<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-86606
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 22 X
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AND
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 22
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DELAWARE GROUP TAX-FREE FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
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George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
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(Name and Address of Agent for Service)
Approximate Date of Public Offering: October 30, 1996
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on October 30, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
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Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. Registrant's 24f-2 Notice
for its most recent fiscal year was filed on October 29, 1996.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 22 to Registration File No. 2-86606 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectus
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<PAGE>
CROSS-REFERENCE SHEET*
----------------------
PART A
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<TABLE>
<CAPTION>
Item No. Description Location in Prospectuses
- -------- ----------- ------------------------
<S> <C> <C>
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
A Classes/B Classes/C Classes
1 Cover Page...................................................... Cover
2 Synopsis........................................................ Synopsis; Summary of Expenses
3 Condensed Financial Information................................. Financial Highlights
4 General Description of Registrant............................... Investment Objectives and
Policies; Shares; Other Investment
Policies and Risk Considerations
5 Management of the Fund.......................................... Management of the Fund
6 Capital Stock and Other Securities ............................. The Delaware Difference;
Dividends and
Distributions; Taxes,
Shares
7 Purchase of Securities Being Offered............................ Cover; How to Buy Shares;
Calculation of Offering
Price and Net Asset
Value Per Share;
Management of the Fund
8 Redemption or Repurchase........................................ How to Buy Shares;
Redemption and Exchange
9 Pending Legal Proceedings....................................... None
</TABLE>
* Delaware Group Tax-Free Fund, Inc. offers three (3) series of shares. Each
series offers three (3) classes of shares. The Tax-Free USA Fund offers the
Tax-Free USA Fund A Class, the Tax-Free USA Fund B Class and the Tax-Free
USA Fund C Class; the Tax-Free Insured Fund offers the Tax-Free Insured Fund
A Class, the Tax-Free Insured Fund B Class and the Tax-Free Insured Fund C
Class; and the Tax-Free USA Intermediate Fund offers the Tax-Free USA
Intermediate Fund A Class, the Tax-Free USA Intermediate Fund B Class and
the Tax-Free USA Intermediate Fund C Class. The Class A, B and C Shares of
each series are combined in one Prospectus, Statement of Additional
Information and Part C.
<PAGE>
CROSS-REFERENCE SHEET
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PART B
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<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- ------------------------
<S> <C> <C>
10 Cover Page...................................................... Cover
11 Table of Contents............................................... Table of Contents
12 General Information and History................................. General Information
13 Investment Objectives and Policies.............................. Investment Objectives
and Policies
14 Management of the Registrant.................................... Officers and Directors
15 Control Persons and Principal Holders
of Securities.................................................. Officers and Directors
16 Investment Advisory and Other Services.......................... Plans Under Rule 12b-1
(under Purchasing Shares);
Investment Management Agreements;
Officers and Directors;
General Information;
Financial Statements
17 Brokerage Allocation............................................ Trading Practices and Brokerage
18 Capital Stock and Other Securities.............................. Capitalization and
Noncumulative Voting
(under General Information)
19 Purchase, Redemption and Pricing of Securities
Being Offered................................................... Purchasing Shares;
Determining Offering Price
and Net Asset Value;
Redemption and Exchange;
Exchange Privilege
20 Tax Status...................................................... Taxes
21 Underwriters ................................................... Purchasing Shares
22 Calculation of Performance Data................................. Performance Information
23 Financial Statements............................................ Financial Statements
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
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PART C
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<TABLE>
<CAPTION>
Item No. Description Location in Part C
- -------- ----------- ------------------
<S> <C> <C>
24 Financial Statements and Exhibits......................................................... Item 24
25 Persons Controlled by or under Common
Control with Registrant................................................................ Item 25
26 Number of Holders of Securities........................................................... Item 26
27 Indemnification........................................................................... Item 27
28 Business and Other Connections of Investment Adviser...................................... Item 28
29 Principal Underwriters.................................................................... Item 29
30 Location of Accounts and Records.......................................................... Item 30
31 Management Services....................................................................... Item 31
32 Undertakings.............................................................................. Item 32
</TABLE>
<PAGE>
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TAX-FREE USA FUND
TAX-FREE INSURED FUND
TAX-FREE USA INTERMEDIATE FUND
A CLASS
B CLASS
C CLASS
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P R O S P E C T U S
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OCTOBER 30, 1996
DELAWARE
GROUP
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<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For more
information, contact your financial adviser or call Delaware Group at
800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE>
TAX-FREE USA FUND PROSPECTUS
TAX-FREE INSURED FUND OCTOBER 30, 1996
TAX-FREE USA INTERMEDIATE FUND
A CLASS SHARES
B CLASS SHARES
C CLASS SHARES
-------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-362-7500
Delaware Group Tax-Free Fund, Inc. ("Tax-Free Fund,
Inc.") is a professionally managed mutual fund of the series
type.
Tax-Free Fund, Inc. consists of three funds. This
Prospectus describes each of the three funds and the classes
that each fund offers:
Tax-Free USA Fund ("USA Fund") Tax-Free USA Fund A Class ("USA A
Class") Tax-Free USA Fund B Class ("USA B Class") Tax-Free USA
Fund C Class ("USA C Class")
Tax-Free Insured Fund ("Insured Fund") Tax-Free Insured Fund A Class
("Insured A Class") Tax-Free Insured Fund B Class ("Insured B
Class") Tax-Free Insured Fund C Class ("Insured C Class")
Tax-Free USA Intermediate Fund ("Intermediate Fund")
Tax-Free USA Intermediate Fund A Class
("Intermediate A Class")
Tax-Free USA Intermediate Fund B Class
("Intermediate B Class")
Tax-Free USA Intermediate Fund C Class
("Intermediate C Class")
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<PAGE>
Each of the above funds is referred to individually as a "Fund" and
collectively as the "Funds" and each of the above classes is referred to
individually as a "Class" and collectively, as the "Classes" or "Class A
Shares," "Class B Shares" or "Class C Shares."
The investment objective of each Fund is to seek as high a level of
current interest income exempt from federal income tax as is available from
municipal bonds and is consistent with prudent investment management and
preservation of capital. Insured Fund seeks to achieve its objective by
investing primarily in municipal bonds protected by insurance guaranteeing the
payment of principal and interest when due. See Quality Restrictions for a
discussion of the insurance that applies to Insured Fund's portfolio securities.
This Prospectus sets forth information that you should read and
consider before you invest. Please retain it for future reference. Part B of
Tax-Free Fund, Inc.'s registration statement, dated October 30, 1996, as it may
be amended from time to time, contains additional information about the Funds
and has been filed with the Securities and Exchange Commission. Part B is
incorporated by reference into this Prospectus and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above numbers. The Funds' financial statements appear in their Annual Report,
which will accompany any response to requests for Part B.
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<PAGE>
TABLE OF CONTENTS
Cover Page Taxes
Synopsis Calculation of Offering
Summary of Expenses Price and Net Asset
Financial Highlights Value Per Share
Investment Objectives and Policies Management of the Funds
Suitability Other Investment
Investment Strategy Policies and Risk
The Delaware Difference Considerations
Plans and Services Appendix A--Investment
Classes of Shares Illustrations
How to Buy Shares Appendix B--Ratings
Redemption and Exchange Appendix C--Classes
Dividends and Distributions Offered
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK
OR CREDIT UNION DEPOSITS.
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<PAGE>
SYNOPSIS
Investment Objective
USA Fund--The objective of USA Fund is to seek as high a level of
current interest income exempt from federal income tax as is available from
municipal bonds and is consistent with prudent investment management and
preservation of capital. Typically, the municipal bonds in the Fund will have a
maturity range between five and 30 years.
Insured Fund--The objective of Insured Fund is to seek as high a level
of current interest income exempt from federal income tax as is available from
municipal bonds and is consistent with prudent investment management and
preservation of capital. Insured Fund seeks to achieve its objective by
investing primarily in municipal bonds protected by insurance guaranteeing the
payment of principal and interest when due. Typically, the municipal bonds in
the Fund will have a maturity range between five and 30 years.
Intermediate Fund--The objective of Intermediate Fund is to seek as
high a level of current interest income exempt from federal income tax as is
available from municipal bonds and is consistent with prudent investment
management and preservation of capital. The Fund seeks to achieve its objective
by investing primarily in municipal bonds. The portfolio will have a dollar
weighted average maturity of between three and 10 years.
Although exempt from regular federal income tax, interest paid on
certain types of municipal obligations is deemed to be a preference item under
federal tax law and is subject to the federal alternative minimum tax. Up to 20%
of the net assets of each Fund may be invested in bonds the income from which is
subject to the federal alternative minimum tax. In addition, gain on the
disposition of tax-exempt bonds that were 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. For further details, see
Investment Objectives and Policies.
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<PAGE>
Risk Factors and Special Considerations
Prospective investors should consider the following factors:
1. While each Fund intends to seek to qualify as a "diversified"
investment company under provisions of Subchapter M of the Internal Revenue
Code, the Funds will not be diversified as defined by Investment Company Act of
1940 (the "1940 Act"). Thus, while at least 50% of a Fund's 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 Fund's total assets, it will
not satisfy the 1940 Act definition of "diversified," which applies the test set
forth in this sentence to 75% of the Fund's 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.
2. USA Fund may invest up to 20% of its assets and Intermediate Fund
may invest up to 10% of its assets in high-yield securities (junk bonds) and,
consequently, greater risks may be involved with an investment in either Fund.
See Quality Restrictions under Investment Strategy.
3. Intermediate Fund may lend portfolio securities to creditworthy
institutions; the principal risk to the Fund is the risk that the borrower will
fail to return the borrowed security. The Fund will require borrowers to deliver
collateral to the Fund before lending securities. See Portfolio Loan
Transactions under Other Investment Policies and Risk Considerations.
4. Intermediate Fund 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
Bankers Trust Company (the "Custodian Bank"). While the Fund does not engage in
options and futures for speculative purposes, there are risks that result from
the use of these instruments by the Fund, and an investor should carefully
review the descriptions of such in this Prospectus. Certain options and futures
may be considered to be derivative securities. Tax-Free Fund, Inc. 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 Other Investment Policies and Risk Considerations.
-5-
<PAGE>
5. Intermediate Fund may invest in inverse floaters which may be
considered to be derivative securities. The interest rates attributable to
inverse floaters may move in the opposite direction to short-term interest rates
at an accelerated speed causing rapid fluctuations in the value of such
securities. See Inverse Floaters under Other Investment Policies and Risk
Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") is the
investment manager for each Fund. The Manager also provides
investment management services to certain of the other funds
in the Delaware Group. Delaware Distributors, L.P. (the
"Distributor") is the national distributor for the each Fund
and for all of the other mutual funds in the Delaware Group.
Delaware Service Company, Inc. (the "Transfer Agent") is the
shareholder servicing, dividend disbursing, accounting
services and transfer agent for each Fund and for all of the
other mutual funds in the Delaware Group. For further
information regarding the Manager and the fees payable under
each Fund's Investment Management Agreement, see Summary of
Expenses and Management of the Funds.
Sales Charges
The price of Class A Shares includes a maximum front-end sales charge
of:
Percentage of
Class Sales Charge Amount Invested*
- ----- ------------ ----------------
USA A Class 4.75% 5.02%
Insured A Class 4.75% 4.97%
Intermediate A Class 3.00% 3.10%
*Based on the net asset value of the Class A Shares as of Tax-Free Fund, Inc.'s
most recent fiscal year.
The front-end sales charge is reduced on certain transactions of at
least $100,000 but under $1,000,000. There is no front-end sales charge on
purchases of $1,000,000 or more. Class A Shares are subject to annual 12b-1 Plan
expenses.
The price of Class B Shares of each Fund is equal to the net asset
value per share. USA B Class and Insured B Class shares are subject to a
contingent deferred sales charge ("CDSC") of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third
-6-
<PAGE>
or fourth year following purchase; (iii) 2% if shares are redeemed during the
fifth year following purchase; and (iv) 1% if shares are redeemed during the
sixth year following purchase. USA B Class and Insured B Class shares are
subject to annual 12b-1 Plan expenses for approximately eight years after
purchase. Intermediate B Class 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. Intermediate B Class shares are
subject to annual 12b-1 Plan expenses for approximately five years after
purchase. See Automatic Conversion of Class B Shares under Classes of Shares.
The price of Class C Shares of each Fund is equal to the net asset
value per share. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months of purchase. Class C Shares are subject to annual
12b-1 Plan expenses for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Funds.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and Class A Shares are subject to lower annual 12b-1 Plan expenses than
Class B and Class C Shares and generally are not subject to a CDSC.
Redemption and Exchange
Class A Shares of each Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Funds nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
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<PAGE>
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Funds
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.
Open-End Investment Company
Tax-Free Fund, Inc., which was organized as a Maryland corporation in
1983, is an open-end management investment company. Each Fund's portfolio of
assets is nondiversified as defined by the 1940 Act. See Shares under Management
of the Funds.
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<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
USA Fund Insured Fund Intermediate Fund
Class A Class B Class C Class A Class B Class C Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares Shares Shares Shares Shares Shares Shares
- -------------------------------- ------- -------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price). . . . . . . 4.75% None None 4.75% None None 3.00% None None
Maximum Sales Charge Imposed
on Reinvested Dividends
(as a percentage of
offering price) . . . . . . . . None None None None None None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
whichever is lower) . . . . . . None* 4.00%** 1.00%+ None* 4.00%** 1.00%+ None* 2.00%*** 1.00%+
Redemption Fees. . . . . . . . . . None++ None++ None++ None++ None++ None++ None++ None++ None++
</TABLE>
*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
**USA B Class and Insured B Class shares are subject to a CDSC of: (i) 4% if
shares are redeemed within two years of purchase; (ii) 3% if shares are redeemed
during the third or fourth year following purchase; (iii) 2% if shares are
redeemed during the fifth year following purchase; (iv) 1% if shares are
redeemed during the sixth year following purchase; and (v) 0% thereafter. See
Deferred Sales Charge Alternative - Class B Shares under Classes of Shares.
***Intermediate B Class shares are subject to a CDSC of (i) 2% if shares are
redeemed within the first two years of purchase; (ii) 1% if shares are redeemed
during the third year following purchase; and (iii) 0% thereafter. See Deferred
Sales Charge Alternative--Class B Shares under Classes of Shares.
+Class C Shares of each Fund are subject to a CDSC of 1% if shares are redeemed
within 12 months of purchase. See Level Sales Charge Alternative-- Class C
Shares under Classes of Shares.
++CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.
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<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses USA Fund Insured Fund USA Intermediate Fund
(as a percentage of Class A Class B Class C Class A Class B Class C Class A Class B Class C
average daily net assets) Shares Shares Shares Shares Shares Shares Shares Shares Shares
- ------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(after voluntary waivers in
the case of Intermediate Fund). . 0.59% 0.59% 0.59% 0.60% 0.60% 0.60% 0.00%* 0.00%** 0.00%**
12b-1 Plan Expenses
(including service fees). . . . . 0.20%+/++ 1.00%++ 1.00%++ 0.20%+/++ 1.00%++ 1.00%++ 0.15%++ 1.00%++ 1.00%++
Other Operating Expenses
(after expense limitations in the
case of Intermediate Fund) . . . 0.15% 0.15% 0.15%+++ 0.18% 0.18% 0.18%+++ 0.10%* 0.10%* 0.10%**
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Operating Expenses
(after voluntary waivers
and expense limitations in the
case of Intermediate Fund) . . 0.94% 1.74% 1.74% 0.98% 1.78% 1.78% 0.25%* 1.10%* 1.10%**
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
*The Manager elected voluntarily to waive that portion, if any, of the annual
management fees payable by the Intermediate Fund and to reimburse such Fund's
expenses to the extent necessary to ensure that the Total Operating Expenses of
the Fund, including the 12b-1 expenses, did not exceed .25% during the period
from the commencement of the public offering of the Fund through June 30, 1993.
This waiver and expense limitation was extended to June 30, 1994, but modified,
effective May 2, 1994 through December 31, 1996 to provide that annual operating
expenses would not exceed .10% (excluding 12b-1 fees). Because 12b-1 Plan fees
have been set at .15% by Tax-Free Fund, Inc.'s Board for the Intermediate A
Class, the amount of the voluntary waiver with respect to such Class, 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 of
the Intermediate A Class and Intermediate B Class, as a percentage of average
daily net assets, would have been .95% and 1.80%, respectively, reflecting
Management Fees of .47%.
**Other Operating Expenses for Intermediate C Class are based upon the actual
expenses incurred by Class A Shares and Class B Shares for the fiscal year ended
August 31, 1996 and the voluntary waiver of fees by the Manager. If the
voluntary expense waivers described in the previous note were not in effect, it
is estimated that Total Operating Expenses of the Intermediate C Class would be
1.80%, reflecting Management Fees of .47%.
+The actual 12b-1 Plan expenses to be paid and, consequently, the Total
Operating Expenses of the USA A Class and the Insured A Class, may vary because
of the formula adopted by the Board of Directors for use in calculating the
12b-1 Plan expenses for these Classes beginning June 1, 1992, but the 12b-1 Plan
expenses will not be more than .30% nor less than .10%. See Distribution (12b-1)
and Service under Management of the Funds.
++Class A Shares, Class B Shares and Class C Shares of each Fund are subject to
separate 12b-1 Plans. Long-term shareholders of the Classes may pay more than
the economic equivalent of the maximum front-end sales charges permitted by
rules of the National Association of Securities Dealers, Inc. (the "NASD"). See
Distribution (12b-1) and Service under Management of the Funds.
+++Other Operating Expenses for USA C Class and Insured C Class are estimates
based on the actual expenses incurred by the Class A Shares and Class B Shares
of the respective Funds for the fiscal year ended August 31, 1996.
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<PAGE>
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable.
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
USA Fund
Class A
Shares $57(1) $76 $97 $157 $57 $76 $97 $157
Class B
Shares $58 $85 $114 $184(2) $18 $55 $94 $184(2)
Class C
Shares $28 $55 $94 $205 $18 $55 $94 $205
Insured Fund
Class A
Shares $57(1) $77 $99 $162 $57 $77 $99 $162
Class B
Shares $58 $86 $116 $188(2) $18 $56 $96 $188(2)
Class C
Shares $28 $56 $96 $209 $18 $56 $96 $209
Intermediate Fund
Class A
Shares $32(1) $38 $44 $61 $32 $38 $44 $61
Class B
Shares $31 $45 $61(3) $78(3) $11 $35 $61(3) $78(3)
Class C
Shares $21 $35 $61 $134 $11 $35 $61 $134
</TABLE>
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in any of the
Classes will bear directly or indirectly.
(1) Generally, the Funds do not assess a redemption charge upon redemption of
Class A Shares. Under certain circumstances, however, a Limited CDSC,
which has not been reflected in this calculation, may be imposed on
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 approximately eight years after purchase, USA B Class and
Insured B Class shares will be automatically converted into Class A Shares
of the relevant Fund. The example above assumes conversion of Class B
Shares at the end of the eighth year. However, the conversion may occur as
late as three months after the eighth anniversary of purchase, during
which time the higher 12b-1 Plan fees payable by Class B Shares will
continue to be assessed. Information for the ninth and tenth years
reflects expenses of the Class A Shares. See Automatic Conversion of Class
B Shares under Classes of Shares for a description of the automatic
conversion feature.
(3) At the end of approximately five years after purchase, Intermediate B
Class shares will be automatically converted into Intermediate A Class
shares. The example above assumes conversion of Class B Shares at the end
of the fifth year. However, the conversion may occur as late as three
months after the fifth anniversary of purchase, during which time the
higher 12b-1 Plan fees payable by Class B Shares will continue to be
assessed. Information for the sixth through tenth years reflects expenses
of the Class A Shares. See Automatic Conversion of Class B Shares under
Classes of Shares for a description of the automatic conversion feature.
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.
-11-
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Delaware Group Tax-Free Fund, Inc. - Tax-Free USA Fund, Tax-Free Insured Fund
and 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, all of which are
incorporated by reference into Part B. Further information about the Funds'
performance is contained in their Annual Report to shareholders. A copy of
Tax-Free Fund, Inc.'s Annual Report (including the report of Ernst & Young LLP)
may be obtained from Tax-Free Fund, Inc. upon request at no charge.
- -------------------------------------------------------------------------------
-12-
<PAGE>
<TABLE>
<CAPTION>
USA A CLASS
----------------------------------------------------------
Year Ended
8/31/96 8/31/95 8/31/94 8/31/93 8/31/92(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $12.070 $12.040 $12.640 $12.130 $11.560
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.696 0.746 0.751 0.751 0.765
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.460) 0.030 (0.566) 0.610 0.570
----- ----- ------- ----- -----
Total From
Investment
Operations. . . 0.236 0.776 0.185 1.361 1.335
----- ----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.696) (0.746) (0.751) (0.751) (0.765)
Distributions
from Capital
Gains. . . . . . . (0.060) none (0.034) (0.100) none
Returns of
Capital. . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . (0.756) (0.746) (0.785) (0.851) (0.765)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $11.550 $12.070 $12.040 $12.640 $12.130
======= ======= ======= ======= =======
- ------------------------------------------------------
Total Return(2). . 1.91% 6.74% 1.49% 11.66% 11.91%
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $700,853 $758,470 $745,796 $762,574 $702,988
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.94% 0.92% 0.89% 0.89% 0.80%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 5.82% 6.29% 6.07% 6.10% 6.47%
Portfolio Turnover
Rate . . . . . . . 42% 27% 10% 12% 21%
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
USA A CLASS
------------------------------------------------------------
Year Ended
8/31/91 8/31/90 8/31/89 8/31/88 8/31/87
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $11.070 $11.600 $11.020 $10.930 $11.730
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.783 0.817 0.844 0.842 0.865
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . 0.490 (0.530) 0.580 0.090 (0.537)
----- ------- ----- ----- -------
Total From
Investment
Operations. . . 1.273 0.287 1.424 0.932 0.328
----- ----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.783) (0.817) (0.844) (0.842) (0.865)
Distributions
from Capital
Gains. . . . . . . none none none none (0.263)
Returns of
Capital. . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . (0.783) (0.817) (0.844) (0.842) (1.128)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $11.560 $11.070 $11.600 $11.020 $10.930
======= ======= ======= ======= =======
- ------------------------------------------------------
Total Return(2). . 11.88% 2.50% 13.30% 8.93% 0.50%
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $669,546 $611,505 $519,867 $390,987 $372,514
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.74% 0.75% 0.75% 0.77% 0.78%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 6.91% 7.12% 7.35% 7.76% 7.47%
Portfolio Turnover
Rate . . . . . . . 19% 14% 8% 25% 69%
</TABLE>
-14-
<PAGE>
- ---------------------------------------
(1) Beginning June 1, 1992, USA Fund began paying distribution expenses
pursuant to a Rule 12b-1 Plan.
(2) Does not reflect maximum sales charge of 4.75% nor the 1% Limited CDSC
that would apply in the event of certain redemptions within 12 months
of purchase.
-15-
<PAGE>
<TABLE>
<CAPTION>
USA B CLASS USA C CLASS
-------------------------------------- -----------
Period Period
5/2/94(1) 11/29/95(1)
Year Ended through through
8/31/96 8/31/95 8/31/94 8/31/96
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $12.070 $12.040 $12.080 $12.230
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.600 0.649 0.214 0.450
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.460) 0.030 (0.040) (0.620)
----- ----- ------- -------
Total From
Investment
Operations. . . 0.140 0.679 0.174 (0.170)
----- ----- ----- -------
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.600) (0.649) (0.214) (0.450)
Distributions
from Capital
Gains. . . . . . . (0.060) none none (0.060)
Returns of
Capital. . . . . . none none none none
---- ---- ---- ----
Total Distri-
butions . . . . (0.660) (0.649) (0.214) (0.510)
------- ------- ------- -------
Net Asset Value,
End of Period. . . $11.550 $12.070 $12.040 $11.550
======= ======= ======= =======
- ------------------------------------------------------
Total Return(2). . 1.11% 5.88% 1.45%(1) (1.44%)(1)
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $29,773 $17,779 $3,937 $805
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.74% 1.74% 1.74%(1) 1.74%(1)
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 5.03% 5.47% 5.22%(1) 5.03%(1)
Portfolio Turnover
Rate . . . . . . . 42% 27% 10% 42%
</TABLE>
-16-
<PAGE>
- -------------------------------
(1) Date of initial public offering. Ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be representative of longer term results.
(2) Total return does not reflect the contingent deferred sales charge
which varies from 1%-4% depending upon the holding period for USA B
Class and 1% for USA C Class for 12 months from the date of purchase.
-17-
<PAGE>
<TABLE>
<CAPTION>
INSURED A CLASS
----------------------------------------------------------------
Year Ended
8/31/96 8/31/95 8/31/94 8/31/93 8/31/92(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . . . $11.050 $11.020 $11.680 $11.310 $10.900
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . . . 0.588 0.639 0.622 0.638 0.674
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . . . (0.160) 0.030 (0.560) 0.400 0.410
------- ----- ------- ----- -----
Total From
Investment
Operations. . . . . 0.428 0.669 0.062 1.038 1.084
----- ----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . . . (0.588) (0.639) (0.622) (0.638) (0.674)
Distributions
from Capital
Gains. . . . . . . . . (0.030) none (0.100) (0.030) none
Returns of
Capital. . . . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . . . (0.618) (0.639) (0.722) (0.668) (0.674)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . . . $10.860 $11.050 $11.020 $11.680 $11.310
======= ======= ======= ======= =======
- ------------------------------------------------------
Total Return(2). . . . 3.88% 6.33% 0.54% 9.48% 10.23%
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . . . $81,149 $86,756 $91,235 $96,118 $85,660
Ratio of Expenses
to Average Daily
Net Assets . . . . . . 0.98% 0.98% 0.98% 0.98% 0.86%
Ratio of Expenses to
Average Daily Net
Assets Prior to
Expense Limitations. . --- --- --- --- ---
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . . . 5.29% 5.89% 5.48% 5.58% 6.06%
Ratio of Net Invest-
ment Income to
Average Daily Net
Assets Prior to
Expense Limitations. . --- --- --- --- ---
Portfolio Turnover
Rate . . . . . . . . . 45% 68% 56% 8% 29%
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
INSURED A CLASS
-------------------------------------------------------------
Year Ended
8/31/91 8/31/90 8/31/89 8/31/88 8/31/87
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . . . $10.460 $10.690 $10.300 $10.300 $10.770
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . . . 0.699 0.714 0.727 0.725 0.720
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . . . 0.440 (0.230) 0.390 none (0.470)
----- ------- ----- ---- -------
Total From
Investment
Operations. . . . . 1.139 0.484 1.117 0.725 0.250
----- ----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . . . (0.699) (0.714) (0.727) (0.725) (0.720)
Distributions
from Capital
Gains. . . . . . . . . none none none none none
Returns of
Capital. . . . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . . . (0.699) (0.714) (0.727) (0.725) (0.720)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . . . $10.900 $10.460 $10.690 $10.300 $10.300
======= ======= ======= ======= =======
- ------------------------------------------------------
Total Return(2). . . . 11.20% 4.63% 11.15% 7.34% 2.31%(2)
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . . . $76,700 $61,394 $54,131 $45,464 $44,929
Ratio of Expenses
to Average Daily
Net Assets . . . . . . 0.83% 0.83% 0.82% 0.82% 0.87%
Ratio of Expenses to
Average Daily Net
Assets Prior to
Expense Limitations. . --- --- --- --- 0.89%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . . . 6.50% 6.69% 6.86% 7.11% 6.71%
Ratio of Net Invest-
ment Income to
Average Daily Net
Assets Prior to
Expense Limitations. . --- --- --- --- 6.69%
Portfolio Turnover
Rate . . . . . . . . . 10% 13% 14% 9% 32%
</TABLE>
-19-
<PAGE>
- ---------------------------------------
(1) Beginning June 1, 1992, Insured Fund began paying distribution expenses
pursuant to a Rule 12b-1 Plan.
(2) Does not reflect maximum sales charge of 4.75% nor the 1% Limited CDSC
that would apply in the event of certain redemptions within 12 months
of purchase. Total return for 1987 reflects the expense limitations
referenced in the table.
-20-
<PAGE>
<TABLE>
<CAPTION>
INSURED B CLASS INSURED C CLASS
-------------------------------------- ---------------
Period Period
5/2/94(1) 11/29/95(1)
through through
8/31/96 8/31/95 8/31/94 8/31/96
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $11.050 $11.020 $10.990 $11.260
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . 0.499 0.550 0.179 0.375
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.160) 0.030 0.030 (0.370)
------- ----- ----- -------
Total From
Investment
Operations. . . 0.339 0.580 0.209 0.005
----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.499) (0.550) (0.179) (0.375)
Distributions
from Capital
Gains. . . . . . . (0.030) none none (0.030)
Returns of
Capital. . . . . . none none none none
---- ---- ---- ----
Total Distri-
butions . . . . (0.529) (0.550) (0.179) (0.405)
------- ------- ------- -------
Net Asset Value,
End of Period. . . $10.860 $11.050 $11.020 $10.860
======= ======= ======= =======
- ------------------------------------------------------
Total Return(2). . 3.05% 5.47% 1.91%(1) 0.01%(1)
- ------------
- ------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $3,375 $2,448 $826 $120
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.78% 1.80% 1.83%(1) 1.78%(1)
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 4.48% 5.07% 4.63%(1) 4.48%(1)
Portfolio Turnover
Rate . . . . . . . 45% 68% 56% 45%
</TABLE>
-21-
<PAGE>
- -------------------------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be represenative of longer term results.
(2) Total return does not reflect the contingent deferred sales charge
which varies from 1%-4% depending upon the holding period for Insured B
Class and 1% for Insured C Class for 12 months from the date of
purchase.
-22-
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE A CLASS
---------------------------------------------------
Period
1/7/93(1)
Year Ended through
8/31/96 8/31/95 8/31/94 8/31/93
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . . . $10.410 $10.320 $10.630 $10.000
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . . . 0.550 0.550 0.530 0.330
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . . . (0.090) 0.090 (0.310) 0.630
------- ----- ------- -----
Total From
Investment
Operations. . . . . 0.460 0.640 0.220 0.960
----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . . . (0.550) (0.550) (0.530) (0.330)
Distributions
from Capital
Gains. . . . . . . . . none none none none
Returns of
Capital. . . . . . . . none none none none
---- ---- ---- ----
Total Distri-
butions . . . . . . (0.550) (0.550) (0.530) (0.330)
------- ------- ------- -------
Net Asset Value,
End of Period. . . . . $10.320 $10.410 $10.320 $10.630
======= ======= ======= =======
- -------------------------------------------------------------
Total Return(2). . . . 4.52% 6.43% 2.09% 9.75%(1)
- ------------
- -------------------------------------------------------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . . . $22,617 $20,492 $28,193 $14,684
Ratio of Expenses
to Average Daily
Net Assets . . . . . . 0.25% 0.25% 0.25% 0.25%(1)
Ratio of Expenses to
Average Daily Net
Assets Prior to
Expense Limitations. . 0.95% 1.07% 1.19% 1.94%(1)
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . . . 5.29% 5.37% 5.00% 4.84%(1)
Ratio of Net Invest-
ment Income to
Average Daily Net
Assets Prior to
Expense Limitations. . 4.59% 4.55% 4.06% 3.15%(1)
Portfolio Turnover
Rate . . . . . . . . . 15% 63% 81% 53%
</TABLE>
-23-
<PAGE>
- ---------------------------------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be represenative of longer term results.
(2) Does not reflect maximum sales charge of 3.00% nor the 1% Limited CDSC
that would apply in the event of certain redemptions within 12 months
of purchase. Total return reflects the waiver of fees referenced in the
table.
-24-
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE B CLASS INTERMEDIATE C CLASS
-------------------------------------- --------------------
Period Period
5/2/94(1) 11/29/95(1)
Year Ended through through
8/31/96 8/31/95 8/31/94 8/31/96
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . . . $10.410 $10.320 $10.230 $10.480
Income From In-
- ---------------
vestment Operations
- -------------------
Net Investment
Income . . . . . . . . 0.460 0.460 0.150 0.035
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . . . (0.090) 0.090 0.090 (0.160)
------- ----- ----- -------
Total From
Investment
Operations. . . . . 0.370 0.550 0.240 0.190
----- ----- ----- -----
Less Distributions
- ------------------
Dividends from
Net Investment
Income . . . . . . . . (0.460) (0.460) (0.150) (0.350)
Distributions
from Capital
Gains. . . . . . . . . none none none none
Returns of
Capital... . . . . . . none none none none
---- ---- ---- ----
Total Distri-
butions . . . . . . (0.460) (0.460) (0.150) (0.350)
------- ------- ------- -------
Net Asset Value,
End of Period. . . . . $10.320 $10.410 $10.320 $10.320
======= ======= ======= =======
- -------------------------------------------------------------
Total Return(2). . . . 3.63% 5.53% 2.31%(1) 1.84%(1)
- ------------
- -------------------------------------------------------------
<PAGE>
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End
of Period (000's
omitted) . . . . . . . $1,490 $949 $597 $193
Ratio of Expenses
to Average Daily
Net Assets . . . . . . 1.10% 1.10% 1.10%(1) 1.10%(1)
Ratio of Expenses to
Average Daily Net
Assets Prior to
Expense Limitations. . 1.80% 1.92% 2.04%(1) 1.80%(1)
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . . . 4.44% 4.52% 4.15%(1) 4.44%(1)
Ratio of Net Invest-
ment Income to
Average Daily Net
Assets Prior to
Expense Limitations. . 3.74% 3.70% 3.21%(1) 3.74%(1)
Portfolio Turnover
Rate. . . . . . . . . 15% 63% 81% 15%
</TABLE>
-25-
<PAGE>
- -------------------------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be represenative of longer term results.
(2) Total return reflects the waiver of fees referenced in the table. Total
return does not reflect the contingent deferred sales charge which
varies from 1%-2% depending upon the holding period for Intermediate B
Class and 1% for Intermediate C Class for 12 months from the date of
purchase.
-26-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The objective of USA Fund is to seek as high a level of current
interest income exempt from federal income tax as is available from municipal
bonds and is consistent with prudent investment management and preservation of
capital.
The objective of Insured Fund is to seek as high a level of current
interest income exempt from federal income tax as is available from municipal
bonds which are protected by insurance guaranteeing the payment of principal and
interest when due and is consistent with prudent investment management and
preservation of capital.
The objective of Intermediate Fund is to seek as high a level of
current interest income exempt from federal income tax as is available from
municipal bonds and is consistent with prudent investment management and
preservation of capital. The Fund pursues its investment objective by investing
in a municipal bond portfolio having a dollar weighted average maturity of
between three and 10 years and utilizing various investment strategies and
quality restrictions, as described below.
The objective of each Fund cannot be changed without approval by the
shareholders of that Fund. There is no assurance that the objective of each Fund
can be achieved.
SUITABILITY
Each Fund is designed for investors seeking tax-exempt interest. The
Intermediate Fund can generally be expected to offer a lower level of income
than the USA Fund and Insured Fund, and the Insured Fund can generally be
expected to offer a lower level of income than the USA Fund.
The net asset value of shares of each Fund will fluctuate. When
interest rates rise, the share value will tend to fall, and when interest rates
fall, the share value will tend to rise. Therefore, the Funds may not be
suitable
-27-
<PAGE>
for an investor whose primary objective is stability of principal. The value of
shares of the Intermediate Fund will normally fluctuate less than the value of
shares of the USA and Insured Funds. This is because the average maturity of the
Intermediate Fund will typically be shorter than the average maturity of the USA
and Insured Funds, and the value of bonds of shorter maturity tends to be less
affected by changes in interest rates than bonds of longer maturity. This
pattern may vary during certain economic and market conditions.
Investors should be willing to accept the risk of investments in
municipal bonds. The insurance features of the Insured Fund may somewhat lessen
the risk of loss due to default by an issuer of bonds held in that Fund's
portfolio as compared to similarly situated uninsured bonds held by the USA
Fund, but such bonds remain subject to the risk of market fluctuation. Also,
there is no assurance that any insurance company will meet its obligations.
An investment in any of the Funds permits an investor to participate in
the municipal bond market while affording the advantages of a high degree of
liquidity and greater diversification than might be achieved by investing
directly in such securities. Ownership of Fund shares can also reduce the
bookkeeping and administrative inconvenience connected with direct purchases of
securities.
INVESTMENT STRATEGY
Tax-Exempt Investments
Each Fund invests primarily in municipal securities paying interest
income which, in the opinion of the bond issuer's counsel, is exempt from
federal income tax. 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. These securities include
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. 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 Funds will
invest in both types of bonds. Typically, the maturity of municipal bonds in
which USA Fund and Insured Fund invest will range between five and 30 years and
Intermediate Fund will have an average maturity between three and 10 years.
-28-
<PAGE>
Each Fund intends to invest at least 80% of its net assets under normal
market conditions in the types of securities described above as a fundamental
policy. Each Fund may invest up to 20% of its net assets in bonds the income
from which is subject to the federal alternative minimum tax. Although exempt
from regular federal income tax, interest paid on certain types of municipal
obligations (commonly referred to as "private activity" or "private purpose"
bonds) is deemed to be a preference item under federal tax law and is subject to
the federal alternative minimum tax.
-29-
<PAGE>
The following table shows what the impact of tax-free investing can be
for shareholders.
<TABLE>
<CAPTION>
1996 Rates
4.0%* 5.0%* 6.0%* 7.0%*
Taxable Income Federal Federal Federal Federal Federal
Tax Taxable Taxable Taxable Taxable
Single Return Joint Return Rate Equivalent Equivalent Equivalent Equivalent
<S> <C> <C> <C> <C> <C> <C>
$0-$24,000 $0-$40,100 15% 4.7% 5.9% 7.1% 8.2%
$24,001-$58,150 $40,101-$96,900 28% 5.6% 6.9% 8.3% 9.7%
$58,151-$121,300 $96,901-$147,700 31% 5.8% 7.2% 8.7% 10.1%
$121,301-$263,750 $147,701-$263,750 36%+ 6.3% 7.8% 9.4% 10.9%
Over $263,750 Over $263,750 39.6%+ 6.6% 8.3% 9.9% 11.6%
</TABLE>
The equivalent yields are calculated on 4, 5, 6 and 7 percent tax-free
yields. While it is expected that each Fund will invest principally in
obligations generating interest exempt from federal income tax, other income
received by a Fund may be taxable and certain income received by a Fund may be
subject to the federal alternative minimum tax.
* This should not be considered representative of a
Fund's yield at any specific time.
+ For tax years beginning after 1992, a 36% tax rate
applies to all taxable income in excess of the
maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to
capital gains) applies to certain high-income
taxpayers. It is computed by applying a 39.6% rate
to taxable income in excess of $263,750. The above
table does not reflect the personal exemption
phaseout nor the limitations of itemized deductions
that may apply.
Quality Restrictions
USA Fund intends to invest at least 80% of its portfolio in debt
obligations that are rated in the top four grades by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") at the time of
purchase. Intermediate Fund intends to invest at least 90% of its portfolio in
debt obligations that are either rated in the top four grades by Moody's or S&P
at the time of purchase or unrated, but in the Manager's opinion equivalent in
credit quality to obligations rated in the top four grades. The fourth grade is
considered medium grade and may have speculative characteristics.
USA Fund may invest up to 20% of its assets in securities with a rating
lower than the top four grades and in unrated securities. Intermediate Fund 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
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<PAGE>
opinion equivalent in credit quality to obligations rated lower than the top
four grades. Securities of lower credit quality are speculative and may involve
greater risks and have higher yields. See Appendix B -- Ratings for a
description of Moody's and S&P's Ratings.
Insured Fund intends to invest at least 80% of its assets in debt
obligations which are insured by various insurance companies that undertake to
pay to a holder the interest or principal amount of an obligation if the
interest or principal is not paid by the issuer when due. At present, the
Municipal Bond Insurance Association ("MBIA"), AMBAC Indemnity Corporation
("AMBAC Indemnity") and Financial Guaranty Insurance Company ("FGIC") provide a
substantial portion of such insurance. Accordingly, at different times, a
substantial portion of the Insured Fund's portfolio may consist of municipal
bonds that are insured by a single insurance company. In the event of a default,
the insurer is required to make payments of interest and principal when due to
the bondholders. There is no assurance that the insurance company will meet its
obligations. The Manager does not look to the creditworthiness of a private
insurer. Instead, the Manager reviews the creditworthiness of the actual issuer
and its ability to pay interest and principal. Insurance on municipal bonds that
is purchased by the Insured Fund will generally have been obtained by the bond
issuer and attached to the bonds for their lifetime, although in some instances
this Fund will obtain insurance on bonds while they are held by the Fund.
Insured Fund may invest a portion of its assets in debt obligations that are
considered to be below investment grade. The Fund presently intends to limit
such investments to no more than 5% of its assets measured at the time of
purchase.
Diversification
Each Fund's portfolio of assets is nondiversified as defined by the
1940 Act. This means that the Manager has the flexibility to invest as much as
50% of each Fund's assets in as few as two issuers provided no single issuer
accounts for more than 25% of the portfolio. The remaining 50% of each portfolio
must be diversified so that no more than 5% of it is invested in the securities
of a single issuer. Those limitations notwithstanding, and except as otherwise
provided herein, each Fund may invest up to 20% of its assets in U.S. government
securities and government agency securities that are backed by the U.S.
government, its agencies or instrumentalities. Because the Funds may invest
their assets in fewer issuers, the value of Fund shares may increase or decrease
more rapidly than if the Fund were fully diversified. In the event a Fund
invests more than 5% of its assets in a single issuer, it would be affected more
than a fully diversified fund if that issuer were to encounter difficulties in
satisfying its financial obligations.
-31-
<PAGE>
Each Fund may invest more than 25% of its assets in municipal
obligations relating to similar types of projects or with other similar
economic, business or political characteristics (such as bonds of housing
finance agencies or health care facilities). In addition, each Fund may invest
more than 25% of its assets in industrial development bonds or pollution control
bonds which may be backed only by the assets and revenues of a nongovernmental
issuer. A Fund will not, however, invest more than 25% of its total assets in
bonds issued for companies in the same industry.
Percentage limitations outlined above are determined at the time an
investment is made.
Other Considerations
Each Fund may invest, without limit, in short-term, tax-free
instruments such as tax-exempt commercial paper and general obligation, revenue
and project notes, as well as variable and floating rate demand obligations.
Short-term securities will be rated in the top two grades by a nationally
recognized rating agency.
Under abnormal conditions, each Fund 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.
* * *
For a description of other investment policies of the Funds and for a
further description of some of the policies described above, see Other
Investment Policies and Risk Considerations.
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<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information, Literature, Price, Yield and
Performance Figures
Shareholder Service Center
800-523-1918
Information on Existing Investment Accounts,
Wire Investments, Wire Liquidations, Telephone
Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for current
yield information. Current yield and total return information may also be
included in advertisements and information given to shareholders. Yields are
computed on an annual basis over a 30-day period.
Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your account,
the Funds, various service features and other funds in the Delaware Group.
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. Delaphone also provides
current performance information on the Funds, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.
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<PAGE>
Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective subject to
certain exceptions and limitations.
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
MoneyLine Direct Deposit Service
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may choose
the MoneyLine Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If your name and address are not identical to the name and address on
your Fund account, you must have your signature guaranteed.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
-34-
<PAGE>
Tax Information
Each year, Tax-Free Fund, Inc. will mail to you information on the tax
status of your dividends and distributions.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of a Fund with the dollar amount of new
purchases of Class A Shares of that Fund to qualify for a reduced front-end
sales charge on such purchases of Class A Shares. Under the Combined Purchases
Privilege, you may also include certain shares that you own in other funds in
the Delaware Group. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See Classes
of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.
Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your
shares into shares of the other funds in the Delaware Group, subject to certain
exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to 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, Class B and Class C Shares. See Additional Methods
of Adding to Your Investment - Wealth Builder Option and Investing by Exchange
under How to Buy Shares, and Redemption and Exchange.
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<PAGE>
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
you, working with a professional financial adviser, the ability to more easily
design and maintain investments in a diversified selection of Delaware Group
mutual funds. The Asset Planner service offers a choice of four predesigned
allocation strategies (each with a different risk/reward profile) made up of
separate investments in predetermined percentages of Delaware Group funds. With
the guidance of a financial adviser, you may also tailor an allocation strategy
that meets your personal needs and goals. See How to Buy Shares.
Financial Information about the Funds
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Tax-Free Fund, Inc.'s fiscal year ends
on August 31.
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<PAGE>
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of .30% (for the Intermediate A Class, currently no more than .15%
pursuant to Board action) of average daily net assets of such shares. Certain
purchases of Class A Shares qualify for reduced front-end sales charges. See
Front-End Sales Charge Alternative - Class A Shares. See also Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value and Distribution (12b-1) and Service.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if shares are redeemed within six years of purchase in the case of USA B Class
and Insured B Class, or within three years of purchase in the case of
Intermediate B Class. Class B Shares 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 or others for providing personal service and/or maintaining
shareholder accounts) of average daily net assets of USA B Class and Insured B
Class shares for approximately eight years after purchase and of Intermediate B
Class shares for 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 Class A Shares. The USA B
Class and Insured B Class shares will automatically be converted into Class A
Shares at the end of approximately eight years after purchase and the
Intermediate B Class shares will automatically be converted into Class A Shares
at the end of approximately five years after purchase. See Automatic
Conversion of Class B Shares, below.
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<PAGE>
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for the life of the investment. The higher 12b-1 Plan expenses paid
by Class C Shares will cause such shares to have a higher expense ratio and to
pay lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares
do not convert to another class.
The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in a Fund with their investment being subject
to a CDSC if they redeem shares within the applicable time periods, or purchase
Class C Shares and have the entire initial purchase amount invested in a Fund
with their investment being subject to a CDSC if they redeem shares within 12
months of purchase. In addition, investors should consider the level of annual
12b-1 Plan expenses applicable to each Class. In comparing Class B Shares to
Class C Shares, investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.
As an illustration, investors who qualify for significantly reduced
front-end sales charges on purchases of Class A Shares, as described below,
might choose the front-end sales charge alternative because similar sales charge
reductions are not available for purchases under either the deferred sales
charge alternative or the level 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% (for Intermediate A Class, currently no more
than .15% pursuant to Board action), whereas Class B
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<PAGE>
Shares acquired under the deferred sales charge alternative are subject to
annual 12b-1 Plan expenses of up to 1% until automatically converted into Class
A Shares (see Automatic Conversion of Class B Shares) and Class C Shares
acquired under the level sales charge alternative are subject to annual 12b-1
Plan expenses of up to 1% for the life of the investment. However, because
front-end sales charges are deducted from the purchase amount at the time of
purchase, investors who buy Class A Shares would not have their full purchase
amount invested in the Fund.
Other investors might determine it to be more advantageous to purchase
Class B Shares and have all their money invested initially, even though they
would be subject to a CDSC for up to six years after purchase for USA B Class
and Insured B Class and up to three years after purchase for Intermediate B
Class and annual 12b-1 Plan expenses of up to 1% until the shares are
automatically converted into Class A Shares. Still other investors might
determine it to be more advantageous to purchase Class C Shares and have all of
their money invested initially, recognizing that they would be subject to a CDSC
for just 12 months after purchase, but that Class C Shares do not offer a
conversion feature, so their shares would be subject to annual 12b-1 Plan
expenses of up to 1% for the life of the investment. The higher 12b-1 Plan
expenses on Class B Shares and Class C Shares will be offset to the extent a
return is realized on the additional money initially invested upon the purchase
of such shares. However, there can be no assurance as to the return, if any,
that will be realized on such additional money.
Prospective investors should refer to Appendix A -- Investment
Illustrations to this Prospectus for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of the Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares and the Class C Shares,
from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred
upon redemption. Financial advisers may receive different compensation for
selling Class A, Class B and Class C Shares. Investors should understand that
the purpose and function of the respective 12b-1 Plans and the CDSCs applicable
to Class B Shares and Class C Shares are the same as those of the 12b-1
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<PAGE>
Plan and the front-end sales charge applicable to Class A Shares in that such
fees and charges are used to finance the distribution of the respective Classes.
See 12b-1 Distribution Plans - Class A, Class B and Class C Shares.
Dividends paid on Class A, Class B and Class C Shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount, except that the additional
amount of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will
be borne exclusively by such shares. See Calculation of Offering Price and Net
Asset Value Per Share.
The NASD has adopted certain rules relating to investment company sales
charges. Tax-Free Fund, Inc. and the Distributor intend to operate in compliance
with these rules.
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75% in the case of USA A Class and Insured
A Class, or 3.00% in the case of Intermediate A Class. See Calculation of
Offering Price and Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
USA A Class and Insured A Class
- -------------------------------------------------------------
Dealer's
Front-End Sales Charge Commission***
as % of as % of
Amount of Purchase Offering Amount Offering
Price Invested** Price
- -------------------------------------------------------------
USA Insured
Fund Fund
Less than $100,000 4.75% 5.02% 4.97% 4.00%
$100,000 but
under $250,000 3.75 3.89 3.86 3.00
$250,000 but
under $500,000 2.50 2.59 2.57 2.00
$500,000 but
under $1,000,000* 2.00 2.08 2.02 1.60
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<PAGE>
Intermediate Fund A Class
- ------------------------------------------------------------
Dealer's
Front-End Sales Charge Commission***
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 2.52 2.00
$250,000 but
under $500,000 2.00 2.03 1.60
$500,000 but
under $1,000,000* 1.50 1.55 1.20
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.
** Based upon the net asset value per share of the respective Class A
Shares as of the end of Tax-Free Fund, Inc.'s most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- -------------------------------------------------------------
A Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by such Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front- end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional commission of up to .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.
- -------------------------------------------------------------
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<PAGE>
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedules:
USA A Class and Insured A Class
Dealer's Commission
-------------------
(as a percentage of
Amount of Purchase amount purchased)
- ------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
Intermediate A Class
Dealer's Commission
-------------------
(as a percentage of
Amount of Purchase amount purchased)
- ------------------
Up to $3 million 0.60%
Next $2 million up to $5 million 0.40
Amount over $5 million 0.20
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 those of the Class A Shares
of a Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred
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<PAGE>
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of a Fund and shares of the other funds in
the Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares of a Fund may be purchased at net asset value under the
Delaware Group Dividend Reinvestment Plan and, under certain circumstances, the
Exchange Privilege and the 12-Month Reinvestment Privilege. See The Delaware
Difference and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any
-43-
<PAGE>
affiliate, any of the funds in the Delaware Group, certain of their agents and
registered representatives and employees of authorized investment dealers and by
employee benefit plans for such entities. Individual purchases, including those
in retirement accounts, must be for accounts in the name of the individual or a
qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager or any of its affiliates may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs.
Shares of the Intermediate A Class may be purchased at net asset value
by any investor 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 Intermediate A Class;
and 2) a front-end sales
-44-
<PAGE>
charge was paid in connection with the purchase of the redeemed shares or a
contingent deferred sales charge was paid upon their redemption.
A Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling USA B Class and Insured B Class
shares at the time of purchase from its own assets in an amount equal to no more
than 4% of the dollar amount purchased. Such payments for Intermediate B Class
shares are currently anticipated to be in an amount equal to no more than 2%. In
addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if USA B Class and Insured
B Class shares are redeemed within six years of purchase and Intermediate B
Class 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 providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class B Shares
described in this Prospectus, even after the exchange. USA B Class' and Insured
B Class' CDSC schedule may be higher than the CDSC schedule for the Class B
Shares acquired as a result of the exchange. See Redemption and Exchange.
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<PAGE>
Automatic Conversion of Class B Shares
USA B Class and Insured B Class shares, other than shares acquired
through reinvestment of dividends, held for eight years after purchase are
eligible for automatic conversion into Class A Shares. Intermediate B Class
shares, other than shares acquired through reinvestment of dividends, held for
five years after purchase are eligible for automatic conversion into Class A
Shares. Conversions of Class B Shares into Class A Shares will occur only four
times in any calendar year, on the last business day of the second full week of
March, June, September and December (each, a "Conversion Date"). If, as
applicable, the eighth or 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 such anniversary occurs between Conversion Dates, an investor's
Class B Shares will be converted on the next Conversion Date after the
anniversary. Consequently, if a shareholder's anniversary falls on the day after
a Conversion Date, that shareholder will have to hold Class B Shares for as long
as three additional months after, as applicable, the eighth or fifth anniversary
of purchase before the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, however, Class C Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a
CDSC.
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Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within prescribed periods after purchase may be
subject to a CDSC at the rates set forth below and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestments of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of the Class B Shares or the
Class C Shares of a Fund, even if those shares are later exchanged for shares of
another Delaware Group fund. In the event of an exchange of the shares, the "net
asset value of such shares at the time of redemption" will be the net asset
value of the shares that were acquired in the exchange.
The following table sets forth the rates of the CDSC for the USA B
Class and the Insured B Class:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
- ------------------------ -------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
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During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, USA B Class shares and Insured B Class shares
will still be subject to the annual 12b-1 Plan expenses of up to 1% of average
daily net assets of those shares. See Automatic Conversion of Class B Shares,
above. Investors are reminded that the Class A Shares into which the Class B
Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to a
maximum of .30% of average daily net assets of such shares.
The following table sets forth the rates of the CDSC for the
Intermediate B Class:
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, Intermediate B Class shares will still be
subject to the annual 12b-1 Plan expenses of up to 1% of average daily net
assets of those shares. See Automatic Conversion of Class B Shares above.
Investors are reminded that the Intermediate A Class shares into which the
Intermediate B Class 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 applies to a redemption of Class B
Shares, it will be assumed that USA B Class and Insured B Class shares held for
more than six years and Intermediate B Class shares held for more than three
years are redeemed first, followed by shares acquired through the reinvestment
of dividends or distributions, and finally by shares held longest during the
six-year or three-year period, as applicable. With respect to Class C Shares, it
will be assumed that shares held for more than 12 months are redeemed first
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held for 12 months or less.
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All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to .25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
Subject to pending amendments to the NASD's Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Rules of Fair Practice will be amended such that
the ability of the Distributor to pay non-cash compensation as described above
will be restricted in some fashion. The Distributor intends to comply with the
NASD's Rules of Fair Practice as they may be amended.
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HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under a Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares: (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares; and (ii) generally are not subject to a CDSC.
Investing through Your Investment Dealer
You can make a purchase of shares of the Funds 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 Fund and Class selected to Delaware
Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and 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
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from the Fund. Use of this investment slip can help expedite processing of your
check when making additional purchases. Your investment may be delayed if you
send additional purchases by certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Class in which you are
investing).
1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application to the specific Fund and Class selected to Delaware Group at 1818
Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of a Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus.
Holders of Class A Shares of a Fund may exchange all or part of their
shares for certain of the shares of other funds in the Delaware Group, including
other Class A Shares, but may not exchange their Class A Shares for Class B
Shares or Class C Shares of the Fund or of any other fund in the Delaware Group.
Holders of Class B Shares of a Fund are permitted to exchange all or part of
their Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of a Fund are permitted to exchange all or
part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See Appendix C -- Classes Offered for a list of Delaware Group funds and
the classes they offer. Class B Shares of a Fund and Class C Shares of a Fund
acquired by exchange will continue to carry the CDSC and, in the case of Class B
Shares, the automatic
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conversion schedule of the fund from which the exchange is made. The holding
period of the Class B Shares of a Fund acquired by exchange will be added to
that of the shares that were exchanged for purposes of determining the time of
the automatic conversion into Class A Shares of a Fund.
Permissible exchanges into Class A Shares of a Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Tax-Free Fund,
Inc. to transfer a designated amount monthly from your checking account to your
Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your account for you (for example: payroll deduction, pay by phone, annuity
payments). Each Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Tax-Free Fund, Inc. has the
right to liquidate your Fund shares to reimburse the government or transmitting
bank. If there are insufficient funds in your account, you are obligated to
reimburse the Fund.
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3. Wealth Builder Option
You can use our Wealth Builder Option to invest in a Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group. You may also elect to invest in other mutual funds in the Delaware Group
through the Wealth Builder Option through regular liquidations of shares in your
Fund account.
Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account in
one or more funds in the Delaware Group and invested automatically into such
other Delaware Group account that you may specify. If in connection with the
election of the Wealth Builder Option, you wish to open a new account to receive
the automatic investment, such new account must meet the minimum initial
purchase requirements described in the prospectus of the fund that you select.
Investments under this option are exchanges and are therefore subject to the
same conditions and limitations as other exchanges noted above. You can
terminate your participation at any time by written notice to the fund from
which exchanges are made. See Redemption and Exchange.
4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your account. Or, you may invest
your distributions in certain other funds in the Delaware Group, subject to the
exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Group funds or into Class C Shares of a Fund or of other Delaware Group
funds are also made without any sales charge and will not be subject to a CDSC
if later redeemed. See Automatic Conversion of Class B Shares under Classes of
Shares for information concerning the automatic conversion of Class B Shares
acquired by reinvesting dividends.
Holders of Class A Shares of a Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
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which offer that class of shares. Similarly, holders of Class C Shares of a Fund
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix C -- Classes
Offered for a list of the funds offering those classes of shares. For more
information about reinvestments, call the Shareholder Service Center.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset
Planner asset allocation service, you should complete a Delaware Group Asset
Planner Account Registration Form, which is available only from a financial
adviser or investment dealer. As previously described, the Delaware Group Asset
Planner service offers a choice of four predesigned asset allocation strategies
(each with a different risk/reward profile) in predetermined percentages in
Delaware Group funds. Or, with the help of a financial adviser, you may design a
customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange, above. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available through the Asset Planner service. Generally, only shares within the
same class may be used within the same Strategy. However, Class A Shares of a
Fund and of other funds in the Delaware Group may be used in the same Strategy
with consultant class shares that are offered by certain other Delaware Group
funds. See Appendix C -- Classes Offered for the funds in the Delaware Group
that offer consultant class shares.
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An annual maintenance fee, currently $35 per Strategy, is typically due
at the time of initial investment and by September 30th of each subsequent year.
The fee, payable to Delaware Service Company, Inc. to defray extra costs
associated with administering the Asset Planner service, will be deducted
automatically from one of the funds within your Asset Planner account if not
paid by September 30th. However, effective November 1, 1996 the annual fee will
be waived until further notice. See Part B.
Investors will receive a customized quarterly Strategy Report
summarizing all Delaware Group Asset Planner investment performance and account
activity during the prior period. Confirmation statements will be sent following
all transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class B and
Class C Shares are determined as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund in which the shares are being
purchased. 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 or net asset value of shares is determined, as noted above.
Purchase orders received after such time will be effective the next business
day.
The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. Each 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. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted,
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you may be subject to additional bank charges for clearance
and currency conversion.
Each Fund also reserves the right, following shareholder notification,
to charge a service fee on accounts that have remained below the minimum stated
account balance for a period of three or more consecutive months. Holders of
such accounts may be notified of their insufficient account balance and advised
that they have until the end of the current calendar quarter to raise their
balance to the stated minimum. If the account has not reached the minimum
balance requirement by that time, the Fund will charge a $9 fee for that quarter
and each subsequent calendar quarter until the account is brought up to the
minimum balance. The service fee will be deducted from the account during the
first week of each calendar quarter for the previous quarter, and will be used
to help defray the cost of maintaining low-balance accounts. No fees will be
charged without proper notice, and no CDSC will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other tax-advantaged funds, equity funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
Redemption or exchange requests received in good order after the time the
offering price and net asset value of shares are determined, as noted above,
will be processed on the next business day. See Purchase Price and Effective
Date under How to Buy Shares. A shareholder submitting a redemption request may
indicate that he or she wishes to receive redemption proceeds of a specific
dollar amount. In the case of such a request, a Fund will redeem the number of
shares necessary to deduct the applicable CDSC in the case of Class B and Class
C Shares, or, if applicable, the Limited CDSC in the case of Class A Shares and
tender to the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon redemption will
be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds
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will be distributed promptly, as described below, but not later than seven days
after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail the proceeds until it is
reasonably satisfied that the check has cleared, which may take up to 15 days
from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. Each Fund reserves the right to reject a written
or telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for 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 Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of the other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this Prospectus and any CDSC assessed upon redemption will be charged by the
Fund from which the
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Original Shares were exchanged. In an exchange of shares from either USA B Class
or Insured B Class, the CDSC schedule for such Class may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. The automatic
conversion schedule of the Original Shares of USA B Class or Insured B Class may
be longer than that of the New Shares. Consequently, an investment in New Shares
by exchange may subject an investor to the higher 12b-1 fees applicable to USA B
Class and Insured B Class shares for a longer period of time than if the
investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund or its agent.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Funds require 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. Each Fund reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
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Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate must accompany your request and also be in good order. Certificates
are issued for Class A Shares only if a shareholder submits a specific request.
Certificates are not issued for Class B Shares or Class C Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your shares into another
mutual fund in the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. The Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each 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, such 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.
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By exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the request. This service is only available to individual,
joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption. If you ask for a check, it will normally be mailed the next business
day after receipt of your request to your predesignated bank account. There are
no separate fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call the Shareholder Service Center prior
to the time the offering price and net asset value are determined, as noted
above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide
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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 Funds do not
recommend any particular monthly amount, as each shareholder's situation and
needs vary. Payments are normally made by check. In the alternative, you may
elect to have your payments transferred from your Fund account to your
predesignated bank account through the MoneyLine Direct Deposit Service. Your
funds will normally be credited to your bank account two business days after the
payment date. There are no separate fees for this redemption method. See
MoneyLine Direct Deposit Service under The Delaware Difference for more
information about this service.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value, below.
The applicable CDSC for Class B Shares and Class C Shares redeemed via
a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge - Class B and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.
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Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made within 12 months
of purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission previously described.
See Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of the
Class A Shares being redeemed; or (2) the net asset value of such Class A Shares
at the time of redemption. For purposes of this formula, the "net asset value at
the time of purchase" will be the net asset value at purchase of the Class A
Shares even if those shares are later exchanged for shares of another Delaware
Group fund and, in the event of an exchange of Class A Shares, the "net asset
value of such shares at the time of redemption" will be the net asset value of
the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge--Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right
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to liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than the then-effective minimum account size;
and (ii) redemptions by the classes of shareholders who are permitted to
purchase shares at net asset value, regardless of the size of the purchase (see
Buying Class A Shares at Net Asset Value under Classes of Shares).
Waiver of Contingent Deferred Sales Charge--Class B and Class C Shares
The CDSC on Class B and Class C Shares is waived in connection with the
following redemptions: (i) redemptions that result from a Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the shares
held in the account is less than the then-effective minimum account size; and
(ii) distributions from an account if the redemption results from the death of
all registered owners of the account (in the case of accounts established under
the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a total
and permanent disability (as defined in Section 72 of the Internal Revenue Code)
of all registered owners occurring after the purchase of the shares being
redeemed.
In addition, the CDSC will be waived on Class B Shares and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of the value
of the account on the date that the Systematic Withdrawal Plan was established
or modified.
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DIVIDENDS AND DISTRIBUTIONS
Tax-Free Fund, Inc. declares a dividend on each Fund to all
shareholders of record at the time the offering price of shares is determined.
See Purchase Price and Effective Date under How to Buy Shares. Thus, when
redeeming shares, dividends continue to be credited up to and including the date
of redemption.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a 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 a Fund will share proportionately in the investment
income and expenses of that Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares of a Fund
will vary due to the expenses under the 12b-1 Plan applicable to each Class.
Generally, the dividends per share on Class B Shares and Class C Shares can be
expected to be lower than the dividends per share on Class A Shares because the
expenses under the 12b-1 Plans relating to Class B and Class C Shares will be
higher than the expenses under the 12b-1 Plan relating to Class A Shares. See
Distribution (12b-1) and Service under Management of the Funds.
Dividends are declared daily and paid monthly. 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
United States Post Office or which remains uncashed for a period of more than
one year may be reinvested in your account at the then-current net asset value
and the dividend option may be changed from cash to reinvest. If you elect to
take your dividends and distributions in cash and such
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dividends and distributions are in an amount of $25 or more, you may choose the
MoneyLine Direct Deposit Service and have such payments transferred from your
Fund account to your predesignated bank account. See MoneyLine Direct Deposit
Service under The Delaware Difference for more information about this service.
Each Fund anticipates that substantially all of its dividends from net
investment income paid to shareholders will be exempt from federal income tax.
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TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). As such, each Fund will not be subject to federal income tax, or
to any excise tax, to the extent its earnings are distributed as provided in the
Code. Each Fund intends to distribute substantially all of the its net
investment income and net capital gains, if any.
Each Fund intends to invest a sufficient portion of its assets in
municipal bonds and notes so that it will qualify to pay "exempt-interest
dividends" to shareholders. Such exempt-interest dividends distributed to
shareholders are excluded from a shareholder's gross income for federal tax
purposes.
A portion of each Fund's dividends may be derived from income on
"private activity" municipal bonds and therefore may be a preference item under
federal tax law and subject to the federal alternative minimum tax. No portion
of a Fund's distributions will be eligible for the dividends-received deduction
for corporations.
To the extent dividends are derived from taxable income on temporary
investments or short-term capital gains, they are treated as ordinary income,
whether received in cash or in additional shares. In addition, gain from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of the accrued market discount.
Distributions paid by a Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Funds do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a byproduct of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year
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to year. Also, for those investors subject to tax, if purchases of shares in a
Fund 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 to
shareholders of record on a specified date in one of those months, but which,
for operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by a Fund and received by
the shareholder on December 31 of the calendar year in which they are declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less, will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares and will be disallowed to the extent of
exempt-interest dividends paid with respect to such shares. All or a portion of
the sales charge incurred in acquiring Fund shares will be excluded from the
federal tax basis of any of such shares sold or exchanged within 90 days of
their purchase (for purposes of determining gain or loss upon sale of such
shares) if the sale proceeds are reinvested in a Fund or in another fund in the
Delaware Group of funds and a sales charge that would otherwise apply to the
reinvestment is reduced or eliminated. Any portion of such sales charge excluded
from the tax basis of the shares sold will be added to the tax basis of the
shares acquired in the reinvestment.
Exempt-interest dividends paid by each Fund, although exempt from
regular federal income tax in the hands of a shareholder, are includable in the
tax base for determining the extent to which a shareholder's Social Security
benefits would be subject to federal income tax. Shareholders are required to
disclose their receipt of tax-exempt interest on their federal income tax
returns.
The automatic conversion of Class B Shares into Class A Shares of the
relevant Fund will be tax-free for federal tax purposes. See Automatic
Conversion of Class B Shares under Classes of Shares.
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The exemption of dividends for regular federal income tax purposes may
not result in similar exemptions under the laws of a particular state or local
taxing authority. It is recommended that shareholders consult their tax advisers
in this regard.
Shares of each Fund will be exempt from Pennsylvania county personal
property taxes. Tax-Free Fund, Inc. 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, Tax-Free Fund, Inc. will mail you information on the tax
status of each Fund's dividends and distributions.
Tax-Free Fund, Inc. is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Investment Application your proper
Taxpayer Identification Number and by certifying that you are not subject to
backup withholding.
See Taxes in Part B for additional information on tax matters relating
to each Fund and its shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share for a Fund is computed by adding
the value of all securities and other assets in that Fund's portfolio, deducting
any liabilities of that Fund (expenses and fees are accrued daily) and dividing
by the number of that Fund's shares outstanding. Debt securities are priced on
the basis of valuations provided 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 Tax-Free Fund, Inc.'s Board of Directors.
Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV. The offering price
per share of Class A Shares consists of the NAV per share next computed after
the order is received, plus any applicable front-end sales charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each Class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that Class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in that Fund represented by the value of shares of such Classes,
except that Class A Shares, Class B Shares and Class C Shares will bear only the
12b-1 Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that may be allocable to each Class, the
dividends paid to each Class of a particular Fund may vary. However, the NAV per
share of each Class of a particular Fund is expected to be equivalent.
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MANAGEMENT OF THE FUNDS
Directors
The business and affairs of Tax-Free Fund, Inc. 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 each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On August 31, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $29 billion in assets in the various
institutional or separately managed (approximately $17,919,998,000) and
investment company (approximately $11,108,022,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. In connection with the merger, new
Investment Management Agreements between Tax-Free Fund, Inc. and the Manager on
behalf of each Fund were executed following shareholder approval.
The Manager manages each Fund's portfolio and makes and implements
investment decisions, which are implemented by the Funds' Trading Department.
The Manager also administers Tax- Free Fund, Inc.'s affairs and pays Tax-Free
Fund, Inc.'s rent and the salaries of all the directors, officers and employees
of Tax-Free Fund, Inc. who are affiliated with the Manager. For these services,
the annual compensation paid to the Manager is equal to: for USA Fund, .60% on
the first $500 million of average daily net assets, .575% on the next $250
million and .55% on the average daily net assets in excess of $750 million; for
Insured Fund, .60% of the average daily net assets of the Fund; and for
Intermediate Fund, .50% of the average daily net assets of the Fund, less in
each case, the
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Fund's proportionate share of all directors' fees paid to the unaffiliated
directors of Tax-Free Fund, Inc. The investment management fees paid by each of
USA Fund and Insured Fund for the fiscal year ended August 31, 1996 were .59%
and .60%, respectively, of average daily net assets. After considering the
waiver of fees by the Manager described under Summary of Expenses, the Manager
received no compensation from Intermediate Fund for this period. Had the waiver
not been in effect, investment management fees payable by Intermediate Fund
would have been .47% of average daily net assets.
Patrick P. Coyne, a Vice President/Senior Portfolio Manager of Tax-Free
Fund, Inc., assumed primary responsibility for making day-to-day investment
decisions for USA Fund and Insured Fund as of July 1, 1994. Mr. Coyne has had
such responsibility for Intermediate Fund since its inception. A graduate of
Harvard University with an MBA from the University of Pennsylvania's Wharton
School, Mr. Coyne joined the Delaware Group's fixed-income department in 1990.
Prior to that, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk,
and specialized in trading high grade municipal bonds and municipal futures
contracts. Mr. Coyne is a member of the Municipal Bond Club of Philadelphia.
In making investment decisions for the Funds, Mr. Coyne consults with
Paul E. Suckow, J. Michael Pokorny and other members of the Delaware Group's
fixed-income department. Mr. Suckow is Executive Vice President/Chief Investment
Officer, Fixed Income of Tax-Free Fund, Inc. 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 where he served as Executive Vice
President and Director of Fixed Income. Mr. Pokorny is a Vice President/Senior
Portfolio Manager of Tax-Free Fund, Inc. He is a graduate of William and Mary
College and has over 30 years of fixed-income experience. He joined the Delaware
Group in 1978.
Portfolio Trading Practices
Each Fund may sell securities without regard to the length of time they
have been held. Trading will be undertaken principally to achieve a Fund's
objective in light of expected changes in interest rates. The degree of trading
activity will affect brokerage costs of a Fund and may affect taxes payable by
such Fund's shareholders. Given each Fund's investment objective, the annual
portfolio turnover rate
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for each Fund is not expected to exceed 100%. During the past two fiscal years,
portfolio turnover rates for each Fund were as follows:
August 31,
1996 1995
---- ----
USA Fund 42% 27%
Insured Fund 45% 68%
Intermediate Fund 15% 63%
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 Fund shares in placing portfolio orders,
and may place orders with broker/dealers that have agreed to defray certain Fund
expenses such as custodian fees.
Performance Information
From time to time, each Fund may quote yield or total return
performance of its Classes in advertising and other types of literature.
The current yield for each of the Classes 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. Each Fund may also publish a
tax-equivalent yield concerning a Class based on federal and, if applicable,
state tax rates, which demonstrates the taxable yield necessary to produce an
after-tax yield equivalent to such Class' yield.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for
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one-, five- and ten-year or life-of-fund periods, as relevant. The Funds may, in
addition, advertise aggregate and average total return information over
additional periods of time. In addition, the Funds may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information would
be more favorable than total return information that includes deductions of the
maximum front-end sales charge or any applicable CDSC.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not a guarantee of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under separate Distribution Agreements with
Tax-Free Fund, Inc. dated April 3, 1995, as amended on November 29, 1995.
Tax-Free Fund, Inc. has adopted a separate distribution plan under Rule
12b-1 for each of the Class A Shares, Class B Shares and Class C Shares (the
"Plans"). Each Plan permits the Fund to which the Plan relates to pay the
Distributor from the assets of the Fund's respective Classes a monthly fee for
the Distributor's services and expenses in distributing and promoting sales of
shares. These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning each Class and increase sales of each Class. In
addition, each Fund may make payments from the 12b-1 Plan fees of its respective
Classes directly to others, such as banks, who aid in the distribution of Class
shares or provide services in respect of such Classes, pursuant to service
agreements with Tax-Free Fund, Inc.
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The 12b-1 Plan expenses relating to each of the Class B Shares and the
Class C Shares are also used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by a Fund from the assets of its respective
Classes to the Distributor and others under the Plans may not exceed .30% of the
Class A Shares' average daily net assets in any year, and 1% (.25% of which are
service fees to be paid by such Fund to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and the Class C Shares' average daily net assets in any
year. The Class A, Class B and Class C Shares will not incur any distribution
expenses beyond these limits, which may not be increased without shareholder
approval. The actual 12b-1 expenses assessed against the USA A Class and the
Insured A Class may be less than .30%, but may not be less than .10%, because of
the formula for calculating the fees adopted by the Board of Directors effective
June 1, 1992. On September 17, 1992, the Board of Directors set the fee for the
Intermediate A Class, pursuant to its Plan, at .15%. 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.
While payments pursuant to the Plans may not exceed .30% annually with
respect to the Class A Shares, and 1% annually with respect to each of the Class
B Shares and Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The monthly fees paid to the Distributor are subject to the
review and approval of Tax-Free Fund, Inc.'s unaffiliated directors who may
reduce the fees or terminate the Plans at any time.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under separate Agreements with the Funds dated June 29, 1988 for USA Fund and
Insured Fund and November 10, 1992 for Intermediate Fund. The Transfer Agent
also provides accounting services to each Fund pursuant to the terms of a
separate Fund Accounting Agreement. The directors annually review service fees
paid to the Transfer Agent.
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The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under its Investment Management Agreement and those borne
by the Distributor under its Distribution Agreement. The ratios of expenses to
average daily net assets for the Class A Shares and the Class B Shares of each
Fund for the fiscal year ended August 31, 1996 were as follows:
Class A Shares Class B Shares
-------------- --------------
USA Fund 0.94% 1.74%
Insured Fund 0.98% 1.78%
Intermediate Fund 0.25%* 1.10%*
*Reflects the voluntary waiver of fees by the Manager.
Each Fund anticipates that the expense ratio for its Class C Shares
will be approximately equal to the expense ratio for its Class B Shares. The
expense ratio for each Class reflects the impact of its 12b-1 Plan.
Shares
Tax-Free Fund, Inc. is an open-end management investment company. Each
Fund's portfolio of assets is nondiversified as defined by the 1940 Act.
Commonly known as a mutual fund, Tax-Free Fund, Inc. was organized as a Maryland
corporation on August 17, 1983. Tax-Free Fund, Inc. currently offers three
funds, and each Fund currently offers three classes of shares. The shares of
each Fund have a par value of $.01, equal voting rights, except as noted below,
and are equal in all other respects.
Shares of each class within a Fund represent proportionate interests in
the assets of that Fund and have the same voting and other rights and
preferences as the other classes of shares of that Fund, except that, as a
general matter, holders of Class A Shares, Class B Shares and Class C Shares of
a Fund may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, the Class B Shares of a Fund may vote
on any proposal to increase materially the fees to be paid by that Fund under
the Rule 12b-1 Plan relating to the Class A Shares.
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All shares have noncumulative voting rights which means that the
holders of more than 50% of Tax-Free Fund, Inc.'s shares voting for the election
of directors can elect 100% of the directors if they choose to do so. Shares of
each Fund have a priority over shares of any other series of the Fund in the
assets and income of that Fund, and each Fund will vote separately on any matter
which affects only that Fund. Under Maryland law, Tax-Free Fund, Inc. 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 Tax-Free Fund, Inc.'s outstanding shares may
request that a special meeting be called to consider the removal of a director.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Private Purpose Bonds
The Tax Reform Act of 1986 limits the amount of new "private purpose"
bonds that each state can issue and subjects interest income from these bonds to
the federal alternative minimum tax. "Private purpose" bonds are issues whose
proceeds are used to finance certain nongovernment activities, and could include
some types of industrial revenue bonds such as privately-owned sports and
convention facilities. The Act also makes the tax-exempt status of certain bonds
depend on the issuer's compliance with specific requirements after the bonds are
issued.
Each Fund intends to seek to achieve a high level of tax-exempt income.
However, if a Fund invests in newly-issued private purpose bonds, a portion of
that Fund's distributions would be subject to the federal alternative minimum
tax. Each Fund may invest up to 20% of its assets in bonds the income from which
is subject to the federal alternative minimum tax.
Zero Coupon Bonds
The Funds may 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.
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. Each Fund has qualified as a regulated
investment company under the Internal Revenue Code. Accordingly, during periods
when a Fund 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.
-78-
<PAGE>
Variable Rate Obligations
The Funds 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.
Municipal Leases
Each Fund may also invest in municipal lease obligations primarily
through certificates of participation ("COPs"). As with its other investments,
each Fund 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 Funds 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.
-79-
<PAGE>
While the risk of nonappropriation is inherent to COP financing, the
Funds believe 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 of Tax Free Fund,
Inc. has established guidelines to determine whether the COPs held in the Funds'
portfolios 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 Fund both in
general and with respect to COPs; and (c) the extent to which the type of COPs
held by the Fund trade on the same basis and with the same degree of dealer
participation as other municipal bonds of comparable credit rating or quality.
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.
Lower-Rated Securities
The market values of lower-rated 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.
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<PAGE>
Projects which are financed by the issuance of high yielding,
fixed-income securities are often highly leveraged and may not have more
traditional methods of financing available to them. Therefore, the risk
associated with acquiring the securities of such issuers is generally greater
than is the case with higher-rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, projects financed by
high yielding securities may experience financial stress. During such periods,
such projects may not have sufficient funds to meet their interest payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific developments, or the issuer's inability to meet
specific projected revenue forecasts, or by the unavailability of additional
financing.
The market for lower-rated fixed-income securities generally tends to
be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent a secondary trading market for
high yielding, fixed-income securities does exist, it is generally not as liquid
as the secondary market for higher-rated securities.
Factors adversely impacting the market value of high yielding
securities may adversely impact a Fund's net asset value. In addition, the Funds
may incur additional expenses to the extent they are required to seek recovery
upon a default in the payment of principal or interest on its portfolio holding.
The Funds will rely on the Manager's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the 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.
Rule 144A Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933, as discussed more fully below. A
Fund may invest no more than 10% of the value of its net assets in illiquid
securities.
-81-
<PAGE>
Rule 144A permits many privately placed and legally restricted
securities to be freely traded among certain institutional buyers such as a
Fund. While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of a Fund's 10% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; (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, a
Fund's holdings of illiquid securities exceed the Fund's 10% limit on
investments in such securities, the Manager will determine what action to take
to ensure that each Fund continues to adhere to such limitation.
When-Issued Securities
Each Fund may invest in "when-issued securities." When-issued
securities involve commitments to buy a new issue with settlement up to 45 days
later. During the time between the commitment and settlement the Fund does not
accrue interest, but the market value may fluctuate. This can result in a Fund's
share value increasing or decreasing. If a Fund invests in securities of this
type, it will maintain a segregated account to pay for them and mark them to
market daily.
Borrowing
While the Funds are permitted, they normally do not borrow money. A
Fund will not purchase investment securities while it has an outstanding
borrowing.
Repurchase Agreements
In order to invest its cash reserves or when in a temporary defensive
posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by Tax-Free Fund, Inc.'s Board of Directors. Each Fund may use
repurchase agreements which are at least 100% collateralized
-82-
<PAGE>
by securities in which a Fund can invest directly. Not more than 10% of a Fund's
assets may be invested in repurchase agreements of over seven days' maturity or
other illiquid assets.
Portfolio Loan Transactions
Intermediate Fund may lend a portion of its assets to qualified
broker/dealers or institutional investors for their use relating to short sales
or other security transactions. See Part B for further information.
Options
Intermediate Fund may write put and call options on a covered basis
only, and will not engage in option writing strategies for speculative purposes.
The Fund 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 Fund's investment objective. The Fund
may also purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets.
Futures
Intermediate Fund 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 Fund 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 Fund of the
securities called for by the contract at a specified price during a specified
future month.
Inverse Floaters
Intermediate Fund 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.
* * *
Part B further described certain investment policies of the Funds and
sets forth other more specific investment restrictions.
-83-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A--INVESTMENT ILLUSTRATIONS
TAX-FREE USA FUND AND TAX-FREE INSURED FUND
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+
2 10,905 11,300 11,300
3 11,669 12,012 12,012
4 12,485 12,768 12,768
5 13,359 13,573 13,573
6 14,294 14,428 14,428
7 15,295 15,337 15,337
8 16,366+ 16,303 16,303
9 17,511 17,444* 17,330
10 18,737 18,665* 18,422
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,630 10,630
2 10,905 11,300 11,300 10,905 11,300 11,300
3 11,669 11,712 12,012+ 11,669 12,012 12,012
4 12,485 12,768 12,768
5 13,359 13,373 13,573+
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the eighth year.
<TABLE>
<CAPTION>
$250,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
---------------------------------------- ----------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+
2 279,069 282,492 282,492
3 298,604 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 339,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
-------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- -------- ------- ------- ------- ------- -------
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 292,789 300,289+ 298,604 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 334,318 339,318
6
7
8
9
10
</TABLE>
<PAGE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the eighth year.
Assumes a hypothetical return for Class A of 7% per year, a hypothetical return
for Class B of 6.3% for years 1-8 and 7% for years 9-10, and a hypothetical
return for Class C of 6.3% per year. Hypothetical returns vary due to the
different expense structure for each Class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000). Class B purchase assessed
appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1% in years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which class offers the greater return potential
based on investment amount, the holding period and the expense structure for
each Class.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A--INVESTMENT ILLUSTRATIONS
TAX-FREE USA INTERMEDIATE FUND
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,700 10,000 10,000 9,700 10,000 10,000
1 10,185 10,415 10,415 10,185 10,215 10,315+
2 10,694 10,847 10,847
3 11,229 11,297 11,297
4 11,790+ 11,766 11,766
5 12,380 12,255 12,255
6 12,999 12,867* 12,763
7 13,649 13,511* 13,293
8 14,331 14,186* 13,844
9 15,048 14,895* 14,419
10 15,800 15,640* 15,017
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 9,700 10,000 10,000 9,700 10,000 10,000
1 10,185 10,415 10,415 10,185 10,415 10,415
2 10,694 10,847 10,847 10,694 10,847 10,847
3 11,229 11,197 11,297+ 11,229 11,297 11,297
4 11,790+ 11,766 11,766
5 12,380 12,255 12,255
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A
Shares at the end of the fifth year.
<TABLE>
<CAPTION>
$250,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
--------------------------------------- ----------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 245,000 250,000 250,000 245,000 250,000 250,000
1 257,250 260,375 260,375 257,250 255,375 257,875+
2 270,113 271,181 271,181
3 283,618+ 282,435 282,435
4 297,799 294,156 294,156
5 312,689 306,363 306,363
6 328,323 321,681* 319,077
7 344,740 337,765* 332,319
8 361,977 354,654* 346,110
9 380,075 372,386* 360,474
10 399,079 391,006* 375,433
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------------------------------- ---------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 245,000 250,000 250,000 245,000 250,000 250,000
1 257,250 260,375 260,375 257,250 260,375 260,375
2 270,113 271,181 271,181 270,113 271,181 271,181
3 283,618+ 279,935 282,435 283,618+ 282,435 282,435
4 297,799 294,156 294,156
5 312,689 306,363 306,363
6
7
8
9
10
</TABLE>
<PAGE>
*This assumes that Class B Shares were converted to Class A Shares at the end of
the fifth year.
Assumes a hypothetical return for Class A of 5% per year, a hypothetical return
for Class B of 4.15% for years 1-5 and 5% for years 6-10, and a hypothetical
return for Class C of 4.15% per year. Hypothetical returns vary due to the
different expense structures for each class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (3.00% @
$10,000; 2.00% @ $250,000). Class B purchase assessed appropriate CDSC upon
redemption (2%-2%-1% in years 1-2-3).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which class offers the greater return potential
based on investment amount, the holding period and the expense structure for
each Class.
<PAGE>
APPENDIX B--RATINGS
USA Fund intends to invest at least 80% of its portfolio in debt
obligations that are rated in the top four categories by Moody's or S&P at the
time of purchase. USA Fund may invest up to 20% of its assets in securities with
a rating lower than the top four categories and in unrated securities. The table
set forth below shows the percentage of USA Fund's securities included in each
of the specified rating categories. Certain securities may not be rated because
the rating agencies were either not asked to provide ratings (e.g., many issuers
of privately placed bonds do not seek ratings) or because the rating agencies
declined to provide a rating for some reason, such as insufficient data. The
table below shows the percentage of USA Fund's securities which are not rated.
The information contained in the table was prepared based on a dollar weighted
average of the Fund's portfolio composition based on month end data for the
fiscal year ended August 31, 1996. The paragraphs following contain excerpts
from Moody's and S&P's ratings descriptions. These credit ratings evaluate only
the safety of principal and interest and do not consider the market value risk
associated with high yield securities.
Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
Aaa/AAA 38.3%
Aa/AA 14.4%
A/A 15.3%
Baa/BBB 17.6%
Ba/BB 3.6%
B/B --
Caa/CCC --
Not Rated/Other 10.8%
*Certain of the unrated bonds held by USA Fund have been determined to be of
comparable quality to rated bonds as follows: 4.4% BBB; 1.7% BB; and 4.1% B.
Generally Rating Information
Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to
be the best quality. They carry the smallest degree of investment risk;
Aa--judged to be of high quality by all standards; A--possess favorable
attributes and are
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<PAGE>
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A-- strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
-85-
<PAGE>
Commercial Paper
Excerpts from S&P's description of its two highest commercial paper
ratings: A-1 -- judged to be the highest investment grade category possessing
the highest relative strength; A-2 -- investment grade category possessing less
relative strength than the highest rating.
Excerpts from Moody's description of its two highest commercial paper
ratings: P-1 -- the highest grade possessing greatest relative strength; P-2 --
second highest grade possessing less relative strength than the highest grade.
State and Municipal Notes
MIG-1 -- Notes bearing this description are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 -- Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
-86-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX C--CLASSES OFFERED
Consultant
Growth of Capital A Class B Class C Class Class
<S> <C> <C> <C> <C>
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Total Return
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
Global Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
International Equity Fund x x x -
World Growth Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Limited-Term Government Fund x x x -
Tax-Free Current Income
Tax-Free Pennsylvania Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
-87-
<PAGE>
______________________________________________________________
TAX-FREE USA FUND
______________________________________________________________
TAX-FREE INSURED FUND
______________________________________________________________
TAX-FREE USA INTERMEDIATE FUND
______________________________________________________________
DELAWARE GROUP TAX-FREE FUND, INC.
______________________________________________________________
PART B
STATEMENT OF
ADDITIONAL INFORMATION
_____________________________________________________________
OCTOBER 30, 1996
DELAWARE
GROUP
--------
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For more
information, contact your financial adviser or call Delaware Group at
800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE>
________________________________________________________________________________
PART B--STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 30, 1996
________________________________________________________________________________
DELAWARE GROUP TAX-FREE FUND, INC.
________________________________________________________________________________
1818 Market Street
Philadelphia, PA 19103
________________________________________________________________________________
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
________________________________________________________________________________
TABLE OF CONTENTS
________________________________________________________________________________
Cover Page
________________________________________________________________________________
Investment Objectives and Policies
________________________________________________________________________________
Municipal Bond Insurance
________________________________________________________________________________
Performance Information
________________________________________________________________________________
Trading Practices and Brokerage
________________________________________________________________________________
Purchasing Shares
________________________________________________________________________________
Investment Plans
________________________________________________________________________________
Determining Offering Price and
Net Asset Value
________________________________________________________________________________
Redemption and Repurchase
________________________________________________________________________________
Dividends and Realized Securities
Profits Distributions
________________________________________________________________________________
Taxes
________________________________________________________________________________
Investment Management Agreements
________________________________________________________________________________
Officers and Directors
________________________________________________________________________________
Exchange Privilege
________________________________________________________________________________
General Information
________________________________________________________________________________
Appendix A--Equivalent Yields:
Tax-Exempt vs. Taxable Securities
________________________________________________________________________________
Financial Statements
________________________________________________________________________________
-1-
<PAGE>
Delaware Group Tax-Free Fund, Inc. ("Tax-Free Fund, Inc.") is a
professionally managed mutual fund of the series type currently offering three
series of shares: the Tax-Free USA Fund series ("USA Fund"), the Tax-Free
Insured Fund series ("Insured Fund") and the Tax-Free USA Intermediate Fund
series ("Intermediate Fund") (individually, a "Fund" and collectively, the
"Funds").
Tax-Free Fund, Inc. offers three retail classes: Tax-Free USA Fund A
Class (the "USA A Class"), Tax-Free Insured Fund A Class (the "Insured A Class")
and Tax-Free USA Intermediate Fund A Class (the "Intermediate A Class");
Tax-Free USA Fund B Class (the "USA B Class"), Tax-Free Insured Fund B Class
(the "Insured B Class") and Tax-Free USA Intermediate Fund B Class (the
"Intermediate B Class"); and Tax-Free USA Fund C Class (the "USA C Class"),
Tax-Free Insured Fund C Class (the "Insured C Class") and Tax-Free USA
Intermediate Fund C Class (the "Intermediate C Class"). Each class is
individually referred to as a "Class" and collectively referred to as the
"Classes"; and "Class A Shares," "Class B Shares" or "Class C Shares" refer to
such shares of all three Funds, unless otherwise noted. This Statement of
Additional Information ("Part B") describes each Fund and each Class, except
where noted.
Class B Shares and Class C Shares may be purchased at a price equal to
the next determined net asset value per share. Class A Shares may be purchased
at the public offering price, which is equal to the next determined net asset
value per share, plus a front-end sales charge. Class A Shares are subject to a
maximum front-end sales charge of 4.75% with respect to USA Fund and Insured
Fund and 3.00% with respect to Intermediate Fund. Class A Shares are subject to
annual 12b-1 Plan expenses which, for USA A Class and Insured A Class will vary
because of the formula adopted by Tax-Free Fund, Inc.'s Board of Directors but
may not exceed .30%, and for Intermediate A Class may not exceed .30% and have
been fixed by the Board at .15%. Class B Shares are subject to a contingent
deferred sales charge ("CDSC") which may be imposed on redemptions made within
six years of purchase with respect to USA Fund and Insured Fund and three years
of purchase with respect to Intermediate Fund. Class B Shares are subject to
annual 12b-1 Plan expenses of 1%, which are assessed for approximately eight
years after purchase against Class B Shares of USA Fund and Insured Fund and
approximately five years after purchase against Class B Shares of Intermediate
Fund. See Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus. Class C Shares of each Fund are subject to a CDSC which may be
imposed on redemptions made within 12 months of purchase and annual 12b-1 Plan
expenses of 1%, which are assessed against the Class C Shares for the life of
the investment.
This Part B supplements the information contained in the current
Prospectus of the Funds dated October 30, 1996, as it may be amended from time
to time. It should be read in conjunction with the Funds' Prospectus. Part B is
not itself a prospectus but is, in its entirety, incorporated by reference into
the Prospectus. The Prospectus for the Funds may be obtained by writing or
calling your investment dealer or by contacting Tax-Free Fund, Inc.'s national
distributor, Delaware Distributors, L.P. (the "Distributor"), 1818 Market
Street, Philadelphia, PA 19103.
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INVESTMENT OBJECTIVES AND POLICIES
The objective of USA Fund and of Intermediate Fund is to seek as high a
level of current interest income exempt from federal income tax as is available
from municipal bonds and as is consistent with prudent investment management and
preservation of capital. Intermediate Fund pursues its investment objective by
investing in municipal bonds with a dollar weighted average maturity of between
three and 10 years and utilizing various investment strategies, as described
below, which differ from the strategies utilized by USA Fund and Insured Fund.
The objective of Insured Fund is to seek as high a level of current
interest income exempt from federal income tax as is available from municipal
bonds and as is consistent with prudent investment management and preservation
of capital. Insured Fund seeks to achieve its objective by investing primarily
in municipal bonds that are protected by insurance guaranteeing the payment of
principal and interest, when due.
The investment objective of each Fund, described above, is a matter of
fundamental policy and may not be changed without shareholder approval of the
affected Fund. There is no assurance that the objective of each Fund can be
achieved. Bond insurance reduces the risk of loss due to default by an issuer,
but such bonds remain subject to the risk that market value may shift for other
reasons. Also, there is no assurance that any insurance company will meet its
obligations.
Appendix B--Ratings in the Prospectus contains excerpts describing
ratings of municipal obligations from Standard & Poor's Ratings Group ("S&P")
and Moody's Investors Service, Inc.
("Moody's").
USA Fund and Insured Fund seek to achieve their respective objectives
by investing their assets in a nondiversified portfolio consisting primarily of
intermediate obligations up to 10 years and long-term obligations up to 50 years
in maturity, and Intermediate Fund seeks to achieve its objective by investing
its assets in a nondiversified portfolio consisting primarily of intermediate
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 and instrumentalities, the interest income from which, in the opinion
of each issuer's Counsel, is exempt from federal income tax. A Fund may invest
in other debt obligations, but if it does, at least 80% of its assets will be
invested in the types of securities listed above.
The portfolio of Intermediate Fund will typically have a dollar
weighted average maturity of between three and 10 years. Intermediate Fund may,
from time to time, employ certain techniques to shorten or lengthen the dollar
weighted average maturity of the portfolio, including futures transactions,
options on futures and the purchase of debt securities at a premium or a
discount. Although the dollar weighted average maturity of Intermediate Fund's
portfolio will be between three and 10 years, Intermediate Fund may purchase
individual securities with any maturity.
The principal risk to which a Fund is subject is price fluctuation due
to changes in interest rates caused by government policies and economic factors
which are beyond the control of Delaware Management Company, Inc. (the
"Manager"). In addition, although some municipal bonds are government
obligations backed by the issuer's full faith and credit, others are only
secured by a specific revenue source and not by the general taxing power. Each
Fund may invest in both types of bonds.
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USA Fund will normally invest at least 80% of its assets in debt
obligations, as stated above, which are rated by S&P or Moody's at the time of
purchase as being within their top four grades. The fourth grade is considered a
medium grade and has speculative characteristics. USA Fund may, however, invest
up to 20% of its assets in securities with a rating lower than the top four and
in unrated securities. These securities are speculative and may involve greater
risks and have higher yields. They will only be purchased when the Manager
considers them particularly attractive and their purchase to be consistent with
the objective of preserving capital. Intermediate Fund intends to invest at
least 90% of its portfolio in debt obligations that are either rated in the top
four grades by Moody's or S&P at the time of purchase or unrated, but in the
opinion of the Manager, similar in credit quality to obligations so rated. The
fourth grade is considered medium grade and may have speculative
characteristics. Intermediate Fund may invest up to 10% of its assets in
securities that are rated lower than the top four grades or unrated, but in the
Manager's opinion similar in credit quality to obligations so rated. These
securities are speculative and may involve greater risks and have higher yields.
Investing in debt obligations which are not rated in the top four grades (or
which have credit qualities similar to such rated obligations) entails certain
risks, including the risk of loss of principal, which may be greater than the
risks involved in investment grade obligations, and which should be considered
by investors contemplating an investment in the Fund. Such obligations are
sometimes sold by issuers whose earnings at the time of issuance are less than
the projected debt service on the obligations. The Manager will evaluate the
creditworthiness of the issuer and the issuer's ability to meet its obligations
to pay interest and repay principal.
Insured Fund will normally invest at least 80% of its assets in debt
obligations which are insured by various insurance companies which undertake to
pay to a holder, when due, the interest or principal amount of an obligation if
the interest or principal is not paid by the issuer when due. See Municipal Bond
Insurance. Insured Fund may invest a portion of its assets in debt obligations
that are considered to be below investment grade. The Fund presently intends to
limit such investments to no more than 5% of its assets, measured at the time of
purchase.
Each Fund may also invest in "when-issued securities" for which the
Fund will maintain a segregated account which it will mark to market daily.
When-issued securities involve commitments to purchase new issues of securities
which are offered on a when-issued basis which usually involve delivery and
payment up to 45 days after the date of the transaction. During this period
between the date of commitment and the date of delivery, the Fund does not
accrue interest on the investment, but the market value of the bonds could
fluctuate. This can result in a Fund having unrealized appreciation or
depreciation which could affect the net asset value of its shares.
Each Fund will invest its assets in securities of varying maturities,
without limitation, depending on market conditions. Typically, the remaining
maturity of municipal bonds purchased by USA Fund and Insured Fund will range
between five and 30 years. Each Fund may also invest in short-term, tax-free
instruments such as tax-exempt commercial paper and general obligation, revenue
and project notes. The Funds may also invest in variable and floating rate
demand obligations (longer-term instruments with an interest rate that
fluctuates and a demand feature that allows the holder to sell the instruments
back to the issuer from time to time) but no Fund intends to invest more than 5%
of its assets in these instruments. Short-term securities will be rated in the
top two grades by a nationally-recognized statistical rating agency. The Manager
will attempt to adjust the maturity structure of the portfolios to provide a
high level of tax-exempt income consistent with preservation of capital.
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Under abnormal conditions, each Fund may invest in taxable instruments
for temporary defensive purposes. These would include obligations of the U.S.
government, its agencies and instrumentalities, commercial paper, certificates
of deposit of domestic banks and other debt instruments. In connection with
defensive portfolio investments, Insured Fund may invest more than 20% of its
assets in uninsured securities which may be lower rated or unrated. Such
securities may involve increased risks or may generate taxable income, and each
Fund will only exceed 20% of its assets in such investments for temporary
defensive purposes.
Tax-Free Fund, Inc. is registered as an open-end management investment
company and each Fund's portfolio of assets is nondiversified. Each Fund has the
ability to invest as much as 50% of its assets in as few as two issuers provided
that no single issuer accounts for more than 25% of the portfolio. The remaining
50% must be diversified so that no more than 5% is invested in the securities of
a single issuer. Because the Funds may invest their assets in fewer issuers, the
value of Fund shares may fluctuate more rapidly than if the Funds were fully
diversified. In the event a Fund invests more than 5% of its assets in a single
issuer, it would be affected more than a fully-diversified fund if that issuer
were to encounter difficulties in satisfying its financial obligations. Except
as set forth below, each Fund may invest without limitation in U.S. government
securities or government agency securities backed by the U.S. government or its
agencies or instrumentalities. Percentage limitations outlined above are
determined at the time an investment is made.
Each Fund may invest more than 25% of its assets in municipal
obligations relating to similar types of projects or with other similar
economic, business or political characteristics (such as bonds of housing
finance agencies or health care facilities). In addition, each Fund may invest
more than 25% of its assets in industrial development bonds or pollution control
bonds which may be backed only by the assets and revenues of a nongovernmental
issuer. A Fund will not, however, invest more than 25% of its total assets in
bonds issued for companies in the same industry.
Set forth below are other more specific investment restrictions, some
of which limit the percentage of assets which may be invested in certain types
of securities. While the Funds are permitted, they normally do not borrow money
or invest in repurchase agreements. Up to 20% of each Fund's assets may be
invested in securities whose interest is subject to federal income tax. From
time to time, a substantial portion of the assets of a Fund may be invested in
municipal bonds insured as to payment of principal and interest by a single
insurance company, which is believed by the Funds to be consistent with their
policies and restrictions.
Municipal Bonds
The term "municipal bonds" is generally understood to include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal bonds may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and the obtaining of funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide privately-operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste
disposals. Such obligations are included within the term "municipal bonds"
provided that the interest paid thereon qualifies as exempt from federal income
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tax in the opinion of bond counsel to the issuer. In addition, the interest paid
on industrial development bonds, the proceeds from which are used for the
construction, equipment, repair or improvement of privately-operated industrial
or commercial facilities, may be exempt from federal income tax, although
current federal tax laws place substantial limitations on the size of such
issues.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source, but not from
the general taxing power. Tax-exempt industrial development bonds are in most
cases revenue bonds and do not generally carry the pledge of the credit of the
issuer of such bonds. There are, of course, variations in the security of
municipal bonds, both within a particular classification and among
classifications.
The yields on municipal bonds are dependent on a variety of factors,
including general money market conditions, general conditions of the municipal
bond market, size of a particular offering, maturity of the obligation and
rating of the issue. The imposition of a Fund's management fee, as well as other
operating expenses, will have the effect of reducing the yield to investors.
The Tax Reform Act of 1986 (the "Act") limits the amount of new
"private purpose" bonds that each state can issue and subjects interest income
from these bonds to the federal alternative minimum tax. "Private purpose" bonds
are issues whose proceeds are used to finance certain nongovernment activities,
and could include some types of industrial revenue bonds such as privately-owned
sports and convention facilities. The Act also makes the tax-exempt status of
certain bonds depend on the issuer's compliance with specific requirements after
the bonds are issued.
Each Fund intends to seek to achieve a high level of tax-exempt income.
However, if a Fund invests in newly-issued private purpose bonds, a portion of
that Fund's distributions would be subject to the federal alternative minimum
tax.
Repurchase Agreements
Repurchase agreements are instruments under which securities are
purchased from a bank or securities dealer with an agreement by the seller to
repurchase the securities. Under a repurchase agreement, the purchaser acquires
ownership of the security but the seller agrees, at the time of sale, to
repurchase it at a mutually agreed-upon time and price. A Fund will take custody
of the collateral under repurchase agreements. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred. The resale price is in excess of the purchase price
and reflects an agreed-upon market rate unrelated to the coupon rate or maturity
of the purchased security. Such transactions afford an opportunity for a Fund to
invest temporarily available cash on a short-term basis. Generally, repurchase
agreements are of short duration often less than one week but on occasion for
longer periods. A Fund's risk is limited to the seller's ability to buy the
security back at the agreed-upon sum at the agreed-upon time, since the
repurchase agreement is secured by the underlying obligation. Should an issuer
of a repurchase agreement fail to repurchase the underlying security, the loss
to a Fund, if any, would be the difference between the repurchase price and the
market value of the security. In addition, should such an issuer default, the
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Manager believes that, barring extraordinary circumstances, the Fund will be
entitled to sell the underlying securities or otherwise receive adequate
protection for its interest in such securities, although there could be a delay
in recovery. A Fund considers the creditworthiness of the bank or dealer from
whom it purchases repurchase agreements. A Fund will monitor such transactions
to assure that the value of the underlying securities subject to repurchase
agreements is at least equal to the repurchase price. The underlying securities
will be limited to those described above.
A Fund 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, a Fund
must have collateral of at least 100% of the repurchase price, including the
portion representing a Fund's 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 1940 Act, but a Fund 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. A Fund may invest cash
balances in a joint repurchase agreement in accordance with the terms of the
exemptive order and subject generally to the conditions described above.
Intermediate Fund
Additional Investment Strategies
In addition to the investment policies described above, Intermediate
Fund seeks to achieve its objective by pursuing the following investment
strategies:
Portfolio Loan Transactions -- Intermediate Fund may loan up to 25% of
its assets to qualified broker/dealers or institutional investors for their use
relating to short sales or other security transactions.
It is the understanding of the Manager that the staff of the Securities
and Exchange Commission permits portfolio lending by registered investment
companies if certain conditions are met. These conditions are as follows: 1)
each transaction must have 100% collateral in the form of cash, U.S. Treasury
Bills and Notes, or irrevocable letters of credit payable by banks acceptable to
the Fund from the borrower; 2) this collateral must be valued daily and should
the market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund; 3) the Fund must be able to terminate the
loan after notice, at any time; 4) the Fund must receive reasonable interest on
any loan, and any dividends, interest or other distributions on the lent
securities, and any increase in the market value of such securities; 5) the Fund
may pay reasonable custodian fees in connection with the loan; and 6) the voting
rights on the lent securities may pass to the borrower; however, if the
directors of Tax-Free Fund, Inc. know that a material event will occur affecting
an investment loan, they must either terminate the loan in order to vote the
proxy or enter into an alternative arrangement with the borrower to enable the
directors to vote the proxy.
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The major risk to which a Fund 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 Funds will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Directors, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
The ratings of S&P, Moody's and other rating services represent their
opinion as to the quality of the money market instruments which they undertake
to rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. These ratings are the initial criteria for
selection of portfolio investments, but the Fund will further evaluate these
securities. See Appendix B--Ratings in the Prospectus.
Options
Intermediate Fund may write put and call options on a covered basis
only, and will not engage in option writing strategies for speculative purposes.
The Fund 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 Fund's investment objective. The Fund
may also purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's 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 Intermediate Fund, 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 Fund of writing covered calls is that the Fund
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
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund 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
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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 Fund 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 Fund 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 Fund 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
Fund would be required to continue to hold a security which it might otherwise
wish to sell. Options written by the Fund 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 Intermediate Fund may purchase call
options to the extent that premiums paid by the Fund do not aggregate more than
2% of the Fund's total assets. When the Fund purchases a call option, in return
for a premium paid by the Fund to the writer of the option, the Fund 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 Fund 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 Fund upon exercise of the option.
The Fund 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
Fund 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 Fund 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.
Although the Fund 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 Fund
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 Fund may expire without any
value to the Fund.
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C. Secured Put Writing - A put option gives the purchaser of the option
the right to sell, and the writer, in this case Intermediate Fund, 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 Fund may not exceed 2% of
its total assets.
The advantage to the Fund of writing such options is that it receives
premium income. The disadvantage is that the Fund 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 Fund will maintain in a segregated account with its Custodian, the Bankers
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 Fund. Secured put
options will generally be written in circumstances where the Manager wishes to
purchase the underlying security for the Fund's portfolio at a price lower than
the current market price of the security. In such event, the Fund 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 - Intermediate Fund may purchase put options
to the extent that premiums paid for such options do not exceed 2% of the Fund's
total assets. The Fund will, at all times during which it holds a put option,
own the security covered by such option.
The Fund 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 Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund will continue to receive interest income on the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. The Fund 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 -- Intermediate Fund may enter into contracts for the purchase
or sale for future delivery of securities. While futures contracts provide for
the delivery of securities, deliveries usually do not occur. Contracts are
generally terminated by entering into an offsetting transaction. When the Fund
enters into a futures transaction, it must deliver to the futures commission
merchant selected by the Fund an amount referred to as "initial margin." This
amount is maintained by the futures commission merchant in an account at the
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Fund's Custodian Bank. Thereafter, a "variation margin" may be paid by the Fund
to, or drawn by the Fund from, such account in accordance with controls set for
such accounts, depending upon changes in the price of the underlying securities
subject to the futures contract.
The Fund 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 Fund,
which consists of a substantial number of municipal securities, is to protect
the Fund 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 Fund 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 Fund 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 Fund 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 Fund intends to
purchase.
To the extent that the Fund 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 Fund 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 Fund will not enter into futures contracts to the extent that more
than 5% of the Fund's 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 Fund's assets.
In addition, when the Fund engages in futures transactions, to the
extent required by the SEC, it will maintain with its custodian, assets in a
segregated account to cover its obligations with respect to such contracts,
which assets will consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the margin payments made by the Fund with respect to such futures contracts.
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The Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling the securities. For example, if interest rates are expected to increase,
the Fund might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Fund. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt securities,
the Fund could take advantage of the anticipated rise in value of debt
securities without actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund could then buy debt
securities on the cash market.
With respect to options on futures contracts, when the Fund is not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Fund is not fully invested, it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against the declining price of the security which is deliverable
upon exercise of the futures contract. If the futures price at the expiration of
the option is below the exercise price, the Fund will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against the increasing price of the
security which is deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund
intends to purchase.
If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities. For example, the Fund will purchase a
put option on a futures contract to hedge the Fund's portfolio against the risk
of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if the Fund had insufficient
cash, it may be required to sell securities from its portfolio to meet daily
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variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. The Fund
may be required to sell securities at a time when it may be disadvantageous to
do so.
Further, with respect to options on futures contracts, the Fund may
seek to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Variable or Floating Rate Demand Notes -- Variable or floating rate
demand notes ("VRDNs") are tax-exempt obligations which contain a floating or
variable interest rate adjustment formula and an unconditional right of demand
to receive payment of the unpaid principal balance plus accrued interest upon a
short notice period (generally up to 30 days) prior to specified dates, either
from the issuer or by drawing on a bank letter of credit, a guarantee or
insurance issued with respect to such instrument. The interest rates are
adjustable at intervals ranging from daily to up to six months to some
prevailing market rate for similar investments, such adjustment formula being
calculated to maintain the market value of the VRDN at approximately the par
value of the VRDN upon the adjustment date. The adjustments are typically based
upon the price rate of a bank or some other appropriate interest rate adjustment
index. The Manager will decide which variable or floating rate demand
instruments Intermediate Fund will purchase in accordance with procedures
prescribed by Tax-Free Fund, Inc.'s Board of Directors to minimize credit risks.
Any VRDN must be of high quality as determined by the Manager and subject to
review by the Board of Directors, with respect to both its long-term and
short-term aspects, except where credit support for the instrument is provided
even in the event of default on the underlying security, the Fund may rely only
on the high quality character of the short-term aspect of the demand instrument,
i.e., the demand feature. A VRDN which is unrated must have high quality
characteristics similar to those rated in accordance with policies and
guidelines determined by Tax-Free Fund, Inc.'s Board of Directors. If the
quality of any VRDN falls below the quality level required by the Board of
Directors and any applicable rules adopted by the Securities and Exchange
Commission, the Fund must dispose of the instrument within a reasonable period
of time by exercising the demand feature or by selling the VRDN in the secondary
market, whichever is believed by the Manager to be in the best interests of the
Fund and its shareholders.
Municipal Leases -- As stated in the Prospectus, a portion of each
Fund's assets may be invested in municipal lease obligations, primarily through
certificates of participation ("COPs"). COPs function much like installment
purchase agreements and are widely used by state and local governments to
finance the purchase of property. The lease format is generally not subject to
constitutional limitations on the issuance of state debt, and COPs enable a
governmental issuer to increase government liabilities beyond constitutional
debt limits. A principal distinguishing feature separating COPs from municipal
debt is the lease, which contains a "nonappropriation" or "abatement" clause.
This clause provides that, although the municipality will use its best efforts
to make lease payments, it may terminate the lease without penalty if its
appropriating body does not allocate the necessary funds. The Funds intend to
invest only in COPs rated within the four highest rating categories of Moody's,
S&P or Fitch Investors Service, Inc., or in unrated COPs believed to be of
comparable quality.
Investment Restrictions
Tax-Free Fund, Inc. has adopted the following restrictions and
fundamental policies which are applied to each Fund except as noted. Fundamental
objectives and restrictions cannot be changed without approval by the holders of
a majority of the outstanding voting securities of a Fund, which is the lesser
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of more than 50% of the outstanding voting securities, or 67% of the voting
securities present at a shareholder meeting if 50% or more of the voting
securities are present in person or represented by proxy of a Fund which
proposes to change its fundamental policy. Investment restrictions 4, 6 and 8
listed below apply only to USA Fund and Insured Fund.
A Fund may not under any circumstances:
1. Invest more than 20% of its assets in securities whose
interest is subject to federal income tax.
2. Borrow money in excess of 10% of the value of its assets and
then only as a temporary measure for extraordinary purposes. Any borrowing will
be done from a bank and to the extent that such borrowing exceeds 5% of the
value of a Fund's assets, asset coverage of at least 300% is required. In the
event that such asset coverage shall at any time fall below 300%, the Fund
shall, within three days thereafter (not including Sunday or holidays) or such
longer period as the Securities and Exchange Commission may prescribe by rules
and regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. A Fund will not issue
senior securities as defined in the Investment Company Act of 1940 (the "1940
Act"), except for notes to banks. (The issuance of three series of shares is not
deemed to be the issuance of senior securities so long as such series comply
with the appropriate provisions of the 1940 Act.) Investment securities will not
normally be purchased while there is an outstanding borrowing.
3. Sell securities short.
4. Write or purchase put or call options.
5. Underwrite the securities of other issuers, except that a
Fund may participate as part of a group in bidding for the purchase of municipal
bonds directly from an issuer for its own portfolio in order to take advantage
of the lower purchase price available to members of such a group; nor invest
more than 10% of the value of a Fund's net assets in illiquid assets.
6. Purchase or sell commodities or commodity contracts.
7. Purchase or sell real estate, but this shall not prevent a
Fund from investing in municipal bonds secured by real estate or interests
therein.
8. Make loans to other persons except through the use of
repurchase agreements or the purchase of commercial paper. For these purposes,
the purchase of a portion of debt securities which is part of an issue to the
public shall not be considered the making of a loan.
9. With respect to 50% of the value of its assets, invest more
than 5% of its assets in the securities of any one issuer or invest in more than
10% of the outstanding voting securities of any one issuer, except that U.S.
government and government agency securities backed by the U.S. government, or
its agencies or instrumentalities may be purchased without limitation. For the
purpose of this limitation, the Funds will regard each state and political
subdivision, agency or instrumentality of a state and each multistate agency of
which a state is a member as a separate issuer.
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<PAGE>
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as
they are acquired as part of a merger, consolidation or acquisition of assets.
12. Invest more than 25% of its total assets in any particular
industry or industries, except that a Fund may invest more than 25% of the value
of its total assets in municipal bonds and in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
Tax-Free Fund, Inc. has also adopted an additional restriction
applicable only to Insured Fund. Insured Fund will not:
13. Invest more than 20% of its assets in securities (other than
U.S. government securities, securities of agencies of the U.S. government and
securities backed by the U.S. government or its agencies or instrumentalities)
which are not covered by insurance guaranteeing the payment, when due, of
interest on and the principal of such securities, except for defensive purposes.
Tax-Free Fund, Inc. also has determined that, from time to time, more
than 10% of a Fund's assets may be invested in municipal bonds insured as to
principal and interest by a single insurance company. Tax-Free Fund, Inc.
believes such investments are consistent with the foregoing restrictions.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in value of net
assets will not result in a violation of the restrictions.
Although not a fundamental investment restriction, the Funds currently
do not invest their assets in real estate limited partnerships or oil, gas and
other mineral leases.
The Funds may invest in restricted securities, including unregistered
securities eligible for resale without registration pursuant to Rule 144A ("Rule
144A Securities") under the Securities Act of 1933 (the "1933 Act"). Rule 144A
Securities may be freely traded among qualified institutional investors without
registration under the 1933 Act.
Investing in Rule 144A Securities could have the effect of increasing
the level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a Rule 144A Security, however, the Board of Directors and the
Manager will continue to monitor the liquidity of that security to ensure that a
Fund has no more than 10% of its net assets invested in illiquid securities.
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MUNICIPAL BOND INSURANCE
The practice has developed among municipal issuers of having their
issues insured by various companies. At the present time, the Municipal Bond
Insurance Association ("MBIA"), AMBAC Indemnity Corporation ("AMBAC Indemnity")
and Financial Guaranty Insurance Company ("FGIC") provide a substantial portion
of such insurance. Accordingly, at different times, a substantial portion of a
Fund's portfolio may consist of municipal bonds of various issuers insured as to
payment of principal and interest when due by a single insurance company. It is
expected that other insurance companies or associations will enter this field,
and a substantial portion of municipal bond issues available for investment by
companies such as the Funds will be insured. In the event of a default, the
insurer is required to make payments of interest and principal when due to the
bondholders. While the insurance may affect the securities' ratings, the Manager
does not look to the creditworthiness of a private insurer. Instead, the Manager
reviews the creditworthiness of the actual issuer and its ability to pay
interest and principal. Insurance on municipal bonds that are purchased by a
Fund will generally have been obtained by the bond issuer and attached to the
bonds for their lifetime, although the Fund may obtain insurance on bonds while
they are held by the Fund.
At the present time, obligations which are subject to such insurance
generally receive a high rating from S&P or Moody's, based upon a combination of
the issuer's creditworthiness and the insurer's obligation under the insurance
policy. While such insurance reduces the risk that principal or interest will
not be paid when due, it is not a protection against market risks arising from
other factors, such as changes in prevailing interest rates. If the issuer
defaults on payment of interest or principal, the trustee and/or payment agent
of the issuer will notify the insurer who will make payment to the bondholders.
There is no assurance that any insurance company will meet its obligations.
Tax-Free Fund, Inc. believes such investments are consistent with each Fund's
fundamental investment policies and restrictions.
Similar insurance is available to a Fund for uninsured obligations, and
the Fund may acquire such obligations and purchase such insurance directly, but
only if that would result in a comparable benefit to the Fund from such a
security.
As the bond insurance industry matures, the ownership and capital
structures of the insurers have evolved. Each of the municipal bond insurers has
unique ownership structures, some of which underwent significant changes in
1992.
MBIA moved to a greater percentage of public ownership during 1992 with
the sale of additional equity. MBIA Inc. is currently 88.7% publicly owned,
while the remaining ownership is distributed between Aetna Life & Casualty
Company and Credit Local de France. As of December 31, 1995, MBIA Inc. had
total capital (GAAP) of $2,234,266,000; up .31% from December 31, 1994. For the
six months ended June 30, 1996, total capital (GAAP) amount to $2,269,366,000
(unaudited).
FGIC, until 1993 the only bond insurer with one institutional owner,
experienced a slight shift in ownership. In early January 1993, GE Capital, the
parent of FGIC Corp., sold a 1% interest of the company to Sumitomo Marine and
Fire Insurance Company Limited. The sale was undertaken primarily to facilitate
joining business ventures in the future. As of December 31, 1995, FGIC's
total capital (GAAP) was $1,547,881,000; up .21% from December 31, 1994. For the
three months ended March 31, 1996, total capital (GAAP) amounted to
$1,553,500,000 (unaudited).
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<PAGE>
AMBAC became the only insurer with 100% public ownership, when Citicorp
Financial Guaranty Holdings, Inc. (CFGH) sold its remaining 49.7% equity
interest in AMBAC Inc. during February 1992. As of December 31, 1995, AMBAC's
total capital (GAAP) was $1,403,988,000; up .36% from December 31, 1994. For
the six months ended June 30, 1996, total capital (GAAP) amounted to
$1,472,204,000 (unaudited).
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PERFORMANCE INFORMATION
From time to time, each Fund may state total return for its Classes in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life of fund, if applicable) periods. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
The average annual total rate of return for a Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
Where P = a hypothetical initial purchase order of $1,000 from which, in
the case of only Class A Shares, the maximum front-end sales
charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000 purchase at the end
of the period after the deduction of the applicable CDSC, if
any, with respect to Class B Shares and Class C Shares.
In presenting performance information for Class A Shares, the Limited
CDSC applicable to only certain redemptions of those shares will not be deducted
from any computation of total return. See the Prospectus for the Classes for a
description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this Performance Information section will apply to
Class B Shares or Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made and that all distributions are reinvested at net asset
value, and with respect to Class B Shares and Class C Shares, reflects the
deduction of the CDSC that would be applicable upon complete redemption of such
shares. In addition, each Fund may present total return information that does
not reflect the deduction of the maximum front-end sales charge or any
applicable CDSC.
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<PAGE>
The performance, as shown below, is the average annual total return
quotations of the Class A Shares and Class B Shares of each Fund through August
31, 1996, computed as described above. The average annual total return for Class
A Shares at offer reflects the maximum front-end sales charge of 4.75% with
respect to USA A Class and Insured A Class and 3.00% with respect to
Intermediate A Class paid on the purchase of shares. The average annual total
return for Class A Shares at net asset value (NAV) does not reflect the payment
of any front-end sales charge. The average annual return for Class B Shares
including deferred sales charge reflects the deduction of the applicable CDSC
that would be paid if the shares were redeemed at August 31, 1996. The average
annual total return for Class B Shares excluding deferred sales charge assumes
the shares were not redeemed at August 31, 1996 and therefore does not reflect
the deduction of a CDSC. The performance of the Class C Shares of each Fund, as
shown below, is the aggregate total return quotations through August 31, 1996.
The aggregate total return for Class C Shares including deferred sales charge
reflects the deduction of the applicable CDSC that would be paid if the shares
were redeemed at August 31, 1996. The aggregate total return for Class C Shares
excluding deferred sales charge assumes the shares were not redeemed at August
31, 1996 and therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Average Annual Total Return
USA A Class
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended 8/31/96 (2.91%) 1.91%
3 years ended 8/31/96 1.69% 3.35%
5 years ended 8/31/96 5.61% 6.65%
10 years ended 8/31/96 6.69% 7.22%
Period 1/11/84(1)
through 8/31/96 9.06% 9.48%
(1) Date of initial public offering.
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<PAGE>
Average Annual Total Return
USA B Class
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
1 year ended 8/31/96 (2.72%) 1.11%
Period 5/2/94(1)
through 8/31/96 2.42% 3.60%
(1) Date of initial public offering.
Aggregate Total Return
USA C Class
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 11/29/95(1)
through 8/31/96 (2.38%) (1.44%)
(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer term results.
Average Annual Total Return
Insured A Class
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended 8/31/96 (1.05%) 3.88%
3 years ended 8/31/96 1.89% 3.56%
5 years ended 8/31/96 5.01% 6.03%
10 years ended 8/31/96 6.18% 6.70%
Period 3/25/85(1)
through 8/31/96 7.51% 7.97%
(1) Date of initial public offering.
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Average Annual Total Return
Insured B Class
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
1 year ended 8/31/96 (0.88%) 3.05%
Period 5/2/94(1)
through 8/31/96 3.27% 4.48%
(1) Date of initial public offering.
Aggregate Total Return
Insured C Class
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 11/29/95(1)
through 8/31/96 (0.95%) 0.01%
(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer term results.
Average Annual Total Return
Intermediate A Class(1)
Class A Shares Class A Shares
(at Offer) (at NAV)
1 year ended 8/31/96 1.40% 4.52%
3 years ended 8/31/96 3.27% 4.33%
Period 1/7/93(2)
through 8/31/96 5.33% 6.22%
(1) The Manager elected to waive voluntarily the portion of its annual
compensation payable under its Investment Management Agreement with the
Intermediate Fund to limit operating expenses of the Fund to .25%
(including 12b-1 expenses). That waiver was modified effective May 2,
1994 to limit operating expenses to .10%, exclusive of 12b-1 expenses,
through December 31, 1996. In the absence of such voluntary waiver,
performance would have been affected negatively.
(2) Date of initial public offering.
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<PAGE>
Average Annual Total Return
Intermediate B Class(1)
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
1 year ended 8/31/96 1.65% 3.63%
Period 5/2/94(2)
through 8/31/96 4.53% 4.93%
(1) The Manager elected to waive voluntarily the portion of its annual
compensation payable under its Investment Management Agreement with the
Intermediate Fund to limit operating expenses of the Fund to .10%,
exclusive of 12b-1 expenses, from the commencement of the public
offering of the Class through December 31, 1996. In the absence of such
voluntary waiver, performance would have been affected negatively.
(2) Date of initial public offering.
Aggregate Total Return
Intermediate C Class(1)
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)
Period 11/29/95(2)
through 8/31/96 0.86% 1.84%
(1) The Manager elected to waive voluntarily the portion of its annual
compensation payable under its Investment Management Agreement with the
Intermediate Fund to limit operating expenses of the Fund to .10%,
exclusive of 12b-1 expenses, from the commencement of the public
offering of the Class through December 31, 1996. In the absence of such
voluntary waiver, performance would have been affected negatively.
(2) Date of initial public offering; total return for this short of a time
period may not be representative of longer term results.
As stated in the Funds' Prospectus, each Fund may also quote its
respective Classes' current yield in advertisements and investor communications.
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<PAGE>
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
The above formula will be used in calculating quotations of yield for
each Class, based on specified 30-day periods identified in advertising by the
Fund. Using this formula, the yields for each Class of each Fund as of August
31, 1996 were as follows:
Class A Class B Class C
Shares Shares Shares
USA Fund 5.26% 4.69% 4.69%
Insured Fund 4.61% 4.00% 4.00%
Intermediate Fund 4.79% 4.06% 4.06%
The yields of each Class of the Intermediate Fund reflect the voluntary
fee waiver undertaken by the Manager described above. Yield calculations assume
the maximum front-end sales charge, if any, and do not reflect the deduction of
any contingent deferred sales charge. Actual yield on Class A Shares may be
affected by variations in front-end sales charges on investments.
The Fund may also publish a tax-equivalent yield for a Class based on
federal and, if applicable, state tax rates, which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to the Class' yield.
For the 30-day period ended August 31, 1996, the tax-equivalent yields (assuming
a federal income tax rate of 31%) of each Class of each Fund were as follows:
Class A Class B Class C
Shares Shares Shares
USA Fund 7.62% 6.80% 6.80%
Insured Fund 6.68% 5.80% 5.80%
Intermediate Fund 6.94% 5.88% 5.88%
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These yields were computed by dividing that portion of a Class' yield
which is tax-exempt by one minus a stated income tax rate (in this case, a
federal income tax rate of 31%) and adding the product to that portion, if any,
of the yield that is not tax-exempt. In addition, a Fund may advertise a
tax-equivalent yield assuming other income tax rates, when applicable.
Investors should note that the income earned and dividends paid by a
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of a Fund may change. Unlike money market funds,
each Fund invests in longer-term securities that fluctuate in value and do so in
a manner inversely correlated with changing interest rates. Each Fund's net
asset value will tend to rise when interest rates fall. Conversely, each Fund's
net asset values will tend to fall as interest rates rise. Normally,
fluctuations in interest rates have a greater effect on the prices of
longer-term bonds. The value of the securities held in a Fund will vary from day
to day and investors should consider the volatility of a Fund's net asset values
as well as the yield before making a decision to invest.
Since each Fund invests for the long term, the average effective
weighted average portfolio maturity at the end of the fiscal year was 22 years
for the USA Fund, 25 years for the Insured Fund and 7 years for the Intermediate
Fund.
See Appendix A--Equivalent Yields: Tax-Exempt vs. Taxable Securities
for additional yield information.
From time to time, a Fund may also quote for its Classes an actual
total return and/or yield performance in advertising and other types of
literature compared to indices or averages of alternative financial products
available to prospective investors. For example, the performance comparisons may
include the average return of various bank instruments, some of which may carry
certain return guarantees offered by leading banks and thrifts as monitored by
Bank Rate Monitor.
Comparative information on the Consumer Price Index may also be
included. The Consumer Price Index, as prepared by the U.S Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
A Fund may also promote its Classes' total return and/or yield
performance and use comparative performance information computed by and
available from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc.
Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual fund
performance to comparable activities and performances of the Funds and in
illustrating general financial planning principles. From time to time, certain
mutual fund performance ranking information, calculated and provided by these
organizations, may also be used in the promotion of sales of the Funds. Any
indices used are not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and
Morningstar, Inc. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse
universe of independently-managed mutual funds.
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<PAGE>
Ibbotson Associates, Inc. is a consulting firm that provides a
variety of historical data including total return, capital
appreciation and income on the stock market as well as other
investment asset classes, and inflation. With their permission,
this information will be used primarily for comparative purposes
and to illustrate general financial planning principles.
Interactive Data Corporation is a statistical access service that
maintains a database of various international industry indicators,
such as historical and current price/earning information,
individual equity and fixed-income price and return information.
Compustat Industrial Databases, a service of Standard & Poor's, may
also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that
provide financial, statistical and market information covering
more than 7,000 industrial and non-industrial companies.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market,
corporate and government-issued securities of various maturities.
This information, as well as unmanaged indices compiled and
maintained by these firms, will be used in preparing comparative
illustrations. In addition, the performance of multiple indices
compiled and maintained by these firms may be combined to create
a blended performance result for comparative purposes. Generally,
the indices selected will be representative of the types of
securities in which the Funds may invest and the assumptions that
were used in calculating the blended performance will be described.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. Also, current rate information on municipal
debt obligations of various durations, as reported daily by The Bond Buyer, may
also be used. The Bond Buyer is published daily and is an industry-accepted
source for current municipal bond market information.
The total return performance for each Class will reflect the
appreciation or depreciation of principal, reinvestment of income and any
capital gains distributions paid during any indicated period, and, in the case
of Class A Shares, the impact of the maximum front-end sales charge, if any,
paid on the illustrated investment amount, annualized. Performance of Class A
Shares may also be shown without reflecting the impact of any front-end sales
charge. Performance of Class B Shares and Class C Shares will be calculated with
both the applicable CDSC included and excluded. The results will not reflect any
income taxes, if applicable, payable by shareholders on the reinvested
distributions included in the calculations. The net asset values of the Funds
fluctuate so shares, when redeemed, may be worth more or less than the original
investment, and past performance should not be considered a guarantee of future
results.
The following tables, for purposes of illustration only, reflect the
cumulative total return performance for each Class of each Fund through August
31, 1996. Comparative information on the Consumer Price Index is also included.
-25-
<PAGE>
Cumulative Total Return
USA A Class
Consumer
Class A Shares Price
(at Offer) Index(3)
3 months ended 8/31/96 (4.38%) 0.45%
6 months ended 8/31/96 (6.70%)(2) 1.55%
9 months ended 8/31/96 (6.12%) 2.41%
1 year ended 8/31/96 (2.91%) 2.88%
3 years ended 8/31/96 5.16% 8.63%
5 years ended 8/31/96 31.37% 15.15%
10 years ended 8/31/96 91.10% 43.40%
Period 1/11/84(1)
through 8/31/96 199.13% 55.26%
(1) Date of initial public offering.
(2) For the six months ended August 31, 1996, the cumulative total return
at NAV for USA A Class was (2.01%).
(3) Source--U.S. Department of Labor.
Cumulative Total Return
USA B Class
Class B Shares Class B Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
3 months ended 8/31/96 (3.79%) 0.16% 0.45%
6 months ended 8/31/96 (6.21%) (2.41%) 1.55%
9 months ended 8/31/96 (5.80%) (2.03%) 2.41%
1 year ended 8/31/96 (2.72%) 1.11% 2.88%
Period 5/2/94(1)
through 8/31/96 5.73% 8.60% 6.72%
(1) Date of initial public offering.
(2) Source--U.S. Department of Labor.
-26-
<PAGE>
Cumulative Total Return
USA C Class
Class C Shares Class C Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
3 months ended 8/31/96 (0.83%) 0.16% 0.45%
6 months ended 8/31/96 (3.36%) (2.41%) 1.55%
Period 11/29/95(1)
through 8/31/96 (2.38%) (1.44%) 2.41%
(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer term results.
(2) Source--U.S. Department of Labor.
Cumulative Total Return
Insured A Class
Consumer
Class A Shares Price
(at Offer) Index(3)
3 months ended 8/31/96 (4.22%) 0.45%
6 months ended 8/31/96 (6.05%)(2) 1.55%
9 months ended 8/31/96 (4.83%) 2.41%
1 year ended 8/31/96 (1.05%) 2.88%
3 years ended 8/31/96 5.79% 8.63%
5 years ended 8/31/96 27.69% 15.15%
10 years ended 8/31/96 82.21% 43.40%
Period 3/25/85(1)
through 8/31/96 128.89% 47.81%
(1) Date of initial public offering.
(2) For the six months ended August 31, 1996, the cumulative total return
at NAV for Insured A Class was (1.40%).
(3) Source--U.S. Department of Labor.
-27-
<PAGE>
Cumulative Total Return
Insured B Class
Class B Shares Class B Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
3 months ended 8/31/96 (3.58%) 0.40% 0.45%
6 months ended 8/31/96 (5.64%) (1.79%) 1.55%
9 months ended 8/31/96 (4.56%) (0.72%) 2.41%
1 year ended 8/31/96 (0.88%) 3.05% 2.88%
Period 5/2/94(1)
through 8/31/96 7.80% 10.76% 6.72%
(1) Date of initial public offering.
(2) Source--U.S. Department of Labor.
Cumulative Total Return
Insured C Class
Class C Shares Class C Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge Sales Charge) Index(2)
3 months ended 8/31/96 (0.60%) 0.40% 0.45%
6 months ended 8/31/96 (2.75%) (1.79%) 1.55%
Period 11/29/95(1)
through 8/31/96 (0.95%) 0.01% 2.41%
(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer term results.
(2) Source--U.S. Department of Labor.
-28-
<PAGE>
Cumulative Total Return
Intermediate A Class(1)
Consumer
Class A Shares Price
(at Offer) Index(3)
3 months ended 8/31/96 (1.42%) 0.45%
6 months ended 8/31/96 (1.95%)(2) 1.55%
9 months ended 8/31/96 (1.12%) 2.41%
1 year ended 8/31/96 1.40% 2.88%
3 years ended 8/31/96 10.14% 8.63%
Period 1/7/93(4)
to 8/31/96 20.87% 10.85%
(1) The Manager elected to waive voluntarily the portion of its annual
compensation payable under its Investment Management Agreement with the
Intermediate Fund to limit operating expenses of the Fund to .25%
(including 12b-1 expenses). That waiver was modified effective May 2,
1994 to limit operating expenses to .10%, exclusive of 12b-1 expenses,
through December 31, 1996. In the absence of such voluntary waiver,
performance would have been affected negatively.
(2) For the six months ended August 31, 1996, the cumulative total return
at NAV for Intermediate A Class was 1.05%.
(3) Source--U.S. Department of Labor.
(4) Date of initial public offering.
Cumulative Total Return
Intermediate B Class(1)
Class B Shares Class B Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
3 months ended 8/31/96 (0.57%) 1.44% 0.45%
6 months ended 8/31/96 0.62% (1.35%) 1.55%
9 months ended 8/31/96 (0.63%) 1.33% 2.41%
1 year ended 8/31/96 1.65% 3.63% 2.88%
Period 5/2/94(3)
through 8/31/96 10.89% 11.89% 6.72%
(1) The Manager elected to waive voluntarily the portion of its annual
compensation payable under its Investment Management Agreement with the
Intermediate Fund to limit operating expenses of the Fund to .10%,
exclusive of 12b-1 expenses, from the commencement of the public
offering of the Class through December 31, 1996. In the absence of such
voluntary waiver, performance would have been affected negatively.
(2) Source--U.S. Department of Labor.
(3) Date of initial public offering.
-29-
<PAGE>
Cumulative Total Return
Intermediate C Class(1)
Class C Shares Class C Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
3 months ended 8/31/96 0.44% 1.44% 0.45%
6 months ended 8/31/96 (0.37%) 0.62% 1.55%
Period 11/29/95(3)
through 8/31/96 0.86% 1.84% 2.41%
(1) The Manager elected to waive voluntarily the portion of its annual
compensation payable under its Investment Management Agreement with the
Intermediate Fund to limit operating expenses of the Fund to .10%,
exclusive of 12b-1 expenses, from the commencement of the public
offering of the Class through December 31, 1996. In the absence of such
voluntary waiver, performance would have been affected negatively.
(2) Source--U.S. Department of Labor.
(3) Date of initial public offering; total return for this short of a time
period may not be representative of longer term results.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for Tax-Free Funds, Inc. and other mutual funds in
the Delaware Group, will provide general information about investment
alternatives and scenarios that will allow investors to assess their personal
goals. This information will include general material about investing as well as
materials reinforcing various industry- accepted principles of prudent and
responsible financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts the Funds', and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
-30-
<PAGE>
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of low fund share prices. Delaware
Group offers three services -- Automatic Investing Plan, Direct Deposit Purchase
Plan and the Wealth Builder Option -- that can help to keep your regular
investment program on track. See Investing by Electronic Fund Transfer - Direct
Deposit Purchase Plan and Automatic Investing Plan under Investment Plans and
Wealth Builder Option under Investment Plans for a complete description of these
services, including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
_____________________________________________________________
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of the Funds.
-31-
<PAGE>
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding and the following chart illustrates just how powerful
it can be.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a $10,000
investment compounded monthly tax-free for 10 years:
4% Rate of Return 6% Rate of Return 8% Rate of Return
----------------- ----------------- -----------------
1 Year $10,407 $10,617 $10,830
2 Years $10,831 $11,272 $11,729
3 Years $11,273 $11,967 $12,702
4 Years $11,732 $12,705 $13,757
5 Years $12,210 $13,488 $14,898
6 Years $12,707 $14,320 $16,135
7 Years $13,225 $15,203 $17,474
8 Years $13,764 $16,141 $18,924
9 Years $14,325 $17,137 $20,495
10 Years $14,908 $18,194 $22,196
These figures are calculated assuming a fixed constant investment
return and assume no fluctuation in the value of principal. These figures, which
do not reflect payment of any sales charges, are not intended to be a projection
of investment results and do not reflect the actual performance results of any
of the Classes.
-32-
<PAGE>
TRADING PRACTICES AND BROKERAGE
Banks, brokers or dealers are selected to execute transactions on
behalf of a Fund for the purchase or sale of portfolio securities on the basis
of the Manager's judgment of their professional capability to provide the
service. The primary consideration is to have banks, brokers or dealers execute
transactions at best price and execution. Best price and execution refers to
many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. In nearly all
instances, trades are made on a net basis where a Fund either buys the
securities directly from the dealer or sells them to the dealer. In these
instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, a Fund pays a minimal share transaction
cost when the transaction presents no difficulty.
During the fiscal years ended August 31, 1994, 1995 and 1996, no
brokerage commissions were paid by the Funds.
The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended August 31, 1996, there were no portfolio
transactions of any Fund resulting in brokerage commissions directed to brokers
for brokerage and research services.
As provided in the Securities Exchange Act of 1934 and the Investment
Management Agreement for each Fund, higher commissions are permitted to be paid
to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Funds believe that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition,
-33-
<PAGE>
so long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Funds and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and the Board of
Directors that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Manager may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of Fund shares as a factor in the
selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Tax-Free Fund, Inc. anticipates that each Fund's portfolio turnover
rate will generally be less than 100%. However, Tax-Free Fund, Inc. will not
attempt to achieve or be limited to a predetermined rate of portfolio turnover
for a Fund, such a turnover always being incidental to transactions undertaken
with a view to achieving each Fund's investment objective in relation to
anticipated movements in the general level of interest rates. In investing for
liberal current income, a Fund may hold securities for any period of time,
subject to complying with the Internal Revenue Code and the 1940 Act, when
changes in circumstances or conditions make such a move desirable in light of
the investment objective. To that extent, the Fund may realize gains or losses.
See Taxes. The turnover rate also may be affected by cash requirements for
redemptions and repurchases of Fund shares.
The portfolio turnover rate of each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.
The portfolio turnover rates for each Fund for the past two fiscal
years were as follows:
August 31,
1996 1995
USA Fund 42% 27%
Insured Fund 45% 68%
Intermediate Fund 15% 63%
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<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
shares and has agreed to use its best efforts to sell shares of each Fund. See
the Prospectus for additional information on how to invest. Shares of each Fund
are offered on a continuous basis and may be purchased through authorized
investment dealers or directly by contacting Tax-Free Fund, Inc. or the
Distributor.
The minimum initial investment generally is $1,000 for each Class of
each Fund. Subsequent purchases generally must be at least $100. The initial and
subsequent minimum investments for Class A Shares will be waived for purchases
by officers, directors and employees of any Delaware Group fund, the Manager or
any of the Manager's affiliates if the purchases are made pursuant to a payroll
deduction program. Shares purchased pursuant to the Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act and shares purchased in connection with an
Automatic Investing Plan are subject to a minimum initial purchase of $250 and a
minimum subsequent purchase of $25. Accounts opened under the Delaware Group
Asset Planner service are subject to a minimum initial investment of $2,000 per
Asset Planner Strategy selected.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. Tax-Free Fund, Inc. will reject any purchase order
of more than $250,000 of Class B Shares and $1,000,000 or more for Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more of Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers have the responsibility of transmitting orders
promptly. Tax-Free Fund, Inc. reserves the right to reject any order for the
purchase of a Fund's shares if in the opinion of management such rejection is in
such Fund's best interest.
The NASD has adopted Rules of Fair Practice relating to investment
company sales charges. Tax- Free Fund, Inc. and the Distributor intend to
operate in compliance with these rules.
Shares of USA A Class and Insured A Class are purchased at the offering
price which reflects a maximum front-end sales charge of 4.75%. Shares of
Intermediate A Class are also purchased at the offering price which reflects a
maximum front-end sales charge of 3.00%. Lower sales charges apply for larger
purchases. See the tables below. Class A Shares are also subject to annual 12b-1
Plan expenses. See Determining Offering Price and Net Asset Value and Plans
Under Rule 12b-1.
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<PAGE>
Shares of USA B Class and Insured B Class are purchased at net asset
value and are subject to a CDSC of: (i) 4% if shares are redeemed within two
years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Shares of USA B Class and Insured B Class are also subject
to annual 12b-1 Plan expenses which are higher than those to which Class A
Shares are subject and are assessed against Class B Shares for approximately
eight years after purchase. Shares of Intermediate B Class are purchased at net
asset value and are subject to a CDSC of: (i) 2% if shares are redeemed within
two years of purchase; and (ii) 1% if shares are redeemed during the third year
following purchase. Such shares are also subject to annual 12b-1 Plan expenses
which are higher than those to which Class A Shares are subject and are assessed
against the Class B Shares for approximately five years after purchase. See
Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus.
Class C Shares of each Fund are purchased at net asset value and are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. Class C Shares are also subject to annual 12b- 1 Plan expenses for the
life of the investment which are equal to those to which Class B Shares are
subject.
See Determining Offering Price and Net Asset Value and Plans Under Rule
12b-1 in this Part B.
Certificates representing shares purchased are not ordinarily issued
unless a shareholder submits a specific request with respect to Class A Shares.
Certificates are not issued in the case of Class B Shares or Class C Shares.
However, purchases not involving the issuance of certificates are confirmed to
the investor and credited to the shareholder's account on the books maintained
by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have
the same rights of ownership with respect to such shares as if certificates had
been issued. An investor that is permitted to obtain a certificate may receive a
certificate representing shares purchased by sending a letter to the Transfer
Agent requesting the certificate. No charge is assessed by Tax-Free Fund, Inc.
for any certificate issued. Investors who hold certificates representing any of
their shares may only redeem those shares by written request. The investor's
certificate(s) must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable for their needs given the amount of their purchase, the length of time
they expect to hold their shares and other relevant circumstances. Investors
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<PAGE>
should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of .30% of the average daily net
assets of Class A Shares (currently, no more than .15% of the average daily net
assets of Intermediate A Class), or to purchase either Class B Shares or Class C
Shares and have the entire initial purchase amount invested in a Fund with the
investment thereafter subject to a CDSC and annual 12b-1 expenses. Shares of USA
B Class and Insured B Class are subject to a CDSC if the shares are redeemed
within six years of purchase. Shares of Intermediate B Class are subject to a
CDSC if the shares are redeemed within three years of purchase. Class C Shares
of each Fund are subject to a CDSC if the shares are redeemed within 12 months
of purchase. Class B and Class C Shares are each subject to annual 12b-1 Plan
expenses of 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 the respective Class.
Shares of USA B Class and Insured B Class will automatically convert to Class A
Shares of the respective Fund at the end of approximately eight years after
purchase and shares of Intermediate B Class will automatically convert to the
Class A Shares of this Fund at the end of approximately five years after
purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up to a
maximum of .30% of average daily net assets of such shares. Unlike Class B
Shares, Class C Shares do not convert to another class.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, and
may include a series of purchases over a 13-month period under a Letter of
Intention signed by the purchaser. See Special Purchase Features - Class A
Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
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<PAGE>
<TABLE>
<CAPTION>
_____________________________________________________________________________________________
USA Fund and Insured Fund
Class A Shares
_____________________________________________________________________________________________
Dealer's
Front-End Sales Charge as % of Commission***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
_____________________________________________________________________________________________
<S> <C> <C> <C> <C>
USA Insured
Fund Fund
Less than $100,000 4.75% 5.02% 4.97% 4.00%
$100,000 but under $250,000 3.75 3.89 3.86 3.00
$250,000 but under $500,000 2.50 2.59 2.57 2.00
$500,000 but under $1,000,000* 2.00 2.08 2.02 1.60
_____________________________________________________________________________________________
_____________________________________________________________________________________________
Intermediate Fund
Class A Shares
_____________________________________________________________________________________________
Dealer's
Front-End Sales Charge as % of Commission***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
_____________________________________________________________________________________________
Less than $100,000 3.00% 3.10% 2.50%
$100,000 but under $250,000 2.50 2.52 2.00
$250,000 but under $500,000 2.00 2.03 1.60
$500,000 but under $1,000,000* 1.50 1.55 1.20
_____________________________________________________________________________________________
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1%
contingent deferred sales charge may apply upon redemption of such
shares. The contingent deferred sales charge ("Limited CDSC") that may
be applicable arises only in the case of certain shares that were
purchased at net asset value and triggered the payment of a dealer's
commission.
** Based on the net asset value per share of the respective Class A Shares
as of the end of Tax-Free Fund, Inc.'s most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
________________________________________________________________________________
A Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by a Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
front-end sales charge shown above. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
________________________________________________________________________________
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<PAGE>
Certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group funds may receive an additional commission of up to .15% of
the offering price in connection with the sales of Class A Shares. Such dealers
must meet certain requirements in terms of organization and distribution
capabilities and their ability to increase sales. The Distributor should be
contacted for further information on these requirements as well as the basis and
circumstances upon which the additional commission will be paid. Participating
dealers may be deemed to have additional responsibilities under the securities
laws.
Dealer's Commission
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are effected in accordance with the following schedules:
USA A Class and Insured A Class
Dealer's Commission
-------------------
(as a percentage of
Amount of Purchase amount purchased)
------------------
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
Intermediate A Class
Dealer's Commission
-------------------
(as a percentage of
Amount of Purchase amount purchased)
------------------
Up to $3 million .60%
Next $2 million up to $5 million .40
Amount over $5 million .20
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Prospectus) applies may be aggregated with those of Class A
Shares of a Fund. Financial advisers also may be eligible for a dealer's
commission in connection with certain purchases made under a Letter of Intention
or pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
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An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within prescribed periods after purchase may be
subject to a CDSC imposed at the rates and within the time periods set forth
below, and Class C Shares redeemed within 12 months of purchase may be subject
to a CDSC of 1%. CDSCs are charged as a percentage of the dollar amount subject
to the CDSC. The charge will be assessed on an amount equal to the lesser of the
net asset value at the time of purchase of shares being redeemed or the net
asset value of those shares at the time of redemption. No CDSC will be imposed
on increases in net asset value above the initial purchase price, nor will a
CDSC be assessed on redemption of shares acquired through the reinvestment of
dividends or capital gains distributions. See Waiver of Contingent Deferred
Sales Charge - Class B and Class C Shares under Redemption and Exchange in the
Prospectus for a list of the instances in which the CDSC is waived.
The following table sets forth the rates of the CDSC for USA B Class
and Insured B Class:
USA B Class and Insured B Class
Contingent Deferred
Sales Charge
(as a Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase, and thereafter, until converted
automatically into Class A Shares of the corresponding Fund, USA B Class and
Insured B Class will still be subject to the annual 12b-1 Plan expenses of up to
1% of the average daily net assets of the relevant Class B Shares. At the end of
approximately eight years after purchase, the investor's USA B Class and Insured
B Class will be automatically converted into Class A Shares of the same Fund.
See Automatic Conversion of Class B Shares under Classes of Shares in the
Classes' Prospectus. Such conversion will constitute a tax-free exchange for
federal income tax purposes. See Taxes in the Prospectus for the Classes.
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The following table sets forth the rates of the CDSC for Intermediate B
Class:
Intermediate B Class
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 Intermediate Fund, Class B Shares of this
Fund will still be subject to annual 12b-1 Plan expenses of up to 1% of the
average daily net assets of those shares. At the end of approximately five years
after purchase, the investor's Class B Shares will be automatically converted
into Class A Shares of Intermediate Fund. See Automatic Conversion of Class B
Shares under Classes of Shares in the Classes' Prospectus. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes in the
Prospectus for the Classes.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, Tax-Free Fund, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of each Fund (the "Plans"). Each Plan permits the relevant Fund to pay
for certain distribution, promotional and related expenses involved in the
marketing of only the Class to which the Plan applies.
The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of the respective Class A Shares, Class B Shares and Class C
Shares monthly fees to the Distributor for its services and expenses in
distributing and promoting sales of the shares of such classes. These expenses
include, among other things, preparing and distributing advertisements, sales
literature and prospectuses and reports used for sales purposes, compensating
sales and marketing personnel, and paying distribution and maintenance fees to
securities brokers and dealers who enter into agreements with the Distributor.
The Plan expenses relating to the Class B and Class C Shares are also used to
pay the Distributor for advancing the commission costs to dealers with respect
to the initial sale of such shares.
In addition, each Fund may make payments out of the assets of the
respective Class A, Class B and Class C Shares directly to other unaffiliated
parties, such as banks, who either aid in the distribution of shares of, or
provide services to, such Classes.
The maximum aggregate fee payable by a Fund under its Plans, and each
Fund's Distribution Agreement, is on an annual basis, up to .30% of average
daily net assets of the Class A Shares, and up to 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 each of the Class B Shares'
and Class C Shares' average daily net assets for the year. Tax-Free Fund, Inc.'s
Board of Directors may reduce these amounts at any time. The Distributor has
agreed to waive these distribution fees to the extent such fee for any day
exceeds the net investment income realized by the Classes for such day.
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Effective June 1, 1992, the Board of Directors has determined that the
annual fee, payable on a monthly basis, under the separate Plans relating to USA
A Class and Insured A Class, will be equal to the sum of: (i) the amount
obtained by multiplying .30% by the average daily net assets represented by the
Class A Shares of the Fund that were acquired by shareholders on or after June
1, 1992; and (ii) the amount obtained by multiplying .10% by the average daily
net assets represented by the Class A Shares of the Fund that were acquired
before June 1, 1992. While this is the method for calculating the 12b-1 expenses
to be paid by the USA A Class and Insured A Class, the fee is a Class A Shares'
expense so that all shareholders of the Class A Shares of each such Fund
regardless of when they purchased their shares will bear 12b-1 expenses at the
same rate. As Class A Shares of such Funds are sold on or after June 1, 1992,
the initial rate of at least .10% will increase over time. Thus, as the
proportion of Class A Shares purchased on or after June 1, 1992 to Class A
Shares outstanding prior to June 1, 1992 increases, the expenses attributable to
payments under the Plans will also increase (but will not exceed .30% of average
daily net assets). In addition, on September 17, 1992, the Board of Directors
set the fee for Intermediate A Class at .15% of average daily net assets. While
this describes the current basis for calculating the fees which will be payable
under the Plans with respect to USA A Class, Insured A Class and Intermediate A
Class, such Plans permit a full .30% on all Class A Shares' assets to be paid at
any time following appropriate Board approval.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such Classes. Subject to seeking best price and execution, a
Fund may, from time to time, buy or sell portfolio securities from or to firms
which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreements, as amended, have been
approved by the Board of Directors of Tax Free Fund, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Tax Free Fund, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Agreements. Continuation of the Plans and the
Distribution Agreements, as amended, must be approved annually by the Board of
Directors in the same manner as specified above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of each Fund and that there is a reasonable
likelihood of the Plan relating to a Class providing a benefit to that Class.
The Plans and the Distribution Agreements, as amended, may be terminated with
respect to a Class at any time without penalty by a majority of those directors
who are not "interested persons" or by a majority vote of the relevant Class'
outstanding voting securities. Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the relevant Class' outstanding voting securities, as well as by a majority
vote of those directors who are not "interested persons." With respect to each
Class A Shares' Plan, any material increase in the maximum percentage payable
thereunder must also be approved by a majority of the outstanding voting
securities of the respective Class B Shares. Also, any other material amendment
to the Plans must be approved by a majority vote of the directors including a
majority of the noninterested directors of Tax-Free Fund, Inc. having no
interest in the Plans. In addition, in order for the Plans to remain effective,
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the selection and nomination of directors who are not "interested persons" of
Tax-Free Fund, Inc. must be effected by the directors who themselves are not
"interested persons" and who have no direct or indirect financial interest in
the Plans. Persons authorized to make payments under the Plans must provide
written reports at least quarterly to the Board of Directors for their review.
For the fiscal year ended August 31, 1996, payments from the USA A
Class and USA B Class amounted to $1,482,790 and $246,417, respectively. For the
period November 29, 1995 (date of initial public offering) through August 31,
1996, payments from the Intermediate Fund C Class amounted to $2,953. Such
amounts were used for the following purposes:
USA A Class USA B Class USA C Class
----------- ----------- -----------
Advertising $887 --- ---
Annual/Semi-Annual Reports $25,592 --- ---
Broker Trails $1,180,433 $62,011 ---
Broker Sales Charges --- $77,270 $2,520
Dealer Service Expenses $9,982 --- ---
Interest on Broker Sales Charges --- $95,220 $189
Commissions to Wholesalers $76,074 $10,308 $6
Promotional-Broker Meetings $35,278 $1,313 $2
Promotional-Other $36,075 --- ---
Prospectus Printing $24,768 $295 ---
Telephone $15,114 --- $1
Wholesaler Expenses $78,587 --- $235
Other --- --- ---
For the fiscal year ended August 31, 1996, payments from the Insured A
Class and Insured B Class amounted to $168,281 and $31,149, respectively. For
the period November 29, 1995 (date of initial public offering) through August
31, 1996, payments from the Insured Fund C Class amounted to $412.
Such amounts were used for the following purposes:
Insured A Class Insured B Class Insured C Class
--------------- --------------- ---------------
Advertising $284 $263 ---
Annual/Semi-Annual Reports $2,979 --- ---
Broker Trails $133,102 $7,566 ---
Broker Sales Charges --- $9,063 $383
Dealer Service Expenses $1,477 $122 ---
Interest on Broker Sales Cha --- $12,740 $29
Commissions to Wholesalers $8,140 $1,114 ---
Promotional-Broker Meetings $2,900 $161 ---
Promotional-Other $10,934 --- ---
Prospectus Printing $4,097 $53 ---
Telephone $878 $26 ---
Wholesaler Expenses $3,490 $41 ---
Other --- --- ---
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For the fiscal year ended August 31, 1996, payments from the
Intermediate A Class and Intermediate B Class amounted to $31,627 and $12,768,
respectively. For the period November 29, 1995 (date of initial public offering)
through August 31, 1996, payments from the Intermediate Fund C Class amounted to
$920. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Intermediate A Class Intermediate B Class Intermediate C Class
<S> <C> <C> <C>
Advertising $33 $405 ---
Annual/Semi-Annual Reports $699 --- ---
Broker Trails $28,707 $1,732 ---
Broker Sales Charges --- $6,475 $812
Dealer Service Expenses --- $68 $3
Interest on Broker Sales Charges --- $2,463 $75
Commissions to Wholesalers $171 $1,033 $3
Promotional-Broker Meetings $231 $84 $2
Promotional-Other $1,562 --- ---
Prospectus Printing $222 --- ---
Telephone --- $31 ---
Wholesaler Expenses --- $477 $5
Other $2 --- $20
</TABLE>
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. Tax-Free Fund, Inc. intends to amend the
Plans, if necessary, to comply with any new rules or regulations the SEC may
adopt with respect to Rule 12b-1.
Other Payments to Dealers - Class A, Class B and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the 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.
Payments to dealers made in connection with seminars, conferences or
contests relating to the promotion of fund shares may be in an amount up to 100%
of the expenses incurred or awards made. The Distributor may also pay a portion
of the expense of preapproved dealer advertisements promoting the sale of
Delaware Group fund shares.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be reinvested without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Tax-Free Fund,
Inc., any other fund in the Delaware Group, the Manager or any of the Manager's
current affiliates and those that may in the future be created, legal counsel to
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the funds and registered representatives, and employees of broker/dealers who
have entered into Dealer's Agreements with the Distributor may purchase Class A
Shares and shares of any of the funds in the Delaware Group, including any fund
that may be created at net asset value. Family members (regardless of age) of
such persons at their direction, and any employee benefit plan established by
any of the foregoing funds, corporations, counsel or broker/dealers may also
purchase shares at net asset value. Purchases of Class A Shares may also be made
by clients of registered representatives of an authorized investment dealer at
net asset value 12 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, contingent deferred sales charge or other sales charge
has been assessed. Purchases of Class A Shares may also be made at net asset
value by bank employees who provide services in connection with agreements
between the bank and unaffiliated brokers or dealers concerning sales of shares
of the Delaware Group funds. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Such purchasers are required to sign a letter stating that the
purchase is for investment only and that the securities may not be resold except
to the issuer. Such purchasers may also be required to sign or deliver such
other documents as Tax-Free Fund, Inc. may reasonably require to establish
eligibility for purchase at net asset value.
Tax-Free Fund, Inc. must be notified in advance that the trade
qualifies for purchase at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or Tax-Free Fund, Inc., which
provides for the holding in escrow by the Transfer Agent, of 5% of the total
amount of Class A Shares intended to be purchased until such purchase is
completed within the 13-month period. A Letter of Intention may be dated to
include shares purchased up to 90 days prior to the date the Letter is signed.
The 13-month period begins on the date of the earliest purchase. If the intended
investment is not completed, except as noted below, the purchaser will be asked
to pay an amount equal to the difference between the front-end sales charge on
Class A Shares purchased at the reduced rate and the front-end sales charge
otherwise applicable to the total shares purchased. If such payment is not made
within 20 days following the expiration of the 13-month period, the Transfer
Agent will surrender an appropriate number of the escrowed shares for redemption
in order to realize the difference. Such purchasers may include the value (at
offering price at the level designated in their Letter of Intention) of all
their shares of the Funds and of any class of any of the other mutual funds in
the Delaware Group (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC) previously purchased and still held as of the date of their Letter of
Intention toward the completion of such Letter.
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Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of the Class A Shares, Class B Shares and/or
Class C Shares of the Funds, as well as any other class of any of the other
Delaware Group funds (except shares of any Delaware Group fund which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC).
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other Delaware Group funds which
offer such classes (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC). Using USA A Class and Insured A Class as an example, if any such
purchaser has previously purchased and still holds shares of USA A Class or
Insured A Class and/or shares of any other of the classes described in the
previous sentence with a value of $40,000 and subsequently purchases $60,000 at
offering price of additional shares of USA A Class or Insured A Class, the
charge applicable to the $60,000 purchase would be 3.75%. For the purpose of
this calculation, the shares presently held shall be valued at the public
offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges for Class A Shares to determine the applicability of the Right of
Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in Class A Shares of that Fund or in Class A Shares of any of the other
funds in the Delaware Group, subject to applicable eligibility and minimum
purchase requirements, in states where shares of such other funds may be sold,
at net asset value without the payment of a front-end sales charge. This
privilege does not extend to Class A Shares where the redemption of the shares
triggered the payment of a Limited CDSC. Persons investing redemption proceeds
from direct investments in mutual funds in the Delaware Group offered without a
front-end sales charge, will be required to pay the applicable sales charge when
purchasing Class A Shares. The reinvestment privilege does not extend to a
redemption of either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account, will be
treated like all other initial purchases of a fund's shares. Consequently, an
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investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus) in connection with the features
described above.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Classes in which an investor has an account (based on the net asset value of
that Fund in effect on the reinvestment date) and will be credited to the
shareholder's account on that date. Confirmations of each dividend payment from
net investment income will be mailed to shareholders monthly. A confirmation of
each distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectus
and this Part B, are made for Class A Shares at the public offering price and
for Class B Shares and Class C Shares at the net asset value, at the end of the
day of receipt. A reinvestment plan may be terminated at any time. This plan
does not assure a profit nor protect against depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum initial purchase
requirements, and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions
from a Fund in any of the other mutual funds in the Delaware Group, including
the Funds, in states where their shares may be sold. Such investments will be
made at net asset value per share at the close of business on the reinvestment
date without any front-end sales charge or service fee. Nor will such
investments be subject to a CDSC or Limited CDSC. The shareholder must notify
the Transfer Agent in writing and must have established an account in the fund
into which the dividends and/or distributions are to be invested. Any
reinvestment directed to a fund in which the investor does not then have an
account will be treated like all other initial purchases of a fund's shares.
Consequently, an investor should obtain and read carefully the prospectus for
the fund in which the investment is intended to be made before investing or
sending money. The prospectus contains more complete information about the fund,
including charges and expenses. See also Additional Methods of Adding to Your
Investment Dividend Reinvestment Plan under How to Buy Shares in the Prospectus.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of the Funds at
net asset value, provided an account has been established. Dividends from Class
A Shares may not be directed to Class B Shares or Class C Shares. Dividends from
Class B Shares may only be directed to other Class B Shares, and dividends from
Class C Shares may only be directed to other Class C Shares. See Appendix C -
Classes Offered in the Prospectus for the funds in the Delaware Group that are
eligible for investment by holders of Fund shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for the Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
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such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan--Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date, although no check is required to initiate the transaction. (2)
If the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Tax-Free Fund, Inc. for proper
instructions.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in a Class
through regular liquidations of shares in their accounts in other mutual funds
in the Delaware Group. Shareholders of each Class may also elect to invest in
one or more of the other mutual funds in the Delaware Group through our Wealth
Builder Option. See Wealth Builder Option and Redemption and Exchange in the
Prospectus.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Prospectus.
The investment will be made on the 20th day of each month (or, if the fund
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selected is not open that day, the next business day) at the public offering
price or net asset value, as applicable, of the fund selected on the date of
investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation at any time by written
notice to their Fund.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund or its agent. Orders for purchases of Class B
Shares and Class C Shares of each Fund are effected at the net asset value per
share next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund or its agent. Selling dealers have the
responsibility of transmitting orders promptly.
The offering price of Class A Shares consists of the net asset value
per share, plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m, Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, the Fund will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
An example showing how to calculate the net asset value per share and,
in the case of the Class A Shares, the offering price per share, is included in
the Funds' financial statements which are incorporated by reference into this
Part B.
Each Fund's net asset value per share is computed by adding the value
of all securities and other assets in the portfolio of that Fund, deducting any
liabilities of the Fund and dividing by the number of Fund shares outstanding.
In determining a Fund's total net assets, portfolio securities are valued at
fair value, using methods determined in good faith by the Board of Directors.
This method utilizes the services of an independent pricing organization which
employs a combination of methods including, among others, the obtaining of
market valuations from dealers who make markets and deal in such securities, and
by comparing valuations with those of other comparable securities in a matrix of
such securities. A pricing service's activities and results are reviewed by the
officers of the Fund. In addition, money market instruments having a maturity of
less than 60 days are valued at amortized cost. Expenses and fees of each Fund
are accrued daily.
Each Class of a Fund will bear, pro-rata, all of the common expenses of
the relevant Fund. The net asset values of all outstanding shares of each Class
of each Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in such Fund represented by the value
of shares of that Class. All income earned and expenses incurred by a Fund will
be borne on a pro-rata basis by each outstanding share of a Class, based on each
Class' percentage in such Fund represented by the value of shares of such
Classes, except that the Class A, Class B and Class C Shares alone will bear the
12b-1 Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that would be allocable to each Class, the
dividends paid to each Class of a Fund may vary. However, the net asset value
per share of each Class of a Fund is expected to be equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require his or her Fund to redeem shares by sending
a written request, signed by the record owner or owners exactly as the shares
are registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares only if a shareholder specifically requests them. Certificates are not
issued for Class B Shares or Class C Shares. If stock certificates have been
issued for shares being redeemed, they must accompany the written request. For
redemptions of $50,000 or less paid to the shareholder at the address of record,
the request must be signed by all owners of the shares or the investment dealer
or record, but a signature guarantee is not required. When the redemption is for
more than $50,000, or if payment is made to someone else or to another address,
signatures of all record owners and a signature guarantee are required. Each
signature guarantee must be supplied by an eligible guarantor institution. Each
Fund reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Funds may request further
documentation from corporations, retirement plans, executors, administrators,
trustees or guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund or
its agent less any applicable CDSC or Limited CDSC. This is computed and
effective at the time the offering price and net asset value are determined. See
Determining Offering Price and Net Asset Value. The Fund and the Distributor end
their business days at 5 p.m., Eastern time. This offer is discretionary and may
be completely withdrawn without further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to any applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus. Shares of the USA B Class and Insured
B Class are subject to a CDSC of: (i) 4% if shares are redeemed within two years
of purchase; (ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Shares of the Intermediate B Class are subject to a CDSC of
2% during the first two years of purchase and 1% during the third year of
purchase. Class C Shares of each Fund are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus. Except for the applicable CDSC or Limited CDSC, and with respect to
the expedited payment by wire for which there is currently a $7.50 bank wiring
cost, there is no fee charged for redemptions or repurchases, but such fees
could be charged at any time in the future.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.
Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the check has cleared. This potential delay can be
avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the Fund
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the Securities and Exchange Commission has provided for such
suspension for the protection of shareholders, a Fund may postpone payment or
suspend the right of redemption or repurchase. In such case, a shareholder may
withdraw the request for redemption or leave it standing as a request for
redemption at the net asset value next determined after the suspension has been
terminated.
Payment for shares redeemed or repurchased may be made in either cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sales by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Tax-Free
Fund, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Fund is obligated to redeem Fund shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of such Fund during any 90-day
period for any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Small Accounts
Before a Fund involuntarily redeems shares from an account that, under
the circumstances listed in the relevant Prospectus, has remained below the
minimum amounts required by the Funds' Prospectus and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than the minimum required and will be allowed 60
days from the date of notice to make an additional investment to meet the
required minimum. See The Conditions of Your Purchase under How to Buy Shares in
the Funds' Prospectus. Any redemption in an inactive account established with a
minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC
will apply to the redemptions described in this paragraph.
* * *
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Each Fund has made available certain redemption privileges, as
described below. The Funds reserve the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders or their investment dealers of record wishing to redeem an
amount of Fund shares of $50,000 or less for which certificates have not been
issued may call the Shareholders Service Center at 800-523-1918 prior to the
time the offering price and net asset value are determined, as noted above, and
have the proceeds mailed to them at the record address. Checks payable to the
shareholder(s) of record will normally be mailed the next business day, but no
later than seven days, after the receipt of the redemption request. This option
is only available to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with the Fund before the request is received.
Payment will be made by wire or check to the bank account designated on
the authorization form as follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, after the date of
the telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the
relevant Fund and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. To reduce the shareholder's risk of
attempted fraudulent use of the telephone redemption procedure, payment will be
made only to the bank account designated on the authorization form.
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If expedited payment under these procedures could adversely affect a
Fund, the Fund may take up to seven days to pay the shareholder.
Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders are generally tape recorded. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone.
Systematic Withdrawal Plan
Shareholders of Class A, Class B and Class C Shares who own or purchase
$5,000 or more of shares at the offering price or net asset value, as
applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Funds do not recommend any specific
amount of withdrawal. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder, (unless such date falls on a holiday or a weekend) and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional Class A Shares of the paying Fund at net asset value. This plan is
not recommended for all investors and should be started only after careful
consideration of its operation and effect upon the investor's savings and
investment program. To the extent that withdrawal payments from the plan exceed
any dividends and/or realized securities profits distributions paid on shares
held under the plan, the withdrawal payments will represent a return of capital
and the share balance may in time be depleted, particularly in a declining
market.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated.
Withdrawals under this plan made concurrently with the purchase of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in Delaware Group funds which do not carry a
sales charge. Redemptions of Class A Shares pursuant to a Systematic Withdrawal
Plan may be subject to a Limited CDSC if the purchase was made at net asset
value and a dealer's commission has been paid on that purchase. Redemptions of
Class B Shares or Class C Shares pursuant to a Systematic Withdrawal Plan may be
subject to a CDSC, unless the annual amount selected to be withdrawn is less
than 12% of the account balance on the date that the Systematic Withdrawal Plan
was established. See Waiver of Contingent Deferred Sales Charge - Class B and
Class C Shares and Waiver of Limited Contingent Deferred Sales Charge - Class A
Shares under Redemption and Exchange in the Prospectus. Shareholders should
consult their financial advisers to determine whether a Systematic Withdrawal
Plan would be suitable for them.
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An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Tax-Free Fund, Inc. declares a dividend to shareholders of each Fund of
that Fund's net investment income on a daily basis. Dividends are declared each
day Tax-Free Fund, Inc. is open and cash dividends are paid monthly. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. In determining daily dividends, the amount of net
investment income for each Fund will be determined at the time the offering
price and net asset value are determined (see Determining Offering Price and Net
Asset Value) and shall include investment income accrued by the respective Fund,
less the estimated expenses of that Fund incurred since the last determination
of net asset value. Gross investment income consists principally of interest
accrued and, where applicable, net pro-rata amortization of premiums and
discounts since the last determination. The dividend declared, as noted above,
will be deducted immediately before the net asset value calculation is made. Net
investment income earned on days when the Fund is not open will be declared as a
dividend on the next business day.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Investors desiring to guarantee wire payments
must have an acceptable financial condition and credit history in the sole
discretion of the Fund. Tax-Free Fund, Inc. reserves the right to terminate this
option at any time. Purchases by check earn dividends upon conversion to Federal
Funds, normally one business day after receipt.
Each Class will share proportionately in the investment income and
expenses of its respective Fund, except that Class A Shares, Class B Shares and
Class C Shares alone will incur distribution fees under their respective 12b-1
Plans.
Dividends are automatically reinvested in additional shares of the
paying Fund at net asset value, unless an election to receive dividends in cash
has been made. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid by separate check
at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above.
Any distributions from net realized securities profits will be made
annually during the quarter following the close of the fiscal year. Such
distributions will be reinvested in shares, unless the shareholder elects to
receive them in cash. Tax-Free Fund, Inc. will mail a quarterly statement
showing a Class' dividends paid and all the transactions made during the period.
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Any check in payment of dividends or other distributions which cannot
be delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. A Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's mail is returned by
the United States Post Office or the Fund is otherwise unable to locate the
shareholder or verify the shareholder's mailing address. These costs may include
a percentage of the account when a search company charges a percentage fee in
exchange for their location services.
Tax-Free Fund, Inc. anticipates that most of each Fund's dividends paid
to shareholders will be exempt from federal income taxes.
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TAXES
Federal Income Tax Aspects
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended, so as not to be liable for federal income tax
to the extent its earnings are distributed. The term "regulated investment
company" does not imply the supervision of management or investment practices by
any government agency. Each Fund of Tax-Free Fund, Inc. is treated as a single
tax entity, and any capital gains and losses for each Fund are calculated
separately. Tax-Free Fund, Inc. has no fixed policy with regard to distributions
of realized securities profits when such realized securities profits may be
offset by capital losses carried forward. Currently, however, Tax-Free Fund,
Inc. intends to offset realized securities profits to the extent of capital
losses carried forward, if any.
For the fiscal year ended August 31, 1996, Intermediate Fund had a
capital gain of $44,088. At August 31, 1996, the Intermediate Fund had a capital
loss carryforward of $1,022,853 which expires as follows: 2002--$399,199 and
2003--$623,654.
Distributions by a Fund representing net interest received on municipal
bonds are considered tax-exempt income and are not includable by shareholders in
gross income for federal income tax purposes. Although exempt from regular
federal income tax, interest paid on certain types of municipal obligations is
deemed to be a preference item under federal tax law and is subject to the
federal alternative minimum tax. Distributions by a Fund representing net
interest income received by the Fund from certain temporary investments (such as
certificates of deposit, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities), accretion of market discount on
tax-exempt bonds purchased by the Fund after April 30, 1993 and net short-term
capital gains realized by the Fund, if any, will be taxable to shareholders as
ordinary income and will not qualify for the deduction for dividends received by
corporations. Distributions from long-term capital gains realized by a Fund, if
any, will be taxable to shareholders as long-term capital gains regardless of
the length of time an investor has held such shares, and these gains are
currently taxed at long-term capital gains rates. The tax status of dividends
and distributions paid to shareholders will not be affected by whether they are
paid in cash or in additional shares. The percentage of taxable income at the
end of the year will not necessarily bear relationship to the experience over a
shorter period of time. Shareholders of a Fund may incur a tax liability for
federal, state and local taxes upon the sale or redemption of shares of the
Fund. Tax-Free Fund, Inc. has been advised by Counsel that if, under present tax
laws, any amounts are paid to the Insured Fund in lieu of interest on tax-exempt
bonds pursuant to the various insurance on the portfolio securities, they will
be treated as tax-exempt income when distributed to shareholders.
Section 265 of the Internal Revenue Code provides that interest paid on
indebtedness incurred or continued to purchase or carry obligations the interest
on which is tax-exempt, and certain expenses associated with tax-exempt income,
are not deductible. It is probable that interest on indebtedness incurred or
continued to purchase or carry shares of a Fund is not deductible.
The Funds may not be an appropriate investment for persons who are
"substantial users" of facilities financed by "industrial development bonds" or
for investors who are "related persons" thereof within the Internal Revenue
Code. Persons who are or may be considered "substantial users" should consult
their tax advisers in this matter before purchasing shares of a Fund.
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Tax-Free Fund, Inc. intends to use the "average annual" method of
allocation in the event a Fund realizes any taxable interest income. Under this
approach, the percentage of interest income earned that is deemed to be taxable
in any year will be the same for each shareholder who held shares of a Fund at
any time during the year.
Shareholders will be informed annually of the amount and nature of
income and capital gains. For fiscal year 1996, all of each Fund's dividends
from net income were exempt from federal income tax.
When Intermediate Fund writes a call or put option, an amount equal to
the premium received by it is included in the Fund's Statement of Assets and
Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently "marked to market" to reflect the current market value
of the option written. If an option which the Fund has written either expires on
its stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of the closing
transaction exceeds the premium received when the option was sold) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. Any such gain or loss is a
short-term capital gain or loss for federal income tax purposes. If a call
option which the Fund has written is exercised, the Fund realizes a capital gain
or loss (long-term or short-term, depending on the holding period of the
underlying security) from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received. If a put option
which the Fund has written is exercised, the amount of the premium originally
received will reduce the cost of the security which the Fund purchases upon
exercise of the option.
The premium paid by Intermediate Fund for the purchase of a put option
is recorded in the section of the Fund's Statement of Assets and Liabilities as
an investment and subsequently adjusted daily to the current market value of the
option. For example, if the current market value of the option exceeds the
premium paid, the excess would be unrealized appreciation and, conversely, if
the premium exceeds the current market value, such excess would be unrealized
depreciation. If a put option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a capital loss for federal income
tax purposes in the amount of the cost of the option. If the Fund sells the put
option, it realizes a capital gain or loss, depending on whether the proceeds
from the sale are greater or less than the cost of the option. If the Fund
exercises a put option, it realizes a capital gain or loss (long-term or
short-term, depending on the holding period of the underlying security) from the
sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. However, since the purchase of a put
option is treated as a short sale for federal income tax purposes, the holding
period of the underlying security will be affected by such a purchase.
The Internal Revenue Code includes special rules applicable to listed
options which Intermediate Fund may write, purchase or sell. Such options are
classified as Section 1256 contracts under the Code. The character of gain or
loss under a Section 1256 contract is generally treated as 60% long-term gain or
loss and 40% short-term gain or loss. When held by the Fund at the end of a
fiscal year, these options are required to be treated as sold at market value on
the last day of the fiscal year for federal income tax purposes ("marked to
market").
Over-the-counter options are not classified as Section 1256 contracts
and are not subject to the 60/40 gain or loss treatment or the "marked to
market" rule. Any gains or losses recognized by Intermediate Fund from
over-the-counter option transactions generally constitute short-term capital
gains or losses.
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The initial margin deposits made when entering into futures contracts
are recognized as assets due from the broker. During the period the futures
contract is open, changes in the value of the contract will be reflected at the
end of each day.
Futures contracts held by Intermediate Fund at the end of each fiscal
year will be required to be "marked to market" for federal income tax purposes.
Any unrealized gain or loss on futures contracts will therefore be recognized
and deemed to consist of 60% long-term capital gain or loss and 40% short-term
capital gain or loss. Therefore adjustments are made to the tax basis in the
futures contract to reflect the gain or loss recognized at year end.
Tax-Free Fund, Inc. must meet several requirements to maintain its
status as a regulated investment company. Among these requirements are that at
least 90% of its investment company taxable income be derived from dividends,
interest, payment with respect to securities loans and gains from the sale or
disposition of securities; that at the close of each quarter of its taxable year
at least 50% of the value of its assets consist of cash and cash items,
government securities, securities of other regulated investment companies and,
subject to certain diversification requirements, other securities; and that less
than 30% of its gross income be derived from sales of securities held for less
than three months.
The Internal Revenue Service has ruled publicly that an Exchange-traded
call option is a security for purposes of the 50% of assets tests and that its
issuer is the issuer of the underlying security, not the writer of the option,
for purposes of the diversification requirements.
The requirement that not more than 30% of Tax-Free Fund, Inc.'s gross
income be derived from gains from the sale or other disposition of securities
held for less than three months may restrict Intermediate Fund in its ability to
write covered call options on securities which it has held less than three
months, to write options which expire in less than three months, to sell
securities which have been held less than three months, and to effect closing
purchase transactions with respect to options which have been written less than
three months prior to such transactions. Consequently, in order to avoid
realizing a gain within the three-month period, Intermediate Fund may be
required to defer the closing out of a contract beyond the time when it might
otherwise be advantageous to do so. The Fund may also be restricted in the sale
of purchased put options and the purchase of put options for the purpose of
hedging underlying securities because of the application of the short sale
holding period rules with respect to such underlying securities.
State and Local Taxes
The exemption of distributions for federal income tax purposes may not
result in similar exemptions under the laws of a particular state or local
taxing authority. It is recommended that shareholders consult their tax advisers
in this regard. Tax-Free Fund, Inc. will report annually for each Fund the
percentage of interest income earned on municipal obligations on a
state-by-state basis during the preceding calendar year.
Pennsylvania Personal Property Tax
Shares of each Fund will be exempt from Pennsylvania county personal
property tax.
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INVESTMENT MANAGEMENT AGREEMENTS
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to each Fund, subject to the
supervision and direction of the Tax-Free Fund, Inc.'s Board of Directors.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On August 31, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $29 billion in assets in various
institutional or separately managed (approximately $17,919,998,000) and
investment company (approximately $11,108,022,000) accounts.
Each Fund's Investment Management Agreement is dated April 3, 1995 and
was approved by shareholders on March 29, 1995. Each Agreement has an initial
term of two years and may be renewed each year only so long as such renewal and
continuance are specifically approved at least annually by the Board of
Directors or by vote of a majority of the outstanding voting securities of the
affected Fund, and only if the terms and the renewal thereof have been approved
by vote of a majority of the directors of Tax-Free Fund, Inc. who are not
parties thereto or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. Each Agreement is
terminable without penalty on 60 days' notice by the directors of Tax-Free Fund,
Inc. or by the Manager. An Agreement will terminate automatically in the event
of its assignment.
The annual compensation paid by a Fund for investment management
services under its Investment Management Agreement is equal to: for USA Fund,
.60% on the first $500 million of its average daily net assets, .575% on the
next $250 million and .55% on the average daily net assets in excess of $750
million; for Insured Fund, .60% of its average daily net assets and for
Intermediate Fund, .50% of its average daily net assets, less in each case, the
Fund's proportionate share of all directors' fees paid to the unaffiliated
directors of Tax-Free Fund, Inc.
On August 31, 1996, the total net assets of Tax-Free Fund, Inc. were
$840,376,000, broken down as follows:
USA Fund $731,432,000
Insured Fund $84,644,000
Intermediate Fund $24,300,000
The Manager makes and implements all investment decisions on behalf of
Tax-Free Fund, Inc. The Manager pays Tax-Free Fund, Inc.'s rent and the salaries
of all directors, officers and employees of Tax-Free Fund, Inc. who are
affiliated with both the Manager and Tax-Free Fund, Inc. Tax-Free Fund, Inc.
pays all of its other expenses. For the fiscal years ended August 31, 1994, 1995
and 1996, investment management fees paid by USA Fund were $4,448,874,
$4,388,886 and $4,540,845, respectively. Investment management fees paid by
Insured Fund for the fiscal years ended August 31, 1994, 1995 and 1996 amounted
to $558,029, $523,070 and $528,860, respectively. For the fiscal years ended
August 31, 1994, 1995 and 1996, investment management fees that would have been
payable by Intermediate Fund amounted to $110,990, $104,724 and $106,549,
respectively, but no amount was paid by this Fund for 1994, 1995 or for 1996 due
to the waiver of fees described below.
-62-
<PAGE>
Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution Agreements,
Tax-Free Fund, Inc. is responsible for all of its own expenses. Among others,
these include the investment management fees; transfer and dividend disbursing
agent fees and costs; custodian expenses; federal and state securities
registration fees; proxy costs; and the costs of preparing prospectuses and
reports sent to shareholders. For the fiscal year ended August 31, 1996, the
ratios of expenses to average daily net assets of the Class A Shares and Class B
Shares of each Fund were as follows:
Class A Shares Class B Shares
USA Fund 0.94% 1.74%
Insured Fund 0.98% 1.78%
Intermediate Fund 0.25% 1.10%
The ratios for each Class reflect the impact of their respective 12b-1
Plans. In addition, the ratios for the Class A Shares and the Class B Shares of
Intermediate Fund reflect the waiver of fees described below. Each Fund
anticipates that the ratio of expenses to average daily net assets of Class C
Shares will be approximately equal to that of the respective Class B Shares.
In connection with Intermediate Fund, the Manager elected voluntarily
to waive that portion, if any, of the annual management fees payable by this
Fund and to reimburse the Fund to the extent necessary to ensure that the Total
Operating Expenses of the Fund, including 12b-1 expenses, did not exceed .25%
during the period from the commencement of the public offering of the Fund
through June 30, 1993. This waiver was extended through June 30, 1994, but
modified effective May 2, 1994 through December 31, 1996 to provide that
operating expenses of the Fund would not exceed .10%, excluding the 12b-1
expenses.
By California regulation, the Manager is required to waive certain fees
and reimburse the Fund for certain expenses to the extent that the Fund's annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, exceed 2 1/2% of its first $30 million of average daily
net assets, 2% of the next $70 million of average daily assets and 1 1/2% of any
additional average daily net assets. Such undertaking is computed separately for
each Fund. For the fiscal year ended August 31, 1996, no such reimbursement was
necessary or paid for any Fund.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of each Fund's shares
under separate Distribution Agreements dated April 3, 1995, as amended on
November 29, 1995. The Distributor is an affiliate of the Manager and bears all
of the costs of promotion and distribution, except for payments by each Fund on
behalf of its Class A Shares, Class B Shares and Class C Shares under the 12b-1
Plans for each such Class. Prior to January 3, 1995, Delaware Distributors, Inc.
("DDI") served as the national distributor of each Fund's shares. On that date,
Delaware Distributors, L.P., a newly formed limited partnership, succeeded to
the business of DDI. All officers and employees of DDI became officers and
employees of Delaware Distributors, L.P. DDI is the corporate general partner of
Delaware Distributors, L.P. and both DDI and Delaware Distributors, L.P. are
indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc.
-63-
<PAGE>
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
each Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement dated June 29, 1988 for the USA
Fund and the Insured Fund and November 10, 1992 for Intermediate Fund. The
Transfer Agent also provides accounting services to the Funds pursuant to the
terms of a separate Fund Accounting Agreement. The Transfer Agent is also an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.
-64-
<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of Tax-Free Fund, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Tax-Free Fund, Inc. hold identical
positions in each of the other funds in the Delaware Group. On September 30,
1996, Tax-Free Fund, Inc.'s officers and directors owned approximately 2.22%, of
the outstanding shares of the USA A Class and less than 1% of the outstanding
shares of the USA B Class, Insured A Class, Insured A Class, Insured B Class,
Insured C Class, Intermediate A Class, Intermediate B Class and Intermediate C
Class.
As of September 30, 1996, management believes the following accounts
held 5% or more of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
USA B Class Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Drive East, 3rd Fl
Jacksonville, FL 32246-6484 152,411(1) 5.87%
Insured B Class Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
4800 Deer Lake Drive East, 3rd Fl
Jacksonville, FL 32246-6484 39,640(1) 12.13%
Gerry M Fleuriet TTEE
Kenneth MacPherson Wife
Hazel MacPherson Grantors
621 East Tyler
Harlingen, TX 78550-9129 22,520 6.89%
Intermediate B Class Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Drive East, 3rd Fl
Jacksonville, FL 32246-6484 18,231(1) 12.39%
Maimee G. Chapin and Merlaine
G. Latham and Dolores Ann Lund
and Norma J. Alguard
1301 1st Street South
Jacksonville Beach, FL 32250-6427 10,694 7.27%
</TABLE>
(1) Tax-Free Fund, Inc. believes that these shares are held by the record
owner for the benefit of others.
-65-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Intermediate B Class Bobbie Crump and Miriam Crump
7460 Rienzi Boulevard
Baton Rouge, LA 70809-1166 9,765 6.63%
Charles D. La Motta
286 Stonegate Drive
Devon, PA 19333-1857 9,699 6.59%
Paine Webber FBO
Richard L. Porter and
Elizabeth B. Porter
5812 Constellation Circle
Rockwall, TX 75087-5770 8,167 5.55%
USA C Class Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Drive East, 3rd Fl
Jacksonville, FL 32246-6484 18,233(1) 25.72%
NFSC FEBO BRO-356840
Betsy L. Schwebel
37 Godfrey Terrace
Glen Rock, NJ 07452-3510 10,538 14.86%
Susan Ullom-Berns and
William L. Ullom III
Trst Ralph B. Ullom Irrevocable Trust
DTD 10-12-61
379 Bolin Court
Carmel, IN 46032-8532 8,660 12.21%
Phyllis Losurdo
8837 N. Merrill Street
Niles, IL 60714-1705 5,372 7.57%
Joyce A. Zinsmaster TTEE
Joyce A. Zinsmaster Rev Trust
DTD 7-31-87
250 Torrey Pines Point
Naples, FL 33962-7542 4,066 5.73%
</TABLE>
(1) Tax-Free Fund, Inc. believes that these shares are held by the record
owner for the benefit of others.
-66-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Insured C Class L.A. Paulk
1650 Roswell Road
Marietta, GA 30062-3621 2,782 25.09%
Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Drive East, 3rd Fl
Jacksonville, FL 32246-6484 2,304(1) 20.78%
Hugh A. Lindsay
and Helen W. Lindsay
1300 Jacobs Drive
Morgantown, WV 26505-7206 1,646 14.84%
Selvin L. Smith, Jr.
73 Delmoor Drive, NW
Atlanta, GA 30311-1008 1,593 14.36%
Intermediate C Class William B. Grosh, MD
and Janet E. Grosh
718 Buck Wood Lane
Lititz, PA 17543-8632 2,933 15.56%
John R. Sotzing
1152 Union Boulevard
Allentown, PA 18103-1557 2,483 13.17%
Delaware Management Company Inc.
Attn. Joseph H. Hastings
1818 Market Street, 17th Floor
Philadelphia, PA 19103-3682 2,466 13.08%
Wheat First FBO
Phyllis Schoellkopf
1 Snowball Lane
Mercerville, NJ 08619-2709 1,943 10.31%
Wheat First FBO
Jay A. Schoellkopf
1 Snowball Lane
Mercerville, NJ 08619-2709 1,943 10.31%
</TABLE>
(1) Tax-Free Fund, Inc. believes that these shares are held by the record
owner for the benefit of others.
-67-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Intermediate C Class Robert P. Johnson
and Bernadette C. Johnson
517 Airport Road
New Holland, PA 17557-9364 1,471 7.80%
Janet T. Lilley
418 Rokeby Road
Coatesville, PA 19320-5109 1,463 7.76%
Alan Dawley and Katherine Dawley
235 Pelham Road
Philadelphia, PA 19119-2624 989 5.24%
Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Drive East, 3rd Fl
Jacksonville, FL 32246-6484 970(1) 5.14%
</TABLE>
(1) Tax-Free Fund, Inc. believes that these shares are held by the record
owner for the benefit of others.
DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd. and Delaware Capital Management, Inc. are direct or
indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly owned subsidiary of
Lincoln National Corporation ("Lincoln National") was completed. In connection
with the merger, new Investment Management Agreements between Tax-Free Fund,
Inc. on behalf of each Fund and the Manager were executed following shareholder
approval. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
Directors and principal officers of Tax-Free Fund, Inc. are noted below
along with their ages and their business experience for the past five years.
Unless otherwise noted, the address of each officer and director is One Commerce
Square, Philadelphia, PA 19103.
-68-
<PAGE>
*Wayne A. Stork (59)
Chairman,President, Chief Executive Officer, Director and/or Trustee
of Tax-Free Fund, Inc., 16 other investment companies in the
Delaware Group (which excludes Delaware Pooled Trust, Inc.),
Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Pooled Trust, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Chairman,President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
Winthrop S. Jessup (51)
Executive Vice President of Tax-Free Fund, Inc., 16 other investment
companies in the Delaware Group (which excludes Delaware
Pooled Trust, Inc.) and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Capital Management, Inc.
Executive Vice President and Director of DMH Corp., Delaware Management
Company, Inc., Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc., Delaware International
Advisers Ltd., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various
executive capacities at different times within the Delaware
organization.
Richard G. Unruh, Jr. (57)
Executive Vice President of Tax-Free Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company,
Inc.
Senior Vice President of Delaware Management Holdings, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.
_____________________
*Director affiliated with Tax-Free Fund, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
-69-
<PAGE>
Paul E. Suckow (49)
ExecutiveVice President/Chief Investment Officer, Fixed Income of
Tax-Free Fund, Inc., each of the other 17 investment companies
in the Delaware Group and Delaware Management Company, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of
Delaware Management Holdings, Inc.
Director of Founders CBO Corporation.
Director, HYPPCO Finance Company Ltd.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed income portfolio
manager for the Delaware Group.
Walter P. Babich (69)
Director and/or Trustee of Tax-Free Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
Anthony D. Knerr (57)
Director and/or Trustee of Tax-Free Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University.
In addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (55)
Director and/or Trustee of Tax-Free Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.
W. Thacher Longstreth (75)
Director and/or Trustee of Tax-Free Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
-70-
<PAGE>
Charles E. Peck (70)
Director and/or Trustee of Tax-Free Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer
of The Ryland Group, Inc., Columbia, MD.
David K. Downes (56)
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of Tax-Free Fund, Inc., each of the other 17
investment companies in the Delaware Group and Delaware
Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.
ExecutiveVice President/Chief Operating Officer/Chief Administrative
Officer/Chief Financial Officer/Treasurer of Delaware
Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director
of DMH Corp.
Senior Vice President/Chief Administrative Officer and Director of
Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware
Distributors, L.P.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer and Director of Delaware Service Company, Inc.
Chief Financial Officer and Director of Delaware International Holding
Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware
Capital Management, Inc.
Senior Vice President/Chief Financial Officer and Director of Founders
Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer
of Equitable Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice President
from December 1985 through March 1992 and Vice Chairman from
March 1992 through August 1992.
George M. Chamberlain, Jr. (49)
Senior Vice President and Secretary of Tax-Free Fund, Inc., each of the
other 17 investment companies in the Delaware Group, Delaware
Management Holdings, Inc. and Delaware Distributors, L.P.
Executive Vice President, Secretary and Director of Delaware Management
Trust Company.
Senior Vice President, Secretary and Director of DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Investment &
Retirement Services, Inc., Founders Holdings, Inc. and
Delaware Capital Management, Inc.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware
organization.
-71-
<PAGE>
Patrick P. Coyne (33)
Vice President/Senior Portfolio Manager of Tax-Free Fund, Inc., of
nine other investment companies in the Delaware Group and
Delaware Management Company, Inc.
From 1986 to 1990, Mr. Coyne was Vice President/Municipal Trading with
Kidder Peabody & Co., Inc. Mr. Coyne joined the Delaware Group
in 1990.
Joseph H. Hastings (46)
Vice President/Corporate Controller of Tax-Free Fund, Inc., each of
the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Founders Holdings, Inc. and
Delaware International Holdings Ltd.
Chief Financial Officer/Treasurer of Delaware Investment & Retirement
Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief
Financial Officer for Prudential Residential Services, L.P.,
New York, NY from 1989 to 1992. Prior to that, Mr. Hastings
served as Controller and Treasurer for Fine Homes
International, L.P., Stamford, CT from 1987 to 1989.
Michael P. Bishof (34)
Vice President/Treasurer of Tax-Free Fund, Inc., each of the other
17 investment companies in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Service Company, Inc.
and Founders Holdings, Inc.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995,
a Vice President for CS First Boston Investment Management,
New York, NY from 1993 to 1994 and an Assistant Vice President
for Equitable Capital Management Corporation, New York, NY
from 1987 to 1993.
-72-
<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Tax-Free Fund, Inc. and the total compensation received from all Delaware Group
funds for the fiscal year ended August 31, 1996 and an estimate of annual
benefits to be received upon retirement under the Delaware Group Retirement Plan
for Directors/Trustees as of August 31, 1996.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Aggregate Accrued
Compen- as Part Estimated Total
sation of Annual Compensation
from Tax-Free Benefits from all 18
Tax-Free Fund, Inc. Upon Delaware
Name Fund, Inc. Expenses Retirement* Group Funds
<S> <C> <C> <C> <C>
W. Thacher Longstreth $2,761 None $30,000 $41,560
Ann R. Leven $3,746 None $30,000 $57,162
Walter P. Babich $3,504 None $30,000 $53,026
Anthony D. Knerr $3,675 None $30,000 $56,162
Charles E. Peck $3,393 None $30,000 $52,162
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for Directors/Trustees,
each disinterested director who, at the time of his or her retirement from the
Board, has attained the age of 70 and served on the Board for at least five
continuous years, is entitled to receive payments from each fund in the
Delaware Group for a period equal to the lesser of the number of years that
such person served as a director or the remainder of such person's life. The
amount of such payments will be equal, on an annual basis, to the amount of
the annual retainer that is paid to directors of each fund at the time of
such person's retirement. If an eligible director retired as of August 31,
1996, he or she would be entitled to annual payments totaling $30,000, in the
aggregate, from all of the funds in the Delaware Group, based on the number
of funds in the Delaware Group as of that date.
-73-
<PAGE>
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Group are set forth
in the relevant prospectuses for such classes. The following supplements that
information. The Funds may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting such an exchange will be sent a current
prospectus and an authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Group. This service is
automatically provided unless the Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 to effect an exchange. The
shareholder's current Fund account number must be identified, as well as the
registration of the account, the share or dollar amount to be exchanged and the
fund into which the exchange is to be made. Requests received on any day after
the time the offering price and net asset value are determined will be processed
the following day. See Determining Offering Price and Net Asset Value. Any new
account established through the exchange will automatically carry the same
registration, shareholder information and dividend option as the account from
which the shares were exchanged. The exchange requirements of the fund into
which the exchange is being made, such as sales charges, eligibility and
investment minimums, must be met. (See the prospectus of the fund desired or
inquire by calling the Transfer Agent.)
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and the Funds reserve the right
to record exchange instructions received by telephone, to reject any exchange
request and to modify, terminate or suspend the telephone exchange service at
any time in the future.
-74-
<PAGE>
As described in the Funds' Prospectus, neither the Funds nor the
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Group funds from Timing Firms. Each Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Group funds: (1) Decatur
Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term
Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware Group
funds are available for timed exchanges. Assets redeemed or exchanged out of
Timing Accounts in Delaware Group funds not listed above may not be reinvested
back into that Timing Account. Each Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
timing pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other
Delaware Group funds:
-75-
<PAGE>
Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stock issued
by emerging growth companies exhibiting strong capital appreciation potential.
Value Fund seeks capital appreciation by investing primarily in common
stocks whose market values appear low relative to their underlying value or
future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Decatur Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Decatur Total Return Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities.
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
-76-
<PAGE>
Tax-Free Pennsylvania Fund seeks a high level of current interest
income exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
Enterprise Fund seeks to provide maximum appreciation of capital by
investing in medium-sized companies which have a dominant position within their
industry, are undervalued, or have potential for growth in earnings. U.S. Growth
Fund seeks to maximize capital appreciation by investing in companies of all
sizes which have low dividend yields, strong balance sheets and high expected
earnings growth rates relative to their industry. World Growth Fund seeks to
maximize total return (capital appreciation and income), principally through
investments in an internationally diversified portfolio of equity securities.
New Pacific Fund seeks long-term capital appreciation by investing primarily in
companies which are domiciled in or have their principal business activities in
the Pacific Basin. Federal Bond Fund seeks to maximize current income consistent
with preservation of capital. The fund attempts to achieve this objective by
investing primarily in securities issued by the U.S. government, its agencies
and instrumentalities. Corporate Income Fund seeks to provide high current
income consistent with preservation of capital. The fund attempts to achieve
this objective primarily by investing in a diversified portfolio of
investment-grade fixed-income securities issued by U.S. corporations.
Delaware Group Premium Fund offers 10 funds available exclusively as
funding vehicles for certain insurance company separate accounts. Equity/Income
Series seeks the highest possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while providing higher than
average dividend income. High Yield Series seeks as high a current income as
possible by investing in rated and unrated corporate bonds, U.S. government
securities and commercial paper. Capital Reserves Series seeks a high stable
level of current income while minimizing fluctuations in principal by investing
in a diversified portfolio of short- and intermediate-term securities. Money
Market Series seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Growth Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. Multiple Strategy Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Emerging Growth Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
-77-
<PAGE>
responsive to changes in the marketplace and to have fundamental characteristics
to support growth. Income is not an objective. Global Bond Series seeks to
achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation.
For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
-78-
<PAGE>
GENERAL INFORMATION
The Manager is the investment manager of each Fund. The Manager also
provides investment management services to certain of the other funds in the
Delaware Group. The Manager, through a separate division, also manages private
investment accounts. While investment decisions for each Fund are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for each Fund.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for each Fund and for the
other mutual funds in the Delaware Group. As previously described, prior to
January 3, 1995, DDI served as the national distributor for each Fund. The
Distributor and, in its capacity as such, DDI received net commissions from the
Funds on behalf of their respective Class A Shares, after reallowances to
dealers, as follows:
USA A Class
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ------------ ---------- --------------
8/31/96 $1,254,767 $1,039,305 $215,462
8/31/95 1,466,837 1,217,558 249,279
8/31/94 1,707,115 1,424,013 283,102
Insured A Class
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ------------ ---------- --------------
8/31/96 $207,649 $171,130 $36,519
8/31/95 162,537 134,900 27,637
8/31/94 261,324 216,220 45,104
-79-
<PAGE>
Intermediate A Class
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ------------ ---------- --------------
8/31/96 $ 65,201 $ 53,230 $11,971
8/31/95 48,037 39,409 8,628
8/31/94 172,869 141,372 31,497
The Distributor and, in its capacity as such, DDI received
Limited CDSC payments as follows:
Limited CDSC Payments
Fiscal Intermediate
Year Ended USA A Class Insured A Class A Class
---------- ----------- --------------- ------------
8/31/96 -$0- $6,501 -$0-
8/31/95 12,302 74 6,145
8/31/94 1,449 -0- -0-
The Distributor and, in its capacity as such, DDI received
CDSC payments with respect to the Class B Shares as follows:
CDSC Payments
Fiscal Intermediate
Year Ended USA B Class Insured B Class A Class
---------- ----------- --------------- ------------
8/31/96 $ 37,160 $8,344 $3,293
8/31/95 120,883 228 756
8/31/94* 0- 400 -0-
*Commenced operations on May 2, 1994.
-80-
<PAGE>
The Distributor received CDSC payments with respect to the Class C
Shares as follows:
CDSC Payments
Fiscal Intermediate
Year Ended USA C Class Insured C Class A Class
---------- ----------- --------------- ------------
8/31/96* -$0- -$0- -$0-
*Commenced operations on November 29, 1995.
Effective as of January 1, 1995, all such payments described above have
been paid to the Distributor.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Group. The Transfer Agent is paid a fee by each
Fund for providing these services consisting of an annual per account charge of
$11.00 plus transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Directors,
including a majority of the disinterested directors. The Transfer Agent also
provides accounting services to the Funds. Those services include performing all
functions related to calculating the Fund's net asset value and providing all
financial reporting services, regulatory compliance testing and other related
accounting services. For its services, the Transfer Agent is paid a fee based on
total assets of all funds in the Delaware Group for which it provides such
accounting services. Such fee is equal to .25% multiplied by the total amount of
assets in the complex for which the Transfer Agent furnishes accounting
services, where such aggregate complex assets are $10 billion or less, and .20%
of assets if such aggregate complex assets exceed $10 billion. The fees are
charged to each fund, including the Fund, on an aggregate pro-rata basis. The
asset-based fee payable to the Transfer Agent is subject to a minimum fee
calculated by determining the total number of investment portfolios and
associated classes.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Tax-Free Fund, Inc.'s
advisory relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Tax-Free Fund, Inc. to
delete the words "Delaware Group" from Tax-Free Fund, Inc.'s name.
Bankers Trust Company ("Bankers"), One Bankers Trust Plaza, New York,
NY 10006, is custodian of each Fund's securities and cash. As custodian for each
Fund, Bankers maintains a separate account or accounts for each Fund; receives,
holds and releases portfolio securities on account of each Fund; makes receipts
and disbursements of money on behalf of each Fund; and collects and receives
income and other payments and distributions on account of each Fund's portfolio
securities.
The legality of the issuance of the shares offered hereby registered,
pursuant to Rule 24f-2 under the 1940 Act, has been passed upon for Tax-Free
Fund, Inc. by Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania.
-81-
<PAGE>
Capitalization
Tax-Free Fund, Inc. has present authorized capitalization of five
hundred million shares of capital stock with a $.01 par value per share. The
Board of Directors has allocated two hundred twenty-five million shares to USA
Fund with one hundred seventy-five million shares allocated to Class A Shares,
twenty-five million shares to the Class B Shares and twenty-five million shares
to the Class C Shares; one hundred seventy-five million shares to Insured Fund
with one hundred twenty-five million shares allocated to Class A Shares,
twenty-five million shares to the Class B Shares and twenty-five million shares
to the Class C Shares; and one hundred million shares to Intermediate Fund with
fifty million shares allocated to Class A Shares, twenty-five million shares to
the Class B Shares and twenty-five million shares to the Class C Shares.
While all shares have equal voting rights on matters affecting Tax-Free
Fund, Inc. as a corporate entity, each Fund would vote separately on any matter,
such as any change in its own investment objective and policies or action to
dissolve the Fund and as prescribed by the 1940 Act. Shares of a Fund have a
priority in the assets of the Fund, and in gains on and income from the
portfolio of the Fund. Class A Shares, Class B Shares and Class C Shares of each
Fund represent a proportionate interest in the assets of a Fund and have the
same voting and other rights and preferences, except that, as a general matter,
Class A Shares, Class B Shares and Class C Shares may vote only on matters
affecting the 12b-1 Plan that relates to the class of shares that they hold.
However, Class B Shares may vote on any proposal to increase materially the fees
to be paid by a Fund under the Plan relating to the respective Class A Shares.
The shares of each Class have no preemptive rights are fully transferable and,
when issued, are fully paid and nonassessable.
Prior to May 2, 1994, the Tax-Free USA Fund A Class was known as the
Tax-Free USA Fund, and prior to June 1, 1992, it was known as the USA Series.
Prior to May 2, 1994, the Tax-Free Insured Fund A Class was known as the
Tax-Free Insured Fund, and prior to June 1, 1992, it was known as the USA
Insured Series. Prior to May 2, 1994, the Tax-Free USA Intermediate Fund A Class
was known as the Tax-Free USA Intermediate Fund.
Noncumulative Voting
Tax-Free Fund, Inc.'s shares have noncumulative voting rights which
means that the holders of more than 50% of the shares of Tax-Free Fund, Inc.
voting for the election of directors can elect all the directors if they choose
to do so, and, in such event, the holders of the remaining shares will not be
able to elect any directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.
-82-
<PAGE>
APPENDIX A--EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of bonds on the
effective yield received by their holders under the federal income tax laws. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax-exempt bonds
yielding from 4% to 9%.
This table, which is based on incremental tax rates at the specified
levels of taxable income in effect on the date of this Part B, provides separate
computations for taxpayers who file joint or individual returns.
<TABLE>
<CAPTION>
1996 Rates
Taxable Income
Federal
Single Return Joint Return Rate Tax
----------------- ----------------- --------
$0-$ 24,000 $0-$ 40,100 15%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 28%
$ 58,151-$121,300 $ 96,901-$147,700 31%
$121,301-$263,750 $147,701-$263,750 36%+
Over $263,750 Over $263,750 39.6%+
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
4.0%* 5.0%* 6.0%* 7.0%* 8.0%* 9.0%*
Federal Federal Federal Federal Federal Federal
Taxable Taxable Taxable Taxable Taxable Taxable
Equivalent Equivalent Equivalent Equivalent Equivalent Equivalent
4.7% 5.9% 7.1% 8.2% 9.4% 10.6%
5.6% 6.9% 8.3% 9.7% 11.1% 12.5%
5.8% 7.2% 8.7% 10.1% 11.6% 13.0%
6.3% 7.8% 9.4% 10.9% 12.5% 14.1%
6.6% 8.3% 9.9% 11.6% 13.2% 14.9%
</TABLE>
The equivalent yields are calculated on 4, 5, 6, 7, 8 and 9 percent
tax-free yields. While it is expected that a Fund will invest principally in
obligations generating interest exempt from federal income tax, other income
received by the Fund may be taxable.
* This should not be considered representative of a Fund's yield
at any specific time.
+ For tax years beginning after 1992, a 36% tax rate applies to
all taxable income in excess of the maximum dollar amounts
subject to the 31% tax rate. In addition, a 10% surtax (not
applicable to capital gains) applies to certain high-income
taxpayers. It is computed by applying a 39.6% rate to taxable
income in excess of $263,750. The above table does not reflect
the personal exemption phaseout nor the limitations of
itemized deductions that may apply.
-83-
<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware Group
Tax-Free Fund, Inc.- Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free USA
Intermediate Fund and, in its capacity as such, audits the financial statements
contained in the Funds' Annual Report. The Funds' Statements of Net Assets,
Statements of Operations, Statements of Changes in Net Assets and Notes to
Financial Statements, as well as the reports of Ernst & Young LLP, independent
auditors, for the fiscal year ended August 31, 1996, are included in the Funds'
Annual Report to shareholders. The financial statements, the notes relating
thereto and the reports of Ernst & Young LLP, listed above are incorporated by
reference from the Annual Report into this Part B.
-84-
<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statements of Net Assets
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Accountant's Reports
* The financial statements and Accountant's Reports
listed above for the fiscal year ended August 31,
1996 are incorporated by reference from the
Registrant's Annual Report into Part B.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Articles of Incorporation, as amended and
supplemented to date, incorporated into
this filing by reference to Post-Effective
Amendment No. 21 filed November 24, 1995.
(b) Executed Articles Supplementary (November
14, 1995) attached as Exhibit.
(2) By-Laws. By-Laws, as amended to date,
incorporated into this filing by reference to
Post-Effective Amendment No. 21 filed November
24, 1995.
(3) Voting Trust Agreement. Inapplicable.
<PAGE>
PART C - Other Information
(Continued)
(4) Copies of All Instruments Defining the Rights of
Holders.
(a) Articles of Incorporation, Articles
Supplementary and Articles of Amendment.
(i) Article Second of Articles
Supplementary (April 29, 1994),
Article Fifth of the Articles
of Incorporation (August 17,
1983) and Article Eighth of
Articles of Amendment (May 2,
1985) incorporated into this
filing by reference to
Post-Effective Amendment No. 21
filed November 24, 1995.
(ii) Executed Articles Third, Fourth
and Fifth of Articles
Supplementary (November 14,
1995) attached as Exhibit
24(b)(1)(b).
(b) By-Laws. Article II, Article III, as
amended, and Article XIII, which was
subsequently redesignated as Article XIV,
incorporated into this filing by reference
to Post-Effective Amendment No. 21 filed
November 24, 1995.
(5) Investment Management Agreements.
(a) Executed Investment Management Agreement
(April 3, 1995) between Delaware
Management Company, Inc. and the
Registrant on behalf of Tax-Free USA Fund
incorporated into this filing by reference
to Post-Effective Amendment No. 21 filed
November 24, 1995.
(b) Executed Investment Management Agreement
(April 3, 1995) between Delaware
Management Company, Inc. and the
Registrant on behalf of Tax-Free Insured
Fund incorporated into this filing by
reference to Post-Effective Amendment No.
21 filed November 24, 1995.
(c) Executed Investment Management Agreement
(April 3, 1995) between Delaware
Management Company, Inc. and the
Registrant on behalf of Tax-Free USA
Intermediate Fund incorporated into this
filing by reference to Post-Effective
Amendment No. 21 filed November 24, 1995.
(6) (a) Distribution Agreements.
(i) Executed Distribution Agreement
(April 3, 1995) between
Delaware Distributors, L.P. and
the Registrant on behalf of
Tax-Free USA Fund attached as
Exhibit.
(ii) Executed Distribution Agreement
(April 3, 1995) between
Delaware Distributors, L.P. and
the Registrant on behalf of
Tax-Free Insured Fund attached
as Exhibit.
<PAGE>
PART C - Other Information
(Continued)
(iii) Executed Distribution Agreement
(April 3, 1995) between
Delaware Distributors, L.P. and
the Registrant on behalf of
Tax-Free USA Intermediate Fund
attached as Exhibit.
(iv) Executed Amendment No. 1 to
Distribution Agreement
(November 29, 1995) on behalf
of Tax-Free USA Fund attached
as Exhibit.
(v) Executed Amendment No. 1 to
Distribution Agreement
(November 29, 1995) on behalf
of Tax-Free Insured Fund
attached as Exhibit.
(vi) Executed Amendment No. 1 to
Distribution Agreement
(November 29, 1995) on behalf
of Tax-Free USA Intermediate
Fund attached as Exhibit.
(b) Administration and Service Agreement. Form
of Administration and Service Agreement
(as amended November 1995) incorporated
into this filing by reference to
Post-Effective Amendment No. 21 filed
November 24, 1995.
(c) Dealer's Agreement. Dealer's Agreement (as
amended November 1995) incorporated into
this filing by reference to Post-Effective
Amendment No. 21 filed November 24, 1995.
(d) Mutual Fund Agreement for the Delaware
Group of Funds (as amended November 1995)
included as Module.
(7) Bonus, Profit Sharing, Pension Contracts.
(a) Amended and Restated Profit Sharing Plan
(November 17, 1994) incorporated into this
filing by reference to Post-Effective
Amendment No. 21 filed November 24, 1995.
(b) Amendment to Profit Sharing Plan (December
21, 1995) included as Module.
(8) Custodian Agreements.
(a) Form of Custodian Agreement (1996) between
Bankers Trust Company and the Registrant
attached as Exhibit.
(b) Form of Securities Lending Agreement
(1996) between Bankers Trust Company and
the Registrant on behalf of Tax-Free USA
Intermediate Fund attached as Exhibit.
<PAGE>
PART C - Other Information
(Continued)
(9) Other Material Contracts.
(a) Executed Shareholders Services Agreement
(June 29, 1988) between Delaware Service
Company, Inc. and the Registrant on behalf
of Tax-Free USA Fund attached as Exhibit.
(b) Executed Shareholders Services Agreement
(June 29, 1988) between Delaware Service
Company, Inc. and the Registrant on behalf
of Tax-Free Insured Fund attached as
Exhibit.
(c) Executed Shareholders Services Agreement
(November 10, 1992) between Delaware
Service Company, Inc. and the Registrant
on behalf of Tax-Free USA Intermediate
Fund attached as Exhibit.
(d) Executed Delaware Group of Funds Fund
Accounting Agreement (August 19, 1996)
between Delaware Service Company, Inc. and
the Registrant included as Module.
(10) Opinion of Counsel. Filed with letter relating
to Rule 24f-2 on October 29, 1996.
(11) Consent of Auditors. Attached as Exhibit.
(12) Inapplicable.
(13) Undertaking of Initial Shareholder. Incorporated
into this filing by reference to Pre-Effective
Amendment No. 1 filed November 22, 1983.
(14) Inapplicable.
(15) Plans under Rule 12b-1.
(a) Executed Plan under Rule 12b-1 for
Tax-Free USA Fund A Class (November 29,
1995) attached as Exhibit.
(b) Executed Plan under Rule 12b-1 for
Tax-Free USA Fund B Class (November 29,
1995) attached as Exhibit.
(c) Executed Plan under Rule 12b-1 for
Tax-Free USA Fund C Class (November 29,
1995) attached as Exhibit.
(d) Executed Plan under Rule 12b-1 for
Tax-Free Insured Fund A Class (November
29, 1995) attached as Exhibit.
(e) Executed Plan under Rule 12b-1 for
Tax-Free Insured Fund B Class (November
29, 1995) attached as Exhibit.
<PAGE>
PART C - Other Information
(Continued)
(f) Executed Plan under Rule 12b-1 for
Tax-Free Insured Fund C Class (November
29, 1995) attached as Exhibit.
(g) Executed Plan under Rule 12b-1 for
Tax-Free USA Intermediate Fund A Class
(November 29, 1995) attached as
Exhibit.
(h) Executed Plan under Rule 12b-1 for
Tax-Free USA Intermediate Fund B Class
(November 29, 1995) attached as
Exhibit.
(i) Executed Plan under Rule 12b-1 for
Tax-Free USA Intermediate Fund C Class
(November 29, 1995) attached as
Exhibit.
(16) Schedules of Computation for each Performance
Quotation.
(a) Schedules of Computation for each
Performance Quotation incorporated into
this filing by reference to Post-Effective
Amendment No. 21 filed November 24, 1995.
(b) Schedules of Computation for periods not
previously shown attached as Exhibit.
(17) Financial Data Schedules. Attached as Exhibit.
(18) Inapplicable.
(19) Other: Directors' Power of Attorney.
Incorporated into this filing by reference to
Post-Effective Amendment No. 21 filed November
24, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
<PAGE>
PART C - Other Information
(Continued)
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Delaware Group Tax-Free Fund, Inc.'s
Tax-Free USA Fund series:
Tax-Free USA Fund A Class
Common Stock Par Value 15,924 Accounts as of
$.01 Per Share September 27, 1996
Tax-Free USA Fund B Class
Common Stock Par Value 721 Accounts as of
$.01 Per Share September 27, 1996
Tax-Free USA Fund C Class
Common Stock Par Value 24 Accounts as of
$.01 Per Share September 27, 1996
Delaware Group Tax-Free Fund, Inc.'s
Tax-Free Insured Fund series:
Tax-Free Insured Fund A Class
Common Stock Par Value 1,870 Accounts as of
$.01 Per Share September 27, 1996
Tax-Free Insured Fund B Class
Common Stock Par Value 77 Accounts as of
$.01 Per Share September 27, 1996
Tax-Free Insured Fund C Class
Common Stock Par Value 6 Accounts as of
$.01 Per Share September 27, 1996
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Delaware Group Tax-Free Fund, Inc.'s
Tax-Free USA Intermediate Fund series:
Tax-Free USA Intermediate Fund A Class
Common Stock Par Value 521 Accounts as of
$.01 Per Share September 27, 1996
Tax-Free USA Intermediate Fund B Class
Common Stock Par Value 52 Accounts as of
$.01 Per Share September 27, 1996
Tax-Free USA Intermediate Fund C Class
Common Stock Par Value 14 Accounts as of
$.01 Per Share September 27, 1996
</TABLE>
Item 27. Indemnification. Incorporated into this filing by reference to
initial Registration Statement filed September 19, 1983 and
Article VII of the By-Laws, as amended, attached as Exhibit
24(b)(2).
Item 28. Business and Other Connections of Investment Adviser.
Delaware Management Company, Inc. (the "Manager") serves as
investment manager to the Registrant and also serves as investment manager or
sub-adviser to certain of the other funds in the Delaware Group (Delaware Group
Delaware Fund, Inc., Delaware Group Trend Fund, Inc., Delaware Group Value Fund,
Inc., Delaware Group DelCap Fund, Inc., Delaware Group Decatur Fund, Inc.,
Delaware Group Income Funds, Inc., Delaware Group Government Fund, Inc.,
Delaware Group Limited-Term Government Funds, Inc., Delaware Group Cash Reserve,
Inc., DMC Tax-Free Income Trust-Pennsylvania, Delaware Group Tax-Free Money
Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser
Funds, Inc., Delaware Group Dividend and Income Fund, Inc. and Delaware Group
Global Dividend and Income Fund, Inc.) and provides investment advisory services
to institutional accounts, primarily retirement plans and endowment funds. In
addition, certain directors of the Manager also serve as directors/trustees of
the other Delaware Group funds, and certain officers are also officers of these
other funds. A company owned by the Manager's parent company acts as principal
underwriter to the mutual funds in the Delaware Group (see Item 29 below) and
another such company acts as the shareholder servicing, dividend disbursing,
accounting services and transfer agent for all of the mutual funds in the
Delaware Group.
<PAGE>
PART C - Other Information
(Continued)
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management Company, Inc.; President,
Chief Executive Officer, Chairman of the Board and Director of the
Registrant and, with the exception of Delaware Pooled Trust, Inc., each of the
other funds in the Delaware Group, Delaware Management Holdings, Inc.,
DMH Corp., Delaware International Holdings Ltd. and Founders Holdings,
Inc.; Chairman of the Board and Director of Delaware Pooled Trust, Inc.,
Delaware Distributors, Inc., Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.; Chairman, Chief Executive Officer
and Director of Delaware International Advisers Ltd.; and Director of
Delaware Service Company, Inc.
Winthrop S. Jessup Executive Vice President and Director of Delaware Management Company,
Inc., DMH Corp., Delaware International Holdings Ltd. and Founders
Holdings, Inc.; Executive Vice President of the Registrant and, with the
exception of Delaware Pooled Trust, Inc., each of the other funds in the
Delaware Group and Delaware Management Holdings, Inc.; President and
Chief Executive Officer of Delaware Pooled Trust, Inc.; Vice Chairman of
Delaware Distributors, L.P.; Vice Chairman and Director of Delaware
Distributors, Inc.; Director of Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Advisers Ltd. and
Delaware Investment & Retirement Services, Inc.; and President and Director
of Delaware Capital Management, Inc.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management Company,
Inc.; Executive Vice President of the Registrant and each of the other funds in
the Delaware Group; Senior Vice President of Delaware Management
Holdings, Inc. and Delaware Capital Management, Inc; and Director of
Delaware International Advisers Ltd.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Chairman of Finance
Committee, Mid Atlantic, Inc. since 1989, 2040 Market Street, Philadelphia, PA
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
Paul E. Suckow Executive Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Company, Inc., the Registrant and each of the other funds in the
Delaware Group; Executive Vice President/Chief Investment Officer and
Director of Founders Holdings, Inc.; Senior Vice President/Chief Investment
Officer, Fixed Income of Delaware Management Holdings, Inc.; Senior Vice
President of Delaware Capital Management, Inc.; and Director of Founders
CBO Corporation and HYPPCO Finance Company Ltd.
David K. Downes Senior Vice President, Chief Administrative Officer and Chief Financial
Officer of Delaware Management Company, Inc., the Registrant and each of
the other funds in the Delaware Group; Chairman and Director of Delaware
Management Trust Company; Executive Vice President and Chief Operating
Officer, Chief Administrative Officer, Chief Financial Officer and Treasurer
of Delaware Management Holdings, Inc.; Senior Vice President, Chief
Financial Officer, Treasurer and Director of DMH Corp.; Senior Vice
President and Chief Administrative Officer of Delaware Distributors, L.P.;
Senior Vice President, Chief Administrative Officer and Director of Delaware
Distributors, Inc.; Senior Vice President, Chief Administrative Officer, Chief
Financial Officer and Director of Delaware Service Company, Inc.; Chief
Financial Officer and Director of Delaware International Holdings Ltd.;
Senior Vice President, Chief Financial Officer and Treasurer of Delaware
Capital Management, Inc.; Senior Vice President, Chief Financial Officer and
Director of Founders Holdings, Inc.; Chief Executive Officer and Director of
Delaware Investment & Retirement Services, Inc.; and Director of Delaware
International Advisers Ltd.
Chief Executive Officer, Chief Financial Officer and Treasurer of Forewarn,
Inc. since 1992, 8 Clayton Place, Newtown Square, PA
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
George M. Chamberlain, Jr. Senior Vice President, Secretary and Director of Delaware Management
Company, Inc., DMH Corp., Delaware Distributors, Inc., Delaware Service
Company, Inc., Founders Holdings, Inc., Delaware Capital Management, Inc.
and Delaware Investment & Retirement Services, Inc.; Senior Vice President
and Secretary of the Registrant, each of the other funds in the Delaware
Group, Delaware Distributors, L.P. and Delaware Management Holdings, Inc.;
Executive Vice President, Secretary and Director of Delaware Management
Trust Company; Secretary and Director of Delaware International Holdings
Ltd.; and Director of Delaware International Advisers Ltd.
Richard J. Flannery Managing Director/Corporate Tax & Affairs of Delaware Management
Company, Inc., Delaware Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Management Trust Company, Founders CBO Corporation,
Delaware Capital Management, Inc. and Delaware Investment & Retirement
Services, Inc.; Vice President of the Registrant and each of the other funds in
the Delaware Group; Managing Director/Corporate Tax & Affairs and
Director of Founders Holdings, Inc.; Managing Director and Director of
Delaware International Holdings Ltd.; and Director of Delaware International
Advisers Ltd. and HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton,
PA; Director and Member of Executive Committee of Stonewall Links, Inc.
since 1991, Bulltown Rd., Elverton, PA
Michael P. Bishof(1) Vice President and Treasurer of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc. and Founders Holdings, Inc.; Assistant Treasurer of Founders CBO
Corporation; and Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
Eric E. Miller Vice President and Assistant Secretary of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc.
Richelle S. Maestro Vice President and Assistant Secretary of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., DMH Corp., Delaware
Management Trust Company, Delaware Capital Management, Inc., Delaware
Investment & Retirement Services, Inc. and Founders Holdings, Inc.;
Secretary of Founders CBO Corporation; and Assistant Secretary of Delaware
International Holdings Ltd.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Ln., Philadelphia, PA
John M. Zerr(2) Vice President and Assistant Secretary of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, DMH
Corp., Delaware Distributors, L.P., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Joseph H. Hastings Vice President/Corporate Controller of Delaware Management Company, Inc.,
the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc., Founders Holdings, Inc. and Delaware
International Holdings Ltd.; Executive Vice President, Chief Financial Officer
and Treasurer of Delaware Management Trust Company; Chief Financial
Officer and Treasurer of Delaware Investment & Retirement Services, Inc.;
and Assistant Treasurer of Founders CBO Corporation
Bruce A. Ulmer Vice President/Director of Internal Audit of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp. and Delaware Management Trust
Company; and Vice President/Internal Audit of Delaware Investment &
Retirement Services, Inc.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
Steven T. Lampe(3) Vice President/Taxation of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Founders CBO
Corporation, Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc.
Lisa O. Brinkley Vice President/Compliance of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.
Rosemary E. Milner Vice President/Legal of Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group, Delaware Distributors, L.P.
and Delaware Distributors, Inc.
Douglas L. Anderson Vice President/Operations of Delaware Management Company, Inc., Delaware
Investment and Retirement Services, Inc. and Delaware Service Company,
Inc.; and Vice President/Operations and Director of Delaware Management
Trust Company
Michael T. Taggart Vice President/Facilities Management and Administrative Services of
Delaware Management Company, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders Holdings, Inc.; and
Treasurer, Assistant Secretary and Director of Founders CBO Corporation
J. Michael Pokorny Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income funds
in the Delaware Group
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management, Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders Holdings, Inc.; and
President and Director of Founders CBO Corporation
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group
Edward N. Antoian Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group and Delaware
Capital Management, Inc.
General Partner of Zeke Investment Partners since 1991, 569 Canterbury
Lane, Berwyn, PA
George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the equity funds in the Delaware Group and Delaware Capital
Management, Inc.
David C. Dalrymple Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
Gerald S. Frey(4) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C>
Faye P. Staples(5) Vice President/Human Resources of Delaware Management Company, Inc.,
Delaware Distributors, L.P. and Delaware Distributors, Inc.; and Vice
President/Director of Human Resources of Delaware Service Company, Inc.
</TABLE>
(1) VICE PRESIDENT/GLOBAL INVESTMENT MANAGEMENT OPERATIONS, Bankers Trust and
VICE PRESIDENT, CS First Boston Investment Management prior to June 1995.
(2) ATTORNEY, Ballard Spahr Andrews & Ingersoll prior to July 1995.
(3) TAX MANAGER, Price Waterhouse prior to October 1995.
(4) SENIOR DIRECTOR, Morgan Grenwell Capital Management prior to June 1996.
(5) VICE PRESIDENT/HUMAN RESOURCES, Nova Care prior to September 1995.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds in the Delaware
Group.
(b) Information with respect to each director, officer or
partner of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ----------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Winthrop S. Jessup Vice Chairman Executive Vice President
Keith E. Mitchell President and Chief None
Executive Officer
David K. Downes Senior Vice President and Senior Vice President/Chief
Chief Administrative Officer Administrative Officer/Chief
Financial Officer
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ----------------------
<S> <C> <C>
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
J. Lee Cook Senior Vice President/ None
Eastern Sales Division
Thomas E. Sawyer Senior Vice President/ None
Western Sales Division
Stephen H. Slack Senior Vice President/ None
Wholesaler
William F. Hostler Senior Vice President/ None
Marketing Services
Dana B. Hall Senior Vice President/ None
Key Accounts
Minette van Noppen Senior Vice President/ None
Retirement Services
J. Chris Meyer Senior Vice President/ None
Product Development
Richard J. Flannery Managing Director/Corporate Vice President
& Tax Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
John M. Zerr Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ----------------------
<S> <C> <C>
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
Susan J. Black Vice President/ None
Manager Key Accounts
Daniel H. Carlson Vice President/ None
Marketing Manager
Diane M. Anderson Vice President/ None
Retirement Services
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/ None
Client Services
Jerome J. Alrutz Vice President/ None
Client Services
Joanne A. Mettenheimer Vice President/ None
National Accounts
Christopher H. Price Vice President/Annuity None
Marketing & Administration
Steven J. DeAngelis Vice President/ None
Product Development
Susan T. Friestedt Vice President/ None
Customer Service
Dinah J. Huntoon Vice President/ None
Product Management
Soohee Zebedee Vice President/Fixed Income None
Product Management
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ----------------------
<S> <C> <C>
Ellen M. Krott Vice President/ None
Communications
Holly W. Riemel Vice President/ None
Telemarketing
Frank Albanese Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William S. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
William M. Kimbrough Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Henry W. Orvin Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Elizabeth Roman Vice President/Wholesaler None
Michael W. Rose Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ----------------------
<S> <C> <C>
Faye P. Staples Vice President/Human Resources None
John Wells Vice President/Marketing None
Technology
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Not Applicable.
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818
Market Street, Philadelphia, PA 19103 or One Commerce Square,
Philadelphia, PA 19103.
Item 31. Management Services. None.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting
of shareholders for the purpose of voting upon the question
of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding
shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 25th day of October, 1996.
DELAWARE GROUP TAX-FREE FUND, INC.
By /s/ Wayne A. Stork
-------------------------------------
Wayne A. Stork
President, Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------------------- ---------------------------------------------- ---------------------
<S> <C> <C>
/s/ Wayne A. Stork President, Chairman of the Board
- -------------------------------------------------- Chief Executive Officer and Director October 25, 1996
Wayne A. Stork
Senior Vice President/Chief Administrative
Officer/Chief Financial Officer (Principal
/s/ David K. Downes Financial Officer and Principal
- -------------------------------------------------- Accounting Officer) October 25, 1996
David K. Downes
/s/Walter P. Babich * Director October 25, 1996
- --------------------------------------------------
Walter P. Babich
/s/Anthony D. Knerr * Director October 25, 1996
- --------------------------------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director October 25, 1996
- --------------------------------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director October 25, 1996
- --------------------------------------------------
W. Thacher Longstreth
/s/Charles E. Peck * Director October 25, 1996
- --------------------------------------------------
Charles E. Peck
*By /s/ Wayne A. Stork
----------------------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
EX-99.B1B Executed Articles Supplementary (November 14, 1995)
EX-99.B6AI Executed Distribution Agreement (April 3, 1995) between Delaware Distributors,
L.P. and the Registrant on behalf of Tax-Free USA Fund
EX-99.B6AII Executed Distribution Agreement (April 3, 1995) between Delaware Distributors,
L.P. and the Registrant on behalf of Tax-Free Insured Fund
EX-99.B6AIII Executed Distribution Agreement (April 3, 1995) between Delaware Distributors,
L.P. and the Registrant on behalf of Tax-Free USA Intermediate Fund
EX-99.B6AIV Executed Amendment No.1 to Distribution Agreement (November 29, 1995) on
behalf of Tax-Free USA Fund
EX-99.B6AV Executed Amendment No.1 to Distribution Agreement (November 29, 1995) on
behalf of Tax-Free Insured Fund
EX-99.B6AVI Executed Amendment No.1 to Distribution Agreement (November 29, 1995) on
behalf of Tax-Free USA Intermediate Fund
EX-99.B6D Mutual Fund Agreement for the Delaware Group of Funds (as amended November
(Module Name 1995)
MFAGMT95)
EX-99.B7B Amendment to Profit Sharing Plan (December 21, 1995)
(Module Name
AMEND_PROF_SHAR)
EX-99.B8A Form of Custodian Agreement (1996) between Bankers Trust Company and the
Registrant
EX-99.B8B Form of Securities Lending Agreement (1996) between Bankers Trust Company and
the Registrant on behalf of Tax-Free USA Intermediate Fund
EX-99.B9A Executed Shareholders Services Agreement (June 29, 1988) between Delaware
Service Company, Inc. and the Registrant on behalf of Tax-Free USA Fund
EX-99.B9B Executed Shareholders Services Agreement (June 29, 1988) between Delaware
Service Company, Inc. and the Registrant on behalf of Tax-Free Insured Fund
EX-99.B9C Executed Shareholders Services Agreement (November 10, 1992) between
Delaware Service Company, Inc. and the Registrant on behalf of Tax-Free USA
Intermediate Fund
<PAGE>
EX-99.B9D Executed Delaware Group of Funds Fund Accounting Agreement (August 19,
(Module Name 1996) between Delaware Service Company, Inc. and the Registrant
FUND_ACCT_AGT)
EX-99.B11 Consent of Auditors
EX-99.B15A Executed Plan under Rule 12b-1 for Tax-Free USA Fund A Class (November 29,
1995)
EX-99.B15B Executed Plan under Rule 12b-1 for Tax-Free USA Fund B Class (November 29,
1995)
EX-99.B15C Executed Plan under Rule 12b-1 for Tax-Free USA Fund C Class (November 29,
1995)
EX-99.B15D Executed Plan under Rule 12b-1 for Tax-Free Insured Fund A Class (November
29, 1995)
EX-99.B15E Executed Plan under Rule 12b-1 for Tax-Free Insured Fund B Class (November
29, 1995)
EX-99.B15F Executed Plan under Rule 12b-1 for Tax-Free Insured Fund C Class (November
29, 1995)
EX-99.B15G Executed Plan under Rule 12b-1 for Tax-Free USA Intermediate Fund A Class
(November 29, 1995)
EX-99.B15H Executed Plan under Rule 12b-1 for Tax-Free USA Intermediate Fund B Class
(November 29, 1995)
EX-99.B15I Executed Plan under Rule 12b-1 for Tax-Free USA Intermediate Fund C Class
(November 29, 1995)
EX-99.B16B Schedules of Computation for periods not previously shown
EX-27 Financial Data Schedules
</TABLE>
<PAGE>
Exhibit 99-B1B
DELAWARE GROUP TAX-FREE FUND, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
Delaware Group Tax-Free Fund, Inc., a Maryland corporation
having its principal office in Baltimore, Maryland (the "Corporation"), hereby
certifies, in accordance with Section 2-208 of the Maryland General Corporation
Law, to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation has authority to issue a total of Five
Hundred Million (500,000,000) shares of common stock with a par value of One
Cent ($.01) per share of the Corporation (the "Common Stock"), having an
aggregate par value of Five Million Dollars ($5,000,000). Of such Five Hundred
Million (500,000,000) shares of Common Stock, Two Hundred Twenty-Five Million
(225,000,000) shares have been allocated to the Tax-Free USA Fund series of the
Common Stock, One Hundred Seventy-Five Million (175,000,000) shares have been
allocated to the Tax-Free Insured Fund series of the Common Stock and One
Hundred Million (100,000,000) shares have been allocated to the Tax-Free USA
Intermediate Fund series of the Common Stock. The Two Hundred Twenty-Five
Million (225,000,000) shares of the Tax-Free USA Fund series of the Common Stock
have been allocated between two classes as follows: (1) Fifty Million
(50,000,000) shares have been allocated to the Tax-Free USA Fund B Class and (2)
One Hundred Seventy-Five Million (175,000,000) shares have been allocated to the
other class of such series (the "USA Fund A Class"). The One Hundred
Seventy-Five Million (175,000,000) shares of the Tax-Free Insured Fund series of
the Common Stock have been allocated between two classes as follows: (1) Fifty
Million (50,000,000) shares have been allocated to the Tax-Free Insured Fund B
Class and (2) One Hundred Twenty-Five Million (125,000,000) shares have been
allocated to the other class of such series (the "Insured Fund A Class"). The
One Hundred Million (100,000,000) shares of the Tax-Free USA Intermediate Fund
series of the Common Stock have been allocated between two classes as follows:
(1) Fifty Million (50,000,000) shares have been allocated to the Tax-Free USA
Intermediate Fund B Class and (2) Fifty Million (50,000,000) shares have been
allocated to the other class of such series (the "Intermediate Fund A Class").
-1-
<PAGE>
SECOND: The Board of Directors of the Corporation, at a
meeting held on July 20, 1995, adopted a resolution taking the following
actions:
1. Classifying a third class of shares of the Tax-Free USA
Fund series of the Common Stock as the Tax-Free USA Fund C
Class (the "USA Fund C Class") and reclassifying and
allocating Twenty-Five Million (25,000,000) shares of the
authorized and unissued Common Stock, previously classified
and allocated to the Tax-Free USA Fund B Class of the
Tax-Free USA Fund series of the Common Stock, to the USA
Fund C Class.
2. Classifying a third class of shares of the Tax-Free Insured
Fund series of the Common Stock as the Tax-Free Insured Fund C
Class (the "Insured Fund C Class") and reclassifying and
allocating Twenty-Five Million (25,000,000) shares of
authorized and unissued Common Stock, previously classified
and allocated to the Tax-Free Insured Fund B Class of the
Tax-Free Insured Fund series of the Common Stock, to the
Insured Fund C Class.
3. Classifying a third class of shares of the Tax-Free USA
Intermediate Fund series of the Common Stock as the Tax-Free
USA Intermediate Fund C Class (the "Intermediate Fund C
Class") and reclassifying and allocating Twenty-Five Million
(25,000,000) shares of authorized and unissued Common Stock,
previously classified and allocated to the Tax-Free USA
Intermediate Fund B Class of the Tax-Free USA Intermediate
Fund series of the Common Stock, to the Intermediate Fund C
Class.
THIRD: The shares of the USA Fund C Class shall represent
proportionate interests in the same portfolio of investments as the shares of
the USA Fund A Class and Tax-Free USA Fund B Class of the Tax-Free USA Fund
series of the Common Stock. The shares of the USA Fund C Class shall have the
same preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption as the shares of the USA Fund A Class and Tax-Free USA Fund B Class
of the Tax-Free USA Fund series of the Common Stock, all as set forth in the
Articles of Incorporation of the Corporation, except for the differences
hereinafter set forth:
1. The dividends and distributions of investment income and
capital gains with respect to shares of the USA Fund C Class
shall be in such amounts as may be declared from time to time
by the Board of Directors, and such dividends and
distributions may vary with respect to such class from the
-2-
<PAGE>
dividends and distributions of investment income and capital
gains with respect to shares of the other classes of the
Tax-Free USA Fund series of the Common Stock to reflect
differing allocations of the expenses of the Corporation among
the shares of such classes and any resultant difference among
the net asset values per share of the shares of such classes,
to such extent and for such purposes as the Board of Directors
may deem appropriate. The allocation of investment income and
capital gains and expenses and liabilities of the Corporation
among the three classes of the Tax-Free USA Fund series of the
Common Stock shall be determined by the Board of Directors in
a manner that is consistent with the order, as applicable,
dated September 6, 1994 (Investment Company Act of 1940
Release No. 20529) issued by the Securities and Exchange
Commission, and any amendments to such order, any future order
or any Multiple Class Plan adopted by the Corporation in
accordance with Rule 18f-3 under the Investment Company Act of
1940, as amended, that modifies or supersedes such order.
2. Except as may otherwise be required by law pursuant to any
applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the USA Fund C Class shall have (i) exclusive
voting rights with respect to any matter submitted to a vote
of stockholders that affects only holders of shares of the USA
Fund C Class, including without limitation the provisions of
any Distribution Plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (a "Distribution
Plan") applicable to shares of the USA Fund C Class, and (ii)
no voting rights with respect to the provisions of any
Distribution Plan applicable to any other class of Common
Stock or with regard to any other matter submitted to a vote
of stockholders which does not affect holders of the shares of
the USA Fund C Class.
3. The shares of the USA Fund C Class shall not automatically
convert into shares of the USA Fund A Class as do the shares
of the Tax-Free USA Fund B Class of the Tax-Free USA Fund
series of the Common Stock.
FOURTH: The shares of the Insured Fund C Class shall
represent proportionate interests in the same portfolio of investments as the
shares of the Insured Fund A Class and Tax-Free Insured Fund B Class of the
Tax-Free Insured Fund series of the Common Stock. The shares of the Insured
Fund C Class shall have the same preferences, conversion or other rights, voting
-3-
<PAGE>
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption as the shares of the Insured Fund A Class and Tax-Free
Insured Fund B Class of the Tax-Free Insured Fund series of the Common Stock,
all as set forth in the Articles of Incorporation of the Corporation, except for
the differences hereinafter set forth:
1. The dividends and distributions of investment income and
capital gains with respect to shares of the Insured Fund C
Class shall be in such amounts as may be declared from time to
time by the Board of Directors, and such dividends and
distributions may vary with respect to such class from the
dividends and distributions of investment income and capital
gains with respect to shares of the other classes of the
Tax-Free Insured Fund series of the Common Stock to reflect
differing allocations of the expenses of the Corporation among
the shares of such classes and any resultant difference among
the net asset values per share of the shares of such classes,
to such extent and for such purposes as the Board of Directors
may deem appropriate. The allocation of investment income and
capital gains and expenses and liabilities of the Corporation
among the three classes of the Tax-Free Insured Fund series of
the Common Stock shall be determined by the Board of Directors
in a manner that is consistent with the order, as applicable,
dated September 6, 1994 (Investment Company Act of 1940
Release No. 20529) issued by the Securities and Exchange
Commission, and any amendments to such order, any future order
or any Multiple Class Plan adopted by the Corporation in
accordance with Rule 18f-3 under the Investment Company Act of
1940, as amended, that modifies or supersedes such order.
2. Except as may otherwise be required by law pursuant to any
applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the Insured Fund C Class shall have (i) exclusive
voting rights with respect to any matter submitted to a vote
of stockholders that affects only holders of shares of the
Insured Fund C Class, including without limitation the
provisions of any Distribution Plan applicable to shares of
the Insured Fund C Class, and (ii) no voting rights with
respect to the provisions of any Distribution Plan applicable
to any other class of Common Stock or with regard to any other
matter submitted to a vote of stockholders which does not
affect holders of the shares of the Insured Fund C Class.
-4-
<PAGE>
3. The shares of the Insured Fund C Class shall not
automatically convert into shares of the Insured Fund A Class
as do the shares of the Tax-Free Insured Fund B Class of the
Tax-Free Insured Fund series of the Common Stock.
FIFTH: The shares of the Intermediate Fund C Class shall
represent proportionate interests in the same portfolio of investments as the
shares of the Intermediate Fund A Class and Tax-Free USA Intermediate Fund B
Class of the Tax-Free USA Intermediate Fund series of the Common Stock. The
shares of the Intermediate Fund C Class shall have the same preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the shares of
the Intermediate Fund A Class and Tax-Free USA Intermediate Fund B Class of the
Tax-Free USA Intermediate Fund series of the Common Stock, all as set forth in
the Articles of Incorporation of the Corporation, except for the differences
hereinafter set forth:
1. The dividends and distributions of investment income and
capital gains with respect to shares of the Intermediate Fund
C Class shall be in such amounts as may be declared from time
to time by the Board of Directors, and such dividends and
distributions may vary with respect to such class from the
dividends and distributions of investment income and capital
gains with respect to shares of the other classes of the
Tax-Free USA Intermediate Fund series of the Common Stock to
reflect differing allocations of the expenses of the
Corporation among the shares of such classes and any resultant
difference among the net asset values per share of the shares
of such classes, to such extent and for such purposes as the
Board of Directors may deem appropriate. The allocation of
investment income and capital gains and expenses and
liabilities of the Corporation among the three classes of the
Tax-Free USA Intermediate Fund series of the Common Stock
shall be determined by the Board of Directors in a manner that
is consistent with the order, as applicable, dated September
6, 1994 (Investment Company Act of 1940 Release No. 20529)
issued by the Securities and Exchange Commission, and any
amendments to such order, any future order or any Multiple
Class Plan adopted by the Corporation in accordance with Rule
18f-3 under the Investment Company Act of 1940, as amended,
that modifies or supersedes such order.
2. Except as may otherwise be required by law pursuant to any
applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the Intermediate Fund C Class shall have
-5-
<PAGE>
(i) exclusive voting rights with respect to any matter
submitted to a vote of stockholders that affects only holders
of shares of the Intermediate Fund C Class, including without
limitation the provisions of any Distribution Plan applicable
to shares of the Intermediate Fund C Class, and (ii) no voting
rights with respect to the provisions of any Distribution Plan
applicable to any other class of Common Stock or with regard
to any other matter submitted to a vote of stockholders which
does not affect holders of the shares of the Intermediate Fund
C Class.
3. The shares of the Intermediate Fund C Class shall not
automatically convert into shares of the Intermediate Fund A
Class as do the shares of the Tax-Free Intermediate Fund B
Class of the Tax-Free Intermediate Fund series of the Common
Stock.
SIXTH: The shares of the Tax-Free USA Fund B Class of the
Tax-Free USA Fund series of the Common Stock, the Tax-Free Insured Fund B Class
of the Tax-Free Insured Fund Series of the Common Stock and the Tax-Free USA
Intermediate Fund B Class of the Tax-Free USA Intermediate Fund Series of the
Common Stock reclassified as shares of the USA Fund C Class, the Insured Fund C
Class and the Intermediate Fund C Class, respectively, pursuant to these
Articles Supplementary have been reclassified by the Board of Directors pursuant
to authority contained in the Articles of Incorporation of the Corporation.
SEVENTH: These Articles Supplementary shall become effective
on November 28, 1995.
IN WITNESS WHEREOF, Delaware Group Tax-Free Fund, Inc. has
caused these Articles Supplementary to be signed in its name and on its behalf
this 14th day of November, 1995.
DELAWARE GROUP TAX-FREE FUND, INC.
By: /s/ George M. Chamberlain, Jr.
------------------------------------
George M. Chamberlain, Jr.
Senior Vice President
ATTEST:
/s/ Richelle S. Maestro
- ---------------------------------
Assistant Secretary
THE UNDERSIGNED, Senior Vice President of DELAWARE GROUP
TAX-FREE FUND, INC., who executed on behalf of the said Corporation the
foregoing Articles Supplementary, of which this instrument is made a part,
hereby acknowledges, in the name of and on behalf of said Corporation, said
Articles Supplementary to be the corporate act of said Corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects, under the penalties of
perjury.
/s/ George M. Chamberlain, Jr.
----------------------------------------
George M. Chamberlain, Jr.
Senior Vice President
-6-
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA FUND
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of this 3rd
day of April, 1995 by and between DELAWARE GROUP TAX-FREE FUND, INC., a Maryland
corporation (the "Fund"), for the TAX-FREE USA FUND series (the "Series") and
DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware limited partnership.
WITNESSETH
WHEREAS, the Fund is an investment company regulated by
Federal and State regulatory bodies, and
WHEREAS, the Distributor is engaged in the business of
promoting the distribution of the securities of investment companies and, in
connection therewith and acting solely as agent for such investment companies
and not as principal, advertising, promoting, offering and selling their
securities to the public, and
WHEREAS, the Fund and the Distributor (or its predecessor)
were the parties to a contract under which the Distributor acted as the national
distributor of the Series' shares, which contract was amended and restated as of
the 2nd day of May, 1994 and subsequently readopted as of January 3, 1995 (the
"Prior Distribution Agreement"), and
WHEREAS, Delaware Management Holdings, Inc. ("Holdings"), the
indirect parent company of the Distributor, completed on the date of this
Agreement a merger transaction with a newly-formed subsidiary of Lincoln
National Corporation, pursuant to which
<PAGE>
Holdings became a wholly-owned subsidiary of Lincoln National Corporation, and
WHEREAS, the merger transaction resulted in a change of
control of the Distributor and an automatic termination of the Prior
Distribution Agreement, and
WHEREAS, the Board of Directors of the Fund has determined to
enter into a new agreement with the Distributor on behalf of the Series as of
the date hereof, pursuant to which the Distributor shall continue to be the
national distributor of the Series' original class (now doing business as
Tax-Free USA Fund A Class and hereinafter referred to as the "Class A Shares")
and the Series' Tax-Free USA Fund B Class (the "Class B Shares"), which classes
may do business under these or such other names as the Board of Directors may
designate from time to time, on the terms and conditions set forth below,
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Fund hereby engages the Distributor to promote the distribution of the
Series' shares and, in connection therewith and as agent for the Fund and
not as principal, to advertise, promote, offer and sell the Series' shares
to the public.
2. (a) The Distributor agrees to serve as distributor of the Series' shares
and, as agent for the Fund and not as principal, to advertise, promote
and use its best efforts to sell the Series' shares wherever their sale
is legal,
-2-
<PAGE>
either through dealers or otherwise, in such places and in such manner,
not inconsistent with the law and the provisions of this Agreement and
the Fund's Registration Statement under the Securities Act of 1933,
including the Prospectus contained therein and the Statement of
Additional Information contained therein, as may be mutually determined
by the Fund and the Distributor from time to time.
(b) For its services as agent for the Class A Shares and Class B Shares,
the Distributor shall be entitled to compensation on each sale or
redemption, as appropriate, of shares of such classes equal to any
front-end or deferred sales charge as described in the Prospectus from
time to time and may allow concessions to dealers in such amounts and
on such terms as are therein set forth.
(c) For the Class A Shares and Class B Shares, the Fund shall, in addition,
compensate the Distributor for its services as such is provided in the
Distribution Plan as adopted on behalf of the Class A Shares and Class
B Shares, respectively, pursuant to Investment Company Act Rule 12b-1
(the "Plans"), copies of which as presently in force are attached
hereto as, respectively, Exhibit "A" and "B".
3. (a) The Fund agrees to make available for sale by the Fund through the
Distributor all or such part of the authorized but unissued shares of
the Series as the
-3-
<PAGE>
Distributor shall require from time to time, and except as provided in
Paragraph 3(b) hereof, the Fund will not sell Series' shares other than
through the efforts of the Distributor.
(b) The Fund reserves the right from time to time (1) to sell and issue
shares other than for cash; (2) to issue shares in exchange for
substantially all of the assets of any corporation or trust, or in
exchange of shares of any corporation or trust; (3) to pay stock
dividends to its shareholders, or to pay dividends in cash or stock at
the option of its stockholders, or to sell stock to existing
stockholders to the extent of dividends payable from time to time in
cash, or to split up or combine its outstanding shares of common stock;
(4) to offer shares for cash to its stockholders as a whole, by the use
of transferable rights or otherwise, and to sell and issue shares
pursuant to such offers; and (5) to act as its own distributor in any
jurisdiction in which the Distributor is not registered as a
broker-dealer.
4. The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment company, and
any and all Series' shares which it will sell through the Distributor
are, or will be, properly registered with the Securities and Exchange
Commission ("SEC").
-4-
<PAGE>
(b) The provisions of this Agreement do not violate the terms of any
instrument by which the Fund is bound, nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its
property.
5. (a) The Fund will supply to the Distributor a conformed copy of the
Registration Statement, all amendments thereto, all exhibits, and each
Prospectus and Statement of Additional Information.
(b) The Fund will register or qualify the Series' shares for sale in such
states as is deemed desirable.
(c) The Fund, without expense to the Distributor,
(1) will give and continue to give such financial statements and
other information as may be required by the SEC or the proper
public bodies of the states in which the Series' shares may be
qualified;
(2) from time to time, will furnish the Distributor as soon as
reasonably practicable true copies of its periodic reports to
stockholders;
(3) will promptly advise the Distributor in person or by telephone
or telegraph, and promptly confirm such advice in writing, (a)
when any amendment or supplement to the Registration Statement
becomes effective, (b) of any request by the SEC for
amendments or supplements to the Registration Statement or the
Prospectus or for additional information, and (c) of the
issuance by the SEC of any Stop Order suspending the
effectiveness of the Registration Statement, or the initiation
of any proceedings for that purpose;
(4) if at any time the SEC shall issue any Stop Order suspending
the effectiveness of the Registration Statement, will make
every reasonable effort to obtain the lifting of such order at
the earliest possible moment;
(5) will from time to time, use its best efforts to keep a
sufficient supply of Series' shares
-5-
<PAGE>
authorized, any increases being subject to the approval of
shareholders as may be required;
(6) before filing any further amendment to the Registration
Statement or to any Prospectus, will furnish to the Distributor
copies of the proposed amendment and will not, at any time,
whether before or after the effective date of the Registration
Statement, file any amendment to the Registration Statement or
supplement to any Prospectus of which the Distributor shall not
previously have been advised or to which the Distributor shall
reasonably object (based upon the accuracy or completeness
thereof) in writing;
(7) will continue to make available to its stockholders (and
forward copies to the Distributor) of such periodic, interim
and any other reports as are now, or as hereafter may be,
required by the provisions of the Investment Company Act of
1940; and
(8) will, for the purpose of computing the offering price of
Series' shares, advise the Distributor within one hour after
the close of the New York Stock Exchange (or as soon as
practicable thereafter) on each business day upon which the New
York Stock Exchange may be open of the net asset value per
share of the Series' shares of common stock outstanding,
determined in accordance with any applicable provisions of law
and the provisions of the Articles of Incorporation, as
amended, of the Fund as of the close of business on such
business day. In the event that prices are to be calculated
more than once daily, the Fund will promptly advise the
Distributor of the time of each calculation and the price
computed at each such time.
6. The Distributor agrees to submit to the Fund, prior to its use, the
form of all sales literature proposed to be generally disseminated by
or for the Distributor, all advertisements proposed to be used by the
Distributor, all sales literature or advertisements prepared by or for
the Distributor for such dissemination or for use by others in
connection with the sale of the Series' shares, and the form of
dealers' sales contract
-6-
<PAGE>
the Distributor intends to use in connection with sales of the Series'
shares. The Distributor also agrees that the Distributor will submit
such sales literature and advertisements to the NASD, SEC or other
regulatory agency as from time to time may be appropriate, considering
practices then current in the industry. The Distributor agrees not to
use such form of dealers' sales contract or to use or to permit others
to use such sales literature or advertisements without the written
consent of the Fund if any regulatory agency expresses objection
thereto or if the Fund delivers to the Distributor a written objection
thereto.
7. The purchase price of each share sold hereunder shall be the offering
price per share mutually agreed upon by the parties hereto, and as
described in the Fund's Prospectuses, as amended from time to time,
determined in accordance with any applicable provision of law, the
provisions of its Articles of Incorporation and the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The responsibility of the Distributor hereunder shall be limited to the
promotion of sales of Series' shares. The Distributor shall undertake
to promote such sales solely as agent of the Fund, and shall not
purchase or sell such shares as principal. Orders for Series' shares
and payment for such orders shall be directed to the Fund's agent,
Delaware Service Company, Inc. for acceptance on behalf of the Fund.
The Distributor is not empowered to approve orders for sales of
-7-
<PAGE>
Series' shares or accept payment for such orders. Sales of Series'
shares shall be deemed to be made when and where accepted by Delaware
Service Company, Inc. on behalf of the Fund.
9. With respect to the apportionment of costs between the Fund and the
Distributor of activities with which both are concerned, the following
will apply:
(a) The Fund and the Distributor will cooperate in preparing the
Registration Statements, the Prospectus, the Statement of
Additional Information, and all amendments, supplements and
replacements thereto. The Fund will pay all costs incurred in
the preparation of the Fund's Registration Statement, including
typesetting, the costs incurred in printing and mailing
Prospectuses and Annual, Semi-Annual and other financial
reports to its own shareholders and fees and expenses of
counsel and accountants.
(b) The Distributor will pay the costs incurred in printing and
mailing copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional expenses,
including the costs of printing and mailing literature sent to
prospective investors.
(d) The Fund will pay the costs and fees incurred in registering or
qualifying the Series' shares with the various states and with
the SEC.
-8-
<PAGE>
(e) The Distributor will pay the costs of any additional copies of
Fund financial and other reports and other Fund literature
supplied to the Distributor by the Fund for sales promotion
purposes.
10. The Distributor may engage in other business, provided such other
business does not interfere with the performance by the Distributor of
its obligations under this Agreement.
11. The Fund agrees to indemnify, defend and hold harmless from the assets
of the Series the Distributor and each person, if any, who controls the
Distributor within the meaning of Section 15 of the Securities Act of
1933, from and against any and all losses, damages, or liabilities to
which, jointly or severally, the Distributor or such controlling person
may become subject, insofar as the losses, damages or liabilities arise
out of the performance of its duties hereunder except that the Fund
shall not be liable for indemnification of the Distributor or any
controlling person thereof for any liability to the Fund or its
security holders to which they would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance
of their duties under this Agreement.
12. Copies of financial reports, Registration Statements and Prospectuses,
as well as demands, notices, requests, consents, waivers, and other
communications in writing which it may be necessary or desirable for
either party to deliver or furnish to the other will be duly delivered
or furnished, if delivered
-9-
<PAGE>
to such party at its address shown below during regular business hours,
or if sent to that party by registered mail or by prepaid telegram
filed with an office or with an agent of Western Union or another
nationally recognized telegraph service, in all cases within the time
or times herein prescribed, addressed to the recipient at 1818 Market
Street, Philadelphia, Pennsylvania 19103, or at such other address as
the Fund or the Distributor may designate in writing and furnish to the
other.
13. This Agreement shall not be assigned, as that term is defined in the
Investment Company Act of 1940, by the Distributor and shall terminate
automatically in the event of its attempted assignment by the
Distributor. This Agreement shall not be assigned by the Fund without
the written consent of the Distributor signed by its duly authorized
officers and delivered to the Fund. Except as specifically provided in
the indemnification provision contained in Paragraph 11 herein, this
Agreement and all conditions and provisions hereof are for the sole and
exclusive benefit of the parties hereto and their legal successors and
no express or implied provision of this Agreement is intended or shall
be construed to give any person other than the parties hereto and their
legal successors any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provisions herein contained.
-10-
<PAGE>
14. (a) This Agreement shall remain in force for a period of two years
from the date hereof and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Series
and only if the terms and the renewal thereof have been
approved by the vote of a majority of the Directors of the
Fund who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose
of voting on such approval.
(b) The Distributor may terminate this Agreement on written notice
to the Fund at any time in case the effectiveness of the
Registration Statement shall be suspended, or in case Stop
Order proceedings are initiated by the SEC in respect of the
Registration Statement and such proceedings are not withdrawn
or terminated within thirty days. The Distributor may also
terminate this Agreement at any time by giving the Fund
written notice of its intention to terminate the Agreement at
the expiration of three months from the date of delivery of
such written notice of intention to the Fund.
(c) The Fund may terminate this Agreement at any time on at least
thirty days prior written notice to the Distributor (1) if
proceedings are commenced by the Distributor or any of its
partners for the Distributor's liquidation or
-11-
<PAGE>
dissolution or the winding up of the Distributor's affairs;
(2) if a receiver or trustee of the Distributor or any of its
property is appointed and such appointment is not vacated
within thirty days thereafter; (3) if, due to any action by or
before any court or any federal or state commission,
regulatory body, or administrative agency or other
governmental body, the Distributor shall be prevented from
selling securities in the United States or because of any
action or conduct on the Distributor's part, sales of the
shares are not qualified for sale. The Fund may also terminate
this Agreement at any time upon prior written notice to the
Distributor of its intention to so terminate at the expiration
of three months from the date of the delivery of such written
notice to the Distributor.
15. The validity, interpretation and construction of this Agreement, and of
each part hereof, will be governed by the laws of the Commonwealth of
Pennsylvania.
16. In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect
-12-
<PAGE>
the remainder of the Agreement, which shall continue to be in
force.
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
General Partner
Attest:
/s/ Eric E. Miller By:/s/ Keith E. Mitchell
- --------------------------- ------------------------
Name: Eric E. Miller Name: Keith E. Mitchell
Title: Assistant Secretary Title: President
DELAWARE GROUP TAX-FREE FUND, INC.
for the TAX-FREE USA FUND
Attest:
/s/ Richelle S. Maestro By:/s/ Wayne A. Stork
- -------------------------- ---------------------
Name: Richelle S. Maestro Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman
-13-
<PAGE>
Exhibit A
12b-1 Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-l under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Fund series (the
"Series") on behalf of the original class of the Series' common stock (now doing
business as Tax-Free USA Fund A Class and hereinafter referred to as the
"Class"), which Fund, Series and Class may do business under these or such other
names as the Board of Directors of the Fund may designate from time to time. The
Plan has been approved by a majority of the Board of Directors, including a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related thereto, cast in person at a meeting called for the
purpose of voting on such Plan. Such approval by the Directors included a
determination that in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Class and its shareholders. If the Plan has not yet been approved by
a majority of the outstanding voting securities as required in the Act, the Plan
will be presented to the public shareholders at the next regular annual or
special meeting.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and
A-1
<PAGE>
classes of securities and is an open-end management investment company
registered under the Act. Delaware Management Company, Inc. ("DMC") serves as
the Series' investment adviser and manager pursuant to an Investment Management
Agreement. Delaware Service Company, Inc. serves as the Series' shareholder
servicing, dividend disbursing and transfer agent. Delaware Distributors, L.P.
(the "Distributor") is the principal underwriter and national distributor for
the Series' shares pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series (the "Distribution Agreement").
The Distributor may enter into agreements with other registered
broker-dealers substantially in the form of the Dealer Agreement approved by the
Fund in the implementation of this Plan and of the Distribution Agreement
between it and the Series. The Series may, in addition, enter into arrangements
with persons other than broker-dealers which are not "affiliated persons" or
"interested persons" of the Fund, DMC or the Distributor to provide to the
Series services in the Series' marketing of shares of the Class, such
arrangements to be reflected by Service Agreements.
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to exceed
0.3% (3/10 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class (the "Maximum Amount") as may be determined by the Fund's
Board of Directors from time to time. Such monthly fee shall be reduced by the
aggregate sums paid by the Fund on behalf of the Series to persons other than
A-2
<PAGE>
broker-dealers (the "Service Providers") pursuant to Service Agreements referred
to above.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph l above to furnish, or cause or encourage others to furnish, services
and incentives in connection with the promotion, offering and sale of Class
shares and, where suitable and appropriate, the retention of Class shares by
shareholders.
(b) The Service Providers shall use the monies paid respectively to
them to reimburse themselves for the actual costs they have incurred in
confirming that their customers have received the Prospectus and Statement of
Additional Information, if applicable, and as a fee for (l) assisting such
customers in maintaining proper records with the Fund, (2) answering questions
relating to their respective accounts, and (3) aiding in maintaining the
investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Service Agreement and the Plan; both the Distributor and the
Service Providers shall furnish the Board of Directors of the Fund with such
other information as the Board may reasonably request in connection with the
payments made under the Plan and the use thereof by the Distributor and the
Service Providers, respectively, in order to
A-3
<PAGE>
enable the Board to make an informed determination of the amount of the Fund's
payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund in writing of the commencement of the Plan, which time shall not
be before the first annual or special meeting of the public shareholders at
which the Plan is or was approved by the vote of a majority of the outstanding
voting securities as required in the Act (the "Commencement Date"); thereafter,
the Plan shall continue in effect for a period of more than one year from the
Commencement Date only so long as such continuance is specifically approved at
least annually by a vote of the Board of Directors of the Fund, and of the
Directors who are not interested persons of the Fund and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("non-interested Directors"), cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount
to be spent for distribution pursuant to
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paragraph l thereof without approval by the shareholders of the Class.
7. The Distribution Agreement between the Fund on behalf of the Series
and the Distributor, and the Service Agreements between the Fund on behalf of
the Series and the Service Providers, shall specifically have a copy of this
Plan attached to, and its terms and provisions incorporated respectively by
reference in, such agreements.
8. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
10. The definitions contained in Sections 2(a)(3), 2(a)(4), 2(a)(19),
and 2(a)(42) of the Act shall govern the meaning of "affiliated person,"
"assignment," "interested person(s)," and "vote of a majority of the outstanding
voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
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Exhibit B
12b-1 Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Fund series (the
"Series") on behalf of the Tax-Free USA Fund B Class (the "Class"), which Fund,
Series and Class may do business under these or such other names as the Board of
Directors of the Fund may designate from time to time. The Plan has been
approved by a majority of the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto, cast in person at a meeting called for the purpose of voting on
such Plan. Such approval by the Directors included a determination that in the
exercise of reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the Class and its
shareholders. The Plan has been approved by a vote of the holders of a majority
of the outstanding voting securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
B-1
<PAGE>
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund for the Series (the "Distribution Agreement").
The Plan provides that:
l. (a) The Fund shall pay to the Distributor a monthly fee not to
exceed 0.75% (3/4 of l%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements, the forms of which have
been approved from time to time by the Fund's Board of Directors.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
B-2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph l(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis,
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<PAGE>
a written report of the amounts expended under the Plan and the purposes for
which such expenditures were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the Directors who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("non-interested Directors"), cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph l thereof without approval by
the shareholders of the Class.
7. The Distribution Agreement between the Fund on behalf of the Series
and the Distributor, and any dealers or servicing agreements between the
Distributor and brokers or others or between the Fund on behalf of the Series
and others receiving a servicing fee, shall specifically have a copy of this
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<PAGE>
Plan attached to, and its terms and provisions incorporated respectively by
reference in, such agreements.
8. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
10. The definitions contained in Sections 2(a)(3), 2(a)(4), 2(a)(19),
and 2(a)(42) of the Act shall govern the meaning of "affiliated person,"
"assignment," "interested person(s)," and "vote of a majority of the outstanding
voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
B-5
<PAGE>
Exhibit 99.B6AII
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INSURED FUND
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of this 3rd
day of April, 1995 by and between DELAWARE GROUP TAX-FREE FUND, INC., a Maryland
corporation (the "Fund"), for the TAX-FREE INSURED FUND series (the "Series")
and DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware limited
partnership.
WITNESSETH
WHEREAS, the Fund is an investment company regulated by
Federal and State regulatory bodies, and
WHEREAS, the Distributor is engaged in the business of
promoting the distribution of the securities of investment companies and, in
connection therewith and acting solely as agent for such investment companies
and not as principal, advertising, promoting, offering and selling their
securities to the public, and
WHEREAS, the Fund and the Distributor (or its predecessor)
were the parties to a contract under which the Distributor acted as the national
distributor of the Series' shares which contract was amended and restated as of
the 2nd day of May, 1994 and subsequently readopted as of January 3, 1995 (the
"Prior Distribution Agreement"), and
WHEREAS, Delaware Management Holdings, Inc. ("Holdings"), the
indirect parent company of the Distributor, completed on the date of this
Agreement a merger transaction with a newly-formed subsidiary of Lincoln
National Corporation, pursuant to which
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<PAGE>
Holdings became a wholly-owned subsidiary of Lincoln National Corporation, and
WHEREAS, the merger transaction resulted in a change of
control of the Distributor and an automatic termination of the Prior
Distribution Agreement, and
WHEREAS, the Board of Directors of the Fund has determined to
enter into a new agreement with the Distributor on behalf of the Series as of
the date hereof, pursuant to which the Distributor shall continue to be the
national distributor of the Series' original class (now doing business as
Tax-Free Insured Fund A Class and hereinafter referred to as the "Class A
Shares") and the Series' Tax-Free Insured Fund B Class (the "Class B Shares"),
which classes may do business under these or such other names as the Board of
Directors may designate from time to time, on the terms and conditions set forth
below,
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Fund hereby engages the Distributor to promote the distribution of
the Series' shares and, in connection therewith and as agent for the
Fund and not as principal, to advertise, promote, offer and sell the
Series' shares to the public.
2. (a) The Distributor agrees to serve as distributor of the Series'
shares and, as agent for the Fund and not as principal, to
advertise, promote and use its best efforts to sell the
Series' shares wherever their sale is legal,
-2-
<PAGE>
either through dealers or otherwise, in such places and in
such manner, not inconsistent with the law and the provisions
of this Agreement and the Fund's Registration Statement under
the Securities Act of 1933, including the Prospectus contained
therein and the Statement of Additional Information contained
therein, as may be mutually determined by the Fund and the
Distributor from time to time.
(b) For its services as agent for the Class A Shares and Class B
Shares, the Distributor shall be entitled to compensation on
each sale or redemption, as appropriate, of shares of such
classes equal to any front-end or deferred sales charge as
described in the Prospectus from time to time and may allow
concessions to dealers in such amounts and on such terms as
are therein set forth.
(c) For the Class A Shares and Class B Shares, the Fund shall, in
addition, compensate the Distributor for its services as such
is provided in the Distribution Plan as adopted on behalf of
the Class A Shares and Class B Shares, respectively, pursuant
to Investment Company Act Rule 12b-1 (the "Plans"), copies of
which as presently in force are attached hereto as,
respectively, Exhibit "A" and "B".
3. (a) The Fund agrees to make available for sale by the Fund
through the Distributor all or such part of the authorized but
unissued shares of the Series as the
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<PAGE>
Distributor shall require from time to time, and except as
provided in Paragraph 3(b) hereof, the Fund will not sell
Series' shares other than through the efforts of the
Distributor.
(b) The Fund reserves the right from time to time (1) to sell and
issue shares other than for cash; (2) to issue shares in
exchange for substantially all of the assets of any
corporation or trust, or in exchange of shares of any
corporation or trust; (3) to pay stock dividends to its
shareholders, or to pay dividends in cash or stock at the
option of its stockholders, or to sell stock to existing
stockholders to the extent of dividends payable from time to
time in cash, or to split up or combine its outstanding shares
of common stock; (4) to offer shares for cash to its
stockholders as a whole, by the use of transferable rights or
otherwise, and to sell and issue shares pursuant to such
offers; and (5) to act as its own distributor in any
jurisdiction in which the Distributor is not registered as a
broker-dealer.
4. The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company, and any and all Series' shares which it will sell
through the Distributor are, or will be, properly registered
with the Securities and Exchange Commission ("SEC").
-4-
<PAGE>
(b) The provisions of this Agreement do not violate the terms of
any instrument by which the Fund is bound, nor do they violate
any law or regulation of any body having jurisdiction over the
Fund or its property.
5. (a) The Fund will supply to the Distributor a conformed copy
of the Registration Statement, all amendments thereto, all
exhibits, and each Prospectus and Statement of Additional
Information.
(b) The Fund will register or qualify the Series' shares for sale
in such states as is deemed desirable.
(c) The Fund, without expense to the Distributor,
(1) will give and continue to give such financial
statements and other information as may be required
by the SEC or the proper public bodies of the states
in which the Series' shares may be qualified;
(2) from time to time, will furnish the Distributor as
soon as reasonably practicable true copies of its
periodic reports to stockholders;
(3) will promptly advise the Distributor in person or by
telephone or telegraph, and promptly confirm such
advice in writing, (a) when any amendment or
supplement to the Registration Statement becomes
effective, (b) of any request by the SEC for
amendments or supplements to the Registration
Statement or the Prospectus or for additional
information, and (c) of the issuance by the SEC of
any Stop Order suspending the effectiveness of the
Registration Statement, or the initiation of any
proceedings for that purpose;
(4) if at any time the SEC shall issue any Stop Order
suspending the effectiveness of the Registration
Statement, will make every reasonable effort to
obtain the lifting of such order at the earliest
possible moment;
(5) will from time to time, use its best efforts to keep
a sufficient supply of Series' shares
-5-
<PAGE>
authorized, any increases being subject to the
approval of shareholders as may be required;
(6) before filing any further amendment to the
Registration Statement or to any Prospectus, will
furnish to the Distributor copies of the proposed
amendment and will not, at any time, whether before
or after the effective date of the Registration
Statement, file any amendment to the Registration
Statement or supplement to any Prospectus of which
the Distributor shall not previously have been
advised or to which the Distributor shall reasonably
object (based upon the accuracy or completeness
thereof) in writing;
(7) will continue to make available to its stockholders
(and forward copies to the Distributor) of such
periodic, interim and any other reports as are now,
or as hereafter may be, required by the provisions of
the Investment Company Act of 1940; and
(8) will, for the purpose of computing the offering price
of Series' shares, advise the Distributor within one
hour after the close of the New York Stock Exchange
(or as soon as practicable thereafter) on each
business day upon which the New York Stock Exchange
may be open of the net asset value per share of the
Series' shares of common stock outstanding,
determined in accordance with any applicable
provisions of law and the provisions of the Articles
of Incorporation, as amended, of the Fund as of the
close of business on such business day. In the event
that prices are to be calculated more than once
daily, the Fund will promptly advise the Distributor
of the time of each calculation and the price
computed at each such time.
6. The Distributor agrees to submit to the Fund, prior to its use, the
form of all sales literature proposed to be generally disseminated by
or for the Distributor, all advertisements proposed to be used by the
Distributor, all sales literature or advertisements prepared by or for
the Distributor for such dissemination or for use by others in
connection with the sale of the Series' shares, and the form of
dealers' sales contract
-6-
<PAGE>
the Distributor intends to use in connection with sales of the Series'
shares. The Distributor also agrees that the Distributor will submit
such sales literature and advertisements to the NASD, SEC or other
regulatory agency as from time to time may be appropriate, considering
practices then current in the industry. The Distributor agrees not to
use such form of dealers' sales contract or to use or to permit others
to use such sales literature or advertisements without the written
consent of the Fund if any regulatory agency expresses objection
thereto or if the Fund delivers to the Distributor a written objection
thereto.
7. The purchase price of each share sold hereunder shall be the offering
price per share mutually agreed upon by the parties hereto, and as
described in the Fund's Prospectuses, as amended from time to time,
determined in accordance with any applicable provision of law, the
provisions of its Articles of Incorporation and the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The responsibility of the Distributor hereunder shall be limited to the
promotion of sales of Series' shares. The Distributor shall undertake
to promote such sales solely as agent of the Fund, and shall not
purchase or sell such shares as principal. Orders for Series' shares
and payment for such orders shall be directed to the Fund's agent,
Delaware Service Company, Inc. for acceptance on behalf of the Fund.
The Distributor is not empowered to approve orders for sales of
-7-
<PAGE>
Series' shares or accept payment for such orders. Sales of Series'
shares shall be deemed to be made when and where accepted by Delaware
Service Company, Inc. on behalf of the Fund.
9. With respect to the apportionment of costs between the Fund
and the Distributor of activities with which both are concerned, the
following will apply:
(a) The Fund and the Distributor will cooperate in preparing the
Registration Statements, the Prospectus, the Statement of
Additional Information, and all amendments, supplements and
replacements thereto. The Fund will pay all costs incurred in
the preparation of the Fund's Registration Statement,
including typesetting, the costs incurred in printing and
mailing Prospectuses and Annual, Semi-Annual and other
financial reports to its own shareholders and fees and
expenses of counsel and accountants.
(b) The Distributor will pay the costs incurred in printing and
mailing copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional expenses,
including the costs of printing and mailing literature sent to
prospective investors.
(d) The Fund will pay the costs and fees incurred in registering
or qualifying the Series' shares with the various states and
with the SEC.
-8-
<PAGE>
(e) The Distributor will pay the costs of any additional copies of
Fund financial and other reports and other Fund literature
supplied to the Distributor by the Fund for sales promotion
purposes.
10. The Distributor may engage in other business, provided such other
business does not interfere with the performance by the Distributor of
its obligations under this Agreement.
11. The Fund agrees to indemnify, defend and hold harmless from the assets
of the Series the Distributor and each person, if any, who controls the
Distributor within the meaning of Section 15 of the Securities Act of
1933, from and against any and all losses, damages, or liabilities to
which, jointly or severally, the Distributor or such controlling person
may become subject, insofar as the losses, damages or liabilities arise
out of the performance of its duties hereunder except that the Fund
shall not be liable for indemnification of the Distributor or any
controlling person thereof for any liability to the Fund or its
security holders to which they would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance
of their duties under this Agreement.
12. Copies of financial reports, Registration Statements and Prospectuses,
as well as demands, notices, requests, consents, waivers, and other
communications in writing which it may be necessary or desirable for
either party to deliver or furnish to the other will be duly delivered
or furnished, if delivered
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<PAGE>
to such party at its address shown below during regular business hours,
or if sent to that party by registered mail or by prepaid telegram
filed with an office or with an agent of Western Union or another
nationally recognized telegraph service, in all cases within the time
or times herein prescribed, addressed to the recipient at 1818 Market
Street, Philadelphia, Pennsylvania 19103, or at such other address as
the Fund or the Distributor may designate in writing and furnish to the
other.
13. This Agreement shall not be assigned, as that term is defined in the
Investment Company Act of 1940, by the Distributor and shall terminate
automatically in the event of its attempted assignment by the
Distributor. This Agreement shall not be assigned by the Fund without
the written consent of the Distributor signed by its duly authorized
officers and delivered to the Fund. Except as specifically provided in
the indemnification provision contained in Paragraph 11 herein, this
Agreement and all conditions and provisions hereof are for the sole and
exclusive benefit of the parties hereto and their legal successors and
no express or implied provision of this Agreement is intended or shall
be construed to give any person other than the parties hereto and their
legal successors any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provisions herein contained.
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<PAGE>
14. (a) This Agreement shall remain in force for a period of two years
from the date hereof and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Series
and only if the terms and the renewal thereof have been
approved by the vote of a majority of the Directors of the
Fund who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose
of voting on such approval.
(b) The Distributor may terminate this Agreement on written notice
to the Fund at any time in case the effectiveness of the
Registration Statement shall be suspended, or in case Stop
Order proceedings are initiated by the SEC in respect of the
Registration Statement and such proceedings are not withdrawn
or terminated within thirty days. The Distributor may also
terminate this Agreement at any time by giving the Fund
written notice of its intention to terminate the Agreement at
the expiration of three months from the date of delivery of
such written notice of intention to the Fund.
(c) The Fund may terminate this Agreement at any time on at least
thirty days prior written notice to the Distributor (1) if
proceedings are commenced by the Distributor or any of its
partners for the Distributor's liquidation or
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<PAGE>
dissolution or the winding up of the Distributor's affairs;
(2) if a receiver or trustee of the Distributor or any of its
property is appointed and such appointment is not vacated
within thirty days thereafter; (3) if, due to any action by or
before any court or any federal or state commission,
regulatory body, or administrative agency or other
governmental body, the Distributor shall be prevented from
selling securities in the United States or because of any
action or conduct on the Distributor's part, sales of the
shares are not qualified for sale. The Fund may also terminate
this Agreement at any time upon prior written notice to the
Distributor of its intention to so terminate at the expiration
of three months from the date of the delivery of such written
notice to the Distributor.
15. The validity, interpretation and construction of this Agreement, and of
each part hereof, will be governed by the laws of the Commonwealth of
Pennsylvania.
16. In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect
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<PAGE>
the remainder of the Agreement, which shall continue to be in
force.
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
General Partner
Attest:
/s/ Eric E. Miller By: /s/ Keith E. Mitchell
- ------------------------------- ----------------------------------
Name: Eric. E. Miller Name: Keith E. Mitchell
Title: Assistant Secretary Title: President
DELAWARE GROUP TAX-FREE FUND, INC.
for the TAX-FREE INSURED FUND
Attest:
/s/ Richelle S. Maestro By:/s/ Wayne A. Stork
- -------------------------------- ----------------------------------
Name: Richelle S. Maestro Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman
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<PAGE>
Exhibit A
12b-1 Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free Insured Fund series
(the "Series") on behalf of the original class of the Series' common stock (now
doing business as Tax-Free Insured Fund A Class and hereinafter referred to as
the "Class"), which Fund, Series and Class may do business under these or such
other names as the Board of Directors of the Fund may designate from time to
time. The Plan has been approved by a majority of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto, cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Class and its shareholders. If the Plan has not yet been
approved by a majority of the outstanding voting securities as required in the
Act, the Plan will be presented to the public shareholders at the next regular
annual or special meeting.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and
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<PAGE>
classes of securities and is an open-end management investment company
registered under the Act. Delaware Management Company, Inc. ("DMC") serves as
the Series' investment adviser and manager pursuant to an Investment Management
Agreement. Delaware Service Company, Inc. serves as the Series' shareholder
servicing, dividend disbursing and transfer agent. Delaware Distributors, L.P.
(the "Distributor") is the principal underwriter and national distributor for
the Series' shares pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series (the "Distribution Agreement").
The Distributor may enter into agreements with other registered
broker-dealers substantially in the form of the Dealer Agreement approved by the
Fund in the implementation of this Plan and of the Distribution Agreement
between it and the Series. The Series may, in addition, enter into arrangements
with persons other than broker-dealers which are not "affiliated persons" or
"interested persons" of the Fund, DMC or the Distributor to provide to the
Series services in the Series' marketing of the shares of the Class, such
arrangements to be reflected by Service Agreements.
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of 1%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than
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<PAGE>
broker-dealers (the "Service Providers") pursuant to Service Agreements referred
to above.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Service Agreement and the Plan; both the Distributor and the
Service Providers shall furnish the Board of Directors of the Fund with such
other information as the Board may reasonably request in connection with the
payments made under the Plan and the use thereof by the Distributor and the
Service Providers, respectively, in order to
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<PAGE>
enable the Board to make an informed determination of the amount of the Fund's
payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan, which time
shall not be before the first annual or special meeting of the public
shareholders at which the Plan is or was approved by the vote of a majority of
the outstanding voting securities as required in the Act (the "Commencement
Date"); thereafter, the Plan shall continue in effect for a period of more than
one year from the Commencement Date only so long as such continuance is
specifically approved at least annually by a vote of the Board of Directors of
the Fund, and of the Directors who are not interested persons of the Fund and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan ("non-interested Directors"), cast in person
at a meeting called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially
the amount to be spent for distribution pursuant to
A-4
<PAGE>
paragraph l thereof without approval by the shareholders of the Class.
7. The Distribution Agreement between the Fund on behalf of
the Series and the Distributor, and the Service Agreements between the Fund on
behalf of the Series and the Service Providers, shall specifically have a copy
of this Plan attached to, and its terms and provisions incorporated respectively
by reference in, such agreements.
8. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
10. The definitions contained in Sections 2(a)(3), 2(a)(4),
2(a)(19), and 2(a)(42) of the Act shall govern the meaning of "affiliated
person," "assignment," "interested person(s)," and "vote of a majority of the
outstanding voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
A-5
<PAGE>
Exhibit B
12b-1 Plan
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by
Delaware Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free Insured Fund
series (the "Series") on behalf of the Tax-Free Insured Fund B Class (the
"Class"), which Fund, Series and Class may do business under these or such other
names as the Board of Directors of the Fund may designate from time to time. The
Plan has been approved by a majority of the Board of Directors, including a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related thereto, cast in person at a meeting called for the
purpose of voting on such Plan. Such approval by the Directors included a
determination that in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Class and its shareholders. The Plan has been approved by a vote of
the holders of a majority of the outstanding voting securities of the Class, as
defined in the Act.
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant
B-1
<PAGE>
to an Investment Management Agreement. Delaware Service Company, Inc. serves as
the Series' shareholder servicing, dividend disbursing and transfer agent.
Delaware Distributors, L.P. (the "Distributor") is the principal underwriter and
national distributor for the Series' shares, including shares of the Class,
pursuant to the Distribution Agreement between the Distributor and the Fund for
the Series (the "Distribution Agreement").
The Plan provides that:
l. (a) The Fund shall pay to the Distributor a monthly fee not
to exceed 0.75% (3/4 of l%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the
Fund shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements, the forms of which have
been approved from time to time by the Fund's Board of Directors.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph 1(a) above to assist in the distribution and promotion of
shares of the Class. Payments made to the Distributor under the Plan may be used
for, among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
B-2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph l(b) above
shall be used to pay dealers or others for, among other things, furnishing
personal services and maintaining shareholder accounts, which services include
confirming that customers have received the Prospectus and Statement of
Additional Information, if applicable; assisting such customers in maintaining
proper records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under paragraph 1(a) above.
In addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board
of Directors of the Fund, for their review, on a quarterly basis,
B-3
<PAGE>
a written report of the amounts expended under the Plan and the purposes for
which such expenditures were made.
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the Directors who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("non-interested Directors"), cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. The Distribution Agreement between the Fund on behalf of
the Series and the Distributor, and any dealers or servicing agreements between
the Distributor and brokers or others or between the Fund for the Series and
others receiving a servicing fee, shall specifically have a copy of this Plan
attached to, and its terms
B-4
<PAGE>
and provisions incorporated respectively by reference in, such agreements.
8. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
10. The definitions contained in Sections 2(a)(3), 2(a)(4),
2(a)(19), and 2(a)(42) of the Act shall govern the meaning of "affiliated
person," "assignment," "interested person(s)," and "vote of a majority of the
outstanding voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
B-5
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA INTERMEDIATE FUND
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of this 3rd day of
April, 1995 by and between DELAWARE GROUP TAX-FREE FUND, INC., a Maryland
corporation (the "Fund"), for the TAX-FREE USA INTERMEDIATE FUND series (the
"Series") and DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware
limited partnership.
WITNESSETH
WHEREAS, the Fund is an investment company regulated by Federal and
State regulatory bodies, and
WHEREAS, the Distributor is engaged in the business of promoting the
distribution of the securities of investment companies and, in connection
therewith and acting solely as agent for such investment companies and not as
principal, advertising, promoting, offering and selling their securities to the
public, and
WHEREAS, the Fund and the Distributor (or its predecessor) were the
parties to a contract under which the Distributor acted as the national
distributor of the Series' shares, which contract was amended and restated as of
the 2nd day of May, 1994 and subsequently readopted as of January 3, 1995 (the
"Prior Distribution Agreement"), and
WHEREAS, Delaware Management Holdings, Inc. ("Holdings"), the indirect
parent company of the Distributor, completed on the date of this Agreement a
merger transaction with a newly-formed subsidiary of Lincoln National
Corporation, pursuant to which
-1-
<PAGE>
Holdings became a wholly-owned subsidiary of Lincoln National Corporation, and
WHEREAS, the merger transaction resulted in a change of control of the
Distributor and an automatic termination of the Prior Distribution Agreement,
and
WHEREAS, the Board of Directors of the Fund has determined to enter
into a new agreement with the Distributor on behalf of the Series as of the date
hereof, pursuant to which the Distributor shall continue to be the national
distributor of the Series' original class (now doing business as Tax-Free USA
Intermediate Fund A Class and hereinafter referred to as the "Class A Shares")
and the Series' Tax-Free USA Intermediate Fund B Class (the "Class B Shares"),
which classes may do business under these or such other names as the Board of
Directors may designate from time to time, on the terms and conditions set forth
below,
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The Fund hereby engages the Distributor to promote the distribution of
the Series' shares and, in connection therewith and as agent for the
Fund and not as principal, to advertise, promote, offer and sell the
Series' shares to the public.
2. (a) The Distributor agrees to serve as distributor of the
Series' shares and, as agent for the Fund and not as
principal, to advertise, promote and use its best efforts
to sell the Series' shares wherever their sale is legal,
-2-
<PAGE>
either through dealers or otherwise, in such places and in
such manner, not inconsistent with the law and the provisions
of this Agreement and the Fund's Registration Statement under
the Securities Act of 1933, including the Prospectus contained
therein and the Statement of Additional Information contained
therein, as may be mutually determined by the Fund and the
Distributor from time to time.
(b) For its services as agent for the Class A Shares and Class B
Shares, the Distributor shall be entitled to compensation on
each sale or redemption, as appropriate, of shares of such
classes equal to any front-end or deferred sales charge as
described in the Prospectus from time to time and may allow
concessions to dealers in such amounts and on such terms as
are therein set forth.
(c) For the Class A Shares and Class B Shares, the Fund shall, in
addition, compensate the Distributor for its services as such
is provided in the Distribution Plan as adopted on behalf of
the Class A Shares and Class B Shares, respectively, pursuant
to Investment Company Act Rule 12b-1 (the "Plans"), copies of
which as presently in force are attached hereto as,
respectively, Exhibit "A" and "B".
3. (a) The Fund agrees to make available for sale by the Fund through
the Distributor all or such part of the authorized but
unissued shares of the Series as the
-3-
<PAGE>
Distributor shall require from time to time, and except as
provided in Paragraph 3(b) hereof, the Fund will not sell
Series' shares other than through the efforts of the
Distributor.
(b) The Fund reserves the right from time to time (1) to sell
and issue shares other than for cash; (2) to issue shares
in exchange for substantially all of the assets of any
corporation or trust, or in exchange of shares of any
corporation or trust; (3) to pay stock dividends to its
shareholders, or to pay dividends in cash or stock at the
option of its stockholders, or to sell stock to existing
stockholders to the extent of dividends payable from time
to time in cash, or to split up or combine its
outstanding shares of common stock; (4) to offer shares
for cash to its stockholders as a whole, by the use of
transferable rights or otherwise, and to sell and issue
shares pursuant to such offers; and (5) to act as its own
distributor in any jurisdiction in which the Distributor
is not registered as a broker-dealer.
4. The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company, and any and all Series' shares which it will sell
through the Distributor are, or will be, properly registered
with the Securities and Exchange Commission ("SEC").
-4-
<PAGE>
(b) The provisions of this Agreement do not violate the terms of
any instrument by which the Fund is bound, nor do they violate
any law or regulation of any body having jurisdiction over the
Fund or its property.
5. (a) The Fund will supply to the Distributor a conformed copy of
the Registration Statement, all amendments thereto, all
exhibits, and each Prospectus and Statement of Additional
Information.
(b) The Fund will register or qualify the Series' shares for sale
in such states as is deemed desirable.
(c) The Fund, without expense to the Distributor,
(1) will give and continue to give such financial
statements and other information as may be required
by the SEC or the proper public bodies of the
states in which the Series' shares may be
qualified;
(2) from time to time, will furnish the Distributor as
soon as reasonably practicable true copies of its
periodic reports to stockholders;
(3) will promptly advise the Distributor in person or by
telephone or telegraph, and promptly confirm such
advice in writing, (a) when any amendment or
supplement to the Registration Statement becomes
effective, (b) of any request by the SEC for
amendments or supplements to the Registration
Statement or the Prospectus or for additional
information, and (c) of the issuance by the SEC of
any Stop Order suspending the effectiveness of the
Registration Statement, or the initiation of any
proceedings for that purpose;
(4) if at any time the SEC shall issue any Stop Order
suspending the effectiveness of the Registration
Statement, will make every reasonable effort to
obtain the lifting of such order at the earliest
possible moment;
(5) will from time to time, use its best efforts to
keep a sufficient supply of Series' shares
-5-
<PAGE>
authorized, any increases being subject to the
approval of shareholders as may be required;
(6) before filing any further amendment to the
Registration Statement or to any Prospectus, will
furnish to the Distributor copies of the proposed
amendment and will not, at any time, whether before
or after the effective date of the Registration
Statement, file any amendment to the Registration
Statement or supplement to any Prospectus of which
the Distributor shall not previously have been
advised or to which the Distributor shall reasonably
object (based upon the accuracy or completeness
thereof) in writing;
(7) will continue to make available to its stockholders
(and forward copies to the Distributor) of such
periodic, interim and any other reports as are now,
or as hereafter may be, required by the provisions of
the Investment Company Act of 1940; and
(8) will, for the purpose of computing the offering price
of Series' shares, advise the Distributor within one
hour after the close of the New York Stock Exchange
(or as soon as practicable thereafter) on each
business day upon which the New York Stock Exchange
may be open of the net asset value per share of the
Series' shares of common stock outstanding,
determined in accordance with any applicable
provisions of law and the provisions of the Articles
of Incorporation, as amended, of the Fund as of the
close of business on such business day. In the event
that prices are to be calculated more than once
daily, the Fund will promptly advise the Distributor
of the time of each calculation and the price
computed at each such time.
6. The Distributor agrees to submit to the Fund, prior to its use, the
form of all sales literature proposed to be generally disseminated by
or for the Distributor, all advertisements proposed to be used by the
Distributor, all sales literature or advertisements prepared by or for
the Distributor for such dissemination or for use by others in
connection with the sale of the Series' shares, and the form of
dealers' sales contract
-6-
<PAGE>
the Distributor intends to use in connection with sales of the Series'
shares. The Distributor also agrees that the Distributor will submit
such sales literature and advertisements to the NASD, SEC or other
regulatory agency as from time to time may be appropriate, considering
practices then current in the industry. The Distributor agrees not to
use such form of dealers' sales contract or to use or to permit others
to use such sales literature or advertisements without the written
consent of the Fund if any regulatory agency expresses objection
thereto or if the Fund delivers to the Distributor a written objection
thereto.
7. The purchase price of each share sold hereunder shall be the offering
price per share mutually agreed upon by the parties hereto, and as
described in the Fund's Prospectuses, as amended from time to time,
determined in accordance with any applicable provision of law, the
provisions of its Articles of Incorporation and the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The responsibility of the Distributor hereunder shall be limited to the
promotion of sales of Series' shares. The Distributor shall undertake
to promote such sales solely as agent of the Fund, and shall not
purchase or sell such shares as principal. Orders for Series' shares
and payment for such orders shall be directed to the Fund's agent,
Delaware Service Company, Inc. for acceptance on behalf of the Fund.
The Distributor is not empowered to approve orders for sales of
-7-
<PAGE>
Series' shares or accept payment for such orders. Sales of Series'
shares shall be deemed to be made when and where accepted by Delaware
Service Company, Inc. on behalf of the Fund.
9. With respect to the apportionment of costs between the Fund
and the Distributor of activities with which both are
concerned, the following will apply:
(a) The Fund and the Distributor will cooperate in preparing
the Registration Statements, the Prospectus, the
Statement of Additional Information, and all amendments,
supplements and replacements thereto. The Fund will pay
all costs incurred in the preparation of the Fund's
Registration Statement, including typesetting, the costs
incurred in printing and mailing Prospectuses and Annual,
Semi-Annual and other financial reports to its own
shareholders and fees and expenses of counsel and
accountants.
(b) The Distributor will pay the costs incurred in printing
and mailing copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional expenses,
including the costs of printing and mailing literature sent to
prospective investors.
(d) The Fund will pay the costs and fees incurred in registering
or qualifying the Series' shares with the various states and
with the SEC.
-8-
<PAGE>
(e) The Distributor will pay the costs of any additional copies of
Fund financial and other reports and other Fund literature
supplied to the Distributor by the Fund for sales promotion
purposes.
10. The Distributor may engage in other business, provided such other
business does not interfere with the performance by the Distributor of
its obligations under this Agreement.
11. The Fund agrees to indemnify, defend and hold harmless from the assets
of the Series the Distributor and each person, if any, who controls the
Distributor within the meaning of Section 15 of the Securities Act of
1933, from and against any and all losses, damages, or liabilities to
which, jointly or severally, the Distributor or such controlling person
may become subject, insofar as the losses, damages or liabilities arise
out of the performance of its duties hereunder except that the Fund
shall not be liable for indemnification of the Distributor or any
controlling person thereof for any liability to the Fund or its
security holders to which they would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance
of their duties under this Agreement.
12. Copies of financial reports, Registration Statements and Prospectuses,
as well as demands, notices, requests, consents, waivers, and other
communications in writing which it may be necessary or desirable for
either party to deliver or furnish to the other will be duly delivered
or furnished, if delivered
-9-
<PAGE>
to such party at its address shown below during regular business hours,
or if sent to that party by registered mail or by prepaid telegram
filed with an office or with an agent of Western Union or another
nationally recognized telegraph service, in all cases within the time
or times herein prescribed, addressed to the recipient at 1818 Market
Street, Philadelphia, Pennsylvania 19103, or at such other address as
the Fund or the Distributor may designate in writing and furnish to the
other.
13. This Agreement shall not be assigned, as that term is defined in the
Investment Company Act of 1940, by the Distributor and shall terminate
automatically in the event of its attempted assignment by the
Distributor. This Agreement shall not be assigned by the Fund without
the written consent of the Distributor signed by its duly authorized
officers and delivered to the Fund. Except as specifically provided in
the indemnification provision contained in Paragraph 11 herein, this
Agreement and all conditions and provisions hereof are for the sole and
exclusive benefit of the parties hereto and their legal successors and
no express or implied provision of this Agreement is intended or shall
be construed to give any person other than the parties hereto and their
legal successors any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provisions herein contained.
-10-
<PAGE>
14. (a) This Agreement shall remain in force for a period of two years
from the date hereof and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Series
and only if the terms and the renewal thereof have been
approved by the vote of a majority of the Directors of the
Fund who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose
of voting on such approval.
(b) The Distributor may terminate this Agreement on written notice
to the Fund at any time in case the effectiveness of the
Registration Statement shall be suspended, or in case Stop
Order proceedings are initiated by the SEC in respect of the
Registration Statement and such proceedings are not withdrawn
or terminated within thirty days. The Distributor may also
terminate this Agreement at any time by giving the Fund
written notice of its intention to terminate the Agreement at
the expiration of three months from the date of delivery of
such written notice of intention to the Fund.
(c) The Fund may terminate this Agreement at any time on at least
thirty days prior written notice to the Distributor (1) if
proceedings are commenced by the Distributor or any of its
partners for the Distributor's liquidation or
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<PAGE>
dissolution or the winding up of the Distributor's affairs;
(2) if a receiver or trustee of the Distributor or any of its
property is appointed and such appointment is not vacated
within thirty days thereafter; (3) if, due to any action by or
before any court or any federal or state commission,
regulatory body, or administrative agency or other
governmental body, the Distributor shall be prevented from
selling securities in the United States or because of any
action or conduct on the Distributor's part, sales of the
shares are not qualified for sale. The Fund may also terminate
this Agreement at any time upon prior written notice to the
Distributor of its intention to so terminate at the expiration
of three months from the date of the delivery of such written
notice to the Distributor.
15. The validity, interpretation and construction of this Agreement, and of
each part hereof, will be governed by the laws of the Commonwealth of
Pennsylvania.
16. In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect
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<PAGE>
the remainder of the Agreement, which shall continue to be in
force.
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
General Partner
Attest:
/s/ Eric E. Miller By:/s/ Keith E. Mitchell
Name: Eric E. Miller Name: Keith E. Mitchell
Title: Assistant Secretary Title: President
DELAWARE GROUP TAX-FREE FUND, INC.
for the TAX-FREE USA INTERMEDIATE
FUND
Attest:
/s/ Richelle S. Maestro By:/s/ Wayne A. Stork
Name: Richelle S. Maestro Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman
-13-
<PAGE>
Exhibit A
12b-1 PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Intermediate Fund
series (the "Series") on behalf of the original class of the Series' common
stock (now doing business as the Tax-Free USA Intermediate Fund A Class and
hereinafter referred to as the "Class"), which Fund, Series and Class may do
business under these or such other names as the Board of Directors of the Fund
may designate from time to time. The Plan has been approved by a majority of the
Board of Directors, including a majority of the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto, cast in person at a
meeting called for the purpose of voting on such Plan. Such approval by the
Directors included a determination that in the exercise of reasonable business
judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Class and its shareholders. If the
Plan has not yet been approved by a majority of the outstanding voting
securities as required in the Act, the Plan will be presented to the public
shareholders at the next regular annual or special meeting.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and
A-1
<PAGE>
classes of securities and is an open-end management investment company
registered under the Act. Delaware Management Company, Inc. ("DMC") serves as
the Series' investment adviser and manager pursuant to an Investment Management
Agreement. Delaware Service Company, Inc. serves as the Series' shareholder
servicing, dividend disbursing and transfer agent. Delaware Distributors, L.P.
(the "Distributor") is the principal underwriter and national distributor for
the Series' shares pursuant to the Distribution Agreement between the
Distributor and the Fund for the Series (the "Distribution Agreement").
The Distributor may enter into agreements with other registered
broker-dealers substantially in the form of the Dealer Agreement approved by the
Fund in the implementation of this Plan and of the Distribution Agreement
between it and the Series. The Series may, in addition, enter into arrangements
with persons other than broker-dealers which are not "affiliated persons" or
"interested persons" of the Fund, DMC or the Distributor to provide to the
Series services in the Series' marketing of the shares of the Class, such
arrangements to be reflected by Service Agreements.
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of 1%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than
A-2
<PAGE>
broker-dealers (the "Service Providers") pursuant to Service Agreements
referred to above.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Service Agreement and the Plan; both the Distributor and the
Service Providers shall furnish the Board of Directors of the Fund with such
other information as the Board may reasonably request in connection with the
payments made under the Plan and the use thereof by the Distributor and the
Service Providers, respectively, in order to
A-3
<PAGE>
enable the Board to make an informed determination of the amount of the Fund's
payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan, which time
shall not be before the date on which the registration statement containing the
post-effective amendment relating to this Series becomes effective with the
Securities and Exchange Commission (the "Commencement Date"); thereafter, the
Plan shall continue in effect for a period of more than one year from the
Commencement Date only so long as such continuance is specifically approved at
least annually by a vote of the Board of Directors of the Fund, and of the
Directors who are not interested persons of the Fund and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("non-interested Directors"), cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially
the amount to be spent for distribution pursuant to
A-4
<PAGE>
paragraph l thereof without approval by the shareholders of the Class.
7. The Distribution Agreement between the Fund on behalf of
the Series and the Distributor, and the Service Agreements between the Fund on
behalf of the Series and the Service Providers, shall specifically have a copy
of this Plan attached to, and its terms and provisions incorporated respectively
by reference in, such agreements.
8. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
10. The definitions contained in Sections 2(a)(3), 2(a)(4),
2(a)(l9), and 2(a)(42) of the Act shall govern the meaning of "affiliated
person," "assignment," "interested person(s)," and "vote of a majority of the
outstanding voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
A-5
<PAGE>
Exhibit B
12b-1 Plan
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by
Delaware Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA
Intermediate Fund series (the "Series") on behalf of the Tax-Free USA
Intermediate Fund B Class (the "Class"), which Fund, Series and Class may do
business under these or such other names as the Board of Directors of the Fund
may designate from time to time. The Plan has been approved by a majority of the
Board of Directors, including a majority of the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto, cast in person at a
meeting called for the purpose of voting on such Plan. Such approval by the
Directors included a determination that in the exercise of reasonable business
judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Class and its shareholders. The Plan
has been approved by a vote of the holders of a majority of the outstanding
voting securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
B-1
<PAGE>
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund for the Series ("Distribution Agreement").
The Plan provides that:
l. (a) The Fund shall pay to the Distributor a monthly fee not
to exceed 0.75% (3/4 of l%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the
Fund shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements, the forms of which have
been approved from time to time by the Fund's Board of Directors.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph 1(a) above to assist in the distribution and promotion of
shares of the Class. Payments made to the Distributor under the Plan may be used
for, among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
B-2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph l(b)
above shall be used to pay dealers or others for, among other things, furnishing
personal services and maintaining shareholder accounts, which services include
confirming that customers have received the Prospectus and Statement of
Additional Information, if applicable; assisting such customers in maintaining
proper records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under paragraph 1(a) above.
In addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board
of Directors of the Fund, for their review, on a quarterly basis,
B-3
<PAGE>
a written report of the amounts expended under the Plan and the purposes for
which such expenditures were made.
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the Directors who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("non-interested Directors"), cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote
of a majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. The Distribution Agreement between the Fund on behalf of
the Series and the Distributor, and any dealers or servicing agreements between
the Distributor and brokers or others or between the Fund on behalf of the
Series and others receiving a servicing fee, shall specifically have a copy of
this Plan attached to, and
B-4
<PAGE>
this Plan attached to, and its terms and provisions incorporated respectively by
reference in, such agreements.
8. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
10. The definitions contained in Sections 2(a)(3), 2(a)(4),
2(a)(19), and 2(a)(42) of the Act shall govern the meaning of "affiliated
person," "assignment," "interested person(s)," and "vote of a majority of the
outstanding voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
B-5
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA FUND
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
This Amendment No. 1 to Distribution Agreement (this "Agreement") is
made as of the 29th day of November, 1995, by and between DELAWARE GROUP
TAX-FREE FUND, INC. (the "Fund"), for the TAX-FREE USA FUND series (the
"Series"), and DELAWARE DISTRIBUTORS, L.P. (the "Distributor").
WITNESSETH
----------
WHEREAS, the Fund, on behalf of the Series, and the Distributor are
parties to that certain Distribution Agreement made as of the 3rd day of April,
1995 (the "Distribution Agreement"); and
WHEREAS, the Board of Directors of the Fund has established the
Tax-Free USA Fund C Class (the "Class C Shares") as an additional class of the
Series, and the Fund and the Distributor desire to amend the Distribution
Agreement to provide that the Distributor shall act as the national distributor
of the Class C Shares pursuant thereto;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The Class C Shares are hereby included among the shares to which the
Distribution Agreement relates and the Distributor shall act as distributor for
the Class C Shares pursuant to and in accordance with the Distribution
Agreement, as amended hereby.
2. Hereafter, each reference to "Class A Shares and Class B Shares" in
Sections 2(c) and (d) of the Distribution Agreement shall be deemed to include
the Class C Shares, provided that the Distribution Plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 for the Class C Shares and
presently in force is attached hereto as Exhibit "A."
DELAWARE DISTRIBUTORS, L.P.
By: Delaware Distributors, Inc.,
General Partner
ATTEST:
/s/ Eric E. Miller By: /s/ Keith E. Mitchell
- --------------------------- -------------------------
Name: Eric E. Miller Name: Keith E. Mitchell
Title: Assistant Secretary Title: President
DELAWARE GROUP TAX-FREE FUND, INC.,
ATTEST: for the TAX-FREE USA FUND
/s/ Richelle S. Maestro By: /s/ Wayne A. Stork
- --------------------------- -------------------------
Name: Richelle S. Maestro Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Fund series (the
"Series") on behalf of the Tax-Free USA Fund C Class (the "Class"), which Fund,
Series and Class may do business under these or such other names as the Board of
Directors of the Fund may designate from time to time. The Plan has been
approved by a majority of the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
A-1
<PAGE>
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
A-2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
A-3
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
A-4
<PAGE>
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
A-5
<PAGE>
Exhibit 99-B6AV
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INSURED FUND
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
This Amendment No. 1 to Distribution Agreement (this "Agreement") is
made as of the 29th day of November, 1995, by and between DELAWARE GROUP
TAX-FREE FUND, INC. (the "Fund"), for the TAX-FREE INSURED FUND series (the
"Series"), and DELAWARE DISTRIBUTORS, L.P. (the "Distributor").
WITNESSETH
WHEREAS, the Fund, on behalf of the Series, and the Distributor are
parties to that certain Distribution Agreement made as of the 3rd day of April,
1995 (the "Distribution Agreement"); and
WHEREAS, the Board of Directors of the Fund has established the
Tax-Free Insured Fund C Class (the "Class C Shares") as an additional class of
the Series, and the Fund and the Distributor desire to amend the Distribution
Agreement to provide that the Distributor shall act as the national distributor
of the Class C Shares pursuant thereto;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The Class C Shares are hereby included among the shares to which the
Distribution Agreement relates and the Distributor shall act as distributor for
the Class C Shares pursuant to and in accordance with the Distribution
Agreement, as amended hereby.
2. Hereafter, each reference to "Class A Shares and Class B Shares" in
Sections 2(c) and (d) of the Distribution Agreement shall be deemed to include
the Class C Shares, provided that the Distribution Plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 for the Class C Shares and
presently in force is attached hereto as Exhibit "A."
DELAWARE DISTRIBUTORS, L.P.
By: Delaware Distributors, Inc.,
General Partner
ATTEST:
/s/ Eric E. Miller By: /s/ Keith E. Mitchell
- ----------------------------- ------------------------------------
Name: Eric E. Miller Name: Keith E. Mitchell
Title: Assistant Secretary Title: President
DELAWARE GROUP TAX-FREE FUND, INC.,
ATTEST: for the TAX-FREE INSURED FUND
/s/ Richelle S. Maestro By: /s/ Wayne A. Stork
- ----------------------------- ------------------------------------
Name: Richelle S. Maestro Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INSURED FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free Insured Fund series
(the "Series") on behalf of the Tax-Free Insured Fund C Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
A-1
<PAGE>
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
A-2
<PAGE>
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
A-3
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
A-4
<PAGE>
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
A-5
<PAGE>
Exhibit 99.B6AVI
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA INTERMEDIATE FUND
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
This Amendment No. 1 to Distribution Agreement (this "Agreement") is
made as of the 29th day of November, 1995, by and between DELAWARE GROUP
TAX-FREE FUND, INC. (the "Fund"), for the TAX-FREE USA INTERMEDIATE FUND series
(the "Series"), and DELAWARE DISTRIBUTORS, L.P. (the "Distributor").
WITNESSETH
WHEREAS, the Fund, on behalf of the Series, and the Distributor are
parties to that certain Distribution Agreement made as of the 3rd day of April,
1995 (the "Distribution Agreement"); and
WHEREAS, the Board of Directors of the Fund has established the
Tax-Free USA Intermediate Fund C Class (the "Class C Shares") as an additional
class of the Series, and the Fund and the Distributor desire to amend the
Distribution Agreement to provide that the Distributor shall act as the national
distributor of the Class C Shares pursuant thereto;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The Class C Shares are hereby included among the shares to which the
Distribution Agreement relates and the Distributor shall act as distributor for
the Class C Shares pursuant to and in accordance with the Distribution
Agreement, as amended hereby.
2. Hereafter, each reference to "Class A Shares and Class B Shares" in
Sections 2(c) and (d) of the Distribution Agreement shall be deemed to include
the Class C Shares, provided that the Distribution Plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 for the Class C Shares and
presently in force is attached hereto as Exhibit "A."
DELAWARE DISTRIBUTORS, L.P.
By: Delaware Distributors, Inc.,
General Partner
ATTEST:
/s/ Eric E. Miller By: /s/ Keith E. Mitchell
- ---------------------------------- ------------------------------------
Name: Eric E. Miller Name: Keith E. Mitchell
Title: Assistant Secretary Title: President
DELAWARE GROUP TAX-FREE FUND, INC.,
ATTEST: for the TAX-FREE USA INTERMEDIATE FUND
/s/ Richelle S. Maestro By: /s/ Wayne A. Stork
- ---------------------------------- ------------------------------------
Name: Richelle S. Maestro Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INTERMEDIATE FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Intermediate Fund
series (the "Series") on behalf of the Tax-Free USA Intermediate Fund C Class
(the "Class"), which Fund, Series and Class may do business under these or such
other names as the Board of Directors of the Fund may designate from time to
time. The Plan has been approved by a majority of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto ("non-interested Directors"), cast in
person at a meeting called for the purpose of voting on such Plan. Such approval
by the Directors included a determination that in the exercise of reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Series and shareholders of the Class.
The Plan has been approved by a vote of the holders of a majority of the
outstanding voting securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act.
A-1
<PAGE>
Delaware Management Company, Inc. serves as the Series' investment adviser and
manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above,
the Fund shall pay: (i) to the Distributor for payment to dealers or others or
(ii) directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of
the Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
A-2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
A-3
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
A-4
<PAGE>
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
A-5
<PAGE>
MUTUAL FUND AGREEMENT
FOR THE DELAWARE GROUP OF FUNDS
Gentlemen:
We are the national distributor for the Delaware Group of Funds with exclusive
right to sell and distribute Fund shares. (The term "Funds" in this Agreement
refers to each or any of the Funds that from time to time comprise the Delaware
Group and for whom we act as distributor.) You have indicated that you wish to
act as agent for your customers in connection with the purchase, sale and
redemption of Fund shares and desire to provide certain services to your
customers relating to their ownership of Fund shares, all in accordance with the
terms of this Agreement.
AGENT FOR CUSTOMERS: In placing orders for the purchase and sale of Fund shares,
you will be acting as agent for your customers and will not have any authority
to act as agent for us, any of the Funds or any of our affiliates or
representatives. Neither you nor any of your employees or agents are authorized
to make any representations concerning the Funds or Fund shares except those
contained in the then current "Prospectus" and in written information issued by
the Fund or by us as a supplement to the Prospectus. In purchasing Fund shares
your customers may rely on such authorized information.
OFFERING PRICE TO PUBLIC: Orders for shares received from you and accepted by
the Fund or its agent, Delaware Service Co., Inc., will be at the public
offering price applicable to each order as set forth in the Prospectus. The
manner of computing the net asset value, the public offering price and the
effective time of orders received from you are described in the Prospectus for
each Fund. We reserve the right at any time, without notice, to suspend the sale
of Fund shares or withdraw the public offering.
SALES, ORDERS AND CONFIRMATIONS: All orders must be made subject to
confirmation. Your orders must be wired, telephoned or written to the Fund or
its agent. You agree to place orders on behalf of your customers for the number
of shares, and at the price, as in bona fide orders from your customers. We will
not accept any conditional orders. We will send a written confirmation of each
trade indicating that the trade was on a fully disclosed basis to your customer.
It is agreed and understood that, whether shares are registered in the
purchaser's name, in your name or in the name of your nominee, your customer
will have full beneficial ownership of the Fund shares.
AGENCY FEES: On each order accepted by us for a Fund with a sales charge, we
understand that you will charge your customer an agency commission or agency
transaction fee ("agency fee") as set forth in the schedule of sales concessions
and agency fees set forth in that Fund's Prospectus, as it may be amended from
time to time. This fee shall be subject to the provisions of all terms set forth
in the Prospectus for volume purchases and special plans and accounts (e.g.
retirement plans, letters of intent, etc.) You will not receive from us a
<PAGE>
dealer's concession or similar allowance out of the sales charge. In accordance
with interpretations by the Staff of the Securities and Exchange Commission (the
"Commission"), the agency fee will be your sole charge to your customers for
placing such orders. You may elect to make payments in either of two ways: (a)
you may send us the public offering price for the Fund shares purchased less the
amount of the agency fee due you or (b) you or your customer may send us the
entire public offering price for the Fund shares and we will, on a periodic
basis, remit to you the agency fee due. You will notify us in writing of which
method of payment you elect. If any shares sold to your customer under the terms
of this Agreement are repurchased by the Fund or by us, or are tendered to a
Fund for redemption or repurchase, within seven (7) business days after the date
of the confirmation of the original purchase order, you will promptly refund to
us full agency fee paid or allowed to you on such shares.
PAYMENT AND ISSUANCE OF CERTIFICATES: Regardless of the payment method elected,
Fund shares purchased by you for your customers hereunder shall be paid for in
full by check payable to the Fund at its office within three business days after
our acceptance of your order. If not so paid, the Fund reserves the right,
without notice, to cancel the sale and to hold you responsible for any loss,
including lost profit, sustained by us or the Fund in consequence. Certificates
representing Fund shares will not be issued unless a specific request is
received from you or your customer. Certificates, if requested, will be issued
in the names indicated by registration instructions accompanying payment.
REDEMPTION: The Prospectus describes the provisions whereby the Fund, under all
ordinary circumstances, will repurchase its shares from shareholders on demand.
You agree that you will not make any representations to shareholders relating to
the purchase of their Fund shares other than the statements contained in the
Prospectus and the underlying organizational documents of the Fund, to which it
refers, and that you will quote to your customers as the redemption price only
the price determined by the Fund.
12b-1 PLAN: With respect to any Fund that has a Distribution Plan under Rule
12b-1 (a "12b-1Plan") of the Investment Company Act of 1940 (the "1940 Act"), we
expect you will provide shareholder and administrative services to your
customers who own Fund shares, such as: answering inquiries regarding the Fund;
assisting in changing dividend options, account designations and addresses;
establishing and maintaining shareholder accounts and records; arranging for
bank wires; or such other services as the Fund may require to the extent
permitted by applicable statutes, rules or regulations. You will promptly answer
all written complaints received by you relating to Fund accounts or promptly
forward such complaints to us and assist us in answering such complaints. For
such services we will pay you a fee as set by us from time to time, based on a
portion of the net asset value of the accounts of your clients in the Fund. We
are permitted to make this payment under the terms of the 12b-1 Plan adopted by
2
<PAGE>
certain of the Funds, as such 12b-1 Plans may be in effect from time to time.
Each Fund reserves the right, at any time, to suspend payments under its 12b-1
Plan. You will furnish the Fund and us with such information as may be
reasonably requested by the Fund or its directors or trustees or by us with
respect to fees paid to you pursuant to this Agreement. In accordance with
interpretations and rulings to the Staff of the Commission, you will not charge
your customers any fees for services for which you are being compensated under a
12b-1 Plan of a Fund.
SALES OF NO-LOAD - NON 12b-1 PLAN FUNDS: In connection with any orders placed by
you on behalf of your customers for shares of Funds that do not charge a sales
load and do not have a 12b-1 Plan, we understand that you may charge your
customers a limited service or transaction fee, in accordance with
interpretations and rulings of the Staff of the Commission.
LEGAL COMPLIANCE: This Agreement and any transaction with or payment to you
pursuant to the terms hereof is conditioned on your representation to us that,
as of the date of this Agreement you are and at all times during its
effectiveness you will be (a) a registered broker-dealer under the Securities
Exchange Act of 1934 and qualified under applicable state securities laws, if
any, to act as a broker or dealer in securities, and a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD"); or (b) a
"bank" as defined in Section 3(a)(6) of the Securities and Exchange Act of 1934
(or other financial institution) and not otherwise required to register as a
broker or dealer under such Act. You agree to notify us promptly in writing if
this representation ceases to be true. You also agree that you will comply with
the rules of the NASD including, in particular, Sections 2 and 26 of Article III
thereof, to the extent applicable, that you will maintain adequate records with
respect to your customers and their transactions, and that such transactions
will be without recourse against you by your customers. We recognize that, in
addition to applicable provisions of state and federal securities laws, you may
be subject to the provisions of the Glass-Steagall Act and other laws governing,
among other things, the conduct of activities by federal and state chartered and
supervised financial institutions and their affiliated organizations. Because
you will be the only one having a direct relationship with the customer, you
will be responsible in that relationship for insuring compliance with all laws
and regulations, including those of all applicable federal and state regulatory
authorities and bodies having jurisdiction over you or your customers to the
extent applicable to securities purchases hereunder.
BLUE SKY MATTERS: We shall have no obligation or responsibility with respect to
your right to sell Fund shares in any state or jurisdiction. From time to time
we shall furnish you with information identifying the states under the
securities laws of which it is believed a Fund's shares may be sold. You will
not transact orders for Fund shares in states which we indicate Fund shares may
not be sold.
LITERATURE: We will furnish you with copies of each Fund's Prospectus, sales
literature and other information made publicly available by the Fund, in
3
<PAGE>
reasonable quantities upon your request. We shall file Fund sales literature and
promotional material with the NASD and SEC as required. You may not publish or
use any sales literature or promotional material with respect to the Funds
without our prior review and written approval.
CUSTOMERS: The name of your customers will remain your sole property and will
not be used by us except for servicing or informational mailings and other
correspondence in the normal course of business.
NOTICES AND COMMUNICATIONS: All communications from you should be addressed to
us at 1818 Market Street, Philadelphia, PA 19103. Any notice from us to you
shall be deemed to have been duly given if mailed or telegraphed to you at the
address set forth above. Each of us may change the address to which notices
shall be sent by notice to the other in accordance with the terms hereof.
TERMINATION: This Agreement may be terminated by either party at any time by
written notice to that effect. Notwithstanding the termination of this
Agreement, you shall remain liable for any amounts otherwise owing to us or the
Fund and for your portion of any transfer tax or other liability which may be
asserted or assessed against the Fund, us or any one or more of our dealers,
based upon the claim that you and such dealers or any of them constitute a
partnership, an unincorporated business or other separate entity.
AMENDMENT: This Agreement may be amended or revised at any time by us upon
notice to you and, unless you promptly notify us in writing to the contrary, you
will be deemed to have accepted such modifications.
GENERAL: Your acceptance hereof will constitute an obligation on your part to
observe all the terms and conditions hereof. In the event you breach any of the
terms and conditions of this Agreement, you will indemnify us, the Funds, and
our affiliates for any damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of or relating to such breach. Nothing contained
herein shall constitute you, us and any dealers an association or partnership.
All references in this Agreement to the "Prospectus" include the Statement of
Additional Information incorporated by reference therein and any stickers or
supplements thereto, provided that any requirement in this Agreement to deliver
a copy of the Prospectus shall not include the Statement of Additional
Information unless requested by the customer. This Agreement is to be construed
in accordance with the laws of the State of Delaware.
4
<PAGE>
Please confirm this Agreement by executing one copy of this Agreement below and
returning it to us. Keep the enclosed duplicate copy for your records.
Date: DELAWARE DISTRIBUTORS, L.P.
----------------------------
BY: DELAWARE DISTRIBUTORS, INC.
General Partner
BY:
--------------------------------
Accepted and Agreed to:
- ---------------------------------
(Name of Firm)
BY:
------------------------------
Name:
Title:
5
AMENDMENT NO. 1
TO THE
SECOND AMENDMENT AND RESTATEMENT OF THE
PROFIT SHARING PLAN OF
DELAWARE GROUP DELAWARE FUND, INC.
EFFECTIVE APRIL 1, 1989
This Amendment is made this 21st day of December, 1995, by Delaware
Group Delaware fund, Inc. (the "Employer").
WITNESSETH:
-----------
WHEREAS, the Employer adopted the second amendment and restatement of
the Profit Sharing Plan of Delaware Management Company, Inc. (the "Plan"),
effective April 1, 1989; and
WHEREAS, the Employer desires to clarify the provisions of the Plan
pertaining to the crediting of service for vesting purposes.
NOW THEREFORE, Section 2.28 of the Plan is hereby amended as follows:
"2.28 "Year of Service" shall mean the completion by an Employee of
1,000 or more Hours of Service during his initial Eligibility
Computation Period and during any Plan Year, beginning with the Plan
Year which commences after the Employee first performs an Hour of
Service. However, for the period from October 1, 1988 through March 31,
1990, an Employee shall be given credit for a Year of Service if he
completes 1,000 Hours of Service during the period October 1, 1988 to
September 30, 1989 and shall be given credit for an additional Year of
Service if he completes 1,000 Hours of Service during the period April
1, 1989 to March 31, 1990. For purposes of determining a Participant's
nonforfeitable right to his Employer Contribution Account, Years of
Service shall include an Employee's prior service with Delaware
Management Company, Inc. or any other Entity required to be aggregated
with Delaware Management Company, Inc. under Sections 414(b) or (c) of
the Code."
IN WITNESS WHEREOF, the Employer has caused this Amendment to be
executed by its duly authorized officers and its corporate seal to be impressed
hereon the date first written above.
ATTEST: DELAWARE GROUP DELAWARE FUND, INC.
/s/ George M. Chamberlain, Jr. By: /s/ Wayne A. Stork
- ------------------------------- -------------------------
Senior Vice President/Secretary Chairman
<PAGE>
Mutual Fund/Business Trust/Series
Form of Agreement
Subject to Board Approval
CUSTODIAN AGREEMENT
AGREEMENT dated as of _____________, 199_ between BANKERS TRUST COMPANY
(the "Custodian") and [name of customer] (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the
<PAGE>
account of such Portfolio. Upon delivery by the Customer to the Custodian of any
Property belonging to a Portfolio, the Customer shall, by Instructions (as
hereinafter defined in Section 14), specifically indicate which Portfolio such
Property belongs or if such Property belongs to more than one Portfolio shall
allocate such Property to the appropriate Portfolio. The Custodian shall
allocate such Property to the Accounts in accordance with the Instructions;
provided that the Custodian shall have the right, in its sole discretion, to
refuse to accept any Property that is not in proper form for deposit for any
reason. The Customer on behalf of each Portfolio, acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the same
class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the appropriate Account;
(b) present for payment all Securities held in an Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Custodian or Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities for those
in definitive form and the exchange of warrants, or other documents of
entitlement to securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than ministerial exchanges
described in (i) above) is received for an Account, endeavor to receive
Instructions, provided that if such Instructions are not received in time for
the Custodian to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split is
received for an Account and such rights entitlement or fractional interest bears
an expiration date, if after endeavoring to obtain Instructions such
Instructions are not received in time for the Custodian to take timely action or
if actual notice of such actions was received too late to seek Instructions,
sell in the discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to make) such rights entitlement or fractional interest
and credit the Account with the net proceeds of such sale;
<PAGE>
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the nature of
taxes imposed on interest, dividends or other similar income on the Property in
such Account by any governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the Customer, at its
option, may deposit additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if requested by the
Custodian and required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information, executing documents or
otherwise; and
(g) appoint brokers and agents for any of the ministerial transactions
involving the Securities described in (a) - (f), including, without limitation,
affiliates of the Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System, collectively, Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions; provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable,
<PAGE>
appoint a replacement subcustodian or securities system in accordance with the
provisions of this Section. In addition, the Custodian may, at any time in its
discretion, upon written notification to the Customer, terminate the employment
of any Subcustodian or Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such nonU.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and nonU.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any nonU.S. Subcustodian or
non-U.S. Securities System has ceased to be a qualified U.S. bank or an eligible
foreign custodian each within the meaning of Rule 17f-5 or has ceased to be
subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial ownership of such
Securities be freely transferable without the payment of money or value other
than for safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held pursuant to
such Agreement as belonging to the Custodian, on behalf of its customers and (v)
to the extent permitted by applicable law, officers of or auditors employed by,
or other representatives of or designated by, the Custodian, including the
independent public accountants of or designated by,
<PAGE>
the Customer be given access to the books and records of such Subcustodian
relating to its actions under its agreement pertaining to any Property held by
it thereunder or confirmation of or pertinent information contained in such
books and records be furnished to such persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the Account(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such Property as being
held for the account of the Custodian or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the instructions of the
Custodian or such Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or Subcustodian,
as the case may be, unless precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained
by the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or other
property, and whether held by the Custodian or a Subcustodian or in a Securities
System as authorized herein, shall be clearly recorded on the Custodian's books
as belonging to the appropriate Account and not for the Custodian's own
interest. The Custodian shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions for each Account.
All accounts, books and records of the Custodian relating thereto shall be open
to inspection and audit at all reasonable times during normal business hours by
any person designated by the Customer. All such accounts shall be maintained and
preserved in the form reasonably requested by the Customer. The Custodian will
supply to the Customer from time to time, as mutually agreed upon, a statement
in respect to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the Custodian by the
Customer of
<PAGE>
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct with respect to
all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer and
as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values of Securities in an Account, the Customer hereby acknowledges that
the Custodian now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called
<PAGE>
portion of the respective beneficial holders of such class of security in any
manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Investment Manager User Guide provided to the Customer by the Custodian, the
Custodian may, at its sole option, reverse such credits or debits to the
appropriate Account in the event that the transaction does not settle, or the
income is not received in a timely manner, and the Customer agrees to hold the
Custodian harmless from any losses which may result therefrom.
<PAGE>
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
such Account at the time or to settle the sale of any Securities in such Account
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such securities exceeds the amount of Cash in an
Account at the time of settlement of such purchase, the Custodian may, in its
sole discretion, but in no way shall have any obligation to, permit an overdraft
in such Account in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for prompt delivery
for such Account. The Customer agrees to immediately repay the amount of any
such overdraft in the ordinary course of business and further agrees to
indemnify and hold the Custodian harmless from and against any and all losses,
costs, including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
<PAGE>
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, on behalf of a Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral communication
by one or more persons as the Customer shall have from time to time authorized
to give the particular class of Instructions in question and whose name has been
filed with the Custodian; or (iv) upon receipt of such other form of
instructions as the Customer may from time to time authorize in writing and
which the Custodian has agreed in writing to accept. Instructions in the form of
oral communications shall be confirmed by the Customer by tested telex or
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken
<PAGE>
by the Custodian in reliance upon such oral instructions prior to the
Custodian's receipt of such confirmation. Instructions may relate to specific
transactions or to types or classes of transactions, and may be in the form of
standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the
<PAGE>
Custodian as a result of any improper or unauthorized use of such terminal by
the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
<PAGE>
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to the
last paragraph of Section 12 and pursuant to indemnities granted by the Customer
under this Agreement. The provisions of this Section shall survive the
termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
20. Termination. (a) Termination of Entire Agreement. This Agreement
may be terminated by the Customer or the Custodian by ninety (90) days' written
notice to the other; provided that notice by the Customer shall specify the
names of the persons to whom the Custodian shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within ninety (90)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in such Account shall be
paid. In either case, the Custodian will deliver such Securities and Cash to the
persons so specified, after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 12, 17, and 23. In addition, the
Custodian may in its discretion withhold from such delivery such Cash and
Securities as may be necessary to settle transactions pending at the time of
such delivery. The Customer grants to the Custodian a lien and right of setoff
against the Account and all Property held therein from time to time in the full
amount of the foregoing obligations. If within ninety (90) days following the
giving of a notice of termination by the Custodian, the Custodian does not
receive from the Customer a written notice specifying the names of the persons
to whom the Custodian shall deliver the Securities in each Account and to whom
the Cash in such Account shall be paid, the Custodian, at its election, may
deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such Securities and Cash
until a written notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
<PAGE>
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer or the Custodian as to one or more Portfolios (but
less than all of the Portfolios) by delivery of an amended Exhibit A deleting
such Portfolios, in which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery, or such earlier
time as mutually agreed. The execution and delivery of an amended Exhibit A
which deletes one or more Portfolios shall constitute a termination of this
Agreement only with respect to such deleted Portfolio(s), shall be governed by
the preceding provisions of Section 20 as to the identification of a successor
custodian and the delivery of Cash and Securities of the Portfolio(s) so deleted
to such successor custodian, and shall not affect the obligations of the
Custodian and the Customer hereunder with respect to the other Portfolios set
forth in Exhibit A, as amended from time to time.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed, if to the Customer, to:
if to the Custodian, to:
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided that,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Portfolio. Should the Customer fail
to pay promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable Account, as the case
<PAGE>
may be, and to dispose of Securities in the Account or such applicable Account
as is necessary. In any such case and without limiting the foregoing, Custodian
shall be entitled to take such other action(s) or exercise such other options,
powers and rights as Custodian now or hereafter has as a secured creditor under
the New York Uniform Commercial Code or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence
of such authorization as the Custodian may reasonably require, whether by way of
a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which the Custodian is bound, whether arising by contract, operation of law
or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Custodian in
accordance with its terms;
(iii) the Custodian will deliver to the Customer such evidence
of such authorization as the Customer may reasonably require, whether by way of
a certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
<PAGE>
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
27. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/ State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
28. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
<PAGE>
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
[NAME OF CUSTOMER]
By:
---------------------------
Name:
------------------------
Title:
------------------------
BANKERS TRUST COMPANY
By:
---------------------------
Name:
------------------------
Title:
------------------------
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the abovereferred to Custodian Agreement. Terms used herein as defined
terms unless otherwise defined shall have the meanings ascribed to them in the
above-referred to Custodian Agreement.
Dated as of: [NAME OF CUSTOMER]
By:
---------------------------
Name:
------------------------
Title:
------------------------
BANKERS TRUST COMPANY
By:
---------------------------
Name:
------------------------
Title:
------------------------
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of _____________, 199_ between Bankers
Trust Company and ___________________.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the English
language, and if the language of such agenda is in the official language of the
country in which the related security is held, the Custodian will as soon as
practicable after receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
<PAGE>
- 2 -
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: [NAME OF CUSTOMER]
By:
---------------------------
Name:
------------------------
Title:
------------------------
BANKERS TRUST COMPANY
<PAGE>
- 3 -
By:
---------------------------
Name:
------------------------
Title:
------------------------
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
CUSTODY FEE SCHEDULE
<PAGE>
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of ______________, 199_ between Bankers
Trust Company and ____________________.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the
<PAGE>
advice of counsel or other professional tax advisers in such jurisdictions. The
Custodian is entitled to rely, and may act, on information set forth in such
services and on advice received from a Subcustodian, counsel or other
professional tax advisers and shall be without liability to the Customer for any
action reasonably taken or omitted pursuant to information contained in such
services or such advice.
<PAGE>
Dated as of: [NAME OF CUSTOMER]
By:
---------------------------
Name:
------------------------
Title:
------------------------
BANKERS TRUST COMPANY
By:
---------------------------
Name:
------------------------
Title:
------------------------
<PAGE>
Form of Agreement
Subject to Board Approval
___________, 1996
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
USA
RE: Securities Lending Agreement
Dear Sirs:
This letter will confirm our agreement, as set forth below, pursuant to
which Bankers Trust Company ("BTC") will be authorized to lend on our behalf
certain securities held by BTC as trustee and/or custodian:
1. Appointment of Agent
--------------------
(a) Until this Agreement is terminated pursuant to Section 11, BTC is
authorized as our agent to lend on a disclosed basis our securities held in
custody by BTC to such borrowers as appear on your approved list of borrowers, a
copy of which you may obtain at any time upon request, at the time of any loan
and on such terms as BTC shall in its sole discretion decide. Such borrowers may
include Bankers Trust International PLC, an affiliate of BTC, if we provide BTC
with our authorization in the form attached as Exhibit A hereto, and certain
United Kingdom entities, if we provide BTC with our authorization in the form
attached hereto as Exhibit B. BTC shall further be authorized as our agent to
sign agreements with borrowers, ownership or other certificates as may be
required by the Internal Revenue Service or any other tax authorities, and to
take any other actions necessary to effect such loans.
(b) We acknowledge that BTC acts as agent for other securities lending
clients who may hold some of the same securities as we may hold and,
accordingly, that any given loan to a borrower may be allocated among several of
BTC's clients. We agree that BTC shall have full discretion to allocate such
loans among BTC's clients as it deems appropriate and shall have no obligation
to include us in any such allocation.
(c) We represent that:(i) [COMPANY] is a ________________ established
pursuant to _____________________; (ii) we have and will have the right to lend
the securities subject to loans hereunder; (iii) the assets subject to this
Agreement [do / do not] consist of assets which are deemed to be plan assets
<PAGE>
under the Employee Retirement Income Security Act of 1974, or the Internal
Revenue Code of 1986, each as amended; (iv) the execution, delivery and
performance of this Agreement are within our powers, have been and remain duly
authorized by all necessary action and will not violate or constitute a default
under any applicable law or regulation or of any decree, order, judgment,
agreement or instrument binding on us; (v) no consent (including, but not
limited to, exchange control consents) of any applicable governmental authority
or body is necessary, except for such consents as have been obtained and are in
full force and effect, and all conditions of which have been duly complied with;
and (vi) this Agreement constitutes a legal, valid and binding obligation
enforceable against us in accordance with its terms.
2. Remuneration
------------
Unless otherwise agreed, BTC shall pay us a fee for each loan equal to
an agreed percentage of (a) in the case of loans not collateralized by cash, the
fee paid by the borrower to BTC with respect to each loan, and (b) in the case
of loans collateralized by cash, the difference between (i) the net realized
income derived from approved investments of the cash collateral, minus (ii) the
borrower's rebate. BTC shall receive any fee paid by the borrower and, provided
that BTC shall have actually received payment of such fees from the borrower,
credit our portion of such fees to our account monthly.
3. Statements of Loan Activity and Fees
------------------------------------
BTC shall promptly advise us by written or electronic means of any loan
entered into by BTC on our behalf. In addition, BTC shall send us a monthly
statement summarizing securities lending activity (including revenues therefrom)
for the previous month effected by BTC on our behalf.
4. Distributions on Loaned Securities and Collateral
-------------------------------------------------
All borrowers shall be required to pay or otherwise deliver to BTC all
substitute payments in respect of interest payments, dividends, or other
distributions made on the loaned securities. Such payments shall be credited by
BTC to our account upon receipt by BTC of such payments from the borrower,
unless otherwise agreed upon by the parties. We authorize BTC to pay, provided
that the borrower is not in default under its agreement with BTC, to the
borrower all interest payments received by BTC on Government Securities (as
defined in Section 6(a)) held by BTC as collateral for our loans.
<PAGE>
5. Recalls of Securities
---------------------
(a) Unless otherwise agreed by us, we may instruct BTC to terminate any
loan in whole or in part by giving BTC written notice thereof (a "Recall
Notice"). BTC shall thereupon promptly recall the securities from the borrower,
within the recall period specified by BTC's agreement with the borrower, which
shall not be later than the fifth business day (but, in the case of U.S. equity
securities, the third business day, and, in the case of Government Securities,
the first business day) following the business day on which BTC gives a notice
recalling the securities to the borrower (the "Recall Period"). If, on the day
BTC receives the Recall Notice, (i) the borrower is closed for business or (ii)
the principal market for the loaned securities is closed for trading, the Recall
Period will commence on the next business day on which both the borrower and the
principal trading market are open.
(b) If any loaned security is not returned by a borrower by the
expiration of the applicable recall period, BTC shall notify us of such fact.
BTC shall take all steps which BTC deems appropriate to secure the prompt return
of the securities pursuant to BTC's agreement with the borrower (which may
include the liquidation of collateral and the purchase of replacement
securities).
6. Collateral
----------
(a) Unless otherwise indicated to us by BTC, prior to or simultaneously
with the delivery of our securities to a borrower, BTC shall obtain and hold on
our behalf collateral having a value not less than the value (the "Margin
Requirement") specified in Exhibit C hereto. The collateral shall consist of (i)
cash, (ii) securities issued or guaranteed by the United States Government or
its agencies ("Government Securities"), or (iii) letters of credit issued by
banks as may be acceptable to BTC.
(b) BTC will mark to market loaned securities and collateral (if the
collateral is represented by Government Securities) on a daily basis, and if on
any day, the aggregate market value of the collateral held by BTC for loans made
to any one borrower is less than the Margin Requirement, BTC shall obtain from
such borrower pursuant to BTC's agreement with the borrower such additional
collateral so that the aggregate market value of the collateral is not less than
the Margin Requirement. We understand that BTC may be obligated to release
collateral in excess of the Margin Requirement to the borrower when so required
by BTC's agreement with the borrower.
<PAGE>
(c) We authorize BTC to invest, on our behalf and for our account, any
cash collateral received from a borrower in any of the instruments described in
Exhibit C hereto, including any such instrument issued by, purchased through or
entered into with BTC or its affiliates. We acknowledge that such cash
collateral is invested at our risk, and if, upon termination of any loan, the
cash collateral held by BTC for our account is less than the amount required to
be returned to the borrower under BTC's agreement with the borrower, we will
provide BTC with cash in the amount of any such deficiency.
7. Indemnification
---------------
(a) In the event that any loan is terminated and the loaned Securities
or any portion thereof shall not have been returned to BTC by or on behalf of
Borrower within the time specified by BTC's agreement with the borrower, BTC
shall at its expense (i) within one (1) business day after the expiration of the
Recall Period, replace the loaned Securities (or any portion thereof not so
returned) with a like amount of the loaned securities of the same issuer, class
and denomination, and hold us harmless from any brokerage commission, fees, and
New York State or City transfer taxes incurred by BTC in the purchase of such
replacement securities or (ii) if BTC is unable to purchase such securities on
the open market, credit our account with an amount of cash in U.S. dollars equal
to the Market Value (as defined below) of such unreturned loaned Securities
determined at the close of business as of the date on which the loaned
Securities should have been returned plus, until such time as the events in (i)
or (ii) are consummated, all financial benefits derived from the beneficial
ownership of the loaned Securities which have accrued on the loaned Securities
whether or not received from Borrower. The Market Value of any securities listed
on a national securities exchange will be the last sales price on the principal
exchange on which trading occurred on the date the Market Value is determined
or, if there was no sale on any such exchange on such date, the last bid price
quoted. The Market Value of securities traded in the over-the-counter market
will be the last quoted bid price in the over-the-counter market as reported by
the National Quotation Bureau Incorporated or any successor organization. The
Market Value of Government Securities shall be the price as quoted by a
generally recognized pricing service for the business day preceding the date of
determination (or, if not so quoted on such day, the next preceding day on which
they were so quoted). The Market Value of securities the principal trading
<PAGE>
market for which is outside the United States will be the last sale price on the
principal exchange on which they are traded, or if there was no sale on that
date, the last sale price on the next preceding day on which there was such a
sale on such exchange, all as quoted in the DataSheet Service of the Interactive
Data Corporation, or, if not therein quoted, then as quoted by any such
exchange; the foreign exchange rate used to calculate the Market Value of
foreign securities not denominated in U.S. dollars shall be the foreign exchange
rate quoted by Bankers Trust Company at the close of business in New York on the
preceding day. The Market Value of securities for which market quotations are
not readily available over a reasonable period of time, will be the average of
values quoted by three major investment banking firms which are mutually
agreeable to BTC and us.
(b) In the event that BTC shall be required to make any payment to us
or shall incur any loss or expense pursuant to (a) above, it shall, to the
extent of such payment or loss or expense, be subrogated to, and succeed to, all
of our rights against the borrower and to the collateral involved; to the extent
the collateral consists of cash or Government Securities, we shall
contemporaneously with any such payment to us by BTC surrender same to BTC for
its sole disposition.
(c) Except as provided in this Section 7, BTC shall have no liability
to us for any failure of a borrower to return loaned securities.
8. BTC's Relationship with a Borrower.
-----------------------------------
We acknowledge that BTC and/or its affiliates may be a creditor of, for
its own account or in a fiduciary capacity, or generally engage in any kind of
commercial or investment banking business with, a borrower to whom BTC has lent
our securities. Without limiting the generality of the foregoing, BTC shall not
be required to disclose to us any financial information about a borrower
obtained in the course of its relationship with such borrower.
9. Notices
-------
All notices under this Agreement, including Recall Notices, shall be in
writing and sent by mail or facsimile, addressed as follows:
If to BTC:
Bankers Trust Company
c/o BTNY Services, Inc.
34 Exchange Place
Jersey City, NJ 07302
U.S.A.
Attention: Securities Lending Unit
Facsimile No.: (201) 860-2587
If to us:
[CLIENT NAME]
[ADDRESS]
ATTENTION:
FACSIMILE NO.:
<PAGE>
Notices shall be effective upon receipt. The address indicated above
for either party may be changed by prior written notice to the other party.
10. Indemnification and Reimbursement of Agent, etc.
------------------------------------------------
(a) We agree to indemnify BTC and to hold BTC harmless from any
liabilities, losses, costs or expenses (including reasonable attorneys' fees)
which BTC may incur in connection with this Agreement or the transactions
contemplated hereby; provided that such indemnification shall not extend to
liabilities, losses, costs or expenses to the extent that such liabilities,
losses, costs or expenses (i) are found by a final judgment of a court of
competent jurisdiction to have resulted from BTC's own willful misconduct or
gross negligence or (ii) result from BTC's indemnity provided in Section 7.
(b) We agree that BTC's duties and responsibilities shall only be those
expressly set forth herein and that BTC may consult with counsel and be fully
protected with respect to any action taken or omitted to be taken in good faith
upon advice of such counsel.
(c) We agree that BTC may rely on any certificate, statement, request,
consent, agreement or other instrument which it believes to be genuine and to
have been signed or presented by a proper person or persons.
11. Termination
-----------
Either party may terminate this Agreement by giving not less than five
business days written notice to the other party. Such termination shall be
effective on the date specified therein, provided that such termination notice
shall not constitute a notice pursuant to Section 5 unless so specified by us,
and further provided that this Agreement shall continue to govern all
outstanding loans until the termination thereof.
<PAGE>
12. Governing Law and Legal Proceedings
-----------------------------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without giving effect to conflicts of
laws principles thereof).
(b) We hereby agree that any legal action or proceeding arising out of
or relating to this Agreement may be brought in the courts of the State of New
York, the courts of the United States of America located in the City of New York
or in any other court having jurisdiction with respect thereto, and we hereby
irrevocably consent to service of process in any said action or proceeding in
any of such courts by the mailing of copies thereof, postage prepaid, to us at
[ADDRESS OF DESIGNATED AGENT FOR SERVICE OF PROCESS IN NEW YORK], such service
to be effective 10 days after such mailing. We hereby waive, in relation to any
such action or proceeding, [any sovereign immunity or other immunity to suit or
to the execution or attachment (whether before or after judgment) to which we or
any of our property may be or become entitled, or] (1) any defense to any action
or proceeding based on venue or that the action has been brought in an
inconvenient forum.
13. Force Majeure
-------------
Notwithstanding any other provision contained herein, BTC shall not be
liable for any action taken, or any failure to take any action required to be
taken hereunder or otherwise to fulfill BTC's obligations hereunder in the event
and to the extent that the taking of such action or such failure arises out of
or is caused by acts of governmental authorities (whether de jure or de facto),
including nationalization, expropriation, the imposition of currency
restrictions, war, insurrection, riot, revolution, terrorism or civil commotion;
acts of God, accident, fire, water damage, explosion, hurricane, cyclone,
earthquake, volcanic eruption, nuclear fusion, fission, or radioactivity;
mechanical breakdown, computer or system failure or computer virus, failure or
malfunctioning of any communications media for whatever reason; interruption
- --------------------
(1) Can delete for U.S. Clients
<PAGE>
(whether partial or total) of power supplies or other utility or service; strike
or other stoppage (whether partial or total) of labor; any law, decree,
regulation or order of any government or governmental body (including any court
or tribunal); or any other cause (whether similar or dissimilar to any of the
foregoing) whatsoever beyond BTC's control.
14. Miscellaneous
-------------
This Agreement constitutes the entire agreement of the parties with
respect to BTC's acting as our agent in connection with the loan of our
securities which we have placed in custody with BTC, and supersedes all prior
understandings, written or oral, or any previous agreement with respect thereto.
Neither party shall be bound by any modifications of this Agreement unless it
has so agreed in writing.
If the terms hereof accurately reflect our agreement, please so
indicate by signing below.
[CLIENT NAME]
By:
----------------------------------
Name:
Title:
AGREED TO AND ACCEPTED BY
AS OF THE DATE HEREOF:
BANKERS TRUST COMPANY
By:
--------------------------
Name:
Title:
<PAGE>
Exhibit A
Authorization to Lend to Bankers Trust International PLC
The following procedures will be employed to ensure that each loan to
Bankers Trust International ("BTI"), wholly owned subsidiary established under
English law of Bankers Trust Company ("Bankers Trust"), is made in conformity
with the requirements of the Department of Labor.
1. Loans of securities to BTI will be competitively negotiated. Each
prospective transaction with BTI will be evaluated by comparing rates and terms
offered by BTI to those offered by other unrelated borrowers on our approved
list of borrowers. Any loan of securities to BTI will be at market rates and in
no event less favorable than a loan of such securities, if such loan could be
made at the same time under the same circumstances to an unaffiliated borrower.
2. Bankers Trust will maintain transactional and market records which
contain information to assure that all loans made to BTI are effectively at
arms-length terms. These records will contain data pertaining to loans made to
BTI and other bids, if any, made for such loans or other rates on similar loans
by unaffiliated borrowers. You may obtain a copy of such records upon written
request.
3. As is the case with loans to unrelated approved borrowers, if
prevailing market interest or rebate rates change, the rates on outstanding
loans to BTI will be adjusted accordingly.
4. All loans to BTI will be made on terms which are substantively
identical to those contained in the standard Bankers Trust UK Securities Lending
Agreement ("the Securities Lending Agreement"), which is our contract for loans
to unrelated approved UK borrowers. Among other things, the Securities Lending
Agreement with BTI will provide the lending client with all right, title and
interest in the collateral delivered by the borrower.
A copy of the BTI Securities Lending Agreement is available to
you at any time upon request. We will provide you at least thirty (30) days
advance written notice of any substantive amendments or changes to the
Securities Lending Agreement with BTI.
5. As is Bankers Trust's present policy for all loans to unrelated
borrowers, any and all loans to BTI will be:
<PAGE>
(a) Collateralized for each loan transaction in an amount equal to the
agreed upon percentage, which shall be at least 102% of the market value of
securities, plus accrued interest (in the case of debt securities). We will mark
loans to market on a daily basis to ensure that the loan collateral is
maintained at the agreed upon percentage.
As is the case with loans to unrelated approved borrowers, permissible
collateral will include any combination of the following:
- Cash collateral which will be invested for you if you so request by
Bankers Trust, in the investment vehicle that you have chosen for the investment
of your cash collateral, a current description of which is available upon
request.
- Securities issued or guaranteed by the United States Government or
any agency thereof.
- Letters of credit issued by banks as may be acceptable to Bankers
Trust (a current list of such institutions is available upon request, at any
time.) In no event will Bankers Trust, or any affiliate of Bankers Trust, be the
issuer of a letter of credit in connection with the securities lending program.
(b) Cancelable by you or by Bankers Trust at any time. Upon termination
of a loan, the securities are required to be returned to us as your agent on the
day that would be the standard settlement day in the principal market in which
securities are traded, for transactions effected on the business day on which
Bankers Trust as your agent gives notice of termination to BTI, in no event to
exceed 5 business days in the market in which the security is traded.
6. You may receive a copy of BTI's most recent available audited and
unaudited financial statements upon request. Should we believe there to be any
material adverse change in the financial condition of BTI, we will promptly
advise you of such change and ask you for your approval to continue lending to
BTI.
7. In case of a default by BTI in any securities loan transaction,
Bankers Trust will promptly notify you of such fact and use all appropriate
means as your agent to enforce your rights under the BTI Securities Lending
Agreement against BTI. In such event, you may, if you so choose, at your
expense, assume the rights of Bankers Trust to enforce the terms of the BTI
Securities Lending Agreement against BTI.
<PAGE>
8. The current monthly report furnished to you, covering all securities
loans outstanding in the previous month, enables you to review all lending
activity for your account, including BTI loans and all other loan transactions.
The format includes a list of outstanding loans and loans that terminated during
the prior month, showing the number of securities involved, value of securities
and collateral, daily and monthly rate of interest or rebate rates and number of
days securities have been out on loan. A weekly report of specific outstanding
loans is also available, upon request.
By:
-----------------------------
Name:
Title:
<PAGE>
Exhibit B
LOANS TO UK COUNTERPARTIES
Certain of the borrowers to which Bankers Trust Company ("BTC") may
loan our securities held in trust and/or custody are entities which are
organized and existing under the laws of the United Kingdom ("UK
Counterparties"). Loans to UK Counterparties will be made by BTC as our agent
pursuant to a form of securities lending agreement governed by the laws of the
United Kingdom (the "UK Agreement") which is available to us upon request.
[In order to ensure that securities loans to such UK Counterparties
which do not at the present time meet the requirements of Prohibited Transaction
Exemption 81-6 or another available exemption do not result in a prohibited
transaction under ERISA, BTC will require such borrowers to represent to BTC
that they are not a "party in interest" within the meaning of ERISA with respect
to any pension or retirement plan the assets of which are being lent.](2)
By signing this authorization, we grant our consent to BTC making, on
our behalf, the following representations and warranties to such UK
Counterparties:
(1) We are duly authorized and empowered to perform our
respective duties and obligations under the UK Agreement;
(2) We are not restricted under the terms of our constitution or
in any other manner from lending securities in accordance with
the UK Agreement or from otherwise performing our obligations
thereunder; and
(3) We are absolutely entitled to pass full beneficial ownership
of all securities loaned under the UK Agreement to the
applicable UK Counterparty free from all liens, charges and
encumbrances.
We authorize BTC as our agent to(a) disclose our name to the UK Inland
Revenue for approval of us as an approved lender to a UK Counterparty and (b)
undertake to the Inland Revenue on our behalf to lend securities on certain
specified terms, with which BTC as our agent will comply. We agree to provide
- ----------------------
(2) For ERISA clients.
<PAGE>
BTC with all documents, certificates or other information necessary to enable
BTC to make the appropriate filings on our behalf with the Inland Revenue to
become an approved lender to UK Counterparties. [We understand such approval is
necessary to enable the UK Counterparty to make manufactured payments in respect
of interest, dividends or other distributions on the loaned securities without
deduction of [UK] withholding tax.](3) [We understand such approval is necessary
in order to prevent certain UK tax costs arising for the UK Counterparty.](4)
In order to make loans to UK Counterparties, we understand that we will be
required to submit to the non-exclusive jurisdiction of the courts of England in
connection with any disputes which may arise out of or in connection with the UK
Agreement, and waive any objection to proceedings in such courts whether on the
grounds of sovereignty, venue or that the proceedings have been brought in an
inconvenient forum. By signing this authorization, we also consent to BTC's
entering into such agreements on our behalf.
Except as specifically described above, all provisions of the
Securities Lending Agreement between us and BTC shall be applicable to loans to
UK Counterparties.
THE LENDING OF SECURITIES TO UK COUNTERPARTIES IS AUTHORIZED UNDER THE
PROCEDURES DESCRIBED ABOVE SUBJECT TO ANY LIMITATIONS SET FORTH BELOW.
By:
--------------------------
Name:
Title:
- -----------------------------
(3) For use with clients resident and subject to tax in a jurisdiction
having a double tax treaty with the UK containing an "other income" article
exempting such income from UK tax.
(4) For use with other clients.
<PAGE>
EXHIBIT C
I. Margin Requirements Referred to in Section 6(a)
-----------------------------------------------
For loans of securities the principal trading market for which is in
the United States, 102%, and for loans of securities the principal trading
market for which is outside the United States, 105%, of the aggregate market
value of the loaned securities plus any accrued but unpaid distributions
thereon.
II. Investment Vehicles Referred to in Section 6 (c)
------------------------------------------------
[List]
<PAGE>
___________, 1996
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10004
U.S.A.
Re: Securities Lending Agreement
Dear Sirs:
In accordance with Section 2 of the securities lending agreement
between you and us dated ___________ 1996, we hereby confirm our agreement that
the fee paid by the borrower with respect to each loan of securities thereunder
shall be apportioned between us as __% for us and __% for BTC.
Very truly yours,
[CUSTOMER]
By:
----------------------------
Name:
Title:
AGREED TO AND ACCEPTED:
BANKERS TRUST COMPANY
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit 99-B9A
DELAWARE GROUP TAX-FREE FUND, INC.
USA SERIES
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made this 29th day of June, 1988 by and between
DELAWARE GROUP TAX-FREE FUND, INC. (the "Fund"), a Maryland Corporation, for USA
SERIES (the "Series"), and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware
Corporation, each having its principal office and place of business at Ten Penn
Center Plaza, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreement between the Fund and
Delaware Management Company, Inc. provides that the Fund shall conduct its own
business and affairs and shall bear the expenses and salaries necessary and
incidental thereto including, but not in limitation of the foregoing, the costs
incurred in: the maintenance of its corporate existence; the maintenance of its
own books, records and procedures; dealing with its own shareholders; the
payment of dividends; transfer of stock, including issuance and redemption of
shares; reports and notices to stockholders; calling and holding of stockholder
meetings; miscellaneous office expenses; brokerage commissions; legal and
accounting fees; taxes; and federal and state registration fees; and
WHEREAS, the predecessor to DSC previously served as the Shareholder
Services Agent for the Series and the Fund has designated DSC to act as
Shareholder Services Agent for the Series as of the date of this Agreement; and
WHEREAS, the Fund and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
1.1 The Fund hereby appoints DSC Shareholder Services Agent for the
Series to provide as agent for the Fund services as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent and DSC hereby accepts such
appointment and agrees to provide the Fund, as its agent, the services
described herein.
-1-
<PAGE>
1.2 The Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. The
Fund also shall reimburse DSC for expenses incurred or advanced by it for the
Fund in connection with its services hereunder.
II. DOCUMENTATION
2.1 The Fund represents that it has provided or made available to DSC
(or has given DSC an opportunity to examine) copies of, and DSC represents that
it has received from the Fund (or is otherwise familiar with), the following
documents:
(a) The Articles of Incorporation or other documents evidencing
the Fund's form of organization and any current amendments or supplements
thereto.
(b) The By-Laws of the Fund;
(c) Any resolution or other action of the Fund or the Board of
Directors of the Fund establishing or affecting the rights, privileges or other
status of each class or series of shares of the Fund, or altering or abolishing
each such class or series;
(d) A certified copy of a resolution of the Board of Directors
of the Fund appointing DSC as Shareholder Services Agent for the Series and
authorizing the execution of this Agreement;
(e) The Form of share certificates of the Series in the form
approved by the Board of Directors of the Fund;
(f) A copy of the Fund's currently effective Prospectus and
Statement of Additional Information under the Securities Act of 1933, if
effective;
(g) Copies of all account application forms and other documents
relating to stockholder accounts in the Series;
(h) Copies of documents relating to Plans of the Fund for the
purchase, sale or repurchase of its shares, including periodic payment or
withdrawal plans, reinvestment plans or retirement plans;
-2-
<PAGE>
(i) Any opinion of counsel to the Fund relating to the
authorization and validity of the shares of the Series issued or proposed to be
issued under the law of the State of the Fund's organization, including the
status thereof under any applicable securities laws;
(j) A certified copy of any resolution of the Board of Directors
of the Fund authorizing any person to give instructions to DSC under this
Agreement (with a specimen signature of such person if not already provided),
setting forth the scope of such authority; and
(k) Any amendment, revocation or other documents altering,
adding, qualifying or repealing any document or authority called for under this
Section 2.1.
2.2 The Fund and DSC may consult as to forms or documents that may be
required in performing services hereunder.
2.3 The Fund shall provide or make available to DSC a certified copy of
any resolution of the stockholders or the Board of Directors of the Fund
providing for a dividend, capital gains distribution, distribution of capital,
stock dividend, stock split or other similar action affecting the authorization
or issuance of shares of the Fund or the payment of dividends.
2.4 In the case of any recapitalization or other capital adjustment
requiring a change in the form of stock certificate or the books recording the
same, the Fund shall deliver or make available to DSC:
(a) A certified copy of any document authorizing or effecting
such change;
(b) Written instructions from an authorized officer implementing
such change; and
(c) An opinion of counsel to the Fund as to the validity of such
action, if requested by DSC.
2.5 The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all Series' shares
which its issues will be properly registered and lawfully issued under
applicable federal and state laws.
-3-
<PAGE>
(b) The provisions of this contract do not violate the terms
of any instrument by which the Fund is bound; nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
2.6 DSC warrants the following:
(a) DSC is and will be properly registered as a transfer agent
under the Securities Exchange Act of 1934 and is duly authorized to serve, and
may lawfully serve as such.
(b) The provisions of this contract do not violate the terms
of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
III. STOCK CERTIFICATES
3.1 The Fund shall furnish or authorize DSC to obtain, at the Fund's
expense, a sufficient supply of blank stock certificates for the Series, and
from time to time will replenish such supply upon the request of DSC. The Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and all claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this Section.
3.2 DSC shall safeguard, and shall account to the Fund, upon its demand
for, all such stock certificates: (a) as issued, showing to whom issued, or (b)
as unissued, establishing the safekeeping, cancellation or destruction thereof.
3.3 The Fund shall promptly inform DSC in writing of any change in the
officers authorized to sign stock certificates or in the form thereof. If an
officer whose manual or facsimile signature is affixed to any blank share
certificate shall die, resign or be removed prior to the issuance of such
certificate, DSC may nevertheless issue such certificate notwithstanding such
death, resignation or removal, and the Fund shall with respect thereto promptly
provide to DSC any approval, adoption or ratification as may be required by DSC.
-4-
<PAGE>
IV. TRANSFER AGENT
4.1 As Transfer Agent for the Series, DSC shall issue, redeem and
transfer shares of the Series, and, in connection therewith but not in
limitation thereof, it shall:
(a) Upon receipt of authority to issue shares, determine the
total shares to be issued and issue such shares by crediting shares to accounts
created and maintained in the registration forms provided; as applicable,
prepare, issue and deliver stock certificates.
(b) Upon proper transfer authorization, transfer shares by
debiting transferor-stockholder accounts and crediting such shares to accounts
created and/or maintained for transferee-stockholders; if applicable, issue
and/or cancel stock certificates.
(c) Upon proper redemption authorization, determine the total
shares redeemed and to be redeemed; determine the total redemption payments made
and to be made; redeem shares by debiting stockholder accounts; as applicable
receive and cancel stock certificates for shares redeemed; and remit or cause to
be remitted the redemption proceeds to stockholders.
(d) Create and maintain accounts; reconcile and control cash
due and paid, shares issued and to be issued, cash remitted and to be remitted
and shares debited and credited to accounts; provide such notices, instructions
or authorizations as the Fund may require.
4.2 DSC shall not be required to issue, transfer or redeem Series'
shares upon receipt of DSC from the Fund, or from any federal or state
regulatory agency or authority, written notice that the issuance, transfer or
redemption of Series' shares has been suspended or discontinued.
V. DIVIDEND DISBURSING AGENT
5.1 As Dividend Disbursing Agent for the Series, DSC shall disburse and
cause to be disbursed to Series' stockholders Series' dividends, capital gains
distributions or any payments from other sources as directed by the Fund. In
connection therewith, but not in limitation thereof, DSC shall:
-5-
<PAGE>
(a) Calculate the total disbursement due and payable and the
disbursement to each stockholder as to shares owned, in accordance with the
Fund's authorization.
(b) Calculate the total disbursements for each stockholder, as
aforesaid, to be disbursed in cash; prepare and mail checks therefor.
(c) Calculate the total disbursement for each stockholder, as
aforesaid, for which Series' shares are to be issued and authorized and instruct
the issuance of Series' shares therefor in accordance with Section IV hereof.
(d) Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by federal or state authority.
(e) Create and maintain records, reconcile and control
disbursements to be made and made, both as to cash and shares, as aforesaid;
provide such notices, instruction or authorization as the Fund may require.
5.2 DSC shall not be required to make any disbursement upon the receipt
of DSC from the Fund, or from any federal or state agency or authority, written
notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
6.1 As Shareholder Servicing Agent for the Series, DSC shall provide
those services ancillary to but in implementation of the services provided under
Sections I through V hereof, and those generally defined and accepted as
shareholder services. In connection therewith, but not in limitation thereof,
DSC shall:
(a) Except where instructed in writing by the Fund not to do
so, and where in compliance with applicable law, accept orders on behalf of the
Fund; receive and process investments and applications; remit to the Fund or its
custodian payments for shares acquired and to be issued; and direct the issuance
of shares in accordance with Section IV hereof.
(b) Receive, record and respond to communications of stockholders
and their agents.
-6-
<PAGE>
(c) As instructed by the Fund, prepare and mail stockholder
account information, mail Series stockholder reports and Series prospectuses.
(d) Prepare and mail proxies and material for Fund stockholder
meetings, receive and process proxies from stockholders, and deliver such
proxies as directed by the Fund.
(e) Administer investment plans offered by the Fund to investor
and Series stockholders, including retirement plans, including activities not
otherwise provided in Section I through V of this Agreement.
VII. PERFORMANCE OF DUTIES
7.1 The parties hereto intend that Series stockholders and their
stockholdings shall be confidential, and any information relating thereto shall
be released by DSC only to those persons or authorities who DSC has reason to
believe are authorized to receive such information; or, as instructed by the
Fund.
7.2 DSC may, in performing this Agreement, require the Fund or the
Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or stockholders.
7.3 DSC may request or receive instructions from the Fund and may, at
the Fund's expense, consult with counsel for the Fund or its own counsel with
respect to any matter arising in connection with the performance of its duties
hereunder, and shall not be liable for any action taken or omitted by it in good
faith in accordance with such instructions or opinions of counsel.
7.4 DSC shall maintain reasonable insurance coverage for errors and
omissions and reasonable bond coverage for fraud.
7.5 Upon notice thereof to the Fund, DSC may employ others to provide
services to DSC in its performance of this Agreement.
7.6 Personnel and facilities of DSC used to perform services hereunder
may be used to perform similar services to other funds of the Delaware Group
and to others, and may be used to perform other services for the Fund, the other
funds of the Delaware Group and others.
-7-
<PAGE>
7.7 DSC shall provide its services as transfer agent hereunder in
accordance with Section l7 of the Securities Exchange Act of 1934, and the rules
and regulations thereunder. Further, the parties intend that the processes,
procedures, safeguards and controls employed should be those generally applied
and accepted for the type services provided hereunder by other institutions
providing the same or similar services, and, those which should provide
efficient, safe and economical services so as to promote promptness and accuracy
and to maintain the integrity of the Fund's records.
7.8 The Fund and DSC may, from time to time, set forth in writing
Guidelines For Selective Procedures to be applicable to the services hereunder.
VIII. COMPENSATION
8.1 The Fund and DSC acknowledge that because DSC has common ownership
and close management ties with the Fund's investment advisor and the Fund's
distributor and serves the other funds of the Delaware Group (DSC having been
originally established to provide the services hereunder for the funds of the
Delaware Group), advantages and benefits to the Fund in the employment of DSC
hereunder can be available which may not generally be available to it from
others providing similar services.
8.2 The Fund and DSC further acknowledge that the compensation by the
Fund to DSC is intended to induce DSC to provide services under this Agreement
of a nature and quality which the Board of Directors of the Fund, including a
majority who are not parties to this Agreement or interested person of the
parties hereto, has determined after due consideration to be necessary for the
conduct of the business of the Fund, in the best interests of the Fund, the
Series and its stockholders.
8.3 Compensation by the Fund to DSC hereunder shall be determined in
accordance with Schedule A hereto as it shall be amended from time to time as
provided for herein and which is incorporated herein as a part hereof.
-8-
<PAGE>
8.4 Compensation as provided in Schedule A shall be reviewed and
approved in the manner set forth in Section 10.1 hereof by the Board of
Directors of the Fund at least annually and may be reviewed and approved more
frequently at the request of either party. The Board may request, and DSC shall
provide, such information as the Board may reasonably require to evaluate the
basis of and approve the compensation.
IX. STANDARD OF CARE
9.1 The Fund acknowledges that DSC shall not be liable for, and in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the performance of its duties under this Agreement, agrees to
indemnify DSC against, any claim or deficiency arising from the performance of
DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other proceeding, and acknowledges that any risk of loss or damage arising from
the conduct of the Fund's affairs in accordance herewith or in accordance with
Guidelines or instructions given hereunder, shall be borne by the Fund.
X. CONTRACTUAL STATUS
10.1 This Agreement shall be executed and become effective on the date
first written above if approved by a vote of the Board of Directors of the Fund,
including an affirmative vote of a majority of the non-interested members of the
Board, cast in person at a meeting called for the purpose of voting on such
approval. It shall continue in effect for an indeterminate period, and is
subject to termination on sixty (60) days notice by either party unless earlier
terminated or amended by agreement among the parties. Compensation under this
Agreement shall require approval by a majority vote of the Board of Directors of
the Fund, including an affirmative vote of the majority of the non-interested
members of the Board cast in person at a meeting called for the purpose of
voting on such approval.
10.2 This Agreement may not be assigned without the approval of the
Fund.
-9-
<PAGE>
10.3 This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/Joseph J. Daniero
---------------------------------------
Joseph J. Daniero
Attest: /s/George M. Chamberlain
-----------------------------
George M. Chamberlain
DELAWARE GROUP TAX-FREE FUND, INC.
FOR USA SERIES
/s/Wayne A. Stork
---------------------------------------
Wayne A. Stork
Attest: /s/Stephen C. Beach
-----------------------------
Stephen C. Beach
-10-
<PAGE>
SCHEDULE A
COMPENSATION
1. DSC will determine and report to the Fund, at least annually, the
compensation for services to be Provided to the Fund for DSC's
forthcoming fiscal year or period.
2. In determining such compensation, DSC will fix and report a fee to be
charged per account and/or per transaction, as may be applicable, for
services provided. DSC will bill, and the Fund will pay, such
compensation monthly.
3. The fee will consist of an annual per account charge
coupled with a series of transaction charges. These are
as follows:
A. ANNUAL CHARGE
-------------
Daily Dividend Funds $9.00 per annum
Other Funds
$4.20 per annum
B. TRANSACTION CHARGE
------------------
TRANSACTION CHARGE
----------- ------
1. Dividend Payment $ 0.35
2. New Account 5.75
3. Purchase:
a. Wire 6.00
b. Money Market Automated 1.50
c. Other 2.25
4. Transfer 2.25
5. Certificate Issuance 2.00
6. Liquidation:
a. Wire 12.25
b. Draft .50
c. Money Market Regular 2.50
d. Daily Dividend Regular 6.00
7. Exchanges 7.00
-11-
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
USA INSURED SERIES
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made this 29th day of June, 1988 by and between
DELAWARE GROUP TAX-FREE FUND, INC. (the "Fund"), a Maryland Corporation, for USA
INSURED SERIES (the "Series"), and DELAWARE SERVICE COMPANY, INC. ("DSC"), a
Delaware Corporation, each having its principal office and place of business at
Ten Penn Center Plaza, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreement between the Fund and
Delaware Management Company, Inc. provides that the Fund shall conduct its own
business and affairs and shall bear the expenses and salaries necessary and
incidental thereto including, but not in limitation of the foregoing, the costs
incurred in: the maintenance of its corporate existence; the maintenance of its
own books, records and procedures; dealing with its own shareholders; the
payment of dividends; transfer of stock, including issuance and redemption of
shares; reports and notices to stockholders; calling and holding of stockholder
meetings; miscellaneous office expenses; brokerage commissions; legal and
accounting fees; taxes; and federal and state registration fees; and
WHEREAS, the predecessor to DSC previously served as the Shareholder
Services Agent for the Series and the Fund has designated DSC to act as
Shareholder Services Agent for the Series as of the date of this Agreement; and
WHEREAS, the Fund and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
1.1 The Fund hereby appoints DSC Shareholder Services Agent for the
Series to provide as agent for the Fund services as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent and DSC hereby accepts such
appointment and agrees to provide the Fund, as its agent, the
services described herein.
<PAGE>
1.2 The Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. The
Fund also shall reimburse DSC for expenses incurred or advanced by it for the
Fund in connection with its services hereunder.
II. DOCUMENTATION
2.1 The Fund represents that it has provided or made available to DSC
(or has given DSC an opportunity to examine) copies of, and DSC represents that
it has received from the Fund (or is otherwise familiar with), the following
documents:
(a) The Articles of Incorporation or other documents
evidencing the Fund's form of organization and any current amendments or
supplements thereto.
(b) The By-Laws of the Fund;
(c) Any resolution or other action of the Fund or the Board
of Directors of the Fund establishing or affecting the rights, privileges or
other status of each class or series of shares of the Fund, or altering or
abolishing each such class or series;
(d) A certified copy of a resolution of the Board of
Directors of the Fund appointing DSC as Shareholder Services Agent for the
Series and authorizing the execution of this Agreement;
(e) The Form of share certificates of the Series in the form
approved by the Board of Directors of the Fund;
(f) A copy of the Fund's currently effective Prospectus and
Statement of Additional Information under the Securities Act of 1933, if
effective;
(g) Copies of all account application forms and other
documents relating to stockholder accounts in the Series;
(h) Copies of documents relating to Plans of the Fund for the
purchase, sale or repurchase of its shares, including periodic payment or
withdrawal plans, reinvestment plans or retirement plans;
(i) Any opinion of counsel to the Fund relating to the
authorization and validity of the shares of the Series issued or proposed to be
issued under the law of the State of the Fund's organization, including the
status thereof under any applicable securities laws;
<PAGE>
(j) A certified copy of any resolution of the Board of
Directors of the Fund authorizing any person to give instructions to DSC under
this Agreement (with a specimen signature of such person if not already
provided), setting forth the scope of such authority; and
(k) Any amendment, revocation or other documents altering,
adding, qualifying or repealing any document or authority called for under this
Section 2.1.
2.2 The Fund and DSC may consult as to forms or documents that may be
required in performing services hereunder.
2.3 The Fund shall provide or make available to DSC a certified copy of
any resolution of the stockholders or the Board of Directors of the Fund
providing for a dividend, capital gains distribution, distribution of capital,
stock dividend, stock split or other similar action affecting the authorization
or issuance of shares of the Fund or the payment of dividends.
2.4 In the case of any recapitalization or other capital adjustment
requiring a change in the form of stock certificate or the books recording the
same, the Fund shall deliver or make available to DSC:
(a) A certified copy of any document authorizing or effecting
such change;
(b) Written instructions from an authorized officer
implementing such change; and
(c) An opinion of counsel to the Fund as to the validity of
such action, if requested by DSC.
2.5 The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all Series' shares
which its issues will be properly registered and lawfully issued under
applicable federal and state laws.
<PAGE>
(b) The provisions of this contract do not violate the terms
of any instrument by which the Fund is bound; nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
2.6 DSC warrants the following:
(a) DSC is and will be properly registered as a transfer agent
under the Securities Exchange Act of 1934 and is duly authorized to serve, and
may lawfully serve as such.
(b) The provisions of this contract do not violate the terms
of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
III. STOCK CERTIFICATES
3.1 The Fund shall furnish or authorize DSC to obtain, at the Fund's
expense, a sufficient supply of blank stock certificates for the Series, and
from time to time will replenish such supply upon the request of DSC. The Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and all claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this Section.
3.2 DSC shall safeguard, and shall account to the Fund, upon its demand
for, all such stock certificates: (a) as issued, showing to whom issued, or (b)
as unissued, establishing the safekeeping, cancellation or destruction thereof.
3.3 The Fund shall promptly inform DSC in writing of any change in the
officers authorized to sign stock certificates or in the form thereof. If an
officer whose manual or facsimile signature is affixed to any blank share
certificate shall die, resign or be removed prior to the issuance of such
certificate, DSC may nevertheless issue such certificate notwithstanding such
death, resignation or removal, and the Fund shall with respect thereto promptly
provide to DSC any approval, adoption or ratification as may be required by DSC.
<PAGE>
IV. TRANSFER AGENT
4.1 As Transfer Agent for the Series, DSC shall issue, redeem and
transfer shares of the Series, and, in connection therewith but not in
limitation thereof, it shall:
(a) Upon receipt of authority to issue shares, determine the
total shares to be issued and issue such shares by crediting shares to accounts
created and maintained in the registration forms provided; as applicable,
prepare, issue and deliver stock certificates.
(b) Upon proper transfer authorization, transfer shares by
debiting transferor-stockholder accounts and crediting such shares to accounts
created and/or maintained for transferee-stockholders; if applicable, issue
and/or cancel stock certificates.
(c) Upon proper redemption authorization, determine the total
shares redeemed and to be redeemed; determine the total redemption payments made
and to be made; redeem shares by debiting stockholder accounts; as applicable
receive and cancel stock certificates for shares redeemed; and remit or cause to
be remitted the redemption proceeds to stockholders.
(d) Create and maintain accounts; reconcile and control cash
due and paid, shares issued and to be issued, cash remitted and to be remitted
and shares debited and credited to accounts; provide such notices, instructions
or authorizations as the Fund may require.
4.2 DSC shall not be required to issue, transfer or redeem Series'
shares upon receipt of DSC from the Fund, or from any federal or state
regulatory agency or authority, written notice that the issuance, transfer or
redemption of Series' shares has been suspended or discontinued.
V. DIVIDEND DISBURSING AGENT
5.1 As Dividend Disbursing Agent for the Series, DSC shall disburse and
cause to be disbursed to Series' stockholders Series' dividends, capital gains
distributions or any payments from other sources as directed by the Fund. In
connection therewith, but not in limitation thereof, DSC shall:
<PAGE>
(a) Calculate the total disbursement due and payable and the
disbursement to each stockholder as to shares owned, in accordance with the
Fund's authorization.
(b) Calculate the total disbursements for each stockholder, as
aforesaid, to be disbursed in cash; prepare and mail checks therefor.
(c) Calculate the total disbursement for each stockholder, as
aforesaid, for which Series' shares are to be issued and authorized and instruct
the issuance of Series' shares therefor in accordance with Section IV hereof.
(d) Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by federal or state authority.
(e) Create and maintain records, reconcile and control
disbursements to be made and made, both as to cash and shares, as aforesaid;
provide such notices, instruction or authorization as the Fund may require.
5.2 DSC shall not be required to make any disbursement upon the receipt
of DSC from the Fund, or from any federal or state agency or authority, written
notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
6.1 As Shareholder Servicing Agent for the Series, DSC shall provide
those services ancillary to but in implementation of the services provided under
Sections I through V hereof, and those generally defined and accepted as
shareholder services. In connection therewith, but not in limitation thereof,
DSC shall:
(a) Except where instructed in writing by the Fund not to do
so, and where in compliance with applicable law, accept orders on behalf of the
Fund; receive and process investments and applications; remit to the Fund or its
custodian payments for shares acquired and to be issued; and direct the issuance
of shares in accordance with Section IV hereof.
(b) Receive, record and respond to communications of
stockholders and their agents.
<PAGE>
(c) As instructed by the Fund, prepare and mail stockholder
account information, mail Series stockholder reports and Series prospectuses.
(d) Prepare and mail proxies and material for Fund stockholder
meetings, receive and process proxies from stockholders, and deliver such
proxies as directed by the Fund.
(e) Administer investment plans offered by the Fund to
investor and Series stockholders, including retirement plans, including
activities not otherwise provided in Section I through V of this Agreement.
VII. PERFORMANCE OF DUTIES
7.1 The parties hereto intend that Series stockholders and their
stockholdings shall be confidential, and any information relating thereto shall
be released by DSC only to those persons or authorities who DSC has reason to
believe are authorized to receive such information; or, as instructed by the
Fund.
7.2 DSC may, in performing this Agreement, require the Fund or the
Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or stockholders.
7.3 DSC may request or receive instructions from the Fund and may, at
the Fund's expense, consult with counsel for the Fund or its own counsel with
respect to any matter arising in connection with the performance of its duties
hereunder, and shall not be liable for any action taken or omitted by it in good
faith in accordance with such instructions or opinions of counsel.
7.4 DSC shall maintain reasonable insurance coverage for errors and
omissions and reasonable bond coverage for fraud.
7.5 Upon notice thereof to the Fund, DSC may employ others to provide
services to DSC in its performance of this Agreement.
<PAGE>
7.6 Personnel and facilities of DSC used to perform services hereunder
may be used to perform similar services to other funds of the Delaware Group and
to others, and may be used to perform other services for the Fund, the other
funds of the Delaware Group and others.
7.7 DSC shall provide its services as transfer agent hereunder in
accordance with Section 17 of the Securities Exchange Act of 1934, and the rules
and regulations thereunder. Further, the parties intend that the processes,
procedures, safeguards and controls employed should be those generally applied
and accepted for the type services provided hereunder by other institutions
providing the same or similar services, and, those which should provide
efficient, safe and economical services so as to promote promptness and accuracy
and to maintain the integrity of the Fund's records.
7.8 The Fund and DSC may, from time to time, set forth in writing
Guidelines For Selective Procedures to be applicable to the services hereunder.
VIII. COMPENSATION
8.1 The Fund and DSC acknowledge that because DSC has common ownership
and close management ties with the Fund's investment advisor and the Fund's
distributor and serves the other funds of the Delaware Group (DSC having been
originally established to provide the services hereunder for the funds of the
Delaware Group), advantages and benefits to the Fund in the employment of DSC
hereunder can be available which may not generally be available to it from
others providing similar services.
8.2 The Fund and DSC further acknowledge that the compensation by the
Fund to DSC is intended to induce DSC to provide services under this Agreement
of a nature and quality which the Board of Directors of the Fund, including a
majority who are not parties to this Agreement or interested person of the
parties hereto, has determined after due consideration to be necessary for the
conduct of the business of the Fund, in the best interests of the Fund, the
Series and its stockholders.
<PAGE>
8.3 Compensation by the Fund to DSC hereunder shall be determined in
accordance with Schedule A hereto as it shall be amended from time to time as
provided for herein and which is incorporated herein as a part hereof.
8.4 Compensation as provided in Schedule A shall be reviewed and
approved in the manner set forth in Section 10.1 hereof by the Board of
Directors of the Fund at least annually and may be reviewed and approved more
frequently at the request of either party. The Board may request, and DSC shall
provide, such information as the Board may reasonably require to evaluate the
basis of and approve the compensation.
IX. STANDARD OF CARE
9.1 The Fund acknowledges that DSC shall not be liable for, and in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the performance of its duties under this Agreement, agrees to
indemnify DSC against, any claim or deficiency arising from the performance of
DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other proceeding, and acknowledges that any risk of loss or damage arising from
the conduct of the Fund's affairs in accordance herewith or in accordance with
Guidelines or instructions given hereunder, shall be borne by the Fund.
X. CONTRACTUAL STATUS
10.1 This Agreement shall be executed and become effective on the date
first written above if approved by a vote of the Board of Directors of the Fund,
including an affirmative vote of a majority of the non-interested members of the
Board, cast in person at a meeting called for the purpose of voting on such
approval. It shall continue in effect for an indeterminate period, and is
subject to termination on sixty (60) days notice by either party unless earlier
terminated or amended by agreement among the parties. Compensation under this
Agreement shall require approval by a majority vote of the Board of Directors of
the Fund, including an affirmative vote of the majority of the non-interested
members of the Board cast in person at a meeting called for the purpose of
voting on such approval.
<PAGE>
10.2 This Agreement may not be assigned without the approval of the
Fund.
10.3 This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/ Joseph J. Daniero
-------------------------------
Joseph J. Daniero
Attest:/s/ George M. Chamberlain
---------------------------
George M. Chamberlain
DELAWARE GROUP TAX-FREE FUND, INC.
FOR USA INSURED SERIES
/s/ Wayne A. Stork
--------------------------------
Wayne A. Stork
Attest:/s/ Stephen C. Beach
--------------------------
Stephen C. Beach
<PAGE>
SCHEDULE A
COMPENSATION
1. DSC will determine and report to the Fund, at least annually, the
compensation for services to be Provided to the Fund for DSC's forthcoming
fiscal year or period.
2. In determining such compensation, DSC will fix and report a fee to be charged
per account and/or per transaction, as may be applicable, for services
provided. DSC will bill, and the Fund will pay, such compensation monthly.
3. The fee will consist of an annual per account charge coupled with a series of
transaction charges. These are as follows:
A. ANNUAL CHARGE
-------------
Daily Dividend Funds $9.00 per annum
Other Funds $4.20 per annum
B. TRANSACTION CHARGE
------------------
TRANSACTION CHARGE
----------- ------
1. Dividend Payment $ 0.35
2. New Account 5.75
3. Purchase:
a. Wire 6.00
b. Money Market Automated 1.50
c. Other 2.25
4. Transfer 2.25
5. Certificate Issuance 2.00
6. Liquidation:
a. Wire 12.25
b. Draft .50
c. Money Market Regular 2.50
d. Daily Dividend Regular 6.00
7. Exchanges 7.00
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA INTERMEDIATE FUND SERIES
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made this 10th day of November, 1992 by and between
DELAWARE GROUP TAX-FREE FUND, INC. (the "Fund"), a Maryland Corporation, for
TAX-FREE USA INTERMEDIATE FUND SERIES (the "Series"), and DELAWARE SERVICE
COMPANY, INC. ("DSC"), a Delaware Corporation, each having its principal office
and place of business at 1818 Market Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreement between the Fund and
Delaware Management Company, Inc. provides that the Fund shall conduct its own
business and affairs and shall bear the expenses and salaries necessary and
incidental thereto including, but not in limitation of the foregoing, the costs
incurred in: the maintenance of its corporate existence; the maintenance of its
own books, records and procedures; dealing with its own shareholders; the
payment of dividends; transfer of stock, including issuance and redemption of
shares; reports and notices to stockholders; calling and holding of stockholder
meetings; miscellaneous office expenses; brokerage commissions; legal and
accounting fees; taxes; and federal and state registration fees; and
WHEREAS, DSC serves as the Shareholder Services Agent for the other
series of the Fund and the Fund has designated DSC to act as Shareholder
Services Agent for this Series as of the date of this Agreement; and
WHEREAS, the Fund and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
1.1 The Fund hereby appoints DSC Shareholder Services Agent for the
Series to provide as agent for the Fund services as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent and DSC hereby accepts such
appointment and agrees to provide the Fund, as its agent, the services described
herein.
<PAGE>
1.2 The Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. The
Fund also shall reimburse DSC for expenses incurred or advanced by it for the
Fund in connection with its services hereunder.
II. DOCUMENTATION
2.1 The Fund represents that it has provided or made available to DSC
(or has given DSC an opportunity to examine) copies of, and DSC represents that
it has received from the Fund (or is otherwise familiar with), the following
documents:
(a) The Articles of Incorporation or other documents
evidencing the Fund's form of organization and any current amendments or
supplements thereto.
(b) The By-Laws of the Fund;
(c) Any resolution or other action of the Fund or the Board of
Directors of the Fund establishing or affecting the rights, privileges or other
status of each class or series of shares of the Fund, or altering or abolishing
each such class or series;
(d) A certified copy of a resolution of the Board of Directors
of the Fund appointing DSC as Shareholder Services Agent for the Series and
authorizing the execution of this Agreement;
(e) The Form of share certificates of the Series in the form
approved by the Board of Directors of the Fund;
(f) A copy of the Fund's currently effective Prospectus and
Statement of Additional Information under the Securities Act of 1933, if
effective;
(g) Copies of all account application forms and other
documents relating to stockholder accounts in the Series;
(h) Copies of documents relating to Plans of the Fund for the
purchase, sale or repurchase of its shares, including periodic payment or
withdrawal plans, reinvestment plans or retirement plans;
<PAGE>
(i) Any opinion of counsel to the Fund relating to the
authorization and validity of the shares of the Series issued or proposed to be
issued under the law of the State of the Fund's organization, including the
status thereof under any applicable securities laws;
(j) A certified copy of any resolution of the Board of
Directors of the Fund authorizing any person to give instructions to DSC under
this Agreement (with a specimen signature of such person if not already
provided), setting forth the scope of such authority; and
(k) Any amendment, revocation or other documents altering,
adding, qualifying or repealing any document or authority called for under this
Section 2.1.
2.2 The Fund and DSC may consult as to forms or documents that may be
required in performing services hereunder.
2.3 The Fund shall provide or make available to DSC a certified copy of
any resolution of the stockholders or the Board of Directors of the Fund
providing for a dividend, capital gains distribution, distribution of capital,
stock dividend, stock split or other similar action affecting the authorization
or issuance of shares of the Fund or the payment of dividends.
2.4 In the case of any recapitalization or other capital adjustment
requiring a change in the form of stock certificate or the books recording the
same, the Fund shall deliver or make available to DSC:
(a) A certified copy of any document authorizing or effecting
such change;
(b) Written instructions from an authorized officer
implementing such change; and
(c) An opinion of counsel to the Fund as to the validity of
such action, if requested by DSC.
2.5 The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all Series' shares
which its issues will be properly registered and lawfully issued under
applicable federal and state laws.
<PAGE>
(b) The provisions of this contract do not violate the terms
of any instrument by which the Fund is bound; nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
2.6 DSC warrants the following:
(a) DSC is and will be properly registered as a transfer agent
under the Securities Exchange Act of 1934 and is duly authorized to serve, and
may lawfully serve as such.
(b) The provisions of this contract do not violate the terms
of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
III. STOCK CERTIFICATES
3.1 The Fund shall furnish or authorize DSC to obtain, at the Fund's
expense, a sufficient supply of blank stock certificates for the Series, and
from time to time will replenish such supply upon the request of DSC. The Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and all claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this Section.
3.2 DSC shall safeguard, and shall account to the Fund, upon its demand
for, all such stock certificates: (a) as issued, showing to whom issued, or (b)
as unissued, establishing the safekeeping, cancellation or destruction thereof.
3.3 The Fund shall promptly inform DSC in writing of any change in the
officers authorized to sign stock certificates or in the form thereof. If an
officer whose manual or facsimile signature is affixed to any blank share
certificate shall die, resign or be removed prior to the issuance of such
certificate, DSC may nevertheless issue such certificate notwithstanding such
death, resignation or removal, and the Fund shall with respect thereto promptly
provide to DSC any approval, adoption or ratification as may be required by DSC.
<PAGE>
IV. TRANSFER AGENT
4.1 As Transfer Agent for the Series, DSC shall issue, redeem and
transfer shares of the Series, and, in connection therewith but not in
limitation thereof, it shall:
(a) Upon receipt of authority to issue shares, determine the
total shares to be issued and issue such shares by crediting shares to accounts
created and maintained in the registration forms provided; as applicable,
prepare, issue and deliver stock certificates.
(b) Upon proper transfer authorization, transfer shares by
debiting transferor-stockholder accounts and crediting such shares to accounts
created and/or maintained for transferee-stockholders; if applicable, issue
and/or cancel stock certificates.
(c) Upon proper redemption authorization, determine the total
shares redeemed and to be redeemed; determine the total redemption payments made
and to be made; redeem shares by debiting stockholder accounts; as applicable
receive and cancel stock certificates for shares redeemed; and remit or cause to
be remitted the redemption proceeds to stockholders.
(d) Create and maintain accounts; reconcile and control cash
due and paid, shares issued and to be issued, cash remitted and to be remitted
and shares debited and credited to accounts; provide such notices, instructions
or authorizations as the Fund may require.
4.2 DSC shall not be required to issue, transfer or redeem Series'
shares upon receipt by DSC from the Fund, or from any federal or state
regulatory agency or authority, of written notice that the issuance, transfer or
redemption of Series' shares has been suspended or discontinued.
V. DIVIDEND DISBURSING AGENT
5.1 As Dividend Disbursing Agent for the Series, DSC shall disburse and
cause to be disbursed to Series' stockholders Series' dividends, capital gains
distributions or any payments from other sources as directed by the Fund. In
connection therewith, but not in limitation thereof, DSC shall:
<PAGE>
(a) Calculate the total disbursement due and payable and the
disbursement to each stockholder as to shares owned, in accordance with the
Fund's authorization.
(b) Calculate the total disbursements for each stockholder, as
aforesaid, to be disbursed in cash; prepare and mail checks therefor.
(c) Calculate the total disbursement for each stockholder, as
aforesaid, for which Series' shares are to be issued and authorized and instruct
the issuance of Series' shares therefor in accordance with Section IV hereof.
(d) Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by federal or state authority.
(e) Create and maintain records, reconcile and control
disbursements to be made and made, both as to cash and shares, as aforesaid;
provide such notices, instruction or authorization as the Fund may require.
5.2 DSC shall not be required to make any disbursement upon the receipt
by DSC from the Fund, or from any federal or state agency or authority, of
written notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
6.1 As Shareholder Servicing Agent for the Series, DSC shall provide
those services ancillary to but in implementation of the services provided under
Sections I through V hereof, and those generally defined and accepted as
shareholder services. In connection therewith, but not in limitation thereof,
DSC shall:
(a) Except where instructed in writing by the Fund not to do
so, and where in compliance with applicable law, accept orders on behalf of the
Fund; receive and process investments and applications; remit to the Fund or its
custodian payments for shares acquired and to be issued; and direct the issuance
of shares in accordance with Section IV hereof.
(b) Receive, record and respond to communications of
stockholders and their agents.
<PAGE>
(c) As instructed by the Fund, prepare and mail stockholder
account information, mail Series stockholder reports and Series prospectuses.
(d) Prepare and mail proxies and material for Fund stockholder
meetings, receive and process proxies from stockholders, and deliver such
proxies as directed by the Fund.
(e) Administer investment plans offered by the Fund to
investor and Series stockholders, including retirement plans, including
activities not otherwise provided in Section I through V of this Agreement.
VII. PERFORMANCE OF DUTIES
7.1 The parties hereto intend that Series stockholders and their
stockholdings shall be confidential, and any information relating thereto shall
be released by DSC only to those persons or authorities who DSC has reason to
believe are authorized to receive such information; or, as instructed by the
Fund.
7.2 DSC may, in performing this Agreement, require the Fund or the
Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or stockholders.
7.3 DSC may request or receive instructions from the Fund and may, at
the Fund's expense, consult with counsel for the Fund or its own counsel with
respect to any matter arising in connection with the performance of its duties
hereunder, and shall not be liable for any action taken or omitted by it in good
faith in accordance with such instructions or opinions of counsel.
7.4 DSC shall maintain reasonable insurance coverage for errors and
omissions and reasonable bond coverage for fraud.
7.5 Upon notice thereof to the Fund, DSC may employ others to provide
services to DSC in its performance of this Agreement.
<PAGE>
7.6 Personnel and facilities of DSC used to perform services hereunder
may be used to perform similar services to other funds of the Delaware Group and
to others, and may be used to perform other services for the Fund, the other
funds of the Delaware Group and others.
7.7 DSC shall provide its services as transfer agent hereunder in
accordance with Section 17 of the Securities Exchange Act of 1934, and the rules
and regulations thereunder. Further, the parties intend that the processes,
procedures, safeguards and controls employed should be those generally applied
and accepted for the type services provided hereunder by other institutions
providing the same or similar services, and, those which should provide
efficient, safe and economical services so as to promote promptness and accuracy
and to maintain the integrity of the Fund's records.
7.8 The Fund and DSC may, from time to time, set forth in writing
Guidelines For Selective Procedures to be applicable to the services hereunder.
VIII. COMPENSATION
8.1 The Fund and DSC acknowledge that because DSC has common ownership
and close management ties with the Fund's investment advisor and the Fund's
distributor and serves the other funds of the Delaware Group (DSC having been
originally established to provide the services hereunder for the funds of the
Delaware Group), advantages and benefits to the Fund in the employment of DSC
hereunder can be available which may not generally be available to it from
others providing similar services.
8.2 The Fund and DSC further acknowledge that the compensation by the
Fund to DSC is intended to induce DSC to provide services under this Agreement
of a nature and quality which the Board of Directors of the Fund, including a
majority who are not parties to this Agreement or interested person of the
parties hereto, has determined after due consideration to be necessary for the
conduct of the business of the Fund, in the best interests of the Fund, the
Series and its stockholders.
8.3 Compensation by the Fund to DSC hereunder shall be determined in
accordance with Schedule A hereto as it shall be amended from time to time as
provided for herein and which is incorporated herein as a part hereof.
<PAGE>
8.4 Compensation as provided in Schedule A shall be reviewed and
approved in the manner set forth in Section 10.1 hereof by the Board of
Directors of the Fund at least annually and may be reviewed and approved more
frequently at the request of either party. The Board may request, and DSC shall
provide, such information as the Board may reasonably require to evaluate the
basis of and approve the compensation.
IX. STANDARD OF CARE
9.1 The Fund acknowledges that DSC shall not be liable for, and in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the performance of its duties under this Agreement, agrees to
indemnify DSC against, any claim or deficiency arising from the performance of
DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other proceeding, and acknowledges that any risk of loss or damage arising from
the conduct of the Fund's affairs in accordance herewith or in accordance with
Guidelines or instructions given hereunder, shall be borne by the Fund.
X. CONTRACTUAL STATUS
10.1 This Agreement shall be executed and become effective on the date
first written above if approved by a vote of the Board of Directors of the Fund,
including an affirmative vote of a majority of the non-interested members of the
Board, cast in person at a meeting called for the purpose of voting on such
approval. It shall continue in effect for an indeterminate period, and is
subject to termination on sixty (60) days notice by either party unless earlier
terminated or amended by agreement among the parties. Compensation under this
Agreement shall require approval by a majority vote of the Board of Directors of
the Fund, including an affirmative vote of the majority of the non-interested
members of the Board cast in person at a meeting called for the purpose of
voting on such approval.
<PAGE>
10.2 This Agreement may not be assigned without the approval of the
Fund.
10.3 This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/Joseph W. Lutes
-----------------------------
Joseph W. Lutes
Executive Vice President/
Finance and Administration
Attest:/s/Richard J. Flannery
---------------------------------
Richard J. Flannery
Vice President/
Assistant Secretary
DELAWARE GROUP TAX-FREE FUND, INC.
FOR TAX-FREE USA INTERMEDIATE
FUND SERIES
/s/Wayne A. Stork
------------------------------
Wayne A. Stork
Chairman
Attest:/s/Eric E. Miller
--------------------------
Eric E. Miller
Vice President/
Assistant Secretary
<PAGE>
SCHEDULE A
COMPENSATION
1. Delaware Service Company (DSC) will determine and report to the Fund, at
least annually, the compensation for services to be provided to the Fund for
DSC's forthcoming fiscal year or period.
2. In determining such compensation, DSC will fix and report a fee to be
charged per account and/or per transaction, as may be applicable, for
services provided. DSC will bill, and the Fund will pay, such compensation
monthly.
3. For the period commencing April 1, 1992, the charge will consist of two
charges for all the Funds in the Delaware Group except the Premium Fund and
the Delaware Pooled Trust, an annual charge and a per transaction charge.
These are as follows:
A. ANNUAL CHARGE
-------------
Daily Dividend Funds $11.00 per annum
Other Funds 5.50 per annum
Large Retirement Plan
Automated Account 6.00 per annum
<PAGE>
B. TRANSACTION CHARGE
------------------
TRANSACTION CHARGE
----------- ------
1. Dividend Payment $ 0.25
2. New Account 6.00
3. Purchase:
a. Wire 8.00
b. Automated 1.50
c. Other 2.60
4. Transfer 8.00
5. Certificate Issuance 4.00
6. Liquidation:
a. Wire 12.25
b. Draft .75
c. Money Market Regular 4.50
d. Other Regular 4.50
7. Exchanges 10.00
<PAGE>
4. For the period commencing April 1, 1992, Delaware Service Company's
compensation for providing services to the Delaware Group Premium Fund, Inc.
will be $50,000 annually. DSC will bill, and the Delaware Group Premium
Fund, Inc. ("Fund") will pay, such compensation monthly allocated among the
current Series of the Fund based on the relative percentage of assets of
each Series at the time of billing and adjusted appropriately to reflect the
length of time a particular series is in operation during any billing
period.
5. For the period commencing April 1, 1992, Delaware Service Company's
compensation for providing services to the Delaware Pooled Trust, will be
$25,000 annually. DSC will bill, and the Delaware Pooled Trust ("Fund") will
pay, such compensation monthly allocated among the current Portfolio of the
Fund based on the relative percentage of assets of each Portfolio at the
time of billing and adjusted appropriately to reflect the length of time a
particular portfolio is in operation during any billing period.
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
DELAWARE GROUP OF FUNDS
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, made as of this 19th day of August, 1996 by and between
the registered investment companies in the Delaware Group listed on Schedule A,
which Schedule may be amended from time to time as provided in Section 8 hereof
(each corporation or common law or business trust, hereinafter referred to as a
"Company," and all such entities collectively hereinafter referred to as, the
"Companies"), on behalf of the portfolio(s) of securities of such Companies
listed on Schedule A, which Schedule may be amended from time to time (when used
in this Agreement in the context of a Company that offers only a single
portfolio/series of shares, the term "Portfolio" shall be a reference to such
Company, and when used in the context of a Company that offers multiple
portfolios/series of shares, shall be a reference to each portfolio/series of
such Company) and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware
corporation, having its principal office and place of business at 1818 Market
Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the
Companies with respect to each Portfolio and either Delaware
Management Company, Inc. or its U.K. affiliate, Delaware
-2-
<PAGE>
International Advisers Ltd., provide, in part, that each Portfolio shall conduct
its business and affairs and shall bear the expenses necessary and incidental
thereto including, but not in limitation of the foregoing, the costs incurred
with respect to accounting services; and
WHEREAS, the services to be provided under this agreement
previously were provided by employees of the Companies; and
WHEREAS, the Companies and DSC desire to have a written agreement
concerning the performance of accounting services for each Portfolio and
providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
Section 1.1 The Companies hereby appoint DSC the accounting
agent ("Accounting Agent") for all of the classes of each Portfolio, to provide
such accounting services as are set forth herein and DSC hereby accepts such
appointment and agrees to provide the Companies, as their agent, the services
described herein.
Section 1.2 The Companies shall pay DSC and DSC shall accept,
for the services provided hereunder, the compensation provided for in Section VI
hereof. The Companies
-3-
<PAGE>
also shall reimburse DSC for expenses incurred or advanced by it for the
Companies in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 Each Company represents that it has provided or
made available to DSC (or has given DSC an opportunity to examine) copies of,
and, DSC represents that it has received from the Companies (or is otherwise
familiar with), the following documents:
A. The Articles of Incorporation or Agreement and
Declaration of Trust or other document, as relevant, evidencing each Company's
form of organization and any current amendments thereto;
B. The By-Laws or Procedural Guidelines of each
Company;
C. Any resolution or other action of each Company or
the Board of Directors or Trustees of each Company establishing or affecting the
rights, privileges or other status of any class of shares of a Portfolio, or
altering or abolishing any such class;
D. A certified copy of a resolution of the Board of
Directors or Trustees of each Company appointing DSC as Accounting Agent for
each Portfolio and authorizing the execution of this Agreement or an amendment
to Schedule A of this Agreement;
-4-
<PAGE>
E. A copy of each Company's currently effective
prospectus[es] and Statement[s] of Additional Information under the Securities
Act of 1933, if effective;
F. A certified copy of any resolution of the Board of
Directors or Trustees of each Company authorizing any person to give
instructions to DSC under this Agreement (with a specimen signature of such
person if not already provided), setting forth the scope of such authority; and
G. Any amendment, revocation or other document
altering, adding, qualifying or repealing any document or authority called for
under this Section 2.1.
Section 2.2 Each Company and DSC may consult as to forms or
documents that may be required in performing services hereunder.
Section 2.3 Each Company warrants the following:
A. The Company is, or will be, a properly registered
investment company under the Investment Company Act of 1940 (the "1940 Act") and
any and all shares of a Portfolio which it issues will be properly registered
and lawfully issued under applicable federal and state laws.
B. The provisions of this contract do not violate the
terms of any instrument by which the Company or the Company on behalf of a
Portfolio is bound; nor do they violate any law or regulation of any body having
jurisdiction over the Company or its property.
Section 2.4 DSC warrants the following:
-5-
<PAGE>
A. The provisions of this contract do not violate the
terms of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
III. SERVICES TO BE PROVIDED BY DSC
Section 3.1 Daily Net Asset Value ("NAV") Calculation. As
Accounting Agent for each Portfolio of the Companies, DSC will perform all
functions necessary to provide daily Portfolio NAV calculations, including:
A. Maintaining each Portfolio's securities portfolio
history by:
1. recording portfolio purchases and sales;
2. recording corporate actions and capital
changes relating to portfolio securities;
3. accruing interest, dividends and
expenses; and
4. maintaining the income history for
securities purchased by a Portfolio.
B. Determining distributions to Portfolio
shareholders;
C. Recording and reconciling shareholder activity
including:
1. recording subscription, liquidations and
dividend reinvestments;
-6-
<PAGE>
2. recording settlements of shareholder
activity; and
3. reconciling Portfolio shares outstanding
to the records maintained by DSC, as transfer agent of the Portfolio.
D. Valuing a Portfolio's securities portfolio which
includes determining the NAVs for all classes of the Portfolio;
E. Disseminating Portfolio NAVs and dividends to
interested parties (including the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Investment Company Institute ("ICI"),
Morningstar, and Lipper Analytical Services, Inc. ("Lipper")); and
F. Resolving pricing and/or custody discrepancies.
Section 3.2 Financial Reporting. As Accounting Agent, DSC
shall perform financial reporting services for each Portfolio, which shall
include:
A. The preparation of semi-annual and annual reports
for shareholders which involves the performance of the following functions:
1. preparing all statements of net assets,
statements of operations and statements of changes in net assets for the
Portfolio;
-7-
<PAGE>
2. preparing footnotes to financial
statements for the Portfolio;
3. preparing workpapers for each Company's
annual audit by its independent public accountants; and
4. coordinating the annual audit by each
Company's independent public accountants.
B. Reporting to the ICI in response to requests for
monthly and other periodic information;
C. Performing statistical reporting, which includes
daily, monthly, quarterly and annual reports for Lipper, Weisenberger and other
third party reporting agencies; and
D. Furnishing financial information for any
additional required SEC reporting, such as the preparation of financial
information for each Company's reporting on Form N-SAR, the furnishing of
financial information for each Company's prospectus[es] and statement[s] of
additional information, and the financial information required for each
Company's annual Rule 24f-2 notice filing;
Section 3.3 Compliance Testing. DSC will monitor, test and
prepare and maintain supporting schedules which evidence compliance with the
definitional and distribution requirements under the Internal Revenue Code of
1986, as amended ("IRC"), including the following:
-8-
<PAGE>
A. The requirement to be registered at all times
during the taxable year under the 1940 Act (IRC ss.851(a));
B. The annual ninety percent gross income test (IRC
ss.851(b)(2));
C. The short/short (thirty percent) gross income test
(IRC ss.851(b)(3));
D. The quarterly IRC industry diversification tests
(IRC ss.ss.851(b)(4) and 817(h)); and
E. The 90% distribution requirements (IRC ss.852(a)).
Section 3.4 Other Services. In addition to the above, DSC, in
its capacity as Accounting Agent for the Company, will perform the following
services:
A. The calculation of required Portfolio monthly
yields and total return calculations in accordance with the prescribed rules of
the U.S. Securities and Exchange Commission;
B. Providing the financial information necessary for
the preparation of all federal and state tax returns and ancillary schedules,
including:
1. year-end excise tax distributions; and
2. compliance with Subchapter M and Section
4982 of the IRC;
-9-
<PAGE>
C. Performing special tax reporting to shareholders,
including the preparation of reports which reflect income earned by each
Portfolio by state, exempt income and distributions that qualify for the
corporate dividends received deduction;
D. The preparation of expense and budget figures for
each Portfolio, including the maintenance of detailed records pertaining to
expense accruals and payments and adjusting reports to reflect accrual
adjustments;
E. The preparation of reports for Board of Directors'
or Trustees' meetings;
F. Coordination of the custody relationships;
G. Facilitating security settlements;
H. Performance of required foreign security
accounting functions;
I. Performance of daily cash reconciliations for each
Portfolio;
J. Providing identified reports to portfolio managers
including:
1. providing portfolio holdings and security
valuation reports;
2. preparing cash forecasts and
reconciliations as mutually agreed upon; and
3. preparing income projections.
-10-
<PAGE>
IV. PERFORMANCE OF DUTIES
Section 4.1 DSC may request or receive instructions from a
Company and may, at a Portfolio's expense, consult with counsel for the Company
or its own counsel, with respect to any matter arising in connection with the
performance of its duties hereunder, and shall not be liable for any action
taken or omitted by it in good faith in accordance with such instructions or
opinions of counsel.
Section 4.2 DSC shall maintain reasonable insurance coverage
for errors and omissions and reasonable bond coverage for fraud.
Section 4.3 Upon notice thereof to a Company, DSC may employ
others to provide services to DSC in its performance of this Agreement.
Section 4.4 Personnel and facilities of DSC used to perform
services hereunder may be used to perform similar services to all Companies of
the Delaware Group and their Portfolios and to others, and may be used to
perform other services for all of the Companies of the Delaware Group and
others.
Section 4.5 The Companies and DSC may, from time to time, set
forth in writing at the Companies' expense certain guidelines to be applicable
to the services hereunder.
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<PAGE>
V. ACCOUNTS AND RECORDS
Section 5.1 The parties hereto agree and acknowledge that the
accounts and records maintained by DSC with respect to a Portfolio shall be the
property of such Portfolio, and shall be made available to the relevant Company
promptly upon request and shall be maintained for the periods prescribed in Rule
31a-2 under the Investment Company Act of 1940 or such longer period as shall be
agreed to by the parties hereto, at such Portfolio's expense.
VI. COMPENSATION
Section 6.1 The Companies and DSC acknowledge that the
compensation to be paid hereunder to DSC is intended to induce DSC to provide
services under this Agreement of a nature and quality which the Boards of
Directors or Trustees of the Companies, including a majority who are not parties
to this Agreement or interested person of the parties hereto, have determined
after due consideration to be necessary for the conduct of the business of a
Portfolio in the best interests of a Portfolio and its shareholders.
Section 6.2 Compensation by a Portfolio hereunder shall be
determined in accordance with Schedule B hereto as it shall be amended from time
to time as provided for herein and which is incorporated herein as a part
hereof.
Section 6.3 Compensation as provided in Schedule B shall be
reviewed and approved for each Portfolio in the manner
-12-
<PAGE>
set forth in Section 8.1 hereof by the Boards of Directors or Trustees of the
Companies at least annually and may be reviewed and approved more frequently at
the request of either party. The Boards may request and DSC shall provide such
information as the Boards may reasonably require to evaluate the basis of and
approve the compensation.
VII. STANDARD OF CARE
Section 7.1 The Companies on behalf of each Portfolio
acknowledge that DSC shall not be liable for, and in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
performance of its duties under this contract, agree to indemnify DSC against,
any claim or deficiency arising from the performance of DSC's duties hereunder,
including DSC's costs, counsel fees and expenses incurred in investigating or
defending any such claim or any administrative or other proceeding, and
acknowledge that any risk of loss or damage arising from the conduct of a
Portfolio's affairs in accordance herewith or in accordance with guidelines or
instructions given hereunder, shall be borne by the Portfolio. The
indemnification provided for in this Section 7.1 shall be made Portfolio by
Portfolio so that DSC is only entitled to indemnification from a Company on
behalf of a Portfolio for actions arising from the performance of DSC's duties
as to that Portfolio.
-13-
<PAGE>
VIII. CONTRACTUAL STATUS
Section 8.1 This Agreement shall be executed and become
effective as to a Company with regard to a Portfolio listed on Schedule A as of
the date first written above if approved by a vote of such Company's Board of
Directors or Trustees, including an affirmative vote of a majority of the non-
interested members of the Board of such Company, cast in person at a meeting
called for the purpose of voting on such approval. It shall continue in effect
for an indeterminate period, and is subject to termination as to a Company on
behalf of a Portfolio or DSC, as the case may be, on sixty (60) days notice by
either that Company or DSC, unless earlier terminated or amended by agreement
among the parties. A Company shall be permitted to terminate this Agreement as
to a Portfolio on sixty (60) days notice to DSC. Compensation under this
Agreement by a Portfolio shall require approval by a majority vote of the Board
of Directors or Trustees of such Portfolio's Company, including an affirmative
vote of the majority of the non-interested members of such Board cast in person
at a meeting called for the purpose of voting such approval.
Section 8.2 This Agreement shall become effective as to any
Company or Portfolio not included on Schedule A as of the date first written
above, but desiring to participate in this Agreement, on such date as an amended
Schedule A adding such new Company or Portfolio to such Schedule is executed by
DSC and such new Company or a Company on behalf of a new Portfolio following
-14-
<PAGE>
approval by the Company or by the Company on behalf of a new Portfolio desiring
to be included in this Agreement in accordance with the method specified in
Section 8.1. Any such amended Schedule A shall not affect the validity of this
Agreement as between DSC and the other Companies which have executed this
Agreement or any subsequent amendment to Schedule A of this Agreement.
Section 8.3 This Agreement may not be assigned by DSC without
the approval of all of the Companies.
Section 8.4 This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/ David K. Downes
By:_____________________________________
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP DELCHESTER HIGH-YIELD
BOND FUND, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
-15-
<PAGE>
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
/s/Wayne A. Stork
By:_____________________________________
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
/s/ Wayne A. Stork
By:_____________________________________
Wayne A. Stork, Chairman
-16-
<PAGE>
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Delchester High-Yield Bond Fund, Inc.
- --------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
Portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
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<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
-18-
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: August 19, 1996
-19-
<PAGE>
SCHEDULE B
COMPENSATION
Fee Schedule for The Delaware Group of Funds
Part 1 -- Fees for Existing Portfolios
Existing Portfolios are those so designated on Schedule A to the Fund Accounting
Agreement between Delaware Service Company, Inc. and the Delaware Group of Funds
dated as of August 19, 1996 ("Agreement").
Annual Asset Based Fees
First $10 Billion of Aggregate
Complex Net Assets 2.5 Basis Points
Aggregate Complex Net Assets
over $10 Billion 2.0 Basis Points
Annual asset based fees will be charged at a rate of 2.5 basis points for the
first $10 Billion of Aggregate Complex Net Assets. Aggregate Complex Net Assets
over $10 Billion will be charged at a rate of 2.0 basis points. These fees will
be charged to a Portfolio on an aggregated pro rated basis.
Annual Minimum Fees
Domestic Equity Portfolio $35,000
Domestic Fixed Income Portfolio $45,000
International Series Portfolio $70,000
Per Class of Share Fee $ 4,000
There is an annual minimum fee that will be charged only if the annual asset
based fee is less than the calculation for the minimum fee. This fee is based on
the type and the number of classes per Portfolio. For an equity Portfolio
$35,000 will be charged; for a fixed income Portfolio $45,000 will be charged,
and for an international Portfolio $70,000 will be charged. For each class of
shares, $4,000 will be charged, such amount to be prorated over a period of less
than a year for any classes added after April 30, 1996. A total of all minimum
fees will be compared to the total asset based fee to determine which fee is
higher and, subsequently, will be used to bill the Companies.
Part 2 -- Fees for New Portfolios
For each Portfolio designated as a New Portfolio on Schedule A to the Agreement,
there will be a fee of 2.0 basis points, providing that the Delaware complex net
assets are above $10 Billion (the
<PAGE>
rate would be 2.5 basis points if under $10 Billion and then 2.0 basis points
once the net assets cross $10 Billion), or an annual minimum fee calculated in
the manner described above, whichever is higher. This new fee would be added to
the total of Existing Portfolio fees and then pro rated. Fees shall not be
charged for New Portfolios included on Schedule A until such Portfolios shall
have commenced operations.
Dated as of: August 19, 1996
-21-
<PAGE>
Consent of Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Finanical Statements" in the Statements of
Additional Information for the Tax-Free USA Fund, Tax-Free Insured Fund, and
Tax-Free USA Intermediate Fund, and to the incorporation by reference in this
Post-Effective Amendment No. 22 to the Registration Statement (Form N-1A No.
2-86606) of Delaware Group Tax-Free Fund, Inc. of our report dated October 4,
1996, included in the 1996 Annual Report to Shareholders of Delaware Group
Tax-Free Fund, Inc.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
October 25, 1996
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Tax-Free Fund, Inc.
We have audited the accompanying statements of net assets of Tax-Free USA Fund,
Tax-Free Insured Fund, and Tax-Free USA Intermediate Fund (collectively referred
to as "Delaware Group Tax-Free Fund, Inc." or the "Fund"), as of August 31,
1996, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended for the Tax-Free USA Fund and the Tax-Free Insured Fund and the
financial highlights for each of the three years in the period then ended and
for the period from January 7, 1993 (date of initial public offering) to August
31, 1993 for the Tax-Free USA Intermediate Fund. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
August 31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Tax-Free USA Fund, Tax-Free Insured Fund, and Tax-Free USA Intermediate Fund at
August 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended for
the Tax-Free USA Fund and the Tax-Free Insured Fund and the financial highlights
for each of the three years in the period then ended and for the period from
January 7, 1993 (date of initial public offering) to August 31, 1993 for the
Tax-Free USA Intermediate Fund, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
October 4, 1996
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA FUND A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
Delaware Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Fund
series (the "Series") on behalf of the original class of the Series' common
stock (now doing business as the Tax-Free USA Fund A Class and hereinafter
referred to as the "Class"), which Fund, Series and Class may do business under
these or such other names as the Board of Directors of the Fund may designate
from time to time. The Plan has been approved by a majority of the Board of
Directors, including a majority of the Directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto ("non-interested
Directors"), cast in person at a meeting called for the purpose of voting on
such Plan. Such approval by the Directors included a determination that in the
exercise of reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the Series and
shareholders of the Class. If the Plan has not yet been approved by a majority
of the outstanding voting securities as required in the Act, the Plan will be
presented to the public shareholders at the next regular annual or special
meeting.
1
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class pursuant to the Distribution Agreement between the
Distributor and the Fund or behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the
2
<PAGE>
promotion, offering and sale of Class shares and, where suitable and
appropriate, the retention of Class shares by shareholders.
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
3
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan, which time
shall not be before the first annual or special meeting of the public
shareholders at which the Plan is or was approved by the vote of a majority of
the outstanding voting securities as required in the Act(the "Commencement
Date"); thereafter, the Plan shall continue in effect for a period of more than
one year from the Commencement Date only so long as such continuance is
specifically approved at least annually by a vote of the Board of Directors of
the Fund, and of the non-interested Directors, cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote
of a majority of the non-interested Directors or by vote of a
majority of the outstanding voting securities of the Class.
(b) The Plan may not be amended to increase
materially the amount to be spent for distribution pursuant to paragraph l
thereof without approval by the shareholders of the Class.
7. All material amendments to this Plan shall be
approved by the non-interested Directors in the manner described in
paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be
committed to the discretion of such non-interested Directors.
4
<PAGE>
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
November 29, 1995
5
<PAGE>
Exhibit 99.B15B
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA FUND B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Fund series (the
"Series") on behalf of the Tax-Free USA Fund B Class (the "Class"), which Fund,
Series and Class may do business under these or such other names as the Board of
Directors of the Fund may designate from time to time. The Plan has been
approved by a majority of the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company,
1
<PAGE>
Inc. serves as the Series' investment adviser and manager pursuant to an
Investment Management Agreement. Delaware Service Company, Inc. serves as the
Series' shareholder servicing, dividend disbursing and transfer agent. Delaware
Distributors, L.P. (the "Distributor") is the principal underwriter and national
distributor for the Series' shares, including shares of the Class, pursuant to
the Distribution Agreement between the Distributor and the Fund on behalf of the
Series ("Distribution Agreement").
The Plan provides that:
1. (a) The Fund shall pay to the Distributor a monthly fee not to
exceed 0.75% (3/4 of 1%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a
3
<PAGE>
written report of the amounts expended under the Plan and the purposes for which
such expenditures were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount
to be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
4
<PAGE>
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
5
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Fund series (the
"Series") on behalf of the Tax-Free USA Fund C Class (the "Class"), which Fund,
Series and Class may do business under these or such other names as the Board of
Directors of the Fund may designate from time to time. The Plan has been
approved by a majority of the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
<PAGE>
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
<PAGE>
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
<PAGE>
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan. This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INSURED FUND A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
Delaware Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free Insured Fund
series (the "Series") on behalf of the original class of shares of the Series'
common stock (now doing business as the Tax-Free Insured Fund A Class and
hereinafter referred to as the "Class"), which Fund, Series and Class may do
business under these or such other names as the Board of Directors of the Fund
may designate from time to time. The Plan has been approved by a majority of the
Board of Directors, including a majority of the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto ("non-interested
Directors"), cast in person at a meeting called for the purpose of voting on
such Plan. Such approval by the Directors included a determination that in the
exercise of reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the Series and
shareholders of the Class. If the Plan has not yet been approved by a majority
of the outstanding voting securities as required in the Act, the Plan will be
presented to the public shareholders at the next regular annual or special
meeting.
1
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
2
<PAGE>
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
3
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan, which time
shall not be before the first annual or special meeting of the public
shareholders at which the Plan is or was approved by the vote of a majority of
the outstanding voting securities as required in the Act (the "Commencement
Date"); thereafter, the Plan shall continue in effect for a period of more than
one year from the Commencement Date only so long as such continuance is
specifically approved at least annually by a vote of the Board of Directors of
the Fund, and of the non-interested Directors, cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase
materially the amount to be spent for distribution pursuant to paragraph l
thereof without approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
4
<PAGE>
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
November 29, 1995
5
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INSURED FUND B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free Insured Fund series
(the "Series") on behalf of the Tax-Free Insured Fund B Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
1
<PAGE>
The Plan provides that:
1. (a) The Fund shall pay to the Distributor a monthly fee not to
exceed 0.75% (3/4 of 1%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the
Fund shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above
shall be used to pay dealers or others for, among other things, furnishing
personal services and maintaining shareholder accounts, which services include
confirming that customers have received the Prospectus and Statement of
Additional Information, if applicable; assisting such customers in maintaining
proper records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
3
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
4
<PAGE>
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
5
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INSURED FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free Insured Fund series
(the "Series") on behalf of the Tax-Free Insured Fund C Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the
<PAGE>
"Distributor") is the principal underwriter and national distributor for the
Series' shares, including shares of the Class, pursuant to the Distribution
Agreement between the Distributor and the Fund on behalf of the Series
("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the
A-1
<PAGE>
Prospectus and Statement of Additional Information, if applicable; assisting
such customers in maintaining proper records with the Fund; answering questions
relating to their respective accounts; and aiding in maintaining the investment
of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
A-2
<PAGE>
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
A-5
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA INTERMEDIATE FUND A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
Delaware Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA
Intermediate Fund series (the "Series") on behalf of the original class of the
Series' common stock (now doing business as the Tax-Free USA Intermediate Fund A
Class and hereinafter referred to as the "Class"), which Fund, Series and Class
may do business under these or such other names as the Board of Directors of the
Fund may designate from time to time. The Plan has been approved by a majority
of the Board of Directors, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto
("non-interested Directors"), cast in person at a meeting called for the purpose
of voting on such Plan. Such approval by the Directors included a determination
that in the exercise of reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Series and shareholders of the Class. If the Plan has not yet been approved
by a majority of the outstanding voting securities as required in the Act, the
Plan will be presented to the public shareholders at the next regular annual or
special meeting.
1
<PAGE>
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
2
<PAGE>
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
3
<PAGE>
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan, which time
shall not be before the date on which the registration statement containing the
post-effective amendment relating to this Series becomes effective with the
Securities and Exchange Commission (the "Commencement Date"); thereafter, the
Plan shall continue in effect for a period of more than one year from the
Commencement Date only so long as such continuance is specifically approved at
least annually by a vote of the Board of Directors of the Fund, and of the
non-interested Directors, cast in person at a meeting called for the purpose of
voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
4
<PAGE>
This Plan shall take effect on the Commencement Date, as
previously defined.
November 29, 1995
5
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE USA INTERMEDIATE FUND B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Intermediate Fund
series (the "Series") on behalf of the Tax-Free USA Intermediate Fund B Class
(the "Class"), which Fund, Series and Class may do business under these or such
other names as the Board of Directors of the Fund may designate from time to
time. The Plan has been approved by a majority of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto ("non-interested Directors"), cast in
person at a meeting called for the purpose of voting on such Plan. Such approval
by the Directors included a determination that in the exercise of reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Series and shareholders of the Class.
The Plan has been approved by a vote of the holders of a majority of the
outstanding voting securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
1
<PAGE>
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1. (a) The Fund shall pay to the Distributor a monthly fee not to
exceed 0.75% (3/4 of 1%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
2
<PAGE>
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
3
<PAGE>
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
4
<PAGE>
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
5
<PAGE>
DISTRIBUTION PLAN
DELAWARE GROUP TAX-FREE FUND, INC.
TAX-FREE INTERMEDIATE FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Delaware
Group Tax-Free Fund, Inc. (the "Fund"), for the Tax-Free USA Intermediate Fund
series (the "Series") on behalf of the Tax-Free USA Intermediate Fund C Class
(the "Class"), which Fund, Series and Class may do business under these or such
other names as the Board of Directors of the Fund may designate from time to
time. The Plan has been approved by a majority of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto ("non-interested Directors"), cast in
person at a meeting called for the purpose of voting on such Plan. Such approval
by the Directors included a determination that in the exercise of reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Series and shareholders of the Class.
The Plan has been approved by a vote of the holders of a majority of the
outstanding voting securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
<PAGE>
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
A-1
<PAGE>
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
A-2
<PAGE>
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
November 29, 1995
A-3
<PAGE>
DELAWARE GROUP TAX-FREE USA
TOTAL RETURN PERFORMANCE
SIX MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.14
Initial Shares 82.372
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 82.372 $0.346 2.464 84.836
- --------------------------------------------------------------------------------
Ending Shares 84.836
Ending NAV x $11.55
----------
Investment Return $979.86
Total Return Performance
- ------------------------
Investment Return $979.86
Less Initial Investment $1,000.00
---------
($20.14)/$1,000.00 x 100
Total Return: -2.01%
<PAGE>
DELAWARE GROUP TAX-FREE USA
CLASS C
TOTAL RETURN PERFORMANCE
INCEPTION (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.23
Initial Shares 81.766
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 81.766 $0.510 3.568 85.334
- --------------------------------------------------------------------------------
Ending Shares 85.334
Ending NAV x $11.55
---------
$985.61
LESS: CDSC $9.45
---------
Investment Return $976.16
Total Return Performance
- ------------------------
Investment Return $976.16
Less Initial Investment $1,000.00
---------
($23.84)/$1,000.00 x 100
Total Return: -2.38%
<PAGE>
DELAWARE GROUP TAX-FREE USA
CLASS C
TOTAL RETURN PERFORMANCE
INCEPTION (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.23
Initial Shares 81.766
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 81.766 $0.510 3.568 85.334
- --------------------------------------------------------------------------------
Ending Shares 85.334
Ending NAV x $11.55
----------
Investment Return $985.61
Total Return Performance
- ------------------------
Investment Return $985.61
Less Initial Investment $1,000.00
----------
($14.39)/$1,000.00 x 100
Total Return: -1.44%
<PAGE>
DELAWARE GROUP TAX-FREE USA
CLASS C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.14
Initial Shares 82.372
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 82.372 $0.299 2.124 84.496
- --------------------------------------------------------------------------------
Ending Shares 84.496
Ending NAV x $11.55
---------
$975.93
LESS: CDSC $9.52
---------
Investment Return $966.41
Total Return Performance
- ------------------------
Investment Return $966.41
Less Initial Investment $1,000.00
---------
($33.59)/$1,000.00 x 100
Total Return: -3.36%
<PAGE>
DELAWARE GROUP TAX-FREE USA
CLASS C
TOTAL RETURN PERFORMANCE
INCEPTION (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.14
Initial Shares 82.372
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 82.372 $0.299 2.124 84.496
- --------------------------------------------------------------------------------
Ending Shares 84.496
Ending NAV x $11.55
---------
Investment Return $975.93
Total Return Performance
- ------------------------
Investment Return $975.93
Less Initial Investment $1,000.00
---------
($24.07)/$1,000.00 x 100
Total Return: -2.41%
<PAGE>
DELAWARE GROUP TAX-FREE USA
CLASS C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.68
Initial Shares 85.616
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 85.616 $0.150 1.106 86.722
- --------------------------------------------------------------------------------
Ending Shares 86.722
Ending NAV x $11.55
----------
$1,001.64
LESS: CDSC $9.89
----------
Investment Return $991.75
Total Return Performance
- ------------------------
Investment Return $991.75
Less Initial Investment $1,000.00
----------
($8.25)/$1,000.00 x 100
Total Return: -0.83%
<PAGE>
DELAWARE GROUP TAX-FREE USA
CLASS C
TOTAL RETURN PERFORMANCE
INCEPTION (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.68
Initial Shares 85.616
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 85.616 $0.150 1.606 86.722
- --------------------------------------------------------------------------------
Ending Shares 86.722
Ending NAV x $11.55
-----------
Investment Return $1,001.64
Total Return Performance
- ------------------------
Investment Return $1,001.64
Less Initial Investment $1,000.00
-----------
$1.64/$1,000.00 x 100
Total Return: 0.16%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
THREE
YEAR
- ------------------
1
$1000(1 - T) = $1,135.52
T = 4.33%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
TOTAL RETURN PERFORMANCE
THREE YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.49
Initial Shares 95.329
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1994 95.329 $0.527 3.592 98.921
- --------------------------------------------------------------------------------
1995 0.000 $0.545 104.367 104.367
- --------------------------------------------------------------------------------
1996 Shares $0.551 110.031 110.031
- --------------------------------------------------------------------------------
Ending Shares 110.031
Ending NAV x $10.32
------------
Investment Return $1,135.52
Total Return Performance
- ------------------------
Investment Return $1,135.52
Less Initial Investment $1,000.00
-----------
$135.52/$1,000.00 x 100
Total Return: 13.55%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
TOTAL RETURN PERFORMANCE
SIX MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.49
Initial Shares 95.329
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1995 95.329 $0.277 2.583 97.912
- --------------------------------------------------------------------------------
Ending Shares 97.912
Ending NAV x $10.32
----------
Investment Return $1,010.45
Total Return Performance
- ------------------------
Investment Return $1,010.45
Less Initial Investment $1,000.00
----------
$10.45/$1,000.00 x 100
Total Return: 1.05%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
CLASS C
TOTAL RETURN PERFORMANCE
INCEPTION (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.48
Initial Shares 95.420
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 95.420 $0.350 3.262 98.682
- --------------------------------------------------------------------------------
Ending Shares 98.682
Ending NAV x $10.32
-----------
$1,018.40
Less CDSC $9.85
-----------
Investment Return $1,008.55
Total Return Performance
- ------------------------
Investment Return $1,008.55
Less Initial Investment $1,000.00
-----------
$8.55/$1,000.00 x 100
Total Return: 0.86%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
CLASS C
TOTAL RETURN PERFORMANCE
INCEPTION (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.48
Initial Shares 95.420
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 95.420 $0.350 3.262 98.682
- --------------------------------------------------------------------------------
Ending Shares 98.682
Ending NAV x $10.32
-----------
Investment Return $1,018.40
Total Return Performance
- ------------------------
Investment Return $1,018.40
Less Initial Investment $1,000.00
----------
$18.40/$1,000.00 x 100
Total Return: 1.84%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
CLASS C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.49
Initial Shares 95.329
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 95.33 $0.232 2.168 97.497
- --------------------------------------------------------------------------------
Ending Shares 97.497
Ending NAV x $10.32
---------
$1,006.17
Less CDSC $9.84
---------
Investment Return $996.33
Total Return Performance
- ------------------------
Investment Return $996.33
Less Initial Investment $1,000.00
---------
($3.67) / $1,000.00 x 100
Total Return: -0.37%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
CLASS C
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.49
Initial Shares 95.32888
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 95.33 $0.232 2.168 97.497
- --------------------------------------------------------------------------------
Ending Shares 97.497
Ending NAV x $10.32
---------
Investment Return $1,006.17
Total Return Performance
- ------------------------
Investment Return $1,006.17
Less Initial Investment $1,000.00
---------
$6.17 / $1,000.00 x 100
Total Return: 0.62%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
CLASS C
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.29
Initial Shares 97.182
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 97.182 $0.117 1.108 98.290
- --------------------------------------------------------------------------------
Ending Shares 98.290
Ending NAV x $10.32
---------
Investment Return $1,014.35
Total Return Performance
- ------------------------
Investment Return $1,014.35
Less Initial Investment $1,000.00
---------
$14.35 / $1,000.00 x 100
Total Return: 1.44%
<PAGE>
DELAWARE GROUP TAX-FREE USA INTERMEDIATE
CLASS C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.29
Initial Shares 97.182
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 97.182 $0.117 1.108 98.290
- --------------------------------------------------------------------------------
Ending Shares 98.290
Ending NAV x $10.32
---------
$1,014.35
Less CDSC $10.00
---------
Investment Return $1,004.35
Total Return Performance
- ------------------------
Investment Return $1,004.35
Less Initial Investment $1,000.00
---------
$4.35 / $1,000.00 x 100
Total Return: 0.44%
<PAGE>
DELAWARE GROUP TAX-FREE INSURED
TOTAL RETURN PERFORMANCE
SIX MONTHS
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.31
Initial Shares 88.417
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1996 88.417 $0.291 2.375 90.792
- -------------------------------------------------------------------------------
Ending Shares 90.792
Ending NAV x $10.86
-----------
Investment Return $986.00
Total Return Performance
- ------------------------
Investment Return $986.00
Less Initial Investment $1,000.00
----------
($14.00) / $1,000.00 x 100
Total Return: -1.40%
<PAGE>
DELAWARE GROUP TAX-FREE INSURED
TOTAL RETURN PERFORMANCE
CLASS C
INCEPTION (EXCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.26
Initial Shares 88.810
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1996 88.810 $0.405 3.284 92.094
- -------------------------------------------------------------------------------
Ending Shares 92.094
Ending NAV x $10.86
------------
Investment Return $1,000.14
Total Return Performance
- ------------------------
Investment Return $1,000.14
Less Initial Investment $1,000.00
------------
$0.14 / $1,000.00 x 100
Total Return: 0.01%
<PAGE>
DELAWARE GROUP TAX-FREE INSURED
TOTAL RETURN PERFORMANCE
CLASS C
INCEPTION (INCLUDING CDSC)
- -----------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.26
Initial Shares 88.810
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1996 88.810 $0.405 3.284 92.094
- -------------------------------------------------------------------------------
Ending Shares 92.094
Ending NAV x 10.86
---------
$1,000.14
$9.64
---------
Investment Return $990.50
Total Return Performance
- ------------------------
Investment Return $990.50
Less Initial Investment $1,000.00
---------
($9.50) / $1,000.00 x 100
Total Return: -0.95%
<PAGE>
DELAWARE GROUP TAX-FREE INSURED
TOTAL RETURN PERFORMANCE
CLASS C
SIX MONTHS (EXCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.31
Initial Shares 88.417
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1996 88.417 $0.247 2.012 90.429
- -------------------------------------------------------------------------------
Ending Shares 90.429
Ending NAV x $10.86
----------
Investment Return $982.06
Total Return Performance
- ------------------------
Investment Return $982.06
Less Initial Investment $1,000.00
---------
($17.94) / $1,000.00 x 100
Total Return: -1.79%
<PAGE>
DELAWARE GROUP TAX-FREE INSURED
TOTAL RETURN PERFORMANCE
CLASS C
SIX MONTHS (INCLUDING CDSC)
- -----------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.31
Initial Shares 88.417
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1996 88.417 $0.247 2.012 90.429
- -------------------------------------------------------------------------------
Ending Shares 90.429
Ending NAV x 10.86
----------
$982.06
$9.60
----------
Investment Return $972.46
Total Return Performance
- ------------------------
Investment Return $972.46
Less Initial Investment $1,000.00
---------
($27.54) / $1,000.00 x 100
Total Return: -2.75%
<PAGE>
DELAWARE GROUP TAX-FREE INSURED
TOTAL RETURN PERFORMANCE
CLASS C
THREE MONTHS (EXCLUDING CDSC)
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.94
Initial Shares 91.408
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1996 91.408 $0.124 1.037 92.445
- -------------------------------------------------------------------------------
Ending Shares 92.445
Ending NAV x $10.86
---------
Investment Return $1,003.95
Total Return Performance
- ------------------------
Investment Return $1,003.95
Less Initial Investment $1,000.00
---------
$3.95 / $1,000.00 x 100
Total Return: 0.40%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000728352
<NAME> DELAWARE GROUP TAX-FREE FUND, INC.
<SERIES>
<NUMBER> 031
<NAME> TAX-FREE USA INTERMEDIATE FUND A CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 23,420,032
<INVESTMENTS-AT-VALUE> 23,912,805
<RECEIVABLES> 320,975
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 238,613
<TOTAL-ASSETS> 24,472,393
<PAYABLE-FOR-SECURITIES> 100,145
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72,247
<TOTAL-LIABILITIES> 172,392
<SENIOR-EQUITY> 23,544
<PAID-IN-CAPITAL-COMMON> 24,806,537
<SHARES-COMMON-STOCK> 2,191,333
<SHARES-COMMON-PRIOR> 1,969,203
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,022,853)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 492,773
<NET-ASSETS> 22,616,634
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,244,025
<OTHER-INCOME> 0
<EXPENSES-NET> 67,792
<NET-INVESTMENT-INCOME> 1,176,233
<REALIZED-GAINS-CURRENT> 44,088
<APPREC-INCREASE-CURRENT> (229,173)
<NET-CHANGE-FROM-OPS> 991,148
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,115,274
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 656,206
<NUMBER-OF-SHARES-REDEEMED> 506,192
<SHARES-REINVESTED> 72,116
<NET-CHANGE-IN-ASSETS> 2,859,232
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,066,941)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 106,549
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 224,191
<AVERAGE-NET-ASSETS> 21,081,110
<PER-SHARE-NAV-BEGIN> 10.410
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> (0.090)
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.320
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000728352
<NAME> DELAWARE GROUP TAX-FREE FUND, INC.
<SERIES>
<NUMBER> 032
<NAME> TAX-FREE USA INTERMEDIATE FUND B CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 23,420,032
<INVESTMENTS-AT-VALUE> 23,912,805
<RECEIVABLES> 320,975
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 238,613
<TOTAL-ASSETS> 24,472,393
<PAYABLE-FOR-SECURITIES> 100,145
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<OTHER-ITEMS-LIABILITIES> 72,247
<TOTAL-LIABILITIES> 172,392
<SENIOR-EQUITY> 23,544
<PAID-IN-CAPITAL-COMMON> 24,806,537
<SHARES-COMMON-STOCK> 144,374
<SHARES-COMMON-PRIOR> 91,148
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,022,853)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 492,773
<NET-ASSETS> 1,490,076
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,244,025
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<EXPENSES-NET> 67,792
<NET-INVESTMENT-INCOME> 1,176,233
<REALIZED-GAINS-CURRENT> 44,088
<APPREC-INCREASE-CURRENT> (229,173)
<NET-CHANGE-FROM-OPS> 991,148
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 56,831
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 62,607
<NUMBER-OF-SHARES-REDEEMED> 12,876
<SHARES-REINVESTED> 3,495
<NET-CHANGE-IN-ASSETS> 2,859,232
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,066,941)
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<GROSS-ADVISORY-FEES> 106,549
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<GROSS-EXPENSE> 224,191
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