus of Tax-Free Ohio Fund (the "Fund") dated September 2, 1997,
as it may be amended from time to time. Part B 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 Ohio Fund A Class ("Class A Shares"),
Tax-Free Ohio Fund B Class ("Class B Shares") and Tax-Free Ohio Fund C Class
("Class C Shares") (Class A Shares, Class B Shares and Class C Shares together
referred to as the "Fund Classes"). 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 3.75% and
annual 12b-1 Plan expenses of up to 0.30% which have currently been fixed by the
Board at 0.25%. 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.
3
<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 Ohio 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 State
of Ohio 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 Ohio 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 Ohio
tax-exempt debt obligations which are rated by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch Investors Service,
Inc. ("Fitch") 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, Moody's or Fitch, 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, Moody's and Fitch 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 [15]% 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
4
<PAGE>
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
feature that allows the holder to sell the instruments back to the issuer from
time to time) [(Delaware to confirm.)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.
5
<PAGE>
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
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 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.
6
<PAGE>
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.
Private Purpose Bonds
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.
Municipal Bond Insurance
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"),
Financial Security Assurance ("FSA") 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.
Options
The Fund may write put and call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes. The Fund may
write covered call options and secured put options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. The Fund may
also [purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets.]
A. Covered Call Writing - A call option gives the purchaser of such
option the right to buy, and the writer, in this case the Fund, the obligation
to sell the underlying security at the exercise price during the option period.
There is no percentage limitation on writing covered call options.
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<PAGE>
The advantage to the Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that if the
security rises in value the Fund will lose the appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Call options will be written only on a covered basis, which means that
the Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, the
Fund would be required to continue to hold a security which it might otherwise
wish to sell. Options written by the Fund will normally have expiration dates
between three and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
B. Purchasing Call Options - The Fund may purchase call options [to the
extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets]. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund obtains the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who receives
the premium upon writing the option, has the obligation, upon exercise of the
option, to deliver the underlying security against
8
<PAGE>
payment of the exercise price. The advantage is that the Fund may hedge against
an increase in the price of securities which it ultimately wishes to buy.
However, the premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon exercise of the option.
The Fund may, following the purchase of a call option, liquidate its
position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. The
Fund will realize a profit from a closing sale transaction if the price received
on the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market may exist. In such event, it may not be possible to
effect closing transactions in particular options, with the result that the Fund
would be required to exercise its options in order to realize any profit and
would incur brokerage commissions upon the exercise of such options and upon the
subsequent disposition of the underlying securities acquired through the
exercise of such options. Further, unless the price of the underlying security
changes sufficiently, a call option purchased by the Fund may expire without any
value to the Fund.
C. Secured Put Writing - A put option gives the purchaser of the option
the right to sell, and the writer, in this case the Fund, the obligation to buy
the underlying security at the exercise price during the option period. During
the option period, the writer of a put option may be assigned an exercise notice
by the broker/dealer through whom the option was sold requiring the writer to
make payment of the exercise price against delivery of the underlying security.
In this event, the exercise price will usually exceed the then-market value of
the underlying security. This obligation terminates upon expiration of the put
option or at such earlier time at which the writer effects a closing purchase
transaction. The operation of put options in other respects is substantially
identical to that of call options. [Premiums on outstanding put options written
or purchased by the Fund may not exceed 2% of its total assets.]
The advantage to the Fund of writing such options is that it receives
premium income. The disadvantage is that the Fund may have to purchase
securities at higher prices than the current market price when the put is
exercised.
Put options will be written only on a secured basis, which means that the
Fund will maintain in a segregated account with its Custodian, the Bankers Trust
Company of New York, cash or U.S. Government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. Government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Manager wishes to purchase
the underlying security for the Fund's portfolio at a price lower than the
current market price of the security. In such event, the Fund would write a
secured put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay.
9
<PAGE>
D. Purchasing Put Options - The Fund may purchase put options [to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets]. The Fund will, at all times during which it holds a put option, own the
security covered by such option.
The Fund intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund will continue to receive interest income on the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased prior to
the sale of the securities underlying such option. Such sales will result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option which
is sold.
Futures
The Fund may enter into contracts for the purchase or sale for future
delivery of securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into an offsetting transaction. When the Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by the
futures commission merchant in an account at the Fund's Custodian Bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund from, such account in accordance with controls set for such accounts,
depending upon changes in the price of the underlying securities subject to the
futures contract.
The Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts for the Fund,
which consists of a substantial number of municipal securities, is to protect
the Fund against the adverse effects of fluctuations in interest rates without
actually buying or selling such securities. Similarly, when it is expected that
interest rates may decline, futures contracts may be purchased to hedge in
anticipation of subsequent purchases of municipal securities at higher prices.
With respect to options on futures contracts, when the Fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The writing of a call option on
a futures contract constitutes a partial hedge against declining prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any increase in the price
of municipal securities which the Fund intends to purchase.
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<PAGE>
To the extent that the Fund purchases an option on a futures contract and
fails to exercise the option prior to the exercise date, it will suffer a loss
of the premium paid. Further, with respect to options on futures contracts, the
Fund may seek to close out an option position by writing or buying an offsetting
position covering the same securities or contracts and have the same exercise
price and expiration date. The ability to establish and close out positions on
options will be subject to the maintenance of a liquid secondary market, which
cannot be assured.
[The Fund will not enter into futures contracts to the extent that more
than 5% of the Fund's assets are required as futures contract margin deposits
and will not invest in futures contracts or options thereon to the extent that
obligations relating to such transactions exceed 20% of the Fund's assets].
In addition, when the Fund engages in futures transactions, to the extent
required by the SEC, it will maintain with its custodian, assets in a segregated
account to cover its obligations with respect to such contracts, which assets
will consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the margin payments
made by the Fund with respect to such futures contracts.
The Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling the securities. For example, if interest rates are expected to increase,
the Fund might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Fund. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt securities,
the Fund could take advantage of the anticipated rise in value of debt
securities without actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund could then buy debt
securities on the cash market.
With respect to options on futures contracts, when the Fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based, or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested, it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against the declining price of the security which is deliverable upon
exercise of the futures contract. If the futures price at the expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against the increasing price of the
security which is deliverable upon exercise of the futures contract. If
11
<PAGE>
the futures price at the expiration of the option is higher than the exercise
price, the Fund will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the Fund
intends to purchase.
If a put or call option the Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities. For example, the Fund will purchase a
put option on a futures contract to hedge the Fund's portfolio against the risk
of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if the Fund had insufficient
cash, it may be required to sell securities from its portfolio to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. The Fund
may be required to sell securities at a time when it may be disadvantageous to
do so.
Further, with respect to options on futures contracts, the Fund may seek
to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Variable or Floating Rate Demand Notes
Variable or floating rate demand notes ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the unpaid
principal balance plus accrued interest upon a short notice period (generally up
to 30 days) prior to specified dates, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to such
instrument. The interest rates are adjustable at intervals ranging from daily to
up to six months to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the price rate of a bank or some other
appropriate interest rate adjustment index. The Manager will decide which
variable or floating rate demand instruments the Fund will purchase in
accordance with procedures prescribed by the Board of Trustees to minimize
credit risks. Any VRDN must be of high quality as determined by the Manager and
subject to review by the Board, with respect to both its long-term and
short-term aspects, except where credit support for the instrument is provided
even in the event of default on the underlying security, the Fund may rely only
on the high quality character of the short-term aspect of the demand instrument,
i.e., the demand feature. A VRDN which is unrated must have high quality
characteristics similar to those rated in accordance with policies and
guidelines determined by the Board. If the quality of any VRDN falls below the
quality level required by the
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<PAGE>
Board and any applicable rules adopted by the Securities and Exchange
Commission, the Fund must dispose of the instrument within a reasonable period
of time by exercising the demand feature or by selling the VRDN in the secondary
market, whichever is believed by the Manager to be in the best interests of the
Fund and its shareholders.
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].
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
13
<PAGE>
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. Make short sales of securities, or purchase securities on margin,
except that the Fund may satisfy margin requirements with respect to futures
transactions.
4. 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;
5. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements) in accordance with the Fund's investment
objective and policies are considered loans.
6. 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.
7. Invest in securities of other investment companies, except as part of
a merger, consolidation or other acquisition, or in accordance with the
limitations contained in the Investment Company Act of 1940, as amended (the
"1940 Act").
8. 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.
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. As a matter of non-fundamental policy, no more than
[15]% of the Fund's total assets will be invested in repurchase agreements and
other assets maturing in more than seven days, or invest in companies for the
purpose of exercising control. 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 Ohio Tax-Exempt Securities
The Fund concentrates its investments in the State of Ohio. 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 Ohio 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 State of Ohio.
PERFORMANCE INFORMATION
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<PAGE>
From time to time, the Fund may state its Classes total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class 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 its Classes 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 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.
Past results should not be considered as representative of future
performance.
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:
15
<PAGE>
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
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.
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. 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. These yields are computed by dividing that portion of a Class' yield
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield that is not tax-exempt.
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
16
<PAGE>
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.
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. In
addition, the performance of multiple indices compiled and maintained
by these firms may be combined to create a blended performance result
for comparative purposes. Generally, the indices selected will be
representative of the types of securities in which the Fund may invest
and the assumptions that were used in calculating the blended
performance will be described.
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.
17
<PAGE>
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.
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. You also should consider your financial ability to
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<PAGE>
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.
Investment Price Per Number 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.
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<PAGE>
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.
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers, dealers and banks to execute transactions on
behalf of the Fund 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.
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
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<PAGE>
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.
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 Conduct Rules 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 expenses of the funds in the Delaware Group of funds, such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of such funds shares as a factor in the selection of brokers and
dealers to execute Fund portfolio transactions.
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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%.
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's three
classes of shares--Class A Shares, Class B Shares and Class C 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 the Distributor.
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, and that Class A Shares 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 are responsible for 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.
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<PAGE>
The NASD has adopted Conduct Rules, as amended, 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 3.75%; 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 for the life of the investment.
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 the Class B Shares
approximately eight years after purchase. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus.
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.
Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in the Fund's assets and will receive a proportionate
interest in the Fund's income, before application, as to the Class A, Class B
and Class C Shares, of any expenses under the Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
Certificates are not issued in the case of Class B Shares or Class C Shares or
in the case of any retirement plan account including self-directed IRAs.
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 full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by the Fund for any certificate issued. A
shareholder may be subject to fees for replacement of a lost or stolen
certificate under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Fund for further
information. 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 (currently, no more than .25% of average daily net
assets pursuant to Board action) 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
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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% (0.25% 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.
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.
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<PAGE>
Class A Shares
<TABLE>
<CAPTION>
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 3.75% 0.00% 3.25%
$100,000 but under $250,000 3.00 0.00 2.50
$250,000 but under $500,000 2.50 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 1.75
</TABLE>
* There is no front-end sales charge on purchases of $1 million or more
of Class A Shares 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 on an initial net asset value of $0.00 per share of Class A Shares.
*** 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.
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 0.15% 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.
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<PAGE>
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 percentage of
Amount of Purchase amount purchased)
------------------ -------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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.
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.
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<PAGE>
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
Year After Purchase Made Amount 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. 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, the Class B Shares and the 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 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 0.30% of Class A
Shares' average daily net assets for the year, and up to 1% (0.25% 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 Trust's
Board of Trustees may reduce these amounts at any time. Although the maximum fee
payable under the 12b-1 Plan for the Class A Shares is 0.30%, the Board of
Trustees has set the maximum aggregate fee payable by the Class A Shares at
0.25%. However, the Board may increase the amount to the maximum of 0.30% at any
time.
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<PAGE>
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 Fund 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 of the Trust, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of the Fund and who
have 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
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 Fund 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 maximum percentage payable under
the Plans must likewise be approved by a majority vote of the outstanding voting
securities of the relevant Fund Class, as well as by a majority vote of those
trustees who are not "interested persons." With respect to the Class A Share
Plan, any material increase in the maximum percentage payable thereunder must
also be approved by a majority of the outstanding voting securities of the 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
of the Fund 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.
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 Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% 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. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of Delaware
Group fund shares.
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<PAGE>
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. Class A Shares may also be purchased at net asset value by current
and former officers, directors and employees (and members of their families) of
the Dougherty Financial Group LLC. 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.
Investors in Delaware - Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the Funds in the Delaware Group at net asset value.
The Fund must be notified in advance that the trade qualifies for
purchase at net asset value.
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
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
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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.
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 A Shares, 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.
12-Month Reinvestment Privilege
Holders of Class A Shares of the Fund who redeem such shares 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
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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 Shares 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 intended 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.
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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
Fund Class (based on the net asset value in effect on the payable date) and will
be credited to the shareholder's account on that date. A confirmation of each
dividend payment from net investment income will be mailed to shareholders
quarterly. A confirmation 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 Shares 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
intended 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,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. 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 Appendix B-Classes Offered 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.
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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
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
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.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group. Shareholders of the Fund Classes may elect to
invest in one or more of the other mutual funds in the Delaware Group through
the Wealth Builder Option. See Wealth Builder Option and Redemption and Exchange
in the Prospectus for the Fund Classes.
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 Fund Classes'
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
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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 terminate their participation at any time by written
notice to their Fund.
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
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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.
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 Fund shares, 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
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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; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.
The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already been
settled. The Fund will honor the redemption requests as to shares for which a
check was tendered as payment, but the Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared. This potential
delay can be avoided by making investments by wiring Federal Funds.
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 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
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an additional investment to meet the required minimum of $1,000. See The
Conditions of Your Purchase under How to Buy 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.
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Expedited Telephone Redemptions
Shareholders of the Fund Classes 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 address of record.
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:
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.
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
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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.
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 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
39
<PAGE>
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.
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 Ohio income taxes and from certain
Ohio state and local taxes. Information concerning the tax status of dividends
and distributions will be mailed to shareholders annually, including what
40
<PAGE>
portion, if any, of the Fund's distribution is subject to the federal
alternative minimum tax should the Fund invest in "private purpose" bonds.
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.
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.
41
<PAGE>
State and Local Taxes
See Taxes in the Prospectus for a discussion of Ohio taxation. Shares of
the Fund may be taxable for purposes of Ohio inheritance and estate tax.
Distributions by the Fund may not be exempt from state or local income
tax in states other than Ohio. Shareholders of the Fund are advised to consult
their own tax adviser in this regard.
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 Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On [February 28, 1997], the Manager and its
affiliates within the Delaware Group, including Delaware International Advisers
Ltd., were managing in the aggregate more than $[32] billion in assets in the
various institutional or separately managed (approximately $[20,548,345,000])
and investment company (approximately $[12,216,382,000]) accounts.
The Investment Management Agreement for the Fund is dated [ ]. 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) 0.60% on the first $500
million of the Fund's average daily net assets, 0.575% on the next $250 million
and 0.55% on the average daily net assets in excess of $750 million, less all
trustees' fees paid to the unaffiliated trustees of the Fund. The Manager has
elected voluntarily to waive that portion, if any, of the annual management fees
payable by the Fund and to reimburse the Fund's expenses to the extent necessary
to ensure that the Total Operating Expenses (after voluntary waivers and
payments) of the Class A Shares of the Fund do not exceed 1.00% and each of the
Class B Shares and Class C Shares do not exceed 1.75% (in all cases, exclusive
of taxes, interest, brokerage commissions and extraordinary expenses, but
inclusive of Rule 12b-1 fees), during the Fund's first fiscal year.
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.
42
<PAGE>
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 [ ]. The Distributor is an affiliate of the Manager and bears
all of the costs of promotion and distribution, except for payments by the Fund
on behalf of the Class A Shares, Class B Shares and Class C Shares under their
respective 12b-1 Plans. Delaware Distributors, Inc. ("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.
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 [ ]. The Transfer Agent also provides
accounting services to the Fund pursuant to the terms of a separate Fund
Accounting Agreement. The Transfer Agent is also an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
OFFICERS AND TRUSTEES
The business and affairs of the Fund are managed under the direction of
the Trust's Board of Trustees.
Certain officers and trustees of the Fund hold identical positions in
each of the other funds in the Delaware Group. As of [ ], the Fund's officers
and trustees, as a group, owned less than 1% of the outstanding shares of any
Class of the Fund.
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"). DMH and the Manager are indirect, 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.
*Wayne A. Stork (59)
Chairman, President, Chief Executive Officer, Chairman and Director and/or
Trustee of the Fund, 32 other investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware International
Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Distributors, Inc. and Delaware Capital
Management, 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. and Delaware Investment & Retirement
Services, Inc.
- --------------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
43
<PAGE>
During the past five years, Mr. Stork has served in various executive capacities
at different times within the Delaware organization.
Richard G. Unruh, Jr. (57)
Executive Vice President of the Fund and each of the other 32 investment
companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company, Inc.
Senior Vice President of Delaware Management Holdings, Inc. and Delaware Capital
Management, 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.
44
<PAGE>
Paul E. Suckow (49)
Executive Vice President/Chief Investment Officer, Fixed Income of the Fund,
each of the other 32 investment companies in the Delaware Group and
Delaware Management Company, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Holdings, Inc.
Senior Vice President of Delaware Capital Management, Inc.
Director of Founders CBO Corporation.
Director of HYPPCO Finance Company Ltd.
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 (69)
Director and/or Trustee of the Fund and each of the other 32 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 (58)
Director and/or Trustee of the Fund and each of the other 32 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 (56)
Director and/or Trustee of the Fund and each of the other 32 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 (76)
Director and/or Trustee of the Fund and each of the other 32 investment
companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Thomas F. Madison (61)
Director and/or Trustee of the Fund and each of the other 32 investment
companies in the Delaware Group.
President and Chief Executive Officer, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
Mr. Madison had also been chairman of the Board of Communications Holdings,
Inc. since 1996. From February to September 1994, Mr. Madison served as
Vice Chairman--Office of the CEO of The Minnesota Mutual Life Insurance
Company and from 1988-1993, he was President of U.S. WEST
Communications--Markets.
*Jeffrey J. Nick (44)
Director and/or Trustee of the Fund and each of the other 32 investment
companies in the Delaware Group.
President, Chief Executive Office and Director of Lincoln National Investment
Companies, Inc.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK plc and
from 1989 to 1992, he was Senior Vice President responsible for corporate
planning and development for Lincoln National Corporation.
Charles E. Peck (71)
Director and/or Trustee of the Fund and each of the other 32 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 (57)
Executive Vice President/Chief Operating Officer/Chief Financial Officer of the
Fund, each of the other 32 investment companies in the Delaware Group,
Delaware Capital Management, Inc., Delaware Management Holdings, Inc.
and Founders CBO Corporation.
- ------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
45
<PAGE>
Chairman and Director of Delaware Management Trust Company.
Chairman and Director of Delaware Investment & Retirement Services, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial Officer and
Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings,
Inc. and Delaware International Holdings Ltd.
President/Chief Executive Officer/Chief Financial Officer and Director of
Delaware Service Company, Inc.
Senior Vice President/Chief Administrative Officer/ Chief Financial Officer of
Delaware Distributors, L.P.
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. (50)
Senior Vice President and Secretary of the Fund, each of the other 32 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., Founders Holdings, Inc., Delaware Investment & Retirement Services,
Inc. and Delaware Capital Management, 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.
Patrick P. Coyne (34)
Vice President/Senior Portfolio Manager of the Fund, and each of the
tax-exempt and the fixed-income funds in the Delaware Group and Delaware
Capital Management, Inc.
During the past five years, Mr. Coyne has served in various capacities at
different times within the Delaware organization.
Mitchell L. Conery (38)
Vice President/Senior Portfolio Manager of the Fund, each of the tax-exempt and
the fixed-income funds in the Delaware Group and Delaware Management
Company, Inc.
Before joining the Delaware Group in 1997, Mr. Conery was an investment officer
with Travelers Insurance from 1995 through 1996 and a research analyst
with CS First Boston from 1992 to 1995.
Joseph H. Hastings (47)
Vice President/Corporate Controller of the Fund, each of the other 32 investment
companies in the Delaware Group, Delaware Distributors, L.P., Delaware
Service Company, Inc., and Delaware International Holdings Ltd.
Senior Vice President/Corporate Controller and Treasurer of Delaware Management
Holdings, Inc., DMH Corp. and Delaware Management Company, Inc.
Senior Vice President and Treasurer of Delaware Distributors, Inc.
Senior Vice President/Corporate Controller of Founders Holdings, Inc.
Vice President and Treasurer of Delaware Capital Management, Inc.
Executive Vice President, Chief Financial Officer and Treasurer of Delaware
Management Trust Company
Chief Financial Officer and Treasurer of Delaware Investment & Retirement
Services, Inc.
Assistant Treasurer of Founders CBO Corporation
1818 Market Street, Philadelphia, PA 19103.
46
<PAGE>
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 (34)
Vice President/Treasurer of the Fund, each of the other 32 investment
companies in the Delaware Group, Delaware Distributors, L.P., Delaware
Service Company, Inc. and Founders Holdings, Inc.
Senior Vice President of Delaware Management Company, Inc. and Delaware
Distributors, Inc.
Vice President/Manager of Investment Accounting of Delaware International
Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
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.
47
<PAGE>
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from the Trust and
the total compensation received from all Delaware Group investment companies for
the fiscal year ended February 28, 1997 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for Directors/
Trustees as of February 28, 1997.
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued Benefits from all 33
Compensation as Part of Upon Delaware
Name from Trust Fund Expenses Retirement* Group Investment Companies
<S> <C> <C> <C> <C>
W. Thacher Longstreth $3,788 None $30,000 $51,315
Ann R. Leven $4,206 None $30,000 $55,814
Walter P. Babich $4,122 None $30,000 $54,815
Anthony D. Knerr $4,122 None $30,000 $54,815
Charles E. Peck $3,785 None $30,000 $49,542
</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 28, 1997, he or she
would be entitled to annual payments totaling $30,000, 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.
48
<PAGE>
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.
49
<PAGE>
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 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) Tax-Free Pennsylvania 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
50
<PAGE>
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.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Quantum Fund seeks to achieve long-term capital appreciation.
It seeks to achieve this objective by investing primarily in equity securities
of medium- to large-sized companies expected to grow over time that meet the
fund's "Social Criteria" strategy.
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. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities.
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
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
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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. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
Enterprise Fund seeks to provide maximum appreciation of capital by
investing in medium-sized companies which have a dominant position within their
industry, are undervalued, or have potential for growth in earnings. U.S. Growth
Fund seeks to maximize capital appreciation by investing in companies of all
sizes which have low dividend yields, strong balance sheets and high expected
earnings growth rates relative to their industry. World Growth Fund seeks to
maximize total return (capital appreciation and income), principally through
investments in an internationally diversified portfolio of equity securities.
New Pacific Fund seeks long-term capital appreciation by investing primarily in
companies which are domiciled in or have their principal business activities in
the Pacific Basin. Federal Bond Fund seeks to maximize current income consistent
with preservation of capital. The fund attempts to achieve this objective by
investing primarily in securities issued by the U.S. government, its agencies
and instrumentalities. Corporate Income Fund seeks to provide high current
income consistent with preservation of capital. The fund attempts to achieve
this objective primarily by investing in a diversified portfolio of
investment-grade fixed-income securities issued by U.S.
corporations.
Delaware Group Premium Fund, Inc. offers 15 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return 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. Delchester 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.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware 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
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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. Trend 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. Global Bond Series 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. Strategic Income Series seeks high current income and total return
by using a multi-sector investment approach, investing primarily in three
sectors of the fixed-income securities markets: high-yield, higher risk
securities; investment grade fixed-income securities; and foreign government and
other foreign fixed-income securities. Devon Series seeks current income and
capital appreciation by investing primarily in income-producing common stocks,
with a focus on common stocks that the investment manager believes have the
potential for above-average dividend increases over time. Emerging Markets
Series seeks to achieve long-term capital appreciation by investing primarily in
equity securities of issuers located or operating in emerging countries.
Convertible Securities Series seeks a high level of total return on its assets
through a combination of capital appreciation and current income by investing
primarily in convertible securities. Quantum Series seeks to achieve long-term
capital appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy.
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).
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain 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.
The Manager, or its affiliate Delaware International Advisers Ltd., also
manages the investment options for Delaware Medallion[sm] III Variable Annuity.
Medallion is issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and Hawaii).
Delaware Medallion offers 10 different investment series ranging from domestic
equity funds, international equity and bond funds and domestic fixed income
funds. Each investment series available through Medallion utilizes an investment
strategy and discipline the same as or similar to one of the Delaware Group
mutual funds available outside the annuity. See Delaware Group Premium Fund,
Inc., above.
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
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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.
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.
The Transfer Agent also provides accounting services to the Fund. Those
services include performing all functions related to calculating the Fund's net
asset value and providing all financial reporting services, regulatory
compliance testing and other related accounting services. For its services, the
Transfer Agent is paid a fee based on total assets of all funds in the Delaware
Group for which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including the Fund, on an aggregate
pro-rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculated by determining the total number of investment
portfolios and associated classes.
Bankers Trust Company ("Bankers Trust"), One Bankers Trust Plaza, New
York, NY 10006, is custodian of the Fund's securities and cash. As custodian for
the Fund, Bankers Trust maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account of the Fund;
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.
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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 currently offers three series of shares,
Tax-Free Ohio Fund (the "Fund"), Tax-Free Pennsylvania Fund and Tax-Free New
Jersey Fund. The Fund currently offers three classes of shares and has a present
unlimited authorized number of shares of beneficial interest with no par value
allocated to each Class. All shares have equal voting rights, except as noted
below, 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, as the other classes. As a general matter,
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 Rule 12b-1
Plans of Class A Shares, Class B Shares and Class C Shares will be allocated
solely to those classes.
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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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.
Excerpts from Fitch's description of its bond ratings: AAA--highest
credit quality, obligor has exceptionally strong ability to pay interest and
repay principal; AA--very high credit quality, obligor's ability to repay
interest and repay principal is very strong; A--high credit quality, obligor's
ability to repay interest and repay principal is strong but more vulnerable to
adverse economic conditions than higher rated bonds; BBB--satisfactory credit
quality, obligor's ability to pay interest and repay principal is adequate,
adverse market conditions could impair timely payment; BB, B, CCC, CC--on
balance, regarded as being increasingly speculative, with the obligor's ability
to pay interest and repay principal very vulnerable to adverse economic
conditions or a limited debt service safety margin; CC--minimal protection,
default in payment of interest or principal seem probable over time; C--bonds
are in imminent default in payment of interest and principal; DDD, DD, D--in
default, with decreasing potential for recovery of interest and/or principal.
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.
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SP-2--Satisfactory capacity to pay principal and interest.
F-1+/F-1--Exceptionally strong or very strong credit quality, strongest
degree of assurance for timely payment.
F-2--Good credit quality, satisfactory degree of assurance for timely
payment.
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APPENDIX C
Investing in Ohio 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 State of Ohio
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 State or of local government units located in Ohio. The
Fund has not independently verified this information.
The General Revenue Fund ("GRF") is the largest fund of the State and
receives the majority of the State's tax receipts. The GRF consists of accounts
for all financial resources except those required to be accounted for in another
fund. Primary sources of revenue include sales, income, and corporate franchise
taxes. Since there are few restrictions on how GRF dollars can be used, much of
the focus of the State budget process is on development of a spending plan for
GRF resources. GRF expenditures support education, human services, and general,
government, and property tax relief.
Only a portion of State capital needs can be met by direct GRF
appropriations, and so additional State borrowing for capital purposes has been
and will be required. Under present constitutional limitations most of that
borrowing has been and will probably primarily be by lease-rental supported
obligations. However, most State operations are financed through the GRF. The
last complete fiscal biennium ended June 30, 1995 with a GRF fund balance of
$928,000,000. Of that, $70,000,000 was retained as an unreserved and
undesignated balance, and $580,000,000 transferred into various funds, including
$535,200,000 into the Budget Stabilization Fund ("BSF"), which has a current
balance of $828,300,000.
Economic activity in Ohio, as in many other industrially developed
states, tends to be more cyclical than in some other states and in the nation as
a whole. Actions have been and may be taken by the State during less favorable
economic periods to ensure GRF resource/expenditure balances, some of which are
described below. No such actions relating to expenditures were applied to
appropriations needed for debt service on or lease payments relating to any
State obligations.
Because GRF cash receipts and disbursements do not precisely coincide,
temporary GRF cash flow deficiencies often occur in some months, and
particularly the middle months, of a Fiscal Year. Statutory provisions provide
for effective management by permitting the adjustment of payment schedules (as
was done during some prior Fiscal Years) and the use of the Total Operating Fund
("TOF").
The GRF ending (June 30) biennial fund balance is reduced during less
favorable national economic periods and then increases during more favorable
economic periods. For example, following the 1974-75 nationwide recession the
1977 GRF ending fund balance was $21,600,000. The balance (without assistance
from any significant tax rate increases) was $245,700,000 in 1979, and then,
paralleling the national economic situation, was at the significantly lower
amount of $200,000 in 1981. Aided by tax increases and other actions, the 1983
GRF ending fund balance was $43,600,000. Recent biennium GRF ending fund
balances were $475,100,000 in 1989, $135,365,000 in 1991, $111,013,000 in 1993,
and $928,000,000 in 1995.
In the 1990-91 biennium (and particularly in its second year) Ohio
experienced an economic slow-down producing significant changes in certain GRF
revenue and expenditure levels. Several executive and legislative measures were
taken to address the anticipated shortfall in revenues and increase in
expenditures, all to better ensure the eventual biennium-ending positive
balances. State and national fiscal uncertainties during the 1992-93 biennium
also required several actions to achieve the ultimate GRF positive ending
balances.
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As an initial action to address a subsequently projected Fiscal Year 1992
imbalance, the Governor ordered most State agencies to reduce GRF appropriations
spending in the final six months of that year. Other revenue and spending
actions, legislative and administrative, resolved the remaining GRF imbalance
for Fiscal Year 1992.
As a first step toward addressing a then estimated $520,000,000 GRF
shortfall for Fiscal Year 1993, the Governor ordered, effective July 1, 1992,
selected GRF spending reductions totalling $300,000,000. Subsequent executive
and legislative actions -- including tax revisions that produced an additional
$194,500,000 in Fiscal Year 1993, and an additional $50,000,000 in pending
reductions -- provided for positive biennium-ending GRF balances (fund balance
of $111,013,000, cash balance of $393,634,000). As a first step toward BSF
replenishment, $21,000,000 was deposited in the BSF.
Appropriations for debt service, including lease rental appropriations,
were expressly excluded from the Governor's cutback orders.
The GRF appropriations act for the 1994-1995 biennium provided for total
GRF biennial expenditures of approximately $30.7 billion, those for Fiscal Year
1994 being 9.2% higher than in Fiscal Year 1993 (taking into account Fiscal Year
1993 expenditure reductions), and for Fiscal Year 1995 being 6.6% higher than in
Fiscal Year 1994. The Fiscal Year 1994 ending GRF fund balance permitted an
additional $260,300,000 to be deposited in the BSF. Expenditures were below
those authorized, primarily as the result of lower than expected Medicaid
spending, and tax receipts (primarily auto sales/use) were significantly above
estimates. The biennium ending GRF fund balance was $928,000,000.
The GRF appropriations act for the current biennium was passed on June
28, 1995 and promptly signed (after selective vetoes) by the Governor. That act
provided for total GRF biennial expenditures of approximately $33.5 billion,
with the following examples of GRF major program biennial expenditures increases
over those for the prior biennium: higher education, 13.1%; mental health and
metal retardation, 4.8%; primary and secondary education, 15.4%; human services,
9.5%; justice and corrections, 28%.
The June 30, 1996 GRF ending fund balance was over $781,000,000, which
was higher than forecast. In accordance with General Assembly directions,
$100,000,000 was promptly transferred from the GRF to the fund providing for the
elementary and secondary school computer network, and $30,000,000 to a new fund
for State transportation infrastructure. Approximately $400,800,000 is serving
as a basis for temporary 1996 personal income tax reductions aggregating that
amount.
Under the Fiscal Year 1998-1999 Executive Budget, recommended total
General Revenue Fund spending is $17.63 billion in Fiscal Year 1998 (4.4% over
estimated Fiscal Year 1997 spending) and $18.51 billion in Fiscal Year 1999
(5.0% over Fiscal Year 1998). Recommended all funds spending is $34.74 billion
in Fiscal Year 1998 (4.5% over comparable estimated Fiscal Year 1997 spending)
and $36.10 billion in Fiscal Year 1999 (3.9% over Fiscal Year 1998). When
compared to the budget adopted in June 1995, this proposed spending plan
provides for GRF expenditure growth in Fiscal Year 1998 of only 2.2% over Fiscal
Year 1997.
When compared to originally planned Fiscal Year 1997 spending the growth
of GRF spending is 2.2% in Fiscal Year 1998 and 5.0% in Fiscal Year 1999, and
total budget growth (including GRF) is 4.4% in Fiscal Year 1998 and 3.9% in
Fiscal Year 1999. When compared to current estimates for actual Fiscal Year 1997
spending, Fiscal Year 1998 growth rates are 4.4% for the GRF and 3.9% for the
total budget.
When combined with the impact of both currently authorized tax
reduction and proposed tax reduction, total GRF revenues ,including federal
grants, are expected to be $17.69 billion in Fiscal Year 1998 (an increase of
only 3.1% over Fiscal Year 1997) and $18.37 billion in Fiscal Year 1999 (3.8%
over Fiscal Year 1998).
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The current economic expansion is expected to continue at a slow and
modest pace throughout the biennial budget period. Though growth is slowing, the
indicators which typically signal the possible onset of a recession are not
doing so at the present time. In spite of a low unemployment rate that is
producing higher base wages, price inflation has been held in check.
Ohio and the nation continue to enjoy the benefits of moderate economic
growth. However, as the length of the current expansion increases, so does the
probability of a downturn. The current expansion has lasted for almost six years
and is projected to last at least through the end of the biennium (the second
longest expansionary period in postwar U.S. history). While the economic
forecast underlying the revenue projections for the budget do not predict a
recession during the biennium, it is expected that economic growth will continue
to be fairly slow. This slower economic growth will produce a slower growth in
State revenues.
The baseline forecast of moderate economic growth translates into
moderate revenue growth for the State's General Revenue Fund (GRF) during the
Fiscal Year 1998 - Fiscal Year 1999 biennium. While the good news is that there
is no indication of imminent recession, the forecast is tempered by sluggish
economic growth which will produce low revenue growth for the biennium. Total
GRF revenues, excluding federal grants, are expected to increase by 3.4 percent
in Fiscal Year 1998 over Fiscal Year 1997 and by about 4 percent in Fiscal Year
1999 over Fiscal Year 1998. The lower-than-trend rate of growth in revenues for
Fiscal Year 1998 mainly reflects the slow growth of receipts from the Personnel
Income Tax and the Corporate Franchise Tax. Growth in these taxes was hampered
by the implementation of an increase in personal exemptions and manufacturing
investment tax credits.
Census figures for 1994 showed that Ohio then ranked 35th in state taxes
per capita and 26th in state and local taxes per capita. Since those figures
were developed many states, including Ohio, have enacted tax revisions.
Two major tax bases in the State are personal income (taxed by the State
and municipalities, and, with voter approval, by school districts) and real and
tangible personal property (taxed by local governments).
As examples of rates of major taxes, the State sales tax is levied at the
rate of 5%. The highest potential aggregate of State and permissive local sales
taxes is currently 8.7% (not including local taxes for sports facilities), and
the highest currently levied in any county is 7%. The State gasoline tax is
currently 22 cents per gallon, one cent of which is specifically directed to
local highway-related infrastructure projects.
Ohio's 1990 decennial census population of over 10,840,000 indicated a
0.5% population growth since 1980 and Ohio as ranking seventh among the states
in population. In 1980 it had ranked sixth.
Ohio has a mixture of urban and rural population, with approximately
three-quarters urban. There are 943 incorporated cities and villages
(municipalities with populations under 5000) in the State. Six cities have
populations of over 100,000 and 19 over 50,000.
Since 1960 the ratio of Ohio to U.S. aggregate personal income has
declined, with Ohio moving from fifth among the states in 1960 and 1970 to
seventh in 1995. This movement, in significant measure reflects "catching up" by
several other states and a trend in Ohio toward service sector employment.
During the 1980's, Ohio's unemployment rate typically exceeded the
national unemployment rate. During the 1990's, that trend has been reversed to
the point where Ohio's unemployment rate has consistently been below the
national rate throughout most of the current expansion. Additionally, during
this time Ohio has experienced rates as low as 4.4%, which represents an
employment level that has not been achieved in over 20 years. The current Ohio
unemployment rate of roughly 5.0% is very low by historic standards, and is
expected
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to prevail throughout the forecast period. This low level is significantly
affected by demographic trends in the State's and national economies.
Although manufacturing, including auto-related manufacturing, in Ohio
remains an important part of the State's economy, the greatest growth in
employment in Ohio in recent years, consistent with national trend, has been in
the non-manufacturing area. Ohio ranked fourth in the nation in 1991 gross state
product derived from manufacturing. Manufacturing was 26.3% of Ohio's gross
state product, compared to 17.1% of that total being from "services". In
addition, agriculture and "agribusiness", discussed under Agricultural and
Resources Bases, continue as important elements of the Ohio economy.
Ohio continues as a major "headquarters" state. Of the top 500
corporations (industrial and service) based on 1995 revenues reported in 1996 by
Fortune, 30 had headquarters in Ohio, placing Ohio sixth as a corporate
"headquarters" state.
Payroll employment in Ohio, in the diversifying employment base, showed a
steady upward trend until 1979, then decreased until 1982. It reached a new high
in the summer of 1993 after a slight decrease early in 1992, then decreased
slightly, and reached a new high in 1996. Growth in recent years has been
concentrated among non-manufacturing employment tapering off since its 1969
peak. The "non-manufacturing" sector employs approximately 78.9% of all
non-agricultural payroll workers in Ohio.
With 14.2 million acres (of a total land area of 26.4 million acres) in
farm land and an estimated 75,000 individual farms, agriculture and related
agricultural sectors combined is an important segment of Ohio's economy. It is
by many measures Ohio's leading industry, contributing over $56 billion in 1992
to the State's economy. This represents almost 13% of the total output, 15.9% of
the total employment (approximately 935,000 jobs), and nearly 11% of the value
added products produced in the State in that year. Gross farm income alone
amounted in 1994 to just over $5.4 billion. In 1994, Ohio exported approximately
$1 billion in farm products (primarily soybeans and related soy products, and
feed grains). The State has instituted several programs to provide financial
assistance to farmers.
The availability of natural resources, such as water and energy, is of
vital nationwide concern. Ohio has large quantities of these important natural
resources. With Lake Erie and the Ohio River on its borders, and many lakes and
streams throughout the State, water is readily available for all uses.
Ohio has large coal reserves, and in 1994 ranked ninth in the nation in
coal production, fifth in the production of electric power (91% generated by the
use of coal) and fourth in electric energy sales. State bonds have been and may
be issued for purposes of coal research and development.
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FINANCIAL STATEMENTS
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For more
information, contact your financial adviser or call Delaware Group at
800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
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
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE>
TAX-FREE OHIO FUND
A CLASS
B CLASS
C CLASS
CLASSES OF TAX-FREE OHIO FUND
PART B
STATEMENT OF
ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
DELAWARE
GROUP
62
<PAGE>
APPENDIX B--TAX EXEMPT vs TAXABLE YIELDS
63
<PAGE>
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 Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Accountant's Report
* The financial statements and Accountant's Report for
Tax-Free Pennsylvania Fund listed above are incorporated
by reference into Part B from the Registrant's Annual
Report for the fiscal year ended February 28, 1997.
(b) Exhibits:
(1) Declaration of Trust.
(a) 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.
(b) Amendment to Declaration of Trust (1997) to be filed by
Amendment.
(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.
<PAGE>
PART C - Other Information
(Continued)
(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.
(a) Investment Management Agreement (April 3, 1995) between
Delaware Management Company, Inc. and the Registrant on
behalf of Tax-Free Pennsylvania Fund incorporated into
this filing by reference to Post-Effective Amendment
No. 34 filed April 28, 1995.
(b) Proposed Investment Management Agreement (1997) between
Delaware Management Company, Inc. and the Registrant on
behalf of Tax-Free New Jersey Fund and Tax-Free Ohio
Fund attached as Exhibit.
(6) (a) Distribution Agreement.
(i) Form of Distribution Agreement (April 1995) on
behalf of Tax-Free Pennsylvania Fund
incorporated into this filing by reference to
Post- Effective Amendment No. 35 filed November
27, 1995.
(ii) Proposed Distribution Agreement (1997) between
Delaware Distributors, L.P. and the Registrant
on behalf of Tax-Free New Jersey Fund and
Tax-Free Ohio Fund included as Module.
(iii) Form of Amendment No. 1 to Distribution
Agreement (November 1995) on behalf of Tax-Free
Pennsylvania Fund 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.
<PAGE>
PART C - Other Information
(Continued)
(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) (Module) incorporated into
this filing by reference to Post- Effective Amendment
No. 36 filed April 29, 1996.
(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)
(Module) incorporated into this filing by reference to
Post-Effective Amendment No. 36 filed April 29, 1996.
(8) Custodian Agreement.
(a) Form of Custodian Agreement (May 1996) between Bankers
Trust Company and the Registrant on behalf of Tax-Free
Pennsylvania Fund incorporated into this filing by
reference to Post-Effective Amendment No. 37 filed
April 29, 1997.
(b) Form of Custodian Agreement (1997) between Bankers
Trust Company and the Registrant on behalf of Tax-Free
New Jersey Fund and Tax-Free Ohio Fund attached as
Exhibit.
(9) Other Material Contracts.
(a) Shareholders Services Agreement (June 29, 1988) between
Delaware Service Company, Inc. and the Registrant on
behalf of Tax-Free Pennsylvania Fund incorporated into
this filing by reference to Post- Effective Amendment
No. 37 filed April 29, 1997.
(b) Form of Amended and Restated Shareholders Services
Agreement (1997) between Delaware Service Company, Inc.
and the Registrant on behalf of each Fund included as
Module.
(c) Form of Fund Accounting Agreement (1997) between
Delaware Service Company, Inc. and the Registrant on
behalf of each Fund included as Module.
<PAGE>
PART C - Other Information
(Continued)
(i) Executed Amendment No. 1 (September 30, 1996) to
Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(ii) Executed Amendment No. 2 (November 30, 1996) to
Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(iii) Executed Amendment No. 3 (December 27, 1996) to
Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(iv) Executed Amendment No. 4 (February 24, 1997) to
Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(v) Executed Amendment No. 5 (May 30, 1997) to
Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(d) Proposed Schedule A to Delaware Group of Funds Fund
Accounting Agreement on behalf of Tax-Free New Jersey
Fund and Tax-Free Ohio Fund included as Module.
(10) Opinion of Counsel. Filed with letter relating to Rule
24f-2 on April 21, 1997.
(11) Consent of Auditors. To be filed by Amendment.
(12-14) Inapplicable.
(15) Plans under Rule 12b-1.
(a) Form of Plan under Rule 12b-1 for Class A (November
1995) on behalf of Tax-Free Pennsylvania Fund
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) on behalf of Tax-Free Pennsylvania Fund
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) on behalf of Tax-Free Pennsylvania Fund
incorporated into this filing by reference to Post-
Effective Amendment No. 35 filed November 27, 1995.
(d) Proposed Plan under Rule 12b-1 for Class A (1997) on
behalf of Tax-Free New Jersey Fund and Tax-Free Ohio
Fund included as Module.
(e) Proposed Plan under Rule 12b-1 for Class B (1997) on
behalf of Tax-Free New Jersey Fund and Tax-Free Ohio
Fund included as Module.
<PAGE>
PART C - Other Information
(Continued)
(f) Proposed Plan under Rule 12b-1 for Class C (1997) on
behalf of Tax-Free New Jersey Fund and Tax-Free Ohio
Fund included as Module.
(16) Schedules of Computation for each Performance Quotation.
Incorporated into this filing by reference to
Post-Effective Amendment No. 34 filed April 28, 1995, Post-
Effective Amendment No. 35 filed November 27, 1995,
Post-Effective Amendment No. 36 filed April 30, 1996 and
Post-Effective Amendment No. 37 filed April 29, 1997.
(17) Financial Data Schedules. Incorporated into this filing by
reference to Post-Effective Amendment No. 37 filed April
29, 1997.
(18) Inapplicable.
(19) Other: Trustees' Power of Attorney.
(a) Incorporated into this filing by reference to
Post-Effective Amendment No. 34 filed April 28, 1995.
(b) Power of Attorney for Thomas F. Madison and Jeffrey J.
Nick attached as Exhibit.
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 21,058 Accounts as of
with No Par Value Per Share May 31, 1997
Tax-Free Pennsylvania Fund B Class
Shares of Beneficial Interest 1,105 Accounts as of
with No Par Value Per Share May 31, 1997
<PAGE>
PART C - Other Information
(Continued)
(1) (2)
Number of
Title of Class Record Holders*
-------------- ---------------
Tax-Free Pennsylvania Fund C Class
Shares of Beneficial Interest 48 Accounts as of
with No Par Value Per Share May 31, 1997
DMC Tax-Free Income Trust - Pennsylvania's:
Tax-Free New Jersey Fund A Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share May 31, 1997
Tax-Free New Jersey Fund B Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share May 31, 1997
Tax-Free New Jersey Fund C Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share May 31, 1997
DMC Tax-Free Income Trust - Pennsylvania's:
Tax-Free Ohio Fund A Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share May 31, 1997
Tax-Free Ohio Fund B Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share May 31, 1997
Tax-Free Ohio Fund C Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share May 31, 1997
* Shares of Tax-Free New Jersey Fund and Tax-Free Ohio Fund were not
offered prior to the effective date of this Registration Statement.
Item 27. Indemnification. Incorporated into this filing by reference to
Post-Effective Amendment No. 10 filed May 12, 1980.
<PAGE>
PART C - Other Information
(Continued)
Item 28. Business and Other Connections of Investment Adviser.
Delaware Management Company, Inc. (the "Manager") also serves as
investment manager to the Registrant and also serves as investment manager or
sub-adviser to certain of the other funds in the Delaware Group (Delaware Group
Trend Fund, Inc., Delaware Group Equity Funds I, Inc., Delaware Group Equity
Funds II, Inc., Delaware Group Equity Funds IV, Inc., Delaware Group Equity
Funds V, Inc., Delaware Group Income Funds, 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 Premium
Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware Pooled
Trust, Inc., Delaware Group Adviser Funds, Inc., Delaware Group Dividend and
Income Fund, Inc., Delaware Group Global Dividend and Income Fund, Inc.,
Voyageur Funds, Inc., Voyageur Insured Funds, Inc., Voyageur Intermediate Tax
Free Funds, Inc., Voyageur Investment Trust, Voyageur Investment Trust II,
Voyageur Mutual Funds, Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual
Funds III, Inc., Voyageur Tax Free Funds, Inc., Voyageur Arizona Municipal
Income Fund, Inc., Voyageur Colorado Insured Municipal Income Fund, Inc.,
Voyageur Florida Insured Municipal Income Fund, Voyageur Minnesota Municipal
Income Fund, Inc., Voyageur Minnesota Municipal Income Fund II, Inc. and
Voyageur Minnesota Municipal Income Fund III, Inc.) and provides investment
advisory services to institutional accounts, primarily retirement plans and
endowment funds and to certain other investment companies. 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,
accounting services 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:
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
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 Director of the
Registrant, each of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.;
Chairman of the Board and Director of Delaware
Distributors, Inc. and Delaware Capital Management, Inc.;
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.; and Director of Delaware
Service Company, Inc. and Delaware Investment & Retirement
Services, Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
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 Delaware Capital Management, 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, AAA Mid Atlantic, Inc. since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Metron, Inc.
since 1995, 11911 Freedom Drive, Reston, VA
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; Executive Vice President and Director of Founders
Holdings, Inc.; Senior Vice President/Chief Investment
Officer, Fixed Income of Delaware Management Holdings,
Inc.; Senior Vice President of Delaware Capital
Management, Inc.; and Director of Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
David K. Downes Executive Vice President, Chief Operating Officer, Chief
Financial Officer and Director of Delaware Management
Company, Inc., DMH Corp., Delaware Distributors, Inc.,
Founders Holdings, Inc. and Delaware International
Holdings Ltd.; Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the Registrant and
each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., Founders CBO Corporation,
Delaware Capital Management, Inc.; Chairman and Director
of Delaware Management Trust Company; President, Chief
Executive Officer, Chief Financial Officer and Director of
Delaware Service Company, Inc.; Chairman and Director of
Delaware Investment & Retirement Services, Inc.; Director
of Delaware International Advisers Ltd.; and Senior Vice
President, Chief Administrative Officer and Chief
Financial Officer of Delaware Distributors, L.P.
Chief Executive Officer and Director of Forewarn, Inc.
since 1993, 8 Clayton Place, Newtown Square, PA
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
George M. Senior Vice President, Secretary and Director of Delaware
Chamberlain, Jr. Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Delaware Service Company, Inc.,
Founders Holdings, Inc., Delaware Capital Management, 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. 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.
Richard J. Flannery Senior Vice President/Corporate and International Affairs
of Delaware Management Holdings, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware Distributors,
Inc., Delaware Distributors, L.P., Delaware Management
Trust Company and Delaware Capital Management, Inc.;
Managing Director/Corporate & Tax Affairs of Delaware
Service Company, Inc. and Delaware Investment & Retirement
Services, Inc.; Vice President of the Registrant and each
of the other funds in the Delaware Group; Senior Vice
President/Corporate and International Affairs and Director
of Founders Holdings, Inc. and Delaware International
Holdings Ltd.; Senior Vice President of Founders CBO
Corporation; and Director of Delaware International
Advisers Ltd.
Director, HYPPCO Finance Company 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 Vice President and Treasurer of the Registrant, each of
the other funds in the Delaware Group, Delaware
Distributors, Inc., Delaware Service Company, Inc. and
Founders Holdings, Inc.; Senior Vice President of Delaware
Management Company, Inc. and Delaware Distributors, Inc.;
Assistant Treasurer of Founders CBO Corporation; and Vice
President and Manager of Investment Accounting of Delaware
International Holdings Ltd.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
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, Founders
Holdings, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
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.; Secretary of
Founders CBO Corporation; and Assistant Secretary of
Delaware International Holdings Ltd.
Partner of Tri-R Associates since 1989, 10001 Sandmeyer
Lane, Philadelphia, PA
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer
of Delaware Management Holdings, Inc., DMH Corp. and
Delaware Management Company, Inc.; Senior Vice President
and Treasurer of Delaware Distributors, Inc.; Senior Vice
President/Corporate Controller of Founders Holdings, Inc.;
Vice President and Treasurer of Delaware Capital
Management, Inc.; Vice President/Corporate Controller of
the Registrant, each of the other funds in the Delaware
Group, Delaware Distributors, L.P., Delaware Service
Company, 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
Richard Salus(1) Vice President/Assistant Controller of Delaware Management
Company, Inc.; and Vice President of Delaware Management
Trust Company
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.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
Steven T. Lampe(2) 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, Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Lisa O. Brinkley 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 Investment and Retirement Services, Inc.
and Delaware Service Company, Inc.; and Vice
President/Operations and Director of Delaware Management
Trust Company
Michael T. Taggart Senior 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, Assistant
Secretary and Director of Founders CBO Corporation
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., each of the tax-exempt funds and
the fixed income funds in the Delaware Group and Delaware
Capital Management, Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., 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 President 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 and Delaware Capital Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., each of the tax-exempt funds and
the fixed income funds in the Delaware Group
Mitchell L. Conery(3) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., the Registrant and each of the
tax-exempt and fixed income funds in the Delaware Group
George H. Burwell Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and each of the equity funds in
the Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., each of the equity funds in the
Delaware Group and Delaware Capital Management, Inc.
Babak Zenouzi Vice President/Portfolio Manager of the Fund, each of the
equity funds and the closed-end funds in the Delaware
Group
Gerald S. Frey(4) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and each of the equity funds in
the Delaware Group
1 SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
2 TAX MANAGER, Price Waterhouse prior to October 1995.
3 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
4 SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter for
all the mutual funds in the Delaware Group.
(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
Bruce D. Barton President and CEO None
David K. Downes Senior Vice President, Executive Vice
Chief Administrative Officer President/Chief
and Chief Financial Officer Operating Officer/
Chief Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
Terry Cunningham Senior Vice President/ None
National Sales Director
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Dana B. Hall Senior Vice President/ None
Key Accounts
William F. Hostler Senior Vice President/ None
Marketing Services
J. Chris Meyer Senior Vice President/ None
Product Development
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Stephen H. Slack Senior Vice President/Wholesaler None
Richard J. Flannery Senior Vice President/Corporate Vice President
and International Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
Daniel H. Carlson Vice President/Marketing None
Diane M. Anderson Vice President/ None
Retirement Services
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/Client Services None
Jerome J. Alrutz Vice President/ None
Client Services
Joanne A. Mettenheimer Vice President/ None
National Accounts
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Gregory J. McMillan Vice President/ None
National Accounts
Christopher H. Price Vice President/Annuity None
Marketing & Administration
Stephen J. DeAngelis Vice President/Product None
Development
Susan T. Friestedt Vice President/Customer None
Service
Dinah J. Huntoon Vice President/Product None
Management
Soohee Lee Vice President/Fixed Income None
Product Management
Ellen M. Krott Vice President/Communications None
Holly W. Reimel Vice President/Telemarketing None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Thomas P. Kennett Vice President/ Wholesaler None
William M. Kimbrough Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Debra Afra Marler Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Henry W. Orvin Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Michael W. Rose Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
John A. Wells Vice President/Marketing None
Technology
</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.
<PAGE>
PART C - Other Information
(Continued)
Item 32. Undertakings.
(a) Not Applicable.
(b) The Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be
certified, within four to six months from the initial public
offering of shares of Tax-Free New Jersey Fund and Tax-Free Ohio
Fund.
(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 trustee when requested in writing to do so by the
record holders of not less than 10% of the outstanding shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant 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 12th day of
June, 1997.
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>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board, President,
/s/ Wayne A. Stork Chief Executive Officer and Trustee June 12, 1997
- ---------------------------------------
Wayne A. Stork
Executive Vice President/Chief Operating
Officer/Chief Financial Officer
(Principal Financial Officer and
/s/ David K. Downes Principal Accounting Officer) June 12, 1997
- --------------------------------------
David K. Downes
/s/ Walter P. Babich * Trustee June 12, 1997
- ---------------------------------------
Walter P. Babich
/s/ Charles E. Peck * Trustee June 12, 1997
- ----------------------------------------
Charles E. Peck
/s/ Ann R. Leven * Trustee June 12, 1997
- ----------------------------------------
Ann R. Leven
/s/ Anthony D. Knerr * Trustee June 12, 1997
- --------------------------------------
Anthony D. Knerr
/s/ W. Thacher Longstreth * Trustee June 12, 1997
- -----------------------------------
W. Thacher Longstreth
</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.B5B Proposed Investment Management Agreement (1997) between
Delaware Management Company, Inc. and the Registrant on
behalf of Tax-Free New Jersey Fund and Tax- Free Ohio Fund
EX-99.B6AII Proposed Distribution Agreement (1997) between Delaware
(Module Name Distributors, L.P. and the Registrant on behalf of
PROP_DIS_AGT) Tax-Free New Jersey Fund and Tax-Free Ohio Fund
EX-99.B8B Form of Custodian Agreement (1997) between Bankers Trust
Company and the Registrant on behalf of Tax-Free New
Jersey Fund and Tax-Free Ohio Fund
EX-99.B9B Form of Amended and Restated Shareholder Services
(Module Name Agreement (1997) between Delaware Service Company, Inc.
SH_SVC_AGT) and the Registrant on behalf of each Fund
EX-99.B9C Form of Fund Accounting Agreement (1997) between Delaware
(Module Name Service Company, Inc. and the Registrant on behalf of each
FUND_ACCT_AGT) Fund
EX-99.B9CI Executed Amendment No. 1 (September 30, 1996) to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9CII Executed Amendment No. 2 (November 30, 1996) to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9CIII Executed Amendment No. 3 (December 27, 1996) to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9CIV Executed Amendment No. 4 (February 24, 1997) to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9CV Executed Amendment No. 5 (May 1, 1997) to Delaware Group
of Funds Fund Accounting Agreement
EX-99.B9D Proposed Schedule A to Delaware Group of Funds Fund
(Module Name Accounting Agreement on behalf of Tax-Free New Jersey
ACCT_AGT_SCHD_A) Fund and Tax-Free Ohio Fund
<PAGE>
EX-99.B15D Proposed Plan under Rule 12b-1 for Class A (1997) on
(Module Name behalf of Tax-Free New Jersey Fund and Tax-Free Ohio Fund
RULE_12B1_PL_A)
EX-99.B15E Proposed Plan under Rule 12b-1 for Class B (June 1995) on
(Module Name behalf of Tax-Free New Jersey Fund and Tax-Free Ohio Fund
RULE_12B1_PL_B)
EX-99.B15F Proposed Plan under Rule 12b-1 for Class C (1997) on
(Module Name behalf of Tax-Free New Jersey Fund and Tax-Free Ohio Fund
RULE_12B1_PL_C)
EX-B19B Power of Attorney for Thomas F. Madison and Jeffrey J.
Nick
<PAGE>
Form of Agreement
Subject to Board Approval
DELAWARE GROUP ________________
_______ FUND
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made by and between DELAWARE GROUP _______________, a
Pennsylvania business trust ("Fund") on behalf of the _______ FUND series
(Portfolio"), and DELAWARE MANAGEMENT COMPANY, INC., a Delaware corporation
("Investment Manager").
W I T N E S S E T H:
WHEREAS, the Fund has been organized and operates as an investment
company registered under the Investment Company Act of 1940 and is currently
comprised of four portfolios, including the Portfolio, as a separate series of
the Fund, each portfolio engages in the business of investing and reinvesting
its assets in securities; and
WHEREAS, the Investment Manager is a registered investment adviser
under the Investment Advisers Act of 1940 and engages in the business of
providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Fund hereby employs the Investment Manager to manage the
investment and reinvestment of the Portfolio's assets and to administer its
affairs, subject to the direction of the Fund's Board of Directors and officers
of the Fund for the period and on the terms hereinafter set forth. The
Investment Manager hereby accepts such employment and agrees during such period
to render the services and assume the obligations herein set forth for the
compensation herein provided. The Investment Manager shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or represent the
Fund in any way, or in any way be deemed an agent of the Fund. The Investment
Manager shall regularly make decisions as to what securities and other
instruments to purchase and sell on behalf of the Portfolio, shall effect the
purchase and sale of such investments in furtherance of the Portfolio's
objectives and policies and shall furnish the Board of Directors of the Fund
with such information and reports regarding the Portfolio's investments as the
Investment Manager deems appropriate or as the Directors of the Fund may
reasonably request.
<PAGE>
2. The Fund shall conduct its own business and affairs and shall bear
the expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders' meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; taxes; and federal and state
registration fees.
Directors, officers and employees of the Investment Manager may be
directors, officers and employees of any of the funds (including the Fund) of
which Delaware Management Company, Inc. is investment manager. Directors,
officers and employees of the Investment Manager who are directors, officers
and/or employees of these funds shall not receive any compensation from the
funds for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and
in the performance of this Agreement, the Fund and Investment Manager may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) Subject to the primary objective of obtaining the best
available prices and execution, the Investment Manager will place orders for the
purchase and sale of portfolio securities and other instruments with such
broker/dealers selected who provide statistical, factual and financial
information and services to the Fund, to the Investment Manager, to any
Sub-Adviser, as defined in Paragraph 5 hereof, or to any other fund for which
the Investment Manager or any such Sub-Adviser provides investment advisory
services and/or with broker/dealers who sell shares of the Fund or who sell
shares of any other fund for which the Investment Manager or any such
Sub-Adviser provides investment advisory services. Broker/dealers who sell
shares of the funds of which Delaware Management Company, Inc. is investment
manager, shall only receive orders for the purchase or sale of portfolio
securities to the extent that the placing of such orders is in compliance with
the Rules of the Securities and Exchange Commission and the National Association
of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Directors and officers of the Fund, the Investment Manager may ask the Fund and
the Fund may agree to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where the Fund and the
Investment Manager have determined in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Investment Manager's overall responsibilities with
respect to the Fund and to other funds and other advisory accounts for which the
Investment Manager or any Sub- Adviser, as defined in Paragraph 5 hereof,
exercises investment discretion.
-2-
<PAGE>
4. As compensation for the services to be rendered to the Fund by the
Investment Manager under the provisions of this Agreement, the Fund shall pay to
the Investment Manager monthly from the Portfolio's assets, a fee on the average
daily net assets of the Portfolio during the month. Such fee shall be calculated
in accordance with the following schedule:
Equivalent
Monthly Rate Annual Rate Average Daily Net Assets
- ------------ ----------- ------------------------
on the first $500,000,000
on the next $500,000,000
on assets over $1,000,000,000
If this Agreement is terminated prior to the end of any calendar
month, the management fee shall be prorated for the portion of any month in
which this Agreement is in effect according to the proportion which the number
of calendar days, during which the Agreement is in effect, bears to the number
of calendar days in the month, and shall be payable within 10 days after the
date of termination.
5. The Investment Manager may, at its expense, select and contract
with one or more investment advisers registered under the Investment Advisers
Act of 1940 (the "Sub-Adviser") to perform some or all of the services for the
Portfolio for which it is responsible under this Agreement. The Investment
Manager will compensate any Sub-Adviser for its services to the Portfolio. The
Investment Manager may terminate the services of any Sub-Adviser at any time in
its sole discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub- Adviser is selected and the
requisite approval of the Portfolio's shareholders is obtained. The Investment
Manager will continue to have responsibility for all advisory services furnished
by any Sub-Adviser.
6. The services to be rendered by the Investment Manager to the Fund
under the provisions of this Agreement are not to be deemed to be exclusive, and
the Investment Manager shall be free to render similar or different services to
others so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
7. The Investment Manager, its directors, officers, employees, agents
and shareholders may engage in other businesses, may render investment advisory
services to other investment companies, or to any other corporation,
association, firm or individual, and may render underwriting services to the
Fund or to any other investment company, corporation, association, firm or
individual.
8. In the absence of willful misfeasance, bad faith, gross
negligence, or a reckless disregard of the performance of its duties as the
Investment Manager to the Fund, the Investment Manager shall not be subject to
liability to the Fund or to any shareholder of the Fund for any action or
omission in the
-3-
<PAGE>
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security, or
otherwise.
9. This Agreement shall be executed and become effective as of the
date written below if approved by the vote of a majority of the outstanding
voting securities of the Portfolio. It shall continue in effect for a period of
two years and may be renewed thereafter only so long as such renewal and
continuance is specifically approved at least annually by the Board of Directors
or by the vote of a majority of the outstanding voting securities of the
Portfolio and only if the terms and the renewal hereof have been approved by the
vote of a majority of the Directors of the Fund who are not parties hereto or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated by the Fund at any time, without the payment of a
penalty, on sixty days' written notice to the Investment Manager of the Fund's
intention to do so, pursuant to action by the Board of Directors of the Fund or
pursuant to the vote of a majority of the outstanding voting securities of the
Portfolio. The Investment Manager may terminate this Agreement at any time,
without the payment of a penalty, on sixty days' written notice to the Fund of
its intention to do so. Upon termination of this Agreement, the obligations of
all the parties hereunder shall cease and terminate as of the date of such
termination, except for any obligation to respond for a breach of this Agreement
committed prior to such termination, and except for the obligation of the Fund
to pay to the Investment Manager the fee provided in Paragraph 4 hereof,
prorated to the date of termination. This Agreement shall automatically
terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities"; "interested persons"; and "assignment"
shall have the meaning defined in the Investment Company Act of 1940.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate
seals to be affixed and duly attested and their presents to be signed by their
duly authorized officers as of the ___th day of ________, 199_.
Attest: DELAWARE ________________, INC. for the
________ FUND series
___________________________ By:______________________________________
Attest: DELAWARE MANAGEMENT COMPANY, INC.
___________________________ By:______________________________________
-5-
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
[Name of Investment Company]
[Name of Portfolio]
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of this ____ day of
_________, 199_ by and between [Name of Investment Company], a Maryland
corporation (the "Fund"), for the [Name of Portfolio] series (the "Series"),
and DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware limited
partnership.
WITNESSETH
WHEREAS, the Fund is an investment company regulated by
Federal and State regulatory bodies, and
WHEREAS, the Distributor is engaged in the business of
promoting the distribution of the securities of investment companies and, in
connection therewith and acting solely as agent for such investment companies
and not as principal, advertising, promoting, offering and selling their
securities to the public, and
WHEREAS, the Fund desires to enter into an agreement with the
Distributor on behalf of the Series, pursuant to which the Distributor shall
serves as the national distributor of the Series' [Name of Portfolio] A Class
("Class A Shares"), [Name of Portfolio] B Class (the "Class B Shares"),
[Name of Portfolio] C Class (the "Class C Shares"), and [Name of Portfolio]
Institutional Class (the "Institutional Class Shares"), which Series and classes
may do business under these or such other names as the Board of Directors may
designate from time to time, on the terms and conditions set forth below,
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Fund hereby engages the Distributor to promote the distribution of the
Series' shares and, in connection therewith and as agent for the Fund and not
as principal, to advertise, promote, offer and sell the Series' shares
to the public.
<PAGE>
2. (a) The Distributor agrees to serve as distributor of the Series' shares
and, as agent for the Fund and not as principal, to advertise, promote
and use its best efforts to sell the Series' shares wherever their sale
is legal, either through dealers or otherwise, in such places and in such
manner, not inconsistent with the law and the provisions of this
Agreement and the Fund's Registration Statement under the Securities Act
of 1933, including the Prospectuses contained therein, and the Statement
of Additional Information contained therein as may be mutually determined
by the Fund and the Distributor from time to time.
(b) For the Institutional Class Shares, the Distributor will bear all costs
of financing any activity which is primarily intended to result in the
sale of that class of shares, including, but not necessarily limited to,
advertising, compensation of underwriters, dealers and sales personnel,
the printing and mailing of sales literature and distribution of that
class of shares.
(c) For its services as agent for the Class A Shares, Class B Shares, and
Class C Shares, the Distributor shall be entitled to compensation on each
sale or redemption, as appropriate, of shares of such classes equal to
any front-end or deferred sales charge described in the Prospectus from
time to time and may allow concessions to dealers in such amounts and on
such terms as are therein set forth.
(d) For the Class A Shares, Class B Shares, and Class C Shares, the Fund
shall, in addition, compensate the Distributor for its services as
provided in the Distribution Plan as adopted on behalf of the Class A
Shares, Class B Shares, and Class C Shares, respectively, pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Plans"), copies
of which as presently in force are attached hereto as, respectively,
Exhibit "A," "B," and "C."
<PAGE>
3. (a) The Fund agrees to make available for sale by the Fund through the
Distributor all or such part of the authorized but unissued shares of the
Series as the Distributor shall require from time to time, and except as
provided in Paragraph 3(b) hereof, the Fund will not sell Series' shares
other than through the efforts of the Distributor.
(b) The Fund reserves the right from time to time (1) to sell and issue
shares other than for cash; (2) to issue shares in exchange for
substantially all of the assets of any corporation or trust, or in
exchange of shares of any corporation or trust; (3) to pay stock
dividends to its shareholders, or to pay dividends in cash or stock at
the option of its stockholders, or to sell stock to existing stockholders
to the extent of dividends payable from time to time in cash, or to split
up or combine its outstanding shares of common stock; (4) to offer shares
for cash to its stockholders as a whole, by the use of transferable
rights or otherwise, and to sell and issue shares pursuant to such
offers; and (5) to act as its own distributor in any jurisdiction in
which the Distributor is not registered as a broker-dealer.
4. The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment company, and
any and all Series' shares which it will sell through the Distributor
are, or will be, properly registered with the Securities and Exchange
Commission ("SEC").
(b) The provisions of this Agreement do not violate the terms of any
instrument by which the Fund is bound, nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
5. (a) The Fund will supply to the Distributor a conformed copy of the
Registration Statement, all amendments thereto, all exhibits, and each
Prospectus and Statement of Additional Information.
(b) The Fund will register or qualify the Series' shares for sale in such
states as is deemed desirable.
<PAGE>
(c) The Fund, without expense to the Distributor,
(1) will give and continue to give such financial statements and other
information as may be required by the SEC or the proper public bodies
of the states in which the Series' shares may be qualified;
(2) from time to time, will furnish to the Distributor as soon as
reasonably practicable true copies of its periodic reports to
stockholders;
(3) will promptly advise the Distributor in person or by telephone or
telegraph, and promptly confirm such advice in writing, (a) when any
amendment or supplement to the Registration Statement becomes
effective, (b) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectuses or for
additional information, and (c) of the issuance by the SEC of any
Stop Order suspending the effectiveness of the Registration
Statement, or the initiation of any proceedings for that purpose;
(4) if at any time the SEC shall issue any Stop Order suspending the
effectiveness of the Registration Statement, will make every
reasonable effort to obtain the lifting of such order at the earliest
possible moment;
(5) will from time to time, use its best effort to keep a sufficient
supply of Series' shares authorized, any increases being subject to
the approval of shareholders as may be required;
(6) before filing any further amendment to the Registration Statement or
to any Prospectus, will furnish to the Distributor copies of the
proposed amendment and will not, at any time, whether before or after
the effective date of the Registration Statement, file any amendment
to the Registration Statement or supplement to any Prospectus of
which the Distributor shall not previously have been advised or to
which the Distributor shall reasonably object (based upon the
accuracy or completeness thereof) in writing;
(7) will continue to make available to its stockholders (and forward
copies to the Distributor) of such periodic, interim and any other
reports as are now, or as hereafter may be, required by the
provisions of the Investment Company Act of 1940; and
(8) will, for the purpose of computing the offering price of Series'
shares, advise the Distributor within one hour after the close of the
New York Stock Exchange (or as soon as practicable thereafter) on
each business day upon which the New York Stock Exchange may be open
of the net asset value per share of the Series' shares of common
stock outstanding, determined in accordance with any applicable
provisions of law and the provisions of the Articles of
Incorporation, as amended, of the Fund as of the close of business on
such business day. In the event that prices are to be calculated more
than once daily, the Fund will promptly advise the Distributor of the
time of each calculation and the price computed at each such time.
<PAGE>
6. The Distributor agrees to submit to the Fund, prior to its use, the form of
all sales literature proposed to be generally disseminated by or for the
Distributor, all advertisements proposed to be used by the Distributor, all
sales literature or advertisements prepared by or for the Distributor for
such dissemination or for use by others in connection with the sale of the
Series' shares, and the form of dealers' sales contract the Distributor
intends to use in connection with sales of the Series' shares. The
Distributor also agrees that the Distributor will submit such sales
literature and advertisements to the NASD, SEC or other regulatory agency as
from time to time may be appropriate, considering practices then current in
the industry. The Distributor agrees not to use such form of dealers' sales
contract or to use or to permit others to use such sales literature or
advertisements without the written consent of the Fund if any regulatory
agency expresses objection thereto or if the Fund delivers to the Distributor
a written objection thereto.
7. The purchase price of each share sold hereunder shall be the offering price
per share mutually agreed upon by the parties hereto, and as described in the
Fund's Prospectuses, as amended from time to time, determined in accordance
with any applicable provision of law, the provisions of its Articles of
Incorporation and the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
8. The responsibility of the Distributor hereunder shall be limited to the
promotion of sales of Series' shares. The Distributor shall undertake to
promote such sales solely as agent of the Fund, and shall not purchase or
sell such shares as principal. Orders for Series' shares and payment for such
orders shall be directed to the Fund's agent, Delaware Service Company, Inc.
for acceptance on behalf of the Fund. The Distributor is not empowered to
approve orders for sales of Series' shares or accept payment for such orders.
Sales of Series' shares shall be deemed to be made when and where accepted by
Delaware Service Company, Inc. on behalf of the Fund.
<PAGE>
9. With respect to the apportionment of costs between the Fund and the
Distributor of activities with which both are concerned, the following will
apply:
(a) The Fund and the Distributor will cooperate in preparing the Registration
Statements, the Prospectuses, the Statement of Additional Information,
and all amendments, supplements and replacements thereto. The Fund will
pay all costs incurred in the preparation of the Fund's Registration
Statement, including typesetting, the costs incurred in printing and
mailing Prospectuses and Annual, Semi-Annual and other financial reports
to its own shareholders and fees and expenses of counsel and accountants.
(b) The Distributor will pay the costs incurred in printing and mailing
copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional expenses, including
the costs of literature sent to prospective investors.
(d) The Fund will pay the costs and fees incurred in registering or
qualifying the Series' shares with the various states and with the SEC.
(e) The Distributor will pay the costs of any additional copies of Fund
financial and other reports and other Fund literature supplied to the
Distributor by the Fund for sales promotion purposes.
10. The Distributor may engage in other business, provided such other business
does not interfere with the performance by the Distributor of its
obligations under this Agreement.
11. The Fund agrees to indemnify, defend and hold harmless from the assets of
the Series the Distributor and each person, if any, who controls the
Distributor within the meaning of Section 15 of the Securities Act of
<PAGE>
1933, from and against any and all losses, damages, or liabilities to which,
jointly or severally, the Distributor or such controlling person may become
subject, insofar as the losses, damages or liabilities arise out of the
performance of its duties hereunder except that the Fund shall not be liable
for indemnification of the Distributor or any controlling person thereof for
any liability to the Fund or its security holders to which they would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of their duties under this Agreement.
12. Copies of financial reports, Registration Statements and Prospectuses, as
well as demands, notices, requests, consents, waivers, and other
communications in writing which it may be necessary or desirable for either
party to deliver or furnish to the other will be duly delivered or
furnished, if delivered to such party at its address shown below during
regular business hours, or if sent to that party by registered mail or by
prepaid telegram filed with an office or with an agent of Western Union or
another nationally recognized telegraph service, in all cases within the
time or times herein prescribed, addressed to the recipient at 1818 Market
Street, Philadelphia, Pennsylvania 19103, or at such other address as the
Fund or the Distributor may designate in writing and furnish to the other.
13. This Agreement shall not be assigned, as that term is defined in the
Investment Company Act of 1940, by the Distributor and shall terminate
automatically in the event of its attempted assignment by the Distributor.
This Agreement shall not be assigned by the Fund without the written consent
of the Distributor signed by its duly authorized officers and delivered to
the Fund. Except as specifically provided in the indemnification provision
contained in Paragraph 11 herein, this Agreement and all conditions and
provisions hereof are for the sole and exclusive benefit of the parties
hereto and their legal successors and no express or implied provision of
this Agreement is intended or shall be construed to give any person other
than the parties hereto and their legal successors any legal or equitable
right, remedy or claim under or in respect of this Agreement or any
provisions herein contained.
<PAGE>
14. (a) This Agreement shall remain in force for a period of two years from
the date hereof and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually by the Board
of Directors or by vote of a majority of the outstanding voting
securities of the Series and only if the terms and the renewal thereof
have been approved by the vote of a majority of the Directors of the
Fund who are not parties hereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval.
(b) The Distributor may terminate this Agreement on written notice to the
Fund at any time in case the effectiveness of the Registration Statement
shall be suspended, or in case Stop Order proceedings are initiated by
the SEC in respect of the Registration Statement and such proceedings
are not withdrawn or terminated within thirty days. The Distributor may
also terminate this Agreement at any time by giving the Fund written
notice of its intention to terminate the Agreement at the expiration of
three months from the date of delivery of such written notice of
intention to the Fund.
(c) The Fund may terminate this Agreement at any time on at least thirty
days prior written notice to the Distributor (1) if proceedings are
commenced by the Distributor or any of its partners for the
Distributor's liquidation or dissolution or the winding up of the
Distributor's affairs; (2) if a receiver or trustee of the Distributor
or any of its property is appointed and such appointment is not vacated
within thirty days thereafter; (3) if, due to any action by or before
any court or any federal or state commission, regulatory body, or
administrative agency or other governmental body, the Distributor shall
be prevented from selling securities in the United States or because of
any action or conduct on the Distributor's part, sales of the shares are
not qualified for sale. The Fund may also terminate this Agreement at
any time upon prior written notice to the Distributor of its intention
to so terminate at the expiration of three months from the date of the
delivery of such written notice to the Distributor.
<PAGE>
15. The validity, interpretation and construction of this Agreement, and of each
part hereof, will be governed by the laws of the Commonwealth of
Pennsylvania.
16. In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of the
Agreement, which shall continue to be in force.
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
----------------------------
General Partner
Attest:
By:
- ------------------------------ ------------------------------
Name: Name:
Title: Title:
[Name of Investment Company] for the
[Name of Portfolio]
Attest:
By:
- ------------------------------ ------------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
[Name of Investment Company] (the "Fund"), for the [Name of Portfolio] series
(the "Series") on behalf of the [Name of Portfolio] A Class ("Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a majority of the outstanding voting securities of the Class, as
defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. (a) The Fund shall pay to the Distributor a monthly fee not
to exceed 0.75% (3/4 of l%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to the Distributor for payment to dealers or others, or
(ii) directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum
of the Series' average daily net assets represented by shares of the Class, as
a service fee pursuant to dealer or servicing agreements.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l(a) above to assist in the distribution and promotion
of shares of the Class. Payments made to the Distributor under the Plan may be
used for, among other things, preparation and distribution of advertisements,
sales literature and prospectuses and reports used for sales purposes, as well
as compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sales of Class shares.
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan (the
"Commencement Date"); thereafter, the Plan shall continue in effect for a period
of more than one year from the Commencement Date only so long as such
continuance is specifically approved at least annually by a vote of the Board of
Directors of the Fund, and of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
_________ __, 199_
<PAGE>
EXHIBIT B
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] B Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
<PAGE>
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Directors or by vote of a majority of the outstanding
voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph 1 thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
EXHIBIT C
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] C Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
<PAGE>
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
<PAGE>
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
Mutual Fund/Business Trust/Series
Form of Agreement
Subject to Board Approval
CUSTODIAN AGREEMENT
AGREEMENT dated as of _____________, 199_ between BANKERS TRUST COMPANY
(the "Custodian") and [name of customer] (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for
<PAGE>
the account of such Portfolio. Upon delivery by the Customer to the Custodian of
any Property belonging to a Portfolio, the Customer shall, by Instructions (as
hereinafter defined in Section 14), specifically indicate which Portfolio such
Property belongs or if such Property belongs to more than one Portfolio shall
allocate such Property to the appropriate Portfolio. The Custodian shall
allocate such Property to the Accounts in accordance with the Instructions;
provided that the Custodian shall have the right, in its sole discretion, to
refuse to accept any Property that is not in proper form for deposit for any
reason. The Customer on behalf of each Portfolio, acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the same
class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the appropriate Account;
(b) present for payment all Securities held in an Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Custodian or Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities for those
in definitive form and the exchange of warrants, or other documents of
entitlement to securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than ministerial exchanges
described in (i) above) is received for an Account, endeavor to receive
Instructions, provided that if such Instructions are not received in time for
the Custodian to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split is
received for an Account and such rights entitlement or fractional interest bears
an expiration date, if after endeavoring to obtain Instructions such
Instructions are not received in time for the Custodian to take timely action or
if actual notice of such actions was received too late to seek Instructions,
sell in the discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to make) such rights entitlement or fractional interest
and credit the Account with the net proceeds of such sale;
<PAGE>
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the nature of
taxes imposed on interest, dividends or other similar income on the Property in
such Account by any governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the Customer, at its
option, may deposit additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if requested by the
Custodian and required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information, executing documents or
otherwise; and
(g) appoint brokers and agents for any of the ministerial transactions
involving the Securities described in (a) - (f), including, without limitation,
affiliates of the Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System, collectively, Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions; provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable,
<PAGE>
appoint a replacement subcustodian or securities system in accordance with the
provisions of this Section. In addition, the Custodian may, at any time in its
discretion, upon written notification to the Customer, terminate the employment
of any Subcustodian or Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial ownership of such
Securities be freely transferable without the payment of money or value other
than for safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held pursuant to
such Agreement as belonging to the Custodian, on behalf of its customers and (v)
to the extent permitted by applicable law, officers of or auditors employed by,
or other representatives of or designated by, the Custodian, including the
independent public accountants
<PAGE>
of or designated by, the Customer be given access to the books and records of
such Subcustodian relating to its actions under its agreement pertaining to any
Property held by it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the Account(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such Property as being
held for the account of the Custodian or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the instructions of the
Custodian or such Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or Subcustodian,
as the case may be, unless precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained
by the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or other
property, and whether held by the Custodian or a Subcustodian or in a Securities
System as authorized herein, shall be clearly recorded on the Custodian's books
as belonging to the appropriate Account and not for the Custodian's own
interest. The Custodian shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions for each Account.
All accounts, books and records of the Custodian relating thereto shall be open
to inspection and audit at all reasonable times during normal business hours by
any person designated by the Customer. All such accounts shall be maintained and
preserved in the form reasonably requested by the Customer. The Custodian will
supply to the Customer from time to time, as mutually agreed upon, a statement
in respect to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the Custodian by the
Customer of
<PAGE>
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct with respect to
all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer and
as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values of Securities in an Account, the Customer hereby acknowledges that
the Custodian now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted,
<PAGE>
the called portion of the respective beneficial holders of such class of
security in any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Investment Manager User Guide provided to the Customer by the Custodian, the
Custodian may, at its sole option, reverse such credits or debits to the
appropriate Account in the event that the transaction does not settle, or the
income is not received in a timely manner, and the Customer agrees to hold the
Custodian harmless from any losses which may result therefrom.
<PAGE>
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
such Account at the time or to settle the sale of any Securities in such Account
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such securities exceeds the amount of Cash in an
Account at the time of settlement of such purchase, the Custodian may, in its
sole discretion, but in no way shall have any obligation to, permit an overdraft
in such Account in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for prompt delivery
for such Account. The Customer agrees to immediately repay the amount of any
such overdraft in the ordinary course of business and further agrees to
indemnify and hold the Custodian harmless from and against any and all losses,
costs, including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
<PAGE>
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, on behalf of a Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral communication
by one or more persons as the Customer shall have from time to time authorized
to give the particular class of Instructions in question and whose name has been
filed with the Custodian; or (iv) upon receipt of such other form of
instructions as the Customer may from time to time authorize in writing and
which the Custodian has agreed in writing to accept. Instructions in the form of
oral communications shall be confirmed by the Customer by tested telex or
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall
<PAGE>
in no way affect any action taken by the Custodian in reliance upon such oral
instructions prior to the Custodian's receipt of such confirmation. Instructions
may relate to specific transactions or to types or classes of transactions, and
may be in the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by
<PAGE>
the Custodian as a result of any improper or unauthorized use of such terminal
by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be
<PAGE>
imposed, or assessed with respect to any Property in an Account and also agrees
to hold the Custodian, its Subcustodians, and their respective nominees harmless
from any liability as a record holder of Property in such Account. The Custodian
is authorized to charge the applicable Account for such items and the Custodian
shall have a lien on the Property in the applicable Account for any amount
payable to the Custodian under this Agreement, including but not limited to
amounts payable pursuant to the last paragraph of Section 12 and pursuant to
indemnities granted by the Customer under this Agreement. The provisions of this
Section shall survive the termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
20. Termination. (a) Termination of Entire Agreement. This Agreement
may be terminated by the Customer or the Custodian by ninety (90) days' written
notice to the other; provided that notice by the Customer shall specify the
names of the persons to whom the Custodian shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within ninety (90)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in such Account shall be
paid. In either case, the Custodian will deliver such Securities and Cash to the
persons so specified, after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 12, 17, and 23. In addition, the
Custodian may in its discretion withhold from such delivery such Cash and
Securities as may be necessary to settle transactions pending at the time of
such delivery. The Customer grants to the Custodian a lien and right of setoff
against the Account and all Property held therein from time to time in the full
amount of the foregoing obligations. If within ninety (90) days following the
giving of a notice of termination by the Custodian, the Custodian does not
receive from the Customer a written notice specifying the names of the persons
to whom the Custodian shall deliver the Securities in each Account and to whom
the Cash in such Account shall be paid, the Custodian, at its election, may
deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such Securities and Cash
until a written notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
<PAGE>
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer or the Custodian as to one or more Portfolios (but
less than all of the Portfolios) by delivery of an amended Exhibit A deleting
such Portfolios, in which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery, or such earlier
time as mutually agreed. The execution and delivery of an amended Exhibit A
which deletes one or more Portfolios shall constitute a termination of this
Agreement only with respect to such deleted Portfolio(s), shall be governed by
the preceding provisions of Section 20 as to the identification of a successor
custodian and the delivery of Cash and Securities of the Portfolio(s) so deleted
to such successor custodian, and shall not affect the obligations of the
Custodian and the Customer hereunder with respect to the other Portfolios set
forth in Exhibit A, as amended from time to time.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed, if to the Customer, to:
if to the Custodian, to:
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided that,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Portfolio. Should the Customer fail
to pay promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable
<PAGE>
Account, as the case may be, and to dispose of Securities in the Account or such
applicable Account as is necessary. In any such case and without limiting the
foregoing, Custodian shall be entitled to take such other action(s) or exercise
such other options, powers and rights as Custodian now or hereafter has as a
secured creditor under the New York Uniform Commercial Code or any other
applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence
of such authorization as the Custodian may reasonably require, whether by way of
a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which the Custodian is bound, whether arising by contract, operation of law
or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Custodian in
accordance with its terms;
(iii) the Custodian will deliver to the Customer such evidence
of such authorization as the Customer may reasonably require, whether by way of
a certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
<PAGE>
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
27. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/ State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
28. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
<PAGE>
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
[NAME OF CUSTOMER]
By: __________________________
Name: _______________________
Title: _______________________
BANKERS TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of: [NAME OF CUSTOMER]
By: __________________________
Name: ________________________
Title: _______________________
BANKERS TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of _____________, 199_ between Bankers
Trust Company and ___________________.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official language of the
country in which the related security is held, the Custodian will as soon as
practicable after receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
<PAGE>
- 2 -
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: [NAME OF CUSTOMER]
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
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BANKERS TRUST COMPANY
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
<PAGE>
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
Dated as of: [NAME OF CUSTOMER]
By: ________________________
Name: _____________________
Title: ______________________
BANKERS TRUST COMPANY
By: _______________________
Name: _____________________
Title: ______________________
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
[Name of Investment Company]
[Names of Portfolio(s)]
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made as of the ____ day of _________, 199_ by and
between [Name of Investment Company] ("Fund"), a Maryland corporation, for the
[Names of Portfolio(s)] series (together, the "Series"), and DELAWARE SERVICE
COMPANY, INC. ("DSC"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the Fund on
behalf of the Series and Delaware Management Company, Inc. provide that the Fund
shall conduct its own business affairs and shall bear the expenses and salaries
necessary and incidental thereto including, but not in limitation of the
foregoing, the costs incurred in: the maintenance of its corporate existence;
the maintenance of its own books, records and procedures; dealing with its own
shareholders; the payment of dividends; transfers of stock, including issuance,
redemption and repurchase of shares; preparation of share certificates; reports
and notices to stockholders; calling and holding of stockholders' meetings;
miscellaneous office expenses; brokerage commissions; custodian fees; legal and
accounting fees; taxes; and federal and state registration fees; and
<PAGE>
WHEREAS, the FUND and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor;
and
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
1.1 The Fund hereby appoints DSC Shareholder Services Agent for the
Series to provide as agent for the Fund services as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent and DSC hereby accepts such
appointment and agrees to provide the Fund, as its agent, the services described
herein.
1.2 The Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. The
Fund also shall reimburse DSC for expenses incurred or advanced by it for the
Fund in connection with its services hereunder.
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<PAGE>
II. DOCUMENTATION
2.1 The Fund represents that it has provided or made available to DSC
(or has given DSC an opportunity to examine) copies of, and DSC represents that
it has received from the Fund (or is otherwise familiar with), the following
documents:
(a) The Articles of Incorporation or other documents
evidencing the Fund's form of organization and any current amendments or
supplements thereto;
(b) The By-Laws of the Fund;
(c) Any resolution or other action of the Fund or the Board of
Directors of the Fund establishing or affecting the rights, privileges or other
status of each class or series of shares of the Fund, including those relating
to the Series, or altering or abolishing such class or series;
(d) A certified copy of a resolution of the Board of Directors
of the Fund appointing DSC as Shareholder Services Agent for the Series and
authorizing the execution of this Agreement;
(e) The forms of share certificates for the Series in the form
approved by the Board of Directors of the Fund;
(f) A copy of the Fund's currently effective Prospectuses and
Statement of Additional Information under the Securities Act of 1933, if
effective;
(g) Copies of all account application forms and other
documents relating to stockholder accounts in the Series;
(h) Copies of documents relating to Plans of the Fund for the
purchase, sale or repurchase of its shares, including
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<PAGE>
periodic payment or withdrawal plans, reinvestment plans or retirement plans, if
any;
(i) Any opinion of counsel to the Fund relating to the
authorization and validity of the shares of the Series issued or proposed to be
issued under the law of the State of the Fund's organization, including the
status thereof under any applicable securities laws;
(j) A certified copy of any resolution of the Board of
Directors of the Fund authorizing any person to give instructions to DSC under
this Agreement (with a specimen signature of such person if not already
provided), setting forth the scope of such authority; and
(k) Any amendment, revocation or other documents altering,
adding, qualifying or repealing any document or authority called for under this
Section 2.1.
2.2 The Fund and DSC may consult as to forms or documents that may be
required in performing services hereunder.
2.3 The Fund shall provide or make available to DSC a certified copy of
any resolution of the stockholders or the Board of Directors of the Fund
providing for a dividend, capital gains distribution, distribution of capital,
stock dividend, stock split or other similar action affecting the authorization
or issuance of shares of the Series or the payment of dividends.
2.4 In the case of any recapitalization or other capital adjustment
requiring a change in the form of stock certificates or
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<PAGE>
the books recording the same, the Fund shall deliver or make available to DSC:
(a) A certified copy of any document authorizing or effecting
such change;
(b) Written instructions from an authorized officer
implementing such change; and
(c) An opinion of counsel to the Fund as to the validity of
such action, if requested by DSC.
2.5 The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all Series shares
which it issues will be properly registered and lawfully issued under applicable
federal and state laws.
(b) The provisions of this Agreement do not violate the terms
of any instrument by which the Fund is bound; nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
2.6 DSC warrants the following:
(a) DSC is and will be properly registered as a transfer agent
under the Securities Exchange Act of 1934 and is duly authorized to serve, and
may lawfully serve as such.
(b) The provisions of this Agreement do not violate the terms
of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
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<PAGE>
III. STOCK CERTIFICATES
3.1 The Fund shall furnish or authorize DSC to obtain, at the Fund's
expense, a sufficient supply of blank stock certificates for the Series, and
from time to time will replenish such supply upon the request of DSC. The Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this Section.
3.2 DSC shall safeguard, and shall account to the Fund, upon its demand
for, all such stock certificates: (a) as issued, showing to whom issued, or (b)
as unissued, establishing the safekeeping, cancellation or destruction thereof.
3.3 The Fund shall promptly inform DSC in writing of any change in the
officers authorized to sign stock certificates or in the form thereof. If an
officer whose manual or facsimile signature is affixed to any blank share
certificate shall die, resign or be removed prior to the issuance of such
certificate, DSC may nevertheless issue such certificate notwithstanding such
death, resignation or removal, and the Fund shall with respect thereto promptly
provide to DSC any approval, adoption or ratification as may be required by DSC.
IV. TRANSFER AGENT
4.1 As Transfer Agent for the Fund, DSC shall issue, redeem and
transfer shares of the Series, and, in connection therewith but not in
limitation thereof, it shall:
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<PAGE>
(a) Upon receipt of authority to issue shares, determine the
total shares to be issued and issue such shares by crediting shares to accounts
created and maintained in the registration forms provided; as applicable,
prepare, issue and deliver stock certificates.
(b) Upon proper transfer authorization, transfer shares by
debiting transferor-stockholder accounts and crediting such shares to accounts
created and/or maintained for transferee- stockholders; if applicable, issue
and/or cancel stock certificates.
(c) Upon proper redemption authorization, determine the total
shares redeemed and to be redeemed; determine the total redemption payments made
and to be made; redeem shares by debiting stockholder accounts; as applicable,
receive and cancel stock certificates for shares redeemed; and remit or cause to
be remitted the redemption proceeds to stockholders.
(d) Create and maintain accounts; reconcile and control cash
due and paid, shares issued and to be issued, cash remitted and to be remitted
and shares debited and credited to accounts; provide such notices, instructions
or authorizations as the Fund may require.
4.2 DSC shall not be required to issue, transfer or redeem Series
shares upon receipt of DSC from the Fund, or from any federal or state
regulatory agency or authority, written notice that the issuance, transfer or
redemption of Series shares has been suspended or discontinued.
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<PAGE>
V. DIVIDEND DISBURSING AGENT
5.1 As Dividend Disbursing Agent for the Fund, DSC shall disburse and
cause to be disbursed to stockholders of each Series dividends, capital gains
distributions or any payments from other sources as directed by the Fund. In
connection therewith, but not in limitation thereof, DSC shall:
(a) Calculate the total disbursement due and payable and the
disbursement to each stockholder as to shares owned, in accordance with the
Fund's authorization.
(b) Calculate the total disbursements for each stockholder, as
aforesaid, to be disbursed in cash; prepare and mail checks therefor.
(c) Calculate the total disbursement for each stockholder of
each Series, as aforesaid, for which shares are to be issued and authorized and
instruct the issuance of such shares in accordance with Section IV hereof.
(d) Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by federal or state authority.
(e) Create and maintain records, reconcile and control
disbursements to be made and made, both as to cash and shares, as aforesaid;
provide such notices, instruction or authorization as the Fund may require.
5.2 DSC shall not be required to make any disbursement upon the receipt
of DSC from the Fund, or from any federal or state
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<PAGE>
agency or authority, written notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
6.1 As Shareholder Servicing Agent for the Fund, DSC shall provide
those services ancillary to but in implementation of the services provided under
Sections I through V hereof, and those generally defined and accepted as
shareholder services. In connection therewith, but not in limitation thereof,
DSC shall:
(a) Except where instructed in writing by the Fund not to do
so, and where in compliance with applicable law, accept orders on behalf of the
Fund; receive and process investments and applications; remit to the Fund or its
custodian payments for shares acquired and to be issued; and direct the issuance
of shares in accordance with Section IV hereof.
(b) Receive, record and respond to communications of
stockholders and their agents.
(c) As instructed by the Fund, prepare and mail stockholder
account information, mail Series stockholder reports and Series prospectuses.
(d) Prepare and mail proxies and material for Fund stockholder
meetings, receive and process proxies from stockholders, and deliver such
proxies as directed by the Fund.
(e) Administer investment plans offered by the Fund to
investors and stockholders of each Series, including retirement plans, including
activities not otherwise provided in Sections I through V of this Agreement
-9-
<PAGE>
VII. PERFORMANCE OF DUTIES
7.1 The parties hereto intend that Series stockholders and their
stockholdings shall be confidential, and any information relating thereto shall
be released by DSC only to those persons or authorities who DSC has reason to
believe are authorized to receive such information; or, as instructed by the
Fund.
7.2 DSC may, in performing this Agreement, require the Fund or the
Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or stockholders.
7.3 DSC may request or receive instructions from the Fund and may, at
the Fund's expense, consult with counsel for the Fund or its own counsel with
respect to any matter arising in connection with the performance of its duties
hereunder, and shall not be liable for any action taken or omitted by it in good
faith in accordance with such instructions or opinions of counsel.
7.4 DSC shall maintain reasonable insurance coverage for errors and
omissions and reasonable bond coverage for fraud.
7.5 Upon notice thereof to the Fund, DSC may employ others to provide
services to DSC in its performance of this Agreement.
7.6 Personnel and facilities of DSC used to perform services hereunder
may be used to perform similar services to other funds of the Delaware Group and
to others, and may be used to perform other services for the Fund, the other
funds of the Delaware Group and others.
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<PAGE>
7.7 DSC shall provide its services as transfer agent hereunder in
accordance with Section 17 of the Securities Exchange Act of 1934, and the rules
and regulations thereunder. Further, the parties intend that the processes,
procedures, safeguard and controls employed should be those generally applied
and accepted for the type services provided hereunder by other institutions
providing the same or similar services, and, those which should provide
efficient, safe and economical services so as to promote promptness and accuracy
and to maintain the integrity of the Fund's records.
7.8 The Fund and DSC may, from time to time, set forth in writing
Guidelines For Selective Procedures to be applicable to the services hereunder.
VIII. COMPENSATION
8.1 The Fund and DSC acknowledge that because DSC has common ownership
and close management ties with the Fund's investment advisor and the Fund's
distributor and serves the other funds of the Delaware Group (DSC having been
originally established to provide the services hereunder for the funds of the
Delaware Group), advantages and benefits to the Fund in the employment of DSC
hereunder can be available which may not generally be available to it from
others providing similar services.
8.2 The Fund and DSC further acknowledge that the compensation by the
Fund to DSC is intended to induce DSC to provide services under this Agreement
of a nature and quality which the Board of Directors of the Fund, including a
majority who are
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<PAGE>
not parties to this Agreement or interested persons of the parties hereto, has
determined after due consideration to be necessary for the conduct of the
business of the Fund, in the best interests of the Fund, the Series and their
stockholders.
8.3 Compensation by the Fund to DSC hereunder shall be determined in
accordance with Schedule A hereto as it shall be amended from time to time as
provided for herein and which is incorporated herein as a part hereof.
8.4 Compensation as provided in Schedule A shall be reviewed and
approved in the manner set forth in Section 10.1 hereof by the Board of
Directors of the Fund at least annually and may be reviewed and approved more
frequently at the request of either party. The Board may request, and DSC shall
provide, such information as the Board may reasonably require to evaluate the
basis of and approve the compensation.
IX. STANDARD OF CARE
9.1 The Fund acknowledges that DSC shall not be liable for, and in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the performance of its duties under this Agreement, agrees to
indemnify DSC against, any claim or deficiency arising from the performance of
DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other proceeding, and acknowledges that any risk of loss or damage arising from
the conduct of the Fund's affairs in accordance
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<PAGE>
herewith or in accordance with Guidelines or instructions given hereunder, shall
be borne by the Fund.
X. CONTRACTUAL STATUS
10.1 This Agreement shall be executed and become effective on the date
first written above if approved by a vote of the Board of Directors of the Fund,
including an affirmative vote of a majority of the non-interested members of the
Board, cast in person at a meeting called for the purpose of voting on such
approval. It shall continue in effect for an indeterminate period, and is
subject to termination on sixty (60) days notice by either party unless earlier
terminated or amended by agreement among the parties. Compensation under this
Agreement shall require approval by a majority vote of the Board of Directors of
the Fund, including an affirmative vote of the majority of the non-interested
members of the Board cast in person at a meeting called for the purpose of
voting on such approval.
10.2 This Agreement may not be assigned without the approval of the
Fund.
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<PAGE>
10.3 This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
Attest: By:
------------------- --------------------------
Name: Name:
Title: Title:
[Name of Investment Company]
for the [Name(s) of Portfolio(s)]
series
Attest: By:
------------------- --------------------------
Name: Name:
Title: Title:
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<PAGE>
SCHEDULE A
[Name of Investment Company]
SHAREHOLDERS SERVICES AGREEMENT
COMPENSATION SCHEDULE
1. Delaware Service Company, Inc. ("DSC") will determine and
report to the Fund, at least annually, the compensation
for services to be provided to the Fund for DSC's
forthcoming fiscal year or period.
2. In determining such compensation, DSC will fix and report a
fee to be charged per account and/or transaction, as may be
applicable, for services provided. DSC will bill, and the Fund
will pay, such compensation monthly.
3. For the period commencing on _________ __, 199_, the charge
will consist of two charges, an annual charge and a per
transaction charge for each account on DSC's records and each
account on an automated retirement processing system. These
charges are as follows:
A. ANNUAL CHARGE
Daily Dividend Funds $11.00 Per Annum
Non-Daily Dividend Funds $ 5.50 Per Annum
Merrill Lynch - Omnibus Accounts:
Regular Accounts $11.00 Per Annum
Accounts with a Contingent
Deferred Sales Charge $14.00 Per Annum
Networked Accounts $3.00-$6.00 Per Annum
<PAGE>
SCHEDULE A
[Name of Investment Company]
SHAREHOLDERS SERVICES AGREEMENT
COMPENSATION SCHEDULE
PAGE 2
B. TRANSACTION CHARGE
Transaction Charge
1. Dividend Payment $ 0.25
2. New Account $ 6.00
3. Purchase:
a. Wire $ 8.00
b. Automated $ 1.50
c. Other $ 2.60
4. Transfer $ 8.00
5. Certificate Issuance $ 4.00
6. Liquidations
a. Wires $12.25
b. Drafts $ 0.75
c. Money Market Regular $ 4.50
d. Other Regular $ 4.50
7. Exchanges
a. Dividend Exchanges $ 3.00
b. Other $10.00
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
DELAWARE GROUP OF FUNDS
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, made as of this 19th day of August, 1996 by and between
the registered investment companies in the Delaware Group listed on Schedule A,
which Schedule may be amended from time to time as provided in Section 8 hereof
(each corporation or common law or business trust, hereinafter referred to as a
"Company," and all such entities collectively hereinafter referred to as, the
"Companies"), on behalf of the portfolio(s) of securities of such Companies
listed on Schedule A, which Schedule may be amended from time to time (when used
in this Agreement in the context of a Company that offers only a single
portfolio/series of shares, the term "Portfolio" shall be a reference to such
Company, and when used in the context of a Company that offers multiple
portfolios/series of shares, shall be a reference to each portfolio/series of
such Company) and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware
corporation, having its principal office and place of business at 1818 Market
Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the
Companies with respect to each Portfolio and either Delaware
Management Company, Inc. or its U.K. affiliate, Delaware
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<PAGE>
International Advisers Ltd., provide, in part, that each Portfolio shall conduct
its business and affairs and shall bear the expenses necessary and incidental
thereto including, but not in limitation of the foregoing, the costs incurred
with respect to accounting services; and
WHEREAS, the services to be provided under this agreement
previously were provided by employees of the Companies; and
WHEREAS, the Companies and DSC desire to have a written agreement
concerning the performance of accounting services for each Portfolio and
providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
Section 1.1 The Companies hereby appoint DSC the accounting
agent ("Accounting Agent") for all of the classes of each Portfolio, to provide
such accounting services as are set forth herein and DSC hereby accepts such
appointment and agrees to provide the Companies, as their agent, the services
described herein.
Section 1.2 The Companies shall pay DSC and DSC shall accept,
for the services provided hereunder, the compensation provided for in Section VI
hereof. The Companies
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<PAGE>
also shall reimburse DSC for expenses incurred or advanced by it for the
Companies in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 Each Company represents that it has provided or
made available to DSC (or has given DSC an opportunity to examine) copies of,
and, DSC represents that it has received from the Companies (or is otherwise
familiar with), the following documents:
A. The Articles of Incorporation or Agreement and
Declaration of Trust or other document, as relevant, evidencing each Company's
form of organization and any current amendments thereto;
B. The By-Laws or Procedural Guidelines of each
Company;
C. Any resolution or other action of each Company or
the Board of Directors or Trustees of each Company establishing or affecting the
rights, privileges or other status of any class of shares of a Portfolio, or
altering or abolishing any such class;
D. A certified copy of a resolution of the Board of
Directors or Trustees of each Company appointing DSC as Accounting Agent for
each Portfolio and authorizing the execution of this Agreement or an amendment
to Schedule A of this Agreement;
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<PAGE>
E. A copy of each Company's currently effective
prospectus[es] and Statement[s] of Additional Information under the Securities
Act of 1933, if effective;
F. A certified copy of any resolution of the Board of
Directors or Trustees of each Company authorizing any person to give
instructions to DSC under this Agreement (with a specimen signature of such
person if not already provided), setting forth the scope of such authority; and
G. Any amendment, revocation or other document
altering, adding, qualifying or repealing any document or authority called for
under this Section 2.1.
Section 2.2 Each Company and DSC may consult as to forms or
documents that may be required in performing services hereunder.
Section 2.3 Each Company warrants the following:
A. The Company is, or will be, a properly registered
investment company under the Investment Company Act of 1940 (the "1940 Act") and
any and all shares of a Portfolio which it issues will be properly registered
and lawfully issued under applicable federal and state laws.
B. The provisions of this contract do not violate the
terms of any instrument by which the Company or the Company on behalf of a
Portfolio is bound; nor do they violate any law or regulation of any body having
jurisdiction over the Company or its property.
Section 2.4 DSC warrants the following:
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<PAGE>
A. The provisions of this contract do not violate the
terms of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
III. SERVICES TO BE PROVIDED BY DSC
Section 3.1 Daily Net Asset Value ("NAV") Calculation. As
Accounting Agent for each Portfolio of the Companies, DSC will perform all
functions necessary to provide daily Portfolio NAV calculations, including:
A. Maintaining each Portfolio's securities portfolio
history by:
1. recording portfolio purchases and sales;
2. recording corporate actions and capital
changes relating to portfolio securities;
3. accruing interest, dividends and
expenses; and
4. maintaining the income history for
securities purchased by a Portfolio.
B. Determining distributions to Portfolio
shareholders;
C. Recording and reconciling shareholder activity
including:
1. recording subscription, liquidations and
dividend reinvestments;
-6-
<PAGE>
2. recording settlements of shareholder
activity; and
3. reconciling Portfolio shares outstanding
to the records maintained by DSC, as transfer agent of the Portfolio.
D. Valuing a Portfolio's securities portfolio which
includes determining the NAVs for all classes of the Portfolio;
E. Disseminating Portfolio NAVs and dividends to
interested parties (including the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Investment Company Institute ("ICI"),
Morningstar, and Lipper Analytical Services, Inc. ("Lipper")); and
F. Resolving pricing and/or custody discrepancies.
Section 3.2 Financial Reporting. As Accounting Agent, DSC
shall perform financial reporting services for each Portfolio, which shall
include:
A. The preparation of semi-annual and annual reports
for shareholders which involves the performance of the following functions:
1. preparing all statements of net assets,
statements of operations and statements of changes in net assets for the
Portfolio;
-7-
<PAGE>
2. preparing footnotes to financial
statements for the Portfolio;
3. preparing workpapers for each Company's
annual audit by its independent public accountants; and
4. coordinating the annual audit by each
Company's independent public accountants.
B. Reporting to the ICI in response to requests for
monthly and other periodic information;
C. Performing statistical reporting, which includes
daily, monthly, quarterly and annual reports for Lipper, Weisenberger and other
third party reporting agencies; and
D. Furnishing financial information for any
additional required SEC reporting, such as the preparation of financial
information for each Company's reporting on Form N-SAR, the furnishing of
financial information for each Company's prospectus[es] and statement[s] of
additional information, and the financial information required for each
Company's annual Rule 24f-2 notice filing;
Section 3.3 Compliance Testing. DSC will monitor, test and
prepare and maintain supporting schedules which evidence compliance with the
definitional and distribution requirements under the Internal Revenue Code of
1986, as amended ("IRC"), including the following:
-8-
<PAGE>
A. The requirement to be registered at all times
during the taxable year under the 1940 Act (IRC ss.851(a));
B. The annual ninety percent gross income test (IRC
ss.851(b)(2));
C. The short/short (thirty percent) gross income test
(IRC ss.851(b)(3));
D. The quarterly IRC industry diversification tests
(IRC ss.ss.851(b)(4) and 817(h)); and
E. The 90% distribution requirements (IRC ss.852(a)).
Section 3.4 Other Services. In addition to the above, DSC, in
its capacity as Accounting Agent for the Company, will perform the following
services:
A. The calculation of required Portfolio monthly
yields and total return calculations in accordance with the prescribed rules of
the U.S. Securities and Exchange Commission;
B. Providing the financial information necessary for
the preparation of all federal and state tax returns and ancillary schedules,
including:
1. year-end excise tax distributions; and
2. compliance with Subchapter M and Section
4982 of the IRC;
-9-
<PAGE>
C. Performing special tax reporting to shareholders,
including the preparation of reports which reflect income earned by each
Portfolio by state, exempt income and distributions that qualify for the
corporate dividends received deduction;
D. The preparation of expense and budget figures for
each Portfolio, including the maintenance of detailed records pertaining to
expense accruals and payments and adjusting reports to reflect accrual
adjustments;
E. The preparation of reports for Board of Directors'
or Trustees' meetings;
F. Coordination of the custody relationships;
G. Facilitating security settlements;
H. Performance of required foreign security
accounting functions;
I. Performance of daily cash reconciliations for each
Portfolio;
J. Providing identified reports to portfolio managers
including:
1. providing portfolio holdings and security
valuation reports;
2. preparing cash forecasts and
reconciliations as mutually agreed upon; and
3. preparing income projections.
-10-
<PAGE>
IV. PERFORMANCE OF DUTIES
Section 4.1 DSC may request or receive instructions from a
Company and may, at a Portfolio's expense, consult with counsel for the Company
or its own counsel, with respect to any matter arising in connection with the
performance of its duties hereunder, and shall not be liable for any action
taken or omitted by it in good faith in accordance with such instructions or
opinions of counsel.
Section 4.2 DSC shall maintain reasonable insurance coverage
for errors and omissions and reasonable bond coverage for fraud.
Section 4.3 Upon notice thereof to a Company, DSC may employ
others to provide services to DSC in its performance of this Agreement.
Section 4.4 Personnel and facilities of DSC used to perform
services hereunder may be used to perform similar services to all Companies of
the Delaware Group and their Portfolios and to others, and may be used to
perform other services for all of the Companies of the Delaware Group and
others.
Section 4.5 The Companies and DSC may, from time to time, set
forth in writing at the Companies' expense certain guidelines to be applicable
to the services hereunder.
-11-
<PAGE>
V. ACCOUNTS AND RECORDS
Section 5.1 The parties hereto agree and acknowledge that the
accounts and records maintained by DSC with respect to a Portfolio shall be the
property of such Portfolio, and shall be made available to the relevant Company
promptly upon request and shall be maintained for the periods prescribed in Rule
31a-2 under the Investment Company Act of 1940 or such longer period as shall be
agreed to by the parties hereto, at such Portfolio's expense.
VI. COMPENSATION
Section 6.1 The Companies and DSC acknowledge that the
compensation to be paid hereunder to DSC is intended to induce DSC to provide
services under this Agreement of a nature and quality which the Boards of
Directors or Trustees of the Companies, including a majority who are not parties
to this Agreement or interested person of the parties hereto, have determined
after due consideration to be necessary for the conduct of the business of a
Portfolio in the best interests of a Portfolio and its shareholders.
Section 6.2 Compensation by a Portfolio hereunder shall be
determined in accordance with Schedule B hereto as it shall be amended from time
to time as provided for herein and which is incorporated herein as a part
hereof.
Section 6.3 Compensation as provided in Schedule B shall be
reviewed and approved for each Portfolio in the manner
-12-
<PAGE>
set forth in Section 8.1 hereof by the Boards of Directors or Trustees of the
Companies at least annually and may be reviewed and approved more frequently at
the request of either party. The Boards may request and DSC shall provide such
information as the Boards may reasonably require to evaluate the basis of and
approve the compensation.
VII. STANDARD OF CARE
Section 7.1 The Companies on behalf of each Portfolio
acknowledge that DSC shall not be liable for, and in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
performance of its duties under this contract, agree to indemnify DSC against,
any claim or deficiency arising from the performance of DSC's duties hereunder,
including DSC's costs, counsel fees and expenses incurred in investigating or
defending any such claim or any administrative or other proceeding, and
acknowledge that any risk of loss or damage arising from the conduct of a
Portfolio's affairs in accordance herewith or in accordance with guidelines or
instructions given hereunder, shall be borne by the Portfolio. The
indemnification provided for in this Section 7.1 shall be made Portfolio by
Portfolio so that DSC is only entitled to indemnification from a Company on
behalf of a Portfolio for actions arising from the performance of DSC's duties
as to that Portfolio.
-13-
<PAGE>
VIII. CONTRACTUAL STATUS
Section 8.1 This Agreement shall be executed and become
effective as to a Company with regard to a Portfolio listed on Schedule A as of
the date first written above if approved by a vote of such Company's Board of
Directors or Trustees, including an affirmative vote of a majority of the non-
interested members of the Board of such Company, cast in person at a meeting
called for the purpose of voting on such approval. It shall continue in effect
for an indeterminate period, and is subject to termination as to a Company on
behalf of a Portfolio or DSC, as the case may be, on sixty (60) days notice by
either that Company or DSC, unless earlier terminated or amended by agreement
among the parties. A Company shall be permitted to terminate this Agreement as
to a Portfolio on sixty (60) days notice to DSC. Compensation under this
Agreement by a Portfolio shall require approval by a majority vote of the Board
of Directors or Trustees of such Portfolio's Company, including an affirmative
vote of the majority of the non-interested members of such Board cast in person
at a meeting called for the purpose of voting such approval.
Section 8.2 This Agreement shall become effective as to any
Company or Portfolio not included on Schedule A as of the date first written
above, but desiring to participate in this Agreement, on such date as an amended
Schedule A adding such new Company or Portfolio to such Schedule is executed by
DSC and such new Company or a Company on behalf of a new Portfolio following
-14-
<PAGE>
approval by the Company or by the Company on behalf of a new Portfolio desiring
to be included in this Agreement in accordance with the method specified in
Section 8.1. Any such amended Schedule A shall not affect the validity of this
Agreement as between DSC and the other Companies which have executed this
Agreement or any subsequent amendment to Schedule A of this Agreement.
Section 8.3 This Agreement may not be assigned by DSC without
the approval of all of the Companies.
Section 8.4 This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/ David K. Downes
By:_____________________________________
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP DELCHESTER HIGH-YIELD
BOND FUND, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
-15-
<PAGE>
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
/s/Wayne A. Stork
By:_____________________________________
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
/s/ Wayne A. Stork
By:_____________________________________
Wayne A. Stork, Chairman
-16-
<PAGE>
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Delchester High-Yield Bond Fund, Inc.
- --------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
Portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
-17-
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
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<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: August 19, 1996
-19-
<PAGE>
SCHEDULE B
COMPENSATION
Fee Schedule for The Delaware Group of Funds
Part 1 -- Fees for Existing Portfolios
Existing Portfolios are those so designated on Schedule A to the Fund Accounting
Agreement between Delaware Service Company, Inc. and the Delaware Group of Funds
dated as of August 19, 1996 ("Agreement").
Annual Asset Based Fees
First $10 Billion of Aggregate
Complex Net Assets 2.5 Basis Points
Aggregate Complex Net Assets
over $10 Billion 2.0 Basis Points
Annual asset based fees will be charged at a rate of 2.5 basis points for the
first $10 Billion of Aggregate Complex Net Assets. Aggregate Complex Net Assets
over $10 Billion will be charged at a rate of 2.0 basis points. These fees will
be charged to a Portfolio on an aggregated pro rated basis.
Annual Minimum Fees
Domestic Equity Portfolio $35,000
Domestic Fixed Income Portfolio $45,000
International Series Portfolio $70,000
Per Class of Share Fee $ 4,000
There is an annual minimum fee that will be charged only if the annual asset
based fee is less than the calculation for the minimum fee. This fee is based on
the type and the number of classes per Portfolio. For an equity Portfolio
$35,000 will be charged; for a fixed income Portfolio $45,000 will be charged,
and for an international Portfolio $70,000 will be charged. For each class of
shares, $4,000 will be charged, such amount to be prorated over a period of less
than a year for any classes added after April 30, 1996. A total of all minimum
fees will be compared to the total asset based fee to determine which fee is
higher and, subsequently, will be used to bill the Companies.
Part 2 -- Fees for New Portfolios
For each Portfolio designated as a New Portfolio on Schedule A to the Agreement,
there will be a fee of 2.0 basis points, providing that the Delaware complex net
assets are above $10 Billion (the
<PAGE>
rate would be 2.5 basis points if under $10 Billion and then 2.0 basis points
once the net assets cross $10 Billion), or an annual minimum fee calculated in
the manner described above, whichever is higher. This new fee would be added to
the total of Existing Portfolio fees and then pro rated. Fees shall not be
charged for New Portfolios included on Schedule A until such Portfolios shall
have commenced operations.
Dated as of: August 19, 1996
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<PAGE>
AMENDMENT NO. 1 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
DMC Tax-Free Income Trust - Pennsylvania
- --------------------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE>
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
-2-
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: September 30, 1996
-3-
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By:/s/ David K. Downes
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY
FUND,INC.
DELAWARE GROUP LIMITED-TERM
GOVERNMENT FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST -
PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL &
INTERNATIONAL FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND,
INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By:/s/ Wayne A. Stork
-----------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By:/s/ Wayne A. Stork
-----------------------------
Wayne A. Stork
Chairman
-4-
<PAGE>
AMENDMENT NO. 2 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Equity Funds IV, Inc.
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund (New)
Value Fund
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
- ---------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
<PAGE>
Delaware Group Government Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Emerging Growth Series
Equity/Income Series
Global Bond Series (New)
Growth Series
High Yield Series
International Equity Series
Money Market Series
Multiple Strategy Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
DMC Tax-Free Income Trust - Pennsylvania
<PAGE>
Dated as of: November 29, 1996
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
-----------------------
David K. Downes
Senior Vice President/
Chief Administrative Officer/
Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
By: /s/ Wayne A. Stork
----------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
----------------------------
Wayne A. Stork
Chairman
<PAGE>
AMENDMENT NO.3 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
- --------------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Value Fund
Retirement Income Fund (New)
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Multi-Cap Equity Fund (New)
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
2
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: December 27, 1996
3
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
-------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /s/ Wayne A. Stork
---------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
---------------------
Wayne A. Stork
Chairman
4
<PAGE>
AMENDMENT NO. 4 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds II, Inc.
Decatur Income Fund
Decatur Total Return Fund
Blue Chip Fund (New)
Quantum Fund (New)
Delaware Group Equity Funds I, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund
High-Yield Opportunities Fund (New)
- --------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Equity Funds V, Inc.
Value Fund
Retirement Income Fund
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Capital Appreciation Fund
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio
The Defensive Equity Utility Portfolio
The Labor Select International Equity Portfolio The Real
Estate Investment Trust Portfolio The Fixed Income Portfolio
The Limited-Term Maturity Portfolio The Global Fixed Income
Portfolio The International Fixed Income Portfolio The
High-Yield Bond Portfolio
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series
Delaware Group Government Fund, Inc.
2
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: February 24, 1997
3
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /S/ David K. Downes
----------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /S/ Wayne A. Stork
--------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /S/ Wayne A. Stork
--------------------------
Wayne A. Stork
Chairman
4
<PAGE>
AMENDMENT NO. 5
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
- ------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
<PAGE>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio The International
Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
Trend Series
Value Series
2
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
DMC Tax-Free Income Trust-Pennsylvania (doing business as Tax-Free Pennsylvania
Fund)
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New) Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
3
<PAGE>
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of May 1, 1997
4
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
---------------------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED -TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By: /s/ Wayne A. Stork
---------------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
5
<PAGE>
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*
[NAME OF INVESTMENT COMPANIES]
- --------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of _________ __, 199_ ("Agreement"). All
Portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
Dated as of: __________ __, 199_
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
[Name of Investment Company] (the "Fund"), for the [Name of Portfolio]
series (the "Series") on behalf of the [Name of Portfolio] A Class ("Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a majority of the outstanding voting securities of the Class, as
defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
<PAGE>
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan (the
"Commencement Date"); thereafter, the Plan shall continue in effect for a period
of more than one year from the Commencement Date only so long as such
continuance is specifically approved at least annually by a vote of the Board of
Directors of the Fund, and of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
_________ __, 199_
<PAGE>
EXHIBIT B
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] B Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Fund's investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company,
Inc. serves as the Fund's shareholder servicing, dividend disbursing and
transfer agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Fund's shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Fund's average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Fund's average daily net assets represented by shares of the Class, as a service
fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Directors or by vote of a majority of the outstanding
voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph 1 thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
EXHIBIT C
DISTRIBUTION PLAN
[Name of Investment Company]
[Name of Portfolio]
[Name of Portfolio] C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by [Name of
Investment Company] (the "Fund"), for the [Name of Portfolio] series (the
"Series") on behalf of the [Name of Portfolio] C Class (the "Class"), which
Fund, Series and Class may do business under these or such other names as the
Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
<PAGE>
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Fund's investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company,
Inc. serves as the Fund's shareholder servicing, dividend disbursing and
transfer agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Fund's shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Fund's average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Fund's average daily net assets represented by shares of the Class, as a service
fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
_________ __, 199_
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Group Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints Wayne A. Stork, W. Thacher Longstreth and Walter P.
Babich and any one of them acting singly, his true and lawful attorneys-in-fact,
in his name, place, and stead, to execute and cause to be filed with the
Securities and Exchange Commission and other federal or state government agency
or body, such registration statements, and any and all amendments thereto as
either of such designees may deem to be appropriate under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of this
1st day of May, 1997.
/s/ Thomas F. Madison
- ----------------------------
Thomas F. Madison
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Group Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints Wayne A. Stork, W. Thacher Longstreth and Walter P.
Babich and any one of them acting singly, his true and lawful attorneys-in-fact,
in his name, place, and stead, to execute and cause to be filed with the
Securities and Exchange Commission and other federal or state government agency
or body, such registration statements, and any and all amendments thereto as
either of such designees may deem to be appropriate under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of this
1st day of May, 1997.
/s/ Jeffrey J. Nick
- ----------------------
Jeffrey J. Nick
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
