<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>
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
TAX-FREE PENNSYLVANIA FUND
(May 2, 1994)
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA INTERMEDIATE FUND
(October 31, 1994)
Supplement To Prospectuses
Dated As Noted Above
The following supplements the information appearing in the
section "Buying at Net Asset Value" under "Buying Shares":
Beginning December 1, 1994, Class A Shares may be purchased at
net asset value within 90 days after a redemption of shares from
a fund outside the Delaware Group of Funds provided that 1) the
redeemed shares were purchased no more than five years before the
proposed purchase of Delaware Group Tax-Free Pennsylvania Fund
Class A Shares or Tax-Free USA Intermediate Fund Class A Shares
and 2) a front-end sales charge was paid in connection with the
purchase of the redeemed shares or a contingent deferred sales
charge was paid upon their redemption.
<PAGE>
-------------------------------------------------------------
PROSPECTUS
OCTOBER 31, 1994
-------------------------------------------------------------
TAX-FREE USA INTERMEDIATE FUND
A CLASS SHARES
B CLASS SHARES
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1818 Market Street
Philadelphia, PA 19103
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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
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TABLE OF CONTENTS
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Cover Page 1
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Synopsis 2
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Summary of Expenses 4
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Financial Highlights 6
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Investment Objective and Policies
Suitability 8
Investment Strategy 8
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The Delaware Difference
Plans and Services 15
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Buying Shares 16
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Redemption and Exchange 22
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Dividends and Distributions 26
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Taxes 27
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Calculation of Offering Price and
Net Asset Value Per Share 28
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Management of the Fund 28
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Delaware Group Tax-Free Fund, Inc. (the "Fund"),
established as a Maryland corporation in 1983, is a
professionally-managed nondiversified, open-end management
investment company of the series type. This Prospectus
describes the Tax-Free USA Intermediate Fund A Class ("Class
A Shares") and the Tax-Free USA Intermediate Fund B Class
("Class B Shares") (such classes, collectively the "Classes")
of the Fund's Tax-Free USA Intermediate Fund series (the
"Series"). The objective of the Series is to seek a high
level of current interest income exempt from federal tax,
consistent with the preservation of capital.
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 3.00% 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 three years of purchase and 12b-1
Plan expenses which are higher than those to which Class A
Shares are subject and, except in the case of certain
purchases of shares acquired by exchange, are assessed
against the Class B Shares for no longer than approximately
five 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 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 for Class
B Shares. See Buying Shares.
This Prospectus relates only to the Classes and 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 its Annual Report, which will
accompany any response to requests for Part B.
The Fund also offers the Tax-Free USA Fund and the Tax-
Free Insured Fund, each of which offers two classes of
shares. The two classes of shares of the Tax-Free USA Fund
are the Tax-Free USA Fund A Class and the Tax-Free USA Fund B
Class. The two classes of shares of the Tax-Free Insured
Fund are the Tax-Free Insured Fund A Class and the Tax-Free
Insured Fund B Class. A prospectus for the Tax-Free USA
Fundand the Tax-Free Insured 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, with one hundred million shares allocated to the
Series. The Series offers the Class A Shares and the Class B
Shares. Fifty million shares have been allocated to each of
the Classes. 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 includes a maximum
front-end sales charge of 3.00% of the offering price, which
is equivalent to 3.10% 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 Class B Shares is equal to the net asset
value per share. Class B Shares are subject to a CDSC of:
(i) 2% if shares are redeemed within two years of purchase;
and (ii) 1% if shares are redeemed during the third year
following purchase. Class B Shares are also subject to
annual 12b-1 Plan expenses for no longer than approximately
five 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 the Series is to seek a high level of
current interest income exempt from federal income tax,
consistent with preservation of capital. The Series seeks to
achieve its objective by investing primarily in municipal
bonds. The portfolio will have a dollar weighted average
maturity of between three and ten 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 the
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.
Special Considerations
Prospective investors should consider a number of
factors:
1. The Series may invest in repurchase agreements
(which involve risks of loss if a seller defaults on its
obligation under the agreement). See Repurchase Agreements
under Investment Strategy.
2. The Series may lend portfolio securities to
creditworthy institutions; the principal risk to the Series
is the risk that the borrower fails to return the borrowed
security. The Series will require borrowers to deliver
collateral to the Series before lending securities. See
Portfolio Loan Transactions under Investment Strategy.
3. The Series has the right to engage in options and
futures transactions for hedging purposes, to counterbalance
portfolio volatility and, in connection with futures
transactions, will maintain certain collateral in special
accounts established by futures commission merchants in the
care of the Morgan Guaranty Trust Company of New York (the
"Custodian Bank"). While the Series does not engage in
options and futures for speculative purposes, there are risks
which result from the use of these instruments by the Series,
and an investor should carefully review the descriptions of
such in this Prospectus. The Fund is not registered as a
commodity pool operator nor is the Manager registered as a
commodities trading adviser, in reliance upon various
exemptive rules. See Options and Futures under Investment
Strategy.
<PAGE>
4. The Series may invest up to 10% of its assets in
high-yield securities (junk bonds) and greater risks may be
involved with an investment in the Series. See Quality
Restrictions under Investment Strategy.
5. While the Series intends to seek to qualify as a
"diversified" investment company under provisions of
Subchapter M of the Internal Revenue Code, the Series will
not be diversified under the 1940 Act. Thus, while at least
50% of the 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 the
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 .50% of the average daily net assets of the Series,
less a proportionate share of all directors' fees paid to the
unaffiliated directors by 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:
Class A Class B
Shareholder Transaction Expenses Shares Shares
----------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases (as a
percentage of offering price). . . 3.00% 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* 2.00%*
Redemption Fees . . . . . . . . . . . None** None**
Annual Operating Expenses
(as a percentage of Class A Class B
average daily net assets) Shares Shares
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Management Fees (after
voluntary waiver) . . . . . . . . 0.00%+ 0.00%++
12b-1 Plan Expenses
(including service fees) . . . . . 0.15%*** 1.00%***
Other Operating Expenses. . . . . . . 0.10%+ 0.10%++
----- -----
Total Operating Expenses . . . . 0.25%+ 1.10%++
===== =====
The purpose of this table is to assist the investor in
understanding the various costs and expenses that an investor
in the Classes 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 of 2% will be imposed on redemptions
within the first two years of purchase, 1% during the third
year following purchase and 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.
***Class A Shares and Class B Shares 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 the rules of the National
Association of Securities Dealers, Inc. ("NASD").
+The Manager has elected voluntarily to waive that portion,
if any, of the annual management fees payable by the Class A
Shares and to reimburse such Class to the extent necessary to
ensure that the Total Operating Expenses of the Class A
Shares, including the 12b-1 expenses, do not exceed .25%
during the period from the commencement of the public
offering of the Class through June 30, 1993. This waiver was
extended to June 30, 1994, but modified, effective May 2,
1994 through June 30, 1995 to provide that operating expenses
would not exceed .10% (excluding 12b-1 fees). Because 12b-1
Plan fees have been set at .15% by the Fund's Board for the
Class A Shares, the amount of the voluntary waiver, as
modified, will be equivalent to the waiver operative through
May 1, 1994. If the voluntary expense waivers were not in
effect, the Total Operating Expenses, as a percentage of
average daily net assets, would have been 1.19%, reflecting
Management Fees of 0.47%, for the Class A Shares.
++"Other Operating Expenses" for Class B Shares are estimates
based upon the expenses for the Class A Shares for the fiscal
year ended August 31, 1994. Effective May 2, 1994, the
Manager has elected voluntarily to waive that portion of the
annual management fees payable by the Class B Shares and to
reimburse such class to the extent necessary to ensure that
operating expenses of the Class B Shares, excluding 12b-1
expenses, do not exceed .10% through June 30, 1995. If the
voluntary expense waivers were not in effect, Total Operating
Expenses, as a percentage of average daily net assets are
estimated to be 2.04%, reflecting Management Fees of 0.47%,
for the Class B Shares' first fiscal year.
<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
three years after purchase, the Fund charges a CDSC with
respect to the Class B Shares.
1 year 3 years 5 years 10 years
------ ------- ------- -------
Class A Shares $32/1/ $38 $44 $61
Class B Shares $31 $45 $61/2/ $110/2/
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of the
period:
1 year 3 years 5 years 10 years
------ ------- ------- -------
Class A Shares $32 $38 $44 $61
Class B Shares $11 $35 $61/2/ $110/2/
/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 five years
after purchase, Class B Shares will be automatically
converted into Class A Shares. The example above
assumes conversion of Class B Shares at the end of year
five. However, the conversion may occur as late as
three months after the fifth anniversary of purchase,
during which time the higher 12b-1 Plan fee payable by
Class B Shares will continue to be assessed. Years six
through ten reflect expenses of the Class A Shares. See
Automatic Conversion of Class B Shares under Buying
Shares for a description of the automatic conversion
feature. 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>
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FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the
financial statements of Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Intermediate 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 its Annual Report to
shareholders. A copy of the Series' Annual Report (including
the report of Ernst & Young LLP) may be obtained from the
Fund upon request at no charge.
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<TABLE>
<CAPTION>
TAX-FREE USA INTERMEDIATE FUND A CLASS
--------------------------------------
Period
Year 1/7/93/1/
Ended through
8/31/94 8/31/93
<S> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $10.630 $10.000
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.530 0.330
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.310) 0.630
------- -------
Total From
Investment
Operations. . . 0.220 0.960
------- -------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.530) (0.330)
Distributions
(from capital
gains) . . . . . . none none
Returns of
Capital. . . . . . none none
------- -------
Total Distri-
butions . . . . (0.530) (0.330)
------- -------
Net Asset Value,
End of Period. . . $10.320 $10.630
======= =======
- -------------------------------------------------------------
Total Return/2/. . 2.09% /3/
- ------------
- -------------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $28,193 $14,684
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.25%/4/ 0.25%/4/
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 5.00%/5/ 4.84%/5/
Portfolio Turnover
Rate . . . . . . . 81% 53%
</TABLE>
---------------------------------------
/1/ Date of initial public offering; ratios have been
annualized.
/2/ Does not reflect maximum sales charge of 3.00% for Tax-
Free USA Intermediate Fund A Class. Total return
reflects the waiver of fees in Notes 4 and 5.
/3/ The average annual total return for this period
excluding the maximum sales charge of 3.00% is 15.40%
and the aggregate total return for this period
excluding the maximum sales charge of 3.00% is 9.75%.
/4/ Ratio of expenses to average daily net assets prior to
expense limitation was 1.19% for 1994 and 1.94% for
1993.
/5/ Ratio of net investment income to average daily net
assets prior to expense limitation was 4.06% for 1994
and 3.15% for 1993.
<PAGE>
TAX-FREE USA INTERMEDIATE FUND B CLASS
---------------------------------------
Period
5/2/94/1/
through
8/31/94
Net Asset Value,
Beginning of
Period . . . . . . $10.230
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.150
Net Gains
on Securities (both
realized and
unrealized). . . . 0.090
-------
Total From
Investment
Operations. . . 0.240
-------
Less Distributions
- ------------------
Dividends (from
net investment
income). . . . . . (0.150)
Distributions
(from capital
gains) . . . . . . none
Returns of
Capital. . . . . . none
-------
Total Distri-
butions . . . . (0.150)
-------
Net Asset Value,
End of Period. . . $10.320
=======
- -------------------------------------------------------------
Total Return . . . /2/
- ------------
- -------------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $597
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.10%/3/
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 4.15%/4/
Portfolio Turnover
Rate . . . . . . . 81%
- -------------------------------
/1/ Date of initial public offering; ratios have been
annualized.
/2/ The average annual total return for this period
excluding the contingent deferred sales charge is
7.09% and the aggregate total return for this period
excluding the contingent deferred sales charge is
2.31%.
Total return reflects the waiver of fees in Notes 3 and
4.
/3/ Ratio of expenses to average daily net assets prior to
expense limitation was 2.04% for 1994.
/4/ Ratio of net investment income to average daily net
asset prior to expense limitation was 3.21% for 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The objective of the Series 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 Series pursues its investment objective by investing in a
municipal bond portfolio having a dollar weighted average
maturity of between three and ten years and utilizing various
investment strategies and quality restrictions, as described
below.
The objective of the Series cannot be changed without
approval by the shareholders of the Series. There is no
assurance that the objective of the Series can be achieved.
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
The Series may be suitable for longer-term investors.
The Series is designed for investors seeking a high level of
tax-exempt income and more price stability than investments
in long-term municipal bonds or bond funds. Investors should
be willing to accept the risk of investments in municipal
bonds. An investment in the Series 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 net asset value of the Series' shares can generally
be expected to fluctuate inversely to changes in interest
rates.
INVESTMENT STRATEGY
Tax-Exempt Investments
The 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.
The 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. The
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
Joint Return Single Return Rate Equivalent Equivalent Equivalent
<S> <C> <C> <C> <C>
<C>
$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.
Quality Restrictions
The Series intends to invest at least 90% of its portfolio
in debt obligations that are either 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 or unrated,
but in the Manager's opinion equivalent in credit quality to
obligations so rated. The fourth grade is considered medium
grade and may have speculative characteristics. The Series may
invest up to 10% of its assets in securities either with a rating
lower than the top four grades or unrated, but in the Manager's
opinion equivalent in credit quality to obligations so rated.
These securities are speculative and may involve greater risks
and have higher yields.
<PAGE>
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. 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 and, therefore, 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 Series' net asset
value. In addition, the Series 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
Series 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 Series will
invest in both types.
Diversification
The Fund is a nondiversified investment company. This means
that the Manager has the flexibility to invest as much as 50% of
the 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, the 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 its assets in fewer issuers, the
value of Series shares may increase or decrease more rapidly than
if the Series were fully diversified. In the event the 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.
The 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, the 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. The 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
The 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, the 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.
The 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 the
Series' share value increasing or decreasing. If the Series
invests in securities of this type, it will maintain a segregated
account to pay for them and mark them to market daily.
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.
<PAGE>
The Series intends to seek to achieve a high level of tax-
exempt income. However, if the Series invests in newly-issued
private purpose bonds, a portion of the Series' distributions
would be subject to the federal alternative minimum tax. The
Series may invest up to 20% of its assets in bonds the income
from which is subject to the federal alternative minimum tax.
The Series is permitted to borrow money. The Series will
not purchase investment securities while it has an outstanding
borrowing. The 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. The
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.
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.
Repurchase Agreements
In order to invest its cash reserves or when in a temporary
defensive posture, the Series may enter into repurchase
agreements with banks or broker/dealers deemed to be creditworthy
by the Manager, under guidelines approved by the Board of
Directors. A repurchase agreement is a short-term investment in
which the purchaser (i.e., the Series) acquires ownership of a
debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield
during the purchaser's holding period. Generally, repurchase
agreements are of short duration, often less than one week but on
occasion for longer periods. Not more than 10% of the Series'
assets may be invested in repurchase agreements of over seven-
days' maturity or other illiquid assets. Should an issuer of a
repurchase agreement fail to repurchase the underlying security,
the loss to the Series, if any, would be the difference between
the repurchase price and the market value of the security. The
Series will limit its investments in repurchase agreements to
those which the Manager, under the guidelines of the Board of
Directors, determines to present minimal credit risks and which
are of high quality. In addition, the Series must have
collateral of at least 100% of the repurchase price, including
the portion representing the Series' yield under such agreements
which is monitored on a daily basis. Such collateral is held by
the Custodian in book entry form. Such agreements may be
considered loans under the Investment Company Act of 1940 (the
"1940 Act"), but the Series considers repurchase agreements
contracts for the purchase and sale of securities, and it seeks
to perfect a security interest in the collateral securities so
that it has the right to keep and dispose of the underlying
collateral in the event of default.
The funds in the Delaware Group have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the
1940 Act to allow the Delaware Group funds jointly to invest cash
balances. The Series may invest cash balances in a joint
repurchase agreement in accordance with the terms of the
exemption order and subject generally to the conditions described
above.
Zero Coupon Bonds
The Series may also invest in zero coupon bonds. Zero
coupon bonds are debt obligations which do not entitle the holder
to any periodic payments of interest prior to maturity or a
specified date when the securities begin paying current interest,
and therefore are issued and traded at a discount from their face
amounts or par value.
<PAGE>
The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in
interest rates to a greater degree than do non-zero coupon
securities having similar maturities and credit quality. Current
federal income tax law requires that a holder of a taxable zero
coupon security report as income each year the portion of the
original issue discount of such security that accrues that year,
even though the holder receives no cash payments of interest
during the year. The Series has qualified as a regulated
investment company under the Internal Revenue Code. Accordingly,
during periods when the Series receives no interest payments on
its zero coupon securities, it will be required, in order to
maintain its desired tax treatment, to distribute cash
approximating the income attributable to such securities. Such
distribution may require the sale of portfolio securities to meet
the distribution requirements and such sales may be subject to
the risk factor discussed above.
Variable Rate Obligations
The Series may purchase "floating-rate" and "variable-rate"
obligations. These obligations bear interest at rates that are
not fixed, but that vary with changes in specified market rates
or indices on predesigned dates.
Inverse Floaters
The Series may invest in inverse floaters. Inverse floaters
are instruments with floating or variable interest rates that
move in the opposite direction, usually at an accelerated speed,
to short-term interest rates or interest rate indices.
Municipal Leases
The Series may also invest in municipal lease obligations
primarily through certificates of participation ("COPs"). As
with its other investments, the Series expects that its
investments in municipal lease obligations will consist of such
obligations which are exempt from regular federal income taxes.
COPs, which are widely used by state and local governments to
finance the purchase of property, function much like installment
purchase agreements. For example, a COP may be created when
long-term lease revenue bonds are issued by a governmental
corporation to pay for the acquisition of property or facilities
which are then leased to a municipality. The payments made by
the municipality under the lease are used to repay interest and
principal on the bonds issued to purchase the property. Once
these lease payments are completed, the municipality gains
ownership of the property for a nominal sum. The lessor is, in
effect, a lender secured by the property being leased. This
lease format is generally not subject to constitutional
limitations on the issuance of state debt and COPs enable a
governmental issuer to increase government liabilities beyond
constitutional debt limits.
A feature which distinguishes COPs from municipal debt is
that the lease which is the subject of the transaction typically
contains a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that, while the municipality
will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the
municipality's appropriating body does not allocate the necessary
funds. Substantially all of the COPs purchased by the Series are
expected to contain a "nonappropriation" or "abatement" clause.
Local administrations, being faced with increasingly tight
budgets, therefore, have more discretion to curtail payments on
traditionally funded debt obligations. If the government lessee
does not appropriate sufficient monies to make lease payments,
the lessor, or its agent, is typically entitled to repossess the
property. In most cases, however, the private sector value of
the property will be less than the amount the government lessee
was paying.
While the risk of nonappropriation is inherent to COP
financing, the Series believes that this risk is mitigated by its
policy of investing only in COPs rated within the four highest
rating categories of Moody's, S&P or Fitch Investors Service,
Inc., or in unrated COPs believed to be of comparable quality.
Criteria considered by the rating agencies and the Manager in
assessing such risk include the issuing municipality's credit
rating, the importance of the leased property to the municipality
and the term of the lease compared to the useful life of the
leased property. The Board of Directors has established
guidelines to determine whether the COPs held in the Series'
portfolio constitute liquid investments. These guidelines set
forth various factors to be reviewed by the Manager and monitored
by the Board. Such factors include: (a) the credit quality of
such securities and the extent to which they are rated; (b) the
size of the municipal securities market for the Series both in
general and with respect to COPs; and (c) the extent to which the
type of COPs held by the Series trade on the same basis and with
the same degree of dealer participation as other municipal bonds
of comparable credit rating or quality.
Advance Refunded Bonds
Escrow secured bonds or defeased bonds are created when an
issuer refunds in advance of maturity (or pre-refunds) an
outstanding bond issue which is not immediately callable, and it
becomes necessary or desirable to set aside funds for redemption
of the bonds at a future date. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high
grade interest bearing debt securities which are then deposited
in an irrevocable escrow account held by a trustee bank to secure
all future payments of principal and interest of the advance
refunded bond. Escrow secured bonds will often receive a triple
A rating from S&P and Moody's.
<PAGE>
Options
The Series may write put and call options on a covered basis
only, and will not engage in option writing strategies for
speculative purposes. The Series may write covered call options
and secured put options from time to time on such portion of its
portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Series' investment
objective. The Series may also purchase (i) call options to the
extent that premiums paid for such options do not exceed 2% of
the Series' total assets and (ii) put options to the extent that
premiums paid for such options do not exceed 2% of the Series'
total assets.
A. Covered Call Writing - A call option gives the
purchaser of such option the right to buy, and the writer, in
this case the Series, the obligation to sell the underlying
security at the exercise price during the option period. There
is no percentage limitation on writing covered call options.
The advantage to the Series of writing covered calls is that
the Series receives a premium which is additional income. The
disadvantage is that if the security rises in value the Fund will
lose the appreciation.
During the option period, a covered call option writer may
be assigned an exercise notice by the broker/dealer through whom
such call option was sold requiring the writer to deliver the
underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period
or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction cannot be
effected with respect to an option once the option writer has
received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an
underlying security from being called, to permit the sale of the
underlying security or to enable the Series to write another call
option on the underlying security with either a different
exercise price or expiration date or both. The Series may
realize a net gain or loss from a closing purchase transaction
depending upon whether the net amount of the original premium
received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in
a closing purchase transaction may be partially or entirely
offset by the premium received from a sale of a different call
option on the same underlying security. Such a loss may also be
wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain
resulting from a closing purchase transaction could be offset in
whole or in part by a decline in the market value of the
underlying security.
If a call option expires unexercised, the Series will
realize a short-term capital gain in the amount of the premium on
the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying
security during the option period. If a call option is
exercised, the Series will realize a gain or loss from the sale
of the underlying security equal to the difference between the
cost of the underlying security and the proceeds of the sale of
the security plus the amount of the premium on the option less
the commission paid.
The market value of a call option generally reflects the
market price of the underlying security. Other principal factors
affecting market value include supply and demand, interest rates,
the price volatility of the underlying security and the time
remaining until the expiration date.
Call options will be written only on a covered basis, which
means that the Series will own the underlying security subject to
a call option at all times during the option period. Unless a
closing purchase transaction is effected, the Series would be
required to continue to hold a security which it might otherwise
wish to sell. Options written by the Series will normally have
expiration dates between three and nine months from the date
written. The exercise price of a call option may be below, equal
to or above the current market value of the underlying security
at the time the option is written.
B. Purchasing Call Options - The Series may purchase call
options to the extent that premiums paid by the Series do not
aggregate more than 2% of the Series' total assets. When the
Series purchases a call option, in return for a premium paid by
the Series to the writer of the option, the Series obtains the
right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. The
writer of the call option, who receives the premium upon writing
the option, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise
price. The advantage is that the Series may hedge against an
increase in the price of securities which it ultimately wishes to
buy. However, the premium paid for the call option plus any
transaction costs will reduce the benefit, if any, realized by
the Series upon exercise of the option.
The Series may, following the purchase of a call option,
liquidate its position by effecting a "closing sale transaction."
This is accomplished by selling an option of the same series as
the option previously purchased. The Series will realize a
profit from a closing sale transaction if the price received on
the transaction is more than the premium paid to purchase the
original call option; the Series will realize a loss from a
closing sale transaction if the price received on the transaction
is less than the premium paid to purchase the original call
option.
<PAGE>
Although the Series will generally purchase only those call
options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market may exist.
In such event, it may not be possible to effect closing
transactions in particular options, with the result that the
Series would be required to exercise its options in order to
realize any profit and would incur brokerage commissions upon the
exercise of such options and upon the subsequent disposition of
the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security
changes sufficiently, a call option purchased by the Series may
expire without any value to the Series.
C. Secured Put Writing - A put option gives the purchaser
of the option the right to sell, and the writer, in this case the
Series, the obligation to buy the underlying security at the
exercise price during the option period. During the option
period, the writer of a put option may be assigned an exercise
notice by the broker/dealer through whom the option was sold
requiring the writer to make payment of the exercise price
against delivery of the underlying security. In this event, the
exercise price will usually exceed the then-market value of the
underlying security. This obligation terminates upon expiration
of the put option or at such earlier time at which the writer
effects a closing purchase transaction. The operation of put
options in other respects is substantially identical to that of
call options. Premiums on outstanding put options written or
purchased by the Series may not exceed 2% of its total assets.
The advantage to the Series of writing such options is that
it receives premium income. The disadvantage is that the Series
may have to purchase securities at higher prices than the current
market price when the put is exercised.
Put options will be written only on a secured basis, which
means that the Series will maintain in a segregated account with
its Custodian, the Morgan Guaranty Trust Company of New York,
cash or U.S. government securities in an amount not less than the
exercise price of the option at all times during the option
period. The amount of cash or U.S. government securities held in
the segregated account will be adjusted on a daily basis to
reflect changes in the market value of the securities covered by
the put option written by the Series. Secured put options will
generally be written in circumstances where the Manager wishes to
purchase the underlying security for the Series' portfolio at a
price lower than the current market price of the security. In
such event, the Series would write a secured put option at an
exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay.
D. Purchasing Put Options - The Series may purchase put
options to the extent that premiums paid for such options do not
exceed 2% of the Series' total assets. The Series will, at all
times during which it holds a put option, own the security
covered by such option.
The Series intends to purchase put options in order to
protect against a decline in the market value of the underlying
security below the exercise price less the premium paid for the
option ("protective puts"). The ability to purchase put options
will allow the Series to protect unrealized gain in an
appreciated security in its portfolio without actually selling
the security. In addition, the Series will continue to receive
interest income on the security. If the security does not drop
in value, the Series will lose the value of the premium paid.
The Series may sell a put option which it has previously
purchased prior to the sale of the securities underlying such
option. Such sales will result in a net gain or loss depending
on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option
which is sold.
Futures
The Series may invest in futures contracts and options on
such futures contracts subject to certain limitations. Futures
contracts are agreements for the purchase or sale for future
delivery of securities. When a futures contract is sold, the
Series incurs a contractual obligation to deliver the securities
underlying the contract at a specified price on a specified date
during a specified future month. A purchase of a futures
contract means the acquisition of a contractual right to obtain
delivery to the Series of the securities called for by the
contract at a specified price during a specified future month.
While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are
generally terminated by entering into an offsetting transaction.
When the Series enters into a futures transaction, it must
deliver to the futures commission merchant selected by the Series
an amount referred to as "initial margin." This amount is
maintained by the futures commission merchant in an account at
the Series' custodian bank. Thereafter, a "variation margin" may
be paid by the Series to, or drawn by the Series from, such
account in accordance with controls set for such account,
depending upon changes in the price of the underlying securities
subject to the futures contract.
<PAGE>
The Series may also purchase and write options to buy or
sell futures contracts. Options on futures are similar to
options on securities except that options on futures give the
purchaser the right, in return for the premium paid, to assume a
position in a futures contract, rather than actually to purchase
or sell the futures contract, at a specified exercise price at
any time during the period of the option.
The purpose of the purchase or sale of futures contracts for
the Series, which consists of a substantial number of municipal
securities, is to protect the Series against the adverse effects
of fluctuations in interest rates without actually buying or
selling such securities. Similarly, when it is expected that
interest rates may decline, futures contracts may be purchased to
hedge in anticipation of subsequent purchases of municipal
securities at higher prices.
With respect to options on futures contracts, when the
Series is not fully invested, it may purchase a call option on a
futures contract to hedge against a market advance due to
declining interest rates. The writing of a call option on a
futures contract constitutes a partial hedge against declining
prices of the securities which are deliverable upon exercise of
the futures contract. If the futures price at the expiration of
the option is below the exercise price, the Series will retain
the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is
higher than the exercise price, the Series will retain the full
amount of the option premium which provides a partial hedge
against any increase in the price of municipal securities which
the Series intends to purchase.
If a put or call option the Series has written is exercised,
the Series will incur a loss which will be reduced by the amount
of the premium it receives. Depending on the degree of
correlation between the value of its portfolio securities and
changes in the value of its futures positions, the Series' losses
from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities.
The Series will purchase a put option on a futures contract to
hedge the Series' portfolio against the risk of rising interest
rates.
To the extent that interest rates move in an unexpected
direction, the Series may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize
a loss. For example, if the Series is hedged against the
possibility of an increase in interest rates which would
adversely affect the price of municipal securities held in its
portfolio and interest rates decrease instead, the Series will
lose part or all of the benefit of the increased value of its
municipal securities which it has because it will have offsetting
losses in its futures position. In addition, in such situations,
if the Series had insufficient cash, it may be required to sell
municipal securities from its portfolio to meet daily variation
margin requirements. Such sales of municipal securities may, but
will not necessarily, be at increased prices which reflect the
rising market. The Series may be required to sell securities at
a time when it may be disadvantageous to do so.
To the extent that the Series purchases an option on a
futures contract and fails to exercise the option prior to the
exercise date, it will suffer a loss of the premium paid.
Further, with respect to options on futures contracts, the Series
may seek to close out an option position by writing or buying an
offsetting position covering the same securities or contracts and
have the same exercise price and expiration date. The ability to
establish and close out positions on options will be subject to
the maintenance of a liquid secondary market, which cannot be
assured.
The Series will not enter into futures contracts to the
extent that more than 5% of the Series' assets are required as
futures contract margin deposits and will not invest in futures
contracts or options thereon to the extent that obligations
relating to such transactions exceed 20% of the Series' assets.
Portfolio Loan Transactions
The Series may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating
to short sales or other security transactions.
The major risk to which the Series would be exposed on a
loan transaction is the risk that the borrower would go bankrupt
at a time when the value of the security goes up. Therefore, the
Series will only enter into loan arrangements after a review of
all pertinent facts by the Manager, subject to overall
supervision by the Board of Directors, including the
creditworthiness of the borrowing broker, dealer or institution
and then only if the consideration to be received from such loans
would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager. See Part B.
<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
on your account 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 Class B
Shares of other Delaware Group funds acquired through
reinvestment 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 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 the 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 certain 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 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% (currently, no more than .15% pursuant to Board action)
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
three 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 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 five 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 five years
after purchase, the Class B Shares are automatically converted
into Class A Shares. 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 three 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% (currently, no more than .15%), 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 five 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 three years after purchase as well as annual
12b-1 Plan expenses of 1% until the shares are automatically
converted into Class A Shares. 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 three 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 3.00%. 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 Charges
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.
Tax-Free USA Intermediate 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 3.00% 3.10% 2.50%
$100,000 but
under $250,000 2.50 2.56 2.00
$250,000 but
under $500,000 2.00 2.06 1.60
$500,000 but
under $1,000,000* 1.50 1.54 1.20
* There is no front-end sales charge on purchases of $1
million or more but, under certain limited circumstances, a
1% 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 front-end sales charge shown above.
In addition, certain dealers who enter into an agreement to
provide extra training and information on Delaware Group
products and services and who increase sales of Delaware
Group funds may receive an additional 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 $3 million .60%
Next $2 million up to $5 million .40
Amount over $5 million .20
In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other
Delaware Group funds as to which a Limited CDSC 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 2% 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 three
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 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 five years after purchase are
eligible for automatic conversion into Class A Shares. 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 fifth 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
fifth 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 fifth
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 fifth 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 three 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 the Series:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
- ------------------------ ------------------
0-2 2%
3 1%
4 and thereafter None
During the fourth year after purchase and, thereafter, until
converted automatically into Class A Shares of the 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% (currently, no more than
.15%) 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, it will be assumed that the redemption is
first for shares held over three years or shares acquired
pursuant to reinvestment of dividends or distributions and then
of shares held longest during the three-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
ashareholder'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 1940 Act, the Series is
permitted to pay the Distributor annual distribution fees payable
monthly up to a maximum of .30% (currently, no more than .15%) of
the average daily net assets of the Class A Shares and 1% of the
average daily net assets of the 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
Fund and Tax-Free Insured 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 Series 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 account number
for the series and class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's
Shareholder Service Center to get an account number. If you do
not call first, 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.
Investing by Exchange
If you have an investment in another mutual fund in the
Delaware Group, you may write and authorize an exchange of part
or all of your investment into shares of the Series. If you wish
to open an account by exchange, call the Shareholder Service
Center for more information.
<PAGE>
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 other 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. Consequently,
investors that purchase Class B Shares of the Series by exchange
may be subject to the higher 12b-1 Plan fees applicable to Class
B Shares longer than investors that purchase Class B Shares of
the Series directly if the shares exchanged for Series shares are
of a Class B Fund having a longer conversion feature than that of
the Series. 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 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 accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and
check clearing holds on payments such as social security, federal
salaries, Railroad Retirement benefits, etc.
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 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 Fund 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 Class
shares recently purchased 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 only be exchanged for the Class
B Shares of the Class B Funds.
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 and any CDSC assessed upon redemption will be charged
by the Series. Such 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.
Different redemption and exchange methods are outlined
below. Except for the CDSC with respect to redemption of the
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.
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.
<PAGE>
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.
If expedited payment could adversely affect the Series, the
Fund may take up to seven days to pay.
<PAGE>
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient
way to adjust your investment holdings as your liquidity
requirements and investment objectives change.
You or your investment dealer of record can authorize an
exchange of shares into a money market fund in the Delaware Group
with just a phone call. Any such exchange is subject to the same
limitations and conditions as other exchanges noted above.
This service is useful if you are anticipating a major
expenditure and want to move a portion of your investment into a
fund where stability of principal is paramount. The Delaware
Group money market fund investment minimums apply.
Your Class A or Class B Shares can also be exchanged into
other funds in the Delaware Group under the same registration
subject to the same limitations and conditions 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 Class A 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 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.
<PAGE>
Redemptions of such Class A Shares held for more than 12
months will not be subjected to the Limited CDSC and an exchange
of such Class A Shares into another Delaware Group fund will not
trigger the imposition of the Limited CDSC at the time of such
exchange. The period a shareholder owns shares into which Class
A Shares are exchanged will count towards satisfying the 12-month
holding period. The 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 of the
Series have been exchanged.
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 to all shareholders of record
of the Classes 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 Class 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 class of the Series will share proportionately in the
investment income and expenses of the Series, except that the per
share dividends and distributions on the Class B Shares will be
lower than the per share dividends and distributions on the Class
A Shares as a result of the higher expenses under the 12b-1 Plan
relating to the Class B Shares. See Distribution (12b-1) and
Service under Management of the Fund.
The 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 Series 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 $0.53 and $0.15 per share of
the Class A Shares and Class B Shares, respectively, were paid
from net investment income. The Class B Shares commenced
operations on May 2, 1994.
<PAGE>
TAXES
The 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, the 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.
The Series intends to distribute substantially all of its net
investment income and net capital gains.
The 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 the 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 the 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 the 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 does not
seek to realize any particular amount of capital gains during a
year; rather, realized gains are a byproduct of 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 the 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 the Series and received by the
shareholder on December 31 of the calendar year in which they are
declared.
The sale of shares of the 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 of a mutual fund). Any loss incurred on
sale or exchange of the 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 at the end of no more than approximately five 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 the 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 the Series' dividends and distributions.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders
who have not complied with IRS taxpayer identification
regulations. You may avoid this withholding requirement by
certifying on your Account Registration Form your proper Taxpayer
Identification Number and by certifying that you are not subject
to backup withholding.
<PAGE>
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 is computed by adding the value of all
securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by
the number of the 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 the 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 the Series will be borne on a pro-rata basis by each
outstanding share of a class, based on each class' percentage in
the Series represented by the value of shares of such classes,
except that shares of the Classes alone will bear the 12b-1 Plan
expenses payable under their respective Plans. Due to the
specific distribution expenses and other costs that would be
allocable to each class, the dividends paid to each class of the
Series may vary. However, the NAV per share of each class 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
Series.
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.
The Manager manages the 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 .50% of the average daily net assets of the Series, less
a proportionate share of all directors' fees paid to the
unaffiliated directors of the Fund. Investment management fees
incurred by the Series for the fiscal year ended August 31, 1994
were 0.47% of average daily net assets. After considering the
waiver of fees by the Manager described on page 4, no amount
was paid by the Series for this period.
Patrick P. Coyne has primary responsibility for making day-
to-day investment decisions for the Series. He has been the
Series' Senior Portfolio Manager since its inception in 1993. 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.
<PAGE>
In making investment decisions for the Fund, Mr. Coyne
regularly consults with Paul E. Suckow, J. Michael Pokorny and
other members of the Delaware Group's fixed income department.
Mr. Suckow is the Manager's 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 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 objective, its annual portfolio turnover rate is not
expected to exceed 100%. The portfolio turnover rate of the
Series from January 7, 1993 (date of initial public offering) to
August 31, 1993 was 53%, annualized, and for the fiscal year
ended August 31, 1994 was 81%.
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 Series may quote yield or total
return performance of the Classes in advertising and other types
of literature. The current yield for a Class 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 Series may, in addition,
advertise aggregate and average total return information for the
Series over additional periods of time. In addition, the Series
may present total return information that does not reflect the
deduction of the maximum front-end sales charge or any applicable
CDSC. The Series 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.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, Inc., serves as the
national distributor for the Series under an Amended and Restated
Distribution Agreement dated as of May 2, 1994.
The Fund has adopted a distribution plan under Rule 12b-1
for the Class A Shares and a separate distribution plan under
Rule 12b-1 for the Class B Shares (the "Plans"). The Plans
permit the Series 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 Series 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 Series.
The 12b-1 Plan expenses relating to the Class B Shares are
also used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such shares.
<PAGE>
The aggregate fees paid by the 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 or 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 Shares 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.
On September 17, 1992, the Board of Directors set the fee
for the Class A Shares, pursuant to its Plan, at .15% of average
daily net assets.
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 an Agreement dated November 10, 1992.
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.
Expenses
The Series is responsible for all of its own expenses other
than those borne by the Manager under the Investment Management
Agreement and those borne by the Distributor under the Amended
and Restated Distribution Agreement. The Class A Shares' ratio
of expenses to average daily net assets for the fiscal year ended
August 31, 1994 was 0.25%, reflecting the voluntary waiver of
fees by the Manager. The ratio of expenses to average daily net
assets of the Class B Shares is expected to be 1.10% (reflecting
the voluntary waiver of fees by the Manager), based on the
expenses incurred by the Class A Shares during the fiscal year
ended August 31, 1994.
Shares
Delaware Group Tax-Free Fund, Inc. is an open-end management
investment company and the 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 Intermediate Fund, Tax-Free USA Fund and Tax-Free
Insured Fund; shares of the Tax-Free USA Fund and Tax-Free
Insured Fund 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 class within a Series represent proportionate
interests in the assets of that Series and have the same voting
and other rights and preferences as the other class of shares of
the Series, except that the shareholders of the Class A Shares
may not vote on matters affecting the 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 the 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 1940 Act. 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 Intermediate Fund A
Class was known as the Tax-Free USA Intermediate Fund.
<PAGE>
----------------------------------
TAX-FREE USA INTERMEDIATE FUND
----------------------------------
A CLASS
B CLASS
----------------------------------
----------------------------------
P R O S P E C T U S
----------------------------------
OCTOBER 31, 1994
DELAWARE
GROUP
---------
Shares of this 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 this 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 this 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 George
One Commerce Square Washington crossing
Philadelphia, PA 19103 the Delaware River)
NATIONAL DISTRIBUTOR
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
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.
