<PAGE>
NOVEMBER 9, 1994
TAX-FREE USA FUND
TAX-FREE INSURED FUND
A CLASS/B CLASS
TAX-FREE USA INTERMEDIATE FUND
A CLASS/B CLASS
Supplement To Prospectuses
Dated October 31, 1994
The following supplements the information appearing on
the front cover of the Prospectus:
Shares of this Fund are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or
any other agency. Shares are not deposits, obligations of,
guaranteed or endorsed by any bank and involve investment
risks including possible loss of principal.
<PAGE>
-------------------------------------------------------------
PROSPECTUS
OCTOBER 31, 1994
-------------------------------------------------------------
TAX-FREE USA FUND
A CLASS SHARES
B CLASS SHARES
-------------------------------------------------------------
TAX-FREE INSURED FUND
A CLASS SHARES
B CLASS SHARES
-------------------------------------------------------------
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 1
-------------------------------------------------------------
Synopsis 2
-------------------------------------------------------------
Summary of Expenses 4
-------------------------------------------------------------
Financial Highlights 6
-------------------------------------------------------------
Investment Objective and Policies
Suitability 10
Investment Strategy 10
-------------------------------------------------------------
The Delaware Difference
Plans and Services 14
-------------------------------------------------------------
Buying Shares 15
-------------------------------------------------------------
Redemption and Exchange 21
-------------------------------------------------------------
Dividends and Distributions 25
-------------------------------------------------------------
Taxes 26
-------------------------------------------------------------
Calculation of Offering Price and
Net Asset Value Per Share 27
-------------------------------------------------------------
Management of the Fund 27
-------------------------------------------------------------
Appendix A--Ratings 31
-------------------------------------------------------------
Delaware Group Tax-Free Fund, Inc. (the "Fund") is a
professionally-managed mutual fund of the series type. This
Prospectus describes the Tax-Free USA Fund ("USA Fund") and
the Tax-Free Insured Fund ("Insured Fund") (collectively, 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; and with respect
to the Insured Fund, the Tax-Free Insured Fund A Class and
the Tax-Free Insured Fund B Class (collectively the
"Classes"; and "Class A Shares" or "Class B Shares" refer to
such shares for both Series, except where noted). This
Prospectus describes each Series and each Class, except where
noted. The objective of each Series is to seek a high level
of current interest income exempt from federal tax,
consistent with the preservation of capital. The Insured
Fund seeks to achieve its objective by investing primarily in
municipal bonds protected by insurance guaranteeing the
payment of principal and interest when due. See Quality
Restrictions for a discussion of the insurance that applies
to the Series' portfolio securities.
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, and Class B Shares
may be purchased at a price equal to the next determined net
asset value per share. The Class A Shares are subject to a
maximum front-end sales charge of 4.75% and 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 six years of purchase and 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. See
Summary of Expenses, and Automatic Conversion of Class B
Shares under Buying Shares. These alternatives permit an
investor to choose the method of purchasing shares that is
most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares and other
circumstances. See Buying Shares.
The minimum initial investment for each of the Classes
is $1,000. Subsequent investments 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 of the Series,
separately, 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. See Buying
Shares.
This Prospectus sets forth information that you should
read and consider before you invest. Please retain it for
future reference. Part B of the Fund's registration
statement, dated October 31, 1994, as it may be amended from
time to time, contains additional information about the
Series and has been filed with the Securities and Exchange
Commission. Part B is incorporated by reference into this
Prospectus and is available, without charge, by writing to
Delaware Distributors, Inc. at the above address or by
calling the above numbers. The Series' financial statements
appear in their Annual Reports, which will accompany any
response to requests for Part B.
The Fund also offers the Tax-Free USA Intermediate Fund,
which offers two classes of shares: the Tax-Free USA
Intermediate Fund A Class and the Tax-Free USA Intermediate
Fund B Class. A prospectus for the Tax-Free USA Intermediate
Fund can be obtained by writing to Delaware Distributors,
Inc. at the above address or by calling the above numbers.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
SYNOPSIS
Capitalization
The Fund has a present authorized capitalization of five
hundred million shares of capital stock with a $.01 par value
per share. Two hundred twenty-five million shares are
allocated to the 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 are allocated to the 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. See Shares under Management of the Fund.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") is the
investment manager for the Fund. The Manager or its
affiliate, Delaware International Advisers Ltd., manages the
other funds in the Delaware Group. Delaware Distributors,
Inc. (the "Distributor") is the national distributor for the
Fund and for all of the other mutual funds in the Delaware
Group. Delaware Service Company, Inc. (the "Transfer Agent")
is the shareholder servicing, dividend disbursing and
transfer agent for the Fund and for all of the other mutual
funds in the Delaware Group. See Management of the Fund.
Sales Charge
The price of the Class A Shares offered by this
Prospectus includes a maximum front-end sales charge of 4.75%
of the offering price, which is equivalent to 4.99% of the
amount invested, reduced on certain transactions of at least
$100,000 but under $1,000,000. For purchases of $1,000,000
or more, the front-end sales charge is eliminated. Class A
Shares are also subject to annual 12b-1 Plan expenses.
The price of the Class B Shares is equal to the net
asset value per share. Class B Shares are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of
purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are
redeemed during the fifth year following purchase; and (iv)
1% if shares are redeemed during the sixth year following
purchase. Class B Shares are also subject to annual 12b-1
Plan expenses for no longer than approximately eight years
after purchase. See Buying Shares and Automatic Conversion
of Class B Shares thereunder; and Distribution (12b-1) and
Service under Management of the Fund.
Minimum Investment
The minimum initial investment for each of the Classes
is $1,000 and subsequent investments must be at least $25 for
the Class A Shares and $100 for the Class B Shares. Class B
Shares are also subject to a maximum purchase limitation of
$250,000. See Buying Shares.
Investment Objective
The objective of each Series is to seek a high level of
current interest income exempt from federal income tax,
consistent with preservation of capital. The Insured Fund
seeks to achieve its objective by investing primarily in
municipal bonds protected by insurance guaranteeing the
payment of principal and interest when due. The USA Fund
seeks to achieve its objective by investing primarily in
municipal bonds with a maturity range between five and 30
years. Although exempt from regular federal income tax,
interest paid on certain types of municipal obligations is
deemed to be a preference item under federal tax law and is
subject to the federal alternative minimum tax. Up to 20% of
the net assets of each Series may be invested in bonds the
income from which is subject to the federal alternative
minimum tax. In addition, gain on the disposition of a tax-
exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is treated
as ordinary income to the extent of the accrued market
discount. See Investment Objective and Policies.
<PAGE>
Special Considerations
Prospective investors should consider the following
factors:
1. The USA Fund may invest up to 20% of its assets in
high-yield securities (junk bonds) and greater risks may be
involved with an investment in the USA Fund. See Quality
Restrictions under Investment Strategy.
2. While the USA Fund and the Insured Fund each intend
to seek to qualify as a "diversified" investment company
under provisions of Subchapter M of the Internal Revenue
Code, neither Series will be diversified under the 1940 Act.
Thus, while at least 50% of a Series' total assets will be
represented by cash, cash items, and other securities limited
in respect of any one issuer to an amount not greater than 5%
of the Series' total assets, it will not satisfy the 1940 Act
requirement in this respect, which applies that test to 75%
of the Series' assets. A nondiversified portfolio is
believed to be subject to greater risk because adverse
effects on the portfolio's security holdings may affect a
larger portion of the overall assets.
Open-End Investment Company
The Fund, which was organized as a Maryland corporation
in 1983, is an open-end management investment company and
each Series' portfolio of assets is nondiversified. See
Shares under Management of the Fund.
Investment Management Fees
The Manager furnishes investment management services to
the Fund, subject to the supervision and direction of the
Board of Directors. Under the Investment Management
Agreement, the annual compensation paid to the Manager is
equal to: for the USA Fund, .60% on the first $500 million
of average daily net assets, .575% on the next $250 million
and .55% on the average daily net assets in excess of $750
million; and, for the Insured Fund, .60% of the average daily
net assets of the Series, less a proportionate share of all
directors' fees paid to the unaffiliated directors by each
Series of the Fund. See Management of the Fund.
Redemption and Exchange
The Class A Shares of the Series are redeemed or
exchanged at the net asset value calculated after receipt of
the redemption or exchange request. Neither the Series nor
the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions
of such shares purchased at net asset value, which may be
subject to a contingent deferred sales charge if such
purchase triggered the payment of a dealer's commission. The
Class B Shares of the Series are redeemed or exchanged at the
net asset value calculated after receipt of the redemption or
exchange request, less, in the case of redemptions, any
applicable CDSC. Neither the Series nor the Distributor
assesses any additional charges for redemptions or exchanges
of the Class B Shares. See Redemption and Exchange.
<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other
expenses applicable to the Class A and Class B Shares
follows:
USA Fund
Class A Class B
Shareholder Transaction Expenses Shares Shares
----------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases (as a
percentage of offering price). . . 4.75% None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price). . . None None
Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower). . . None* 4.00%*
Redemption Fees . . . . . . . . . . . None** None**
Annual Operating Expenses USA Fund
(as a percentage of Class A Class B
average daily net assets) Shares Shares
------------------------------------------------------------
Management Fees (after voluntary
waivers, if applicable). . . . . . 0.59% 0.59%
12b-1 Plan Expenses
(including service fees) . . . . . 0.15%***+ 1.00%+
Other Operating Expenses. . . . . . . 0.15% 0.15%++
----- -----
Total Operating Expenses . . . . 0.89% 1.74%
===== =====
Insured Fund
Class A Class B
Shareholder Transaction Expenses Shares Shares
----------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases (as a
percentage of offering price). . . 4.75% None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price). . . None None
Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower). . . None* 4.00%*
Redemption Fees . . . . . . . . . . . None** None**
Annual Operating Expenses Insured Fund
(as a percentage of Class A Class B
average daily net assets) Shares Shares
------------------------------------------------------------
Management Fees (after voluntary
waivers, if applicable). . . . . . 0.59% 0.59%
12b-1 Plan Expenses
(including service fees) . . . . . 0.15%***+ 1.00%+
Other Operating Expenses. . . . . . . 0.24% 0.24%++
----- -----
Total Operating Expenses . . . . 0.98% 1.83%
===== =====
The purpose of this table is to assist the investor in
understanding the various costs and expenses that an investor
in each Class of the Series will bear directly or indirectly.
*With respect to the Class A Shares, purchases of $1 million
or more may be made at net asset value; however, if in
connection with any such purchase, certain dealer commissions
are paid to financial advisers through whom such purchases
are effected, a contingent deferred sales charge of 1% will
be imposed in the event of certain redemptions within 12
months of purchase ("Limited CDSC"). With respect to the
Class B Shares, a CDSC will be imposed as follows: (i) 4% if
shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; (iv) 1% if shares are redeemed
during the sixth year following purchase; and (v) 0%
thereafter. See Contingent Deferred Sales Charge for Certain
Purchases of Class A Shares Made at Net Asset Value under
Redemption and Exchange; and Deferred Sales Charge
Alternative--Class B Shares under Buying Shares.
**CoreStates Bank, N.A. currently charges $7.50 per
redemption for redemptions payable by wire.
***The actual 12b-1 Plan expenses to be paid and,
consequently, the Total Operating Expenses of the Class A
Shares, may be somewhat more (but the 12b-1 Plan expenses may
be no more than .30%) or somewhat less (but the 12b-1 Plan
expenses may be no less than .10%) because of the formula
adopted by the Board of Directors for use in calculating the
12b-1 Plan expenses beginning June 1, 1992. See Distribution
(12b-1) and Service.
+Class A Shares and Class B Shares of each Series are subject
to separate 12b-1 Plans. Long-term shareholders of the
Classes may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc. (the
"NASD"). See Distribution (12b-1) and Service.
++"Other Operating Expenses" for Class B Shares of the Series
are estimates based upon the actual expenses incurred by the
Class A Shares of the Series for the fiscal year ended August
31, 1994.
<PAGE>
The following example illustrates the expenses that an
investor would pay on a $1,000 investment over various time
periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period. As noted in the
table above, the Fund charges no redemption fees with respect
to the Class A Shares and, if shares are redeemed within six
years after purchase, the Fund charges a CDSC with respect to
the Class B Shares.
USA FUND
1 year 3 years 5 years 10 years
------ ------- ------- -------
Class A Shares $56/1/ $75 $94 $152
Class B Shares $58 $85 $114 $183/2/
INSURED FUND
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A Shares $57/1/ $77 $99 $162
Class B Shares $59 $88 $119 $192/2/
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of the
period:
USA FUND
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A Shares $56 $75 $94 $152
Class B Shares $18 $55 $94 $183/2/
INSURED FUND
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A Shares $57 $77 $99 $162
Class B Shares $19 $58 $99 $192/2/
/1/ Under certain circumstances, a Limited CDSC, which has
not been reflected in this calculation, may be imposed
in the event of certain redemptions within 12 months of
purchase. See Contingent Deferred Sales Charge for
Certain Purchases of Class A Shares Made at Net Asset
Value under Redemption and Exchange.
/2/ At the end of no more than approximately eight years
after purchase, Class B Shares will be automatically
converted into Class A Shares of the relevant Series.
The example above assumes conversion of Class B Shares
at the end of year eight. However, the conversion may
occur as late as three months after the eighth
anniversary of purchase, during which time the higher
12b-1 Plan fees payable by Class B Shares will continue
to be assessed. See Automatic Conversion of Class B
Shares under Buying Shares for a description of the
automatic conversion feature. Years nine and ten
reflect expenses of the Class A Shares. The conversion
will constitute a tax-free exchange for federal income
tax purposes. See Taxes.
This example should not be considered a representation of
past or future expenses or performance. Actual expenses may
be greater or less than those shown.
<PAGE>
-------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the
financial statements of Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Fund and Tax-Free Insured Fund and have been
audited by Ernst & Young LLP, independent auditors. The data
should be read in conjunction with the financial statements,
related notes, and the report of Ernst & Young LLP covering
such financial information and highlights, all of which are
incorporated by reference into Part B. Further information
about the Series' performance is contained in their Annual
Reports to shareholders. A copy of each Series' Annual
Report (including the report of Ernst & Young LLP) may be
obtained from the Fund upon request at no charge.
-------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-FREE USA FUND A CLASS
- --------------------------------------------------------
Year Ended
8/31/94 8/31/93 8/31/92/1/ 8/31/91 8/31/90
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $12.640 $12.130 $11.560 $11.070 $11.600
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.751 0.751 0.765 0.783 0.817
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.566) 0.610 0.570 0.490 (0.530)
------- ------- ------- ------- -------
Total From
Investment
Operations. . . 0.185 1.361 1.335 1.273 0.287
------- ------- ------- ------ -------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.751) (0.751) (0.765) (0.783) (0.817)
Distributions
(from capital
gains) . . . . . . (0.034) (0.100) none none none
Returns of
Capital. . . . . . none none none none none
------- ------- ------- ------- -------
Total Distri-
butions . . . . (0.785) (0.851) (0.765) (0.783) (0.817)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $12.040 $12.640 $12.130 $11.560 $11.070
======= ======= ======= ======= =======
- -----------------------------------------------------------------
Total Return/2/. . 1.49% 11.66% 11.91% 11.88% 2.50%
- -----------------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $745,796 $762,574 $702,988 $669,546 $611,505
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.89% 0.89% 0.80% 0.74% 0.75%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 6.07% 6.10% 6.47% 6.91% 7.12%
Portfolio Turnover
Rate . . . . . . . 10% 12% 21% 19% 14%
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE USA FUND A CLASS
- --------------------------------------------------------
Year Ended
8/31/89 8/31/88 8/31/87 8/31/86 8/31/85
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $11.020 $10.930 $11.730 $10.230 $9.410
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.844 0.842 0.865 0.938 0.950
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . 0.580 0.090 (0.537) 1.500 0.820
------- ------- ------- ------ -------
Total From
Investment
Operations. . . 1.424 0.932 0.328 2.438 1.770
------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.844) (0.842) (0.865) (0.938) (0.950)
Distributions
(from capital
gains) . . . . . . none none (0.263) none none
Returns of
Capital. . . . . . none none none none none
------- ------- ------- ------- -------
Total Distri-
butions . . . . (0.844) (0.842) (1.128) (0.938) (0.950)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $11.600 $11.020 $10.930 $11.730 $10.230
======= ======= ======= ======= =======
- -----------------------------------------------------------------
Total Return/2/. . 13.30% 8.93% 0.50% 24.81% 19.73%
- ------------
- -----------------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $519,867 $390,987 $372,514 $252,897 $98,284
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.75% 0.77% 0.78% 0.80% 0.75%/3/
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 7.35% 7.76% 7.47% 8.29% 9.33%/4/
Portfolio Turnover
Rate . . . . . . . 8% 25% 69% 47% 54%
</TABLE>
/1/ Beginning June 1, 1992, the USA Fund began paying
distribution expenses pursuant to a Rule 12b-1 Plan.
/2/ Does not reflect maximum sales charge of 4.75%. Total
return for 1985 reflects the expense limitations
referenced in Notes 3 and 4.
/3/ Ratio of expenses to average daily net assets prior to
expense limitation was, for the USA Fund, 0.97% for
1985.
/4/ Ratio of net investment income to average daily net
assets prior to expense limitation was, for the USA
Fund, 9.11% for 1985.
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
TAX-FREE USA FUND B CLASS
-----------------------
Period
5/2/94/1/
through
8/31/94
Net Asset Value,
Beginning of
Period . . . . . . $12.080
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.214
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.040)
-------
Total From
Investment
Operations. . . 0.174
-------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.214)
Distributions
(from capital
gains) . . . . . . none
Returns of
Capital. . . . . . none
-------
Total Distri-
butions . . . . (0.214)
-------
Net Asset Value,
End of Period. . . $12.040
=======
- ------------------------------------------------------
Total Return . . . 1.45%/2/
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $3,937
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.74%/3/
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 5.22%/3/
Portfolio Turnover
Rate . . . . . . . 10%
/1/ Date of initial public offering.
/2/ Total return has not been annualized. Total return for
this short of a time period may not be representative
oflonger-term results. In addition, total return does
not include any CDSC.
/3/ Ratios have been annualized.
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
TAX-FREE INSURED FUND A CLASS
- -----------------------------------------------------------------
Year Ended
8/31/94 8/31/93 8/31/92/2/ 8/31/91 8/31/90
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $11.680 $11.310 $10.900 $10.460 $10.690
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.622 0.638 0.674 0.699 0.714
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.560) 0.400 0.410 0.440 (0.230)
------- ------- ------- ------ -------
Total From
Investment
Operations. . . 0.062 1.038 1.084 1.139 0.484
------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.622) (0.638) (0.674) (0.699) (0.714)
Distributions
(from capital
gains) . . . . . . (0.100) (0.030) none none none
Returns of
Capital. . . . . . none none none none none
------- ------- ------- ------- -------
Total Distri-
butions . . . . (0.722) (0.668) (0.674) (0.699) (0.714)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $11.020 $11.680 $11.310 $10.900 $10.460
======= ======= ======= ======= =======
- ------------------------------------------------------
Total Return/3/. . 0.54% 9.48% 10.23% 11.20% 4.63%
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $91,235 $96,118 $85,660 $76,700 $61,394
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.98% 0.98% 0.86% 0.83% 0.83%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 5.48% 5.58% 6.06% 6.50% 6.69%
Portfolio Turnover
Rate . . . . . . . 56% 8% 29% 10% 13%
</TABLE>
<TABLE>
<CAPTION> TAX-FREE INSURED FUND A CLASS
-----------------------------
Period
3/25/85
Year Ended through
8/31/89 8/31/88 8/31/87 8/31/86 8/31/85/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . $10.300 $10.300 $10.770 $9.510 $9.530
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . 0.727 0.725 0.720 0.790 0.327
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . 0.390 none (0.470) 1.260 0.020)
------- ------- ------- ------- -------
Total From
Investment
Operations. . . 1.117 0.725 0.250 2.050 0.307
------- ------- ------- ------- ------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . (0.727) (0.725) (0.720) (0.790) (0.327)
Distributions
(from capital
gains) . . . . . none none none none none
Returns of
Capital. . . . . none none none none none
------- ------- ------- ------- ------
Total Distri-
butions . . . (0.727) (0.725) (0.720) (0.790) (0.327)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . $10.690 $10.300 $10.300 $10.770 $9.510
======= ======= ======= ======= =======
- -----------------------------------------------------------------
Total Return/3/. 11.15% 7.34% 2.31%/3/ 22.36%/3/ /3/4/
- ------------
- -----------------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . $54,131 $45,464 $44,929 $35,177 $11,337
Ratio of Expenses
to Average Daily
Net Assets . . . 0.82% 0.82% 0.87%/5/ 0.73%/5/ 0.22%/5/
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . 6.86% 7.11% 6.71%/6/ 7.54%/6/ 7.29%/6/
Portfolio Turnover
Rate . . . . . . 14% 9% 32% 45% 34%
</TABLE>
/1/ For the period March 25, 1985 (date of the initial
public offering) through August 31, 1985, ratios have
been annualized.
/2/ Beginning June 1, 1992, the Insured Series began paying
distribution expenses pursuant to a Rule 12b-1 Plan.
/3/ Does not reflect maximum sales charge of 4.75%. Total
return for 1985, 1986 and 1987 reflect the expense
limitations referenced in Notes 5 and 6.
/4/ Average annual total return for the period excluding
maximum sales charge of 4.75% is 7.53% and the
aggregate total return for the period excluding maximum
sales charge of 4.75% is 3.23%.
/5/ Ratios of expenses to average daily net assets prior to
expense limitation were, for the Insured Fund, 0.89%
for 1987, 1.09% for 1986 and 2.69% for 1985.
/6/ Ratios of net investment income to average daily net
assets prior to expense limitation were, for the
Insured Fund, 6.69% for 1987, 7.18% for 1986 and 4.82%
for 1985.
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
TAX-FREE INSURED FUND B CLASS
-----------------------------
Period
5/2/94/1/
through
8/31/94
Net Asset Value,
Beginning of
Period . . . . . . $10.990
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.179
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . 0.030
-------
Total From
Investment
Operations. . . 0.209
-------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.179)
Distributions
(from capital
gains) . . . . . . none
Returns of
Capital. . . . . . none
-------
Total Distri-
butions . . . . (0.179)
-------
Net Asset Value,
End of Period. . . $11.020
=======
- ------------------------------------------------------
Total Return . . . /2/
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $826
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.83%/3/
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 4.63%/3/
Portfolio Turnover
Rate . . . . . . . 56%
- -------------------------------
/1/ Date of initial public offering.
/2/ Average annual total return for the period excluding
contingent deferred sales charge is 5.83% and the aggregate
total return for the period excluding contingent deferred
sales charge is 1.91%.
/3/ Ratios have been annualized.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The objective of the USA 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 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 objective of each Series cannot be changed without
approval by the shareholders of that 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 of market
fluctuation. Also, there is no assurance that any insurance
company will meet its obligations.
Municipal securities are debt obligations issued by
state and local governments to raise funds for various public
purposes such as hospitals, schools and general operating
expenses.
SUITABILITY
Each Series may be suitable for longer-term investors.
Investors should be willing to accept the risk of investments
in municipal bonds. An investment in either Series of the
Fund permits an investor to participate in these types of
instruments while affording the advantages of diversification
and a high degree of liquidity. Ownership of Series shares
also reduces the bookkeeping and administrative
inconveniences connected with the direct purchase of such
obligations.
The insurance features of the Insured Fund may somewhat
lessen risk as well as yield. The net asset value of each
Series' shares can generally be expected to fluctuate
inversely to changes in interest rates.
INVESTMENT STRATEGY
Tax-Exempt Investments
Each Series invests primarily in municipal securities
paying interest income which, in the opinion of the bond
issuer's counsel, is exempt from federal income tax. These
securities include debt obligations issued by or on behalf of
states, territories and possessions of the United States and
the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities. Typically, the
maturity of municipal bonds in which the USA Fund and the
Insured Fund invest will range between five and 30 years.
Each Series intends to invest at least 80% of its net
assets under normal market conditions in the types of
securities described above as a fundamental policy. Each
Series may invest up to 20% of its net assets in bonds the
income from which is subject to the federal alternative
minimum tax. Although exempt from regular federal income
tax, interest paid on certain types of municipal obligations
(commonly referred to as "private activity" or "private
purpose" bonds) is deemed to be a preference item under
federal tax law and is subject to the federal alternative
minimum tax.
The following table shows what the impact of tax-free
investing can be for shareholders.
<TABLE>
<CAPTION>
1994 Rates
5.0%* 6.0%* 7.0%*
Taxable Income Federal Federal Federal
Federal Tax Taxable Taxable Taxable
Rate Equivalent Equivalent Equivalent
<S> <C> <C> <C> <C> <C>
Joint Return Single Return
$0-38,000 $0-22,750 15% 5.9% 7.1% 8.2%
$38,001-91,850 $22,751-55,100 28% 6.9% 8.3% 9.7%
$91,851-140,000 $55,101-115,000 31% 7.2% 8.7% 10.1%
$140,001-250,000 $115,001-250,000 36%+ 7.8% 9.4% 10.9%
Over $250,000 Over $250,000 39.6%+ 8.3% 9.9% 11.6%
</TABLE>
The equivalent yields are calculated on 5, 6 and 7
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 and certain income received by the Series may
be subject to the federal alternative minimum tax.
* 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.
<PAGE>
Quality Restrictions
The USA Fund intends to invest at least 80% of its
portfolio in debt obligations that are rated in the top four
grades by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") at the time of
purchase. The fourth grade is considered medium grade and
may have speculative characteristics. The USA Fund may
invest up to 20% of its assets in securities with a rating
lower than the top four grades and in unrated securities.
These securities are speculative and may involve greater
risks and have higher yields.
The market values of such securities tend to reflect
individual developments affecting the issuer to a greater
extent than do higher-rated securities, which react primarily
to fluctuations in the general level of interest rates. Such
lower-rated securities also tend to be more sensitive to
economic conditions and generally involve more credit risk
than higher-rated securities.
Projects which are financed by the issuance of high
yielding, fixed-income securities are often highly leveraged
and may not have more traditional methods of financing
available to them. Therefore, the risk associated with
acquiring the securities of such issuers is generally greater
than is the case with higher-rated securities. For example,
during an economic downturn or a sustained period of rising
interest rates, projects financed by high yielding securities
may experience financial stress. During such periods, such
projects may not have sufficient funds to meet their interest
payment obligations. The issuer's ability to service its
debt obligations may also be adversely affected by specific
developments, or the issuer's inability to meet specific
projected revenue forecasts, or by the unavailability of
additional financing.
The market for lower-rated fixed-income securities
generally tends to be concentrated among a smaller number of
dealers than is the case for securities which trade in a
broader secondary retail market. Generally, purchasers of
these securities are predominantly dealers and other
institutional buyers, rather than individuals. To the extent
a secondary trading market for high yielding, fixed-income
securities does exist, it is generally not as liquid as the
secondary market for higher-rated securities.
Factors adversely impacting the market value of high
yielding securities may adversely impact the USA Fund's net
asset value. In addition, the USA Fund may incur additional
expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its
portfolio holding. The USA Fund will rely on the investment
manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the
investment manager will take into consideration, among other
things, the issuer's financial resources, its sensitivity to
economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
Some municipal bonds are backed by the issuer's full
faith and credit while others are secured by a specific
revenue source and are not backed by any general taxing
power. The USA Fund will invest in both types.
<PAGE>
The Insured Fund intends to invest at least 80% of its
assets in debt obligations which are insured by various
insurance companies which undertake to pay to a holder the
interest or principal amount of an obligation if the interest
or principal is not paid by the issuer when due. At present,
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 Insured Fund's portfolio may
consist of municipal bonds that are insured by a single
insurance company. In the event of a default, the insurer is
required to make payments of interest and principal when due
to the bondholders. There is no assurance that the insurance
company will meet its obligations. The Manager does not look
to the creditworthiness of a private insurer. Instead, the
Manager reviews the creditworthiness of the actual issuer and
its ability to pay interest and principal. Insurance on
municipal bonds that is purchased by the Insured Fund will
generally have been obtained by the bond issuer and attached
to the bonds for their lifetime, although in some instances
this Series will obtain insurance on bonds while they are
held by the Series.
Diversification
The Fund is a nondiversified investment company. This
means that the Manager has the flexibility to invest as much
as 50% of each Series' assets in as few as two issuers
provided no single issuer accounts for more than 25% of the
portfolio. The remaining 50% of the portfolio must be
diversified so that no more than 5% of it is invested in the
securities of a single issuer. Those limitations
notwithstanding, and except as otherwise provided herein,
each Series may invest up to 20% of its assets in U.S.
government and government agency securities backed by the
U.S. government, its agencies or instrumentalities. Because
the Series may invest their assets in fewer issuers, the
value of Series shares may increase or decrease 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.
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.
Percentage limitations outlined above are determined at
the time an investment is made.
Other Considerations
Each Series may invest, without limit, in short-term,
tax-free instruments such as tax-exempt commercial paper and
general obligation, revenue and project notes, as well as
variable and floating rate demand obligations. Short-term
securities will be rated in the top two grades by a
nationally-recognized rating agency.
Under abnormal conditions, each Series may invest in
taxable instruments for temporary defensive purposes. These
would include instruments such as obligations of the U.S.
government, its agencies and instrumentalities, commercial
paper, certificates of deposit of domestic banks and other
debt instruments. The above investments will be rated at
least A-2, P-2 or MIG-2.
Each Series may invest in "when-issued securities."
When-issued securities involve commitments to buy a new issue
with settlement up to 45 days later. During the time between
the commitment and settlement the Series does not accrue
interest, but the market value may fluctuate. This can
result in a Series' share value increasing or decreasing. If
a Series invests in securities of this type, it will maintain
a segregated account to pay for them and mark them to market
daily.
<PAGE>
The Tax Reform Act of 1986 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.
Each Series intends 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. Each Series may invest up to 20% of its assets
in bonds the income from which is subject to the federal
alternative minimum tax.
While the Series are permitted, they normally do not
borrow money or invest in repurchase agreements. A Series
will not purchase investment securities while it has an
outstanding borrowing. Each Series may invest in restricted
securities, including securities eligible for resale without
registration pursuant to Rule 144A ("Rule 144A Securities")
under the Securities Act of 1933, as discussed more fully
below. A Series may invest no more than 10% of the value of
its net assets in illiquid securities. Part B sets forth
other more specific investment restrictions and descriptions
of Moody's and S&P ratings.
The weighted portfolio maturity at the end of the fiscal
year was 21 years for each Series.
Rule 144A Securities
Rule 144A permits many privately placed and legally
restricted securities to be freely traded among certain
institutional buyers such as the Series. While maintaining
oversight, the Board of Directors has delegated to the
Manager the day-to-day functions of determining whether or
not individual Rule 144A Securities are liquid for purposes
of the Series' 10% limitation on investments in illiquid
assets. The Board has instructed the Manager to consider the
following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for
the security; (ii) whether at least three dealers are willing
to purchase or sell the security and the number of potential
purchasers; (iii) whether at least two dealers are making a
market in the security; and (iv) the nature of the security
and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security
which was previously determined to be liquid is no longer
liquid and, as a result, the Series' holdings of illiquid
securities exceed the Series' 10% limit on investments in
such securities, the Manager will determine what action shall
be taken to ensure that the Series continues to adhere to
such limitation.
<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you
with superior information and quality service on your
investments in the Delaware Group of funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
(Philadelphia 988-1333)
Fund Information
Literature
Price, Yield and
Performance Figures
Shareholder Service Center
800-523-1918
(Philadelphia 988-1241)
Information on Existing
Regular Investment
Accounts and Retirement
Plan Accounts
Wire Investments
Wire Liquidations
Telephone Liquidations
Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Shareholder Services
During business hours, you can call the Fund's
Shareholder Service Center. The representatives can answer
any of your questions about your account, the Series, the
various service features and other funds in the Delaware
Group.
Performance Information
During business hours, you can call the Investor
Information Center to get current yield information. Current
yield and total return information may also be included in
advertisements and information given to shareholders. Yields
are computed on an annual basis over a 30-day period.
Delaphone Service
Delaphone is an account inquiry service for investors
with Touch-Tone(R) phone service. It enables you to get
information faster than the mailed statements and
confirmations seven days a week, 24 hours a day.
Statements and Confirmations
You will receive quarterly statements of your account as
well as confirmations of all investments and redemptions.
You should examine statements and confirmations immediately
and promptly report any discrepancy by calling the
Shareholder Service Center.
Duplicate Confirmations
If your investment dealer is noted on your investment
application, we will send your dealer a duplicate
confirmation. This makes it easier for your investment
dealer to help you manage your investments.
Dividend Reinvestment Plan
You can elect to have your distributions (capital gains
and/or dividend income) paid to you by check or reinvested in
your account. Also, you may be permitted to invest your
distributions in certain other funds in the Delaware Group,
subject to the exceptions noted below as well as the
eligibility and minimum purchase requirements set forth in
each fund's prospectus.
Reinvestments of distributions into Class A Shares of
the Series or other Delaware Group funds may be effected
without a front-end sales charge. Class B Shares of the
Series or other Delaware Group funds acquired through
reinvestments of distributions will not be subject to a
contingent deferred sales charge if those shares are later
redeemed. See Automatic Conversion of Class B Shares under
Buying Shares for information concerning the automatic
conversion of Class B Shares acquired by reinvesting
dividends.
Holders of Class A Shares of the Series may not invest
their distributions in the Class B Shares of any fund in the
Delaware Group, including the Series. Holders of Class B
Shares of the Series may reinvest their distributions only in
the Class B Shares of the funds in the Delaware Group which
offer that class of shares (the "Class B Funds"). See Class
B Funds under Buying Shares for a list of the funds offering
Class B Shares. For more information about reinvestments,
please call the Shareholder Service Center.
Exchange Privilege
The Exchange Privilege permits shareholders to exchange
all or part of their shares into shares of the other funds in
the Delaware Group, subject to the exceptions noted below as
well as the eligibility and minimum purchase requirements set
forth in each fund's prospectus. Shareholders of Class B
Shares of the Series are permitted to exchange all or part of
their Class B Shares only into the corresponding class of
shares of the Class B Funds, subject to the minimum purchase
and other requirements set forth in each fund's prospectus.
Exchanges are not permitted between Class A Shares and Class
B Shares of any of the funds of the Delaware Group. See
Redemption and Exchange.
<PAGE>
Except as noted below, permissible exchanges can be made
without payment of a front-end sales charge or the imposition
of a contingent deferred sales charge at the time of the
exchange, as applicable. Persons exchanging into the Class A
Shares from a fund in the Delaware Group offered without a
front-end sales charge may be required to pay the applicable
front-end sales charge. See Investing by Exchange under How
to Buy Shares and Redemption and Exchange.
See Redemption and Exchange for additional information
on exchanges.
Wealth Builder Option
You may be permitted to elect to have amounts in your
account automatically invested in shares of other funds in
the Delaware Group. Investments under this feature are
exchanges and are therefore subject to the same conditions
and limitations as other exchanges of Class A and Class B
Shares. See Redemption and Exchange.
Right of Accumulation
With respect to Class A Shares, the Right of
Accumulation feature allows the combining of Class A Shares
and Class B Shares of a Series that are currently owned with
the dollar amount of new purchases for a reduced front-end
sales charge.
Under the Combined Purchases Privilege, this includes
certain shares owned in certain other funds in the Delaware
Group. See Buying Shares.
Letter of Intention
With respect to Class A Shares, the Letter of Intention
feature permits the aggregation of purchases over a 13-month
period to obtain a reduced front-end sales charge. See Part
B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits shareholders
to reinvest proceeds of Class A Shares redeemed, within one
year from the redemption, without a front-end sales charge.
See Part B.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual
report and an unaudited semi-annual report. These reports
provide detailed information about the Fund's investments and
performance. The Fund's fiscal year ends on August 31.
BUYING SHARES
Purchase Amounts
The minimum initial purchase for each of the Classes is
$1,000. All subsequent purchases must be $25 or more with
respect to the Class A Shares and $100 or more with respect
to the Class B Shares. Class B Shares of each of the Series,
separately, are also subject to a maximum purchase limitation
of $250,000.
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge
which may be imposed, at the election of the purchaser, at
the time of the purchase with respect to Class A Shares
("front-end sales charge alternative") or on a contingent
deferred basis with respect to Class B Shares ("deferred
sales charge alternative").
Class A Shares. An investor who elects the front-end
sales charge alternative acquires Class A Shares. Although
Class A Shares incur a sales charge when they are purchased,
generally they are not subject to any sales charge when they
are redeemed but are subject to annual 12b-1 Plan expenses of
up to a maximum of .30% of average daily net assets of such
shares. See Contingent Deferred Charges for Certain
Purchases of Class A Shares Made at Net Asset Value and
Distribution (12b-1) and Service. Certain purchases of Class
A Shares qualify for reduced front-end sales charges. See
Front-End Sales Charge Alternative-Class A Shares, below.
Class B Shares. An investor who elects the deferred
sales charge alternative acquires Class B Shares. Class B
Shares do not incur a front-end sales charge when they are
purchased, but they are subject to a sales charge if they are
redeemed within six years of purchase and are subject to
annual 12b-1 Plan expenses of up to a maximum 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 average
daily net assets of such shares for no longer than
approximately eight years after purchase. Class B Shares
permit all of the investor's dollars to work from the time
the investment is made. The higher 12b-1 Plan expenses paid
by Class B Shares will cause such shares to have a higher
expense ratio and to pay lower dividends than those related
to the Class A Shares. At the end of no more than
approximately eight years after purchase, the Class B Shares
are automatically converted into Class A Shares of the
relevant Series. See Automatic Conversion of Class B Shares.
Such conversion will constitute a tax-free exchange for
federal income tax purposes. See Taxes.
<PAGE>
The alternative purchase arrangements permit investors
in the Series 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 incur a front-end sales charge by purchasing Class A
Shares or to have the entire initial purchase price invested
in the Series with the investment thereafter being subject to
a CDSC, if shares are redeemed within six years of purchase,
by purchasing Class B Shares.
As an illustration, investors who qualify for
significantly reduced front-end sales charges on purchases of
Class A Shares, as described below, might elect the front-end
sales charge alternative because similar sales charge
reductions are not available for purchases under the deferred
sales charge alternative. Moreover, shares acquired under
the front-end sales charge alternative are subject to annual
12b-1 Plan expenses of up to .30%, whereas shares acquired
under the deferred sales charge alternative are subject to
higher annual 12b-1 Plan expenses of 1% for no more than
approximately eight years after purchase. See Automatic
Conversion of Class B Shares. However, because front-end
sales charges are deducted at the time of purchase, such
investors would not have all their funds invested initially.
Certain other investors might determine it to be more
advantageous to have all their funds invested initially,
although they would be subject to a CDSC for up to six years
after purchase as well as annual 12b-1 Plan expenses of 1%
until the shares are automatically converted into Class A
Shares of the relevant Series. The 12b-1 Plan distribution
expenses with respect to the Class B Shares will be offset to
the extent any return is realized on the additional funds
initially invested under the deferred sales charge
alternative. However, there can be no assurance as to the
return, if any, which will be realized on such additional
funds.
For the distribution and related services provided to,
and the expenses borne on behalf of, the Series, the
Distributor and others will be paid, in the case of the Class
A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares, from
the proceeds of the 12b-1 Plan fees and, if applicable, the
CDSC incurred upon redemption within six years of purchase.
Sales personnel may receive different compensation for
selling Class A or Class B Shares. INVESTORS SHOULD
UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE 12B-1 PLAN
AND THE CDSC WITH RESPECT TO THE CLASS B SHARES ARE THE SAME
AS THOSE OF THE 12B-1 PLAN AND THE FRONT-END SALES CHARGE
WITH RESPECT TO THE CLASS A SHARES IN THAT THE FEES AND
CHARGES PROVIDE FOR THE FINANCING OF THE DISTRIBUTION OF THE
RESPECTIVE CLASSES. SEE 12B-1 DISTRIBUTION PLANS - CLASS A
AND CLASS B SHARES.
Dividends paid by the Series with respect to the Class A
and Class B Shares, to the extent any dividends are paid,
will be calculated in the same manner at the same time on the
same day and will be in the same amount, except that the
additional amount of 12b-1 Plan expenses relating to the
Class B Shares will be borne exclusively by such shares. See
Calculation of Offering Price and Net Asset Value Per Share.
The shareholders of the Class A and Class B Shares each have
an exchange privilege by which they may exchange their Class
A Shares or Class B Shares for the Class A Shares or Class B
Shares, respectively, of certain other Delaware Group funds.
See Exchange Privilege under The Delaware Difference and
Redemption and Exchange.
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 with respect to both Class A and Class B Shares.
Front-End Sales Charge Alternative - Class A Shares
The Class A Shares may be purchased at the offering
price which reflects a maximum front-end sales charge of
4.75%. See Calculation of Offering Price and Net Asset Value
Per Share. Lower front-end sales charges apply for larger
purchases. See the table below. The Class A Shares
represent a proportionate interest in the Series' assets and
are subject to annual 12b-1 Plan expenses. See Distribution
(12b-1) and Service under Management of the Fund.
<PAGE>
Reduced Front-End Sales Charge
Purchases of $100,000 or more of the Series at the
offering price carry a reduced front-end sales charge as
shown in the following table.
USA Fund and Insured Fund
A Class
-------------------------------------------------------------
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
* There is no front-end sales charge on purchases of $1
million or more but, under certain limited
circumstances, a 1% Limited CDSC may apply with respect
to Class A Shares.
-------------------------------------------------------------
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 sales charge shown above.
In addition, certain dealers who enter into an agreement
to provide extra training and information on Delaware
Group products and who increase sales of Delaware Group
funds may receive an additional concession of up to .15%
of the offering price. Dealers who receive 90% or more
of the sales charge may be deemed to be underwriters
under the Securities Act of 1933.
** Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.
-------------------------------------------------------------
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
schedule:
Dealer's
Commission
----------
(as a percent-
Amount age of amount
of Purchase purchased)
------------
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other
Delaware Group funds as to which a Limited CDSC applies may
be aggregated with the 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.
Redemptions of Class A Shares purchased at net asset
value may result in the imposition of a Limited CDSC if the
dealer's commission described above was paid in connection
with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Purchases of Class A Shares Made at
Net Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings in the Class A Shares with
your holdings in the Class B Shares of the Series and, except
as noted below, shares of the other funds in the Delaware
Group, you can reduce the front-end sales charges of any
additional purchases of Class A Shares. Except for shares of
Delaware Group Premium Fund, Inc. beneficially owned in
connection with ownership of variable insurance products,
shares of other funds which do not carry a front-end sales
charge or CDSC may not be included, unless they were acquired
through an exchange from one of the other Delaware Group
funds which carried a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and
holdings with those of your spouse, your children under 21
and any trust, fiduciary or retirement account for the
benefit of such family members.
It also permits you to use these combinations under a
Letter of Intention. This allows you to make purchases over
a 13-month period and qualify the entire purchase for a
reduction in front-end sales charges on Class A Shares.
<PAGE>
Combined purchases of $1,000,000 or more, including
certain purchases made pursuant to a Right of Accumulation or
under a Letter of Intention, may trigger the payment of a
dealer's commission and the applicability of a Limited CDSC.
Investors should consult their financial advisers or the
Transfer Agent about the operation of these features. See
Reduced Front-End Sales Charges under Buying Shares.
Buying at Net Asset Value
Class A Shares of the Series may be purchased at net
asset value under the Delaware Group Dividend Reinvestment
Plan and, under certain circumstances, the 12-Month
Reinvestment Privilege and the Exchange Privilege. (See The
Delaware Difference and Redemption and Exchange for
additional information.)
Purchases of Class A Shares may be made at net asset
value by officers, directors and employees (including former
officers and directors and former employees who had been
employed for at least ten years) and members of their
immediate families of the Manager, any affiliate, any of the
funds in the Delaware Group, certain of their agents and
registered representatives and employees of authorized
investment dealers and by employee benefit plans for such
entities. Individual purchases include retirement accounts
and must be for accounts in the name of the individual or a
qualifying family member. Purchases of Class A Shares may 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 charge. 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.
The Series must be notified in advance that an
investment qualifies for purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value
without the imposition of a front-end sales charge at the
time of purchase. The Class B Shares are being sold without
a front-end sales charge so that the Series will invest the
full amount of the investor's purchase payment. The
Distributor currently anticipates compensating dealers or
brokers for selling Class B Shares at the time of purchase
from its own funds in an amount equal to no more than 4% of
the dollar amount purchased. As discussed below, however,
Class B Shares are subject to annual 12b-1 Plan expenses and,
if shares are redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees
are paid to the Distributor and others for the distribution
and related services provided to, and the related expenses
borne on behalf of, the Series for the benefit of the Class B
Shares in connection with the sale of the Class B Shares,
including the compensation paid to dealers or brokers for
selling Class B Shares. Payments to the Distributor and
others under the 12b-1 Plan relating to the Class B Shares
may be, annually, in an amount equal to no more than 1%. The
combination of the CDSC and the proceeds of the 12b-1 Plan
fees facilitates the ability of the Series to sell the Class
B Shares without a front-end sales charge being deducted at
the time of purchase.
Shareholders of the Class B Shares exercising the
exchange privilege described below will continue to be
subject to the CDSC schedule of the Class B Shares of the
relevant Series described in this Prospectus. Such schedule
may be higher than the CDSC schedule relating to the Class B
Shares acquired as a result of the exchange. See Redemption
and Exchange.
Automatic Conversion of Class B Shares
Except for shares acquired through a reinvestment of
dividends, Class B Shares held for eight years after purchase
are eligible for automatic conversion into Class A Shares of
the same Series. The Fund will effect conversions of Class B
Shares into Class A Shares only four times in any calendar
year, on the last business day of the second full week of
March, June, September and December (each, a "Conversion
Date"). If the eighth anniversary after a purchase of Class
B Shares falls on a Conversion Date, an investor's Class B
Shares will be converted on that date. If the eighth
anniversary occurs between Conversion Dates, an investor's
Class B Shares will be converted on the next Conversion Date
after such anniversary. Consequently, if a shareholder's
eighth anniversary falls on the day after a Conversion Date,
that shareholder will have to hold Class B Shares for as long
as an additional three months after the eighth anniversary
after purchase before the shares will automatically convert
into Class A Shares.
<PAGE>
Class B Shares of a fund acquired through reinvestment
of dividends will convert to the corresponding Class A Shares
of that fund (or, in the case of Delaware Group Cash Reserve,
Inc., the Cash Reserve Consultant Class) pro-rata with Class
B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will
constitute tax-free exchanges for federal income tax
purposes. See Taxes.
Contingent Deferred Sales Charge
Class B Shares redeemed within six years of purchase may
be subject to a CDSC at the rates 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 the shares
being redeemed or the net asset value of the shares at the
time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset
value at purchase of the Class B Shares even if those shares
are later exchanged for Class B Shares of another Delaware
Group fund and, in the event of an exchange of the shares,
the "net asset value of such shares at the time of
redemption" will be the net asset value of the shares into
which the shares have been exchanged. 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 distributions.
The following table sets forth the rates of the CDSC for
the Class B Shares of each Series:
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 relevant
Series, the Class B Shares will continue to be subject to
annual 12b-1 Plan expenses of 1% of average daily net assets
representing such shares. See Automatic Conversion of Class
B Shares above. Investors are reminded that the Class A
Shares into which the Class B Shares will convert are subject
to ongoing annual 12b-1 Plan expenses of up to a maximum of
.30% of average daily net assets representing such shares.
In determining whether a CDSC is applicable to a
redemption, the calculation will be determined in a manner
that results in the lowest possible rate being charged.
Therefore, with respect to the Class B Shares of the relevant
Series, it will be assumed that the redemption is first for
shares held over six years or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares
held longest during the six-year period. The charge will not
be applied to dollar amounts representing an increase in the
net asset value since the time of purchase. All investments
made during a calendar month regardless of when during the
month the investment occurred, will age one month on the last
day of that month and each subsequent month.
The CDSC relating to the Class B Shares of the Series is
waived on redemptions of Class B Shares in connection with
redemptions effected pursuant to the Fund's right to
liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the
then-effective minimum account size.
12b-1 Distribution Plans - Class A and Class B Shares
Pursuant to the distribution plans adopted by the Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940, each Series is permitted to pay the Distributor annual
distribution fees payable monthly up to a maximum of .30% of
the average daily net assets of the relevant Class A Shares
and 1% of the average daily net assets of the relevant Class
B Shares in order to compensate the Distributor for providing
distribution and related services and bearing certain
expenses of each Class. The Class B Shares' 12b-1 Plan is
designed to permit an investor to purchase Class B Shares
through dealers or brokers without the assessment of a front-
end sales charge and at the same time permit the Distributor
to compensate dealers and brokers in connection with the sale
of the Class B Shares. In this regard, the purpose and
function of the 12b-1 Plan and the CDSC with respect to the
Class B Shares are the same as those of the front-end sales
charge and 12b-1 Plan with respect to the Class A Shares in
that the fees and charges provide for the financing of the
distribution of the respective Classes. For more detailed
discussion of the 12b-1 Plans relating to the Class A and
Class B Shares, see Distribution (12b-1) and Service.
<PAGE>
Other Payments to Dealers - Class A and Class B Shares
In addition, 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 promotion of Delaware Group fund
shares, the Distributor may, from time to time, pay to
participate in dealer-sponsored seminars and conferences,
reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may,
from time to time, pay or allow additional promotional
incentives to dealers, which shall include non-cash
concessions, such as trips to a luxury resort at an exotic
location or certain luxury merchandise, as part of
preapproved sales contests. In addition, as noted above, the
Distributor may pay dealers a commission in connection with
net asset value purchases.
Class B Funds
The following funds currently offer Class B Shares: DMC
Tax-Free Income Trust-Pennsylvania, Delaware Group Delchester
High-Yield Bond Fund, Inc., Delaware Group Government Fund,
Inc., Treasury Reserves Intermediate Series of Delaware Group
Treasury Reserves, Inc., Delaware Group Cash Reserve, Inc.,
Tax-Free USA Intermediate Fund of the Fund, Delaware Group
DelCap Fund, Inc., Delaware Fund and Dividend Growth Fund of
Delaware Group Delaware Fund, Inc., Delaware Group Trend
Fund, Inc., Delaware Group Value Fund, Inc., Decatur Income
Fund and Decatur Total Return Fund of Delaware Group Decatur
Fund, Inc., International Equity Series of Delaware Group
Global & International Funds, Inc. and the Series.
Dividend Orders
Some shareholders want the dividends earned in one fund
automatically invested in another Delaware Group fund with a
different investment objective. For more information on the
requirements of the other funds, see Dividend Reinvestment
Plan under The Delaware Difference or call the Shareholder
Service Center.
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by
exchange and by arrangement with your investment dealer.
Investing through Your Investment Dealer
You can make a purchase of shares of the Classes through
most investment dealers who, as part of the service they
provide, must transmit orders promptly. They may charge for
this service. If you want a dealer but do not have one, we
can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application must be
completed, signed and sent with a check payable to the
specific Class selected, to 1818 Market Street, Philadelphia,
PA 19103.
2. Subsequent Purchases--Additional purchases may be made
at any time by mailing a check payable to the specific Class
selected. Your check should be identified with your name(s)
and account number. An investment slip (similar to a deposit
slip) is provided at the bottom of transaction confirmations
and dividend statements that you will receive from the Fund,
and should be used when you are making additional purchases.
You can expedite processing by including an investment slip
with your check when making additional purchases. Your
investment may be delayed if you send additional purchases by
certified mail.
Investing by Wire
You may purchase shares by requesting your bank to
transmit funds by wire to CoreStates Bank, N.A., ABA
#031000011, account number 0114-2596 (include your name(s)
and your Series account number in the wire).
1. Initial Purchases--Before you invest, telephone the
Fund's Shareholder Service Center to get an account number.
If you do not call first, it may delay processing your
investment. In addition, you must promptly send your
Investment Application to the specific Class selected, to
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional
investments anytime by wiring funds to CoreStates Bank, N.A.,
as described above. You should advise the Fund's Shareholder
Service Center by telephone of each wire you send.
<PAGE>
Investing by Exchange
If you have an investment in another mutual fund in the
Delaware Group, you may write and authorize an exchange of
part or all of your investment into shares of a Series. If
you wish to open an account by exchange, call the Shareholder
Service Center for more information.
Exchanges will not be permitted between Class A Shares
and Class B Shares of the Series or between the Class A
Shares and Class B Shares of any other funds in the Delaware
Group. Class B Shares of any of the Class B Funds may be
exchanged for Class B Shares of the Series. Class B Shares
of the Series acquired by exchange will continue to carry the
contingent deferred sales charge and the automatic conversion
schedules of the fund from which the exchange is made. The
holding period of the Class B Shares of the Series will be
added to that of the exchanged shares for purposes of
determining the time of the automatic conversion into Class A
Shares of the relevant Series.
Permissible exchanges into the Classes of the Series
will be made without a front-end sales charge imposed by the
Series or, at the time of the exchange, a contingent deferred
sales charge imposed by the fund from which the exchange is
being made, except for exchanges into Class A Shares from
funds not subject to a front-end sales charge (unless such
shares were acquired in an exchange from a fund subject to
such a charge or such shares were acquired through the
reinvestment of dividends).
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information
if you wish to use the following services:
1. Direct Deposit
You may wish your employer or bank to make regular
investments directly to your account for you (for example:
payroll deduction, pay by phone, annuity payments). The
Series also accept preauthorized recurring government and
private payments by Electronic Fund Transfer, which avoids
mail time and check clearing holds on payments such as social
security, federal salaries, Railroad Retirement benefits,
etc.
2. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular
monthly investments without writing or mailing checks. You
may authorize the Fund to transfer a designated amount
monthly from your checking account to your Class account.
Shareholders should allow a reasonable amount of time for
initial purchases and changes to these plans to become
effective.
* * *
Should investments by these two methods be reclaimed or
returned for some reason, the Fund has the right to liquidate
your shares to reimburse the government or transmitting bank.
If there are insufficient funds in your Class account, you
are obligated to reimburse the Series.
Purchase Price and Effective Date
The offering price and net asset value of the Class A
and Class B Shares are determined as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m.,
Eastern time) on days when such exchange is open.
The effective date of a purchase made through an
investment dealer is the date the order is received by the
Series. The effective date of a direct purchase is the day
your wire, electronic transfer or check is received, unless
it is received after the time the offering price of shares is
determined, as noted above. Those received after such time
will be effective the next business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase or
exchange. If a purchase is canceled because your check is
returned unpaid, you are responsible for any loss incurred.
The Fund can redeem shares from your account(s) to reimburse
itself for any loss, and you may be restricted from making
future purchases in any of the funds in the Delaware Group.
The Fund reserves the right, upon 60 days' written notice, to
redeem accounts that remain under $1,000 as a result of
redemptions. An investor making the minimum initial
investment will be subject to involuntary redemption without
the imposition of a CDSC or Limited CDSC if he or she redeems
any portion of his or her account.
REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of
different ways. The exchange service is useful if your
investment requirements change and you want an easy way to
invest in other tax-advantaged funds, equity funds, bond
funds or money market funds. This service is also useful if
you are anticipating a major expenditure and want to move a
portion of your investment into a fund that has the
checkwriting feature. Exchanges are subject to the
requirements of each fund and all exchanges of shares from
one fund or class to another pursuant to this privilege
constitute taxable events. See Taxes. You may want to call
us for more information or consult your financial adviser or
investment dealer to discuss which funds in the Delaware
Group will best meet your changing objectives and the
consequence of any exchange transaction.
<PAGE>
Your shares will be redeemed or exchanged based on the
net asset value next determined after we receive your request
in good order, subject, in the case of a redemption, to any
applicable CDSC or Limited CDSC. Redemption or exchange
requests received in good order after the time the offering
price and net asset value of shares are determined, as noted
above, will be processed the next business day. See Purchase
Price and Effective Date under Buying Shares. Except as
otherwise noted below, for a redemption request to be in
"good order," you must provide your Class account number,
account registration, and the total number of shares or
dollar amount of the transaction. If a holder of Class B
Shares submits a redemption request for a specific dollar
amount, the Fund will redeem that number of shares necessary
to deduct the applicable CDSC and tender to the shareholder
the requested amount to the extent enough shares are then
held in the shareholder account. With regard to exchanges,
you must also provide the name of the fund you want to
receive the proceeds. Exchange instructions and redemption
requests must be signed by the record owner(s) exactly as the
shares are registered. You may request a redemption or an
exchange by calling the Fund at 800-523-1918 (in
Philadelphia, 988-1241). The Fund reserves the right to
reject exchange requests at any time. The Series may suspend
or terminate, or amend the terms of, the exchange privilege
upon 60 days' written notice to shareholders.
The Fund will honor written redemption requests of
shareholders who recently purchased shares by check, but will
not mail the proceeds until it is reasonably satisfied the
purchase check has cleared, which may take up to 15 days from
the purchase date. The Fund will not honor telephone
redemptions for Class shares recently purchased by check
unless it is reasonably satisfied that the purchase check has
cleared. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. The Fund reserves the right
to reject a written or telephone redemption request or delay
payment of redemption proceeds if there has been a recent
change to the shareholder's address of record.
Class A Shares may be exchanged for certain of the
shares of the other funds in the Delaware Group, including
other Class A Shares, subject to the eligibility and minimum
purchase requirements set forth in each fund's prospectus.
All Delaware Group funds offer Class A Shares. Class A
Shares may not be exchanged for Class B Shares of the funds
offering such shares. Class B Shares of the Series may be
exchanged only for the Class B Shares of any of the Class B
Funds. See Exchange Privilege under The Delaware Difference.
In each instance, permissible exchanges are subject to the
minimum purchase and other requirements set forth in each
prospectus.
Permissible exchanges may be made at net asset value,
provided: (1) the investment satisfies the eligibility and
minimum purchase requirements set forth in the prospectus of
the fund being acquired; and (2) the shares of the fund being
acquired are in a state where that fund is registered.
There is no front-end sales charge or fee for exchanges
made between shares of funds which both carry a front-end
sales charge. Any applicable front-end sales charge will
apply to exchanges from shares of funds not subject to a
front-end sales charge, except for transfers involving assets
that were previously invested in a fund with a front-end
sales charge and/or transfers involving the reinvestment of
dividends.
Holders of the Class B Shares that exchange their shares
("outstanding Class B Shares") for the Class B Shares of
other Class B Funds ("new Class B Shares"), will not be
subject to a CDSC that might otherwise be due upon redemption
of the outstanding Class B Shares. However, such
shareholders will continue to be subject to the CDSC and
automatic conversion schedules of the outstanding Class B
Shares described in this Prospectus, as relevant, and any
CDSC assessed upon redemption will be charged by the relevant
Series. The Series' CDSC schedule may be higher than the
CDSC schedule relating to the new Class B Shares acquired as
a result of the exchange. For purposes of computing the CDSC
that may be payable upon a disposition of the new Class B
Shares, the holding period for the outstanding Class B Shares
is added to the holding period of the new Class B Shares.
The automatic conversion schedule of the outstanding Class B
Shares may be longer than that of the new Class B Shares.
Consequently, an investment in new Class B Shares by exchange
may subject an investor to the higher 12b-1 fees applicable
to Class B Shares for a longer time than if the investment in
new Class B Shares was made directly.
Different redemption and exchange methods are outlined
below. Except for the CDSC with respect to the redemption of
Class B Shares and the Limited CDSC with respect to certain
redemptions of Class A Shares purchased at net asset value,
there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be
charged in the future. You may also have your investment
dealer arrange to have your shares redeemed or exchanged.
Your investment dealer may charge for this service.
All authorizations given by shareholders with respect to
an account, including selection of any of the features
described below, shall continue in effect until revoked or
modified in writing and until such time as such written
revocation or modification has been received by the Fund or
its agent.
<PAGE>
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.
Written Redemption
You can write to the Fund at 1818 Market Street,
Philadelphia, PA 19103 to redeem some or all of your Class A
or Class B Shares. The request must be signed by all owners
of the account or your investment dealer of record. For
redemptions of more than $50,000, or when the proceeds are
not sent to the shareholder(s) at the address of record, the
Fund requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee
must be supplied by an eligible guarantor institution. The
Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its
creditworthiness. The Fund may require further documentation
from corporations, executors, retirement plans,
administrators, trustees or guardians.
The redemption request is effective at the net asset
value next determined after it is received in good order.
Class B Shares may be subject to a CDSC and the Class A
Shares may be subject to a Limited CDSC with respect to
certain shares purchased at net asst value. Payment is
normally mailed the next business day, but no later than
seven days, after receipt of your request. If your Class A
Shares are in certificate form, the certificate must
accompany your request and also be in good order. The Fund
only issues certificates for Class A Shares if a shareholder
submits a specific request. The Fund does not issue
certificates for Class B Shares.
Written Exchange
You can also write to the Fund (at 1818 Market Street,
Philadelphia, PA 19103) to request an exchange of any or all
of your Class A or Class B Shares into another mutual fund in
the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption
and exchange methods, you must have the Transfer Agent hold
your shares (without charge) for you. If you choose to have
your Class A Shares in certificate form, you can only redeem
or exchange by written request and you must return your
certificates.
The Telephone Redemption service enabling you to have
redemption proceeds mailed to your address of record and the
Telephone Exchange service, both of which are described
below, are automatically provided unless the Fund receives
written notice from the shareholder to the contrary. The
Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It
may be difficult to reach the Fund by telephone during
periods when market or economic conditions lead to an
unusually large volume of telephone requests.
Neither the Fund nor 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. Instructions
received by telephone are generally tape recorded, and a
written confirmation will be provided for all purchase,
exchange and redemption transactions initiated by telephone.
By exchanging shares by telephone, the shareholder is
acknowledging prior receipt of a prospectus for the fund into
which shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy
method to redeem shares. You or your investment dealer of
record can have redemption proceeds of $50,000 or less mailed
to you at your record address. Checks will be payable to the
shareholder(s) of record. Payment is normally mailed the
next business day, but no more than seven days, after receipt
of the request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check. You
should authorize this service when you open your account. If
you change your predesignated bank account, the Fund requires
an Authorization Form with your signature guaranteed. For
your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next
business day. CoreStates Bank, N.A.'s fee (currently $7.50)
will be deducted from your redemption. If you ask for a
check, it will normally be mailed the next business day, but
no later than seven days, after receipt of your request to
your predesignated bank account. Except for any CDSC which
may be applicable to the Class B Shares and Limited CDSC
which may be applicable to purchases made at net asset value
with respect to the Class A Shares, there are no fees for
this method, but the mail time may delay getting funds into
your bank account. Simply call the Fund's Shareholder
Service Center prior to the time the offering price and net
asset value are determined, as noted above.
<PAGE>
Telephone Exchange
The Telephone Exchange is a convenient and efficient way
to adjust your investment holdings as your liquidity
requirements and investment objectives change. You or your
investment dealer of record can exchange your Class A or
Class B Shares into other funds in the Delaware Group under
the same registration, subject to the same conditions and
limitations as other exchanges noted above. As with the
written exchange service, telephone exchanges are subject to
the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or
frequency.
Systematic Withdrawal Plan for Class A Shares
This plan provides holders of Class A Shares with a
consistent monthly (or quarterly) payment. This is
particularly useful to shareholders living on fixed incomes,
since it can provide them with a stable supplemental amount.
With accounts of at least $5,000, you may elect monthly
withdrawals of $25 (quarterly $75) or more. The Fund does
not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are
normally made by check. In the alternative, you may elect to
have your payments transferred from your Series account to
your predesignated bank account through the Delaware Group's
MoneyLine service. Your funds will normally be credited to
your bank account after two business days. Except with
respect to the Limited CDSC which may be applicable to Class
A Shares as noted below, there are no fees for this method.
You can initiate this service by completing an Authorization
Agreement. If the name and address on your bank account are
not identical to the name and address on your Series account,
you must have your signature guaranteed. Please call the
Shareholder Service Center for additional information.
* * *
Shareholders should not purchase Series shares while
participating in a Systematic Withdrawal Plan. Also,
redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the
original purchase was made within the 12 months prior to the
withdrawal at net asset value and a dealer's commission has
been paid on that purchase. See Contingent Deferred Sales
Charge for Certain Purchases of Class A Shares Made at Net
Asset Value. For more information please call the
Shareholder Service Center.
The Systematic Withdrawal Plan is not available with
respect to the Class B Shares.
Wealth Builder Option
Shareholders may elect to invest in other mutual funds
in the Delaware Group through our Wealth Builder Option.
Under this automatic exchange program, shareholders can
authorize regular monthly amounts (minimum of $100 per fund)
to be liquidated from their Series account and invested
automatically into one or more funds in the Delaware Group.
Investments under this option are exchanges and are therefore
subject to the same conditions and limitations as other
exchanges of Class A and Class B Shares noted above.
Shareholders can also use the Wealth Builder Option to
invest in the Series through regular liquidations of shares
in their accounts in other funds in the Delaware Group,
subject to the same conditions and limitations as other
exchanges noted above. Shareholders can terminate their
participation at any time by written notice to the Fund. See
Redemption and Exchange.
Contingent Deferred Sales Charge for Certain Purchases of
Class A Shares Made at Net Asset Value
For purchases of Class A Shares, a Limited CDSC will be
imposed by the Series upon certain redemptions of Class A
Shares (or shares into which such Class A Shares are
exchanged) made within 12 months of purchase, if such
purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission
described above. See Buying Shares.
The Limited CDSC will be paid to the Distributor and
will be equal to the lesser of 1% of (1) the net asset value
at the time of purchase of the Class A Shares being redeemed
or (2) the net asset value of such Class A Shares at the time
of redemption. For purposes of this formula, the "net asset
value at the time of purchase" will be the net asset value at
purchase of the Class A Shares even if those shares are later
exchanged for shares of another Delaware Group fund and, in
the event of an exchange of Class A Shares, the "net asset
value of such shares at the time of redemption" will be the
net asset value of the shares into which Class A Shares have
been exchanged.
Redemptions of such Class A Shares held for more than 12
months will not be subjected to the Limited CDSC and an
exchange of such Class A Shares into another Delaware Group
fund will not trigger the imposition of the Limited CDSC at
the time of such exchange. The period a shareholder owns
shares into which Class A Shares are exchanged will count
towards satisfying the 12-month holding period. The Fund
assesses the Limited CDSC if such 12-month period is not
satisfied irrespective of whether the redemption triggering
its payment is of Class A Shares of the Series or the Class A
Shares into which Class A Shares have been exchanged.
<PAGE>
In determining whether a Limited CDSC is payable, it
will be assumed that shares not subject to the Limited CDSC
are the first redeemed followed by other shares held for the
longest period of time. The Limited CDSC will not be imposed
upon shares representing reinvested dividends or upon amounts
representing share appreciation. All investments made during
a calendar month, regardless of when during the month the
investment occurred, will age one month on the last day of
that month and each subsequent month.
The Limited CDSC will be waived in the following
instances: (i) redemptions effected pursuant to the Fund's
right to liquidate a shareholder's account if the aggregate
net asset value of the shares held in the account is less
than the then-effective minimum account size; and (ii)
redemptions by the classes of shareholders who are permitted
to purchase shares at net asset value, regardless of the size
of the purchase (see Buying at Net Asset Value).
DIVIDENDS AND DISTRIBUTIONS
The Fund declares a dividend on each Series to all
shareholders of record of the Classes of that Series at the
time the offering price of shares is determined. See
Purchase Price and Effective Date under Buying Shares. Thus,
when redeeming shares, dividends continue to be credited up
to and including the date of redemption.
Purchases of shares of each of the Classes by wire begin
earning dividends when converted into Federal Funds and
available for investment, normally the next business day
after receipt. However, if the Fund is given prior notice of
Federal Funds wire and an acceptable written guarantee of
timely receipt from an investor satisfying the Fund's credit
policies, the purchase will start earning dividends on the
date the wire is received. Purchases by check earn dividends
upon conversion to Federal Funds, normally one business day
after receipt.
Each of the two Classes of each Series will share
proportionately in the investment income and expenses of that
Series, except that the per share dividends and distributions
on the Class B Shares of each Series will be lower than the
per share dividends and distributions on the Class A Shares
of that Series as a result of the higher expenses under the
12b-1 Plans relating to the Class B Shares of that Series.
See Distribution (12b-1) and Service under Management of the
Fund.
Dividends are declared daily and paid monthly on the
first business day following the end of each month. Payment
by check of cash dividends will ordinarily be mailed within
three business days after the payable date. Any
distributions from net realized securities profits will be
distributed annually in the quarter following the close of
the fiscal year.
Both dividends and distributions, if any, are
automatically reinvested in your account at net asset value
unless you elect otherwise. Any check in payment of
dividends or other distributions which cannot be delivered by
the 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. If you elect to
take your dividends and distributions in cash and such
dividends and distributions are in an amount of $25 or more,
you may elect the Delaware Group's MoneyLine service to
enable such payments to be transferred from your Series
account to your predesignated bank account. Your funds will
normally be credited to your bank account two business days
after the payment date. There are no fees for this method.
See Systematic Withdrawal Plan for Class A Shares under
Redemption and Exchange for information regarding
authorization of this service. (See The Delaware Difference
for more information on reinvestment options.)
The Fund anticipates that substantially all of its
dividends from net investment income paid to shareholders
will be exempt from federal income tax. During the fiscal
year ended August 31, 1994, dividends totaling $0.751 and
$0.214 per share of the Class A Shares and the Class B
Shares, respectively, of the USA Fund, and $0.622 and $0.179
per share of the Class A Shares and the Class B Shares,
respectively, of the Insured Fund were paid from net
investment income, all of which were exempt from federal
income tax. The Class B Shares commenced operations on May
2, 1994. During the same period, distributions totaling
$0.034 per share of the Class A Shares of the USA Fund and
$0.100 per share of the Class A Shares of the Insured Fund
were paid from realized securities profits.
<PAGE>
TAXES
Each Series has qualified, and intends to continue to
qualify, as a regulated investment company under Subchapter M
of the Internal Revenue Code (the "Code"). As such, each
Series will not be subject to federal income tax, or to any
excise tax, to the extent its earnings are distributed as
provided in the Code. Each Series intends to distribute
substantially all of the its net investment income and net
capital gains.
Each Series intends to invest a sufficient portion of
its assets in municipal bonds and notes so that it will
qualify to pay "exempt-interest dividends" to shareholders.
Such exempt-interest dividends distributed to shareholders
are excluded from a shareholder's gross income for federal
tax purposes.
A portion of each Series' dividends may be derived from
income on "private activity" municipal bonds and therefore
may be a preference item under federal tax law and subject to
the federal alternative minimum tax. No portion of a Series'
distributions will be eligible for the dividends-received
deduction for corporations.
To the extent dividends are derived from taxable income
on temporary investments or short-term capital gains, they
are treated as ordinary income, whether received in cash or
in additional shares. In addition, gain from the disposition
of a tax-exempt bond that was acquired after April 30, 1993
for a price less than the principal amount of the bond is
taxable to shareholders as ordinary income to the extent of
the accrued market discount.
Distributions paid by a Series from long-term capital
gains, whether received in cash or in additional shares, are
taxable to those investors who are subject to income taxes as
long-term capital gains, regardless of the length of time an
investor has owned shares in the Series. The Series do not
seek to realize any particular amount of capital gains during
a year; rather, realized gains are a byproduct of a Series'
management activities. Consequently, capital gains
distributions may be expected to vary considerably from year
to year. Also, for those investors subject to tax, if
purchases of shares in a Series are made shortly before the
record date for a capital gains distribution, a portion of
the investment will be returned as a taxable distribution.
Dividends which are declared in October, November or
December but which, for operational reasons, may not be paid
to the shareholder until the following January, will be
treated for tax purposes as if paid by a Series and received
by the shareholder on December 31 of the calendar year in
which they are declared.
The sale of shares of a Series is a taxable event and
may result in a capital gain or loss to shareholders subject
to tax. Capital gain or loss may be realized from an
ordinary redemption of shares or an exchange of shares
between two mutual funds (or two series or portfolios or
series of a mutual fund). Any loss incurred on sale or
exchange of a Series' shares which had been held for six
months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect
to such shares and will be disallowed to the extent of
exempt-interest dividends paid with respect to such shares.
All or a portion of the sales charge incurred in purchasing
Series shares will be excluded from the federal tax basis of
any of such shares sold or exchanged within ninety (90) days
of their purchase (for purposes of determining gain or loss
upon sale of such shares) if the sale proceeds are reinvested
in the Series or in another fund in the Delaware Group of
funds and a sales charge that would otherwise apply to the
reinvestment is reduced or eliminated. Any portion of such
sales charge excluded from the tax basis of the shares sold
will be added to the tax basis of the shares acquired in the
reinvestment.
Exempt-interest dividends paid by the Fund, although
exempt from regular federal income tax in the hands of a
shareholder, are includable in the tax base for determining
the extent to which a shareholder's Social Security benefits
would be subject to federal income tax. Shareholders are
required to disclose their receipt of tax-exempt interest on
their federal income tax returns.
The automatic conversion of Class B Shares into Class A
Shares of the relevant Series at the end of no more than
approximately eight years after purchase will constitute a
tax-free exchange for federal tax purposes. Shareholders
should consult their own tax advisers regarding specific
questions as to federal, state, local or foreign taxes. See
Automatic Conversion of Class B Shares under Buying Shares.
The exemption of dividends for regular 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.
Shares of each Series will be exempt from Pennsylvania
county personal property taxes. The Fund will report
annually the percentage of interest income earned on the
municipal obligations on a state-by-state basis during the
proceeding calendar year.
Each year, the Fund will mail you information on the tax
status of each Series' dividends and distributions.
<PAGE>
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions paid
to shareholders who have not complied with IRS taxpayer
identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form
your proper Taxpayer Identification Number and by certifying
that you are not subject to backup withholding.
The tax discussion set forth above is included for
general information only. Prospective investors should
consult their own tax advisers concerning the federal, state,
local or foreign tax consequences of an investment in the
Series.
See Taxes in Part B for additional information on tax
matters relating to the Series and its shareholders.
CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
Class A Shares are purchased at the offering price and
Class B Shares are purchased at the net asset value ("NAV").
The offering price of the Class A Shares consists of the NAV
per share next determined after the order is received, plus
any applicable front-end sales charges. The offering price
and NAV are computed as of the close of regular trading on
the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when such exchange is open.
The NAV per share for each Series is computed by adding
the value of all securities and other assets in that Series'
portfolio, deducting any liabilities of that Series (expenses
and fees are accrued daily) and dividing by the number of
that Series' shares outstanding. Debt securities are priced
at fair value by an independent pricing service using methods
approved by the Board of Directors. Short-term investments
having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. All other
securities are valued at their fair value as determined in
good faith and in a method approved by the Fund's Board of
Directors.
Each of a Series' two classes will bear, pro-rata, all
of the common expenses of the Series. The net asset values
of all outstanding shares of each class of the Series will be
computed on a pro-rata basis for each outstanding share based
on the proportionate participation in the 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 that Series represented by the value of
shares of such classes, except that shares of the Classes
will bear only those 12b-1 Plan expenses payable under their
respective Plans. Due to the specific distribution expenses
and other costs that would be allocable to each class, the
dividends paid to each class of a particular Series may vary.
However, the NAV per share of each class of a particular
Series is expected to be equivalent.
MANAGEMENT OF THE FUND
Directors
The business and affairs of the Fund are managed under
the direction of its Board of Directors. Part B contains
additional information regarding the directors and officers.
Investment Manager
The Manager furnishes investment management services to
the Fund.
The Manager and its predecessors have been managing the
funds in the Delaware Group since 1938. On August 31, 1994,
the Manager and its affiliate, Delaware International
Advisers Ltd., were supervising in the aggregate more than
$26 billion in assets in the various institutional
(approximately $17,014,931,000) and investment company
(approximately $9,737,874,000) accounts.
The Manager is an indirect, wholly-owned subsidiary 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 the Manager.
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 common stock and thereby
control the Manager.
<PAGE>
The Manager manages each Series' portfolio and makes and
implements investment decisions. The Manager also pays the
Fund's rent and the salaries of all the directors, officers
and employees of the Fund who are affiliated with the
Manager. For these services, the annual compensation paid to
the Manager is equal to: for the USA Fund, .60% on the first
$500 million of average daily net assets, .575% on the next
$250 million and .55% on the average daily net assets in
excess of $750 million; and for the Insured Fund, .60% of the
average daily net assets of the Series, less a proportionate
share of all directors' fees paid to the unaffiliated
directors by each Series of the Fund. The investment
management fee paid by each Series for the fiscal year ended
August 31, 1994 was 0.59% of its average daily net assets.
Patrick P. Coyne has assumed primary responsibility for
making day-to-day investment decisions for each Series as of
July 1, 1994. A graduate of Harvard University with an MBA
from the University of Pennsylvania's Wharton School, Mr.
Coyne joined the Delaware Group's fixed income department in
1990. Prior to that, he was a manager of Kidder, Peabody &
Co. Inc.'s trading desk, and specialized in trading high
grade municipal bonds and municipal futures contracts. Mr.
Coyne is a member of the Municipal Bond Club of Philadelphia.
In making investment decisions for the Series, Mr. Coyne
consults with Paul E. Suckow, J. Michael Pokorny and other
members of the Delaware Group's fixed income department. Mr.
Suckow is the Chief Investment Officer for fixed income. A
Chartered Financial Analyst, he is a graduate of Bradley
University with an MBA from Western Illinois University. Mr.
Suckow was a fixed income portfolio manager at the Delaware
Group from 1981 to 1985. He returned to the Delaware Group
in 1993 after eight years with Oppenheimer Management
Corporation. Mr. Pokorny is a graduate of William and Mary
College with over 29 years of fixed income experience. He
joined the Delaware Group in 1978.
Portfolio Trading Practices
The Series may sell securities without regard to the
length of time they have been held. Trading will be
undertaken principally to achieve the Series' objectives in
light of expected changes in interest rates. The degree of
trading activity will affect brokerage costs of the Series
and may affect taxes payable by the Series' shareholders.
Given the Series' investment objectives, annual portfolio
turnover rates are not expected to exceed 100% for each
Series. During the past two fiscal years, portfolio turnover
rates for the USA Fund were 12% for 1993 and 10% for 1994 and
for the Insured Fund were 8% for 1993 and 56% for 1994.
The Manager uses its best efforts to obtain the best
available price and most favorable execution for portfolio
transactions. Orders may be placed with brokers or dealers
who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the
Manager in servicing any of its accounts. Subject to best
price and execution, the Manager may consider a
broker/dealer's sales of Series shares in placing portfolio
orders, and may place orders with broker/dealers that have
agreed to defray certain Series expenses such as custodian
fees.
Performance Information
From time to time, the Fund may quote yield or total
return performance of the Classes in advertising and other
types of literature. The current yield for each of the
Classes will be calculated by dividing the annualized net
investment income earned by that Class during a recent 30-day
period by the maximum offering price per share on the last
day of the period. The yield formula provides for semi-
annual compounding which assumes that net investment income
is earned and reinvested at a constant rate and annualized at
the end of a six-month period. Total return will be based on
a hypothetical $1,000 investment, reflecting the reinvestment
of all distributions at net asset value and (i) in the case
of Class A Shares, the impact of the maximum front-end sales
charge at the beginning of each specified period and (ii) in
the case of Class B Shares, the deduction of any applicable
CDSC at the end of the relevant period. Each presentation
will include the average annual total return for one-, five-
and ten-year periods, as relevant. The Fund may, in
addition, advertise aggregate and average total return
information over additional periods of time. In addition,
the Fund may present total return information that does not
reflect the deduction of the maximum front-end sales charge
or any applicable CDSC. The Fund may also publish a tax-
equivalent yield concerning a Class based on federal and, if
applicable, state tax rates, which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to
such Class' yield.
Yield and net asset value fluctuate and are not
guaranteed. Past performance is not an indication of future
results.
<PAGE>
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, Inc., serves as
the national distributor for each Series under separate
Amended and Restated Distribution Agreements dated as of May
2, 1994.
The Fund has adopted a distribution plan under Rule 12b-
1 for the Class A Shares of each Series and a separate
distribution plan under Rule 12b-1 for the Class B Shares of
each Series (the "Plans") which permits the Fund to pay the
Distributor from the assets of the respective Class a monthly
fee for its services and expenses in distributing and
promoting sales of shares. These expenses include, among
other things, preparing and distributing advertisements,
sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding
special promotions for specified periods of time, and paying
distribution and maintenance fees to brokers, dealers and
others. In connection with the promotion of Class A and
Class B Shares, the Distributor may, from time to time, pay
to participate in dealer-sponsored seminars and conferences,
and reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising. The
Distributor may pay or allow additional promotional
incentives to dealers as part of preapproved sales contests
and/or to dealers who provide extra training and information
concerning each Class and increase sales of each Class. In
addition, the Fund may make payments from the assets of the
respective Class directly to others, such as banks, who aid
in the distribution of its shares or provide services in
respect of the shares, pursuant to service agreements with
the Fund.
The 12b-1 Plan expenses relating to the Class B Shares
of a Series are also used to pay the Distributor for
advancing the commission costs to dealers with respect to the
initial sale of such shares.
The aggregate fees paid by a Series from the assets of
the respective Class to the Distributor and others under the
Plans may not exceed (i) .30% of the Class A Shares' average
daily net assets in any year; and (ii) 1% (.25% of which are
service fees to be paid to the Distributor, dealers and
others for providing personal service and/or maintaining
shareholder accounts) of the Class B Shares' average daily
net assets in any year. The Class A and Class B Shares will
not incur any distribution expenses beyond these limits,
which may not be increased without shareholder approval. The
Distributor may, however, incur additional expenses and make
additional payments to dealers from its own resources to
promote the distribution of shares of the Classes.
Effective June 1, 1992, the Board of Directors has
determined that the annual fee payable on a monthly basis,
under the Plans for 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 Class A Shares' 12b-1 expense,
such expense is a Class A Shares' expense so that all
shareholders of the Class A Shares, regardless of when they
purchased their shares, will bear 12b-1 expenses at the same
per share rate. As Class A Shares are sold on or after June
1, 1992, the initial rate of at least .10% will increase over
time. Thus, as the proportion of Class A Shares purchased on
or after June 1, 1992 to Class A Shares outstanding prior to
June 1, 1992 increases, the expenses attributable to payments
under such Plans will also increase (but will not exceed .30%
of average daily net assets). While this describes the
current formula for calculating the expenses which will be
payable under the Plans relating to the Class A Shares, such
Plans permit the Class A Shares of each Series to pay a full
.30% on all assets at any time following Board approval.
While payments pursuant to the Plans may not exceed .30%
annually with respect to the Class A Shares and 1% annually
with respect to the Class B Shares, the Plans do not limit
fees to amounts actually expended by the Distributor. It is
therefore possible that the Distributor may realize a profit
in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or
exceed payments to it under the Plans. The monthly fees paid
to the Distributor are subject to the review and approval of
the Fund's unaffiliated directors who may reduce the fees or
terminate the Plans at any time.
The staff of the Securities and Exchange Commission
("SEC") has proposed amendments to Rule 12b-1 and other
related regulations that could impact Rule 12b-1 Distribution
Plans. The Fund intends to amend the Plans, if necessary, to
comply with any new rules or regulations the SEC may adopt
with respect to Rule 12b-1.
The Transfer Agent, Delaware Service Company, Inc.,
serves as the shareholder servicing, dividend disbursing and
transfer agent for the Series under Agreements with each
Series dated June 29, 1988. The unaffiliated directors
review service fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also
indirect, wholly-owned subsidiaries of DMH.
<PAGE>
Expenses
Each Series is responsible for all of its own expenses
other than those borne by the Manager under its Investment
Management Agreement and those borne by the Distributor under
its Amended and Restated Distribution Agreement. The ratio
of expenses to average daily net assets for the Class A
Shares of the USA Fund for the fiscal year ended August 31,
1994 was 0.89%. The ratio of expenses to average daily net
assets for the Class A Shares of the Insured Fund for the
fiscal year ended August 31, 1994 was 0.98%. The expense
ratio for each of the Class A Shares reflects the impact of
the respective 12b-1 Plan. The ratio of expenses to average
daily net assets of the Class B Shares of the USA Fund and
the Class B Shares of the Insured Fund are expected to be
1.74% and 1.83%, respectively, based on the expenses incurred
by the respective Class A Shares during the fiscal year ended
August 31, 1994.
Shares
The Fund is an open-end management investment company
and each Series' portfolio of assets is nondiversified.
Commonly known as a mutual fund, the Fund was organized as a
Maryland corporation on August 17, 1983. The Fund currently
offers two classes of shares for each of its Series--Tax-Free
USA Fund, Tax-Free Insured Fund and Tax-Free USA Intermediate
Fund (shares of which are offered through a separate
prospectus). The shares of each Series have a par value of
$.01, equal voting rights, except as noted below, and are
equal in all other respects. Each Series will vote
separately on any matter which affects only that Series.
Shares of each Series have a priority over shares of any
other series of the Fund in the assets and income of that
Series.
Shares of each of the Classes within a Series represent
proportionate interests in the assets of that Series and have
the same voting and other rights and preferences, except that
the shareholders 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 shareholders of the Class B
Shares may not vote on matters affecting a Series' Plan under
Rule 12b-1 relating to the Class A Shares.
All Fund shares have noncumulative voting rights which
means that the holders of more than 50% of the Fund's shares
voting for the election of directors can elect 100% of the
directors if they choose to do so. Under Maryland law, the
Fund is not required, and does not intend, to hold annual
meetings of shareholders unless, under certain circumstances,
it is required to do so under the Investment Company Act of
1940. Shareholders of 10% or more of the Fund's shares may
request that a special meeting be called to consider the
removal of a director.
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.
<PAGE>
APPENDIX A--RATINGS
Bonds
Excerpts from Moody's description of its bond ratings:
Aaa--judged to be the best quality. They carry the smallest
degree of investment risk; Aa--judged to be of high quality
by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered
as medium grade obligations. Interest payments and principal
security appear adequate for the present but certain
protective elements may be lacking or may be
characteristically unreliable over any great length of time;
Ba--judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of
interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds
in this class; B--generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the
contract over any long period of time may be small; Caa--are
of poor standing. Such issues may be in default or there may
be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in
a high degree. Such issues are often in default or have
other marked shortcomings; C--the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings:
AAA--highest grade obligations. They possess the ultimate
degree of protection as to principal and interest; AA--also
qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--
strong ability to pay interest and repay principal although
more susceptible to changes in circumstances; BBB--regarded
as having an adequate capacity to pay interest and repay
principal; BB, B, CCC, CC--regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in
default, and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
----------------------------------
TAX-FREE USA FUND
A CLASS
B CLASS
----------------------------------
TAX-FREE INSURED FUND
A CLASS
B CLASS
----------------------------------
----------------------------------
P R O S P E C T U S
----------------------------------
OCTOBER 31, 1994
DELAWARE
GROUP
--------
Shares of each Series are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency. Shares are not deposits,
obligations of, guaranteed or endorsed by any bank.
Shares of the Series are not NCUSIF insured, are not
guaranteed by the credit union, are not obligations of the
credit union, and involve investment risk, including the
possible loss of principal. Shares of the Series are not
credit union deposits.
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. (Photo of
One Commerce Square George
Philadelphia, PA 19103 Washington
NATIONAL DISTRIBUTOR crossing the
Delaware Distributors, Inc. Delaware River)
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
Supplement Dated April 15, 1995
to the Current Prospectuses
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 Delchester High-Yield Bond Fund, Inc.,
Delaware Group Government Fund, Inc., Delaware Group Tax-
Free Fund, Inc., Delaware Group Treasury Reserves, Inc.,
Delaware Group Tax-Free Money, Inc., Delaware Group Cash
Reserve, Inc.
On March 29, 1995, shareholders of each of the above
referenced Funds or, as relevant, the series thereof, approved a
new Investment Management Agreement with Delaware Management
Company, Inc. ("DMC"), an indirect wholly-owned subsidiary of
Delaware Management Holdings, Inc. ("DMH"). The approval of new
Investment Management Agreements was subject to the completion of
the merger (the "Merger") between DMH and a wholly-owned
subsidiary of Lincoln National Corporation ("Lincoln National")
which occurred on April 3, 1995. Accordingly, the previous
Investment Management Agreements terminated and the new
Investment Management Agreements became effective on that date.
As a result of the Merger, DMC and its two affiliates,
Delaware Service Company, Inc., the Funds' shareholder servicing,
dividend disbursing and transfer agent and Delaware Distributors,
L.P., the Funds' national distributor became indirect wholly-
owned subsidiaries of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial
services industry, including insurance and investment management.
Under the new Investment Management Agreements, DMC will be
paid at the same annual fee rates and on the same terms as it was
under the previous Investment Management Agreements. In
addition, the investment approach and operation of each Fund and,
as relevant, each series of a Fund, will remain substantially
unchanged.
