<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. 37
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 37
------- |X|
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 MARKET STREET, PHILADELPHIA, PENNSYLVANIA 19103
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
---------------
GEORGE M. CHAMBERLAIN, JR., 1818 MARKET STREET, PHILADELPHIA, PA 19103
- -------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: APRIL 29, 1997
---------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
---------
X on April 29, 1997 pursuant to paragraph (b)
---------
60 days after filing pursuant to paragraph (a)(1)
---------
on (date) pursuant to paragraph (a)(1)
---------
75 days after filing pursuant to paragraph (a)(2)
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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. 37 to Registration File No. 2-57791 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectus
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<PAGE>
CROSS-REFERENCE SHEET*
PART A
ITEM NO. DESCRIPTION LOCATION IN PROSPECTUS
- -------- ----------- ----------------------
Tax-Free Pennsylvania Fund
A Class/B Class/C Class
1 Cover Page . . . . . . . . . . . . . . . . . Cover
2 Synopsis . . . . . . . . . . . . . . . . . . Synopsis, Summary of
Expenses
3 Condensed Financial Information. . . . . . . Financial Highlights
4 General Description of Registrant . . . . . Investment Objective and
Policies, Shares,
Additional Information
on Investment Policies
and Risk Considerations
5 Management of the Fund . . . . . . . . . . . Management of the Fund
6 Capital Stock and Other Securities . . . . . 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 Per
Share, Management of the Fund
8 Redemption or Repurchase . . . . . . . . . . How to Buy Shares, Redemption
and Exchange
9 Pending Legal Proceedings. . . . . . . . . . None
* This filing relates to Registrant's Tax-Free Pennsylvania Fund A Class,
Tax-Free Pennsylvania Fund B Class and Tax-Free Pennsylvania Fund C Class,
which are combined in one prospectus. The three classes are combined in
one Part B and Part C.
<PAGE>
CROSS-REFERENCE SHEET
PART B
LOCATION IN STATEMENT OF
ITEM NO. DESCRIPTION ADDITIONAL INFORMATION
- -------- ----------- ------------------------
10 Cover Page. . . . . . . . . . . . . . . . . .Cover
11 Table of Contents . . . . . . . . . . . . . .Table of Contents
12 General Information and History . . . . . . .General Information
13 Investment Objectives and Policies. . . . . .Investment Objective
and 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
(under Purchasing Shares),
Investment Management
Agreement, Officers and
Trustees, General
Information, Financial
Statements
17 Brokerage Allocation. . . . . . . . . . . . .Trading Practices and
Brokerage
18 Capital Stock and Other Securities. . . . . .Capitalization and
Noncumulative Voting
(under General Information)
19 Purchase, Redemption and Pricing of
Securities Being Offered. . . . . . . . . . .Purchasing Shares,
Determining Offering
Price and Net Asset Value,
Redemption and Repurchase,
Exchange Privilege
20 Tax Status. . . . . . . . . . . . . . . . . .Taxes
21 Underwriters . . . . . . . . . . . . . . . .Purchasing Shares
22 Calculation of Performance Data . . . . . . .Performance Information
23 Financial Statements. . . . . . . . . . . . .Financial Statements
<PAGE>
CROSS-REFERENCE SHEET
PART C
ITEM NO. DESCRIPTION LOCATION IN PART 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
<PAGE>
[LOGO]
A Class
B Class
C Class
DELAWARE GROUP
TAX-FREE PENNSYLVANIA FUND
PROSPECTUS APRIL 29, 1997
[PHOTO]
<PAGE>
TABLE OF
CONTENTS
COVER PAGE........................1
SYNOPSIS..........................2
SUMMARY OF EXPENSES...............4
FINANCIAL HIGHLIGHTS..............6
INVESTMENT OBJECTIVE AND POLICIES
SUITABILITY.....................8
INVESTMENT STRATEGY AND RISK
FACTORS........................8
THE DELAWARE DIFFERENCE..........11
PLANS AND SERVICES.............11
CLASSES OF SHARES................13
HOW TO BUY SHARES................18
REDEMPTION AND EXCHANGE..........21
DIVIDENDS AND DISTRIBUTIONS......25
TAXES............................26
CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE.....28
MANAGEMENT OF THE FUND...........29
ADDITIONAL INFORMATION ON
INVESTMENT POLICIES AND RISK
CONSIDERATIONS................32
APPENDIX A--
INVESTMENT ILLUSTRATIONS......33
APPENDIX B--CLASSES OFFERED......34
<PAGE>
TAX-FREE PENNSYLVANIA FUND
A CLASS/B CLASS/C CLASS
APRIL 29, 1997
1818 MARKET STREET, PHILADELPHIA, PA 19103
FOR PROSPECTUS AND PERFORMANCE:
NATIONWIDE 800-523-4640
INFORMATION ON EXISTING ACCOUNTS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918
DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
REPRESENTATIVES OF FINANCIAL INSTITUTIONS:
NATIONWIDE 800-659-2259
This PROSPECTUS describes the shares of DMC Tax-Free Income
Trust-Pennsylvania (which is known and does business as Tax-Free Pennsylvania
Fund) (the "Fund"), a professionally-managed mutual fund. The Fund's objective
is to seek a high level of current interest income exempt from federal income
tax and Pennsylvania state and local taxes, consistent with preservation of
capital.
The Fund offers Tax-Free Pennsylvania Fund A Class ("Class A Shares"),
Tax-Free Pennsylvania Fund B Class ("Class B Shares") and Tax-Free Pennsylvania
Fund C Class ("Class C Shares") (individually, a "Class" and collectively, the
"Classes").
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 April 29, 1996, as it may be
amended from time to time, contains additional information about the Fund and
has been filed with the Securities and Exchange Commission. PART B is
incorporated by reference into this PROSPECTUS and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above numbers. The Fund's financial statements appear in its ANNUAL REPORT which
will accompany any response to requests for PART B.
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.
1
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<PAGE>
SYNOPSIS
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a high level of current
interest income exempt from federal income tax and Pennsylvania state and local
taxes, consistent with preservation of capital. Although exempt from regular
federal income tax, interest paid on certain types of municipal obligations is
deemed to be a preference item under federal tax law and is subject to the
federal alternative minimum tax. Up to 20% of the Fund's net assets may be
invested in bonds, the income from which is subject to the federal alternative
minimum tax. For further details, see INVESTMENT OBJECTIVE AND POLICIES and
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Fund is a nondiversified investment company under the 1940 Act and may
be subject to greater risks than if the Fund were diversified. See
DIVERSIFICATION and SPECIAL CONSIDERATIONS RELATING TO PENNSYLVANIA TAX-EXEMPT
SECURITIES under INVESTMENT STRATEGY AND RISK FACTORS.
INVESTMENT 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
Fund's Board of Directors. 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
4.75% of the offering price, which, based on the net asset value per share of
the Class A Shares as of the end of the Fund's most recent fiscal year, is
equivalent to 4.98% of the amount invested. 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.
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.
2
- ---
<PAGE>
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, which was organized as a Pennsylvania business trust on November
23, 1976, is an open-end management investment company. The Fund's portfolio of
assets is nondiversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). See SHARES under MANAGEMENT OF THE FUND.
3
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<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 **
<CAPTION>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET CLASS A CLASS B CLASS C
ASSETS) SHARES SHARES SHARES
- ---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Management Fees......................... 0.58% 0.58% 0.58%
12b-1 Expenses (including service
fees)................................. 0.20% ***+ 1.00% + 1.00% +
Other Operating Expenses................ 0.13% 0.13% 0.13%
-------- -------- --------
Total Operating Expenses............ 0.91% *** 1.71% 1.71%
-------- -------- --------
-------- -------- --------
</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.
*** The actual 12b-1 Plan expenses to be paid and, consequently, the
"Total Operating Expenses" of Class A Shares may vary because of the
formula adopted by the Board of Trustees for use in calculating the
12b-1 Plan expenses for this Class beginning June 1, 1992 but the
12b-1 Plan expenses will not be more than 0.30% nor less than 0.10%.
+ Class A Shares, Class B Shares and Class C Shares are subject to
separate 12b-1 Plans. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted
by rules of the National Association of Securities Dealers, Inc. (the
"NASD"). See DISTRIBUTION (12B-1) AND SERVICE under MANAGEMENT OF THE
FUND.
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.
4
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<PAGE>
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.
<TABLE>
<CAPTION>
ASSUMING REDEMPTION ASSUMING NO REDEMPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $ 56 (1) $ 75 $ 96 $ 154 $ 56 $ 75 $ 96 $ 154
Class B Shares $ 57 $ 84 $ 113 $ 181 (2) $ 17 $ 54 $ 93 $ 181 (2)
Class C Shares $ 27 $ 54 $ 93 $ 202 $ 17 $ 54 $ 93 $ 202
</TABLE>
(1)Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has not
been reflected in this calculation, may be imposed in the event of certain
redemptions within 12 months of purchase. See CONTINGENT DEFERRED SALES
CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE
under REDEMPTION AND EXCHANGE.
(2)At the end of approximately eight years after purchase, Class B Shares will
be automatically converted into Class A Shares. The example above assumes
conversion of Class B Shares at the end of the eighth year. However, the
conversion may occur as late as three months after the eighth anniversary of
purchase, during which time the higher 12b-1 Plan fees payable by Class B
Shares will continue to be assessed. Information for the ninth and tenth
years reflects expenses of the Class A Shares. See AUTOMATIC CONVERSION OF
CLASS B SHARES under CLASSES OF SHARES for a description of the automatic
conversion feature.
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.
5
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<PAGE>
FINANCIAL
HIGHLIGHTS
- ----
The following financial highlights are derived from the financial statements of
DMC Tax-Free Income Trust-Pennsylvania and have been audited by Ernst & Young
LLP, independent auditors. The data should be read in conjunction with the
financial statements, related notes, and the report of Ernst & Young LLP
covering such financial information and highlights, all of which are
incorporated by reference into PART B. Further information about the Fund's
performance is contained in its ANNUAL REPORT to shareholders. A copy of the
Fund's ANNUAL REPORT (including the report of Ernst & Young LLP) may be obtained
from the Fund upon request at no charge.
<TABLE>
<CAPTION>
CLASS A SHARES
----------------------------------------------------------------------------
YEAR ENDED
2/28/97(1) 2/29/96(1) 2/28/95(1) 2/28/94(1) 2/28/93(1) 2/29/92
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $8.460 $8.180 $8.610 $8.630 $8.110 $7.800
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net Investment Income.......................... 0.456 0.476 0.494 0.496 0.514 0.532
Net Gains (Losses) on Securities
(both realized and unrealized)............... (0.105) 0.330 (0.430) (0.020) 0.520 0.310
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations............. 0.351 0.806 0.064 0.476 1.034 0.842
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------
Dividends from Net Investment Income........... (0.456) (0.476) (0.494) (0.496) (0.514) (0.532)
Distributions from Capital Gains............... (0.115) (0.050) -- -- -- --
Returns of Capital............................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions.......................... (0.571) (0.526) (0.494) (0.496) (0.514) (0.532)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period................. $8.240 $8.460 $8.180 $8.610 $8.630 $8.110
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)................................ 4.35% 10.08% 0.91% 5.64% 13.20% 11.11%
- -----------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------
Net Assets, End of Period (000's omitted)...... $954,258 $1,002,888 $976,313 $1,026,903 $940,616 $766,625
Ratio of Expenses to Average Daily Net
Assets....................................... 0.91% 0.90% 0.90% 0.88% 0.83% 0.72%
Ratio of Net Investment Income to Average Daily
Net Assets................................... 5.52% 5.67% 6.03% 5.70% 6.18% 6.65%
Portfolio Turnover Rate........................ 27% 25% 18% 14% 11% 7%
<CAPTION>
2/28/91 2/28/90 2/28/89 2/29/88
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $7.800 $7.700 $7.730 $8.210
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net Investment Income.......................... 0.542 0.554 0.554 0.559
Net Gains (Losses) on Securities
(both realized and unrealized)............... -- 0.100 (0.030) (0.480)
----------- ----------- ----------- -----------
Total From Investment Operations............. 0.542 0.654 0.524 0.079
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------
Dividends from Net Investment Income........... (0.542) (0.554) (0.554) (0.559)
Distributions from Capital Gains............... -- -- -- --
Returns of Capital............................. -- -- -- --
----------- ----------- ----------- -----------
Total Distributions.......................... (0.542) (0.554) (0.554) (0.559)
----------- ----------- ----------- -----------
Net Asset Value, End of Period................. $7.800 $7.800 $7.700 $7.730
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)................................ 7.24% 8.67% 7.08% 1.39%
- -----------------------------------------
- -----------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------
Net Assets, End of Period (000's omitted)...... $668,345 $613,223 $534,287 $472,648
Ratio of Expenses to Average Daily Net
Assets....................................... 0.72% 0.73% 0.77% 0.78%
Ratio of Net Investment Income to Average Daily
Net Assets................................... 7.00% 7.03% 7.24% 7.38%
Portfolio Turnover Rate........................ 31% 22% 8% 31%
</TABLE>
- --------------------
(1)Reflects 12b-1 distribution expenses beginning June 1, 1992.
(2)Does not reflect the maximum sales charge of 4.75%, nor the 1% Limited CDSC
that would apply in the event of certain redemptions within 12 months of
purchase. See CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF
CLASS A SHARES PURCHASED AT NET ASSET VALUE.
6
- ---
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
------------------------------------- ------------------------
PERIOD PERIOD
5/2/94(1) 11/29/95(1)
YEAR ENDED THROUGH YEAR ENDED THROUGH
2/28/97 2/29/96 2/28/95 2/28/97 2/29/96
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $8.460 $8.180 $8.310 $8.460 $8.510
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net Investment Income.......................... $0.390 0.408 0.353 $0.390 0.102
Net Gains (Losses) on Securities (both realized
and unrealized).............................. (0.105) 0.330 (0.130) (0.105) --
----------- ----------- ----------- ----------- -----------
Total From Investment Operations............. 0.285 0.738 0.223 0.285 0.102
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------
Dividends from Net Investment Income........... (0.390) (0.408) (0.353) (0.390) (0.102)
Distributions from Capital Gains............... (0.115) (0.050) -- (0.115) (0.050)
Returns of Capital............................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions.......................... (0.505) (0.458) (0.353) (0.505) (0.152)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period................. $8.240 $8.460 $8.180 $8.240 $8.460
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN(2)................................ 3.52% 9.19% 2.79% 3.52% 1.19%
- -----------------------------------------
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------
Net Assets, End of Period (000's omitted)...... $31,644 $20,861 $10,239 $1,181 $123
Ratio of Expenses to Average Daily Net
Assets....................................... 1.71% 1.71% 1.73% 1.71% 1.71%
Ratio of Net Investment Income to Average Daily
Net Assets................................... 4.72% 4.86% 5.20% 4.72% 4.86%
Portfolio Turnover Rate........................ 27% 25% 18% 27% 25%
</TABLE>
- --------------------
(1)Date of initial public offering; ratios have been annualized and total return
has not been annualized.
(2)Does not reflect the contingent deferred sales charge which varies depending
upon holding period.
7
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<PAGE>
INVESTMENT OBJECTIVE
AND POLICIES
- ----
The objective of the Fund is to seek as high a level of current interest
income exempt from federal income tax and certain Pennsylvania state and local
taxes as is available from municipal bonds and as is consistent with
preservation of capital. 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 Pennsylvania income taxes. Municipal securities are debt
obligations issued by state and local governments to raise funds for various
public purposes such as hospitals, schools and general operating expenses.
The Fund will invest its assets in securities of varying maturities, without
limitation, depending on market conditions. Typically, the remaining maturity of
municipal bonds will range between five and 30 years. The Manager will attempt
to adjust the maturity structure of the portfolio to provide a high level of
tax-exempt income consistent with preservation of capital.
SUITABILITY
The Fund may be suitable for the longer-term investor who is a resident
subject to Pennsylvania income tax. The investor should be willing to accept the
risks of investment in municipal bonds in general and Pennsylvania bonds in
particular. The net asset value of the Fund's shares can generally be expected
to fluctuate inversely to changes in interest rates.
The risks associated with an investment in the Fund are discussed below
under INVESTMENT STRATEGY AND RISK FACTORS. The risks inherent in an investment
in a fund that invests in obligations of a specific state, such as the Fund, are
described below under DIVERSIFICATION and SPECIAL CONSIDERATIONS RELATING TO
PENNSYLVANIA TAX-EXEMPT SECURITIES.
INVESTMENT STRATEGY AND RISK FACTORS
TAX-EXEMPT INVESTMENTS
The Fund invests primarily in municipal securities paying interest income
which, in the opinion of the bond issuer's counsel, is exempt from federal and
Pennsylvania income taxes. These securities include debt obligations of the
Commonwealth of Pennsylvania and its political subdivisions, agencies,
authorities and instrumentalities and also other qualifying issuers such as
Puerto Rico and the Virgin Islands.
The Fund will, as a fundamental policy, invest at least 80% of its net
assets in the types of tax-exempt securities listed above. Many of the
securities in which the Fund invests generate income that is exempt from
Pennsylvania state or local income taxes. In order to obtain the tax benefit of
these securities for pass-through to shareholders, the Fund will invest in
securities for income rather than trading for profit. However, the Fund may sell
securities held in its portfolio and, as a result, realize capital gain or loss,
in order to reinvest the earnings from portfolio securities in like securities
and eliminate investments not consistent with the preservation of the capital or
the tax status of the Fund; honor redemption orders, meet anticipated redemption
requirements, and negate gains from discount purchases; eliminate unsafe
investments; or defray normal administrative expenses. The Fund will generally
not exceed a portfolio turnover rate of 100%.
The Fund may invest up to 20% of its net assets in bonds the income from
which is subject to the federal alternative minimum tax. Although exempt from
regular federal income tax, interest paid on certain types of municipal
obligations (commonly referred to as "private activity" or "private purpose"
bonds) is deemed to be a preference item under federal tax law and is subject to
the federal alternative minimum tax. See OTHER CONSIDERATIONS.
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. PART B sets forth descriptions of Moody's, S&P and Fitch ratings.
8
- ---
<PAGE>
The Fund may invest in both "general obligation" and "revenue" bonds, the
two principal classifications of municipal bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power. Tax-exempt industrial development
bonds, in most cases, are revenue bonds and do not generally carry the pledge of
credit of the issuing municipality. See MUNICIPAL BONDS in PART B.
DIVERSIFICATION
The Fund is a nondiversified investment company. This means that the Manager
has the flexibility to invest as much as 50% of the Fund's assets in as few as
two issuers provided no single issuer accounts for more than 25% of the
portfolio. The remaining 50% of the portfolio must be diversified so that no
more than 5% of the Fund's assets is invested in the securities of a single
issuer. The Fund may invest without limitation in U.S. government and government
agency securities backed by the U.S. government, its agencies or
instrumentalities. Because the Fund may invest its assets in fewer issuers, the
value of Fund shares may increase or decrease more rapidly than if the Fund were
fully diversified. If the Fund were to invest more than 5% of its assets in a
single issuer, the Fund would be affected more than a fully-diversified fund in
the event that issuer encountered difficulties in satisfying its financial
obligations.
Various municipal issuers may obtain insurance for their obligations. At
different times a substantial portion of the Fund's portfolio may consist of
municipal bonds that are insured by a single insurance company. In the event of
a default, the insurer is required to make payments of interest and principal
when due to the bondholders. There is no assurance that the insurance company
will meet its obligations. The Manager does not 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.
OTHER CONSIDERATIONS
The Fund may invest without limit in short-term, tax-free instruments such
as tax-exempt commercial paper and general obligation, revenue and project
notes, as well as variable and floating rate demand obligations.
Under abnormal conditions, the Fund may invest in taxable instruments for
temporary defensive purposes. These would include instruments of the U.S.
government, its agencies and instrumentalities.
The Tax Reform Act of 1986 (the "Act") limits the amount of new "private
purpose" bonds that each state can issue and subjects interest income from these
bonds to the federal alternative minimum tax. "Private purpose" bonds are issues
whose proceeds are used to finance certain nongovernment activities, and could
include some types of industrial revenue bonds such as privately-owned sports
and convention facilities. The Act also makes the tax-exempt status of certain
bonds depend on the issuer's compliance with specific requirements after the
bonds are issued.
If the Fund invests in newly-issued "private purpose" bonds, a portion of
the Fund's distributions would be subject to the federal alternative minimum tax
applicable to certain shareholders. The Fund may invest up to 20% of its assets
in bonds the income from which is subject to the federal alternative minimum
tax.
The Fund may invest in "when-issued securities." When-issued securities
involve commitments to buy a new issue with settlement up to 45 days later.
During the time between the commitment and settlement the Fund does not accrue
interest, but the market value may fluctuate. This can result in the Fund's
share value increasing or decreasing. If the Fund invests in securities of this
type, it will maintain a segregated account to pay for them and mark them to
market daily.
The Fund may also invest in repurchase agreements, 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.
While the Fund is permitted to borrow money and invest in repurchase
agreements, the Fund normally does not do so. The Fund will not normally
purchase investment securities while it has an outstanding borrowing.
MUNICIPAL LEASES
The Fund may also invest in municipal lease obligations primarily through
certificates of participation ("COPs") which are described more fully under
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS. As with
its other investments, the Fund expects that its investments in municipal lease
obligations will consist of such obligations which are exempt from regular
federal income taxes.
SPECIAL CONSIDERATIONS RELATING TO PENNSYLVANIA TAX-EXEMPT SECURITIES
The Fund concentrates its investments in the Commonwealth of Pennsylvania.
Therefore, there are risks associated with the Fund that would not be present if
the Fund were diversified nationally. These risks include any new legislation
that would adversely affect Pennsylvania tax-exempt obligations, regional or
local economic conditions that could adversely affect these obligations, and
differing levels of supply and demand for municipal bonds particular to the
Commonwealth of Pennsylvania.
9
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<PAGE>
Pennsylvania and certain of its counties, cities, school districts and
public bodies (most notably the City of Philadelphia) have in the recent past
encountered financial difficulties which have adversely affected their
respective credit standings. Federal budget cuts have placed additional
financial burdens on state and local governments. Such difficulties could affect
outstanding obligations of such entities, including obligations held by the
Fund. Financial conditions in Pennsylvania during the fiscal years 1990 through
1994 were distinguished by slow economic growth and a rapid expansion of the
costs of certain governmental programs that together produced a significant
stress on the Commonwealth's budget. Although economic conditions have recently
improved, Pennsylvania's growth rate still lags the national averages.
Employment growth in Pennsylvania has shifted to the trade and services sector,
with losses in more high-paying manufacturing jobs. The Fund monitors these
developments and takes them into consideration in managing its portfolio.
See PART B for a more detailed discussion of the risks attendant to
Pennsylvania obligations.
* * *
PART B sets forth other more specific investment restrictions and
descriptions of Moody's and S&P ratings. A brief discussion of those factors
that materially affected the Fund's performance during its most recently
completed fiscal year appears in the Fund's ANNUAL REPORT.
10
- ---
<PAGE>
THE DELAWARE
DIFFERENCE
- ----
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
INVESTOR INFORMATION CENTER
800-523-4640
FUND INFORMATION; LITERATURE; PRICE; YIELD AND PERFORMANCE FIGURES
SHAREHOLDER SERVICE CENTER
800-523-1918
INFORMATION ON EXISTING REGULAR INVESTMENT ACCOUNTS; 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 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-Registered Trademark- 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 are not
identical to the name and address on your Fund account, you must have your
signature guaranteed.
11
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<PAGE>
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
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.
12
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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% 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% 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, 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.
13
---
<PAGE>
For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, the Distributor and others will be paid, in the
case of the Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares and the Class C Shares,
from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred
upon redemption. Financial advisers may receive different compensation for
selling Class A, Class B and Class C Shares. INVESTORS SHOULD UNDERSTAND THAT
THE PURPOSE AND FUNCTION OF THE RESPECTIVE 12B-1 PLANS AND THE CDSCS APPLICABLE
TO CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE 12B-1 PLAN AND
THE FRONT-END SALES CHARGE APPLICABLE TO CLASS A SHARES IN THAT SUCH FEES AND
CHARGES ARE USED TO FINANCE THE DISTRIBUTION OF THE RESPECTIVE CLASSES. See
12B-1 DISTRIBUTION PLANS--CLASS A, CLASS B AND CLASS C SHARES.
Dividends paid on Class A, Class B and Class C Shares, to the extent any
dividends are paid, will be calculated in the same manner, at the same time, on
the same day and will be in the same amount, except that the additional amount
of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will be
borne exclusively by such shares. See CALCULATION OF OFFERING PRICE and NET
ASSET VALUE PER SHARE.
The NASD has adopted certain rules relating to investment company sales
charges. The Fund and the Distributor intend to operate in compliance with these
rules.
FRONT-END SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A Shares may be purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%. See CALCULATION OF OFFERING PRICE and
NET ASSET VALUE PER SHARE.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
TAX-FREE PENNSYLVANIA FUND A CLASS
<TABLE>
<CAPTION>
Front-End Sales
Charge as % of Dealer's
Commission*** as
Offering Amount % of Offering
Amount of Purchase Price Invested** Price
<S> <C> <C> <C>
Less than $100,000 4.75% 4.98% 4.00%
$100,000 but under $250,000 3.75 3.90 3.00
$250,000 but under $500,000 2.50 2.55 2.00
$500,000 but under
$1,000,000* 2.00 2.07 1.60
</TABLE>
- --------------------
* There is no front-end sales charge on purchases of Class A Shares of
$1 million or more but, under certain limited circumstances, a 1%
Limited CDSC may apply upon redemption of such shares.
** Based on the net asset value per share of the Class A Shares as of the
end of the Fund's most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- ----------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for the
reduced front-end sales charge on the basis of previous or current purchases.
The reduced front-end sales charge will be granted upon confirmation of the
shareholder's holdings by the Fund. Such reduced front-end sales charges are not
retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales
charge shown above. In addition, certain dealers who enter into an agreement to
provide extra training and information on Delaware Group products and services
and who increase sales of Delaware Group funds may receive an additional
commission of up to 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.
- ------------------------------------------------------
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:
<TABLE>
<CAPTION>
DEALER'S COMMISSION
--------------------------------------
AMOUNT OF PURCHASE (as a percentage of amount purchased)
- ----------------------------------
<S> <C>
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
</TABLE>
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.
14
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<PAGE>
COMBINED PURCHASES PRIVILEGE
By combining your holdings of Class A Shares with your holdings of Class B
Shares and/or Class C Shares of the Fund and shares of the other funds in the
Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with those
of your spouse, your children under 21 and any trust, fiduciary or retirement
account for the benefit of such family members.
It also permits you to use these combinations under a Letter of Intention. A
Letter of Intention allows you to make purchases over a 13-month period and
qualify the entire purchase for a reduction in front-end sales charges on Class
A Shares.
Combined purchases of $1,000,000 or more, including certain purchases made
at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See FRONT-END SALES CHARGE ALTERNATIVE--CLASS A SHARES, above.
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.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B Shares may be purchased at net asset value without a front-end sales
charge and, as a result, the full amount of the investor's purchase payment will
be invested in Fund shares. The Distributor currently anticipates compensating
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 4% of the dollar amount purchased.
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.
15
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<PAGE>
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class B Shares
described in this PROSPECTUS, even after exchange. Such CDSC schedule may be
higher than the CDSC schedule relating to the Class B Shares acquired as a
result of the exchange. See REDEMPTION AND EXCHANGE.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends will
convert to the corresponding Class A Shares of that fund (or, in the case of
Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant Class)
pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See TAXES.
LEVEL SALES CHARGE ALTERNATIVE--
CLASS C SHARES
Class C Shares may be purchased at net asset value without a front-end sales
charge and, as a result, the 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:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR AFTER PURCHASE MADE CHARGE)
- -------------------------------------- ---------------
<S> <C>
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
</TABLE>
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% 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.
16
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<PAGE>
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 Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Rules of Fair Practice will be amended such that
the ability of the Distributor to pay non-cash compensation as described above
will be restricted in some fashion. The Distributor intends to comply with the
NASD's Rules of Fair Practice as they may be amended.
17
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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 Pennsylvania Fund A Class, Tax-Free
Pennsylvania Fund B Class or Tax-Free Pennsylvania 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 Pennsylvania Fund A Class, Tax-Free Pennsylvania
Fund B Class or Tax-Free Pennsylvania Fund C Class. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from the Fund. Use of this investment
slip can help expedite processing of your check when making additional
purchases. Your investment may be delayed if you send additional purchases by
certified mail.
INVESTING BY WIRE
You may purchase shares by requesting your bank to transmit funds by wire to
CoreStates Bank, N.A., ABA #031000011, account number 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 Pennsylvania Fund A Class, Tax-Free Pennsylvania Fund B
Class or Tax-Free Pennsylvania Fund C Class at 1818 Market Street, Philadelphia,
PA 19103.
2. SUBSEQUENT PURCHASES--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
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.
18
- ---
<PAGE>
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 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 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.
19
---
<PAGE>
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, effective November 1, 1996, 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.
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.
20
- ---
<PAGE>
REDEMPTION
AND EXCHANGE
- ----
YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other tax-advantaged funds, equity funds, bond funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each fund
and all exchanges of shares constitute taxable events. See TAXES. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
the Delaware Group will best meet your changing objectives and the consequences
of any exchange transaction. You may also call the Delaware Group directly for
fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net asset
value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
Redemption or exchange requests received in good order after the time the
offering price of shares is determined, as noted above, will be processed on the
next business day. See PURCHASE PRICE AND EFFECTIVE DATE under HOW TO BUY
SHARES. A shareholder submitting a redemption request may indicate that he or
she wishes to receive redemption proceeds of a specific dollar amount. In the
case of such a request, and in the case of certain redemptions from retirement
plan accounts, the Fund will redeem the number of shares necessary to deduct the
applicable CDSC in the case of Class B 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.
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
21
---
<PAGE>
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.
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.
22
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<PAGE>
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 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 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.
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<PAGE>
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).
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.
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<PAGE>
DIVIDENDS AND
DISTRIBUTIONS
- ----
Dividends are declared daily and paid monthly on the first business day
following the end of each month. Payment by check of cash dividends will
ordinarily be mailed within three business days after the payable date. Any
distributions from net realized securities profits will be distributed annually
in the quarter following the close of the fiscal year.
Purchases of shares by wire begin earning dividends when converted into
Federal Funds and available for investment, normally the next business day after
receipt. However, if the Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Purchases by check earn dividends upon conversion to
Federal Funds, normally one business day after receipt.
Each business day, the Fund declares a dividend to all shareholders of
record at the time the offering price of shares is determined. See PURCHASE
PRICE AND EFFECTIVE DATE UNDER HOW TO BUY SHARES. Thus, when redeeming shares,
dividends continue to be credited up to and including the date of redemption.
Each Class 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.
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<PAGE>
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 treated as ordinary income,
whether received in cash or in additional shares. In addition, gain from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of the accrued market discount. No portion of the
Fund's distributions will be eligible for the dividends-received deduction for
corporations.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Fund does not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a 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.
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<PAGE>
Interest income derived from Pennsylvania state and municipal obligations
and other qualifying obligations, and U.S. government obligations, if any, that
are distributed to shareholders will be exempt from Pennsylvania personal income
tax. Should the Fund invest in municipal bonds other than those issued by
Pennsylvania or other exempt issuers, the income distributed from these
investments may be subject to Pennsylvania personal income tax. Shareholders of
the Fund will receive notification from the Fund annually as to the taxability
of such distributions in Pennsylvania. For shareholders who are residents of
Philadelphia, distributions that are derived from interest on Pennsylvania state
and municipal obligations and other qualifying obligations, and U.S. government
obligations, if any, will be exempt from Philadelphia School District Income
Tax. Distributions designated as capital gain dividends for federal income tax
purposes will also be exempt from the Philadelphia School District Income Tax.
Shares of the Fund will be exempt from Pennsylvania county personal property
tax.
Each year, the Fund will mail to you information on the tax status of the
Fund's dividends and distributions.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See TAXES in PART B for additional information on tax matters relating to
the Fund and its shareholders.
27
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<PAGE>
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 Fund'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 Fund'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.
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<PAGE>
MANAGEMENT OF
THE FUND
- ----
TRUSTEES
The business and affairs of the Fund are managed under the direction of its
Board of Trustees. PART B contains additional information regarding the Fund's
trustees and officers.
INVESTMENT MANAGER
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On February 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 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. In connection with the merger, a new
Investment Management Agreement between the Fund and the Manager was executed
following shareholder approval.
The Manager manages the Fund's portfolio and makes investment decisions 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. 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. Investment management fees paid by the Fund for the fiscal year ended
February 28, 1997 were 0.58% of average daily net assets.
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 assumed primary responsibility for
managing the Fund on November 26, 1996. 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 at which time he became co-manager
of the Fund. 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%. During the past two
fiscal years, the Fund's portfolio turnover rates were approximately 25% for
1996 and 27% for 1997.
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<PAGE>
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 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 April 3,
1995, as amended on November 29, 1995.
The Fund has adopted a separate distribution plan under Rule 12b-1 for each
of the Class A Shares, the Class B Shares and the Class C Shares 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.
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% (0.25%
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 actual 12b-1 Plan expenses assessed against Class A Shares may
be less than 0.30%, but may not be less than 0.10%, because of the formula for
calculating the fee adopted by the Fund's Board of Directors. See PART B. 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.
30
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<PAGE>
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 June 29, 1988. 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 ratios of expenses to average
daily net assets of Class A Shares, Class B Shares and Class C Shares for the
fiscal year ended February 28, 1997 were 0.91%, 1.71% and 1.71%, respectively.
The expense ratio of each Class reflects the impact of its 12b-1 Plan.
SHARES
The Fund is an open-end management investment company. The Fund's portfolio
of assets is nondiversified as defined by the 1940 Act. Commonly known as a
mutual fund, the Fund is a Pennsylvania business trust organized on November 23,
1976. The Fund has an unlimited authorized number of shares of beneficial
interest with no par value per share allocated to each Class. All shares have
equal voting rights, except as noted below, and are equal in all other respects.
Shares of each Class represent a proportionate interest in the assets of the
Fund and have the same voting and other rights and preferences, except that, as
a general matter, the shareholders of Class A Shares, Class B Shares and Class C
Shares may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, Class B Shares may vote on any proposal
to increase materially the fees to be paid by the Fund under the 12b-1 Plan
relating to Class A Shares.
All Fund shares have noncumulative voting rights which means that the
holders of more than 50% of the Fund's shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so.
Prior to May 2, 1994, Tax-Free Pennsylvania Fund A Class was known as
Tax-Free Pennsylvania Fund.
31
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<PAGE>
ADDITIONAL INFORMATION
ON INVESTMENT POLICIES
AND RISK CONSIDERATIONS
- ----
RESTRICTED SECURITIES
The Fund may invest in restricted securities, including securities eligible
for resale without registration pursuant to Rule 144A ("Rule 144A Securities")
under the Securities Act of 1933. Rule 144A permits many privately placed and
legally restricted securities to be freely traded among certain institutional
buyers such as the Fund. The Fund may invest no more than 10% of the value of
its net assets in illiquid securities.
While maintaining oversight, the Board of Trustees has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of the Fund's 10% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 10% limit on investments in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.
CERTIFICATES OF PARTICIPATION
Certificates of Participation, which are widely used by state and local
governments to finance the purchase of property, function much like installment
purchase agreements. For example, a COP may be created when long-term lease
revenue bonds are issued by a governmental corporation to pay for the
acquisition of property or facilities which are then leased to a municipality.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. The lessor is, in effect, a lender secured by the property being
leased. This lease format is generally not subject to constitutional limitations
on the issuance of state debt and COPs enable a governmental issuer to increase
government liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that the lease
which is the subject of the transaction typically contains a "nonappropriation"
or "abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the municipality
may terminate the lease without penalty if the municipality's appropriating body
does not allocate the necessary funds. Substantially all of the COPs purchased
by the Fund are expected to contain a "nonappropriation" or "abatement" clause.
Local administrations, being faced with increasingly tight budgets, therefore,
have more discretion to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate sufficient monies to
make lease payments, the lessor, or its agent, is typically entitled to
repossess the property. In most cases, however, the private sector value of the
property will be less than the amount the government lessee was paying.
While the risk of nonappropriation is inherent to COP financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories of Moody's, S&P or Fitch, or in
unrated COPs believed to be of comparable quality. Criteria considered by the
rating agencies and the Manager in assessing such risk include the issuing
municipality's credit rating, the importance of the leased property to the
municipality and the term of the lease compared to the useful life of the leased
property.
32
- ---
<PAGE>
APPENDIX A--
INVESTMENT ILLUSTRATIONS
- ----
ILLUSTRATIONS OF THE POTENTIAL IMPACT ON INVESTMENT BASED ON PURCHASE OPTION
$10,000 PURCHASE
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4
NO REDEMPTION REDEEM 1ST YEAR REDEEM 3RD YEAR REDEEM 5TH YEAR
------------------------- ------------------------- ------------------------- -------------------------
YEAR CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+ 10,192 10,630 10,630 10,192 10,630 10,630
2 10,905 11,300 11,300 10,905 11,300 11,300 10,905 11,300 11,300
3 11,669 12,012 12,012 11,669 11,712 12,012+ 11,669 12,012 12,012
4 12,485 12,768 12,768 12,485 12,768 12,768
5 13,359 13,573 13,573 13,359 13,373 13,573+
6 14,294 14,428 14,428
7 15,295 15,337 15,337
8 16,366+ 16,303 16,303
9 17,511 17,444* 17,330
10 18,737 18,665* 18,442
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares at the end of
the eighth year.
$250,000 PURCHASE
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4
NO REDEMPTION REDEEM 1ST YEAR REDEEM 3RD YEAR REDEEM 5TH YEAR
------------------------- ------------------------- ------------------------- -------------------------
YEAR CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+ 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 300,289 300,289 298,604 292,789 300,289+ 298,064 300,289 300,289
4 319,507+ 319,207 319,207 319,507+ 319,207 319,207
5 341,872 339,318 339,318 341,872 334,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares at the end of
the eighth year.
ASSUMES A HYPOTHETICAL RETURN FOR CLASS A OF 7% PER YEAR, A HYPOTHETICAL RETURN
FOR CLASS B OF 6.3% FOR YEARS 1-8 AND 7% FOR YEARS 9-10, AND A HYPOTHETICAL
RETURN FOR CLASS C OF 6.3% PER YEAR. HYPOTHETICAL RETURNS VARY DUE TO THE
DIFFERENT EXPENSE STRUCTURE FOR EACH CLASS AND DO NOT REPRESENT ACTUAL
PERFORMANCE.
CLASS A PURCHASE SUBJECT TO APPROPRIATE SALES CHARGE BREAKPOINT (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).
CLASS B PURCHASE ASSESSED APPROPRIATE CDSC UPON REDEMPTION (4%-4%-3%-3%-2%-1% IN
YEARS 1-2-3-4-5-6).
CLASS C PURCHASE ASSESSED 1% CDSC UPON REDEMPTION IN YEAR 1.
FIGURES MARKED "+" IDENTIFY WHICH CLASS OFFERS THE GREATER RETURN POTENTIAL
BASED ON THE INVESTMENT AMOUNT, THE HOLDING PERIOD AND THE EXPENSE STRUCTURE OF
EACH CLASS.
33
---
<PAGE>
APPENDIX B--
CLASSES OFFERED
- ----
<TABLE>
<CAPTION>
CONSULTANT
A CLASS B CLASS C CLASS CLASS
<S> <C> <C> <C> <C>
GROWTH OF CAPITAL
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 -
- -------------------------------------------------------------------------------------
MONEY MARKET FUNDS
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
34
- ---
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
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
[LOGO]
Philadelphia - London
[LOGO]
Printed in the U.S.A. on recycled paper.
P-011[--] PP10/96
<PAGE>
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
APRIL 29, 1997
- --------------------------------------------------------------------------------
TAX-FREE PENNSYLVANIA FUND
- --------------------------------------------------------------------------------
1818 MARKET STREET
PHILADELPHIA, PA 19103
- --------------------------------------------------------------------------------
FOR PROSPECTUS AND PERFORMANCE: NATIONWIDE 800-523-4640
INFORMATION ON EXISTING ACCOUNTS: (SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918
DEALER SERVICES: (BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
COVER PAGE 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
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
APPENDIX A--DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
APPENDIX B--TAX EXEMPT VS TAXABLE YIELDS
- --------------------------------------------------------------------------------
APPENDIX C--INVESTING IN PENNSYLVANIA TAX-EXEMPT OBLIGATIONS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
-1-
<PAGE>
This STATEMENT OF ADDITIONAL INFORMATION ("PART B" of the registration
statement) supplements the information contained in the current PROSPECTUS of
DMC Tax-Free Income Trust-Pennsylvania (which is known and does business as Tax-
Free Pennsylvania Fund) (the "Fund") dated April 29, 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 Pennsylvania Fund A Class ("Class A
Shares"), Tax-Free Pennsylvania Fund B Class ("Class B Shares") and Tax-Free
Pennsylvania Fund C Class ("Class C Shares") (Class 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 4.75% and annual 12b-1 Plan expenses of up to 0.30%. Class B Shares
are subject to a contingent deferred sales charge ("CDSC") which may be imposed
on redemptions made within six years of purchase and annual 12b-1 Plan expenses
of up to 1% which are assessed against Class B Shares for approximately eight
years after purchase. See AUTOMATIC CONVERSION OF CLASS B SHARES under CLASSES
OF SHARES in the Classes' PROSPECTUS. Class C Shares are subject to a CDSC
which may be imposed on redemptions made within 12 months of purchase and annual
12b-1 Plan expenses of up to 1%, which are assessed against Class C Shares for
the life of the investment.
All references to "shares" in this PART B refer to all Classes of shares of
the Fund, except where noted.
-2-
<PAGE>
INVESTMENT OBJECTIVE AND POLICY
The objective of the Fund is to seek as high a level of current interest
income exempt from federal income tax and certain Pennsylvania state and local
taxes as is available from municipal bonds and as is consistent with
preservation of capital. There is no assurance that this objective can be
achieved. This objective is a matter of fundamental policy and may not be
changed without shareholder approval.
The Fund seeks to achieve this objective by investing its assets in a
nondiversified portfolio of debt obligations issued by or on behalf of the
Commonwealth of Pennsylvania and its political subdivisions, agencies,
authorities and instrumentalities, certain interstate agencies, Puerto Rico, the
Virgin Islands and certain other territories and qualified obligations of the
United States that pay interest income which, in the opinion of counsel, is
exempt from federal income taxes and from certain Pennsylvania state and local
taxes. However, the Fund may invest not more than 20% of its assets in debt
obligations issued by other states.
The Fund intends to invest at least 80% of its net assets in Pennsylvania
tax-exempt debt obligations which are rated by Standard & Poor's Ratings
Group ("S&P"), 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 10% of its net assets in illiquid securities.
The Fund may also invest in "when-issued securities" for which the Fund
will maintain a segregated account containing cash or high-grade debt
obligations which it will mark to market daily. When-issued securities involve
commitments to purchase new issues of securities which are offered on a
when-issued basis which usually involve delivery and payment up to 45 days after
the date of transaction. During this period between the date of commitment and
the date of delivery, the Fund does not accrue interest on the investment, but
the market value of the bonds could fluctuate. This would result in the Fund
having unrealized appreciation or depreciation which would affect the net asset
value of its shares.
-3-
<PAGE>
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.
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.
-4-
<PAGE>
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 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.
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.
-5-
<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.
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 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.
-6-
<PAGE>
The Fund shall not:
1. Purchase securities other than municipal bonds and taxable short-term
investments as defined above.
2. Borrow money in excess of 10% of the value of its assets and then only
as a temporary measure for extraordinary purposes. Any borrowing will be done
from a bank and to the extent that such borrowing exceeds 5% of the value of the
Fund's assets, asset coverage of at least 300% is required. In the event that
such asset coverage shall at any time fall below 300%, the Fund shall, within
three days thereafter (not including Sunday or holidays) or such longer period
as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
issue senior securities as defined in the 1940 Act, except for notes to banks.
Investment securities will not normally be purchased while there is an
outstanding borrowing.
3. Sell securities short.
4. Write or purchase put or call options.
5. Underwrite the securities of other issuers, except that the Fund may
participate as part of a group in bidding for the purchase of municipal bonds
directly from an issuer for its own portfolio in order to take advantage of the
lower purchase price available to members of such a group; nor invest more than
10% of the value of the Fund's net assets in illiquid assets.
6. Purchase or sell commodities or commodity contracts.
7. Purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal bonds secured by real estate or interests therein.
8. Make loans to other persons except through the use of repurchase
agreements or the purchase of commercial paper. For these purposes the purchase
of a portion of debt securities which is part of an issue to the public shall
not be considered the making of a loan. Not more than 10% of the Fund's total
assets will be invested in repurchase agreements and other assets maturing in
more than seven days.
9. With respect to 50% of the value of the assets of the Fund, invest
more than 5% of its assets in the securities of any one issuer or invest in more
than 10% of the outstanding voting securities of any one issuer, except that
U.S. government and government agency securities backed by the U.S. government
or its agencies or instrumentalities may be purchased without limitation. For
the purposes of this limitation, the Fund will regard the state and each
political subdivision, agency or instrumentality of the state, and each
multistate agency of which the state is a member as a separate issuer.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
-7-
<PAGE>
12. Invest more than 25% of its total assets in any particular industry or
industries, except that the Fund may invest more than 25% of the value of its
total assets in municipal bonds, including industrial development and pollution
control bonds, and in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.
Although not a fundamental investment restriction, the Fund currently does
not invest its assets in real estate limited partnerships or oil, gas and other
mineral leases.
From time to time, more than 10% of the Fund's assets may be invested in
municipal bonds insured as to payment of principal and interest by a single
insurance company. The Fund believes such investments are consistent with the
foregoing restrictions. If a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentages resulting from change
in value of net assets will not result in a violation of the restrictions.
SPECIAL CONSIDERATIONS RELATING TO PENNSYLVANIA TAX-EXEMPT SECURITIES
The Fund concentrates its investments in the Commonwealth of Pennsylvania.
Therefore, there are risks associated with the Fund that would not be present if
the Fund were diversified nationally. These risks include any new legislation
that would adversely affect Pennsylvania tax-exempt obligations, regional or
local economic conditions that could adversely affect these obligations, and
differing levels of supply and demand for municipal bonds particular to the
Commonwealth of Pennsylvania.
-8-
<PAGE>
PERFORMANCE INFORMATION
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.
The performance of Class A Shares, Class B Shares and Class C Shares,
as shown below, is the average annual total return quotations through
February 28, 1997. The average annual total return for Class A Shares at
offer reflects the maximum front-end sales charge of 4.75% paid on the
purchase of shares. The average annual total return for Class A Shares at
net asset value (NAV) does not reflect the payment of any front-end sales
charge.
-9-
<PAGE>
Securities prices fluctuated during the periods covered and past results
should not be considered as representative of future performance.
AVERAGE ANNUAL TOTAL RETURN
CLASS A SHARES(1) CLASS A SHARES(1)
(AT OFFER) (AT NAV)
1 year ended
2/28/97 (0.59%) 4.35%
3 years ended
2/28/97 3.35% 5.04%
5 years ended
2/28/97 5.72% 6.74%
10 years ended
2/28/97 6.38% 6.90%
15 years ended
2/28/97 10.41% 10.77%
Period 3/23/77(2)
through 2/28/97 6.39% 6.65%
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) Date of initial public offering of Class A Shares.
The performance of Class B Shares, as shown below, is the average annual
total return quotation through February 28, 1997. The average annual total
return for Class B Shares including deferred sales charge reflects the deduction
of the applicable CDSC that would have been paid if the shares were redeemed at
February 28, 1997. The average annual total return for Class B Shares excluding
deferred sales charge assumes the shares were not redeemed at February 28, 1997
and therefore does not reflect the deduction of a CDSC.
-10-
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
CLASS B SHARES CLASS B SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)
1 year ended
2/28/97 (0.37%) 3.52%
Period 5/2/94(1)
through 2/28/97 4.48% 5.44%
(1) Date of initial public offering of Class B Shares.
The performance of Class C Shares, as shown below, is the average annual
total return quotation through February 28, 1997. The average annual total
return for Class C Shares including deferred sales charge reflects the deduction
of the applicable CDSC that would be paid if the shares were redeemed at
February 28, 1997. The average annual total return for Class C Shares excluding
deferred sales charge assumes the shares were not redeemed at February 28, 1997
and therefore does not reflect the deduction of a CDSC.
AVERAGE ANNUAL TOTAL RETURN
CLASS C SHARES CLASS C SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)
1 year ended 2/28/97 2.55% 3.52%
Period 11/29/95(1)
through 2/28/97 3.78% 3.78%
(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer-term results.
As stated in the PROSPECTUS, the Fund may also quote its current yield for
each Class in advertisements and investor communications.
-11-
<PAGE>
The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:
a--b 6
YIELD = 2[(-------- + 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.
The yields of Class A Shares, Class B Shares and Class C Shares as of February
28, 1997 using this formula were 4.67%, 4.10% and 4.10%, respectively. Yield
calculations assume the maximum front-end sales charge, if any, and does not
reflect the deduction of any CDSC or Limited CDSC. Actual yield may be affected
by variations in sales charges on investments.
Past performance, such as is reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any Class of the Fund in the future.
The Fund may also publish a tax-equivalent yield concerning a Class based
on federal and, if applicable, state tax rates, which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to such Class' yield.
For the 30-day period ended February 28, 1997, the tax-equivalent yield of Class
A Shares, Class B Shares and Class C Shares was 6.77%, 5.94% and 5.94%,
respectively, assuming a federal income tax rate of 31%. These yields were
computed by dividing that portion of a Class' yield which is tax-exempt by one
minus a stated income tax rate (in this case, a federal income tax rate of 31%)
and adding the product to that portion, if any, of the yield that is not
tax-exempt. In addition, the Fund may advertise a tax-equivalent yield assuming
other income tax rates, when applicable.
Investors should note that the income earned and dividends paid by the Fund
will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the Fund may change. Unlike money market
funds, the Fund invests in longer-term securities that fluctuate in value and do
so in a manner inversely correlated with changing interest rates. The Fund's
net asset value will tend to rise when interest rates fall. Conversely, the
Fund's net asset value will tend to fall as interest rates rise. Normally,
fluctuations in interest rates have a greater effect on the prices of
longer-term bonds. The value of the securities held in the Fund will vary from
day to day and investors should consider the volatility of the Fund's net asset
value as well as its yield before making a decision to invest.
See APPENDIX B for additional yield information.
-12-
<PAGE>
Statistical and performance information and various indices compiled and
maintained by organizations such as the following may also be used in preparing
exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these organizations,
may also be used in the promotion of sales in the Fund. Any indices used are
not managed for any investment goal.
CDA TECHNOLOGIES, INC., LIPPER ANALYTICAL SERVICES, INC. and MORNINGSTAR,
INC. are performance evaluation services that maintain statistical
performance databases, as reported by a diverse universe of
independently-managed mutual funds.
IBBOTSON ASSOCIATES, INC. is a consulting firm that provides a variety of
historical data including total return, capital appreciation and income on
the stock market as well as other investment asset classes, and inflation.
With their permission, this information will be used primarily for
comparative purposes and to illustrate general financial planning
principles.
INTERACTIVE DATA CORPORATION is a statistical access service that maintains
a database of various international industry indicators, such as historical
and current price/earning information, individual equity and fixed-income
price and return information.
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.
-13-
<PAGE>
For example, the performance comparisons may include the average return of
various bank instruments, some of which may carry certain return guarantees
offered by leading banks and thrifts as monitored by BANK RATE MONITOR, and
those of corporate bond and government security price indices of various
durations prepared by Lehman Brothers and Salomon Brothers, Inc. These indices
are not managed for any investment goal.
Comparative information on the Consumer Price Index and the CDA Municipal
Bond Index may also be included. The Consumer Price Index, as prepared by the
U.S. Bureau of Labor Statistics, is the most commonly used measure of inflation.
It indicates the cost fluctuations of a representative group of consumer goods.
It does not represent a return from an investment. The CDA Municipal Bond Index
was developed and is maintained by CDA Technologies, Inc. The Index is
comprised of 115 separately-managed municipal bond mutual funds and tracks the
performance of each fund, reflecting the reinvestment of any dividend and
capital gains distributions paid during a specified period.
The total return performance for a Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period and the impact of the maximum
front-end sales charge or contingent deferred sales charge, if any, paid on the
illustrated investment amount, annualized. The results will not reflect any
income taxes, if applicable, payable by shareholders on the reinvested
distributions included in the calculations. The net asset value of the Fund
fluctuates so shares, when redeemed, may be worth more or less than the original
investment and past Fund performance should not be considered as representative
of future results.
The following tables are examples, for purposes of illustration only, of
cumulative total return performance for Class A Shares, Class B Shares and Class
C Shares through February 28, 1997. Comparative information on the Consumer
Price Index is also included.
The performance does not reflect any income taxes payable by shareholders
on the reinvested distributions included in the calculations. The performance
of the Class A Shares as shown below, reflects maximum front-end sales charge
paid on the purchase of shares but may also be shown without reflecting the
impact on any front-end sales charge. The performance of the Class B Shares and
Class C Shares is calculated both with the applicable CDSC included and
excluded. The net asset value of the Fund fluctuates so shares, when redeemed,
may be worth more or less than the original investment, and the Fund's results
should not be considered as representative of future performance.
-14-
<PAGE>
CUMULATIVE TOTAL RETURN
CLASS A SHARES(1) CONSUMER
(AT OFFER) PRICE INDEX(2)
3 months ended
2/28/97 (4.57%) 0.63%
6 months ended
2/28/97 (0.56%)(3) 1.46%
9 months ended
2/28/97 0.97% 1.92%
1 year ended
2/28/97 (0.59%) 3.03%
3 years ended
2/28/97 10.39% 8.79%
5 years ended
2/28/97 32.06% 15.15%
10 years ended
2/28/97 85.53% 42.97%
15 years ended
2/28/97 341.52% 68.70%
Period 3/23/77(4)
through 2/28/97 243.61% 168.30%
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) Source--Department of Labor.
(3) For the six months ended February 28, 1997, cumulative total return at net
asset value for Class A Shares was 4.41%.
(4) Date of initial public offering of Class A Shares.
-15-
<PAGE>
CUMULATIVE TOTAL RETURN
CLASS B SHARES CLASS B SHARES CONSUMER
(INCLUDING DEFERRED (EXCLUDING DEFERRED PRICE
SALES CHARGE) SALES CHARGE) INDEX(2)
3 months ended
2/28/97 (3.91%) 0.05% 0.63%
6 months ended
2/28/97 (0.01%) 4.00% 1.46%
9 months ended
2/28/97 1.38% 5.38% 1.92%
1 year ended
2/28/97 (0.37%) 3.52% 3.03%
Period 5/2/94(1)
through 2/28/97 13.21% 16.19% 8.28%
(1) Date of initial public offering of Class B Shares.
(2) Source: Department of Labor.
CUMULATIVE TOTAL RETURN
CLASS C SHARES CLASS C SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED CONSUMER
SALES CHARGE) SALES CHARGE) PRICE INDEX(2)
3 months ended
2/28/97 (0.94%) 0.05% 0.63%
6 months ended
2/28/97 3.00% 4.00% 1.46%
9 months ended
2/28/97 4.38% 5.38% 1.92%
1 year ended
2/28/97 2.55% 3.52% 3.03%
Period 11/29/95(1)
through 2/28/97 4.76% 4.76% 3.91%
(1) Date of initial offering of Class C Shares.
(2) Source--Department of Labor.
-16-
<PAGE>
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 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.
-17-
<PAGE>
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.
-18-
<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.
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<PAGE>
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.
During the past three fiscal years of the Fund there were no brokerage
commissions paid.
The Manager may allocate out of all commission business generated by all of
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These services include
advice, either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software and hardware used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 and the Fund's
Investment Management Agreement, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition,
so long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
-20-
<PAGE>
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in
a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to
participate in volume transactions will generally be beneficial to the accounts
and funds. Although it is recognized that, in some cases, the joint execution
of orders could adversely affect the price or volume of the security that a
particular account or fund may obtain, it is the opinion of the Manager and the
Board of Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Fund may place orders with broker/dealers that have agreed to
defray certain 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.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of interest
rates. The Fund is free to dispose of portfolio securities at any time, subject
to complying with the Internal Revenue Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. Portfolio transactions will be undertaken only to
accomplish the Fund's objectives and not for the purpose of realizing capital
gains, although capital gains may be realized on certain portfolio transactions.
For example, capital gains may be realized when a security is sold: (1) so that,
provided capital is preserved or enhanced, another security can be purchased to
obtain a higher yield; (2) to take advantage of what the Manager believes to be
a temporary disparity in the normal yield relationship between the two
securities to increase income or improve the quality of the portfolio; (3) to
purchase a security which the Manager believes is of higher quality than its
rating or current market value would indicate; or (4) when the Manager
anticipates a decline in value due to market risk or credit risk. The Fund
anticipates the portfolio turnover rate will ordinarily be less than 100%.
During the past two fiscal years, the Fund's portfolio turnover rates were
25% for 1996 and 27% for 1997. The Fund's portfolio turnover rate is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the particular fiscal year, exclusive of
securities whose maturities at the time of acquisition are one year or less.
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<PAGE>
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.
The NASD has adopted Rules of Fair Practice, 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 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also
subject to annual 12b-1 Plan expenses 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.
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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 0.30% of average daily net
assets of Class A Shares or to purchase either Class B or Class C Shares and
have the entire initial purchase amount invested in the Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B Shares are
subject to a CDSC if the shares are redeemed within six years of purchase, and
Class C Shares are subject to a CDSC if the shares are redeemed within 12 months
of purchase. Class B and Class C Shares are each subject to annual 12b-1 Plan
expenses of up to a maximum of 1% (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 0.30% 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 4.75% 4.98% 4.00%
$100,000 but under $250,000 3.75 3.90 3.00
$250,000 but under $500,000 2.50 2.55 2.00
$500,000 but under $1,000,000* 2.00 2.07 1.60
* 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 upon the net asset value per share of Class A Shares as of the
end of the Fund's most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the
front-end sales charge shown above. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the 1933 Act.
- --------------------------------------------------------------------------------
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 Fund's
Board of Trustees may reduce these amounts at any time.
Effective June 1, 1992, the Board of Trustees has determined that the
annual fee payable on a monthly basis for the Class A Shares, pursuant to its
Plan, will be equal to the sum of: (i) the amount obtained by multiplying 0.30%
by the average daily net assets represented by Class A Shares that were acquired
by shareholders on or after June 1, 1992, and (ii) the amount obtained by
multiplying 0.10% by the average daily net assets represented by Class A Shares
that were acquired before June 1, 1992. While this is the method for
calculating Class A Shares' 12b-1
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<PAGE>
expense, such expense is a Class expense so that all such shareholders of the
Class, regardless of when they purchased their shares, will bear 12b-1 expenses
at the same rate per share. As Class A Shares are sold on or after June 1,
1992, the initial rate of at least 0.10% will increase over time. Thus, as the
proportion of Class A Shares purchased on or after June 1, 1992 to Class A
Shares outstanding prior to June 1, 1992 increases, the expenses attributable to
payments under the Plan relating to Class A Shares will also increase (but will
not exceed 0.30% of average daily net assets). While this describes the current
formula for calculating the fees which will be payable under the Plan relating
to Class A Shares, such Plan permits the Fund to pay a full 0.30% on all assets
of Class A Shares at any time.
All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A, Class
B and Class C Shares would be borne by such persons without any reimbursement
from the 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 Fund, 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.
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<PAGE>
For the fiscal year ended February 28, 1997, payments from the Class A
Shares, Class B Shares and Class C Shares amounted to $1,970,561, $264,463 and
$6,416, respectively. Such amounts were used for the following purposes:
Class A Shares Class B Shares Class C Shares
------------------ -------------- --------------
Advertising $995 --- ---
Annual/Semi-Annual Reports $35,021 --- ---
Broker Trails $1,594,873 $66,043 ---
Broker Sales Charges --- $96,448 $5,939
Dealer Service Expenses $21,497 --- $84
Interest on Broker Sales Charges --- $88,674 $383
Commissions to Wholesalers $79,593 $9,967 $9
Promotional-Broker Meetings $75,556 $2,614 $1
Promotional-Other $31,369 --- ---
Prospectus Printing $32,415 --- ---
Telephone $21,419 --- ---
Wholesaler Expenses $63,195 $717 ---
Other $14,628 --- ---
The staff of the Securities and Exchange Commission ("SEC") has proposed
amendments to Rule 12b-1 and other related regulations that could impact Rule
12b-1 Distribution Plans. The Fund intends to amend the Plans, if necessary, to
comply with any new rules or regulations the SEC may adopt with respect to Rule
12b-1.
OTHER PAYMENTS TO DEALERS - CLASS A, CLASS B AND CLASS C SHARES
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the 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.
SPECIAL PURCHASE FEATURES - CLASS A SHARES
BUYING CLASS A SHARES AT NET ASSET VALUE
Class A Shares may be purchased without a front-end sales charge under the
DIVIDEND REINVESTMENT PLAN and, under certain circumstances, the EXCHANGE
PRIVILEGE and the 12-MONTH REINVESTMENT PRIVILEGE.
Current and former officers, trustees and employees of the Fund, any other
fund in the Delaware Group, the Manager or any of the Manager's affiliates that
may in the future be created, legal counsel to the funds and registered
representatives and employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares of the Fund and any
of the funds in the Delaware Group, including any fund that may be created, at
net asset value per share. Family members of such persons at their direction,
and any employee benefit plan established by any of the foregoing funds,
corporations, counsel or broker/dealers may also purchase Class A Shares at net
asset value. Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net asset value
within 12 months after the registered representative changes
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<PAGE>
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.
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 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.
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<PAGE>
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 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.
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<PAGE>
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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<PAGE>
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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<PAGE>
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 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.
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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.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering price
next calculated after receipt of the order by the Fund or its agent. Orders for
purchases of Class B Shares and Class C Shares are effected at the net asset
value per share next calculated by the Fund after receipt of the order by the
Fund or its agent. Selling dealers have the responsibility of transmitting
orders promptly.
The offering price for Class A Shares consists of the net asset value per
share plus any applicable front-end sales charges. Offering price and net asset
value are computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, the Fund will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
An example showing how to calculate the net asset value per share and, in
the case of the Class A Shares, the offering price per share, is included in the
Fund's financial statements which are incorporated by reference into this PART
B.
The Fund's net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities and
dividing by the number of Fund shares outstanding. In determining the Fund's
total net assets, portfolio securities are valued at fair value, using methods
determined in good faith by the trustees. This method utilizes the services of
an independent pricing organization which employs a combination of methods
including, among others, the obtaining of market valuations from dealers who
make markets and deal in such securities, and by comparing valuations with those
of other comparable securities in a matrix of such securities. A pricing
service's activities and results are reviewed by the officers of the Fund. In
addition, money market instruments having a maturity of less than 60 days are
valued at amortized cost. Expenses and fees are accrued daily.
Each Class of the Fund will bear, pro-rata, all of the common expenses of
the Fund. The net asset values of all outstanding shares of each Class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be
borne on a pro-rata basis by each outstanding share of a Class, based on each
Class' percentage in the Fund represented by the value of shares of such
Classes, except that the Class A, Class B and Class C Shares alone will bear the
12b-1 Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that would be allocable to each Class, the
dividends paid to each Class of the Fund may vary. However, the net asset value
per share of each Class is expected to be equivalent.
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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 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.
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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 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 shareholders are generally tape recorded. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone.
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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 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.
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DIVIDENDS AND DISTRIBUTIONS
The Fund declares a dividend to shareholders of net investment income on a
daily basis. Dividends are declared each day the Fund is open and are paid
monthly on the first business day following the end of each month. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. Net investment income earned on days when the Fund is
not open will be declared as a dividend on the next business day. Purchases of
Fund shares by wire begin earning dividends when converted into Federal Funds
and available for investment, normally the next business day after receipt.
However, if the Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Investors desiring to guarantee wire payments must have
an acceptable financial condition and credit history in the sole discretion of
the Fund. The Fund reserves the right to terminate this option at any time.
Purchases by check earn dividends upon conversion to Federal Funds, normally one
business day after receipt.
Each Class of the Fund will share proportionately in the investment income
and expenses of the Fund, except that each Class will alone incur distribution
fees under its 12b-1 Plan. See PLANS UNDER RULE 12b-1.
Dividends are automatically reinvested in additional shares at net asset
value on the payable date, unless an election to receive dividends in cash has
been made. Dividend payments of $1.00 or less will be automatically reinvested,
notwithstanding a shareholder's election to receive dividends in cash. If such
a shareholder's dividends increase to greater than $1.00, the shareholder would
have to file a new election in order to begin receiving dividends in cash again.
If a shareholder redeems an entire account, all dividends accrued to the time of
the withdrawal will be paid by separate check at the end of that particular
monthly dividend period, consistent with the payment and mailing schedule
described above. Any check in payment of dividends or other distributions which
cannot be delivered by the United States Post Office or which remains uncashed
for a period of more than one year may be reinvested in the shareholder's
account at the then-current net asset value and the dividend option may be
changed from cash to reinvest. The Fund may deduct from a shareholder's account
the costs of the Fund's effort to locate a shareholder if a shareholder's mail
is returned by the Post Office or the Fund is otherwise unable to locate the
shareholder or verify the shareholder's mailing address. These costs may
include a percentage of the account when a search company charges a percentage
fee in exchange for their location services.
Any distributions from net realized securities profits will be made
annually during the quarter following the close of the fiscal year. Such
distributions will be reinvested in shares at the net asset value in effect on
the first business day after month end, unless the shareholder elects to receive
them in cash. The Fund will mail a quarterly statement showing dividends paid
and all the transactions made during the period.
The Fund anticipates that substantially all dividends paid to shareholders
will be exempt from federal and Pennsylvania income taxes and from certain
Pennsylvania state and local taxes. Information concerning the tax status of
dividends and distributions will be mailed to shareholders annually, including
what portion, if any, of the Fund's distribution is subject to the federal
alternative minimum tax should the Fund invest in "private purpose" bonds.
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TAXES
FEDERAL INCOME TAX ASPECTS
The Fund has qualified, and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended, so as not to be liable for federal income tax to the extent its
earnings are distributed. The term "regulated investment company" does not
imply the supervision of management or investment practices or policies by any
government agency.
Distributions by the Fund representing net interest received on municipal
bonds are considered tax-exempt and are not includable by shareholders in gross
income for federal income tax purposes because the Fund intends to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies distributing exempt-interest dividends. Although exempt from regular
federal income tax, interest paid on certain types of municipal obligations is
deemed to be a preference item under federal tax law and is subject to the
federal alternative minimum tax.
For federal income tax purposes, the Fund's portfolio securities had net
unrealized appreciation at February 28, 1997 of $40,452,722 on the basis of
specific cost.
Distributions representing net interest income received by the Fund from
certain temporary investments (such as certificates of deposit, commercial paper
and obligations of the U.S. government, its agencies and instrumentalities) and
net short-term capital gains realized by the Fund, if any, will be taxable to
shareholders as ordinary income and will not qualify for the deduction for
dividends-received by corporations. Distributions of long-term capital gains
realized by the Fund, if any, will be taxable to shareholders as long-term
capital gains regardless of the length of time an investor has held such shares,
and these gains are currently taxed at long-term capital gain rates. The tax
status of dividends and distributions paid to shareholders will not be affected
by whether they are paid in cash or in additional shares. Statements as to the
tax status of each investor's dividends or distributions will be mailed
annually. The percentage of taxable income at the end of the year will not
necessarily bear relationship to the experience over a shorter period of time.
Shareholders may incur a tax liability for federal, state and local taxes upon
the sale or redemption of shares of the Fund.
Section 265 of the Internal Revenue Code provides that interest paid on
indebtedness incurred or continued to purchase or carry obligations the interest
on which is tax-exempt, and certain expenses associated with tax-exempt income,
are not deductible. It is probable that interest on indebtedness incurred or
continued to purchase or carry shares of the Fund is not deductible.
The Fund may not be an appropriate investment for persons who are
"substantial users" of facilities financed by "industrial development bonds" or
for investors who are "related persons" thereof within the meaning of Section
103 of the Internal Revenue Code. Persons who are or may be considered
"substantial users" should consult their tax advisers in this matter before
purchasing shares of the Fund.
The Fund intends to use the "average annual" method of allocation in the
event the Fund realizes any taxable interest income. Under this approach, the
percentage of interest income earned that is deemed to be taxable in any year
will be the same for each shareholder who held shares of the Fund at any time
during the year.
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STATE AND LOCAL TAXES
See TAXES in the PROSPECTUS for a discussion of Pennsylvania taxation.
Shares of the Fund may be taxable for purposes of Pennsylvania inheritance and
estate tax.
Shareholders of the Fund who are residents of the City of Pittsburgh may be
required to pay Pittsburgh School District and City personal property tax on
their equitable interest of that portion of the assets of the Fund which are not
exempt from such tax. However, since the Fund's inception, none of its assets
have been liable for such tax.
Distributions by the Fund may not be exempt from state or local income tax
in states other than Pennsylvania. Shareholders of the Fund are advised to
consult their own tax adviser in this regard.
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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 April 3, 1995 and
was approved by shareholders on March 29, 1995. The Agreement has an initial
term of two years and may be renewed each year only so long as such renewal and
continuance are specifically approved at least annually by the Board of Trustees
or by vote of a majority of the outstanding voting securities of the Fund, and
only if the terms and the renewal thereof have been approved by the vote of a
majority of trustees of the Fund who are not parties thereto or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement is terminable without penalty on 60
days' notice by the trustees of the Fund or by the Manager. The Agreement will
terminate automatically in the event of its assignment.
The Investment Management Agreement provides that the Fund shall pay the
Manager a management fee equal to (on an annual basis) 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.
On February 28, 1997, the total net assets of the Fund were $987,083,386.
Investment management fees paid by the Fund for the past three fiscal years were
$5,743,977 for 1995, $5,877,033 for 1996 and $5,727,743 for 1997.
Under the general supervision of the Board of Trustees, the Manager
makes all investment decisions which are implemented by the Fund. The
Manager pays the salaries of all trustees, officers and employees of the Fund
who are affiliated with the Manager. The Fund pays all of its other expenses
including its proportionate share of rent and certain other administrative
expenses.
The ratios of expenses to average daily net assets for Class A Shares,
Class B Shares and Class C Shares for the fiscal year ended February 28, 1997
were 0.91%, 1.71% and 1.71%, respectively. The ratios for the Class A Shares,
Class B Shares and Class C Shares of the Fund reflect the impact of their
respective 12b-1 Plans.
DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor under a Distribution
Agreement dated April 3, 1995, as amended on November 29, 1995. The
Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by the Fund on behalf of the
Class A Shares, Class B Shares and Class C Shares under their respective 12b-1
Plans. Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as
the national distributor of the Fund's shares. On that date, Delaware
Distributors,
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L.P., a newly formed limited partnership, succeeded to the business of DDI. All
officers and employees of DDI became officers and employees of Delaware
Distributors, L.P. DDI is the corporate general partner of Delaware
Distributors, L.P. and both DDI and Delaware Distributors, L.P. are indirect,
wholly owned subsidiaries of Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate of
the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as the
Fund's shareholder servicing, dividend disbursing and transfer agent pursuant to
a Shareholders Services Agreement dated June 29, 1988. The Transfer Agent 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.
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OFFICERS AND TRUSTEES
The business and affairs of the Fund are managed under the direction of its
Board of Trustees.
Certain officers and trustees of the Fund hold identical positions in each
of the other funds in the Delaware Group. As of March 31, 1997, the Fund's
officers and trustees, as a group, owned less than 1% of the outstanding shares
of the Class B Shares and Class C Shares, respectively, and approximately 1.50%
of the outstanding shares of the Class A Shares.
As of March 31, 1997, management believes the following accounts held 5% or
more of the outstanding shares of the Class A Shares, Class B Shares and Class C
Shares of the Fund:
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Class A Shares MLPF&S for the sole benefit 7,057,538 6.13%
of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd fl.
Jacksonville, FL 32246-6484
Class B Shares MLPF&S for the sole benefit 245,479 6.19%
of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd fl.
Jacksonville, FL 32246-6484
Class C Shares Deborah E. Capuzzi 18,500 12.69%
17 Buckwalter Woods Lane
Phoenixville, PA 19460
MLPF&S for the sole benefit 13,615 9.34%
of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd fl.
Jacksonville, FL 32246-6484
Gary R. Dysart 13,260 9.10%
1147 Canterbury Drive
Lansdale, PA 19446-5359
Barbara S. Peters 12,170 8.35%
3640 Academy Road
Philadelphia, PA 19154-2040
Charlene M. Richards & 11,277 7.74%
David G. Richards
1679 Potter Drive
Pottstown, PA 19464-2978
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Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Class C Shares Dr. Edward A. Chasteney III 7,974 5.47%
Edith S. Chasteney
105 Old Lancaster Road
Bala Cynwyd, PA 19004-3018
Luis Vera & Ana Arreaga 7,516 5.16%
12601 Chilton Road
Philadelphia, PA 19154-1406
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<PAGE>
DMH Corp., Delaware Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware Management
Trust Company, Delaware International Holdings Ltd., Founders Holdings, Inc.,
Delaware International Advisers Ltd., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc. are direct or indirect, wholly
owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). On April 3,
1995, a merger between DMH and a wholly owned subsidiary of Lincoln National
Corporation ("Lincoln National") was completed. In connection with the merger,
a new Investment Management Agreement between the Fund and the Manager was
executed following shareholder approval. DMH and the Manager are now 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, DIRECTOR AND/OR TRUSTEE of
the Fund, 17 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.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
WINTHROP S. JESSUP (51)
EXECUTIVE VICE PRESIDENT OF THE FUND and 16 other investment companies in
the Delaware Group (which excludes Delaware Pooled Trust, Inc.) and
Delaware Management Holdings, Inc.
PRESIDENT AND CHIEF EXECUTIVE OFFICER of Delaware Pooled Trust, Inc.
PRESIDENT AND DIRECTOR of Delaware Capital Management, Inc.
EXECUTIVE VICE PRESIDENT AND DIRECTOR of DMH Corp., Delaware Management
Company, Inc.,Delaware International Holdings Ltd. and Founders
Holdings, Inc.
VICE CHAIRMAN AND DIRECTOR of Delaware Distributors, Inc.
VICE CHAIRMAN of Delaware Distributors, L.P.
DIRECTOR of Delaware Service Company, Inc., Delaware International Advisers
Ltd., Delaware Management Trust Company and Delaware Investment &
Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various executive
capacities at different times within the Delaware organization.
- ------------------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the Investment Company Act of 1940.
RICHARD G. UNRUH, JR. (57)
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EXECUTIVE VICE PRESIDENT OF THE FUND and each of the other 17 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.
PAUL E. SUCKOW (49)
EXECUTIVE VICE PRESIDENT/CHIEF INVESTMENT OFFICER, FIXED INCOME OF THE
FUND, each of the other 17 investment companies in the Delaware Group
and Delaware Management Company, Inc.
EXECUTIVE VICE PRESIDENT/CHIEF INVESTMENT OFFICER, FIXED INCOME AND
DIRECTOR of Founders Holdings, Inc.
SENIOR VICE PRESIDENT/CHIEF INVESTMENT OFFICER, FIXED INCOME of Delaware
Management Holdings, Inc.
DIRECTOR of Founders CBO Corporation.
SENIOR VICE PRESIDENT of Delaware Capital Management, Inc.
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)
TRUSTEE AND/OR DIRECTOR OF THE FUND and each of the other 17 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)
TRUSTEE AND/OR DIRECTOR OF THE FUND and each of the other 17 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)
TRUSTEE AND/OR DIRECTOR OF THE FUND and each of the other 17 investment
ompanies 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.
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<PAGE>
W. THACHER LONGSTRETH (76)
TRUSTEE AND/OR DIRECTOR OF THE FUND and each of the other 17 investment
companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
PHILADELPHIA CITY COUNCILMAN.
CHARLES E. PECK (71)
DIRECTOR AND/OR TRUSTEE OF THE FUND and each of the other 17 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)
SENIOR VICE PRESIDENT/CHIEF ADMINISTRATIVE OFFICER/CHIEF FINANCIAL OFFICER
OF THE FUND, each of the other 17 investment companies in the Delaware
Group.
EXECUTIVE VICE PRESIDENT/CHIEF OPERATING OFFICER/CHIEF FINANCIAL OFFICER of
the Fund, each of the other 17 investment companies in the Delaware
Group.
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL
OFFICER of Delaware Management Company, Inc.
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 of
Delaware Management Holdings, Inc.
EXECUTIVE VICE PRESIDENT/CHIEF OPERATING OFFICER/CHIEF FINANCIAL OFFICER
AND DIRECTOR of DMH Corp., Delaware Distributors, Inc. and Founders
Holdings, Inc.
PRESIDENT/CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER AND DIRECTOR of
Delaware Service Company, Inc.
EXECUTIVE VICE PRESIDENT/CHIEF OPERATING OFFICER/CHIEF FINANCIAL OFFICER
AND DIRECTOR of Delaware International Holdings Ltd.
EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER/CHIEF OPERATING OFFICER of
Delaware Capital Management, 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.
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<PAGE>
GEORGE M. CHAMBERLAIN, JR. (50)
SENIOR VICE PRESIDENT AND SECRETARY OF THE FUND, each of the other 17
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 (33)
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, and each of the tax-
exempt and the fixed-income funds in the Delaware Group.
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 17
investment companies in the Delaware Group, Distributors, L.P.,
Delaware Service Company, Inc., Delaware Capital Management, Inc.,
and Delaware International Holdings Ltd.
SENIOR VICE PRESIDENT/CORPORATE CONTROLLER AND TREASURER of Delaware
Management Company, Inc., Delaware Management Holdings, Inc. and
DMH Corp.
SENIOR VICE PRESIDENT/TREASURER of Delaware Distributors, Inc.
SENIOR VICE PRESIDENT/CORPORATE CONTROLLER of Founders Holdings, Inc.
CHIEF FINANCIAL OFFICER/TREASURER of Delaware Investment & Retirement
Services, Inc.
EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER/TREASURER of Delaware
Management Trust Company.
VICE PRESIDENT/TREASURER of Delaware Capital Management, Inc.
ASSISTANT TREASURER of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief Financial
Officer for Prudential Residential Services, L.P., New York, NY from
1989 to 1992. Prior to that, Mr. Hastings served as Controller and
Treasurer for Fine Homes International, L.P., Stamford, CT from 1987
to 1989.
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<PAGE>
MICHAEL P. BISHOF (34)
VICE PRESIDENT/TREASURER OF THE FUND, each of the other 17 investment
companies in the Delaware Group, Delaware Distributors, L.P. and
Delaware Service Company, Inc.
SENIOR VICE PRESIDENT of Delaware Management Company, Inc.
SENIOR VICE PRESIDENT/TREASURER of Delaware Distributors, Inc. and
Founders Holdings Ltd.
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.
The following is a compensation table listing for each trustee entitled to
receive compensation, the aggregate compensation received from the Fund and the
total compensation received from all Delaware Group funds for the fiscal year
ended February 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.
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED BENEFITS FROM ALL 18
COMPENSATION AS PART OF UPON DELAWARE
NAME FROM FUND FUND EXPENSES RETIREMENT* GROUP FUNDS
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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<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.
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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) the Fund. No other Delaware Group funds will be
available for timed exchanges. Assets redeemed or exchanged out of Timing
Accounts in Delaware Group funds not listed above may not be reinvested back
into that Timing Account. The Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
time pattern (as described above).
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
A shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other Delaware
Group funds:
DELAWARE FUND seeks long-term growth by a balance of capital appreciation,
income and preservation of capital. It uses a dividend-oriented valuation
strategy to select securities issued by established companies that are believed
to demonstrate potential for income and capital growth. DEVON FUND seeks
current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
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<PAGE>
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 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.
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<PAGE>
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
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
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<PAGE>
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).
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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 securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Fund and for the other
mutual funds in the Delaware Group. As previously described, prior to January
3, 1995, DDI served as the national distributor for the Fund. The Distributor,
and, in its capacity as such, DDI, received net commissions from the Fund on
behalf of Class A Shares, after reallowances to dealers, as follows:
TOTAL AMOUNT AMOUNTS NET
OF UNDERWRITING REALLOWED COMMISSION
FISCAL YEAR ENDED COMMISSIONS TO DEALERS TO DDLP/DDI
----------------- --------------- ---------- -----------
2/28/97 $1,327,771 $1,103,552 $224,219
2/29/96 $1,812,149 $1,508,209 $303,940
2/28/95 2,314,576 1,933,079 381,497
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The Distributor and, in its capacity as such, DDI received in the aggregate
Limited CDSC payments with respect to Class A Shares of the Fund as follows:
LIMITED CDSC PAYMENTS
FISCAL YEAR ENDED CLASS A SHARES
----------------- --------------
2/28/97 ---
2/29/96 ---
2/28/95 $9,359
The Distributor and, in its capacity as such, DDI received in the aggregate
CDSC payments with respect to Class B Shares of the Fund as follows:
CDSC PAYMENTS
FISCAL YEAR ENDED CLASS B SHARES
----------------- --------------
2/28/97 $41,770
2/29/96 $47,610
2/28/95* $4,941
*Date of initial public offering was May 2, 1994.
The Distributor received CDSC payments with respect to Class C Shares of
the Fund as follows:
CDSC PAYMENTS
FISCAL YEAR ENDED CLASS C SHARES
----------------- --------------
2/28/97 $1,818
2/29/96* ---
*Date of initial public offering was November 29, 1995.
Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.
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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.
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.
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CAPITALIZATION
DMC Tax-Free Income Trust-Pennsylvania (which, as of May 18, 1992, is known
and does business as Tax-Free Pennsylvania Fund) currently offers three classes
of shares. The Fund 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.
Prior to May 2, 1994, Tax-Free Pennsylvania Fund A Class was known as
Tax-Free Pennsylvania Fund.
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.
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SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
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 B--TAX EXEMPT VS TAXABLE YIELDS
1997 RATES
----------
TAXABLE INCOME
SINGLE RETURN JOINT RETURN FED STATE INCOME
- ------------- ------------ --------- ------------
$0-24,650 $0-41,200 15% 2.8%
$24,651-59,750 $41,201-99,600 28% 2.8%
$59,751-124,650 $99,601-151,750 31% 2.8%
$124,651-271,050 $151,751-271,050 36%+ 2.8%
Over $271,050 Over $271,050 39.6%+ 2.8%
TAX FREE YIELD--5.0%
---------------------
FEDERAL FEDERAL
FEDERAL STATE STATE
STATE COUNTY COUNTY
FEDERAL COUNTY PITTSBURGH PHILADELPHIA
TAXABLE TAXABLE TAXABLE TAXABLE
EQUIVALENT EQUIVALENT EQUIVALENT(1) EQUIVALENT(2)
- ---------- ---------- ------------- -------------
5.88% 6.46% 7.29% 6.81%
6.94% 7.56% 8.38% 7.96%
7.25% 7.87% 8.69% 8.29%
7.81% 8.45% 9.27% 8.90%
8.28% 8.93% 9.75% 9.41%
TAX FREE YIELD--6.0%
---------------------
FEDERAL FEDERAL
FEDERAL STATE STATE
STATE COUNTY COUNTY
FEDERAL COUNTY PITTSBURGH PHILADELPHIA
TAXABLE TAXABLE TAXABLE TAXABLE
EQUIVALENT EQUIVALENT EQUIVALENT(1) EQUIVALENT(2)
- ---------- ---------- ------------- -------------
7.06% 7.67% 8.50% 8.09%
8.33% 8.98% 9.81% 9.47%
8.70% 9.36% 10.18% 9.86%
9.38% 10.06% 10.88% 10.60%
9.93% 10.63% 11.45% 11.20%
1997 RATES
----------
TAXABLE INCOME
SINGLE RETURN JOINT RETURN FED STATE INCOME
- ------------- ------------ ---------- ------------
$0-24,650 $0-41,200 15% 2.8%
$24,651-59,750 $41,201-99,600 28% 2.8%
$59,751-124,650 $99,601-151,750 31% 2.8%
$124,651-271,050 $151,751-271,050 36%+ 2.8%
Over $271,050 Over $271,050 39.6%+ 2.8%
TAX FREE YIELD--7.0%
---------------------
FEDERAL FEDERAL
FEDERAL STATE STATE
STATE COUNTY COUNTY
FEDERAL COUNTY PITTSBURGH PHILADELPHIA
TAXABLE TAXABLE TAXABLE TAXABLE
EQUIVALENT EQUIVALENT EQUIVALENT(1) EQUIVALENT(2)
- ---------- ---------- ------------- -------------
8.24% 8.88% 9.71% 9.36%
9.72% 10.41% 11.24% 10.97%
10.14% 10.85% 11.67% 11.43%
10.94% 11.66% 12.49% 12.29%
11.59% 12.33% 13.16% 13.00%
TAX FREE YIELD--8.0%
---------------------
FEDERAL FEDERAL
FEDERAL STATE STATE
STATE COUNTY COUNTY
FEDERAL COUNTY PITTSBURGH PHILADELPHIA
TAXABLE TAXABLE TAXABLE TAXABLE
EQUIVALENT EQUIVALENT EQUIVALENT(1) EQUIVALENT(2)
- ---------- ---------- ------------- -------------
9.41% 10.09% 10.92% 10.64%
11.11% 11.84% 12.67% 12.48%
11.59% 12.34% 13.16% 13.00%
12.50% 13.27% 14.09% 13.99%
13.25% 14.04% 14.86% 14.79%
Equivalent yields are based on a fixed $1,000 investment with all
taxes deducted from income. Included in all areas are the effects of:
federal income tax minus savings from itemizing state and local taxes,
a 2.8% Pennsylvania income tax and a 4 mill county personal property
tax. (1) Pittsburgh equivalent yields also include 4 mill city and 4
mill school property taxes. (2) Philadelphia equivalent yields also
include the 4.96% school income tax. While it is expected that the
Fund will invest primarily in obligations exempt from taxes, other
income received by the Fund may be taxable. The yield used in the
illustration should not be considered representative of the Fund's
yield at any specific time.
+ For tax years beginning after 1992, a 36% tax rate applies to all
taxable income in excess of the maximum dollar amounts subject to the
31% tax rate. In addition, a 10% surtax (not applicable to capital
gains) applies to certain high-income taxpayers. It is computed by
applying a 39.6% rate to taxable income in excess of $271,050. The
above tables do not reflect the personal exemption phaseout nor the
limitations of itemized deductions that may apply.
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APPENDIX C
INVESTING IN PENNSYLVANIA TAX-EXEMPT OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is derived from official statements
prepared in connection with the issuance of bonds and notes of the Commonwealth
of Pennsylvania (the "Commonwealth") and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of the
Commonwealth or of local government units located in the Commonwealth. The Fund
has not independently verified this information.
The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the
Commonwealth's operating and administrative expenses are payable from the
General Fund. Debt service on all bonded indebtedness of the Commonwealth,
except that issued for highway purposes or for the benefit of other special
revenue funds, is payable from the General Fund.
For the five year period from fiscal 1992 through fiscal 1996, revenues and
other sources (determined on a general accepted accounting principles -
"GAAP" - basis) increased by an average annual rate of 4.6%.
Intergrovernmental revenues increased by an average annual rate of 13.2% due,
in part, to an accounting change. Tax revenues during this period increased
an average of 2.5% as modest economic growth, low inflation rates and several
tax rate reductions and other tax reduction measures constrained growth of
tax revenues. The tax reduction measure followed a $2.7 billion tax increase
adopted for the 1992 fiscal year.
Expenditures and other uses during the fiscal 1992 through fiscal 1996
period rose at an average annual rate of 6.0%, led by increases of 14.2% for
protection of persons and property. A prison expansion program and other
correctional program expenses are responsible for the large percentage
increase in this area. Efforts to control costs for various social welfare
programs and the presence of favorable economic conditions have led to a
modest 5.6% increase for public health and welfare costs for the five year
period.
The fund balance at June 30, 1996 totaled $635.2 million, a $547.7
million increase form the balance of $87.5 million at June 30, 1992.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in its fiscal year-end unappropriated General Fund balance.
The fiscal 1995 unappropriated surplus (prior to reserves for transfer to the
Tax Stabilization Fund) was $540 million, an increase of $204.2 million over the
fiscal 1994 unappropriated surplus (prior to transfers). Commonwealth revenues
were $459.4 million (2.9%) above the estimate of revenues used at the time the
budget was enacted. The higher than estimated revenues from tax sources were
due to faster economic growth in the national and state economy than had been
projected when the budget was adopted. Expenditures from Commonwealth revenues
(excluding pooled financing expenditures), including $65.5 million of
supplemental appropriations enacted at the close of the 1995 fiscal year,
totaled $15,674 million, representing an increase of 5% over spending during
fiscal 1994.
For GAAP purposes, the General Fund recorded a $49.8 million deficit for
fiscal 1995, leading to a decline in the fund balance to $688.3 million at
June 30, 1995. The two items which predominantly contributed to the decline
in the fund balance were (i) the use of a more comprehensive procedure to
compute the liabilities for certain public welfare programs, leading to an
increase for the year-end accruals, and (ii) a change in the methodology used to
calculate the year-end accural for corporate tax payables which increased the
tax refund liability by $72
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million for the 1995 fiscal year when compared to the previous fiscal year.
The fiscal 1996 unappropriated surplus (prior to transfer to the Tax
Stabilization Reserve Fund) was $183.8 million, $65.5 million above estimate.
Net expenditures and encumbrances from Commonwealth revenues, including $113
million of supplemental appropriations (but excluding pooled financing
expenditures) totaled $16,162.9 million. Expenditures exceeded available
revenues and lapses by $253.2 million. The difference was funded from a
planned partial drawdown of the $437 million fiscal year adjusted beginning
unappropriated surplus.
Commonwealth revenues (prior to tax refunds) for fiscal 1996 increased by
$113.9 million over the prior year to $16,338.5 million (representing a
growth rate of .7%). Tax rate reductions and other law changes substantially
reduced the amount and rate of revenue growth for the fiscal year. It is
estimated the tax changes enacted for the fiscal year reduced Commonwealth
revenues by 283.4 million.
For GAAP purposes, the fiscal 1996 fund balance was drawn down $53.1
million to $635.2 million. A planned draw down of the budgetary
unappropriated surplus during the fiscal year contributed to expenditures and
other uses exceeding revenues and other sources by $28.0 million. As a
result, the unreaserved fund balance declined by $61.1 million, reducing the
balance to $381.8 million at the end of fiscal 1996. Total revenues and
other sources increased by 8.7% for the fiscal year, led by a 24.2% increase
in intergovernmental revenues (due mainly to an accounting change in the way
in which food stamp coupon revenue received from the federal government
is counted as income to the Commonwealth). Expenditures and other uses
increased by 8.6% for fiscal 1996.
The enacted fiscal 1997 budget provides for expenditures from
Comonwealth revenues of $16,375.8 million, an increase of .6% over
appropriated amounts from Commonwealth revenues for fiscal 1996. The fiscal
1997 budget is based on anticipated Commonwealth revenues (before refunds) of
$16,744.5 milion, an increase over actual fiscal 1996 revenues of 2.5%. The
revenue estimate includes provisions for a $15 million tax credit program
enacted with the fiscal 1997 budget for businesses creating new jobs.
Staggered corporation tax years will cause fiscal 1997 revenues to continue
to be affected by the business tax reductions enacted during the two prior
completed fiscal years. Those reductions, together with the new jobs
creation tax credit, caused revenue growth comparisions between fiscal 1996
and fiscal 1997 to be understated. When the changes are taken into account,
revenues in the fiscal 1997 budget are anticipated to increase at the rate of
3%.
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<PAGE>
Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and probation and payroll programs. The
fiscal 1997 budget contains an appropriation increase in excess of $110
million for these programs. The fiscal 1997 budget also contains some
departmental restructurings.
Providing funding for certain program increases required reductions and
savings in other programs funded from the General Fund. A major reform of
the current welfare system was enacted in May 1996 to encourage recipients
towards self-sufficiency through work requirements, to provide temporary
support for families showing personal responsibility and to maintain
safeguards for those who cannot help themselves.
The fiscal 1997 budget anticipated receiving $60 million of proceeds
from the securitization of $151.7 million of loans held by the Sunny Day
Fund. This fund was created to finance large-scale economic development
loans to attract significant employment opportunities to the Commonwealth.
Its funding was generally obtained from General Fund appropriations. The
fund has been abolished and its loans have been transferred to the
Pennsylvania Industrial Development Fund ("PIDA"). In September 1996, PIDA
issued bonds secured by its loan revenues, including the Sunny Day Fund
loans. These bond proceeds will be used to refund outstanding debt of the
Commonwealth. The affect of this transaction on the fiscal 1997 budget is to
reduce the amount of debt service needed to be appropriated from the General
Fund by $84.7 million.
The fiscal 1997 budget is based on the presumption that federally enacted
reforms to Medicaid will raise the federal reimbursement percentage for those
costs to 57% from an approximate 53% rate for fiscal 1996. The higher
reimbursement rate was anticipated to provide an additional $260 million of
federal funds during fiscal 1997 and enable the Commonwealth to reduce its
appropriations for the medical assistance program by a like amount for fiscal
1997. However, the U.S. Congress has not approved the legislation making
these changes and current expections are that additional federal funds will
not be available at the time and in the amount as anticipated in the approved
fiscal 1997 budget. The Commonwealth expects to use intergovernmental
transfer funds obtained through a pooling transaction to help make up for the
loss of this funding.
The fiscal 1997 budget assumes a drawdown of the $156.3 million fiscal
year beginning unappropriated surplus to fund the enacted level of
appropriations within the currnet estimate of revenues. Actual Comonwealth
revenues for the fiscal year through January 1997 are $189.2 million above
estimates levels, and could be significantly higher by the end of the fiscal
year. The higher than estimated revenues are attributed to economic
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conditions in the nation and the state exceeding the projections used to
project revenues.
On February 4, 1997, the Governor presented his proposed budget for
fiscal 1998. Total Commonwealth revenues in the proposed budget, before
reductions for refunds and proposed tax changes, are estimated to be $17,339.2
million, 2.4% above revised estimates for fiscal 1997. Proposed
appropriations total $16,915.7 million, a 2.7% increase over currently
estimated fiscal 1997 appropriates. The proposed fiscal 1998 budget assumes
the drawdown of the currently estimated $177.6 million unappropriated surplus
at June 30, 1997. Four tax law proposals and a proposed increase transfer of
taxes to a special purpose are included in the proposed budget. Together
these items are esimated to reduce fiscal 1998 revenues by $66.9 million.
All require legislative enactment.
A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States for
certain counties in the Commonwealth for a blizzard and subsequent flooding
in January 1996. Substantial damage to public and private facilities
occurred and many municipalities' financial resources have been strained by
the costs of responding to these weather-related conditions. Legislation was
enacted that authorized $110 million of general obligation debt to provide
for the state's share of the required match for federal public assistance and
disaster mitigation funds. The legislation also apropriated $13 million from
tax amnesty receipts to fund the state match for the federal individual
assistance program, and authorized the use of current motor license fund
revenues for capital projects to repair flood damaged state highways and
bridges.
Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed over the last thirty years as the coal,
steel and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified industrial base. The
economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation.
Currently, the major source of growth in Pennsylvania are in the service
sector, including trade, medical and the health services, education and
financial institutions. Nonagricultural employment in Pennsylvania over the
last ten years increased at an annual rate of 1.02%. This compares to a .36%
for the Middle Atlantic region and 1.8% for the United States as a whole
during the period 1986 through 1995. For the last three years, employment in
the Commonwealth has increased 3.4%, as compared to 2.9% growth in the Middle
Atlantic region. The unemployment rate in Pennsylvania for January, 1997
stood at a seasonably adjusted rate of 4.7%. The seasonably adjusted
national unemployment rate for January, 1997 was 5.4%.
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The current Constitutional provisions pertaining to Commonwealth debt
permit the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster; (ii)
electorate-approved debt; (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years; and (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes must be
amortized in substantial and regular amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that issued
for highway purposes or the benefit of other special revenue funds, is payable
from Pennsylvania's General Fund, which receives all Commonwealth revenues that
are not specified by law to be deposited elsewhere. As of June 30, 1996, the
Commonwealth had $5,054.5 million of general obligation debt outstanding.
Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania Housing Finance Agency
("PHFA"), a state agency which provides financing for housing for lower and
moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally handicapped. PHFA's bonds, but
not its notes, are partially secured by a capital reserve fund required to be
maintained by PHFA in an amount equal to the maximum annual debt service on its
outstanding bonds in any succeeding calendar year. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital reserve
fund.
The Commonwealth, through several of its departments and agencies, has
entered into various agreements to lease, as lessee, certain real property
and equipment, and to make lease payments for the use of such property and
equipment. Some of these leases and their respective lease payments are, with
Commonwealth approval, pledged as security for debt obligations issued by
certain public authorities and other entities within the state. All lease
payments due from Commonwealth departments and agencies are subject to and
dependant upon an annual spending authorization approved through the
Commonwealth's annual budget process. The Commonwealth is not required by
law to appropriate or otherwise provided monies from which the lease payments
are to be made. The obligations to be paid from such lease payments are not
bonded debt of the Commonwealth.
Certain state-created agencies have statutory authorization to incur debt
for which state appropriations to pay debt service thereon is not required. The
debt of these agencies is supported by assets of, or revenues derived from, the
various projects financed and is not an obligation of the Commonwealth. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. In addition, the Commonwealth maintains pension plans covering
state employees, public school employees and employees of certain state-related
organizations. For their fiscal years ended in 1994 the State Employees'
Retirement System had a $249 million surplus and the Public School Employees'
Retirement System had a total unfunded actuarial accrued liability of $3,797
million.
-68-
<PAGE>
The City of Philadelphia is the largest city in the Commonwealth with an
estimated population of 1,585,577 according to the 1990 Census. Legislation
providing for the establishment of Pennsylvania Intergovernmental Cooperation
Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
enacted by the Pennsylvania General Assembly and approved by the Governor in
June 1991. PICA is designed to provide assistance through the issuance of
funding debt and to make factual findings and recommendations to Philadelphia
concerning its budgetary and fiscal affairs. At this time, Philadelphia is
operating under a five year fiscal plan approved by PICA on April 30. 1996.
PICA has issued $1.76 billion of its Special Tax Revenue Bonds.
This financial assistance has included the refunding of certain general
obligation bonds, funding of capital projects and the liquidation of the
cumulative General Fund balance deficit as of June 30, 1992 of $224.9 million.
The audited General Fund balance of Philadelphia as of June 30, 1996 shows a
surplus of approximately $118.5 million, up from approximately $80.5 million as
of June 30, 1995.
No further bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of
financing a cash flow deficit expired on December 31, 1996. Its ability to
refund existing outstanding debt is unrestricted. PICA had $1,146.2 million
in special revenue bonds outstanding as of June 30, 1996.
There is various litigation pending against the Commonwealth, its officers
and employees. In 1978, the Pennsylvania General Assembly approved a limited
waiver of sovereign immunity. Damages for any loss are limited to $250,000 for
each person and $1 million for each accident. The Supreme Court held that this
limitation is constitutional. Approximately 3,500 suits against the
Commonwealth are pending, some of which, if decided adversely to the
Commonwealth, could have a material adverse impact on governmental operations.
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for the Fund and, in
its capacity as such, audits the annual financial statements contained in the
Fund's ANNUAL REPORT. The Fund's STATEMENT OF NET ASSETS, STATEMENT OF
OPERATIONS, STATEMENTS OF CHANGES IN NET ASSETS, and NOTES TO FINANCIAL
STATEMENTS, as well as the report of Ernst & Young LLP, independent auditors,
for the fiscal year ended February 28, 1997, are included in the Fund's ANNUAL
REPORT to shareholders. The financial statements, the notes relating thereto
and the report of Ernst & Young LLP listed above are incorporated by reference
from the ANNUAL REPORT into this PART B.
-69-
<PAGE>
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
- --------------------------------------------------------------------------------
TAX-FREE PENNSYLVANIA FUND
- --------------------------------------------------------------------------------
A CLASS
- --------------------------------------------------------------------------------
B CLASS
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
CLASSES OF TAX-FREE PENNSYLVANIA FUND
- --------------------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
APRIL 29, 1997
DELAWARE
GROUP
<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 Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Accountant's Report
* The financial statements and Accountant's Report listed above are
incorporated by reference into Part B from the Registrant's Annual Report
for the fiscal year ended February 28, 1997.
(b) Exhibits:
(1) DECLARATION OF TRUST. Declaration of Trust, as amended through
November 27, 1995, incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(2) PROCEDURAL GUIDELINES.
(a) Procedural Guidelines, as amended through November 27,
1995 incorporated into this filing by reference to Post-
Effective Amendment No. 34 filed April 28, 1995.
` (b) Amendment to Procedural Guidelines (April 1995)
incorporated into this filing by reference to Post-Effective
Amendment No. 35 filed November 27, 1995.
(3) VOTING TRUST AGREEMENT. Inapplicable.
(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.
<PAGE>
(b) PROCEDURAL GUIDELINES. Articles II, IV, as amended, and VII
of the Procedural Guidelines incorporated into this filing
by reference to Post-Effective Amendment No. 34 filed April
28, 1995.
(5) INVESTMENT MANAGEMENT AGREEMENT. Investment Management Agreement
(April 3, 1995) between Delaware Management Company, Inc. and the
Registrant incorporated into this filing by reference to Post-
Effective Amendment No. 34 filed April 28, 1995.
(6) (a) DISTRIBUTION AGREEMENT.
(i) Form of distribution Agreement (April 1995)
incorporated into this filing by reference to Post-
Effective Amendment No. 35 Filed November 27, 1995
(ii) Form of Distribution Agreement No. 1 to Distribution
Agreement (November 1995) incorporated into this filing
by reference to Post-Effective Amendment No. 35 filed
November 27, 1995.
(b) ADMINISTRATION AND SERVICE AGREEMENT. Form of
Administration and Service Agreement (as amended November
1995) incorporated into this filing by reference to Post-
Effective Amendment No. 35 filed November 27, 1995.
(c) DEALER'S AGREEMENT. Dealer's Agreement (as amended November
1995) incorporated into this filing by reference to Post-
Effective Amendment No. 35 filed November 27, 1995.
(d) Mutual Fund Agreement for the Delaware Group of Funds (as
amended November 1995) (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. Form of Custodian Agreement (May 1996)
between Bankers Trust Company and the Registrant attached as
Exhibit.
(9) OTHER MATERIAL CONTRACTS. Shareholders Services Agreement (June
29, 1988) between Delaware Service Company, Inc. and the
Registrant attached as Exhibit.
<PAGE>
(10) OPINION OF COUNSEL. To be filed with letter relating to Rule
24f-2 on April 21, 1997.
(11) CONSENT OF AUDITORS. Attached as Exhibit.
(12-14) Inapplicable.
(15) PLANS UNDER RULE 12b-1.
(a) Form of Plan under Rule 12b-1 for Class A (November 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(b) Form of Plan under Rule 12b-1 for Class B (November 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(c) Form of Plan under Rule Rule 12b-1 for Class C (November
1995) incorporated into this filing by reference to
Post-Effective Amendment No. 35 filed November 27, 1995.
(16) SCHEDULES OF COMPUTATION FOR EACH PERFORMANCE QUOTATION.
Incorporated into this filing by reference to Post-Effective
Amendment No. 34 filed April 28, 1995, Post-Effective Amendment
No. 35 filed November 27, 1995 and Post-Effective Amendment No.
36 filed April 30, 1997.
Schedules of Computation for each Performance Quotation for
periods not previously electronically filed attached as Exhibit.
(17) FINANCIAL DATA SCHEDULES. Attached as Exhibit.
(18) Inapplicable.
(19) Other: TRUSTEES' POWER OF ATTORNEY. Incorporated into this
filing by reference to Post-Effective Amendment No. 34
filed April 28, 1995.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None.
<PAGE>
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
with No Par Value Per Share 21,457 Accounts as of
March 31, 1997
Tax-Free Pennsylvania Fund B Class
Shares of Beneficial Interest
with No Par Value Per Share 1,078 Accounts as of
March 31, 1997
Tax-Free Pennsylvania Fund C Class
Shares of Beneficial Interest
with No Par Value Per Share 44 Accounts as of March
31, 1997
Item 27. INDEMNIFICATION. Incorporated into this filing by reference to Post-
Effective Amendment No. 10 filed May 12, 1980.
<PAGE>
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 Tax-Free Money Fund,
Inc., Delaware Group Premium Fund, Inc., Delaware Group Global & International
Funds, Inc., Delaware Group Adviser Funds, Inc., Delaware Pooled Trust, Inc.,
Delaware Group Dividend and Income Fund, Inc. and Delaware Group Global Dividend
and Income Fund, Inc.) and provides investment advisory services to
institutional accounts, primarily retirement plans and endowment funds 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>
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/Chief Investment
Officer 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.
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
David K. Downes Executive Vice President, Chief Operating Officer and
Chief Financial Officer of Delaware Management Company,
Inc.; Executive Vice President, Chief Operating Officer
and Chief Financial Officer of the Registrant and each
of the other funds in the Delaware Group; Chairman and
Director of Delaware Management Trust Company;
Executive Vice President, Chief Operating Officer and
Chief Financial Officer of Delaware Management
Holdings, Inc.; Executive Vice President, Chief
Operating Officer, Chief Financial Officer and Director
of DMH Corp., Delaware Distributors, Inc. and Founders
Holdings, Inc.; President, Chief Executive Officer,
Chief Financial Officer and Director of Delaware
Service Company, Inc.; Executive Vice President, Chief
Operating Officer, Chief Financial Officer and Director
of Delaware International Holdings Ltd.; Executive Vice
President, Chief Financial Officer and Chief Operating
Officer of Delaware Capital Management, 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
George M. Senior Vice President, Secretary and Director of
Chamberlain, Jr. Delaware *Business address of each is 1818 Market
Street, Philadelphia, PA, 19103. 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.
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Richard J. Flannery Managing Director/Corporate Tax & Affairs of Delaware
Management Company, Inc., Delaware Management Holdings,
Inc., DMH Corp., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Founders CBO
Corporation, Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.; Vice
President of the Registrant and each of the other funds
in the Delaware Group; Managing Director/Corporate Tax
& Affairs and Director of Founders Holdings, Inc.;
Managing Director and Director of Delaware
International Holdings Ltd.; and Director of Delaware
International Advisers Ltd.
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(1) Vice President and Treasurer of Delaware Management
Company, Inc., the Registrant, each of the other funds
in the Delaware Group, Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company,
Inc. and Founders Holdings, Inc.; Assistant Treasurer
of Founders CBO Corporation; and Vice President and
Manager of Investment Accounting of Delaware
International Holdings Ltd.
Eric E. Miller Vice President and Assistant Secretary of Delaware
Management Company, Inc., the Registrant, each of the
other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors Inc., Delaware Service Company,
Inc., Delaware Management Trust Company, Founders
Holdings, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
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 Vice President/Corporate Controller of Delaware
Management Company, Inc., the Registrant, each of the
other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Founders
Holdings, Inc. and Delaware International Holdings
Ltd.; Executive Vice President, Chief Financial Officer
and Treasurer of Delaware Management Trust Company;
Chief Financial Officer and Treasurer of Delaware
Investment & Retirement Services, Inc.; and Assistant
Treasurer of Founders CBO Corporation
Richard Salus(2) Vice President/Assistant Controller of Delaware
Management Company,Inc.
Bruce A. Ulmer Vice President/Director of Internal Audit of Delaware
Management Company, Inc., the Registrant, each of the
other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp. and Delaware Management Trust
Company; and Vice President/Internal Audit of Delaware
Investment & Retirement Services, Inc.
Steven T. Lampe(3) Vice President/Taxation of Delaware Management Company,
Inc., the Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings, Inc., DMH
Corp., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Founders Holdings,
Inc., Founders CBO Corporation, Delaware Capital
Management, Inc. and Delaware Investment & Retirement
Services, Inc.
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
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 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., the Registrant, each of the
tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management, Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., the Registrant, each of the
tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President
of Founders Holdings, Inc.; and 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.
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Roger A. Early 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
Mitchell L. Conery(4) 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.
Gerald S. Frey(5) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and each of the equity funds
in the Delaware Group
(1) VICE PRESIDENT/GLOBAL INVESTMENT MANAGEMENT OPERATIONS, Bankers Trust
and VICE PRESIDENT, CS First Boston Investment Management prior to
June 1995.
(2) SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
(3) TAX MANAGER, Price Waterhouse prior to October 1995.
(4) INVESTMENT OFFICER, Travelers Insurance prior to January 1997 and
RESEARCH ANALYST, CS First Boston Investment Management prior to
March 1995.
(5) SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June
1996.
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
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 Chief None
Executive Officer
David K. Downes Senior Vice President, Executive Vice President/Chief
Chief Administrative Operating Officer/Chief Financial
Officer and Chief Officer
Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/Secretary
Secretary
Thomas Sawyer Senior Vice President/ None
Western Sales Division
William F. Hostler Senior Vice President/ None
Marketing Services
Dana B. Hall Senior Vice President/ None
Key Accounts
J. Chris Meyer Senior Vice President/ None
Product Development
Stephen H. Slack Senior Vice President/ None
Wholesaler
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Richard J. Flannery Managing Director/Corporate Vice President
& Tax 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
Joseph M. Barrett Vice President/Media Relations None
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/ None
Client Services
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>
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address* with Underwriter 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>
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address* with Underwriter 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
Thomas E. Sawyer 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 Wells Vice President/Marketing None
Technology
(c) Not Applicable.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA, 19103.
<PAGE>
Item 32. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report
to shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of
any 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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 28th day of April, 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
- ----------------------------------- April 28, 1997
Wayne A. Stork Executive Vice President/Chief Operating
Officer/Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/David K. Downes April 28, 1997
- -----------------------------------
David K. Downes
/s/Walter P. Babich * Trustee April 28, 1997
- -----------------------------------
Walter P. Babich
/s/Anthony D. Knerr * Trustee April 28, 1997
- -----------------------------------
Anthony D. Knerr
/s/Ann R. Leven * Trustee April 28, 1997
- -----------------------------------
Ann R. Leven
/s/W.Thacher Longstreth * Trustee April 28, 1997
- -----------------------------------
W. Thacher Longstreth
/s/Charles E. Peck * Trustee April 28, 1997
- -----------------------------------
Charles E. Peck
</TABLE>
*By /s/Wayne A. Stork
----------------------------
Wayne A. Stork
as Attorney-in-Fact
for each of the persons indicated
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
- ----------- -------
EX-99.B8 Form of Custodian Agreement between
Bankers Trust Company and Registrant
EX-99.B9 Shareholders Services Agreement
EX-99.B11 Report and Consent of Auditors
EX-99.B16 Schedules of Computation for each Performance
Quotation for periods not previously electronically
filed
EX-27 Financial Data Schedules
<PAGE>
EX-99.B8
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>
-3-
BANKERS TRUST COMPANY
By:
-----------------------
Name:
---------------------
Title:
--------------------
EXHIBIT C
To Custodian Agreement dated as of , 199 between Bankers
-------------- -
Trust Company and .
-----------------------
CUSTODY FEE SCHEDULE
<PAGE>
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.
<PAGE>
Dated as of: [NAME OF CUSTOMER]
By:
-----------------------
Name:
---------------------
Title:
--------------------
BANKERS TRUST COMPANY
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE>
EX-99.B9
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made as of this 29th day of June, 1988 by and between DMC
TAX - FREE INCOME TRUST - PENNSYLVANIA ("Fund"), a Pennsylvania Business Trust
and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware Corporation, each having
its principal office and place of business at Ten Penn Center Plaza,
Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreement between Fund and Delaware
Management Company, Inc. provides that 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 and redemption of shares;
reports and notices to shareholders; calling and holding of shareholder
meetings; miscellaneous office expenses; brokerage commissions; legal and
accounting fees; taxes; and federal and state registration fees, and
WHEREAS, the predecessor to DSC previously served as the Shareholder
Services Agent for the Fund and the Fund has designated DSC to act as
Shareholder Services Agent for the Fund as of the date of this Agreement; and
WHEREAS, Fund and DSC desire to have a written agreement concerning the
performance of the foregoing services 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 Fund hereby appoints DSC its Shareholder Services Agent to
provide as agent for the Funds services as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent and DSC hereby accepts such appointment
and agrees to provide Fund, as its agent, the services described herein.
<PAGE>
Section 1.2 Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. Fund
also shall reimburse DSC for expenses incurred or advanced by it for the Fund
in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 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 Fund (or is otherwise familiar with), the following
documents:
A. The Declaration of Trust or other document evidencing
Fund's form of organization and any current amendments thereto.
B. The Procedural Guidelines of Fund;
C. Any resolution or other action of Fund or the Board of
Trustees of Fund establishing or affecting the rights, privileges or other
status of any class or series of shares of Fund, or altering or abolishing any
such class or series;
D. A certified copy of a resolution of the Board of
Trustees of Fund appointing DSC as Shareholder Services Agent and authorizing
the execution of this Agreement;
E. The form of share certificates of Fund in the form
approved by the Board of Trustees of Fund;
F. A copy of Fund's currently effective prospectus and
Statement of Additional Information under the Securities act of 1933;
G. Copies of all account application forms and other
documents relating to shareholder accounts in Fund.
H. Copies of documents relating to Plans of Fund for
the purchase, sale or repurchase of its shares, including periodic payment
or withdrawal plans, reinvestment plans or retirement plans;
-2-
<PAGE>
I. Any opinion of counsel to Fund relating to the
authorization and validity of the shares of Fund issued or proposed to be
issued under the law of the State of Fund's organization, including the
status thereof under any applicable securities laws;
J. A certified copy of any resolution of the Board of
Trustees of 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 document altering,
adding, qualifying or repealing any document or authority called for under
this Section 2.1.
Section 2.2 Fund and DSC may consult as to forms or documents that may
be required in performing services hereunder.
Section 2.3 Fund shall provide or make available to DSC a certified
copy of any resolution of the shareholders or the Board of Trustees of 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 Fund or the payment of dividends.
Section 2.4 In the case of any recapitalization or other capital
adjustment requiring a change in the form of stock or share certificate or the
books recording the same, 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 Fund as to the validity of
such action, if requested by DSC.
Section 2.5 Fund warrants the following:
A. Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all shares which
it issues will be properly registered and lawfully issued under applicable
federal and state laws.
-3-
<PAGE>
B. The provisions of this contract 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.
Section 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 contract 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 DSC or its property.
III. SHARE CERTIFICATES
Section 3.1 Fund shall furnish or authorize DSC to obtain, at Fund's
expense a sufficient supply of blank stock certificates, and from time to time
will replenish such supply upon the request of DSC. Fund agrees to indemnify
and exonerate, save and hold DSC harmless, from and against any and all claims
or demands that may be asserted against DSC concerning the genuineness of any
stock certificate supplied to DSC pursuant to this section.
Section 3.2 DSC shall safeguard, and shall account to Fund, upon its
demand for, all such share certificates: (A) as issued, showing to whom issued,
or (B) as unissued, establishing the safekeeping, cancellation or destruction
thereof.
Section 3.3 Fund shall promptly inform DSC in writing of any change in
the officers authorized to sign share certificates or in the form thereof. If
an officer whose manual or fascimile 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.
-4-
<PAGE>
IV. TRANSFER AGENT
Section 4.1 As Transfer Agent, DSC shall issue, redeem and transfer
Fund shares, and, in connection therewith but not in limitation thereof, it
shall:
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-shareholder accounts and crediting such shares to accounts
created and/or maintained for transferee-shareholders; if applicable, issue
and/or cancel stock certificates.
C. Upon proper redemption authorization, determine the
total shares to be redeemed and redeemed; determine the total redemption
payments to be made and made; redeem shares by debting shareholder accounts; as
applicable receive and cancel stock certificates for shares redeemed; and remit
or cause to be remitted the redemption proceeds to shareholders.
D. Create and maintain accounts; reconcile and control
cash due and paid, shares issued and to be issued, cash to be remitted and
remitted and shares debted and credited to accounts; provide such notices,
instructions or authorizations as Fund may require.
Section 4.2 DSC shall not be required to issue, transfer or redeem Fund
shares upon receipt of it from Fund, or from any federal or state regulatory
agency or authority, written notice that the issuance, transfer or redemption
of Fund shares has been suspended or discontinued.
V. DIVIDEND DISBURSING AGENT
Section 5.1 As Dividend Disbursing Agent, DSC shall disburse and cause
to be disbursed to Fund shareholders Fund dividends, capital gains distributions
or any payments from other sources as directed by Fund. In connection
therewith, but not in limitation thereof, DSC shall:
-5-
<PAGE>
A. Calculate the total disbursement due and payable and
the disbursement to each shareholder as to shares owned, in accordance with
Fund's authorization.
B. Calculate the total disbursements for each shareholder,
as aforesaid, to be disbursed in cash; prepare and mail check therefor.
C. Calculate the total disbursement for each shareholder,
as aforesaid, for which Fund shares are to be issued, and authorized and
instruct the issuance of Fund shares therefor in accordance with Section IV
hereof.
D. Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by the 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 Fund may require.
Section 5.2 DSC shall not be required to make any disbursement upon
the receipt from Fund, or from any federal or state agency or authority,
written notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
Section 6.1 As Shareholder Servicing Agent, 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 Fund or
its custodian payments for shares acquired and to be issued; and direct the
issuance of shares in accordance with Section IV hereof.
-6-
<PAGE>
B. Receive, record and respond to communications of
shareholders and their agents.
C. As instructed by Fund, prepare and mail shareholder
account information, mail Fund shareholder reports and Fund prospectuses.
D. Prepare and mail Fund proxies and material for Fund
shareholder meetings, receive and process proxies from shareholders, and deliver
such proxies as directed by Fund.
E. Administer investment plans offered by Fund to
investors and Fund shareholders, including Retirement Plans, including
activities not otherwise provided in Section I through V of this Agreement.
VII. PERFORMANCE OF DUTIES
Section 7.1 The parties hereto intend that Fund shareholders and their
shareholdings 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 Fund.
Section 7.2 DSC may, in performing this Agreement, require Fund or
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 shareholders.
Section 7.3 DSC may request or receive instructions from Fund and may at
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.
Section 7.4 DSC shall maintain reasonable insurance coverage for errors
and omissions and reasonable bond coverage for fraud.
Section 7.5 Upon notice thereof to Fund DSC may employ others to provide
services to DSC in its performance of this Agreement.
-7-
<PAGE>
Section 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
Fund, the other Funds of the Delaware Group and others.
Section 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, safeguards 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 Fund's records.
Section 7.8 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
Section 8.1 Fund and DSC acknowledge that because DSC has common
ownership and close management ties with Fund's investment advisor and Fund's
distributor and serves the other Funds of the Delaware Group, DSC having been
originally established to provide the services hereunder for Fund and the other
Funds of the Delaware Group, advantages and benefits to Fund in the employment
of DSC hereunder can be available which may not generally be available to it
from others providing similar services.
Section 8.2 Fund and DSC further acknowledge that the compensation by
Fund to DSC is intended to induce DSC to provide services under this agreement
of a nature and quality which the Board of Trustees of Fund, including a
majority who are not parties to this agreement or interested person 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 Fund and its
shareholders.
-8-
<PAGE>
Section 8.3 Compensation by 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.
Section 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 Trustees
of 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
Section 9.1 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 contract, 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 herewith or in accordance with
Guidelines or instructions given hereunder, shall be borne by Fund.
X. CONTRACTUAL STATUS
Section 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 Trustees,
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 Trustees of
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 such approval.
-9-
<PAGE>
Section 10.2 This Agreement may not be assigned without the approval of
Fund.
Section 10.3 This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/S/JOSEPH J. DANIERO
--------------------
Joseph J. Daniero
ATTEST:/S/GEORGE M. CHAMBERLAIN
------------------------
George M. Chamberlain
DMC TAX-FREE INCOME TRUST -
PENNSYLVANIA
/S/WAYNE A. STORK
-----------------
Wayne A. Stork
ATTEST:/S/STEPHEN C. BEACH
-------------------
Stephen C. Beach
-10-
<PAGE>
SCHEDULE A
COMPENSATION
1. 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 per transaction, as may be applicable, for services
provided. DSC will bill, and the Fund will pay, such compensation monthly.
3. For the period commencing October 1, 1984, the charge will be at the
annual rate of $17.25 per account.
<PAGE>
SCHEDULE A
COMPENSATION
1. 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 per transaction, as may be applicable, for services
provided. DSC will bill, and the Fund will pay, such compensation monthly.
3. The fee will consist of an annual per account charge coupled with a series
of transaction charges. These are as follows:
A. ANNUAL CHARGE
Daily Dividend Funds $9.00 per annum
Other Funds
$4.20 per annum
B. TRANSACTION CHARGE
TRANSACTION CHARGE
----------- ------
1. Dividend Payment $ 0.35
2. New Account 5.75
3. Purchase:
a. Wire 6.00
b. Money Market Automated 1.50
c. Other 2.25
4. Transfer 2.25
5. Certificate Issuance 2.00
6. Liquidation:
a. Wire 12.25
b. Draft .50
c. Money Market Regular 2.50
d. Daily Dividend Regular 6.00
7. Exchanges 7.00
<PAGE>
EX-99.B11
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this Post-
Effective Amendment No. 37 to the Registration Statement (Form N-1A) (No. 2-
57791) of DMC Tax-Free Income Trust - Pennsylvania of our report dated April, 4
1997, included in the 1997 Annual Report to Shareholders.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
April 24, 1997
<PAGE>
Report of Independent Auditors
To the Trustees and Beneficial Shareholders
DMC Tax-Free Income Trust - Pennsylvania
We have audited the accompanying statement of net assets of DMC Tax-Free Income
Trust - Pennsylvania (the "Trust") as of February 28, 1997 and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of February 28, 1997, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly in all material respects, the financial position of DMC
Tax-Free Income Trust - Pennsylvania at February 28, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
April 4, 1997
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN:
n
P(1 + T) = ERV
ONE
YEAR
- --------------
1
$1000(1 - T) = $1,025.51
T = 2.55%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN:
n
P(1 + T) = ERV
ONE
YEAR
- --------------
1
$1000(1 - T) = $1,035.25
T = 3.53%
<PAGE>
DELAWARE GROUP TAX-FREE INCOME TRUST- PENNSYLVANIA FUND A
TOTAL RETURN PERFORMANCE
SIX MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.22
Initial Shares 121.655
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 121.655 $0.337 0.000 126.705
- -------------------------------------------------------------------
Ending Shares 126.705
Ending NAV x $8.24
---------
Investment Return $1,044.05
Total Return Performance
- ------------------------
Investment Return $1,044.05
Less Initial Investment $1,000.00
---------
$44.05 / $1,000.00 x 100
Total Return: 4.41%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.33
Initial Shares 120.048
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 120.048 $0.094 0.000 121.418
- -------------------------------------------------------------------
Ending Shares 121.418
Ending NAV x $8.24
---------
$1,000.48
Less CDSC $9.89
---------
Investment Return $990.59
Total Return Performance
- ------------------------
Investment Return $990.59
Less Initial Investment $1,000.00
---------
($9.41) / $1,000.00 x 100
Total Return: 0.94%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.22
Initial Shares 121.655
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 121.655 $0.305 0.000 126.207
- -------------------------------------------------------------------
Ending Shares 126.207
Ending NAV x $8.24
---------
$1,039.95
Less CDSC $10.00
---------
Investment Return $1,029.95
Total Return Performance
- ------------------------
Investment Return $1,029.95
Less Initial Investment $1,000.00
-----------
$29.95 / $1,000.00 x 100
Total Return: 3.00%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
NINE MONTHS (INCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.24
Initial Shares 121.359
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 121.359 $0.404 0.000 127.888
- -------------------------------------------------------------------
Ending Shares 127.888
Ending NAV x $8.24
----------
$1,053.80
Less CDSC $10.00
---------
Investment Return $1,043.80
Total Return Performance
- ------------------------
Investment Return $1,043.80
Less Initial Investment $1,000.00
---------
$43.80 / $1,000.00 x 100
Total Return: 4.38%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.46
Initial Shares 118.203
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 118.203 $0.505 0.000 125.637
- -------------------------------------------------------------------
Ending Shares 125.637
Ending NAV x $8.24
---------
$1,035.25
Less CDSC $9.74
---------
Investment Return $1,025.51
Total Return Performance
- ------------------------
Investment Return $1,025.51
Less Initial Investment $1,000.00
---------
$25.51 / $1,000.00 x 100
Total Return: 2.55%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.33
Initial Shares 120.048
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 120.048 $0.094 0.000 121.418
- -------------------------------------------------------------------
Ending Shares 121.418
Ending NAV x $8.24
---------
Investment Return $1,000.48
Total Return Performance
- ------------------------
Investment Return $1,000.48
Less Initial Investment $1,000.00
---------
$0.48 / $1,000.00 x 100
Total Return: 0.05%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.22
Initial Shares 121.655
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 121.655 $0.305 0.000 126.207
- -------------------------------------------------------------------
Ending Shares 126.207
Ending NAV x $8.24
---------
Investment Return $1,039.95
Total Return Performance
- ------------------------
Investment Return $1,039.95
Less Initial Investment $1,000.00
---------
$39.95 / $1,000.00 x 100
Total Return: 4.00%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.24
Initial Shares 121.359
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 121.359 $0.404 0.000 127.888
- -------------------------------------------------------------------
Ending Shares 127.888
Ending NAV x $8.24
---------
Investment Return $1,053.80
Total Return Performance
- ------------------------
Investment Return $1,053.80
Less Initial Investment $1,000.00
---------
$53.80 / $1,000.00 x 100
Total Return: 5.38%
<PAGE>
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND C CLASS
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
Initial Investment $1,000.00
Beginning OFFER $8.46
Initial Shares 118.203
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------
1997 118.203 $0.505 0.000 125.637
- -------------------------------------------------------------------
Ending Shares 125.637
Ending NAV x $8.24
---------
Investment Return $1,035.25
Total Return Performance
- ------------------------
Investment Return $1,035.25
Less Initial Investment $1,000.00
---------
$35.25 / $1,000.00 x 100
Total Return: 3.53%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000201670
<NAME> DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
<SERIES>
<NUMBER> 001
<NAME> TAX-FREE PENNSYLVANIA FUND A CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> FEB-28-1997
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<INVESTMENTS-AT-VALUE> 982,412,411
<RECEIVABLES> 16,242,675
<ASSETS-OTHER> 33,620
<OTHER-ITEMS-ASSETS> 55,896
<TOTAL-ASSETS> 998,744,602
<PAYABLE-FOR-SECURITIES> 9,561,168
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,100,048
<TOTAL-LIABILITIES> 11,661,216
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 945,212,411
<SHARES-COMMON-STOCK> 115,841,642
<SHARES-COMMON-PRIOR> 118,524,652
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,418,253
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,452,722
<NET-ASSETS> 954,257,556
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 63,597,365
<OTHER-INCOME> 0
<EXPENSES-NET> 9,217,829
<NET-INVESTMENT-INCOME> 54,379,536
<REALIZED-GAINS-CURRENT> 10,401,047
<APPREC-INCREASE-CURRENT> (24,151,527)
<NET-CHANGE-FROM-OPS> 40,629,056
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 53,105,291
<DISTRIBUTIONS-OF-GAINS> 13,225,478
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,949,608
<NUMBER-OF-SHARES-REDEEMED> 15,397,947
<SHARES-REINVESTED> 4,765,329
<NET-CHANGE-IN-ASSETS> (36,788,877)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,648,492
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,727,743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,217,829
<AVERAGE-NET-ASSETS> 961,785,810
<PER-SHARE-NAV-BEGIN> 8.460
<PER-SHARE-NII> 0.456
<PER-SHARE-GAIN-APPREC> (0.105)
<PER-SHARE-DIVIDEND> 0.456
<PER-SHARE-DISTRIBUTIONS> 0.115
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.240
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<CIK> 0000201670
<NAME> DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
<SERIES>
<NUMBER> 002
<NAME> TAX-FREE PENNSYLVANIA FUND B CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 941,959,689
<INVESTMENTS-AT-VALUE> 982,412,411
<RECEIVABLES> 16,242,675
<ASSETS-OTHER> 33,620
<OTHER-ITEMS-ASSETS> 55,896
<TOTAL-ASSETS> 998,744,602
<PAYABLE-FOR-SECURITIES> 9,561,168
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,100,048
<TOTAL-LIABILITIES> 11,661,216
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 945,212,411
<SHARES-COMMON-STOCK> 3,841,446
<SHARES-COMMON-PRIOR> 2,465,368
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,418,253
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,452,722
<NET-ASSETS> 31,644,310
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 63,597,365
<OTHER-INCOME> 0
<EXPENSES-NET> 9,217,829
<NET-INVESTMENT-INCOME> 54,379,536
<REALIZED-GAINS-CURRENT> 10,401,047
<APPREC-INCREASE-CURRENT> (24,151,527)
<NET-CHANGE-FROM-OPS> 40,629,056
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,244,693
<DISTRIBUTIONS-OF-GAINS> 396,374
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,488,828
<NUMBER-OF-SHARES-REDEEMED> 245,114
<SHARES-REINVESTED> 132,364
<NET-CHANGE-IN-ASSETS> (36,788,877)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,648,492
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,727,743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,217,829
<AVERAGE-NET-ASSETS> 26,553,399
<PER-SHARE-NAV-BEGIN> 8.460
<PER-SHARE-NII> 0.390
<PER-SHARE-GAIN-APPREC> (0.105)
<PER-SHARE-DIVIDEND> 0.390
<PER-SHARE-DISTRIBUTIONS> 0.115
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.240
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<SERIES>
<NUMBER> 003
<NAME> TAX-FREE PENNSYLVANIA FUND C CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 941,959,689
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