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Delaware Investments includes funds with a wide range of ---------------------------------------------
investment objectives. Stock funds, income funds, national
and state-specific tax-exempt funds, money market funds,
global and international funds and closed-end funds give DELAWARE GROUP TAX-FREE MONEY FUND
investors the ability to create a portfolio that fits their
personal financial goals. For more information, contact your DELAWARE TAX-FREE MONEY FUND
financial adviser or call Delaware Investments at
800-523-1918.
---------------------------------------------
DELAWARE TAX-FREE MONEY FUND
A CLASS
INVESTMENT MANAGER DELAWARE TAX-FREE MONEY FUND CONSULTANT CLASS
Delaware Management Company
One Commerce Square ---------------------------------------------
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street PART B
Philadelphia, PA 19103
STATEMENT OF ADDITIONAL INFORMATION
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES, JUNE 29, 2000
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
The Chase Manhattan Bank [OBJECT OMITTED]
4 Chase Metrotech Center
Brooklyn, NY 11245
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STATEMENT OF ADDITIONAL INFORMATION
June 29, 2000
DELAWARE TAX-FREE MONEY FUND
1818 Market Street
Philadelphia, PA 19103
For Prospectus and Performance: Nationwide 800-523-1918
Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Delaware Group Tax-Free Money Fund (the "Trust") is a
professionally-managed mutual fund which offers one series of shares: Delaware
Tax-Free Money Fund (the "Fund"). The Fund offers Class A Shares and Consultant
Class Shares (individually, a "Class" and collectively, the "Classes").
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus for
the Fund dated June 29, 2000, as it may be amended from time to time. Part B
should be read in conjunction with the Prospectus. Part B is not itself a
prospectus but is, in its entirety, incorporated by reference into the
Prospectus. The 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"), at the above address or by calling the above phone
numbers. The Fund's financial statements, the notes relating thereto, the
financial highlights and the report of independent auditors are incorporated by
reference from the Annual Report into this Part B. The Annual Report will
accompany any request for Part B. The Annual Report can be obtained, without
charge, by calling 800-523-1918.
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TABLE OF CONTENTS
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Cover Page Taxes
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Investment Objective and Policies Investment Management Agreement
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Performance Information Officers and Trustees
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Trading Practices General Information
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Purchasing Shares Financial Statements
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Offering Price Appendix A - Description of Ratings
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Redemption and Exchange Appendix B - Investment Objectives of the
Delaware Investments Funds
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Dividends and Distributions
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek a high level of current
income, exempt from federal income tax, consistent with preservation of
principal and maintenance of liquidity. There is no assurance that this
objective can be achieved.
The Fund maintains a net asset value at $1.00 per share by valuing its
securities on an amortized cost basis. See Offering Price. The Fund maintains a
dollar weighted average portfolio maturity of not more than 90 days and does not
purchase any issue having an effective remaining maturity of more than 397
days (approximately 13 months). In addition, the Fund limits its investments,
including repurchase agreements, to those instruments which the Board of
Trustees determines present minimal credit risks and which are of high quality
and otherwise will meet the maturity, quality and diversification conditions
with which tax-exempt money market funds must comply. In the event of a marked
increase in current interest rates or of a national credit crisis, principal
values could be adversely affected. While the Fund will make every effort to
maintain a fixed net asset value of $1.00 per share, there can be no assurance
that this objective will be achieved.
The Fund's investments may include municipal bonds and notes, tax-free
commercial paper and short-term tax-free notes. They may also include
construction loan notes, project notes, tax anticipation notes, bond
anticipation notes, revenue anticipation notes and pre-refunded obligations
issued by states, territories and possessions of the United States, the District
of Columbia, political subdivisions of the above and duly constituted
authorities and corporations, the interest from which is wholly exempt from
federal income tax.
The Fund invests primarily in municipal obligations. "Municipal
obligations" include "general obligation" and "revenue" issues. General
obligation issues are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue issues are
payable only from the revenues derived from a particular facility or class of
facilities. Municipal obligations may be issued 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 refunding outstanding obligations, obtaining funds
for general operating expenses and obtaining funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development obligations 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 obligations"
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 obligations, 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. Tax-exempt industrial development obligations are in most cases revenue
obligations and do not generally carry the pledge of the credit of the issuing
municipality.
The Fund may also purchase project notes issued by local agencies under
a program administered by the United States Department of Housing and Urban
Development. Project notes are secured by the full faith and credit of the
United States.
The Fund may invest up to 20% of its net assets in securities the
income from which is subject to the federal alternative minimum tax. Although
exempt from regular federal income tax, interest paid on certain 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. 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 non-government activities, 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.
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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
its distributions would be subject to the federal alternative minimum tax
applicable to certain shareholders.
The ratings of Standard & Poor's ("S&P") and Moody's Investors
Service, Inc. ("Moody's") represent their opinions as to the quality of the
municipal issues which they undertake to rate. It should be emphasized, however,
that ratings are general and are not absolute standards of quality. These
ratings are the initial criteria for selection of portfolio investments, but the
Fund will further evaluate these securities. If at the time of purchase, a
security or, as relevant, its issuer is rated in one of the two highest rating
categories (e.g. for municipal bonds, AA or better by S&P or Aa or better by
Moody's; for tax-free commercial paper and short-term tax-free notes, A-2 or
better by S&P or P-2 or better by Moody's; and for state or municipal notes,
MIG-2 or better by Moody's) by at least two nationally-recognized statistical
rating organizations (or if rated by only one such organization, so rated by
such organization). If the security or, as relevant, its issuer has not been
rated, the Manager must determine that the security is comparable to securities
that are rated in one of the two highest rating categories in accordance with
the conditions with which tax-exempt money market funds must comply. The Fund
will not invest more than 5% of its total assets in securities rated in the
second highest category by a rating organization. The Fund may also invest in
U.S. government securities (as defined in the Investment Company Act of 1940
(the "1940 Act").
See Appendix A for a description of municipal obligations ratings.
The Fund may also invest in variable or floating rate demand obligation
instruments and other municipal securities with a maturity in excess of 397
days, but which have a demand feature whereby the Fund may tender the instrument
or security back to the issuer or to another entity as described below,
consistent with the conditions with which tax-exempt money market funds must
comply. Such obligations may be backed by a Letter of Credit or other guarantee.
The Fund will consider the rating of the guarantor and the nature of the
guarantee in evaluating the quality of the obligation.
Generally, a demand feature entitles the Fund to require the provider
of the demand feature to purchase the securities from the Fund at their
principal amount (usually with accrued interest) within a fixed period
(generally seven days, but the period may be longer) following a demand by the
Fund. Certain securities with a demand feature permit the Fund to tender the
security only at the time of an interest rate adjustment or at other fixed
intervals. The demand feature may be provided by the issuer of the underlying
security, a bank, a dealer in the securities or by another third party, and may
not be transferred separately from the underlying security. Certain demand
features are conditional which means that they may not be exercised or may
terminate under certain limited circumstances. The bankruptcy or receivership
of, or default by, the provider of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise will adversely affect the liquidity of the underlying security.
As described above, the Fund invests in securities backed by banks and
other financial institutions. As a result, changes in the credit quality of
these institutions could cause losses to the Fund and affect its share price.
However, the Fund is managed in accordance with the diversification, quality and
other restrictions applicable under the 1940 Act to tax-exempt money market
funds. Such restrictions are designed to minimize the effect that any one
security in the Fund's portfolio may have on the Fund's performance and share
price.
The Fund may not, at the time of purchase, invest more than 25% of its
assets in securities of governmental subdivisions located in any one state,
territory or U.S. possession. It may invest up to 25% of its assets in
short-term, tax-exempt project notes guaranteed by the U.S. government,
regardless of the location of the issuing municipality.
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Up to 20% of the Fund's portfolio may be invested in issues which are
not exempt from federal income tax such as commercial paper, corporate notes,
certificates of deposit, obligations of the U.S. government, its agencies or
instrumentalities, when-issued securities and repurchase agreements of the above
issuers. Any such investments will meet the conditions with which tax-exempt
money market funds must comply when purchasing such instruments.
While the Fund intends to hold its investments until maturity when they
will be redeemable at their full principal value plus accrued interest, attempts
may be made, from time to time, to increase its yield by trading to take
advantage of market variations. Also, revised evaluations of the issuer or
redemptions may cause sales of portfolio investments prior to maturity or at
times when such sales might otherwise not be desirable. The Fund's right to
borrow to facilitate redemptions may reduce but does not guarantee a reduction
in the need for such sales. The Fund will not purchase new securities while any
borrowings are outstanding. See Dividends and Distributions and Taxes for the
effect of any capital gains distributions.
A shareholder's rate of return will vary with the general interest rate
levels applicable to the instruments in which the Fund invests. The rate of
return and the net asset value will be affected by such other factors as sales
of portfolio securities prior to maturity and the Fund's operating expenses.
When-Issued Securities
The Fund may invest in "when-issued securities." New issues of
municipal obligations are frequently offered on a when-issued basis; that is,
delivery and payment for the municipal obligations normally take place from five
to not more than 45 days after the date of the commitment to purchase. The
payment obligation and the interest rate that will be received on the municipal
obligations are each fixed at the time the buyer enters into the commitment.
During the time between the commitment and settlement the Fund does not accrue
interest, but the market value of the securities may fluctuate. This can result
in the Fund's share value increasing or decreasing. The Fund will set aside in a
segregated account liquid assets equal in value to commitments for such
when-issued securities to pay for them and mark it to market daily. Delayed
delivery agreements will not be used in a speculative manner.
Demand Features
The Fund may invest in certain municipal securities that have a demand
feature provided by a bank, a dealer in the securities or another third party,
which enables the Fund to sell the securities to the provider of the demand
feature. Such investments may require the Fund to pay "tender fees" or other
fees for the various features provided. The Fund intends to take the position
that it is the owner of any municipal securities that have a demand feature
provided by a third party and that tax-exempt interest earned with respect to
such municipal securities will be tax-exempt in its hands. However, the Internal
Revenue Service (the "Service") ordinarily does not issue advance ruling letters
relating to the identity of the true owner of property in cases involving the
sale of securities if the purchaser has the right to cause the security to be
purchased by a third party, and there can be no assurance that the Service will
agree with the Fund's position in any particular case. Additionally, the federal
income tax treatment of certain other aspects of these investments, including
the treatment of tender fees, in relation to various regulated investment
company tax provisions is unclear. However, Delaware Management Company (the
"Manager") intends to manage the Fund's portfolio in a manner designed to
minimize any adverse impact from the tax rules applicable to these investments.
Asset-Backed Securities
The Fund may also invest in securities which are backed by assets such
as receivables on home equity and credit card loans, and receivables regarding
automobile, mobile home and recreational vehicle loans, wholesale dealer floor
plans and leases. All such securities must be rated in the highest rating
category by a reputable credit rating agency (e.g., AAA by S&P's or Aaa by
Moody's). The credit quality of most asset-backed securities depends primarily
on the credit quality of the assets underlying such securities, how well the
entities issuing the securities are insulated from the credit risk of the
originator or affiliated entities, and the amount of credit support provided to
the securities. Such receivables typically are securitized in either a
pass-through or a pay-through structure. Pass-through securities provide
investors with an income stream consisting of both principal and interest
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payments in respect of the receivables in the underlying pool. Pay-through
asset-backed securities are debt obligations issued usually by a special purpose
entity, which are collateralized by the various receivables and in which the
payments on the underlying receivables provide the funds to pay the debt service
on the debt obligations issued. The Fund may invest in these and other types of
asset-backed securities that may be developed in the future. It is the Fund's
current policy to limit asset-backed investments to those represented by
interests in credit card receivables, wholesale dealer floor plans, home equity
loans and automobile loans.
The rate of principal payment on asset-backed securities generally
depends upon the rate of principal payments received on the underlying assets.
Such rate of payments may be affected by economic and various other factors such
as changes in interest rates. Therefore, the yield may be difficult to predict
and actual yield to maturity may be more or less than the anticipated yield to
maturity. Such asset-backed securities also involve certain other risks,
including the risk that security interests cannot be adequately or in many
cases, ever, established. In addition, with respect to credit card receivables,
a number of state and federal consumer credit laws give debtors the right to set
off certain amounts owed on the credit cards, thereby reducing the outstanding
balance. In the case of automobile receivables, there is a risk that the holders
may not have either a proper or first security interest in all of the
obligations backing such receivables due to the large number of vehicles
involved in a typical issuance and technical requirements under state laws.
Therefore, recoveries on repossessed collateral may not always be available to
support payments on the securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payments of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Fund will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class), the
creation of "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over-collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceed that required to make
payments of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
Although the Fund is permitted by its investment policies to invest up
to 20% of its assets in securities of this type, it does not presently intend to
invest more than 5% of its assets in such securities.
Restricted and Illiquid 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 (the "1933 Act"). 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,
including repurchase agreements maturing in more than seven days.
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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.
Repurchase Agreements
The Fund may also invest in repurchase agreements sold by banks or
brokers collateralized by securities in which the Fund can invest directly. A
repurchase agreement is an instrument under which securities are purchased from
a bank or securities dealer with an agreement by the seller to repurchase the
securities. Under a repurchase agreement, the purchaser acquires ownership of
the security but the seller agrees, at the time of sale, to repurchase it at a
mutually agreed upon time and price. The Fund will take custody of the
collateral under repurchase agreements. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller secured by the
securities transferred. The resale price is in excess of the purchase price and
reflects an agreed upon market rate unrelated to the coupon rate or maturity of
the purchased security. Such transactions afford an opportunity for the Fund to
invest temporarily available cash on a short-term basis. The Fund's risk is
limited to the seller's ability to buy the security back at the agreed upon sum
at the agreed upon time, since the repurchase agreement is secured by the
underlying government obligation.
Concentration
In applying the Fund's fundamental policy concerning concentration that
is described below, it is a matter of non-fundamental policy that: (i) utility
companies will be divided according to their services, for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (iii) asset
backed securities will be classified according to the underlying assets securing
such securities.
Investment Restrictions
Fundamental Restrictions -- The Fund has adopted the following
restrictions for the Fund which cannot be changed without approval by the
holders of a "majority" of the Fund's outstanding shares, 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.
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The Fund shall not:
1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or other thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit the Fund from investing in obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or in tax-exempt securities or certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the 1933 Act.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
Non-Fundamental Investment Restrictions -- In addition to the
fundamental policies and investment restrictions described above, and the
various general investment policies described in the Prospectus, the Fund will
be subject to the following investment restrictions, which are considered
non-fundamental and may be changed by the Board of Trustees without shareholder
approval.
1. The Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, the Fund may not operate as a "fund of funds"
which invests primarily in the shares of other investment companies as permitted
by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2. The Fund may not invest more than 15% of its net assets in
securities which it cannot sell or dispose of in the ordinary course of business
within seven days at approximately the value at which the Fund has valued the
investment.
The following sets forth additional investment restrictions for the
Fund, which are considered non-fundamental and may be changed by the Board of
Trustees without shareholder approval. The percentage limitations contained in
the restrictions and policies set forth herein apply at the time of purchase of
securities.
The Fund shall not:
1. Invest more than 20% of its assets in securities other than tax-free
money market instruments as defined above, unless extraordinary circumstances
dictate a more defensive posture.
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2. Borrow an amount in excess of 5% of the value of its net assets and
then only as a temporary measure for extraordinary purposes or to facilitate
redemptions. Any outstanding borrowings shall be repaid before additional
securities are purchased.
3. Sell securities short or purchase securities on margin.
4. Write or purchase put options or call options.
5. Underwrite the securities of other issuers, except that the Fund may
acquire portfolio securities under circumstances where, if the securities are
later publicly offered or sold by the Fund, it might be deemed an underwriter
for purposes of the 1933 Act. Not more than 10% of the value of the Fund's net
assets at the time of acquisition will be invested in such securities.
6. Purchase or sell commodities or commodity contracts.
7. Purchase or sell real estate, but this shall not prevent the Fund
from investing in securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or interests therein.
8. Make loans to other persons except by the purchase of obligations in
which the Fund is authorized to invest and to enter into repurchase agreements.
Not more than 10% of the Fund's total assets will be invested in repurchase
agreements maturing in more than seven days and in other illiquid assets.
9. Purchase securities of any issuer (except the U.S. government, its
agencies or instrumentalities or securities which are backed by the full faith
and credit of the United States) if, as a result, more than 5% of its total
assets would be invested in the securities of such issuer.
10. Invest in issuers for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
12. Purchase securities if, as a result of such purchase, more than 25%
of the value of its assets would be invested in the securities of government
subdivisions located in any one state, territory or possession of the United
States. The Fund may invest more than 25% of the value of its assets in
short-term tax-exempt project notes which are guaranteed by the U.S. government,
regardless of the location of the issuing municipality.
13. Retain in the portfolio of the Fund securities issued by an issuer
any of whose officers, trustees or security holders is an officer or trustee
of the Fund or of the investment manager of the Fund if after the purchase of
the securities of such issuer by the Fund one or more of such officers or
trustees owns beneficially more than 1/2 of 1% of the shares or securities or
both of such issuer and such officers and trustees owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities.
14. Invest funds in securities whose issuers or guarantors of principal
and interest (including predecessors) have a record of less than three years'
continuous operation if such purchase at the time thereof would cause more than
5% of the total Fund assets to be invested in the securities of such issuers or
guarantors.
15. Invest in direct interests in oil, gas or other mineral exploration
or development programs.
Although not a fundamental investment restriction, the Fund currently
does not invest its assets in real estate limited partnerships. In addition, the
Fund excludes from the 5% limitation set forth in investment restriction number
9 above, those municipal securities that are refunded with U.S. government
securities, commonly known as pre-refunded municipal securities, which the staff
of the SEC deems to constitute U.S. government securities as that term is
defined in the 1940 Act.
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PERFORMANCE INFORMATION
For the seven-day period ended April 30, 2000, the annualized
current yield of Class A Shares and Consultant Class Shares was 3.53% for
each Class and the compounded effective yield was 3.59% for each Class.
These yields will fluctuate daily as income earned fluctuates and is not
guaranteed. On this date, the weighted average portfolio maturity was 51
days for the Fund. The current yield of Class A Shares is expected to be
slightly higher than that of Consultant Class Shares during any period that the
distribution fee under the Fund's 12b-1 Plan for Consultant Class Shares is
being paid. The Board of Trustees of the Fund suspended 12b-1 Plan payments from
Consultant Class Shares to the Distributor, effective June 1, 1990. Such
payments may be reinstituted in the future with prior approval of the Board of
Trustees.
Shareholders and prospective investors will be interested in learning
from time to time the current and the effective compounded yield of a Class of
shares. As explained under Dividends and Distributions, dividends are declared
daily from net investment income. The current yield of the Fund's Classes of
shares is calculated as follows:
The calculation begins with the value of a hypothetical account of one
share at the beginning of a seven-day period; this is compared with the value of
that same account at the end of that seven-day period (including shares
purchased for the account with dividends earned during the period). The net
change in the account value is generally the net income earned per share during
the period, which consists of accrued interest income plus or minus amortized
purchase discount or premium, less all accrued expenses (excluding expenses
reimbursed by the investment manager) but does not include realized gains or
losses or unrealized appreciation or depreciation.
The current yield of the Classes represents the net change in this
hypothetical account annualized over 365 days. In addition, a shareholder may
achieve a compounding effect through reinvestment of dividends which is
reflected in each Class' effective yield.
The Fund may also publish a tax-equivalent yield for each Class based
on federal and, if applicable, state tax rates, which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to each such Class'
yield. For the seven-day period ended April 30, 2000, the tax-equivalent
yield of Class A Shares and Consultant Class Shares was 5.12%, 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. Yield fluctuates and is not guaranteed. The tax-equivalent yield
does not consider the effect of applicable deductions or state income taxes.
Past performance is not an indication of future results.
-11-
<PAGE>
The following table is an example, for purposes of illustration only,
of the current and effective yield calculations for the seven-day period ended
April 30, 2000 for each Class. Past performance is not an indication of
future results.
<TABLE>
<CAPTION>
Class A Shares Consultant
Class Shares
<S> <C> <C>
Value of a hypothetical account with one share $1.00000000 $1.00000000
at the beginning of the period................................
Value of the same account at the end of the period..................... 1.00067556 1.00067562
============ ============
Net change in account value............................................ .00067556(1) .00067562(1)
============ ============
Base period return = net change in account .00067556 .00067562
============ ============
value/beginning account value.................................
Current yield [base period return x (366/7)] .......................... 3.53%(2) 3.53%(2)
============ ============
Effective yield (1 + base period)366/7 - 1............................ 3.59%(3) 3.59%(3)
============ ============
</TABLE>
Weighted average life to maturity of the portfolio on April 30, 2000 was
51 days.
(1) This represents the net income per share for the seven calendar days ended
April 30, 2000.
(2) This represents the average of annualized net investment income per share
for the seven calendar days ended April 30, 2000.
(3) This represents the current yield for the seven calendar days ended April
30, 2000 compounded daily.
The Prospectus and this Part B may be in use for a full year and,
accordingly, it can be expected that yields will fluctuate substantially from
the example shown above.
The yield quoted at any time represents the amount being earned on a
current basis and is a function of the types of instruments in the Fund's
portfolio, their quality and length of maturity and the Fund's operating
expenses. The length of maturity for the portfolio is the average dollar
weighted maturity of the portfolio. This means that the portfolio has an average
maturity of a stated number of days for its issues. The calculation is weighted
by the relative value of the investment.
The yield will fluctuate daily as the income earned on the investments
of the Fund fluctuates. Accordingly, there is no assurance that the yield quoted
on any given occasion will remain in effect for any period of time. The current
yield may include income which is not exempt from federal income tax since the
Fund is permitted to invest a portion of its investments in non-tax-exempt
securities. It also should be emphasized that the Fund is an open-end investment
company and that there is no guarantee that the net asset value or any stated
rate of return will remain constant. A shareholder's investment in the Fund is
not insured. Investors comparing results of the Fund with investment results and
yields from other sources such as banks or savings and loan associations should
understand these distinctions. Historical and comparative yield information may,
from time to time, be presented by the Fund. Although the Fund determines the
yield on the basis of a seven calendar day period, it may use a different time
span from time to time.
Other funds of the money market type may calculate their yield on a
different basis and the yield quoted by the Fund could vary upward or downward
if another method of calculation or base period were used. Shareholders and
prospective investors who wish to learn the current yield of the Fund may call
toll free, nationwide 800-523-1918.
-12-
<PAGE>
The average annual total compounded rate of return of each 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;
------------- -------- ---- ----------------------------------------------------
T = average annual total return;
------------- -------- ---- ----------------------------------------------------
n = number of years;
------------- -------- ---- ----------------------------------------------------
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period.
--------------------------------------------------------------------------------
The performance, as shown below, is the average annual total return
quotations for each Class through April 30, 2000, calculated as an average
annual compounded rate of return for the periods indicated. For this purpose,
the calculations assume the reinvestment of all dividend distributions paid
during the indicated periods. Interest rates fluctuated during the period
covered by the table and the Fund's results should not be considered as
representative of future performance. Total return for Consultant Class Shares
for the periods prior to the commencement of operations of such Class is based
on the performance of Class A Shares. For periods prior to the commencement of
operations of Consultant Class Shares, the total return calculation does not
reflect the 12b-1 payments that were applicable to such Class during the period
March 15, 1988 through June 1, 1990. If such payments were reflected in the
calculations, performance would have been affected.
Average Annual Total Return
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
1 year ended 3 years ended 5 years ended 10 years 15 years Life of Fund
4/30/00 4/30/00 4/30/00 ended ended
4/30/00 4/30/00
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A 2.61% 2.60% 2.71% 2.81% 3.44% 3.89%
(Inception 9/17/81)
-------------------------------------------------------------------------------------------------------------------------
Consultant Class 2.61% 2.60% 2.71% 2.81% 3.40% 3.86%
(Inception 3/15/88)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
From time to time, the Fund may also quote current yield information of
the Classes with the sample average rates paid on bank money market deposit
accounts. The bank money market deposit averages are the stated rates of 100
large banks and thrifts in the top five standard metropolitan statistical areas
as determined by the Bank Rate Monitor. The Fund's figures for a Class will be
the annualized yields representing an average of that Class' after-expense per
share earnings divided by cost per share for each day of the fiscal month, or
period, noted. Yield fluctuates depending on portfolio type, quality, maturity
and operating expenses. Principal is not insured and the results shown should
not be considered as representative of the yield which may be realized from an
investment made in the Fund at any time in the future.
From time to time, the Fund may quote actual total return and/or yield
performance for its Classes in advertising and other types of literature. This
information may be compared to that of other mutual funds with similar
investment objectives and to stock, bond an other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance comparisons of the Fund (or Class) 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 the Bank Rate Monitor, and
those of corporate and government security price indices may be compared to data
prepared by Lipper Analytical Services, Inc., IBC/Donoghue or the performance of
unmanaged indices compiled or maintained by statistical research firms such as
Lehman Brothers or Salomon Brothers, Inc.
-13-
<PAGE>
Lipper Analytical Services, Inc. and IBC/Donoghue maintain statistical
performance databases, as reported by a diverse universe of
independently-managed mutual funds. Rankings that compare the Fund's performance
to another fund in appropriate categories over specific time periods also may be
quoted in advertising and other types of literature. The total return
performance reported for these indices will reflect the reinvestment of all
distributions on a quarterly basis and market price fluctuations. The indices do
not take into account any fees. A direct investment in an unmanaged index is not
possible.
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.
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. 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.
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. 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.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Fund. The Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.
The Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Fund (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing and the advantages and disadvantages of investing in
tax-deferred and taxable investments), economic and political conditions, the
relationship between sectors of the economy and the economy as a whole, the
effects of inflation and historical performance of various asset classes,
including but not limited to, stocks, bonds and Treasury bills. From time to
time advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in shareholder
reports (including the investment composition of the Fund), as well as the views
as to current market, economic, trade and interest rate trends, legislative,
-14-
<PAGE>
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund. In addition, selected indices may be
used to illustrate historic performance of selected asset classes. The Fund may
also include, in advertisements, sales literature, communications to
shareholders or other materials, charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, domestic stocks, and/or bonds, treasury bills and
shares of the Fund. In addition, advertisements, sales literature,
communications to shareholders or other materials may include a discussion of
certain attributes or benefits to be derived by an investment in the Fund and/or
other mutual funds, shareholder profiles and hypothetical investor scenarios,
timely information on financial management, tax planning and investment
alternatives to certificates of deposit and other financial instruments. Such
sales literature, communications to shareholders or other materials may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Fund and may illustrate
how to find the listings of the Fund in newspapers and periodicals. Materials
may also include discussions of other funds, products and services.
The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Fund may include information
regarding the background and experience of its portfolio managers.
The following table presents examples, for purposes of illustration
only, of cumulative total return performance for each Class of the Fund through
April 30, 2000. For these purposes, the calculations assume the reinvestment
of any realized securities profits distributions and income dividends paid
during the indicated periods. Total return shown for Consultant Class Shares for
the periods prior to the commencement of operations of such Class is based on
the performance of Class A Shares. For periods prior to the commencement of
operations of Consultant Class Shares, the total return does not reflect the
12b-1 payments applicable to such Class during the period March 15, 1988 through
June 1, 1990. If such payments were reflected in the calculations, performance
would have been affected.
Cumulative Total Return
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
3 months 6 months 9 months 1 year 3 years 5 years 10 years 15 years Life of
ended ended ended ended ended ended ended ended Fund
4/30/00 4/30/00 4/30/00 4/30/00 4/30/00 4/30/00 4/30/00 4/30/00
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 0.68% 1.40% 2.02% 2.61% 8.00% 14.31% 31.97% 66.01% 103.43%
(Inception
9/17/81)
-------------------------------------------------------------------------------------------------------------------------------
Consultant Class 0.68% 1.40% 2.02% 2.61% 8.00% 14.31% 31.92% 65.10% 102.32%
(Inception
3/15/88)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds available from
the Delaware Investments family, 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 overriding investment
philosophy of the Manager and how that philosophy impacts the Fund's, and other
Delaware Investments 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 Delaware Investment Advisers, an
affiliate of the Manager, including the number of such clients serviced by
Delaware Investment Advisers.
-15-
<PAGE>
Dollar-Cost Averaging
Money market funds, which are generally intended for your short-term
investment needs, can often be used as a basis for building a long-term
investment plan. For many people, deciding when to purchase long-term
investments, such as stock or longer-term bond funds, can be a difficult
decision. Unlike money market fund shares, prices of other securities, such as
stocks and bonds, tend to move up and down over various market cycles. Though
logic says to invest when prices are low, 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 (perhaps using assets from your money market fund) that money will always
buy more shares when the price is low and fewer when the price is high. You can
choose to invest at any regular interval--for example, monthly or quarterly--as
long as you stick to your regular schedule. Dollar-cost averaging looks simple
and it is, but there are important things to remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. Investors should also consider their financial ability
to continue to purchase shares during high fund share prices. Delaware
Investments 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 Direct Deposit Purchase Plan, Automatic
Investing Plan and Wealth Builder Option under Purchasing Shares for a complete
description of these options including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share of a stock or bond fund over a
period of time will be lower than the average price per share of the fund for
the same time period.
Number of
Investment Price Per 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 or any stock or bond fund in the
Delaware Investments family. Dollar-cost averaging can be appropriate for
investments in shares of funds that tend to fluctuate in value. Please obtain
the prospectus of any fund in the Delaware Investments family in which you plan
to invest through a dollar-cost averaging program. The prospectus contains
additional information, including charges and expenses. Please read it carefully
before you invest or send money.
-16-
<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. The Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
TRADING PRACTICES
The Fund selects brokers, dealers and banks to execute transactions for
the purchase or sale of portfolio securities on the basis of its judgment of
their professional capability to provide the service. The primary consideration
is to have brokers, dealers or banks execute transactions at best execution.
Best 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. When a
commission is paid, the Fund pays reasonably competitive brokerage commission
rates based upon the professional knowledge of the Manager's 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. Trades are generally 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.
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 (the "1934 Act") 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
Investments family. Subject to best execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
-17-
<PAGE>
best 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 Fund's
Board of Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Portfolio trading will be undertaken principally to accomplish the
Fund's objective 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 (i) so that, provided
capital is preserved or enhanced, another security can be purchased to obtain a
higher yield, (ii) 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, (iii) to purchase a
security which the Manager believes is of higher quality than its rating or
current market value would indicate, or (iv) when the Manager anticipates a
decline in value due to market risk or credit risk. Since portfolio assets will
consist of short-term instruments, replacement of portfolio securities will
occur frequently. However, since the Manager expects to usually transact
purchases and sales of portfolio securities on a net basis, it is not
anticipated that the Fund will pay any significant brokerage commissions. The
Manager is free to dispose of portfolio securities at any time, subject to
complying with the Internal Revenue Code of 1986, as amended, (the "Code") and
the 1940 Act, when changes in circumstances or conditions make such a move
desirable in light of the investment objective.
Consistent with the Conduct Rules of NASD Regulation, Inc. (the
"NASD"), and subject to seeking best execution, the Fund may place orders with
broker/dealers that have agreed to defray certain expenses of the funds in the
Delaware Investments family, such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of the funds in the
Delaware Investments family as a factor in the selection of brokers and dealers
to execute Fund portfolio transactions.
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's
shares - Class A Shares and Consultant Class Shares and has agreed to use its
best efforts to sell shares of the Fund.
Shares of the Fund may be purchased through brokers, financial
institutions and other entities that have a dealer agreement with the Fund's
Distributor or a service agreement with the Fund. Investors who do not wish to
receive the additional services that are typically offered by such financial
professionals may also purchase Class A Shares directly by contacting the Fund
or the Distributor. In some states, banks and/or other institutions effecting
transactions in Consultant Class Shares may be required to register as dealers
pursuant to state laws.
The minimum initial investment generally is $1,000 for each Class.
Subsequent purchases generally must be at least $100. The initial and subsequent
investment minimums for Class A Shares will be waived for purchases by officers,
trustees and employees of any fund in the Delaware Investments family, 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 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
the Asset Planner service are subject to a minimum initial investment of $2,000
per Asset Planner strategy selected.
Shares of the Fund are offered on a continuous basis, and are sold
without a front-end or contingent deferred sales charge at the net asset value
next determined after the receipt and effectiveness of a purchase order, as
described below. See the Prospectus for information on how to invest. Selling
-18-
<PAGE>
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. 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 Investments family. 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 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.
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 if he or she redeems any
portion of his or her account.
Certificates representing shares purchased are not ordinarily issued
unless a shareholder submits a specific request. 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 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 their shares may only redeem those shares by written request. The
investor's certificate(s) must accompany such request.
-19-
<PAGE>
Investing by Mail
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check payable to Delaware Tax-Free Money Fund A Class or Delaware
Tax-Free Money Fund Consultant Class, to Delaware Investments at P.O. Box 7577,
Philadelphia, PA 19101.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to Delaware Tax-Free Money Fund A Class or Delaware Tax-Free
Money Fund Consultant 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 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 First Union Bank, ABA #031201467, account number 2014128934013 (include
your name(s) and your account number for the Class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's Shareholder
Service Center to get an account number. If you do not call first, processing
your investment may be delayed. In addition, you must promptly send your
Investment Application to Delaware Tax-Free Money Fund A Class or Delaware
Tax-Free Money Fund Consultant Class, to Delaware Investments at P.O. Box 7577,
Philadelphia, PA 19101.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds, 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
Investments family, you may write and authorize an exchange of part or all of
your investment into shares of the Fund. Class B Shares or Class C Shares of the
Delaware Investments funds may not be exchanged into either Class 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. See Redemption and
Exchange for more complete information concerning your exchange privilege.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for the Fund to
accept for investment, through an agent bank, preauthorized government or
private recurring payments by Electronic Fund Transfer. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan--The Automatic Investing Plan enables
shareholders to make regular monthly or quarterly investments without writing
checks. Shareholders may authorize the Fund, in advance, to make arrangements
for their bank to withdraw a designated amount monthly directly from their
checking account for deposit into a Class. This type of investment will be
handled in either of the following two ways. (1) If the shareholder's bank is a
member of the National Automated Clearing House Association ("NACHA"), the
amount of the investment will be electronically deducted from his or her account
by Electronic Fund Transfer ("EFT"). The shareholder's checking account will
reflect a debit each month at a specified date although no check is required to
initiate the transaction. (2) If 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.
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* * *
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 should 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.
When Orders Are Effective
Transactions in money market instruments in which the Fund invests
normally require same day settlement in Federal Funds. The Fund intends at all
times to be as fully invested as possible in order to maximize its earnings.
Thus, purchase orders will be executed at the net asset value next determined
after their receipt by the Fund or certain other authorized persons (see
Distribution and Service under Investment Management Agreement) only if the Fund
has received payment in Federal Funds by wire. Dividends begin to accrue on the
next business day. Thus, investments effective the day before a weekend or
holiday will not accrue dividends for that period but will earn dividends on the
next business day. If, however, 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.
If remitted in other than the foregoing manner, such as by money order
or personal check, purchase orders will be executed 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, on the day on which the payment is converted into
Federal Funds and is available for investment, normally one business day after
receipt of payment. Conversion into Federal Funds may be delayed when the Fund
receives (1) a check drawn on a nonmember bank of the Federal Reserve, (2) a
check drawn on a foreign bank, (3) a check payable in a foreign currency, or (4)
a check requiring special handling. With respect to investments made other than
by wire, the investor becomes a shareholder after declaration of the dividend on
the day on which the order is effective.
Information on how to procure a negotiable bank draft or to transmit
Federal Funds by wire is available at any national bank or any state bank which
is a member of the Federal Reserve System. Any commercial bank can transmit
Federal Funds by wire. The bank may charge the shareholder for these services.
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 amount
credited by the check plus any dividends earned thereon.
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Plan Under Rule 12b-1 for Consultant Class Shares
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan
(the "Plan") for Consultant Class Shares which permits the Fund to pay for
certain distribution and promotional expenses related to marketing Consultant
Class Shares.
The Plan does not apply to the Fund's Class A Shares. Such shares are
not included in calculating the Plan's fees, and the Plan is not used to assist
in the distribution and marketing of Class A Shares. Shareholders of Class A
Shares may not vote on matters affecting the Plan.
The Plan permits the Fund, pursuant to the Distribution Agreement, to
pay out of the assets of Consultant Class Shares, a monthly fee to the
Distributor for its services and expenses in distributing and promoting sales of
the shares of such Class. These expenses include, among others, preparing and
distributing advertisements, sales literature, 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 Dealer's Agreements with the Distributor or service agreements with the
Fund. Registered representatives of brokers, dealers or other entities, who have
sold a specified level of funds in the Delaware Investments family having a
12b-1 Plan were, prior to June 1, 1990, paid a 0.25% continuing trail fee by the
Distributor from 12b-1 payments relating to Consultant Class Shares for assets
maintained in that Class. As noted below, payment of these fees has been
suspended but may be reinstituted in the future with prior approval of the Board
of Trustees.
In addition, the Fund may make payments from the assets of Consultant
Class Shares, directly to other unaffiliated parties, such as banks, who either
aid in the distribution of shares of such Class or provide services to that
Class.
The maximum aggregate fee payable by the Fund under the Plan and the
Fund's Distribution Agreement is, on an annual basis, up to 0.30% of its average
daily net assets for the year. The Trust's trustees may reduce these amounts at
any time. The Trust's Board of Trustees suspended 12b-1 Plan payments from the
assets of Consultant Class Shares to the Distributor effective June 1, 1990.
Prior to that time, the Board of Trustees had set the fee for Consultant Class
Shares at 0.25% of average daily net assets and the Distributor had agreed to
waive this distribution fee to the extent such fee for any day exceeded the net
investment income realized by that Class for such day. Payments under the Plan
may be reinstituted in the future with prior approval of the Board of Trustees.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount, if any, paid on behalf
of Consultant Class Shares will be borne by such persons without any
reimbursement from that Class. Subject to seeking best execution, the Fund may,
from time to time, buy or sell portfolio securities from or to firms which
receive payments on behalf of Consultant Class Shares under the Plan.
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 Plan and the Distribution Agreement have been approved by the Board
of Trustees of the Trust, including a majority of the trustees who are not
"interested persons" (as defined in the 1940 Act) of the Fund and who have no
direct or indirect financial interest in the Plan or the Agreement, by vote cast
in person at a meeting duly called for the purpose of voting on the Plan and
such Agreement. Continuation of the Plan and the Distribution Agreement 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 Plan
is in the best interest of shareholders of Consultant Class Shares and that
there is a reasonable likelihood of its providing a benefit to them. The Plan
and the Distribution Agreement may be terminated at any time without penalty by
a majority of those trustees who are not "interested persons" or by a majority
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vote of the outstanding voting securities of Consultant Class Shares. Any
amendment materially increasing the maximum percentage payable under the Plan
must likewise be approved by a majority vote of the outstanding voting
securities of Consultant Class Shares, as well as a majority vote of those
trustees who are not "interested persons." Also, any other material amendment to
the Plan must be approved by a majority vote of the trustees of the Trust having
no interest in the Plan. In addition, in order for the Plan to remain effective,
the selection and nomination of trustees who are not "interested persons" of the
Trust must be effected by the trustees who themselves are not "interested
persons" and who have no direct or indirect financial interest in the Plan.
Persons authorized to make payments under the Plan must provide written reports
at least quarterly to the Board of Trustees for their review.
For the fiscal year ended April 30, 2000, there were no payments on
behalf of Consultant Class Shares pursuant to its Plan.
Reinvestment Privilege
Shareholders who have acquired Fund shares through an exchange of one
of the other mutual funds in the Delaware Investments family offered with a
sales charge and who have redeemed such shares of the Fund have one year from
the date of redemption to reinvest all or part of their redemption proceeds in
shares of any of the other funds in the Delaware Investments family, subject to
eligibility and minimum purchase requirements, in states where their shares may
be sold, at net asset value without payment of a sales charge. 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.
Reinvestment of Dividends in Other Delaware Investments Funds
Subject to applicable eligibility and minimum purchase requirements and
the limitations set forth below, shareholders may automatically reinvest
dividends and/or distributions in any of the mutual funds in the Delaware
Investments family, 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 exchange 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.
Dividends from the shares of each Class may be reinvested in shares of
any other mutual fund in the Delaware Investments family, other than Class B
Shares and Class C Shares of funds in the Delaware Investments family that offer
such classes of shares.
MoneyLine (SM) On Demand
You or your investment dealer may request purchases of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize the Fund to accept such
requests from you or your investment dealer, funds will be withdrawn (for share
purchases) from your predesignated bank account. Your request will be processed
the same day if you call prior to 4 p.m., Eastern time. There is a $25 minimum
and $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Fund does not charge a fee
for this service; however, your bank may charge a fee.
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Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
through regular liquidations of shares in their accounts in other mutual funds
available from the Delaware Investments family. Shareholders of the Fund may
also elect to invest in one or more of the other mutual funds available from the
Delaware Investments family through the Wealth Builder Option.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds available from
the Delaware Investments family, subject to the conditions and limitations set
forth in the Prospectus and this Part B. The investment will be made on the 20th
day of each month (or, if the fund selected is not open that day, the next
business day) at the public offering price or net asset value, as applicable, of
the fund selected on the date of investment. No investment will be made for any
month if the value of the shareholder's account is less than the amount
specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. Shareholders can terminate their participation in Wealth Builder at any
time by giving written notice to the fund from which exchanges are made.
Account Statements
You will receive quarterly statements of your account summarizing all
transactions during the period. Accounts in which there has been activity other
than a reinvestment of dividends will receive a monthly statement confirming
each transaction.
Asset Planner
To invest in the funds in the Delaware Investments family using the
Asset Planner asset allocation service, you should complete an Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in Delaware Investments funds. With the help of a
financial adviser, you may also 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
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Exchanges in the Prospectus and
this Part B and the prospectus of each fund in the Delaware Investments family.
The minimum initial investment per Strategy is $2,000; subsequent investments
must be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A Shares and Consultant Class Shares are
available through 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 available from Delaware Investments may be used in the
same Strategy with the Fund's Consultant Class Shares and consultant class
shares that are offered by certain other funds in the Delaware Investments
family.
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An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 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 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all 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.
OFFERING PRICE
The offering price of shares is the net asset value per share next to
be determined after an order is received and becomes effective. There is no
sales charge.
The purchase will be effected at the net asset value next computed
after the receipt of Federal Funds provided they are received by 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 days
on which the following holidays are observed: New Year's Day, Martin Luther
King, Jr.'s Birthday, 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 is
included in the Fund's financial statements which are incorporated by reference
into this Part B.
The investor becomes a shareholder at the close of and after
declaration of the dividend on the day on which the order is effective. See
Purchasing Shares. Dividends begin to accrue on the next business day. In the
event of changes in SEC requirements or the Fund's change in time of closing,
the Fund reserves the right to price at a different time, to price more often
than once daily or to make the offering price effective at a different time.
The Fund's net asset value per share of a Class is computed by adding
the value of all securities and other assets in the portfolio attributable to
that Class, deducting any liabilities of the Fund attributable to that Class and
dividing by the number of shares of the Class outstanding. Expenses and fees are
accrued daily. In determining the Fund's total net assets, portfolio securities
are valued at amortized cost.
The Board of Trustees has adopted certain procedures to monitor and
stabilize the Fund's price per share. Calculations are made each day to compare
part of the Fund's value with the market value of instruments of similar
character. At regular intervals all issues in the portfolio are valued at market
value. Securities maturing in more than 60 days are valued more frequently by
obtaining market quotations from market makers. The portfolio will also be
valued by market makers at such other times as is felt appropriate. In the event
that a deviation of more than 1/2 of 1% exists between the Fund's $1.00 per
share offering and redemption prices and the net asset value calculated by
reference to market quotations, or if there is any other deviation which the
Board of Trustees believes would result in a material dilution to shareholders
or purchasers, the Board of Trustees will promptly consider what action, if any,
should be initiated, such as changing the price to more or less than $1.00 per
share.
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<PAGE>
REDEMPTION AND EXCHANGE
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. 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 and a signature guarantee are 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, executors, retirement plans, administrators,
trustees or guardians. The redemption price is the net asset value next
calculated after receipt of the redemption request in good order. See Offering
Price for time of calculation of net asset value.
Exchanges are subject to the requirements of each fund and all
exchanges of shares constitute taxable events. All exchanges are subject to the
eligibility and minimum purchase requirements set forth in each fund's
prospectus. Any applicable front-end sales charge will apply to exchanges from
this Fund or any other money market fund to other non-money market funds, except
for exchanges involving assets that were previously invested in a fund with a
front-end sales charge and/or transfers involving the reinvestment of dividends.
Shares of the Fund may not be exchanged for Class B Shares or Class C Shares
that are offered by certain other funds in the Delaware Investments family.
Shares acquired in an exchange 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 available from the Delaware Investments
family will best meet your changing objectives and the consequences of any
exchange transaction. You may also call Delaware Investments 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.
For example, 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.
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 in which you want to invest 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
does not issue certificates for shares unless you submit a specific request. Any
certificates that have been issued for shares you wish to redeem or exchange
must accompany your request. The Fund may suspend, terminate or amend the terms
of the exchange privilege upon 60 days' written notice to shareholders.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days, after the receipt of a redemption request.
Payment for shares redeemed will ordinarily be mailed the next business
day, but no later than seven days, after receipt of a redemption request in good
order by the Fund, or certain other authorized persons (see Distribution and
Service under Investment Management Agreement); 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 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.
Dividends will continue to be earned until the redemption is processed. This
potential delay can be avoided by making investments by wiring Federal Funds. 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. Except with respect to the expedited payment by wire
for which there may be a bank wiring cost, there is no fee charged for
redemptions or repurchases, but such fees could be charged at any time in the
future.
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 SEC has provided for such suspension for the protection of
shareholders, the Fund may postpone payment or suspend the right of redemption.
In such case, the shareholder may withdraw a 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.
See Account Statements under Purchasing Shares for information relating
to the mailing of confirmations of redemptions.
Small Accounts
Before the Fund involuntarily redeems shares from an account that
has remained below the minimum amounts required by the Prospectus and this Part
B, the shareholder will be notified in writing that the value of the shares in
the account is less than the required minimum amounts and will be allowed 60
days from the date of notice to make an additional investment to meet the
required minimum. If no such action is taken by the shareholder, the proceeds
will be sent to the shareholder. Any redemption in an inactive account
established with a minimum investment may trigger mandatory redemption.
Checkwriting Feature
Shareholders holding shares for which certificates have not been issued
may request on the investment application that they be provided with special
forms of checks which may be issued to redeem their shares by drawing on the
Fund's account with the Fund's bank. Normally, it takes two weeks from the
date the shareholder's initial purchase check clears to receive the first order
of checks. The use of any form of check other than the Fund's check will not be
permitted unless approved by the Fund.
(1) These redemption checks must be made payable in an amount of $500
or more.
(2) Checks must be signed by the shareholder(s) of record or, in the
case of an organization, by the authorized person(s). If registration is in more
than one name, unless otherwise indicated on the investment application or your
checkwriting authorization form, these checks must be signed by all owners
before the Fund will honor them. Throughout this procedure, the shareholder will
continue to be entitled to distributions paid on those shares up to the time the
checks are presented for payment.
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<PAGE>
(3) If a shareholder who recently purchased shares by check seeks to
redeem all or a portion of those shares through the Checkwriting Feature, the
Fund will not honor the redemption request until it is reasonably satisfied of
the collection of the investment check. The hold period against a recent
purchase may be up to but not in excess of 15 days, depending upon the origin of
the investment check.
(4) If the amount of the check is greater than the value of the shares
held in the shareholder's account, the check will be returned and the
shareholder's bank may charge a fee.
(5) Checks may not be used to close accounts.
The Fund reserves the right to revoke the Checkwriting Feature for
shareholders who overdraw their accounts or if, in the opinion of management,
such revocation is otherwise in the Fund's best interest.
Shareholders will be subject to bank rules and regulations
governing similar accounts. This service may be terminated or suspended at any
time by the bank, the Fund or the Transfer Agent. The Fund and the Transfer
Agent will not be responsible for the inadvertent processing of post-dated
checks or checks more than six months old. Shareholders needing a copy of a
redemption check should contact the Transfer Agent nationwide at 800-523-1918.
Stop-Payment Requests--Investors may request a stop payment on checks
by providing the Fund with a written authorization to do so. Oral requests will
be accepted provided that the Fund promptly receives a written authorization.
Such requests will remain in effect for six months unless renewed or canceled.
The Fund will use its reasonable best efforts to effect stop-payment
instructions but does not promise or guarantee that such instructions will be
effective.
* * *
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.
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. A signature guarantee can be obtained from a
commercial bank, a trust company or a member of a securities transfer
association medallion program. A signature guarantee cannot be provided by a
notary public. A signature guarantee is designed to protect the shareholders,
the Fund and its agent from fraud. The Fund reserves the right to reject a
signature guarantee supplied by an institution based on its creditworthiness.
The Fund may require further documentation from corporations, executors,
retirement plans, administrators, trustees or guardians.
The redemption request is effective when it is received in good order.
Payment is normally mailed the next business day after receipt of the redemption
request. If your Class A or Consultant Class shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for shares only if a shareholder submits a specific
request.
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<PAGE>
Written Exchange
You can 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 Investments family, 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 shares in certificate form, you may redeem or
exchange only by written request and you must return your certificate(s).
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 taped 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 record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day
after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. A
bank wire fee may 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 Fund's Shareholder Service Center prior to the time the
offering price of shares is 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 any other funds available from the Delaware Investments family under
the same registration, subject to the same conditions and limitations as other
exchanges noted above. Telephone exchanges may be subject to limitations as to
amounts or frequency.
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
-29-
<PAGE>
funds in the Delaware Investments family. 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.
MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize the Fund to accept such
requests from you or your investment dealer, funds will be deposited to (for
share redemptions) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a
$25 minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Fund does not charge a fee
for this service; however, your bank may charge a fee.
Timing Accounts
Redemptions of Timing Accounts -- Redemption requests made from Timing
Accounts will be made only by check. Redemption proceeds from these accounts
will not be wired to shareholder bank accounts. Such checks will be sent no
later than seven days after receipt of a redemption request in good order.
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 Investments 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,
or (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 Investments funds: (1) Delaware Decatur Equity Income Fund, (2)
Delaware Growth and Income Fund, (3) Delaware Balanced Fund, (4) Delaware
Limited-Term Government Fund, (5) Delaware Tax-Free USA Fund, (6) Delaware Cash
Reserve Fund, (7) Delaware Delchester Fund and (8) Delaware Tax-Free
Pennsylvania Fund. No other Delaware Investments funds are available for timed
exchanges. Assets redeemed or exchanged out of Timing Accounts in Delaware
Investments 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.
-30-
<PAGE>
Systematic Withdrawal Plan
Shareholders who own or purchase $5,000 or more of shares 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 a 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, although the Fund expects to maintain a fixed net asset value. If
there were a gain or loss, it would be long-term or short-term depending on the
holding period for the specific shares liquidated.
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. Shareholders should consult their
financial advisers to determine whether a Systematic Withdrawal Plan would be
suitable for them.
Systematic Withdrawal Plan 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 (SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Fund does not charge
a fee for any this service; however, your bank may charge a fee.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares a dividend of its net investment income on a daily
basis to shareholders of record of each Class of Fund shares at the time of the
previous calculation of the Fund's net asset value each day that the Fund is
open for business. The amount of net investment income will be determined at the
time the offering price (net asset value) is determined and shall include
investment income accrued, less the estimated expenses of the Fund incurred
since the last determination of net asset value. Gross investment income
consists principally of interest accrued and, where applicable, net pro-rata
amortization of premiums and discounts since the last determination. The
dividend declared, as noted above, will be deducted immediately before the net
asset value calculation is made. See Offering Price. Net investment income
earned on days when the Fund is not open will be declared as a dividend on the
next business day.
-31-
<PAGE>
Each class of shares of the Fund will share proportionately in the
investment income and expenses of the Fund, except that Consultant Class Shares
may incur distribution fees under its 12b-1 Plan. The Board of Trustees of the
Fund suspended 12b-1 Plan payments from the assets of Consultant Class Shares to
the Distributor effective June 1, 1990. See Plan Under Rule 12b-1 for Consultant
Class Shares.
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.
Payment of dividends will be made monthly. Dividends are automatically
reinvested in additional shares of the same Class of the Fund at the net asset
value in effect on the payable date, which provides the effect of compounding
dividends, unless the election to receive dividends in cash has been made.
Payment by check of cash dividends will ordinarily be mailed within three
business days after the payable date. 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.
To the extent necessary to maintain a $1.00 per share net asset value, the
Fund's Board of Trustees will consider temporarily reducing or suspending
payment of daily dividends, or making a distribution of realized securities
profits or other distributions at the time the net asset value per share has
changed.
Short-term realized securities profits or losses, if any, may be paid
with the daily dividend. Any such profits not so paid will be distributed
annually during the first quarter following the close of the fiscal year. See
Account Statements under Purchasing Shares. Information as to the tax status of
dividends will be provided annually.
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 (SM) Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. It may take up to four
business days for the transactions to be completed. You can initiate this
service by completing an Account Services form. If your name and address are not
identical to the name and address on your Fund account, you must have your
signature guaranteed. The Fund does not charge a fee for this service; however,
your bank may charge a fee.
-32-
<PAGE>
TAXES
Federal Income Tax
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, (the "Code"). By so qualifying, the Fund is not subject to
federal income taxes to the extent that it distributes its net investment income
and realized capital gains. The Fund also intends to meet the calendar year
distribution requirements imposed by the Code to avoid the imposition of any
excise tax. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any government
agency.
Distributions of tax-exempt interest income are not includable in the
shareholder's gross income for federal income tax purposes. For the fiscal year
ended April 30, 2000, all of the Fund's net income was exempt from federal
taxes. Distributions of net investment income received by the Fund from
investments in securities other than municipal obligations, and any short-term
capital gains realized by the Fund, will be taxable to the shareholder as
ordinary income whether received in cash or reinvested in additional shares.
Distributions of taxable net interest income, if any, will not qualify for the
deduction for dividends received by corporations.
Section 265 of the 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 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.
Under the 1997 Act, as revised by the 1998 Act and the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, the Fund is
required to track its sales of portfolio securities and to report its capital
gain distributions to you according to the following categories of holding
periods:
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<PAGE>
"Long-term capital gains": gains on securities sold after December 31,
1997 and held for more than 12 months as capital assets in the hands of
the holders are taxed at the 20% rate when distributed to
shareholders (10% for individual investors in the 15% bracket).
"Short-term capital gains": gains on securities sold by the
Fund that do not meet the long-term holding period are considered
short-term capital gains and are taxed as ordinary income.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are
subject to tax at higher rate brackets, qualified five-year gains are
net gains on securities which are purchased after December 31, 2000 and
are held for more than five years. Taxpayers subject to tax at a higher
rate brackets may also make an election for shares held on January 1,
2001 to recognize gain on their shares in order to qualify such shares
as qualified five-year property. These gains will be taxable to
individual investors at a maximum rate of 18% for investors in the 28%
or higher federal income tax brackets, and at a maximum rate of 8% for
investors in the 15% federal income tax bracket when sold after the
five-year holding period.
State and Local Taxes
The exemption of distributions for federal income tax purposes may not
result in similar exemptions under the laws of a particular state or local
taxing authority. It is recommended that shareholders consult their tax advisers
in this regard. The Fund will report annually the percentage of interest income
earned on municipal obligations on a state-by-state basis during the preceding
calendar year.
Shares of the Fund will be exempt from Pennsylvania county personal
property taxes.
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 Trust's Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On April 30, 2000, the Manager and
its affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $44 billion in
assets in various institutional or separately managed (approximately
$25,327,420,000) and investment company (approximately $19,321,390,000)
accounts.
Subject to the supervision and direction of the Board of Trustees, the
Manager manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies and makes all investment decisions which are
implemented by the Fund's Trading Department.
The Fund's Investment Management Agreement with the Manager is dated
August 27, 1999 and was approved by the initial shareholder on that date.
The Agreement has an initial term of two years and may be renewed 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 the 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 Trust or by
the Manager. The Agreement will terminate automatically in the event of its
assignment.
-34-
<PAGE>
Effective April 1, 1999, the annual compensation paid by the Fund for
investment management services is equal to 0.45% on the first $500 million of
average daily net assets; 0.40% on the next $500 million; 0.35% on the next $1.5
billion; and 0.30% on assets in excess of $2.5 billion. The Manager pays the
salaries of all trustees, officers and employees of the Fund who are affiliated
with the Manager.
On April 30, 2000, the total net assets of the Fund were $27,928,031.
Investment management fees paid by the Fund during the past three fiscal years
were $164,249 for 1998, $154,894 for 1999 and $139,453 for 2000.
Except for those expenses borne by the Manager under the Investment
Management Agreement and the Distributor under the Distribution Agreement, the
Fund is responsible for all of its own expenses. Among others, these include the
investment management fees; shareholder servicing, dividend disbursing and
transfer agent fees and costs; custodian expenses; federal and state securities
registration fees; proxy costs; the costs of preparing prospectuses and reports
sent to shareholders; and the Fund's proportionate share of rent and other
administrative expenses.
Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818 Market
Street, Philadelphia, PA 19103, serves as the national distributor of Fund
shares under a Distribution Agreement dated as of August 27, 1999. The
Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for any payments which may be made under the
12b-1 Plan for Consultant Class Shares. Delaware Distributors, L.P. is an
indirect, wholly owned subsidiary 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 as of August 27, 1999. 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.
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Fund. For purposes of pricing, the Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.
OFFICERS AND TRUSTEES
The business and affairs of the Trust are managed under the direction
of its Board of Trustees.
Certain officers and trustees of the Trust hold identical positions in
each of the other funds in the Delaware Investments family. On May 31,
2000, the Fund's officers and trustees, as a group, owned less than 1% of
the outstanding shares of Class A Shares and Consultant Class Shares.
-35-
<PAGE>
As of May 31, 2000, the Fund believes the following accounts
held 5% or more of Class A Shares and Consultant Class Shares of the Fund. The
Fund has no knowledge of beneficial ownership.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Class Name and Address of Account Share Amount Percentage
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares Mary Louise DeSimone 2,077,512.360 7.76%
37 Borton Road
Medford, NJ 08055
------------------------------------------------------------------------------------------------------------------------------
Jeffrey P. Cadwell and 2,017,871.380 7.53%
and Connie Cadwell
Tenants by Entirety
7111 San Lucas Court
New Port Richey, FL 34655-3608
------------------------------------------------------------------------------------------------------------------------------
Consultant Class Shares John K. Kaiser and 259,610.610 23.28%
Elaine E. Kaiser
499 Bair Road
Berwyn, PA 19312-1409
------------------------------------------------------------------------------------------------------------------------------
Edward J. Nolan 70,372.600 6.31%
739 Hillcrest Ave.
Glenside, PA 19038-5407
------------------------------------------------------------------------------------------------------------------------------
William D. Marriott 62,403.420 5.59%
DBA Marriott Value Services
5 Viewside Drive
Ellington, CT 06029-2426
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), 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., Delaware General
Management, Inc., and Retirement Financial 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. DMH and the
Manager are now indirect, wholly owned subsidiaries, and subject to the ultimate
control, of Lincoln National. Lincoln National, with headquarters in
Philadelphia, Pennsylvania, is a diversified organization with operations in
many aspects of the financial services industry, including insurance and
investment management.
-36-
<PAGE>
Certain officers and trustees of the Fund hold identical positions in
each of the other funds in the Delaware Investments family. 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.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Trustee and Officer Business Experience
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
*Wayne A. Stork (62) Chairman, Trustee/Director of the Trust and each of the other 32 investment
companies in the Delaware Investments family
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital Management,
Inc.; Chairman, President and Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.; Chairman, President, Chief
Executive Officer, Chief Investment Officer and Director/Trustee of Delaware
Management Company, Inc. and Delaware Management Business Trust; Chairman,
President, Chief Executive Officer and Chief Investment Officer of Delaware
Management Company (a series of Delaware Management Business Trust); Chairman, Chief
Executive Officer and Chief Investment Officer of Delaware Investment Advisers (a
series of Delaware Management Business Trust); Chairman and Chief Executive
Officer of Delaware International Advisers Ltd.; Chairman, Chief Executive
Officer and Director of Delaware International Holdings Ltd.; Chief Executive
Officer of Delaware Management Holdings, Inc.; President and Chief Executive Officer
of Delvoy, Inc.; Chairman of Delaware Distributors, L.P.; Director of Delaware
Service Company, Inc. and Retirement Financial Services, Inc. Prior to January 1,
2000, Mr. Stork was Chairman and Director of Delaware Management Holdings, Inc. and
a Director of Delaware International Advisers Ltd.
In addition, during the five years prior to January 1, 1999, Mr. Stork has served in
various executive capacities at different times within the Delaware organization.
---------------------------------------------------------------------------------------------------------------------------
----------------------
* Trustee affiliated with the Trust's investment manager and considered an "interested person" as defined in the 1940 Act.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Trustee and Officer Business Experience
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
*David K. Downes (60) President, Chief Executive Officer, Chief Financial Officer and Trustee/Director of
the Trust and each of the other 32 investment companies in the Delaware Investments
family
President and Director of Delaware Management Company, Inc.
President of Delaware Management Company (a series of Delaware Management
Business Trust)
President, Chief Executive Officer and Director of Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of Delaware Service
Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Chairman and Director of Delaware Management Trust Company and Retirement Financial
Services, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer of
Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware Investment
Advisers (a series of Delaware Management Business Trust) and Delaware Distributors,
L.P.
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings, Inc. and
Delvoy, Inc.
Executive Vice President Chief Operating Officer, Chief Financial Officer and
Trustee of Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
President/Chief Operating Officer and Director of Delaware General Management, Inc.
During the past five years, Mr. Downes has served in various executive capacities at
different times within the Delaware organization.
---------------------------------------------------------------------------------------------------------------------------
----------------------
* Trustee affiliated with the Trust's investment manager and considered an "interested person" as defined in the 1940 Act.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Walter P. Babich (72) Trustee/Director the Trust and each of the other 32 investment companies in the
Delaware Investments family
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.
---------------------------------------------------------------------------------------------------------------------------
John H. Durham (62) Trustee/Director of the Trust and each of the other 32 investment companies
in the Delaware Investments family
Private Investor.
P.O. Box 819, Gwynedd Valley, PA 19437
Mr. Durham served as Chairman of the Board of each fund in the Delaware
Investments family from 1986 to 1991; President of each fund from 1977 to 1990; and
Chief Executive Officer of each fund from 1984 to 1990. Prior to 1992, with
respect to Delaware Management Holdings, Inc., Delaware Management Company,
Delaware Distributors, Inc. and Delaware Service Company, Inc., Mr. Durham served
as a director and in various executive capacities at different times. He was also a
Partner of Complete Care Services from 1995 to 1999.
---------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr (61) Trustee/Director of the Trust and each of the 32 other investment companies in
the Delaware Investments family
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 (59) Trustee/Director of the Trust and each of the other 32 other investment companies
in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Retired Treasurer, National Gallery of Art
From 1994 to 1999, Ms. Leven was the Treasurer of the National Gallery of Art and
from 1990 to 1994, Ms. Leven was Deputy Treasurer of the National Gallery of Art.
In addition, 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.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Thomas F. Madison (64) Trustee/Director of the Trust and each of the other 32 investment companies in the
Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications Holdings, Inc. since
1996. From February to September 1994, Mr. Madison served as Vice Chairman--Office of
the CEO of The Minnesota Mutual Life Insurance Company and from 1988 to 1993, he was
President of U.S. WEST Communications--Markets.
------------------------------------------------------------------------------------------------------------------------------
Charles E. Peck (74) Trustee/Director of the Trust and each of the other 32 investment companies in the
Delaware Investments family
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.
------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans (51) Trustee/Director of the Trust and 32 other investment companies in the Delaware
Investments family
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial Markets for
the 3M Corporation; Manager of Benefit Fund Investments for the 3M Corporation,
1985-1987; Manager of Pension Funds for the 3M Corporation, 1983-1985;
Consultant--Investment Technology Group of Chase Econometrics, 1982-1983; Consultant
for Data Resources, 1980-1982; Programmer for the Federal Reserve Bank of Chicago,
1970-1974.
------------------------------------------------------------------------------------------------------------------------------
Richard G. Unruh, Jr. (60) Executive Vice President and Chief Investment Officer, Equity of the Trust, each of the
other 32 investment companies in the Delaware Investments family
Chief Executive Officer/Chief Investment Officer of Delaware Investment Advisers
(a series of Delaware Management Business Trust)
Executive Vice President of Delaware Management Holdings, Inc. and Delaware Capital
Management, Inc.
Executive Vice President/Chief Investment Officer of Delaware Management Company (a
series of Delaware Management Business Trust)
Executive Vice President and Trustee of Delaware Management Business Trust
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.
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</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
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Officer Business Experience
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard J. Flannery (42) Executive Vice President/General Counsel of the Trust and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Holdings,
Inc., Delaware Distributors, L.P., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Founders CBO Corporation
Executive Vice President/General Counsel and Director of Delaware International Holdings
Ltd., Founders Holdings, Inc., Delvoy, Inc., DMH Corp., Delaware Management Company,
Inc., Delaware Service Company, Inc., Delaware Capital Management, Inc., Retirement
Financial Services, Inc., Delaware Distributors, Inc., Delaware General Management, Inc.
and Delaware Management Trust Company.
Executive Vice President and Trustee of Delaware Management Business Trust.
Director of Delaware International Advisers Ltd.
Director of HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive capacities
at different times within the Delaware organization.
------------------------------------------------------------------------------------------------------------------------------
Eric E. Miller (46) Senior Vice President/Deputy General Counsel and Secretary of the Trust and each of
the other 32 investment companies in Delaware Investments
Senior Vice President/Deputy General Counsel and Assistant Secretary of Delaware
Management Holdings, Inc., DMH Corp., Delvoy, Inc., Delaware Management Company, Inc.,
Delaware Management Business Trust, Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust), Delaware Service Company, Inc., Delaware Capital Management, Inc.,
Retirement Financial Services, Inc., Delaware Distributors, Inc., Delaware Distributors,
L.P., Delaware General Management, Inc. and Founders Holdings, Inc.
During the past five years, Mr. Miller has served in various executive capacities at
different times within Delaware Investments.
------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings (50) Senior Vice President/Corporate Controller of the Trust and each of the other 32
investment companies in the Delaware Investments family and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President/Corporate Controller and Treasurer of Delaware Management
Holdings, Inc., DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., Delaware
Management Business Trust, Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., Delaware Capital Management, Inc., Delaware International Holdings
Ltd., Founders Holdings, Inc. and Delaware General Management, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware Management Trust
Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Chief Financial Officer of Retirement Financial Services, Inc.
During the past five years, Mr. Hastings has served in various executive capacities
at different times within the Delaware organization.
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</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
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Officer Business Experience
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Michael P. Bishof (37) Senior Vice President and Treasurer of the Trust and each of the other 32 investment
companies in the Delaware Investments family
Senior Vice President/Investment Accounting of Delaware Management Company (a series
of Delaware Management Business Trust), Delaware Service Company, Inc., Delaware
Capital Management, Inc., Delaware Distributors, L.P. and Founders Holdings, Inc.
Senior Vice President/Treasurer/ Investment Accounting of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President/Manager of Investment Accounting of Delaware International
Holdings , Inc.
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments 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.
------------------------------------------------------------------------------------------------------------------------------
Michael P. Buckley (46) Vice President/Portfolio Manager of the Trust and each of the other 32 investment
companies in the Delaware Investments family.
Before joining Delaware Investments in 1996, Mr. Buckley was a Vice President and
Municipal Credit Analyst for T. Rowe Price Associates, Inc.
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</TABLE>
-42-
<PAGE>
The following is a compensation table listing for each trustee/director
entitled to receive compensation, the aggregate compensation received from
the Trust and the total compensation received from all investment companies in
the Delaware Investments family for which he or she serves as a trustee or
director for the fiscal year ended April 30, 2000 and an estimate of annual
benefits to be received upon retirement under the Delaware Group Retirement Plan
for Trustees/Directors as of April 30, 2000. Only the independent trustees
of the Trust receive compensation from the Fund.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Estimated Total Compensation
Pension or Retirement Annual from the Investment
Aggregate Benefits Accrued as Benefits Companies in
Compensation Part of Fund Upon Delaware
Name from the Fund Fund Expenses Retirement(1) Investments(2)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Walter P. Babich $640 none $38,000 56,858
------------------------------------------------------------------------------------------------------------------------------
John H. Durham $735 none $32,180 52,159
------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr $744 none $38,000 65,001
------------------------------------------------------------------------------------------------------------------------------
Ann R. Leven $746 none $38,000 66,001
------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison $744 none $38,000 65,001
------------------------------------------------------------------------------------------------------------------------------
Charles E. Peck $744 none $38,000 65,001
------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans $735 none $38,000 60,001
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Trustees/Directors, each disinterested trustee/director 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 investment company in the Delaware Investments
family for which he or she serves as a trustee or director for a period
equal to the lesser of the number of years that such person served as a
trustee or 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 investment
company at the time of such person's retirement. If an eligible
trustee/director retired as of April 30, 2000, he or she would be
entitled to annual payments totaling the amount noted above, in the
aggregate, from all of the investment companies in the Delaware
Investments family for which he or she served as trustee or director,
based on the number of investment companies in the Delaware Investments
family as of that date.
(2) Each independent trustee/director currently receives a total annual
retainer fee of $38,000 for serving as a trustee or director for all
33 investment companies in Delaware Investments, plus $3,145 for each
Board Meeting attended. Prior to May 1, 2000, John H. Durham served as
a trustee/director for 19 investment companies in Delaware Investments and
received a total annual retainer fee of $32,180, plus $1,810 for each
Board Meeting attended. Ann R. Leven, Charles E. Peck, Thomas F. Madison,
and Anthony D. Knerr serve on the Fund's audit committee; Ms. Leven is the
chairperson. Members of the audit committee currently receive additional
annual compensation of $5,000 from all investment companies, in the
aggregate, with the exception of the chairperson, who receives $6,000.
-43-
<PAGE>
GENERAL INFORMATION
The Trust is an open-end management investment company. The Fund's
portfolio of assets is diversified as defined by the 1940 Act and Rule 2a-7
under the 1940 Act. The Trust was organized as a Maryland corporation in
April 1980 and reorganized as a Delaware business trust on August 27, 1999.
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain of the other funds available
from the Delaware Investments family. Delaware Investment Advisers, an affiliate
of the Manager, also manages private investment accounts. While investment
decisions of 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.
Delaware or Delaware International Advisers Ltd. also manages the
investment options for Delaware-Lincoln Choice Plus and Delaware Medallion (SM)
III Variable Annuities. Choice Plus is issued and distributed by Lincoln
National Life Insurance Company. Choice Plus offers a variety of different
investment styles managed by leading money managers. 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 various investment series ranging from domestic equity funds,
international equity and bond funds and domestic fixed income funds. Each
investment series available through Choice Plus and Medallion utilizes an
investment strategy and discipline the same as or similar to one of the Delaware
Investments mutual funds available outside the annuity. See Delaware Group
Premium Fund in Appendix B.
Access persons and advisory persons of the Delaware Investments
family 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 by certain covered persons in
certain securities 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 Investments family.
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 Investments family. Compensation is fixed each year
and approved by the Board of Trustees, including a majority of the disinterested
trustees. 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. 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 Investments family 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.
-44-
<PAGE>
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of the Trust's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause the Trust to delete the
words "Delaware Group" from the Trust's name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn, NY
11245 is custodian of the Fund's securities and cash. As custodian for the Fund,
Chase maintains a separate account or accounts for the Fund; receives, holds and
releases portfolio securities on account of the Fund; receives and disburses
money on behalf of the Fund; and collects and receives income and other payments
and distributions on account of the Fund's portfolio securities.
Capitalization
The Trust has a present unlimited authorized number of shares of
beneficial interest with no par value allocated to each Class. The Fund offers
two classes of shares, Delaware Tax-Free Money Fund A Class and Delaware
Tax-Free Money Fund Consultant Class, each representing a proportionate interest
in the assets of the Fund, and each having the same voting and other rights and
preferences as the other class, except that Class A Shares may not vote on any
matter affecting the Distribution Plan under Rule 12b-1 of Consultant Class
Shares. General expenses of the Fund will be allocated on a pro-rata basis to
the classes according to asset size, except that any expenses of the Rule 12b-1
Plan of Consultant Class Shares will be allocated solely to that Class.
Shares have no preemptive rights, are fully transferable and, when issued,
are fully paid and nonassessable.
Prior to January 1, 1991, the portfolio of the Fund was managed to
maintain a fixed net asset value of $10.00 per share. The Fund reduced the net
asset value per share from $10.00 to $1.00 by effecting a ten-to-one stock split
for shareholders of record on that date.
Prior to January 1992, Class A Shares were known as the original class and
between January 1992 and February 1994 were known as Tax-Free Money Fund class.
Prior to January 1992, Consultant Class Shares were known as the consultant
class, between January 1992 and November 1992 was known as Tax-Free Money Fund
(Institutional) class and between November 1992 and February 1994 was known as
Tax-Free Money Fund Consultant class.
Effective August 16, 1999, the name of Prime Series changed to Delaware
Tax-Free Money Fund. Effective August 27, 1999, the name of Delaware Group
Tax-Free Money Fund, Inc. changed to Delaware Group Tax-Free Money Fund.
Noncumulative Voting
The Trust'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 SEC.
-45-
<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware
Group Tax-Free Money Fund and, in its capacity as such, audits the annual
financial statements of the Fund. The Fund's Statement of Net Assets,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights and Notes to Financial Statements, as well as the report of Ernst &
Young LLP, independent auditors, for the fiscal year ended April 30, 2000,
are included in the Fund's Annual Report to shareholders. The financial
statements and financial highlights, 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.
-46-
<PAGE>
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
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.
For rating categories Aa to Caa, Moody's includes a 1, 2 or 3
following the rating to designate a high, medium or low rating, respectively
Excerpts from S&P's description of its bond ratings: AAA--highest
grade obligations; extremely strong capacity to pay 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; very strong capacity to pay
principal and interest; A--strong ability to pay interest and repay principal;
somewhat more susceptible to the adverse effects of changing circumstances and
economic conditions although more susceptible to changes in circumstances;
BBB--regarded as having an adequate capacity to pay interest and repay
principal; normally exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to weakened capacity to
pay principal and interest than for higher-rated bonds. BB, B, CCC, CC,
C--regarded, on balance, as having significant speculative characteristics. BB
indicates the least degree of speculation and C 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; D--in default.
Plus (+) or minus (-) may be added to ratings from AA to CCC to show
relative standing within the major rating categories.
Commercial Paper
Excerpts from S&P's description of its two highest commercial paper
ratings: A-1--degree of safety regarding timely payment is strong; a plus (+)
sign denotes extremely strong safety characteristics; A-2--capacity for timely
payment is satisfactory; the relative degree of safety is not as high as for
issuers designated A-1.
Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--superior quality; P-2--strong quality.
-47-
<PAGE>
Excerpts from Duff and Phelps' description of its two highest ratings:
Category 1--High Grade: D-1+ -- Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or ready access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations. D-1--Very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor. D-1- -- High certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. Category 2--Good Grade:
D-2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Excerpts from Fitch IBCA, Inc.'s description of its highest ratings:
F-1+ --Exceptionally strong quality; F-1 --Very strong quality; F-2 --Good
credit quality.
-48-
<PAGE>
APPENDIX B--INVESTMENT OBJECTIVES OF THE FUNDS IN THE DELAWARE INVESTMENTS
FAMILY
Following is a summary of the investment objectives of the funds in the
Delaware Investments family:
Delaware Balanced Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. As a balanced fund, the
fund invests at least 25% of its assets in fixed-income securities and the
remaining in equity securities. Delaware 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.
Delaware Trend Fund seeks long-term growth by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential. Delaware Technology and Innovation Fund seeks to provide
long-term capital growth by investing primarily in stocks the investment adviser
believes will benefit from technological advances and improvements.
Delaware Small Cap Value Fund seeks capital appreciation by investing
primarily in common stocks whose market values appear low relative to their
underlying value or future potential.
Delaware Growth Opportunities 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.
Delaware Decatur Equity 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. Delaware Growth
and Income Fund seeks long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation without undue risk to
principal. Delaware 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. Delaware Social Awareness 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.
Delaware 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. Delaware 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. Delaware High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Delaware Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Delaware Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in corporate
bonds
Delaware American Government Bond 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.
Delaware 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.
Delaware Cash Reserve Fund 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.
-49-
<PAGE>
REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.
Delaware 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.
Delaware Tax-Free USA Fund seeks high current income exempt from
federal income tax by investing in municipal bonds of geographically-diverse
issuers. Delaware 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. Delaware 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.
Delaware Tax-Free Pennsylvania Fund seeks a high level of current
interest income exempt from federal and, to the extent possible, certain
Pennsylvania state and local taxes, consistent with the preservation of capital.
Delaware Tax-Free New Jersey Fund seeks a high level of current interest income
exempt from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Delaware Income Portfolio seeks a combination of current income and
preservation of capital with capital appreciation by investing primarily in
a mix of fixed income and domestic equity securities, including fixed income and
domestic equity Underlying Funds. Foundation Funds Delaware Balanced Portfolio
seeks capital appreciation with current income as a secondary objective by
investing primarily in domestic equity and fixed income securities, including
domestic equity and fixed income Underlying Funds. Foundation Funds Delaware
Growth Portfolio seeks long-term capital growth by investing primarily in equity
securities, including equity Underlying Funds, and, to a lesser extent, in fixed
income securities, including fixed-income Underlying Funds.
Delaware 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.
Delaware 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.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation
and income. Delaware Emerging Markets Fund seeks long-term capital appreciation
by investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware 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. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware 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.
-50-
<PAGE>
Delaware Group Premium Fund offers various funds available
exclusively as funding vehicles for certain insurance company separate accounts.
Balanced Series seeks a balance of capital appreciation, income and preservation
of capital. As a "balanced" fund, the Series invests at least 25% of its assets
in fixed-income securities and the remainder primarily in equity securities.
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 is a money market
fund which seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Convertible Securities Series--seeks a high level of total return
on its assets through a combination of capital appreciation and current income.
The Series intends to pursue its investment objective by investing primarily in
convertible securities. Devon Series seeks current income and capital
appreciation. The Series will seek to achieve its objective 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. The Series seeks to achieve its objective by investing primarily
in equity securities of issuers located or operating in emerging countries.
Global Bond Series seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that may also
provide the potential for capital appreciation. The Series will invest in
fixed-income securities of issuers from at least three different countries, one
of which may be the United States. Growth and Income Series seeks the highest
possible total rate of return by selecting issues that exhibit the potential for
capital appreciation while providing higher than average dividend income.
Growth Opportunities Series seeks long-term capital appreciation by investing
its assets in a diversified portfolio of securities exhibiting the potential
for significant growth. High Yield Series seeks total return and, as a
secondary objective, high current income. It seeks to achieve its objective by
investing primarily in high-yield corporate bonds. These are commonly known as
junk bonds. An investment in this Series may involve greater risks than an
investment in a portfolio comprised primarily of investment grade bonds.
International Equity Series seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income. REIT Series
seeks to achieve maximum long-term total return. Capital appreciation is a
secondary objective. It seeks to achieve its objectives by investing in
securities of companies primarily engaged in the real estate industry.
Select Growth Series seeks long-term capital appreciation. The Series attempts
to achieve its investment objective by investing primarily in equity securities
of companies of all sizes which the manager believes have the potential for high
earnings growth. Small Cap Value Series seeks capital appreciation by investing
primarily in small cap common stocks whose market value appears low relative
to their underlying value or future earnings and growth potential. Social
Awareness Series seeks to achieve long-term capital appreciation. The Series
seeks to achieve its objective by investing primarily in equity securities
of medium- to large-sized companies expected to grow over time that meet the
Series' "Social Criteria" strategy. Strategic Income Series seeks high current
income and total return. The Series seeks to achieve its objective 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. 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. U.S.
Growth Series seeks to maximize capital appreciation. The Series seeks to
achieve its objective by investing primarily in stocks of companies of
all sizes. We look for stocks with low dividend yields, strong balance sheets
and high expected earnings growth rates as compared to other companies in the
same industry.
Delaware U.S. Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Delaware Tax-Free Arizona Insured Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware Minnesota Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Minnesota personal income tax, consistent with the preservation of
capital.
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Delaware Tax-Free Minnesota Intermediate Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware Tax-Free California Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the California personal
income tax, consistent with the preservation of capital. Delaware Tax-Free
Florida Insured Fund seeks to provide a high level of current income exempt from
federal income tax, consistent with the preservation of capital. The Fund will
seek to select investments that will enable its shares to be exempt from the
Florida intangible personal property tax. Delaware Tax-Free Florida Fund seeks
to provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund will seek to select
investments that will enable its shares to be exempt from the Florida intangible
personal property tax. Delaware Tax-Free Kansas Fund seeks to provide a high
level of current income exempt from federal income tax, the Kansas personal
income tax and the Kansas intangible personal property tax, consistent with the
preservation of capital. Delaware Tax-Free Missouri Insured Fund seeks to
provide a high level of current income exempt from federal income tax and the
Missouri personal income tax, consistent with the preservation of capital.
Delaware Tax-Free New Mexico Fund seeks to provide a high level of current
income exempt from federal income tax and the New Mexico personal income tax,
consistent with the preservation of capital. Delaware Tax-Free Oregon Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Oregon personal income tax, consistent with the preservation of
capital.
Delaware Tax-Free Arizona Fund seeks to provide a high level of current
income exempt from federal income tax and the Arizona personal income tax,
consistent with the preservation of capital. Delaware Tax-Free California Fund
seeks to provide a high level of current income exempt from federal income tax
and the California personal income tax, consistent with the preservation of
capital. Delaware Tax-Free Iowa Fund seeks to provide a high level of current
income exempt from federal income tax and the Iowa personal income tax,
consistent with the preservation of capital. Delaware Tax-Free Idaho Fund seeks
to provide a high level of current income exempt from federal income tax and the
Idaho personal income tax, consistent with the preservation of capital. Delaware
Minnesota High-Yield Municipal Bond Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax primarily through investment in medium and lower grade municipal
obligations. Delaware National High-Yield Municipal Fund seeks to provide a high
level of income exempt from federal income tax, primarily through investment in
medium and lower grade municipal obligations. Delaware Tax-Free New York Fund
seeks to provide a high level of current income exempt from federal income tax
and the personal income tax of the state of New York and the city of New York,
consistent with the preservation of capital. Delaware Tax-Free Wisconsin Fund
seeks to provide a high level of current income exempt from federal income tax
and the Wisconsin personal income tax, consistent with the preservation of
capital. Delaware Montana Municipal Bond Fund seeks as high a level of current
income exempt from federal income tax and from the Montana personal income tax,
as is consistent with preservation of capital.
Delaware Tax-Free Colorado Fund seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.
Delaware Select Growth Fund seeks long-term capital appreciation,
which the Fund attempts to achieve by investing primarily in equity securities
believed to have the potential for high earnings growth. Although the Fund, in
seeking its objective, may receive current income from dividends and interest,
income is only an incidental consideration in the selection of the Fund's
investments. Delaware Growth Stock Fund has an objective of long-term capital
appreciation. The Fund seeks to achieve its objective from equity securities
diversified among individual companies and industries. Delaware Tax-Efficient
Equity Fund seeks to obtain for taxable investors a high total return on an
after-tax basis. The Fund will attempt to achieve this objective by seeking to
provide a high long-term after-tax total return through managing its portfolio
in a manner that will defer the realization of accrued capital gains and
minimize dividend income.
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Delaware Tax-Free Minnesota Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. Delaware Tax-Free North Dakota
Fund seeks to provide a high level of current income exempt from federal income
tax and the North Dakota personal income tax, consistent with the preservation
of capital.
For more complete information about any of the funds in the Delaware
Investments family, 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 the funds' prospectus (es).
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