Supplement Dated August 29, 1995
to the Current Statements of Additional Information
of the Following Delaware Group Funds
Delaware Group Delaware Fund, Inc.,
Delaware Group Trend Fund, Inc.,
Delaware Group Value Fund, Inc.,
Delaware Group Decatur Fund, Inc.,
Delaware Group DelCap Fund, Inc.,
Delaware Group Global & International Funds, Inc.,
Delaware Group Delchester High-Yield Bond Fund, Inc.,
Delaware Group Government Fund, Inc.,
Delaware Group Tax-Free Fund, Inc.,
Delaware Group Limited-Term Government Funds, Inc.,
Delaware Group Tax-Free Money Fund, Inc.,
Delaware Group Cash Reserve, Inc.,
DMC Tax-Free Income Trust - Pennsylvania
The exchange policy of the Fund as stated under
"Redemption and Exchange" is amended as follows 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"):
Right To Refuse Timing Accounts
Effective immediately, the Fund reserves the right to
refuse any new Timing Arrangements as well as any new purchases
(as opposed to exchanges) in Delaware Group funds from Timing
Firms.
Restrictions on Timed Exchanges
Effective 60 days from this notice, Timing Accounts
operating under existing Timing Agreements may only execute
exchanges between the following six Delaware Group funds: 1)
Decatur Income Fund, 2) Decatur Total Return Fund, 3) Delaware
Fund, 4) Limited-Term Government Fund, 5) Tax-Free USA Fund and
6) Delaware Cash Reserve. No other Delaware Group funds will
be available for Timed Exchanges. Assets redeemed or exchanged
out of Timing Accounts in Delaware Group funds not listed above
may not be reinvested back into that Timing Account.
In addition, 60 days hence, the Fund will terminate,
except as noted above, all exchanges privileges, including
telephone and written redemption privileges, previously made
available to Timing Firms. At such time, only shareholders and
their authorized brokers of record will be permitted to make
exchanges or redemptions.
----------------------------------
TAX-FREE USA FUND
----------------------------------
TAX-FREE INSURED FUND
----------------------------------
TAX-FREE USA INTERMEDIATE FUND
----------------------------------
DELAWARE GROUP TAX-FREE FUND, INC.
----------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
----------------------------------
OCTOBER 31, 1994
DELAWARE
GROUP
--------
The Delaware Group includes 20 different funds with a
wide range of investment objectives. Stock funds, income
funds, tax-free funds, money market funds and closed-end
equity funds give investors the ability to create a portfolio
that fits their personal financial goals. For more
information contact your financial adviser or call the
Delaware Group at 800-523-4640, in Philadelphia 215-988-1333.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
-------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 31, 1994
-------------------------------------------------------------
DELAWARE GROUP TAX-FREE FUND, INC.
-------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
-------------------------------------------------------------
For Prospectus and Performance:
Nationwide 800-523-4640
Philadelphia 988-1333
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Philadelphia 988-1241
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Philadelphia 988-1050
-------------------------------------------------------------
TABLE OF CONTENTS
-------------------------------------------------------------
Cover Page
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Investment Objectives and Policies
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Municipal Bond Insurance
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Performance Information
-------------------------------------------------------------
Trading Practices and Brokerage
-------------------------------------------------------------
Purchasing Shares
-------------------------------------------------------------
Investment Plans
-------------------------------------------------------------
Determining Offering Price and
Net Asset Value
-------------------------------------------------------------
Redemption and Repurchase
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Dividends and Realized Securities
Profits Distributions
-------------------------------------------------------------
Taxes
-------------------------------------------------------------
Investment Management Agreement
-------------------------------------------------------------
Officers and Directors
-------------------------------------------------------------
Exchange Privilege
-------------------------------------------------------------
General Information
-------------------------------------------------------------
Appendix A - Description of Ratings
-------------------------------------------------------------
Appendix B - Equivalent Yields:
Tax-Exempt vs. Taxable Securities
-------------------------------------------------------------
Financial Statements
-------------------------------------------------------------
Delaware Group Tax-Free Fund, Inc. (the "Fund") is a
professionally managed mutual fund of the series type
currently offering three Series: the Tax-Free USA Fund ("USA
Fund"), the Tax-Free USA Intermediate Fund ("USA Intermediate
Fund") and the Tax-Free Insured Fund ("Insured Fund")
(collectively or, as relevant separately, the "Series").
Each Series currently offers two classes of shares: with
respect to the USA Fund, the Tax-Free USA Fund A Class and
the Tax-Free USA Fund B Class; with respect to the USA
Intermediate Fund, the Tax-Free USA Intermediate Fund A Class
and the Tax-Free USA Intermediate Fund B Class; and, with
respect to the Insured Fund, the Tax-Free Insured Fund A
Class and the Tax-Free Insured Fund B Class (individually, a
"Class" and collectively, the "Classes"; and "Class A Shares"
or "Class B Shares" refer to such shares of all three Series,
unless otherwise noted). This Part B describes each Series
and each Class, except where noted.
Class B Shares may be purchased at a price equal to the
next determined net asset value per share. Class A Shares
may be purchased at the public offering price, which is equal
to the next determined net asset value per share, plus a
front-end sales charge. The Class A Shares are subject to a
maximum front-end sales charge of 4.75% with respect to the
USA Fund and Insured Fund and 3.00% with respect to the USA
Intermediate Fund. The Class A Shares are also subject to
annual 12b-1 Plan expenses. The Class B Shares are subject
to a contingent deferred sales charge ("CDSC") which may be
imposed on redemptions made within three years of purchase
with respect to the USA Intermediate Fund and six years of
purchase with respect to the USA Fund and Insured Fund. The
Class B Shares are also subject to 12b-1 Plan expenses and
are assessed against the Class B Shares for no longer than
approximately five years after purchase with respect to the
USA Intermediate Fund and no longer than approximately eight
years after purchase with respect to the USA Fund and Insured
Fund. See Automatic Conversion of Class B Shares in the
Classes' Prospectuses. All references to "shares" in this
Statement of Additional Information ("Part B" of the
registration statement) refer to all Classes of shares of the
Series, except where noted.
This Part B supplements the information contained in the
Prospectuses of the Series dated October 31, 1994, as may be
amended from time to time. It should be read in conjunction
with the Series' Prospectuses. Part B is not itself a
prospectus but is, in its entirety, incorporated by reference
into the Prospectuses. The Prospectuses for the Series may
be obtained by writing or calling your investment dealer or
by contacting the Fund's national distributor, Delaware
Distributors, Inc. (the "Distributor"), 1818 Market Street,
Philadelphia, PA 19103.
INVESTMENT OBJECTIVES AND POLICIES
The objective of the USA Fund and of the USA
Intermediate Fund is to seek as high a level of current
interest income exempt from federal income tax as is
available from municipal bonds and as is consistent with
prudent investment management and preservation of capital.
The USA Intermediate Fund pursues its investment objective by
investing in municipal bonds with a dollar weighted average
maturity of between three and ten years and utilizing various
investment strategies, as described below, which differ from
the strategies utilized by the USA Fund and the Insured Fund.
The objective of the Insured Fund is to seek as high a
level of current interest income exempt from federal income
tax as is available from municipal bonds which are protected
by insurance guaranteeing the payment of principal and
interest, when due, and as is consistent with prudent
investment management and preservation of capital.
The investment objective of each Series, described
above, is a matter of fundamental policy and may not be
changed without shareholder approval of the affected Series.
There is no assurance that the objective of each Series can
be achieved. Bond insurance reduces the risk of loss due to
default by an issuer, but such bonds remain subject to the
risk that market value may shift for other reasons. Also,
there is no assurance that any insurance company will meet
its obligations.
Appendix A contains excerpts describing ratings of
municipal obligations from Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's").
The USA Fund and the Insured Fund seek to achieve their
respective objectives by investing their assets in a
nondiversified portfolio of intermediate obligations up to
ten years and long-term obligations up to 50 years in
maturity, and the USA Intermediate Fund seeks to achieve its
objective by investing its assets in a nondiversified
portfolio of intermediate obligations with a dollar weighted
average maturity of between three and ten years, issued by or
on behalf of states, territories and possessions of the
United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the
interest income from which, in the opinion of each issuer's
Counsel, is exempt from federal income tax. A Series may
invest in other debt obligations, but if it does, at least
80% of its assets will be invested in the types of securities
listed above.
The portfolio of the USA Intermediate Fund will have a
dollar weighted average maturity of between three and ten
years. The USA Intermediate Fund may, from time to time,
employ certain techniques to shorten or lengthen the dollar
weighted average maturity of the portfolio, including futures
transactions, options on futures and the purchase of debt
securities at a premium or a discount. Although the dollar
weighted average maturity of the USA Intermediate Fund's
portfolio will be between three and ten years, the USA
Intermediate Fund may purchase individual securities with any
maturity.
The principal risk to which a Series is subject is price
fluctuation due to changes in interest rates caused by
government policies and economic factors which are beyond the
control of the investment manager. In addition, although
some municipal bonds are government obligations backed by the
issuer's full faith and credit, others are only secured by a
specific revenue source and not by the general taxing power.
Each Series may invest in both types.
The USA Fund will normally invest at least 80% of its
assets in debt obligations, as stated above, which are rated
by S&P or Moody's at the time of purchase as being within
their top four grades. The fourth grade is considered a
medium grade and has speculative characteristics. The USA
Fund may, however, invest up to 20% of its assets in
securities with a rating lower than the top four and in
unrated securities. These securities are speculative and may
involve greater risks and have higher yields. They will only
be purchased when the investment manager considers them
particularly attractive and their purchase consistent with
the objective of preserving capital. The USA Intermediate
Fund intends to invest at least 90% of its portfolio in debt
obligations that are either rated in the top four grades by
Moody's or S&P at the time of purchase or unrated, but in the
opinion of Delaware Management Company, Inc. (the "Manager"),
similar in credit quality to obligations so rated. The
fourth grade is considered medium grade and may have
speculative characteristics. The USA Intermediate Fund may
invest up to 10% of its assets in securities that are rated
lower than the top four grades or unrated, but in the
Manager's opinion similar in credit quality to obligations so
rated. These securities are speculative and may involve
greater risks and have higher yields. Investing in debt
obligations which are not rated in the top four grades (or
which have credit qualities similar to such rated
obligations) entails certain risks, including the risk of
loss of principal, which may be greater than the risks
involved in investment grade obligations, and which should be
considered by investors contemplating an investment in the
Series. Such obligations are sometimes sold by issuers whose
earnings at the time of issuance are less than the projected
debt service on the obligations. The Manager will evaluate
the creditworthiness of the issuer and the issuer's ability
to meet its obligations to pay interest and repay principal.
The Insured Fund will normally invest at least 80% of
its assets in debt obligations which are insured by various
insurance companies which undertake to pay to a holder, when
due, the interest or principal amount of an obligation if the
interest or principal is not paid by the issuer when due.
See Municipal Bond Insurance.
Each Series may also invest in "when-issued securities"
for which the Fund will maintain a segregated account which
it will mark to market daily. When-issued securities involve
commitments to purchase new issues of securities which are
offered on a when-issued basis which usually involve delivery
and payment up to 45 days after the date of the transaction.
During this period between the date of commitment and the
date of delivery, the Series does not accrue interest on the
investment, but the market value of the bonds could
fluctuate. This can result in a Series having unrealized
appreciation or depreciation which could affect the net asset
value of its shares.
Each Series will invest its assets in securities of
varying maturities, without limitation, depending on market
conditions. Typically, the remaining maturity of municipal
bonds will range between five and 30 years. Each Series may
also invest in short-term, tax-free instruments such as tax-
exempt commercial paper and general obligation, revenue and
project notes. The Series may also invest in variable and
floating rate demand obligations (longer-term instruments
with an interest rate that fluctuates and a demand feature
that allows the holder to sell the instruments back to the
issuer from time to time) but neither Series intends to
invest more than 5% of its assets in these instruments.
Short-term securities will be rated in the top two grades by
a nationally-recognized statistical rating agency. The
Manager will attempt to adjust the maturity structure of the
portfolios to provide a high level of tax-exempt income
consistent with preservation of capital.
Under abnormal conditions, each Series may invest in
taxable instruments for temporary defensive purposes. These
would include obligations of the U.S. government, its
agencies and instrumentalities, commercial paper,
certificates of deposit of domestic banks and other debt
instruments. In connection with defensive portfolio
investments, the Fund may invest more than 20% of the assets
of the Insured Fund in uninsured securities which may be
lower rated or unrated. Such securities may involve
increased risks or may generate taxable income, and each
Series will only exceed 20% of its assets in such investments
for temporary defensive purposes.
Notwithstanding the above limitations, no Series
presumably intends to invest more than 5% of its assets in
securities rated below investment grade.
The Fund is registered as an open-end management
investment company and each Series' portfolio of assets is
nondiversified. Each Series has the ability to invest as
much as 50% of its assets in as few as two issuers provided
that no single issuer accounts for more than 25% of the
portfolio. The remaining 50% must be diversified so that no
more than 5% is invested in the securities of a single
issuer. Because the Series may invest their assets in fewer
issuers, the value of Series shares may fluctuate more
rapidly than if the Fund were fully diversified. In the
event a Series invests more than 5% of its assets in a single
issuer, it would be affected more than a fully-diversified
fund if that issuer encounters difficulties in satisfying its
financial obligations. Except as set forth below, each
Series may invest without limitation in U.S. government
securities or government agency securities backed by the U.S.
government or its agencies or instrumentalities. Percentage
limitations outlined above are determined at the time an
investment is made.
Each Series may invest more than 25% of its assets in
municipal obligations relating to similar types of projects
or with other similar economic, business or political
characteristics (such as bonds of housing finance agencies or
health care facilities). In addition, each Series may invest
more than 25% of its assets in industrial development bonds
or pollution control bonds which may be backed only by the
assets and revenues of a nongovernmental issuer. A Series
will not, however, invest more than 25% of its total assets
in bonds issued for companies in the same industry.
Set forth below are other more specific investment
restrictions, some of which limit the percentage of assets
which may be invested in certain types of securities. While
the Fund is permitted, it normally does not borrow money or
invest in repurchase agreements. Up to 20% of each Series'
assets may be invested in securities whose interest is
subject to federal income tax. From time to time, a
substantial portion of the assets of a Series may be invested
in municipal bonds insured as to payment of principal and
interest by a single insurance company, which is believed by
the Fund to be consistent with its policies and restrictions.
Municipal Bonds
The term "municipal bonds" is generally understood to
include debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range
of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and
water and sewer works. Other public purposes for which
municipal bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general
operating expenses and the obtaining of funds to lend to
other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by
or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit,
port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply,
gas, electricity or sewage or solid waste disposals. Such
obligations are included within the term "municipal bonds"
provided that the interest paid thereon qualifies as exempt
from federal income tax in the opinion of bond counsel to the
issuer. In addition, the interest paid on industrial
development bonds, the proceeds from which are used for the
construction, equipment, repair or improvement of privately-
operated industrial or commercial facilities, may be exempt
from federal income tax, although current federal tax laws
place substantial limitations on the size of such issues.
The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or
other specific revenue source, but not from the general
taxing power. Tax-exempt industrial development bonds are in
most cases revenue bonds and do not generally carry the
pledge of the credit of the issuer of such bonds. There are,
of course, variations in the security of municipal bonds,
both within a particular classification and among
classifications.
The yields on municipal bonds are dependent on a variety
of factors, including general money market conditions,
general conditions of the municipal bond market, size of a
particular offering, maturity of the obligation and rating of
the issue. The imposition of the Series' management fee, as
well as other operating expenses, will have the effect of
reducing the yield to investors.
The Tax Reform Act of 1986 (the "Act") limits the amount
of new "private purpose" bonds that each state can issue and
subjects interest income from these bonds to the federal
alternative minimum tax. "Private purpose" bonds are issues
whose proceeds are used to finance certain nongovernment
activities, and could include some types of industrial
revenue bonds such as privately-owned sports and convention
facilities. The Act also makes the tax-exempt status of
certain bonds depend on the issuer's compliance with specific
requirements after the bonds are issued.
The Series intend to seek to achieve a high level of
tax-exempt income. However, if a Series invests in newly-
issued private purpose bonds, a portion of that Series'
distributions would be subject to the federal alternative
minimum tax.
USA Intermediate Fund
Additional Investment Strategies
In addition to the investment policies described above,
the USA Intermediate Fund seeks to achieve its objective by
pursuing the following investment strategies:
Portfolio Loan Transactions -- The USA Intermediate Fund
may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short
sales or other security transactions.
It is the understanding of the Manager that the staff of
the Securities and Exchange Commission permits portfolio
lending by registered investment companies if certain
conditions are met. These conditions are as follows: 1)
each transaction must have 100% collateral in the form of
cash, U.S. Treasury Bills and Notes, or irrevocable letters
of credit payable by banks acceptable to the Series from the
borrower; 2) this collateral must be valued daily and should
the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Series; 3)
the Series must be able to terminate the loan after notice,
at any time; 4) the Series must receive reasonable interest
on any loan, and any dividends, interest or other
distributions on the lent securities, and any increase in the
market value of such securities; 5) the Series may pay
reasonable custodian fees in connection with the loan; and 6)
the voting rights on the lent securities may pass to the
borrower; however, if the directors of the Fund know that a
material event will occur affecting an investment loan, they
must either terminate the loan in order to vote the proxy or
enter into an alternative arrangement with the borrower to
enable the directors to vote the proxy.
The major risk to which the Series would be exposed on a
loan transaction is the risk that the borrower would go
bankrupt at a time when the value of the security goes up.
Therefore, the Series will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under
the supervision of the Board of Directors, including the
creditworthiness of the borrowing broker, dealer or
institution and then only if the consideration to be received
from such loans would justify the risk. Creditworthiness
will be monitored on an ongoing basis by the Manager.
Repurchase Agreements -- These are instruments 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 USA Intermediate 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 Series to invest
temporarily available cash on a short-term basis. The
Series' 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
obligation. Should such an issuer default, the Manager
believes that, barring extraordinary circumstances, the
Series will be entitled to sell the underlying securities or
otherwise receive adequate protection for its interest in
such securities, although there could be a delay in recovery.
The Series considers the creditworthiness of the bank or
dealer from whom it purchases repurchase agreements. The
Series will monitor such transactions to assure that the
value of the underlying securities subject to repurchase
agreements is at least equal to the repurchase price. The
underlying securities will be limited to those described
above.
The ratings of S&P, Moody's and other rating services
represent their opinion as to the quality of the money market
instruments 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
Series will further evaluate these securities. See Appendix
A -- Description of Ratings.
Futures -- The USA Intermediate Fund may enter into
contracts for the purchase or sale for future delivery of
securities. While futures contracts provide for the delivery
of securities, deliveries usually do not occur. Contracts
are generally terminated by entering into an offsetting
transaction. When the Series enters into a futures
transaction, it must deliver to the futures commission
merchant selected by the Series an amount referred to as
"initial margin." This amount is maintained by the futures
commission merchant in an account at the Series' Custodian
Bank. Thereafter, a "variation margin" may be paid by the
Series to, or drawn by the Series from, such account in
accordance with controls set for such accounts, depending
upon changes in the price of the underlying securities
subject to the futures contract.
The Series may enter into such futures contracts to
protect against the adverse effects of fluctuations in
interest rates without actually buying or selling the
securities. For example, if interest rates are expected to
increase, the Series might enter into futures contracts for
the sale of debt securities. Such a sale would have much the
same effect as selling an equivalent value of the debt
securities owned by the Series. If interest rates did
increase, the value of the debt securities in the portfolio
would decline, but the value of the futures contracts to the
Series would increase at approximately the same rate, thereby
keeping the net asset value of the Series from declining as
much as it otherwise would have. Similarly, when it is
expected that interest rates may decline, futures contracts
may be purchased to hedge in anticipation of subsequent
purchases of securities at higher prices. Since the
fluctuations in the value of futures contracts should be
similar to those of debt securities, the Series could take
advantage of the anticipated rise in value of debt securities
without actually buying them until the market had stabilized.
At that time, the futures contracts could be liquidated and
the Series could then buy debt securities on the cash market.
With respect to options on futures contracts, when the
Series is not fully invested, it may purchase a call option
on a futures contract to hedge against a market advance due
to declining interest rates. The purchase of a call option
on a futures contract is similar in some respects to the
purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based, or the
price of the underlying debt securities, it may or may not be
less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures
contracts, when the Series is not fully invested, it may
purchase a call option on a futures contract to hedge against
a market advance due to declining interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against the declining price of
the security which is deliverable upon exercise of the
futures contract. If the futures price at the expiration of
the option is below the exercise price, the Series will
retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in
the Series' portfolio holdings. The writing of a put option
on a futures contract constitutes a partial hedge against the
increasing price of the security which is deliverable upon
exercise of the futures contract. If the futures price at
the expiration of the option is higher than the exercise
price, the Series will retain the full amount of the option
premium which provides a partial hedge against any increase
in the price of securities which the Series intends to
purchase.
If a put or call option the Series has written is
exercised, the Series will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures
positions, the Series' losses from existing options on
futures may, to some extent, be reduced or increased by
changes in the value of portfolio securities. The purchase
of a put option on a futures contract is similar in some
respects to the purchase of protective puts on portfolio
securities. For example, the Series will purchase a put
option on a futures contract to hedge the Series' portfolio
against the risk of rising interest rates.
To the extent that interest rates move in an unexpected
direction, the Series may not achieve the anticipated
benefits of futures contracts or options on futures contracts
or may realize a loss. For example, if the Series is hedged
against the possibility of an increase in interest rates
which would adversely affect the price of securities held in
its portfolio and interest rates decrease instead, the Series
will lose part or all of the benefit of the increased value
of its securities which it has because it will have
offsetting losses in its futures position. In addition, in
such situations, if the Series had insufficient cash, it may
be required to sell securities from its portfolio to meet
daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased
prices which reflect the rising market. The Series may be
required to sell securities at a time when it may be
disadvantageous to do so.
Further, with respect to options on futures contracts,
the Series may seek to close out an option position by
writing or buying an offsetting position covering the same
securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out
positions on options will be subject to the maintenance of a
liquid secondary market, which cannot be assured.
Variable or Floating Rate Demand Notes -- Variable or
floating rate demand notes ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest
rate adjustment formula and an unconditional right of demand
to receive payment of the unpaid principal balance plus
accrued interest upon a short notice period (generally up to
30 days) prior to specified dates, either from the issuer or
by drawing on a bank letter of credit, a guarantee or
insurance issued with respect to such instrument. The
interest rates are adjustable at intervals ranging from daily
to up to six months to some prevailing market rate for
similar investments, such adjustment formula being calculated
to maintain the market value of the VRDN at approximately the
par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the price rate of a bank
or some other appropriate interest rate adjustment index.
The Manager will decide which variable or floating rate
demand instruments the USA Intermediate Fund will purchase in
accordance with procedures prescribed by its Board of
Directors to minimize credit risks. Any VRDN must be of high
quality as determined by the Manager and subject to review by
the Board of Directors, with respect to both its long-term
and short-term aspects, except where credit support for the
instrument is provided even in the event of default on the
underlying security, the Series may rely only on the high
quality character of the short-term aspect of the demand
instrument, i.e., the demand feature. A VRDN which is
unrated must have high quality characteristics similar to
those rated in accordance with policies and guidelines
determined by the Fund's Board of Directors. If the quality
of any VRDN falls below the quality level required by the
Board of Directors and any applicable rules adopted by the
Securities and Exchange Commission, the Series must dispose
of the instrument within a reasonable period of time by
exercising the demand feature or by selling the VRDN in the
secondary market, whichever is believed by the Manager to be
in the best interests of the Fund and its shareholders.
Municipal Leases -- As stated in the Series' Prospectus,
a portion of the USA Intermediate Fund's assets may be
invested in municipal lease obligations, primarily through
certificates of participation ("COPs"). COPs function much
like installment purchase agreements and are widely used by
state and local governments to finance the purchase of
property. The lease format is generally not subject to
constitutional limitations on the issuance of state debt, and
COPs enable a governmental issuer to increase government
liabilities beyond constitutional debt limits. A principal
distinguishing feature separating COPs from municipal debt is
the lease, which contains a "nonappropriation" or "abatement"
clause. This clause provides that, although the municipality
will use its best efforts to make lease payments, it may
terminate the lease without penalty if its appropriating body
does not allocate the necessary funds. The Series will
invest only in COPs rated within the four highest rating
categories of Moody's, S&P or Fitch Investors Service, Inc.,
or in unrated COPs believed to be of comparable quality.
Investment Restrictions
The Fund has adopted the following restrictions and
fundamental policies which are applied to each Series except
as noted. Fundamental objectives and restrictions cannot be
changed without approval by the holders of a majority of the
outstanding voting securities of a Series, which is the
lesser of more than 50% of the outstanding voting securities,
or 67% of the voting securities present at a shareholder
meeting if 50% or more of the voting securities are present
in person or represented by proxy of a Series which proposes
to change its fundamental policy. Investment restrictions 4,
6 and 8 listed below apply only to USA Fund and Insured Fund.
A Series may not under any circumstances:
1. Invest more than 20% of its assets in securities
whose interest is subject to federal income tax.
2. Borrow money in excess of 10% of the value of its
assets and then only as a temporary measure for extraordinary
purposes. Any borrowing will be done from a bank and to the
extent that such borrowing exceeds 5% of the value of a
Series' assets, asset coverage of at least 300% is required.
In the event that such asset coverage shall at any time fall
below 300%, the Series shall, within three days thereafter
(not including Sunday or holidays) or such longer period as
the Securities and Exchange Commission may prescribe by rules
and regulations, reduce the amount of its borrowings to such
an extent that the asset coverage of such borrowings shall be
at least 300%. A Series will not issue senior securities as
defined in the Investment Company Act of 1940 (the "1940
Act"), except for notes to banks. (The issuance of three
series of shares is not deemed to be the issuance of senior
securities so long as such series comply with the appropriate
provisions of the 1940 Act.) Investment securities will not
normally be purchased while there is an outstanding
borrowing.
3. Sell securities short.
4. Write or purchase put or call options.
5. Underwrite the securities of other issuers, except
that a Series may participate as part of a group in bidding
for the purchase of municipal bonds directly from an issuer
for its own portfolio in order to take advantage of the lower
purchase price available to members of such a group; nor
invest more than 10% of the value of a Series' net assets in
illiquid assets.
6. Purchase or sell commodities or commodity
contracts.
7. Purchase or sell real estate, but this shall not
prevent a Series from investing in municipal bonds secured by
real estate or interests therein.
8. Make loans to other persons except through the use
of repurchase agreements or the purchase of commercial paper.
For these purposes, the purchase of a portion of debt
securities which is part of an issue to the public shall not
be considered the making of a loan.
9. With respect to 50% of the value of its assets,
invest more than 5% of its assets in the securities of any
one issuer or invest in more than 10% of the outstanding
voting securities of any one issuer, except that U.S.
government and government agency securities backed by the
U.S. government, or its agencies or instrumentalities may be
purchased without limitation. For the purpose of this
limitation, the Series will regard each state and political
subdivision, agency or instrumentality of a state and each
multistate agency of which a state is a member as a separate
issuer.
10. Invest in companies for the purpose of exercising
control.
11. Invest in securities of other investment companies,
except as they are acquired as part of a merger,
consolidation or acquisition of assets.
12. Invest more than 25% of its total assets in any
particular industry or industries, except that a Series may
invest more than 25% of the value of its total assets in
municipal bonds and in obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
The Fund has also adopted an additional restriction
applicable only to the Insured Fund. The Insured Fund will
not:
13. Invest more than 20% of its assets in securities
(other than U.S. government securities, securities of
agencies of the U.S. government and securities backed by the
U.S. government or its agencies or instrumentalities) which
are not covered by insurance guaranteeing the payment, when
due, of interest on and the principal of such securities,
except for defensive purposes.
The Fund also has determined that, from time to time,
more than 10% of a Series' assets may be invested in
municipal bonds insured as to principal and interest by a
single insurance company. The Fund believes such investments
are consistent with the foregoing restrictions.
If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage
resulting from a change in value of net assets will not
result in a violation of the restrictions.
Although not a fundamental investment restriction, the
Fund currently does not invest its assets in real estate
limited partnerships or oil, gas and other mineral leases.
The Series may invest in restricted securities,
including unregistered securities eligible for resale without
registration pursuant to Rule 144A ("Rule 144A Securities")
under the Securities Act of 1933 (the "1933 Act"). Rule 144A
Securities may be freely traded among qualified institutional
investors without registration under the 1933 Act.
Investing in Rule 144A Securities could have the effect
of increasing the level of a Series' illiquidity to the
extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities. After the
purchase of a Rule 144A Security, however, the Board of
Directors and the Manager will continue to monitor the
liquidity of that security to ensure that the Series have no
more than 10% of their net assets in illiquid securities.
MUNICIPAL BOND INSURANCE
The practice has developed among municipal issuers of
having their issues insured by various companies. At the
present time, the Municipal Bond Insurance Association
("MBIA"), AMBAC Indemnity Corporation ("AMBAC Indemnity") and
Financial Guaranty Insurance Company ("FGIC") provide a
substantial portion of such insurance. Accordingly, at
different times, a substantial portion of the Series'
portfolio may consist of municipal bonds of various issuers
insured as to payment of principal and interest when due by a
single insurance company. It is expected that other
insurance companies or associations will enter this field,
and a substantial portion of municipal bond issues available
for investment by companies such as the Fund will be insured.
In the event of a default, the insurer is required to make
payments of interest and principal when due to the
bondholders. While the insurance may affect the securities'
ratings, the Manager does not look to the creditworthiness of
a private insurer. Instead, the Manager reviews the
creditworthiness of the actual issuer and its ability to pay
interest and principal. Insurance on municipal bonds that
are purchased by the Series will generally have been obtained
by the bond issuer and attached to the bonds for their
lifetime, although the Series may obtain insurance on bonds
while they are held by the Series.
At the present time, obligations which are subject to
such insurance generally receive a high rating from S&P or
Moody's, based upon a combination of the issuer's
creditworthiness and the insurer's obligation under the
insurance policy. While such insurance reduces the risk that
principal or interest will not be paid when due, it is not a
protection against market risks arising from other factors,
such as changes in prevailing interest rates. If the issuer
defaults on payment of interest or principal, the trustee
and/or payment agent of the issuer will notify the insurer
who will make payment to the bondholders. There is no
assurance that any insurance company will meet its
obligations. The Fund believes such investments are
consistent with the Series' fundamental investment policies
and restrictions.
Similar insurance is available to the Fund for uninsured
obligations, and the Fund may acquire such obligations and
purchase such insurance directly, but only if that would
result in a comparable benefit to the Fund from such a
security.
As the bond insurance industry matures, the ownership
and capital structures of the insurers have evolved. Each of
the municipal bond insurers has unique ownership structures,
some of which underwent significant changes in 1992.
MBIA moved to a greater percentage of public ownership
during 1992 with the sale of additional equity. MBIA Inc. is
currently 88.7% publicly owned, while the remaining ownership
is distributed between Aetna Life & Casualty Company and
Credit Local de France. As of December 31, 1993, MBIA Inc.
had qualified statutory capital of $1,516,800,000; up 16.71%
from December 31, 1992. For the three months ended March 31,
1994, qualified statutory capital amounted to $1,553,873,000
(unaudited).
FGIC, until 1993 the only bond insurer with one
institutional owner, experienced a slight shift in ownership.
In early January 1993, GE Capital, the parent of FGIC Corp.,
sold a 1% interest of the company to Sumitomo Marine and Fire
Insurance Company Limited. The sale was undertaken primarily
to facilitate joining business ventures in the future. As of
December 31, 1993, FGIC's qualified statutory capital was
approximately $1,029,600,000; up 26.4% from December 31,
1992. For the three months ended March 31, 1994, qualified
statutory capital amounted to $1,071,081,000 (unaudited).
AMBAC became the only insurer with 100% public
ownership, when Citicorp Financial Guaranty Holdings, Inc.
(CFGH) sold its remaining 49.7% equity interest in AMBAC Inc.
during February 1992. As of December 31, 1993, AMBAC's
qualified statutory capital was approximately $1,121,600,000;
up 21.1% from December 31, 1992. For the three months ended
March 31, 1994, qualified statutory capital amounted to
$1,147,870,000 (unaudited).
PERFORMANCE INFORMATION
From time to time, each Series may state total return
for any Class in advertisements and other types of
literature. Any statements of total return performance data
for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as
relevant, the most recent one-, five- and ten-year (or life
of fund, if applicable) periods. The Fund may also advertise
aggregate and average total return information for each Class
over additional periods of time.
The average annual total rate of return for a Class is
based on a hypothetical $1,000 investment that includes
capital appreciation and depreciation during the stated
periods. The following formula will be used for the actual
computations:
P(1+T)/n/ = ERV
Where P = a hypothetical initial purchase order of
$1,000 from which the maximum front-end sales
charge with respect to Class A Shares, if any,
is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the
deduction of the applicable CDSC, if any, with
respect to Class B Shares.
Aggregate total return is calculated in a similar
manner, except that the results are not annualized. Each
calculation assumes the maximum front-end sales charge, if
any, is deducted from the initial $1,000 investment at the
time it is made and that all distributions are reinvested at
net asset value, and with respect to the Class B Shares,
includes the CDSC that would be applicable upon complete
redemption of such shares. In addition, the Series may
present total return information that does not reflect the
deduction of the maximum front-end sales charge or any
applicable CDSC.
The performance, as shown below, is the average annual
total return quotations of the Class A Shares of the USA Fund
for the one-, five- and ten-year periods ended August 31,
1994, of the Class A Shares of Insured Fund for the one- and
five-year periods ended August 31, 1994 and for the life of
this Class, and for the one-year period ended August 31, 1994
and for the life of the Class A Shares of the USA
Intermediate Fund, computed as described above. The average
annual total return for the Class A Shares at offer reflects
the maximum front-end sales charges paid on the purchase of
shares. The average annual total return for Class A Shares
at net asset value (NAV) does not reflect the payment of the
maximum front-end sales charge. Securities prices fluctuated
during the periods covered and past results should not be
considered as representative of future performance.
The performance of the Class B Shares, as shown below,
is the aggregate total return quotation for the period May 2,
1994 (date of initial public offering) through August 31,
1994. The aggregate total return for Class B Shares
including deferred sales charge reflects the deduction of the
applicable CDSC that would be paid if the shares were
redeemed at August 31, 1994. The aggregate total return for
Class B Shares excluding deferred sales charge assumes the
shares were not redeemed at August 31, 1994 and therefore
does not reflect the deduction of a CDSC.
Average Annual Total Return
USA Fund-Class A Shares
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended 8/31/94 (3.33%) 1.49%
5 years ended 8/31/94 6.73% 7.78%
10 years ended 8/31/94 10.14% 10.67%
Aggregate Total Return
USA Fund-Class B Shares
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 5/2/94*
through 8/31/94 (2.54%)** 1.45%**
Average Annual Total Return
Insured Fund-Class A Shares
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended 8/31/94 (4.22%) 0.54%
5 years ended 8/31/94 6.11% 7.14%
Period 3/25/85* to 8/31/94 7.93% 8.50%
Aggregate Total Return
Insured Fund-Class B Shares
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 5/2/94*
through 8/31/94 (2.09%)** 1.91%**
Average Annual Total Return
USA Intermediate Fund-
Class A Shares***
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended 8/31/94 (0.99%) 2.09%
Period 1/7/93* to 8/31/94 5.17% 7.14%
Aggregate Total Return
USA Intermediate Fund-
Class B Shares***
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 5/2/94*
through 8/31/94 0.32%** 2.31%**
* Date of initial public offering.
** Total return for this short of a time period may not be
representative of longer-term results.
*** The Manager elected to waive voluntarily the portion of
its annual compensation under its Investment Management
Agreement with the USA Intermediate Fund to limit
operating expenses of the Series to .25% (including 12b-
1 expenses). That waiver has been modified effective
May 2, 1994 to limit operating expenses to .10%
exclusive of 12b-1 expenses, from the commencement of
the public offering of the Series through June 30, 1995.
In the absence of such voluntary waiver, performance
would have been affected negatively.
As stated in the Fund's Prospectuses, the Fund may also
quote each Class' current yield in advertisements and
investor communications.
The yield computation is determined by dividing the net
investment income per share earned during the period by the
maximum offering price per share on the last day of the
period and annualizing the resulting figure, according to the
following formula:
a b
-------
YIELD = 2[(cd + 1)/6/- 1]
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to
receive dividends;
d = the maximum offering price per share on the
last day of the period.
The above formula will be used in calculating quotations
of yield of each Class, based on specified 30-day periods
identified in advertising by the Fund. The yields of the
Class A Shares of the USA Fund, the Insured Fund and the USA
Intermediate Fund as of August 31, 1994 using this formula
were 4.77%, 4.33% and 4.98%, respectively. The yields of the
Class B Shares of the USA Fund, the Insured Fund and the USA
Intermediate Fund as of August 31, 1994 were 4.15%, 3.69% and
4.25%, respectively. The yields of the Class A Shares and
the Class B Shares of the USA Intermediate Fund reflect the
voluntary fee waiver undertaken by the Manager described
above. Yield calculations assume the maximum front-end sales
charge, if any. Actual yield on Class A Shares may be
affected by variations in front-end sales charges on
investments.
The Fund may also publish a tax-equivalent yield for a
Class based on federal and, if applicable, state tax rates,
which demonstrates the taxable yield necessary to produce an
after-tax yield equivalent to the Class' yield.
Investors should note that the income earned and
dividends paid by the Series will vary with the fluctuation
of interest rates and performance of the portfolio. The net
asset value of the Fund may change. Unlike money market
funds, the Series invests in longer-term securities that
fluctuate in value and do so in a manner inversely correlated
with changing interest rates. The Series' net asset values
will tend to rise when interest rates fall. Conversely, the
Series' net asset values will tend to fall as interest rates
rise. Normally, fluctuations in interest rates have a
greater effect on the prices of longer-term bonds. The value
of the securities held in the Series will vary from day to
day and investors should consider the volatility of the
Series' net asset values as well as the yield before making a
decision to invest.
Since the Series invest for the long term, their average
effective weighted average portfolio maturity at the end of
the fiscal year was 21 years for the USA Fund, 21 years for
the Insured Fund and 7 years for the USA Intermediate Fund.
See Appendix B for additional yield information.
From time to time, a Series may also quote for each
Class an actual total return and/or yield performance in
advertising and other types of literature compared to indices
or averages of alternative financial products available to
prospective investors. For example, the performance
comparisons may include the average return of various bank
instruments, some of which may carry certain return
guarantees offered by leading banks and thrifts as monitored
by Bank Rate Monitor.
Comparative information on the Consumer Price Index may
also be included. The Consumer Price Index, as prepared by
the U.S Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of
a representative group of consumer goods. It does not
represent a return from an investment.
A Series may also promote a Class' total return and/or
yield performance and use comparative performance information
computed by and available from certain industry and general
market research and publications, such as Lipper Analytical
Services, Inc.
Statistical and performance information and various
indices compiled and maintained by organizations such as the
following may also be used in preparing exhibits comparing
certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and
in illustrating general financial planning principles. From
time to time, certain mutual fund performance ranking
information, calculated and provided by these organizations,
may also be used in the promotion of sales in the Fund. Any
indices used are not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc.
and Morningstar, Inc. are performance evaluation
services that maintain statistical performance
databases, as reported by a diverse universe of
independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that
provides a variety of historical data including total
return, capital appreciation and income on the stock
market as well as other investment asset classes, and
inflation. With their permission, this information will
be used primarily for comparative purposes and to
illustrate general financial planning principles.
Interactive Data Corporation is a statistical access
service that maintains a database of various
international industry indicators, such as historical
and current price/earning information, individual equity
and fixed income price and return information.
Compustat Industrial Databases, a service of Standard &
Poor's, may also be used in preparing performance and
historical stock and bond market exhibits. This firm
maintains fundamental databases that provide financial,
statistical and market information covering more than
7,000 industrial and non-industrial companies.
Salomon Brothers and Lehman Brothers are statistical
research firms that maintain databases of international
market, bond market, corporate and government-issued
securities of various maturities. This information, as
well as unmanaged indices compiled and maintained by
these firms, will be used in preparing comparative
illustrations.
Current interest rate and yield information on
government debt obligations of various durations, as reported
weekly by the Federal Reserve (Bulletin H.15), may also be
used. Also, current rate information on municipal debt
obligations of various durations, as reported daily by the
Bond Buyer, may also be used. The Bond Buyer is published
daily and is an industry-accepted source for current
municipal bond market information.
The total return performance for each Class will reflect
the appreciation or depreciation of principal, reinvestment
of income and any capital gains distributions paid during any
indicated period and the impact of the maximum front-end
sales charge, or contingent deferred sales charge, if any,
paid on the illustrated investment amount, annualized. The
results will not reflect any income taxes, if applicable,
payable by shareholders on the reinvested distributions
included in the calculations.
The following table, for purposes of illustration only,
reflects the cumulative total return performance of the Class
A Shares of the USA Fund for the one-, five- and ten-year
periods ended August 31, 1994, of the Class A Shares of the
Insured Fund for the one-, three- and five-year periods ended
August 31, 1994 and for the life of this Class, and for the
one-year period ended August 31, 1994 and for the life of the
Class A Shares of the USA Intermediate Fund. For this
purpose, the calculations assume the reinvestment of any
realized securities profits distributions and income
dividends paid during the period. Comparative information on
the Consumer Price Index is also included.
The performance of each Series, as shown below, reflects
maximum front-end sales charges or contingent deferred sales
charges, if any, but not any income taxes payable by
shareholders on the reinvested distributions included in the
calculations. The net asset values fluctuate so shares, when
redeemed, may be worth more or less than the original
investment, and past Series performance should not be
considered as representative of future results.
Cumulative Total Return
USA Fund-Class A Shares
Consumer
Class A Shares Price
(at Offer) Index**
1 year ended 8/31/94 (3.33%) 2.90%
3 years ended 8/31/94 20.76% 9.08%
5 years ended 8/31/94 38.50% 19.58%
10 years ended 8/31/94 162.61% 42.60%
USA Fund-Class B Shares
Class B Shares Class B Shares Consumer
(Including (Excluding Price
Deferred Deferred Index**
Sales Charge) Sales Charge)
Period 5/2/94*
through 8/31/94 (2.54%)*** 1.45%*** 1.09%
Insured Fund-Class A Shares
Consumer
Class A Shares Price
(at Offer) Index**
1 year ended 8/31/94 (4.22%) 2.90%
3 years ended 8/31/94 15.60% 9.08%
5 years ended 8/31/94 34.50% 19.58%
Period 3/25/85* to 8/31/94 105.54% 40.01%
Insured Fund-Class B Shares
Class B Shares Class B Shares Consumer
(Including (Excluding Price
Deferred Deferred Index**
Sales Charge) Sales Charge)
Period 5/2/94*
through 8/31/94 (2.09%)*** 1.91%*** 1.09%
USA Intermediate Fund-Class A Shares****
Consumer
Price
Class A Shares Index**
(at Offer)
1 year period 8/31/94 (0.99%) 2.90%
Period 1/7/93* to 8/31/94 8.67% 5.00%
USA Intermediate Fund-Class B Shares****
Class B Shares Class B Shares Consumer
(Including (Excluding Price
Deferred Deferred Index**
Sales Charge) Sales Charge)
Period 5/2/94*
through 8/31/94 0.32%*** 2.31%*** 1.09%
* Date of initial public offering.
** Source--Department of Labor.
*** Total return for this short of a time period may not be
representative of longer-term results.
**** The Manager elected to waive voluntarily the portion of
its annual compensation under its Investment Management
Agreement with the USA Intermediate Fund to limit
operating expenses of the Series to .25% (including 12b-
1 expenses). That waiver has been modified effective
May 2, 1994 to limit operating expenses to .10%,
exclusive of 12b-1 expenses, from the commencement of
the public offering of the Series through June 30, 1995.
In the absence of such voluntary waiver, performance
would have been affected negatively.
Because every investor's goals and risk threshold are
different, the Distributor, as distributor for the Fund and
other mutual funds in the Delaware Group, will provide
general information about investment alternatives and
scenarios that will allow investors to assess their personal
goals. This information will include general material about
investing as well as materials reinforcing various industry-
accepted principles of prudent and responsible financial
planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the
individual has to attain these goals to his or her risk
threshold. In addition, the Distributor will provide
information that discusses the Manager's overriding
investment philosophy and how that philosophy impacts the
Fund's, and other Delaware Group funds', investment
disciplines employed in meeting their objectives. The
Distributor may also from time to time cite general or
specific information about the institutional clients of the
Manager, including the number of such clients serviced by the
Manager.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for
additional Series shares, your investment is given yet
another opportunity to grow. It's called the Power of
Compounding and the following chart illustrates just how
powerful it can be.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a
$10,000 investment compounded monthly tax-free for 10 years:
4% Rate 6% Rate 8% Rate
of Return of Return of Return
12-'85 $10,407 $10,617 $10,830
12-'86 $10,831 $11,272 $11,729
12-'87 $11,273 $11,967 $12,702
12-'88 $11,732 $12,705 $13,757
12-'89 $12,210 $13,488 $14,898
12-'90 $12,707 $14,320 $16,135
12-'91 $13,225 $15,203 $17,474
12-'92 $13,764 $16,141 $18,924
12-'93 $14,325 $17,137 $20,495
12-'94 $14,908 $18,194 $22,196
These figures are calculated assuming a fixed constant
investment return and assume no fluctuation in the value of
principal. These figures are not intended to be a projection
of investment results and do not reflect the actual
performance results of any of the Classes.
TRADING PRACTICES AND BROKERAGE
Banks, brokers or dealers are selected to execute
transactions on behalf of the Series for the purchase or sale
of portfolio securities on the basis of the Manager's
judgment of their professional capability to provide the
service. The primary consideration is to have banks, brokers
or dealers execute transactions at best price and execution.
Best price and execution refers to many factors, including
the price paid or received for a security, the commission
charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account
on the transaction. The Fund pays reasonably competitive
brokerage commission rates based upon the professional
knowledge of its trading department as to rates paid and
charged for similar transactions throughout the securities
industry. In some instances, a Series pays a minimal share
transaction cost when the transaction presents no difficulty.
In nearly all instances, trades are made on a net basis where
a Series 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.
During the fiscal years ended August 31, 1992, 1993 and
1994, no brokerage commissions were paid by the Series.
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.
During the fiscal year ended August 31, 1994, there were
no portfolio transactions of the Fund resulting in brokerage
commissions directed to brokers for brokerage and research
services.
As provided in the Securities Exchange Act of 1934 and
the Investment Management Agreement for each Series, higher
commissions are permitted to be paid to broker/dealers who
provide brokerage and research services than to
broker/dealers who do not provide such services if such
higher commissions are deemed reasonable in relation to the
value of the brokerage and research services provided.
Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Fund
believes that the commissions paid to such broker/dealers are
not, in general, higher than commissions that would be paid
to broker/dealers not providing such services and that such
commissions are reasonable in relation to the value of the
brokerage and research services provided. In some instances,
services may be provided to the Manager which constitute in
some part brokerage and research services used by the Manager
in connection with its investment decision-making process and
constitute in some part services used by the Manager in
connection with administrative or other functions not related
to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage
and research services and will pay out of its own resources
for services used by the Manager in connection with
administrative or other functions not related to its
investment decision-making process. In addition, so long as
no fund is disadvantaged, portfolio transactions which
generate commissions or their equivalent are allocated to
broker/dealers who provide daily portfolio pricing services
to the Fund and to other funds in the Delaware Group.
Subject to best price and execution, commissions allocated to
brokers providing such pricing services may or may not be
generated by the funds receiving the pricing service.
The Manager may place a combined order for two or more
accounts or funds engaged in the purchase or sale of the same
security if, in its judgment, joint execution is in the best
interest of each participant and will result in best price
and execution. Transactions involving commingled orders are
allocated in a manner deemed equitable to each account or
fund. When a combined order is executed in a series of
transactions at different prices, each account participating
in the order may be allocated an average price obtained from
the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally
be beneficial to the accounts and funds. Although it is
recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security
that a particular account or fund may obtain, it is the
opinion of the Manager and the Board of Directors that the
advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the
"NASD"), and subject to seeking best price and execution, the
Manager may place orders with broker/dealers that have agreed
to defray certain Series expenses such as custodian fees, and
may, at the request of the Distributor, give consideration to
sales of shares of the Series as a factor in the selection of
brokers and dealers to execute Series portfolio transactions.
Portfolio Turnover
The Fund anticipates that each Series' portfolio
turnover rate will generally be less than 100%. However, the
Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover for a Series, such a
turnover always being incidental to transactions undertaken
with a view to achieving each Series' investment objective in
relation to anticipated movements in the general level of
interest rates. In investing for liberal current income, a
Series may hold securities for any period of time, subject to
complying with the Internal Revenue Code and the 1940 Act,
when changes in circumstances or conditions make such a move
desirable in light of the investment objective. To that
extent, the Fund may realize gains or losses. See Taxes.
The turnover rate also may be affected by cash requirements
for redemptions and repurchases of Series' shares.
The portfolio turnover rate of each Series is calculated
by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly
average of the value of the portfolio securities owned by the
Series during the particular fiscal year, exclusive of
securities whose maturities at the time of acquisition are
one year or less.
For the fiscal years ended August 31, 1993 and 1994, the
portfolio turnover rates for the USA Fund were 12% and 10%,
respectively, and for the Insured Fund were 8% and 56%,
respectively. For the period January 7, 1993 (date of
initial public offering) to August 31, 1993, the portfolio
turnover rate for the USA Intermediate Fund was 53%,
annualized. For the fiscal year ended August 31, 1994 the
portfolio turnover rate for the USA Intermediate Fund was
81%.
PURCHASING SHARES
The Distributor serves as the national distributor for
the Series' shares and has agreed to use its best efforts to
sell shares of each Series of the Fund. See the Prospectuses
for additional information on how to invest. Shares of each
Series are offered on a continuous basis and may be purchased
through authorized investment dealers or directly by
contacting the Fund or its agent. The minimum initial
purchase for the Classes of each Series is $1,000 and all
subsequent purchases must be at least $25 with respect to the
Class A Shares and $100 with respect to the Class B Shares.
Class B Shares of each Series are also subject to a maximum
purchase limitation of $250,000. The Fund will therefore
reject any order for purchase of more than $250,000 of Class
B Shares. Selling dealers have the responsibility of
transmitting orders promptly. The Fund reserves the right to
reject any order for the purchase of a Series' shares if in
the opinion of management such rejection is in the Series'
best interest.
Certificates representing shares purchased are not
ordinarily issued unless a shareholder submits a specific
request with respect to the Class A Shares. Certificates are
not issued in the case of the Class B Shares. However,
purchases not involving the issuance of certificates are
confirmed to the investor and credited to the shareholder's
account on the books maintained by Delaware Service Company,
Inc. (the "Transfer Agent"). The investor will have the same
rights of ownership with respect to such shares as if
certificates had been issued. An investor that is permitted
to obtain a certificate may receive a certificate
representing shares purchased by sending a letter to the
Transfer Agent requesting the certificate. No charge is made
for any certificate issued. Investors who hold certificates
representing any of their shares may only redeem those shares
by written request. The investor's certificate(s) must
accompany such request.
The NASD has adopted amendments to its Rules of Fair
Practice relating to investment company sales charges. The
Fund and the Distributor intend to operate in compliance with
these rules.
Class A Shares of the USA Fund and the Insured Fund are
purchased at the offering price which reflects a maximum
front-end sales charge of 4.75%; lower sales charges apply
for larger purchases. Class A Shares of the USA Intermediate
Fund are purchased at the offering price which reflects a
maximum front-end sales charge of 3.00%. See the following
tables. Class A Shares are also subject to annual 12b-1 Plan
expenses. See Determining Offering Price and Net Asset Value
and Plans Under Rule 12b-1.
Class B Shares of the USA Fund and the Insured Fund are
purchased at net asset value and are subject to a CDSC of:
(i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed
during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase.
Class B Shares of the USA Fund and Insured Fund are also
subject to 12b-1 Plan expenses which are higher than those to
which Class A Shares are subject and are assessed against the
Class B Shares for no longer than approximately eight years
after purchase. The Class B Shares of the USA Intermediate
Fund are purchased at net asset value and are subject to a
CDSC of: (i) 2% if shares are redeemed within two years of
purchase; and (ii) 1% if shares are redeemed during the third
year following purchase, and such shares are also subject to
12b-1 Plan expenses which are higher than those to which
Class A Shares are subject and are assessed against the Class
B Shares for no longer than approximately five years after
purchase. See Automatic Conversion of Class B Shares in the
Classes' Prospectuses, and Determining Offering Price and Net
Asset Value and Plans Under Rule 12b-1 in this Part B.
Alternative Purchase Arrangements
The alternative purchase arrangements available with
respect to shares of the Classes permit investors to choose
the method of purchasing shares that is most beneficial given
the amount of their purchase, the length of time they expect
to hold their shares and other relevant circumstances.
Investors should determine whether under their particular
circumstances it is more advantageous to purchase the Class A
Shares and incur a front-end sales charge and annual 12b-1
Plan expenses of up to a maximum of .30% of the average daily
net assets of the Class A Shares or to purchase the Class B
Shares and have the entire initial purchase price invested in
the Series with the investment thereafter subject to a CDSC
if shares are redeemed within three years following purchase
with respect to the USA Intermediate Fund, and six years
following purchase with respect to the USA Fund and Insured
Fund. Class B Shares are also subject to annual 12b-1 Plan
expenses of 1% (.25% of which are service fees to be paid by
the Fund to the Distributor, dealers and others, for
providing personal service and/or maintaining shareholder
accounts) of the average daily net assets of the relevant
Class B Shares for no longer than approximately five years
after purchase with respect to the USA Intermediate Fund and
for no longer than approximately eight years after purchase
with respect to the USA Fund and Insured Fund.
Class A Shares
Purchases of $100,000 or more of the Class A Shares at
the offering price carry reduced front-end sales charges as
shown in the accompanying table, and may include a series of
purchases over a 13-month period under a Letter of Intention
signed by a purchaser. See Special Purchase Features - Class
A Shares for more information on ways in which investors can
avail themselves of reduced front-end sales charges and other
purchase features.
-------------------------------------------------------------
Class A Shares
USA Fund and Insured Fund
-------------------------------------------------------------
Dealer's
Front-End Sales Charge Concession**
as % of as % of
Amount of Purchase Offering Amount Offering
Price Invested Price
-------------------------------------------------------------
Less than $100,000 4.75% 4.99% 4.00%
$100,000 but
under $250,000 3.75 3.90 3.00
$250,000 but
under $500,000 2.50 2.56 2.00
$500,000 but
under $1,000,000* 2.00 2.04 1.60
-------------------------------------------------------------
Class A Shares
USA Intermediate Fund
-------------------------------------------------------------
Dealer's
Front-End Sales Charge Concession**
as % of as % of
Amount of Purchase Offering Amount Offering
Price Invested Price
-------------------------------------------------------------
Less than $100,000 3.00% 3.10% 2.50%
$100,000 but
under $250,000 2.50 2.56 2.00
$250,000 but
under $500,000 2.00 2.06 1.60
$500,000 but
under $1,000,000* 1.50 1.54 1.20
-------------------------------------------------------------
* There is no front-end sales charge on purchases of $1
million or more but, under certain limited
circumstances, a 1% contingent deferred sales charge may
apply. The contingent deferred sales charge ("Limited
CDSC") that may be applicable to purchases of Class A
Shares arises only in the case of certain net asset
value purchases which have triggered the payment of a
dealer's commission.
-------------------------------------------------------------
The Fund must be notified when a sale takes place which
would qualify for the reduced front-end sales charge on
the basis of previous purchases and current purchases.
The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund.
Such reduced front-end sales charges are not
retroactive.
From time to time, upon written notice to all of its
dealers, the Distributor may hold special promotions for
specified periods during which the Distributor may
reallow dealers up to the full front-end sales charge
shown above. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the
1933 Act.
** Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.
-------------------------------------------------------------
Certain dealers who enter into an agreement to provide
extra training and information on Delaware Group products and
services and to increase sales of Delaware Group funds may
receive an additional concession of up to .15% of the
offering price in connection with the sales of Class A
Shares. Such dealers must meet certain requirements in terms
of organization and distribution capabilities and their
ability to increase sales. The Distributor should be
contacted for further information on these requirements as
well as the basis and circumstances upon which the additional
concession will be paid. Participating dealers may be deemed
to have additional responsibilities under the securities
laws.
Dealer's Commission - Class A Shares
For initial purchases of Class A Shares of $1,000,000 or
more made on or after June 1, 1993, a dealer's commission may
be paid by the Distributor to financial advisers through whom
such purchases are effected in accordance with the following
schedules:
USA Fund and Insured Fund
Dealer's Commission
-------------------------
(as a percentage of
Amount of Purchase amount purchased)
------------------
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
USA Intermediate Fund
Dealer's Commission
-------------------------
(as a percentage of
Amount of Purchase amount purchased)
------------------
Up to $3 million .60%
Next $2 million up to $5 million .40
Amount over $5 million .20
In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other
Delaware Group funds as to which a Limited CDSC (see
Redemption and Repurchase) applies may be aggregated with
those of Class A Shares of the Series. Financial advisers
should contact the Distributor concerning the applicability
and calculation of the dealer's commission in the case of
combined purchases. Financial advisers also may be eligible
for a dealer's commission in connection with certain
purchases made under a Letter of Intention or pursuant to an
investor's Right of Accumulation. The Distributor also
should be consulted concerning the availability of and
program for these payments.
An exchange from other Delaware Group funds will not
qualify for payment of the dealer's commission, unless such
exchange is from a Delaware Group fund with assets as to
which a dealer's commission or similar payment has not been
previously paid. The schedule and program for payment of the
dealer's commission are subject to change or termination at
any time by the Distributor in its discretion.
Class B Shares
Class B Shares are purchased without the imposition of a
front-end sales charge at the time of purchase. Class B
Shares redeemed within prescribed periods after purchase may
be subject to a CDSC imposed at the rates and within the time
periods set forth below, charged as a percentage of the
dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the net asset value at
the time of purchase of shares being redeemed or the net
asset value of the shares at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net
asset value above the initial purchase price. In addition,
no CDSC will be assessed on redemption of shares received
upon reinvestment of dividends or capital gains. See the
Prospectuses for the respective Classes under the heading
Buying Shares - Contingent Deferred Sales Charge for a list
of the instances in which the CDSC is waived.
The following table sets forth the rates of the CDSC for
the Class B Shares of the USA Fund and the Insured Fund:
USA Fund and Insured Fund
Contingent Deferred
Sales Charge
(as a Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ -------------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase, and thereafter, until
converted automatically into Class A Shares of the
corresponding Series, the Class B Shares of the USA Fund and
Insured Fund will continue to be subject to annual 12b-1 Plan
expenses of 1% of average daily net assets representing the
relevant Class B Shares. At the end of no longer than
approximately eight years after purchase, the investor's
Class B Shares of the USA Fund and the Insured Fund will be
automatically converted into Class A Shares of that Series.
See Automatic Conversion of Class B Shares in the Classes'
Prospectus. Such conversion will constitute a tax-free
exchange for federal income tax purposes. See Taxes in the
Prospectus for the Classes.
The following table sets forth the rates of the CDSC for
the Class B Shares of the USA Intermediate Fund:
USA Intermediate Fund
Contingent Deferred
Sales Charge
(as a Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ---------------------
0-2 2%
3 1%
4 and thereafter None
During the fourth year after purchase, and thereafter, until
converted automatically into Class A Shares of the USA
Intermediate Fund, the Class B Shares of this Series will
continue to be subject to annual 12b-1 Plan expenses of 1% of
average daily net assets representing such shares. At the
end of no longer than approximately five years after
purchase, the investor's Class B Shares will be automatically
converted into Class A Shares of the USA Intermediate Fund.
See Automatic Conversion of Class B Shares in the Prospectus
for the USA Intermediate Fund. Such conversion will
constitute a tax-free exchange for federal income tax
purposes. See Taxes in the Prospectus for the USA
Intermediate Fund.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has
adopted a separate plan for each of the Class A Shares and
the Class B Shares of each Series (the "Plans"). The Plan
relating to the Class A Shares permits the Series to pay for
certain distribution, promotional and related expenses
involved in the marketing of only Class A Shares. Similarly,
the Plan relating to the Class B Shares permits the Series to
pay for certain distribution, promotional and related
expenses involved in the marketing of only Class B Shares.
The Plans permit the Series, pursuant to the Amended and
Restated Distribution Agreements, to pay out of the assets of
the respective Class A Shares and Class B Shares monthly fees
to the Distributor for its services and expenses in
distributing and promoting sales of the shares of such
classes. These expenses include, among other things,
preparing and distributing advertisements, sales literature
and prospectuses and reports used for sales purposes,
compensating sales and marketing personnel, and paying
distribution and maintenance fees to securities brokers and
dealers who enter into agreements with the Distributor. The
12b-1 Plan expenses relating to the Class B Shares are also
used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such
shares.
In addition, the Series may make payments out of the
assets of the respective Class A Shares and Class B Shares
directly to other unaffiliated parties, such as banks, who
either aid in the distribution of shares of the Classes or
provide services to such Classes.
The maximum aggregate fee payable by the Series under
the Plans, and the agreements relating to distribution, is on
an annual basis (i) .30% of the Class A Shares' average daily
net assets for the year; and (ii) 1% (.25% of which are
service fees to be paid by the Fund to the Distributor,
dealers or others for providing personal service and/or
maintaining shareholder accounts) of the Class B Shares'
average daily net assets for the year. The Fund's Board of
Directors may reduce these amounts at any time. The
Distributor has agreed to waive these distribution fees to
the extent such fee for any day exceeds the net investment
income realized by the Classes for such day.
Effective June 1, 1992, the Board of Directors has
determined that the annual fee, payable on a monthly basis,
under the separate Plans relating to the Class A Shares of
the USA Fund and the Insured Fund, will be equal to the sum
of: (i) the amount obtained by multiplying .30% by the
average daily net assets represented by the Class A Shares of
the Series that were acquired by shareholders on or after
June 1, 1992; and (ii) the amount obtained by multiplying
.10% by the average daily net assets represented by the Class
A Shares of the Series that were acquired before June 1,
1992. While this is the method for calculating the 12b-1
expenses to be paid by the Class A Shares of such Series, the
fee is a Class A Shares' expense so that all shareholders of
the Class A Shares of a Series regardless of when they
purchased their shares will bear 12b-1 expenses at the same
rate. As Class A Shares of such Series are sold on or after
June 1, 1992, the initial rate of at least .10% will increase
over time. Thus, as the proportion of Class A Shares
purchased on or after June 1, 1992 to Class A Shares
outstanding prior to June 1, 1992 increases, the expenses
attributable to payments under the Plans will also increase
(but will not exceed .30% of average daily net assets).
While this describes the current formula for calculating the
fees which will be payable under the Plans with respect to
the Class A Shares of the USA Fund and Insured Fund, such
Plans permit the Fund to pay a full .30% on all assets at any
time.
On September 17, 1992, the Board of Directors set the
fee for the Class A Shares of the USA Intermediate Fund at
.15% of average daily net assets.
All of the distribution expenses incurred by the
Distributor and others, such as broker/dealers, in excess of
the amount paid by the Series will be borne by such persons
without any reimbursement from the Series. Subject to
seeking best price and execution, the Fund may, from time to
time, buy or sell portfolio securities from or to firms which
receive payments under the Plans.
From time to time, the Distributor may pay additional
amounts from its own resources to dealers for aid in
distribution or for aid in providing administrative services
to shareholders.
The Plans, the Amended and Restated Distribution
Agreements and the form of dealer's and services agreements
relating thereto have all been approved by the Board of
Directors of the Fund, including a majority of the directors
who are not "interested persons" (as defined in the 1940 Act)
of the Fund and who have no direct or indirect financial
interest in the Plans or any related agreements, by vote cast
in person at a meeting duly called for the purpose of voting
on the Plans and such Agreements. Continuation of the Plans,
the Amended and Restated Distribution Agreements and the form
of dealer's and services agreements must be approved annually
by the Board of Directors in the same manner as specified
above.
Each year, the directors must determine whether
continuation of the Plans is in the best interest of
shareholders of, respectively, the Class A Shares and the
Class B Shares, and that there is a reasonable likelihood of
the Plan relating to a Class providing a benefit to that
Class. The Plans, the Amended and Restated Distribution
Agreements and the dealer's and services agreements with any
broker/dealers may be terminated at any time without penalty
by a majority of those directors who are not "interested
persons" or by a majority vote of the relevant Class'
outstanding voting securities. Any amendment materially
increasing the percentage payable under the Plans must
likewise be approved by a majority vote of the relevant
Class' outstanding voting securities, as well as by a
majority vote of those directors who are not "interested
persons." Also, any other material amendment to the Plans
must be approved by a majority vote of the directors
including a majority of the noninterested directors of the
Fund having no interest in the Plans. In addition, in order
for the Plans to remain effective, the selection and
nomination of directors who are not "interested persons" of
the Fund must be effected by the directors who themselves are
not "interested persons" and who have no direct or indirect
financial interest in the Plans. Persons authorized to make
payments under the Plans must provide written reports at
least quarterly to the Board of Directors for their review.
For the fiscal year ended August 31, 1994, payments from
the Class A Shares of the USA Fund, Insured Fund and the USA
Intermediate Fund to the Distributor amounted to $1,155,239,
$141,879 and $32,973, respectively. For the period May 2,
1994 (date of initial public offering) to August 31, 1994
payments from the Class B Shares of the USA Fund, Insured
Fund and USA Intermediate Fund to the Distributor amounted to
$5,144, $913 and $749, respectively.
Other Payments to Dealers - Class A and Class B Shares
From time to time, at the discretion of the Distributor,
all registered broker/dealers whose aggregate sales of the
Classes exceed certain limits as set by the Distributor, may
receive from the Distributor an additional payment of up to
.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to
dealers that sell shares of the Delaware Group of funds. In
some instances, these incentives or payments may be offered
only to certain dealers who maintain, have sold or may sell
certain amounts of shares.
In connection with the sale of Delaware Group fund
shares, the Distributor may, at its own expense, pay to
participate in or reimburse dealers with whom it has a
selling agreement for expenses incurred in connection with
seminars and conferences sponsored by such dealers and may
pay or allow additional promotional incentives, which shall
include non-cash concessions, such as trips to a luxury
resort at an exotic location or certain luxury merchandise,
in the form of sales contests to dealers who sell shares of
the funds. Such seminars and conferences and the terms of
such sales contests must be preapproved by the Distributor.
Payment may be up to 100% of the expenses incurred or awards
made in connection with seminars, conferences or contests
relating to the promotion of fund shares. The Distributor
may also pay a portion of the expense of preapproved dealer
advertisements promoting the sale of Delaware Group fund
shares.
Special Purchase Features - Class A Shares
Buying at Net Asset Value
Class A Shares may be purchased without a front-end
sales charge under the Dividend Reinvestment Plan and, under
certain circumstances, the 12-Month Reinvestment Privilege
and the Exchange Privilege.
Officers, directors and employees (including former
officers and directors and former employees who had been
employed for at least ten years) of the Fund, any other fund
in the Delaware Group, the Manager, any affiliate, and any
fund or affiliate that may in the future be created, legal
counsel to the funds and registered representatives and
employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares
and shares of any of the funds in the Delaware Group,
including any fund that may be created at net asset value.
Spouses, parents, brothers, sisters and children (regardless
of age) of such persons at their direction, and any employee
benefit plan established by any of the foregoing funds,
corporations, counsel or broker/dealers may also purchase
shares at net asset value. Purchases of Class A Shares may
also be made by clients of registered representatives of an
authorized investment dealer at net asset value within six
months of a change of the registered representative's
employment, if the purchase is funded by proceeds from an
investment where a front-end sales charge has been assessed
and the redemption of the investment did not result in the
imposition of a contingent deferred sales charge or other
redemption charges. Purchases of Class A Shares also may be
made at net asset value by bank employees that provide
services in connection with agreements between the bank and
unaffiliated brokers or dealers concerning sales of Class A
Shares. Also, officers, directors and key employees of
institutional clients of the Manager or any of its affiliates
may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for
the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if
such broker, dealer or investment adviser has entered into an
agreement with the Distributor providing specifically for the
purchase of Class A Shares in connection with special
investment products, such as wrap accounts or similar fee
based programs. Such purchasers are required to sign a
letter stating that the purchase is for investment only and
that the securities may not be resold except to the issuer.
Such purchasers may also be required to sign or deliver such
other documents as the Fund may reasonably require to
establish eligibility for purchase at net asset value. The
Fund must be notified in advance that the trade qualifies for
purchase at net asset value.
Letter of Intention
The reduced front-end sales charges described above with
respect to the Class A Shares are also applicable to the
aggregate amount of purchases made by any such purchaser
previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and
signed by the purchaser, and not legally binding on the
signer or the Fund, which provides for the holding in escrow
by the Transfer Agent, of 5% of the total amount of Class A
Shares intended to be purchased until such purchase is
completed within the 13-month period. A Letter of Intention
may be dated to include shares purchased up to 90 days prior
to the date the Letter is signed. The 13-month period begins
on the date of the earliest purchase. If the intended
investment is not completed, except as noted below, the
purchaser will be asked to pay an amount equal to the
difference between the front-end sales charge on the Class A
Shares purchased at the reduced rate and the front-end sales
charge otherwise applicable to the total shares purchased.
If such payment is not made within 20 days following the
expiration of the 13-month period, the Transfer Agent will
surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the
level designated in their Letter of Intention) of all their
shares of the Series and of any class of any of the other
mutual funds in the Delaware Group (except shares of any
Delaware Group fund which do not carry a front-end sales
charge or contingent deferred sales charge, other than shares
of Delaware Group Premium Fund, Inc. beneficially owned in
connection with the ownership of variable insurance products,
unless they were acquired through an exchange from shares
which do) previously purchased and still held as of the date
of their Letter of Intention toward the completion of such
Letter. For purposes of satisfying an investor's obligation
under a Letter of Intention, Class B Shares of the Series and
the corresponding class of shares of other Delaware Group
funds which offer such shares may be aggregated with the
Class A Shares of the Series and the corresponding class of
shares of the other Delaware Group funds.
Combined Purchases Privilege
In determining the availability of the reduced front-end
sales charge previously set forth with respect to the Class A
Shares, purchasers may combine the total amount of any
combination of the Classes of the Series as well as any other
class of any of the other Delaware Group funds (except shares
of any Delaware Group fund which do not carry a front-end
sales charge or contingent deferred sales charge, other than
shares of Delaware Group Premium Fund, Inc. beneficially
owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from
shares which do).
The privilege also extends to all purchases made at one
time by an individual; or an individual, his or her spouse
and their children under the age 21; or a trustee or other
fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee
benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end
sales charge with respect to the Class A Shares, purchasers
may also combine any subsequent purchases of the Classes of
the Series as well as any other class of any of the other
Delaware Group funds which offer such classes (except shares
of any Delaware Group fund which do not carry a front-end
sales charge or contingent deferred sales charge, other than
shares of Delaware Group Premium Fund, Inc. beneficially
owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from
shares which do). Using the Class A Shares of the USA Fund
and the Insured Fund as an example, if any such purchaser has
previously purchased and still holds Class A Shares of the
USA Fund or the Insured Fund and/or shares of any other of
the classes described in the previous sentence with a value
of $40,000 and subsequently purchases $60,000 at offering
price of additional shares of the Class A Shares of the USA
Fund or the Insured Fund, the charge applicable to the
$60,000 purchase would be 3.75%. For the purpose of this
calculation, the shares presently held shall be valued at the
public offering price that would have been in effect were the
shares purchased simultaneously with the current purchase.
Investors should refer to the table of sales charges for
Class A Shares to determine the applicability of the Right of
Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Shareholders of the Class A Shares who redeem such
shares have one year from the date of redemption to reinvest
all or part of their redemption proceeds in Class A Shares of
a Series or in Class A Shares of any of the other funds in
the Delaware Group, subject to applicable eligibility and
minimum purchase requirements, in states where their shares
may be sold, at net asset value without the payment of a
front-end sales charge. This privilege does not extend to
Class A Shares where the redemption of the shares triggered
the payment of a Limited CDSC. Persons investing redemption
proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge, will
be required to pay the applicable sales charge when
purchasing Class A Shares. The reinvestment privilege does
not extend to redemption of Class B Shares.
Any such reinvestment cannot exceed the redemption
proceeds (plus any amount necessary to purchase a full
share). The reinvestment will be made at the net asset value
next determined after receipt of remittance. A redemption
and reinvestment could have income tax consequences. It is
recommended that a tax adviser be consulted with respect to
such transactions. Any reinvestment directed to a fund in
which the investor does not then have an account, will be
treated like all other initial purchases of a fund's shares.
Consequently, an investor should obtain and read carefully
the prospectus for the fund in which the investment is
proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund,
including charges and expenses.
Investors should consult their financial advisers or the
Transfer Agent, which also serves as the Fund's shareholder
servicing agent, about the applicability of the Limited CDSC
(see Contingent Deferred Sales Charge for Certain Purchases
of Class A Shares Made at Net Asset Value under Redemption
and Exchange in the Series' Prospectuses) in connection with
the features described above.
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing,
dividends from net investment income and distributions from
realized securities profits, if any, will be automatically
reinvested in additional shares of the respective Classes in
which an investor has an account (based on the net asset
value of that Series in effect on the reinvestment date) and
will be credited to the shareholder's account on that date.
Confirmations of each dividend payment from net investment
income will be mailed to shareholders monthly. A
confirmation of each distribution from realized securities
profits, if any, will be mailed to shareholders in the first
quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders
may purchase and add full and fractional shares to their plan
accounts at any time either through their investment dealers
or by sending a check or money order for $25 or more with
respect to the Class A Shares and $100 or more with respect
to the Class B Shares. Such purchases are made for the Class
A Shares at the public offering price and at the net asset
value for the Class B Shares, at the end of the day of
receipt. A reinvestment plan may be terminated at any time.
This plan does not assure a profit nor protect against
depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum purchase
requirements, and the limitations set forth below,
shareholders of the Classes may automatically reinvest
dividends and/or distributions from the Series in any of the
other mutual funds in the Delaware Group, including the
Series, in states where their shares may be sold. Such
investments will be made at net asset value per share at the
close of business on the reinvestment date without any front-
end sales charge or service fee. The shareholder must notify
the Transfer Agent in writing and must have established an
account in the fund into which the dividends and/or
distributions are to be invested. Any reinvestment directed
to a fund in which the investor does not then have an account
will be treated like all other initial purchases of a fund's
shares. Consequently, an investor should obtain and read
carefully the prospectus for the fund in which the investment
is proposed to be made before investing or sending money.
The prospectus contains more complete information about the
fund, including charges and expenses. See also Dividend
Reinvestment Plan in the Classes' Prospectuses.
Subject to the following limitations, dividends and/or
distributions from other funds in the Delaware Group may be
invested in the Series at net asset value, provided an
account has been established. Dividends from the Class A
Shares may not be directed to the Class B Shares of another
fund in the Delaware Group, including the Series. Dividends
from the Class B Shares may only be directed to the Class B
Shares of another fund in the Delaware Group, including the
Series, that offers such a class of shares. See Class B
Funds in the Prospectuses for the funds in the Delaware Group
that offer Class B Shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors of each Class
may arrange for the Series to accept for investment, through
an agent bank, preauthorized government or private recurring
payments. This method of investment assures the timely
credit to the shareholder's account of payments such as
social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private
payroll checks, dividends, and disability or pension fund
benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan--Shareholders of each Class may
make automatic investments by authorizing, in advance,
monthly payments directly from their checking account for
deposit into a Class. This type of investment will be
handled in either of the two ways noted below. (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.
* * *
Investments under the Direct Deposit Purchase Plan and
the Automatic Investing Plan must be for $25 or more with
respect to the Class A Shares and $100 or more with respect
to the Class B Shares. An investor wishing to take advantage
of either service must complete an authorization form.
Either service can be discontinued by the shareholder at any
time without penalty by giving written notice.
Payments to a Series 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 Series 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 Series.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank
or employer, to make investments directly to their Series
accounts. The Series 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.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at
the offering price next calculated by each Series to be
acquired after receipt of the order by the Fund or its agent.
Orders for purchases of Class B Shares of each Series are
effected at the net asset value next calculated by the Series
to be acquired after receipt of the order by the Fund or its
agent. Selling dealers have the responsibility of
transmitting orders promptly.
The offering price of the Class A Shares consists of the
net asset value per share, plus any applicable front-end
sales charges. Offering price and net asset value are
computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m, Eastern time) on days when
such exchange is open. The New York Stock Exchange is
scheduled to be open Monday through Friday throughout the
year except for New Year's Day, Washington's Birthday, 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 offering price per share of the Class A Shares
is included in the Series' financial statements which are
incorporated by reference into this Part B.
Each Series' net asset value per share is computed by
adding the value of all securities and other assets in the
portfolio of that Series, deducting any liabilities of the
Series and dividing by the number of Series shares
outstanding. In determining a Series' total net assets,
portfolio securities are valued at fair value, using methods
determined in good faith by the Board of Directors. This
method utilizes the services of an independent pricing
organization which employs a combination of methods
including, among others, the obtaining of market valuations
from dealers who make markets and deal in such securities,
and by comparing valuations with those of other comparable
securities in a matrix of such securities. A pricing
service's activities and results are reviewed by the officers
of the Fund. In addition, money market instruments having a
maturity of less than 60 days are valued at amortized cost.
Expenses and fees of each Series are accrued daily.
Each Class will bear, pro-rata, all of the common
expenses of the relevant Series. The net asset values of all
outstanding shares of each Class of each Series will be
computed on a pro-rata basis for each outstanding share based
on the proportionate participation in such Series represented
by the value of shares of that Class. All income earned and
expenses incurred by a Series will be borne on a pro-rata
basis by each outstanding share of a Class, based on each
Class' percentage in such Series represented by the value of
shares of such Classes, except that each of the Classes alone
will bear the 12b-1 Plan fees payable under their respective
Plans. Due to the specific distribution expenses and other
costs that would be allocable to each Class, the dividends
paid to each Class of a Series may vary. However, the net
asset value per share of each Class of a Series is expected
to be equivalent.
REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem Series
shares by sending a written request, signed by the record
owner or owners exactly as the shares are registered, to the
Fund, 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described
below are available when stock certificates have not been
issued. The Fund does not issue certificates for Class A
Shares unless a shareholder specifically requests them. The
Fund does not issue certificates for Class B Shares. If
stock certificates have been issued for shares being
redeemed, they must accompany the written request. For
redemptions of $50,000 or less paid to the shareholder at the
address of record, the Fund requires a request signed by all
owners of the shares or the investment dealer or record, but
does not require signature guarantees. 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, retirement plans, executors,
administrators, trustees or guardians.
In addition to redemption of Series shares by the Fund,
the Distributor, acting as agent of the Fund, offers to
repurchase Series shares from broker/dealers acting on behalf
of shareholders. The redemption or repurchase price, which
may be more or less than the shareholder's cost, is the net
asset value per share next determined after receipt of the
request in good order by the Fund or its agent less any
applicable contingent deferred sales charge. This is
computed and effective at the time the offering price and net
asset value are determined. See Determining Offering Price
and Net Asset Value. The Fund and the Distributor end their
business day at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further
notice by the Distributor.
Orders for the repurchase of shares which are submitted
to the Distributor prior to the close of its business day
will be executed at the net asset value per share computed
that day, if the repurchase order was received by the
broker/dealer from the shareholder prior to the time the
offering price and net asset value are determined on such
day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such
repurchase is then settled as an ordinary transaction with
the broker/dealer (who may make a charge to the shareholder
for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net
asset value may result in the imposition of a Limited CDSC.
See Contingent Deferred Sales Charge for Certain Purchases of
Class A Shares Made at Net Asset Value under Redemption and
Exchange in the Series' Prospectuses relating to such shares.
Redemptions of Class B Shares of the USA Fund and Insured
Fund made within six years of purchase are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of
purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are
redeemed during the fifth year following purchase; and (iv)
1% if shares are redeemed during the sixth year following
purchase. Redemptions of Class B Shares of the USA
Intermediate Fund made within three years of purchase are
subject to a CDSC of 2% during the first two years of
purchase and 1% during the third year of purchase. See
Contingent Deferred Sales Charge under Buying Shares in the
Prospectus of the relevant Series relating to such shares.
Except for such contingent deferred sales charges and, with
respect to the expedited payment by wire, for which there is
currently a $7.50 bank wiring cost, there is no fee charged
for redemptions or repurchases, but such fees could be
charged at any time in the future.
Payment for shares redeemed will ordinarily be mailed
the next business day, but in no case later than seven days,
after receipt of a redemption request in good order.
If a shareholder who recently purchased shares by check
seeks to redeem all or a portion of those shares in a written
request, the Fund will honor the redemption request but will
not mail the proceeds until it is reasonably satisfied of the
collection of the investment check. This potential delay can
be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a
check which is subsequently returned unpaid for insufficient
funds or for any other reason, the Fund will automatically
redeem from the shareholder's account the Series shares
purchased by the check plus any dividends earned thereon.
Shareholders may be responsible for any losses to the Series
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 a Series of securities owned by it is not
reasonably practical, or it is not reasonably practical for a
Series fairly to value its assets, or in the event that the
Securities and Exchange Commission has provided for such
suspension for the protection of shareholders, a Series may
postpone payment or suspend the right of redemption or
repurchase. In such case, a shareholder may withdraw the
request for redemption or leave it standing as a request for
redemption at the net asset value next determined after the
suspension has been terminated.
Payment for shares redeemed or repurchased may be made
in either cash or kind, or partly in cash and partly in kind.
Any portfolio securities paid or distributed in kind would be
valued as described in Determining Offering Price and Net
Asset Value. Subsequent sales by an investor receiving a
distribution in kind could result in the payment of brokerage
commissions. However, the Fund has elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which the Fund is
obligated to redeem Series shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Series
during any 90-day period for any one shareholder.
The value of the Series' investments is subject to
changing market prices. Thus, a shareholder reselling shares
to a Series may sustain either a gain or loss, depending upon
the price paid and the price received for such shares.
Small Accounts
Due to the relatively higher cost of maintaining small
accounts, the Fund reserves the right to redeem shares in any
Series account at the then-current net asset value if the
total investment in the Series has a value of less than
$1,000 as a result of redemptions. As a consequence, an
investor who only makes a minimum investment in a Class will
be subject to involuntary redemption if any portion of the
investment is redeemed. Before the Fund redeems such shares
and sends the proceeds to the shareholder, the shareholder
will be notified in writing that the value of the shares in
the account is less than $1,000 and will be allowed 60 days
from that date of notice to make an additional investment to
meet the required minimum of $1,000. Any redemption in an
inactive account established with a minimum investment may
trigger mandatory redemption. No contingent deferred sales
charge will apply to the redemptions described in this
paragraph of the Class A or the Class B Shares.
Expedited Telephone Redemptions
The Fund has 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.
Shareholders or their investment dealers of record
wishing to redeem an amount of Series shares of $50,000 or
less for which certificates have not been issued may call the
Fund at 800-523-1918 (in Philadelphia, 988-1241) prior to the
time the offering price and net asset value are determined,
as noted above, and have the proceeds mailed to them at the
record address. Checks payable to the shareholder(s) of
record will normally be mailed the next business day, but no
more than seven days, after receipt of the redemption
request. This option is only available to individual, joint
and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can
be transferred to your predesignated bank account by wire or
by check by calling the Fund, as described above. An
authorization form must have been completed by the
shareholder and filed with the Fund before the request is
received.
Payment will be made by wire or check to the bank
account designated on the authorization form as follows:
1. Payment by Wire: Request that Federal Funds be
wired to the bank account designated on the authorization
form. Redemption proceeds will normally be wired on the next
business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by
CoreStates Bank, N.A. which will be deducted from the
withdrawal proceeds each time the shareholder requests a
redemption. If the proceeds are wired to the shareholder's
account at a bank which is not a member of the Federal
Reserve System, there could be a delay in the crediting of
the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the
bank account designated on the authorization form.
Redemption proceeds will normally be mailed the next business
day, but no more than seven days, after the date of the
telephone request. This procedure will take longer than the
Payment by Wire option (1 above) because of the extra time
necessary for the mailing and clearing of the check after the
bank receives it.
Redemption Requirements: In order to change the name of
the bank and the account number it will be necessary to send
a written request to the Series and a signature guarantee may
be required. Each signature guarantee must be supplied by an
eligible guarantor institution. The Fund reserves the right
to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. To reduce the
shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to
the bank account designated on the authorization form.
The Fund will not honor telephone redemptions for Series
shares recently purchased by check unless it is reasonably
satisfied that the purchase check has cleared.
If expedited payment under these procedures could
adversely affect the Series, the Fund may take up to seven
days to pay the shareholder.
Neither the Fund nor the Transfer Agent is responsible
for any shareholder loss incurred in acting upon written or
telephone instructions for redemption or exchange of Series
shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions
communicated by telephone are genuine (including verification
of a form of personal identification) as, if it does not, the
Fund or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent transactions. Telephone
instructions received by shareholders are generally tape
recorded. A written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by
telephone.
Systematic Withdrawal Plan
Shareholders of the Class A Shares who own or purchase
$5,000 or more of shares at the offering price 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 the 20th of the month (unless such date
falls on a holiday or a Sunday) and mailed on or about the
19th of every month. Both ordinary income dividends and
realized securities profits distributions will be
automatically reinvested in additional Class A Shares of the
paying Series at net asset value. This plan is not
recommended for all investors and should be started only
after careful consideration of its operation and effect upon
the investor's savings and investment program. To the extent
that withdrawal payments from the plan exceed any dividends
and/or realized securities profits distributions paid on
shares held under the plan, the withdrawal payments will
represent a return of capital and the share balance may in
time be depleted, particularly in a declining market.
The sale of shares for withdrawal payments constitutes a
taxable event and a shareholder may incur a capital gain or
loss for federal income tax purposes. This gain or loss may
be long-term or short-term depending on the holding period
for the specific shares liquidated.
Withdrawals under this plan by the shareholders of the
Class A Shares, or any similar plan of any other investment
company charging a front-end sales charge, made concurrently
with the purchase of the Class A Shares or the shares of any
other investment company will ordinarily be disadvantageous
to the shareholder because of the payment of duplicative
sales charges. Shareholders should not purchase Class A
Shares while participating in a Systematic Withdrawal Plan
and a periodic investment program in a fund managed by the
Manager must be terminated before a Systematic Withdrawal
Plan can take effect, except if the shareholder is a
participant in one of our Retirement Plans or is investing in
Delaware Group funds which do not carry a sales charge.
Also, redemptions pursuant to a Systematic Withdrawal Plan
may be subject to a Limited CDSC if the purchase was made at
net asset value and a dealer's commission has been paid on
that purchase.
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. The Systematic Withdrawal Plan is not
available with respect to the Class B Shares.
Wealth Builder Option
Shareholders of the Series may elect to invest in one or
more of the other mutual funds in the Delaware Group through
our Wealth Builder Option. Under this automatic exchange
program, shareholders can authorize regular monthly
investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual
funds in the Delaware Group, subject to the conditions and
limitations set forth in the Prospectuses relating to the
Classes. See Wealth Builder Option and Redemption and
Exchange in the Prospectuses relating to the Classes.
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 applicable public offering price of
the fund selected on the date of investment. No investment
will be made for any month if the value of the shareholder's
account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option
does not insure profits or protect against losses in a
declining market. The price of the fund into which
investments are made could fluctuate. Since this program
involves continuous investment regardless of such fluctuating
value, investors selecting this option should consider their
financial ability to continue to participate in the program
through periods of low fund share prices. This program
involves automatic exchanges between two or more fund
accounts and is treated as a purchase of shares of the fund
into which investments are made through the program. See
Exchange Privilege for a brief summary of the tax
consequences of exchanges.
Shareholders can also use the Wealth Builder Option to
invest in a Series through regular liquidations of shares in
their accounts in other mutual funds in the Delaware Group,
subject to the conditions and limitations described in the
Prospectuses of the Classes. Shareholders can terminate
their participation at any time by written notice to the
Fund.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
The Fund declares a dividend to shareholders of each
Series of that Series' net investment income on a daily
basis. Dividends are declared each day the Fund is open and
cash dividends are paid monthly on the first business day
following the end of each month. Payment by check of cash
dividends will ordinarily be mailed within three business
days after the payable date. In determining daily dividends,
the amount of net investment income for each Series will be
determined at the time the offering price and net asset value
are determined (see Determining Offering Price and Net Asset
Value) and shall include investment income accrued by the
respective Series, less the estimated expenses of that Series
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.
Net investment income earned on days when the Fund is not
open will be declared as a dividend on the next business day.
Purchases of Series shares by wire begin earning
dividends when converted into Federal Funds and available for
investment, normally the next business day after receipt.
However, if the Fund is given prior notice of Federal Funds
wire and an acceptable written guarantee of timely receipt
from an investor satisfying the Fund's credit policies, the
purchase will start earning dividends on the date the wire is
received. Investors desiring to guarantee wire payments must
have an acceptable financial condition and credit history in
the sole discretion of the Fund. The Fund reserves the right
to terminate this option at any time. Purchases by check
earn dividends upon conversion to Federal Funds, normally one
business day after receipt.
Each Class will share proportionately in the investment
income and expenses of its respective Series, except that the
Class B Shares will incur higher distribution fees under
their respective 12b-1 Plans.
Dividends are automatically reinvested in additional
shares of the paying Series at net asset value, unless an
election to receive dividends in cash has been made.
Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to
receive dividends in cash. If such a shareholder's dividends
increase to greater than $1.00, the shareholder would have to
file a new election in order to begin receiving dividends in
cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid
by separate check at the end of that particular monthly
dividend period, consistent with the payment and mailing
schedule described above.
Any distributions from net realized securities profits
will be made annually during the quarter following the close
of the fiscal year. Such distributions will be reinvested in
shares at the net asset value in effect on the first business
day after month end, unless the shareholder elects to receive
them in cash. The Fund will mail a quarterly statement
showing a Class' dividends paid and all the transactions made
during the period.
During the fiscal year ended August 31, 1994, dividends
totaling $0.751, $0.662 and $0.530 per share of the Class A
Shares of the USA Fund, Insured Fund and USA Intermediate
Fund, respectively, were paid from net investment income.
Distributions totaling $0.034 and $0.100 per share of the
Class A Shares of the USA Fund and Insured Fund,
respectively, were paid from realized securities profits.
During the period from inception on May 2, 1994 through
August 31, 1994, dividends totaling $0.214, $0.179 and $0.150
per share of the Class B Shares of the USA Fund, Insured Fund
and USA Intermediate Fund, respectively, were paid from net
investment income.
Any check in payment of dividends or other distributions
which cannot be delivered by the 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. A Series may deduct from a shareholder's account
the costs of the Series' effort to locate a shareholder if a
shareholder's mail is returned by the Post Office or the
Series 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.
The Fund anticipates that most of each Series' dividends
paid to shareholders will be exempt from federal income
taxes. For the fiscal year ended August 31, 1994, the Fund's
dividends were exempt from federal income tax. Information
concerning the tax status of dividends and distributions will
be mailed to shareholders annually.
TAXES
Federal Income Tax Aspects
Each Series has qualified, and intends to continue to
qualify, as a regulated investment company as defined under
Subchapter M of the Internal Revenue Code of 1986, as
amended, so as not to be liable for federal income tax to the
extent its earnings are distributed. The term "regulated
investment company" does not imply the supervision of
management or investment practices by any government agency.
Each Series of the Fund is treated as a single tax entity,
and any capital gains and losses for each Series are
calculated separately. The Fund has no fixed policy with
regard to distributions of realized securities profits when
such realized securities profits may be offset by capital
losses carried forward. Currently, however, the Fund intends
to offset realized securities profits to the extent of
capital losses carried forward, if any.
For the fiscal year ended August 31, 1994, the USA Fund,
the Insured Fund and the USA Intermediate Fund had a capital
loss of $2,953,233, $195,676 and $443,287, respectively.
Distributions by the Fund representing net interest
received on municipal bonds are considered tax-exempt income
and are not includable by shareholders in gross income for
federal income tax purposes. Although exempt from regular
federal income tax, interest paid on certain types of
municipal obligations is deemed to be a preference item under
federal tax law and is subject to the federal alternative
minimum tax. Distributions by the Fund representing net
interest income received by the Series from certain temporary
investments (such as certificates of deposit, commercial
paper and obligations of the U.S. government, its agencies
and instrumentalities), accretion of market discount on tax-
exempt bonds purchased by the Series after April 30, 1993 and
net short-term capital gains realized by the Series, if any,
will be taxable to shareholders as ordinary income and will
not qualify for the deduction for dividends received by
corporations. Distributions from long-term capital gains
realized by the Series, if any, will be taxable to
shareholders as long-term capital gains regardless of the
length of time an investor has held such shares, and these
gains are currently taxed at long-term capital gains rates.
The tax status of dividends and distributions paid to
shareholders will not be affected by whether they are paid in
cash or in additional shares. The percentage of taxable
income at the end of the year will not necessarily bear
relationship to the experience over a shorter period of time.
Shareholders of the Series may incur a tax liability for
federal, state and local taxes upon the sale or redemption of
shares of the Series. The Fund has been advised by counsel
that if, under present tax laws, any amounts are paid to the
Insured Fund in lieu of interest on tax-exempt bonds pursuant
to the various insurance on the portfolio securities, they
will be treated as tax-exempt income when distributed to
shareholders.
Section 265 of the Internal Revenue Code provides that
interest paid on indebtedness incurred or continued to
purchase or carry obligations the interest on which is tax-
exempt, and certain expenses associated with tax-exempt
income, are not deductible. It is probable that interest on
indebtedness incurred or continued to purchase or carry
shares of the Series is not deductible.
The Series 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 Internal Revenue Code.
Persons who are or may be considered "substantial users"
should consult their tax advisers in this matter before
purchasing shares of the Series.
The Fund intends to use the "average annual" method of
allocation in the event a Series 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 Series at any time during the year.
Shareholders will be informed annually of the amount and
nature of income and capital gains. For fiscal year 1994,
all of the Fund's dividends from net income were exempt from
federal income tax.
When the USA Intermediate Fund writes a call or put
option, an amount equal to the premium received by it is
included in the Series' Statement of Assets and Liabilities
as an asset and as an equivalent liability. The amount of
the liability is subsequently "marked to market" to reflect
the current market value of the option written. If an option
which the Series has written either expires on its stipulated
expiration date, or if the Series enters into a closing
purchase transaction, the Series realizes a gain (or loss if
the cost of the closing transaction exceeds the premium
received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. Any such
gain or loss is a short-term capital gain or loss for federal
income tax purposes. If a call option which the Series has
written is exercised, the Series realizes a capital gain or
loss (long-term or short-term, depending on the holding
period of the underlying security) from the sale of the
underlying security and the proceeds from such sale are
increased by the premium originally received. If a put
option which the Series has written is exercised, the amount
of the premium originally received will reduce the cost of
the security which the Series purchases upon exercise of the
option.
The premium paid by the USA Intermediate Fund for the
purchase of a put option is recorded in the section of the
Series' Statement of Assets and Liabilities as an investment
and subsequently adjusted daily to the current market value
of the option. For example, if the current market value of
the option exceeds the premium paid, the excess would be
unrealized appreciation and, conversely, if the premium
exceeds the current market value, such excess would be
unrealized depreciation. If a put option which the Series
has purchased expires on the stipulated expiration date, the
Series realizes a capital loss for federal income tax
purposes in the amount of the cost of the option. If the
Series sells the put option, it realizes a capital gain or
loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option. If the Series
exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of
the underlying security) from the sale of the underlying
security and the proceeds from such sale will be decreased by
the premium originally paid. However, since the purchase of
a put option is treated as a short sale for federal income
tax purposes, the holding period of the underlying security
will be affected by such a purchase.
The Internal Revenue Code includes special rules
applicable to listed options which the USA Intermediate Fund
may write, purchase or sell. Such options are classified as
Section 1256 contracts under the Code. The character of gain
or loss under a Section 1256 contract is generally treated as
60% long-term gain or loss and 40% short-term gain or loss.
When held by the Series at the end of a fiscal year, these
options are required to be treated as sold at market value on
the last day of the fiscal year for federal income tax
purposes ("marked to market").
Over-the-counter options are not classified as Section
1256 contracts and are not subject to the 60/40 gain or loss
treatment or the "marked to market" rule. Any gains or
losses recognized by the USA Intermediate Fund from over-the-
counter option transactions generally constitute short-term
capital gains or losses.
The initial margin deposits made when entering into
futures contracts are recognized as assets due from the
broker. During the period the futures contract is open,
changes in the value of the contract will be reflected at the
end of each day.
Futures contracts held by the USA Intermediate Fund at
the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes. Any unrealized gain
or loss on futures contracts will therefore be recognized and
deemed to consist of 60% long-term capital gain or loss and
40% short-term capital gain or loss. Therefore adjustments
are made to the tax basis in the futures contract to reflect
the gain or loss recognized at year end.
The Fund must meet several requirements to maintain its
status as a regulated investment company. Among these
requirements are that at least 90% of its investment company
taxable income be derived from dividends, interest, payment
with respect to securities loans and gains from the sale or
disposition of securities; that at the close of each quarter
of its taxable year at least 50% of the value of its assets
consist of cash and cash items, government securities,
securities of other regulated investment companies and,
subject to certain diversification requirements, other
securities; and that less than 30% of its gross income be
derived from sales of securities held for less than three
months.
The Internal Revenue Service has ruled publicly that an
Exchange-traded call option is a security for purposes of the
50% of assets tests and that its issuer is the issuer of the
underlying security, not the writer of the option, for
purposes of the diversification requirements.
The requirement that not more than 30% of the Fund's
gross income be derived from gains from the sale or other
disposition of securities held for less than three months may
restrict the USA Intermediate Fund in its ability to write
covered call options on securities which it has held less
than three months, to write options which expire in less than
three months, to sell securities which have been held less
than three months, and to effect closing purchase
transactions with respect to options which have been written
less than three months prior to such transactions.
Consequently, in order to avoid realizing a gain within the
three-month period, the USA Intermediate Fund may be required
to defer the closing out of a contract beyond the time when
it might otherwise be advantageous to do so. The Series may
also be restricted in the sale of purchased put options and
the purchase of put options for the purpose of hedging
underlying securities because of the application of the short
sale holding period rules with respect to such underlying
securities.
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 for each Series
the percentage of interest income earned on municipal
obligations on a state-by-state basis during the preceding
calendar year.
Pennsylvania Personal Property Tax
Shares of the Series will be exempt from Pennsylvania
county personal property tax.
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square,
Philadelphia, PA 19103, furnishes investment management
services to each Series of the Fund, subject to the
supervision and direction of the Fund's Board of Directors.
The Manager and its predecessors have been managing the
funds in the Delaware Group since 1938. The aggregate assets
of these funds on August 31, 1994 were approximately
$9,737,874,000. Investment advisory services are also
provided to institutional accounts with assets on August 31,
1994 of approximately $17,014,931,000.
The Investment Management Agreement for the USA Fund and
the Insured Fund is dated June 29, 1988, and was approved by
shareholders on June 14, 1988. The Investment Management
Agreement for the USA Intermediate Fund was approved by the
Board of Directors on September 17, 1992 and by the initial
shareholder on November 10, 1992 for a two-year term.
The Agreements may be renewed each year only so long as
such renewal and continuance are specifically approved at
least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the affected
Series, and only if the terms and the renewal thereof have
been approved by vote of a majority of the directors 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. Each Agreement was
renewed for a period of an additional year by the Board of
Directors at a meeting held on February 17, 1994. Each
Agreement is terminable without penalty on 60 days' notice by
the directors of the Fund or by the Manager. An Agreement
will terminate automatically in the event of its assignment.
The annual compensation paid by each Series for
investment management services under its Investment
Management Agreement is equal to: for the USA Fund, .60% on
the first $500 million of its average daily net assets, .575%
on the next $250 million and .55% on the average daily net
assets in excess of $750 million; for the USA Intermediate
Fund, .50% of its average daily net assets; and for the
Insured Fund, .60% of its average daily net assets, less a
proportionate share of all directors' fees paid to the
unaffiliated directors by each Series of the Fund.
On August 31, 1994, the total net assets of the Fund
were $870,583,874, broken down as follows: USA Fund--
$749,732,922; USA Intermediate Fund--$28,790,151; Insured
Fund--$92,060,801. The Manager makes and implements all
investment decisions on behalf of the Fund. The Manager pays
the Fund's rent and the salaries of all directors, officers
and employees of the Fund who are affiliated with both the
Manager and the Fund. The Fund pays all of its other
expenses. For the fiscal years ended August 31, 1992, 1993
and 1994, investment management fees paid by the USA Fund
were $4,060,578, $4,306,649 and $4,448,874, respectively.
Investment management fees paid by the Insured Fund for the
fiscal years ended August 31, 1992, 1993 and 1994 amounted to
$480,635, $530,627 and $558,029, respectively. For the
period January 7, 1993 (date of initial public offering) to
August 31, 1993, the investment management fee incurred by
the USA Intermediate Fund amounted to $17,157 and no amount
was paid by this Series due to the waiver described below.
For the fiscal year ended August 31, 1994, the investment
management fee incurred by the USA Intermediate Fund amounted
to $110,990 and no amount was paid by this Series due to the
waiver.
Except for those expenses borne by the Manager under the
Investment Management Agreements and the Distributor under
the Distribution Agreements, the Fund is responsible for all
of its own expenses. Among others, these include the
investment management fees; transfer and dividend disbursing
agent fees and costs; custodian expenses; federal and state
securities registration fees; proxy costs; and the costs of
preparing prospectuses and reports sent to shareholders. For
the fiscal year ended August 31, 1994, the ratios of expenses
to average daily net assets of the Class A Shares of the USA
Fund, Insured Fund and USA Intermediate Fund were 0.89%,
0.98% and 0.25%, respectively. The ratios of expenses to
average daily net assets of the Class B Shares of the USA
Fund, Insured Fund and USA Intermediate Fund are expected to
be 1.74%, 1.83% and 1.10%, respectively, based on the
expenses of the respective Class A Shares during the fiscal
year ended August 31, 1994. The ratios for each of the
Classes reflect the impact of the respective 12b-1 Plans. In
addition, the ratios for the Class A Shares and the Class B
Shares of the USA Intermediate Fund reflect the waiver of
fees described below.
In connection with the USA Intermediate Fund, the
Manager has elected voluntarily to waive that portion, if
any, of the annual management fees payable by this Series and
to reimburse the Series to the extent necessary to ensure
that the Total Operating Expenses of the Class A Shares of
this Series, including 12b-1 expenses, do not exceed .25%
during the period from the commencement of the public
offering of the Series through June 30, 1993. This waiver
was extended through June 30, 1994, but modified effective
May 2, 1994 through June 30, 1995 to provide that operating
expenses of the Class A Shares would not exceed .10%,
excluding the 12b-1 expenses attributable to that Class. The
Manager similarly, elected to waive its fees to limit
operating expenses of the Class B Shares to .10%, excluding
12b-1 fees attributable to the Class B Shares for the period
May 2, 1994 through June 30, 1995.
By California regulation, the Manager is required to
waive certain fees and reimburse the Fund for certain
expenses to the extent that the Fund's annual operating
expenses, exclusive of taxes, interest, brokerage commissions
and extraordinary expenses, exceed 2 1/2% of its first $30
million of average daily net assets, 2% of the next $70
million of average daily assets and 1 1/2% of any additional
average daily net assets. Such undertaking is computed
separately for each Series. For the fiscal year ended August
31, 1994, no such reimbursement was necessary or paid for any
Series.
Distribution and Service
The Distributor, located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of
Series shares under Amended and Restated Distribution
Agreements dated as of May 2, 1994 for each Series. The
Distributor is an affiliate of the Manager and bears all of
the costs of promotion and distribution, except for payments
by the Class A Shares and Class B Shares under the 12b-1
Plans. The Transfer Agent, another affiliate of the Manager,
located at 1818 Market Street, Philadelphia, PA 19103, serves
as the shareholder servicing, dividend disbursing and
transfer agent for the Series pursuant to Shareholders
Services Agreements dated June 29, 1988 for the USA Fund and
the Insured Fund and November 10, 1992 for the USA
Intermediate Fund. The Distributor, the Manager and the
Transfer Agent are all indirect, wholly-owned subsidiaries of
Delaware Management Holdings, Inc.
OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under
the direction of its Board of Directors.
Certain officers and directors of the Fund hold
identical positions in each of the other funds in the
Delaware Group. On September 30, 1994, the Fund's officers
and directors owned less than 1% of the outstanding shares of
the USA Fund and the Insured Fund, and approximately 3% of
the outstanding shares of the USA Intermediate Fund.
As of September 30, 1994, the Fund believes the
following held of record 5% or more of the outstanding shares
of the Class A Shares of the USA Intermediate Fund:
Morningstar Nursery Inc., P.O. Box 6337, Delray Beach, FL
33484 -- 505,810 shares (18.89%); and Merrill Lynch, Pierce,
Fenner & Smith Inc., Mutual Fund Operations, P.O. Box 41621,
Jacksonville, FL 32203 -- 185,966 shares (6.94%).
As of September 30, 1994, the Fund believes the
following held of record 5% or more of the outstanding shares
of the Class B Shares of the USA Fund: Merrill Lynch,
Pierce, Fenner & Smith Inc., Mutual Fund Operations, 4800
Deer Lake Drive East, 3rd Fl., Jacksonville, FL 32246 --
27,708 shares (7.17%); Joseph R. Altier and Marjorie Altier,
700 Valencia Dr., Boca Raton, FL 33432 -- 22,482 shares
(5.82%); and Vincent L. Gott, P.O. Box 136, Shady Side, MD
20764 -- 20,766 shares (5.37%).
As of September 30, 1994, the Fund believes the
following held of record 5% or more of the outstanding shares
of the Class B Shares of the Insured Fund: Merrill Lynch,
Pierce, Fenner & Smith Inc., Mutual Fund Operations, 4800
Deer Lake Drive East, 3rd Fl., Jacksonville, FL 32246 --
15,978 shares (20.22%); Anthony F. Czekanski, 300 Strawbridge
Ave., Westmont, NJ 08108 -- 11,827 shares (14.96%);
Prudential Securities Inc., FBO Clem Lyons, 126 Villita St.,
San Antonio, TX 78205 -- 9,502 shares (12.02%); Garland Lee
Thornton, Trst. Garland Lee Thornton Trust, U/A DTD 1/7/94,
5317 Slater Rd., Spring Hill, FL 34608 -- 4,895 shares
(6.19%); Katherine K. McCut, 520 Shield St., Harrisburg, PA
17109 -- 4,546 shares (5.75%); Elizabeth C. Brown TTEE,
Elizabeth C. Brown Living Trust, DTD 7/20/93, 1441 Bellevue
Way NE, Bellevue, WA 98004 -- 4,538 shares (5.74%); and
Barbara C. Rosenwasser, 2607 N Kansas St., El Paso, TX 79902
-- 4,019 shares (5.08%).
As of September 30, 1994, the Fund believes the
following held of record 5% or more of the outstanding shares
of the Class B Shares of the USA Intermediate Fund: M.
Louise Caulfield, White Horse Park, 11647 Beauchamp Rd.,
Berlin, MD 21811 -- 9,792 shares (15.56%); Lee Getson, Trst
Thermographic Diagnostic Inc., 108G Centre Blvd., Marlton, NJ
08053 -- 9,780 shares (15.55%); Maimee G. Chapin, Merlaine G.
Latham, Dolores Ann Lund and Norma J. Alguard, 429 Lower 36th
Ave. South, Jacksonville Beach, FL 32250 -- 9,778 shares
(15.54%); Bobbie Crump and Miriam Crump, 7460 Rienzi Blvd.,
Baton Rouge, LA 70809 -- 9,765 shares (15.52%); Anna Swavely,
Katheryn M. Tully and Carol A. Masterson, 269 Madison Rd.,
Huntington Valley, PA 19006 -- 5,472 shares (8.70%); and
Merrill Lynch, Pierce, Fenner & Smith Inc., Mutual Fund
Operations, 4800 Deer Lake Drive East, 3rd Fl.,
Jacksonville, FL 32246 -- 3,500 shares (5.56%).
DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings
Ltd., Founders Holdings, Inc., Delaware International
Advisers Ltd. and Delaware Investment Counselors, Inc. are
direct or indirect, wholly-owned subsidiaries of Delaware
Management Holdings, Inc. ("DMH"). By reason of its
percentage ownership of DMH common stock and through a Voting
Trust Agreement with certain other DMH shareholders, Legend
Capital Group, L.P. ("Legend") controls DMH and its direct
and indirect, wholly-owned subsidiaries. As General Partners
of Legend, Leonard M. Harlan and John K. Castle have the
ability to direct the voting of more than a majority of the
shares of DMH and thereby control DMH and its direct and
indirect, wholly-owned subsidiaries.
For the fiscal year ended August 31, 1994, the directors
and certain officers of the Fund were paid an aggregate
remuneration of $123,063 for the USA Fund, $21,997 for the
Insured Fund and $10,041 for the USA Intermediate Fund.
Directors and principal officers of the Fund and their
business experience for the past five years follow. Unless
otherwise noted, the address of each officer and director is
One Commerce Square, Philadelphia, PA 19103.
*Wayne A. Stork
Chairman, Director and/or Trustee of the Fund and each
of the other Funds in the Delaware Group.
Chairman, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management
Company, Inc.
Chairman, Chief Executive Officer and Director of
Delaware Management Holdings, Inc., DMH Corp.,
Delaware International Advisers Ltd., and Founders
Holdings, Inc.
President, Chairman, Chief Executive Officer and
Director of Delaware International Holdings Ltd.
Chairman and Director of Delaware Management Trust
Company.
Director of Delaware Distributors, Inc., Delaware
Service Company, Inc. and Delaware Investment
Counselors, Inc.
During the past five years, Mr. Stork has served in
various executive capacities at different times
within the Delaware organization.
*Brian F. Wruble
President, Chief Executive Officer, Director and/or
Trustee of the Fund and each of the other Funds in
the Delaware Group (other than Delaware Pooled
Trust, Inc.).
Director of Delaware Pooled Trust, Inc., Delaware
International Advisers Ltd. and Delaware Investment
Counselors, Inc.
President, Chief Operating Officer and Director of
Delaware Management Holdings, Inc., DMH Corp. and
Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of
Delaware Service Company, Inc.
Chairman and Director of Delaware Distributors, Inc.
President of Founders Holdings, Inc.
Before joining the Delaware Group in 1992, Mr. Wruble
was Chairman, President and Chief Executive
Officer of Equitable Capital Management Corporation
and Executive Vice President and Chief Investment
Officer of Equitable Life Assurance Society of the
United States. Mr. Wruble has previously held
executive positions with Smith Barney, Harris Upham
and H.C. Wainwright & Co.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
Winthrop S. Jessup
Executive Vice President of the Fund and each of the
other Funds in the Delaware Group (other than
Delaware Pooled Trust, Inc.).
President and Chief Executive Officer of Delaware Pooled
Trust, Inc.
President and Director of Delaware Investment
Counselors, Inc.
Executive Vice President and Director of Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Management Trust
Company, Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors,
Inc.
Director of Delaware Service Company, Inc. and Delaware
International Advisers Ltd.
During the past five years, Mr. Jessup has served in
various executive capacities at different times
within the Delaware organization.
Richard G. Unruh, Jr.
Executive Vice President of the Fund and each of the
other Funds in the Delaware Group.
Executive Vice President and Director of Delaware
Management Company, Inc.
Senior Vice President of Delaware Management Holdings,
Inc.
During the past five years, Mr. Unruh has served in
various executive capacities at different times
within the Delaware organization.
Walter P. Babich
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of
Irwin & Leighton and from 1988 to 1991, he was a
partner of I&L Investors.
*John K. Castle
Director and/or Trustee of the Fund, each of the other
Funds in the Delaware Group and Delaware
Management Holdings, Inc.
150 East 58th Street, New York, NY 10155.
General Partner, Legend Capital Group, L.P.
Chairman, Castle Harlan, Inc., a private merchant bank
in New York City.
Chairman, Castle Harlan GP, Inc.
President and Chief Executive Officer, Branford Castle,
Inc., an investment holding company.
Chairman, Castle Connolly Medical Ltd.
Director, Sealed Air Corp.
Director, UNC, Inc.
Director, Quantum Restaurant Group, Inc.
Director, INDSPEC Chemical Corporation.
Trustee, New York Medical College.
Immediately prior to forming Branford Castle, Inc. in
1986, Mr. Castle was President and Chief
Executive Officer and a director of Donaldson,
Lufkin & Jenrette, which he joined in 1965.
Mr. Castle also served as Chairman of the Board of
the New York Medical College for 11 years and has
served as a director of the Equitable Life
Assurance Society of the United States and as a
member of the Corporation of the Massachusetts
Institute of Technology.
John J. Connolly, Ed.D.
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
150 East 58th Street, New York, NY 10155.
President and Chief Executive Officer, Castle Connolly
Medical Ltd.
President, Chief Executive Officer and Director,
Health-Excel Management, Inc.
Chairman, Bedford Partners, Ltd.
From 1981 to 1992, Dr. Connolly was President and Chief
Executive Officer of New York Medical College, New
York.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
John H. Durham
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
Consultant.
120 Gibraltar Road, Horsham, PA 19044.
Mr. Durham served as Chairman of the Board of each Fund
in the Delaware Group from 1986 to 1991;
President of each Fund in the Delaware Group from
1977 to 1990; and Chief Executive Officer of each
Fund in the Delaware Group from 1984 to 1990.
Prior to 1992, with respect to Delaware Management
Holdings, Inc., Delaware Management Company, Inc.,
Delaware Distributors, Inc. and Delaware Service
Company, Inc., Mr. Durham served as a director and
in various executive capacities at different times.
*Leonard M. Harlan
Director and/or Trustee of the Fund, each of the other
Funds in the Delaware Group and Delaware
Management Holdings, Inc.
150 East 58th Street, New York, NY 10155.
General Partner, Legend Capital Group, L.P.
President, Castle Harlan, Inc., a private merchant bank
in New York City.
President, Castle Harlan GP, Inc.
Chairman and Chief Executive Officer, The Harlan
Company, Inc.
Director, Long John Silver's Restaurants, Inc.
Director, The Ryland Group, Inc.
Director, Smarte Carte Corporation.
Director, MAG Aerospace Industries, Inc.
Trustee, North Country School/CTT.
Trustee, New York City Citizens Budget Commission.
Member, Visiting Committee of the Harvard Business
School.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
Anthony D. Knerr
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Consultant, 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 and
President from 1990 to 1991. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
Adjunct Professor, Columbia Business School.
From 1984 to 1990, Ms. Leven was Treasurer and Chief
Fiscal Officer of the Smithsonian Institution,
Washington, DC.
W. Thacher Longstreth
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
1617 John F. Kennedy Boulevard, Philadelphia, PA 19103.
Vice Chairman, Packquisition Corp., a financial
printing, commercial printing and information
processing firm.
Philadelphia City Councilman.
Charles E. Peck
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Retired.
From 1981 to 1990, Mr. Peck was Chairman and Chief
Executive Officer of The Ryland Group, Inc.,
Columbia, MD.
David K. Downes
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer of the Fund, each of the
other Funds in the Delaware Group and Delaware
Management Company, Inc.
President/Chief Executive Officer and Director of
Delaware Management Trust Company.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer/Treasurer of Delaware
Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer
and Director of DMH Corp.
Senior Vice President/Chief Administrative Officer and
Director of Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer and Director of Delaware Service
Company, Inc.
Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Chief Financial Officer/Chief Operating Officer of
Delaware Investment Counselors, Inc.
Senior Vice President and Director of Founders Holdings,
Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes
was Chief Administrative Officer, Chief
Financial Officer and Treasurer of Equitable
Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice
President from December 1985 through March 1992,
and Vice Chairman from March 1992 through August
1992.
George M. Chamberlain, Jr.
Senior Vice President and Secretary of the Fund, each
of the other Funds in the Delaware Group and
Delaware Management Holdings, Inc.
Corporate Vice President, Secretary and Director of
Founders Holdings, Inc.
Senior Vice President, Secretary and Director of DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc.
and Delaware Management Trust Company.
Secretary and Director of Delaware International
Holdings Ltd.
Secretary of Delaware Investment Counselors, Inc.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served
in various capacities at different times within the
Delaware organization.
Patrick P. Coyne
Vice President/Senior Portfolio Manager of the Fund, of
the income and the other tax-exempt funds in the
Delaware Group and of Delaware Management Company,
Inc.
From 1986 to 1990, Mr. Coyne was Vice President
Municipal Trading with Kidder Peabody & Co., Inc.
Mr. Coyne joined the Delaware Group in 1990.
Joseph H. Hastings
Vice President/Corporate Controller of the Fund, each of
the other Funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors,
Inc., Delaware Service Company, Inc. and Founders
Holdings, Inc.
Vice President/Corporate Controller/Treasurer of
Delaware Management Trust Company.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings
was Chief Financial Officer for Prudential
Residential Services, L.P., New York, NY. Prior to
that, Mr. Hastings served as Controller and
Treasurer for Fine Homes International, L.P.,
Stamford, CT.
Eugene J. Cichanowsky
Vice President/Corporate Tax of the Fund, each of the
other Funds in the Delaware Group (other than
Delaware Pooled Trust, Inc.), Delaware Management
Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings,
Inc. and Delaware Management Trust Company.
Vice President of Delaware Pooled Trust, Inc.
1818 Market Street, Philadelphia, PA 19103.
During the past five years, Mr. Cichanowsky has served
in various capacities at different times within the
Delaware organization.
Joseph A. Finelli
Vice President/Treasurer of the Fund, each of the other funds
in the Delaware Group and Delaware Service Company, Inc.
Vice President/Treasurer/Chief Financial Officer of Founders
Holdings, Inc.
Vice President/Chief Financial Officer of Delaware Distributors,
Inc.
Vice President/Assistant Treasurer of Delaware Management
Company, Inc.
Vice President of Delaware International Holdings Ltd.
1818 Market Street, Philadelphia, PA 19103.
During the past five years, Mr. Finelli has served in various
capacities at different times within the Delaware
organization.
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of
the Classes and for shareholders of classes of other funds in
the Delaware Group are set forth in the relevant prospectuses
for such classes. The following supplements that
information. The Fund reserves the right to reject exchange
requests at any time. The Fund may modify, terminate or
suspend the exchange privilege upon 60 days' notice to
shareholders.
All exchanges involve a purchase of shares of the fund
into which the exchange is made. As with any purchase, an
investor should obtain and carefully read that fund's
prospectus before buying shares in an exchange. The
prospectus contains more complete information about the fund,
including charges and expenses. A shareholder requesting
such an exchange will be sent a current prospectus and an
authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the
record owner(s) exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of
one fund and the purchase of another. The sale may involve
either a capital gain or loss to the shareholder for federal
income tax purposes.
In addition, investment advisers and dealers may make
exchanges between funds in the Delaware Group on behalf of
their clients by telephone or other expedited means. This
service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it
is determined that a particular request or the total requests
at any time could have an adverse effect on any of the funds.
Requests for expedited exchanges may be submitted with a
properly completed exchange authorization form, as described
above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have
not been issued or their investment dealers of record may
exchange shares by telephone for shares in other mutual funds
in the Delaware Group. This service is automatically
provided unless the Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may
contact the Transfer Agent at 800-523-1918 (in Philadelphia,
988-1241) to effect an exchange. The shareholder's current
Series account number must be identified, as well as the
registration of the account, the share or dollar amount to be
exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering
price and net asset value are determined will be processed
the following day. See Determining Offering Price and Net
Asset Value. Any new account established through the
exchange will automatically carry the same registration,
shareholder information and dividend option as the account
from which the shares were exchanged. The exchange
requirements of the fund into which the exchange is being
made, such as sales charges, eligibility and investment
minimums, must be met. (See the prospectus of the fund
desired or inquire by calling the Transfer Agent.)
The telephone exchange privilege is intended as a
convenience to shareholders and is not intended to be a
vehicle to speculate on short-term swings in the securities
market through frequent transactions in and out of the funds
in the Delaware Group. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent
and the Fund reserve the right to record exchange
instructions received by telephone, to reject any exchange
request and to modify, terminate or suspend the telephone
exchange service at any time in the future.
As described in the Series' Prospectuses, neither the
Fund nor the Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone
instructions for redemption or exchange of Series shares
which are reasonably believed to be genuine.
Following is a summary of the investment objectives of
the other Delaware Group funds:
Delaware Fund seeks long-term growth by a balance of
capital appreciation, income and preservation of capital. It
uses a dividend-oriented valuation strategy to select
securities issued by established companies that are believed
to demonstrate potential for income and capital growth.
Dividend Growth Fund seeks current income and capital
appreciation by investing primarily in income-producing
common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend
increases over time.
Trend Fund seeks long-term growth by investing in common
stock issued by emerging growth companies exhibiting strong
capital appreciation potential.
Value Fund seeks capital appreciation by investing
primarily in common stocks whose market values appear low
relative to their underlying value or future potential.
DelCap Fund seeks long-term capital growth by investing
in common stocks and securities convertible into common
stocks of companies that have a demonstrated history of
growth and have the potential to support continued growth.
Decatur Income Fund seeks the highest possible current
income by investing primarily in common stocks that provide
the potential for income and capital appreciation without
undue risk to principal. Decatur Total Return Fund seeks
long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation
without undue risk to principal.
Delchester Fund seeks as high a current income as
possible by investing principally in corporate bonds, and
also in U.S. government securities and commercial paper.
U.S. Government Fund seeks high current income by
investing in long-term U.S. government debt obligations.
Treasury Reserves Intermediate 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 and instrumentalities. U.S.
Government Money Fund seeks maximum current income with
preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed
as to principal and interest by the U.S. government, its
agencies or instrumentalities, and repurchase agreements
collateralized by such securities, while maintaining a stable
net asset value.
Delaware Cash Reserve seeks the highest level of income
consistent with the preservation of capital and liquidity
through investments in short-term money market instruments,
while maintaining a stable net asset value.
Tax-Free 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.
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.
International Equity Fund seeks to achieve long-term
growth without undue risk to principal by investing primarily
in international securities that provide the potential for
capital appreciation and income. Global Income Fund seeks to
achieve current income consistent with the preservation of
principal by investing primarily in global fixed income
securities that may also provide the potential for capital
appreciation. Global Total Return Fund seeks to achieve
long-term total return by investing in global securities
which will provide higher current income than a portfolio
comprised exclusively of equity securities, along with the
potential for capital growth.
Delaware Group Premium Fund offers nine series available
exclusively as funding vehicles for certain insurance company
separate accounts. Equity/Income Series seeks the highest
possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while
providing higher than average dividend income. High Yield
Series seeks as high a current income as possible by
investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves
Series seeks a high stable level of current income while
minimizing fluctuations in principal by investing in a
diversified portfolio of short- and intermediate-term
securities. Money Market Series seeks the highest level of
income consistent with preservation of capital and liquidity
through investments in short-term money market instruments.
Growth Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities
exhibiting the potential for significant growth. Multiple
Strategy Series seeks a balance of capital appreciation,
income and preservation of capital. It uses a dividend-
oriented valuation strategy to select securities issued by
established companies that are believed to demonstrate
potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to
principal by investing primarily in equity securities of
foreign issuers that provide the potential for capital
appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks
whose market value appears low relative to their underlying
value or future earnings and growth potential. Emphasis will
also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized
by the market. Emerging Growth Series seeks long-term
capital appreciation by investing primarily in small-cap
common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have
been judged to be responsive to changes in the market place
and to have fundamental characteristics to support growth.
Income is not an objective.
For more complete information about any of these funds,
including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or
forward funds.
Each of the summaries above is qualified in its entirety
by the information contained in each Fund's prospectus(es).
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The
Manager or its affiliate, Delaware International Advisers
Ltd., manages the other funds in the Delaware Group. The
Manager, through a separate division, also manages private
investment accounts. While investment decisions of the Fund
are made independently from those of the other funds and
accounts, they may make investment decisions at the same
time.
The Distributor acts as national distributor for the
Fund and for the other mutual funds in the Delaware Group.
The Distributor received net commissions from the Class A
Shares of each Series, after reallowances to dealers, as
follows:
USA Fund
Class A Shares
Fiscal Amounts Net
Year Reallowed Commission
Ending to Dealers to Distributor
------ ---------- --------------
8/31/94 $1,424,013 $283,102
8/31/93 1,693,492 346,792
8/31/92 1,512,594 305,257
Insured Fund
Class A Shares
Fiscal Amounts Net
Year Reallowed Commission
Ending to Dealers to Distributor
------ ---------- --------------
8/31/94 $216,220 $45,104
8/31/93 396,947 80,556
8/31/92 406,461 84,924
USA Intermediate Fund
Class A Shares
Fiscal Amounts Net
Year Reallowed Commission
Ending to Dealers to Distributor
------ ---------- --------------
8/31/94 $141,372 $31,497
8/31/93 174,151 39,176
During the fiscal year ended August 31, 1994, the
Distributor received Limited CDSC payments in the amount of
$1,449 with respect to the Class A Shares of the USA Fund.
During the period from inception on May 2, 1994 through
August 31, 1994, the Distributor received CDSC payments in
the amount of $400 with respect to the Class B Shares of the
Insured Fund.
The Transfer Agent, an affiliate of the Manager, acts as
shareholder servicing, dividend disbursing and transfer agent
for the Fund and for the other mutual funds in the Delaware
Group. The Transfer Agent is paid a fee by each Series for
providing these services consisting of an annual per account
charge of $11.00 plus transaction charges for particular
services according to a schedule. Compensation is fixed each
year and approved by the Board of Directors, including a
majority of the disinterested directors.
The Manager and its affiliates own the name "Delaware
Group." Under certain circumstances, including the
termination of the Fund's advisory relationship with the
Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause the
Fund to delete the words "Delaware Group" from the Fund's
name.
Morgan Guaranty Trust Company of New York ("Morgan"), 60
Wall Street, New York, NY 10260, is custodian of the Fund's
securities and cash. As custodian for the Fund, Morgan
maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account
of the Fund; makes receipts and disbursements of money on
behalf of the Fund; and collects and receives income and
other payments and distributions on account of the Fund's
portfolio securities.
The legality of the issuance of the shares offered
hereby, pursuant to registration under the Investment Company
Act Rule 24f-2, has been passed upon for the Fund by Messrs.
Stradley, Ronon, Stevens & Young, Philadelphia, Pennsylvania.
Capitalization
The Fund has present authorized capitalization of five
hundred million shares of capital stock with a $.01 par value
per share. The Board of Directors has allocated two hundred
twenty-five million shares to the Tax-Free USA Fund with one
hundred seventy-five million shares allocated to the Class A
Shares and fifty million shares allocated to the Class B
Shares; one hundred seventy-five million shares to the Tax-
Free Insured Fund with one hundred twenty-five million shares
allocated to the Class A Shares and fifty million shares
allocated to the Class B Shares; and one hundred million
shares to the Tax-Free USA Intermediate Fund with fifty
million shares allocated to each of the Class A Shares and
the Class B Shares.
While all shares have equal voting rights on matters
affecting the entire Fund, the Series would vote separately
on any matter which affects only one Series, such as any
change in its own investment objective and policies or action
to dissolve the Series and as prescribed by the 1940 Act.
Shares of a Series have a priority in the assets of the
Series, and in gains on and income from the portfolio of the
Series. The Class A Shares and Class B Shares of each Series
represent a proportionate interest in the assets of a Series
and have the same voting and other rights and preferences;
however, the holders of the Class A Shares may not vote on
matters affecting a Series' Plan under Rule 12b-1 relating to
the Class B Shares, and the holders of the Class B Shares may
not vote on matters affecting a Series Plan under Rule 12b-1
relating to the Class A Shares. The shares of each Class
have no preemptive rights are fully transferable and, when
issued, are fully paid and nonassessable.
Prior to May 2, 1994, the Tax-Free USA Fund A Class was
known as the Tax-Free USA Fund, and prior to June 1, 1992, it
was known as the USA Series. Prior to May 2, 1994, the Tax-
Free Insured Fund A Class was known as the Tax-Free Insured
Fund, and prior to June 1, 1992, it was known as the USA
Insured Series. Prior to May 2, 1994, the Tax-Free USA
Intermediate Fund A Class was known as the Tax-Free USA
Intermediate Fund.
Noncumulative Voting
These 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 directors can elect all the
directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any
directors.
This Part B does not include all of the information
contained in the Registration Statement which is on file with
the Securities and Exchange Commission.
APPENDIX A -- DESCRIPTION OF RATINGS
Bonds
Excerpts from Moody's description of its bond ratings:
Aaa -- judged to be the best quality. They carry the
smallest degree of investment risk; Aa -- judged to be of
high quality by all standards; A -- possess favorable
attributes and are considered "upper medium" grade
obligations; Baa -- considered as medium grade obligations.
Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time; Ba -- judged to have speculative elements; their future
cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds
in this class; B -- generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa -- of poor
standing. Such issues may be in default or there may be
present elements of danger with respect to principal or
interest; Ca -- represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings; C -- the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Excerpts from S&P's description of its bond ratings:
AAA -- highest grade obligations. They possess the ultimate
degree of protection as to principal and interest; AA -- also
qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A --
strong ability to pay interest and repay principal although
more susceptible to changes in circumstances; BBB -- regarded
as having an adequate capacity to pay interest and repay
principal; BB, B, CCC, CC -- regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions; C -- reserved
for income bonds on which no interest is being paid; D -- in
default, and payment of interest and/or repayment of
principal is in arrears.
Commercial Paper
Excerpts from S&P's description of its two highest
commercial paper ratings: A-1 -- judged to be the highest
investment grade category possessing the highest relative
strength; A-2 -- investment grade category possessing less
relative strength than the highest rating.
Excerpts from Moody's description of its two highest
commercial paper ratings: P-1 -- the highest grade
possessing greatest relative strength; P-2 -- second highest
grade possessing less relative strength than the highest
grade.
State and Municipal Notes
MIG-1 -- Notes bearing this description are of the best
quality, enjoying strong protection from established cash
flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG-2 -- Notes bearing this designation are of high
quality, with margins of protection ample although not so
large as in the preceding group.
APPENDIX B--EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of bonds on the
effective yield received by their holders under the federal income tax laws.
It gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax-exempt bonds
yielding from 5% to 9%.
This table, which is based on incremental tax rates at the specified
levels of taxable income in effect on the date of this Part B, provides
separate computations for taxpayers who file joint or individual returns.
1994 Rates
Taxable Income
--------
Federal
Joint Return Single Return Rate Tax
- ---------------- ----------------- --------
$0-38,000 $0-22,750 15%
$38,001-91,850 $22,751-55,100 28%
$91,851-140,000 $55,101-115,000 31%
$140,001-250,000 $115,001-250,000 36%+
Over $250,000 Over $250,000 39.6%+
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
5.0%* 6.0%* 7.0%* 8.0%* 9.0%*
Federal Federal Federal Federal Federal
Taxable Taxable Taxable Taxable Taxable
Equivalent Equivalent Equivalent Equivalent Equivalent
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5.9% 7.1% 8.2% 9.4% 10.6%
6.9% 8.3% 9.7% 11.1% 12.5%
7.2% 8.7% 10.1% 11.6% 13.0%
7.8% 9.4% 10.9% 12.5% 14.1%
8.3% 9.9% 11.6% 13.2% 14.9%
</TABLE>
The equivalent yields are calculated on 5, 6, 7, 8 and 9
percent yields. While it is expected that the Series will invest
principally in obligations generating interest exempt from
federal income tax, other income received by the Series may be
taxable.
* This should not be considered representative of the
Series' yield at any specific time.
+ For tax years beginning after 1992, a 36% tax rate
applies to all taxable income in excess of the maximum
dollar amounts subject to the 31% tax rate. In
addition, a 10% surtax (not applicable to capital
gains) applies to certain high-income taxpayers. It is
computed by applying a 39.6% rate to taxable income in
excess of $250,000. The above table does not reflect
the personal exemption phaseout nor the limitations of
itemized deductions that may apply.
FINANCIAL STATEMENTS
The USA Fund's, Insured Fund's and USA Intermediate
Fund's Statements of Net Assets, Statements of Operations,
Statements of Changes in Net Assets and Notes to Financial
Statements, as well as the reports of Ernst & Young LLP,
independent auditors, for the fiscal year ended August 31,
1994, are included in the Fund's Annual Reports to
shareholders. The financial statements, the notes relating
thereto and the reports of Ernst & Young LLP, listed above
are incorporated by reference from the Annual Reports into
this Part B.
