DELAWARE GROUP TAX FREE FUND INC, 497, 1998-11-02

DELAWARE GROUP TAX FREE FUND INC
497, 1998-11-02

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Delaware Investments includes funds with a wide ---------------------------------------------------------------
range of investment objectives. Stock funds, income funds,
national and state-specific tax-exempt funds, money market
funds, global and international funds and closed-end funds TAX-FREE USA FUND
give investors the ability to create a portfolio that fits their
personal financial goals. For more information, contact your ---------------------------------------------------------------
financial adviser or call Delaware Investments at 800-523-
1918. TAX-FREE INSURED FUND

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TAX-FREE USA INTERMEDIATE FUND

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NATIONAL HIGH YIELD MUNICIPAL BOND FUND

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A CLASS
B CLASS
C CLASS
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INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR P R O S P E C T U S
Delaware Distributors, L.P.
1818 Market Street ---------------------------------------------------------------
Philadelphia, PA 19103

OCTOBER 28, 1998

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
Tax-Free USA Fund, Tax-Free Insured Fund
and Tax-Free USA Intermediate Fund:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

National High Yield Municipal Bond Fund:
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue ---------------
Minneapolis, MN 55479 DELAWARE
INVESTMENTS
---------------
</TABLE>

<PAGE>

TAX-FREE USA FUND PROSPECTUS
TAX-FREE INSURED FUND OCTOBER 28, 1998
TAX-FREE USA INTERMEDIATE FUND
NATIONAL HIGH YIELD MUNICIPAL BOND FUND

A CLASS SHARES
B CLASS SHARES
C CLASS SHARES

1818 Market Street, Philadelphia, PA 19103

For Prospectus and Performance:
Nationwide 800-523-1918

Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500

Representatives of Financial Institutions:
Nationwide 800-659-2265

This Prospectus describes shares of Tax-Free USA Fund ("USA Fund"),
Tax-Free Insured Fund ("Insured Fund") and Tax-Free USA Intermediate Fund
("Intermediate Fund") of Delaware Group Tax-Free Fund, Inc. ("Tax-Free Fund,
Inc."). This Prospectus also describes shares of National High Yield Municipal
Bond Fund of Voyageur Mutual Funds, Inc. ("Mutual Funds, Inc."). Each fund in
this Prospectus is referred to individually as a "Fund" and, collectively, as
the "Funds." Tax-Free Fund, Inc. and Mutual Funds, Inc. are professionally
managed mutual funds of the series type.

The investment objective of USA Fund, Insured Fund and Intermediate
Fund is to seek as high a level of current interest income exempt from federal
income tax as is available from Municipal Obligations (defined under Other
Investment Policies and Risk Considerations) and is consistent with prudent
investment management and preservation of capital. Insured Fund seeks to achieve
its objective by investing primarily in Municipal Obligations 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.

The investment objective of National High Yield Municipal Bond Fund is
to seek a high level of current income exempt from federal income tax primarily
through investment in a portfolio of medium- and lower-grade Municipal
Obligations. The Fund may invest in medium- and lower-grade Municipal
Obligations rated between BBB and B- (inclusive) by Standard & Poor's Ratings
Group ("S&P") or Fitch IBCA, Inc. ("Fitch"), Baa and B3 (inclusive) by Moody's
Investors Service, Inc. ("Moody's"), comparably rated short-term Municipal
Obligations and non-rated Municipal Obligations determined by the Fund's
investment adviser to be of comparable quality. The Fund may also invest in
higher rated securities. Investment in medium- and lower-grade Municipal
Obligations involves special risks as compared with investment in higher-grade
municipal securities, including potentially greater sensitivity to a general
economic downturn or to a significant increase in interest rates, greater

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market price volatility and less liquid secondary market trading. See Risk
Considerations under Investment Objectives and Policies. Investment in the Fund
may not be appropriate for all investors.

Each Fund offers Class A Shares, Class B Shares and Class C Shares
(individually a "Class" and, collectively, the "Classes").

This Prospectus sets forth information that you should read and
consider before you invest. Please retain it for future reference. The
Statements of Additional Information for the Funds ("Part B" of Tax-Free Fund,
Inc.'s and Mutual Funds, Inc.'s registration statement), dated October 28, 1998,
as they may be amended from time to time, contains additional information about
the Funds and have been filed with the Securities and Exchange Commission
("SEC"). 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. In addition, the SEC maintains a Web site (http://www.sec.gov) that
contains Part B, material we incorporated by reference and other information
regarding registrants that electronically file with the SEC.

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<PAGE>

TABLE OF CONTENTS

<S> <C> <C> <C>
Page Page
Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and Distributions
Financial Highlights Taxes
Investment Objectives and Policies
Suitability Calculation of Offering Price and
Investment Strategy Net Asset Value Per Share
Risk Considerations Management of the Funds
Other Investment Policies and
The Delaware Difference Risk Considerations
Plans and Services Appendix A - Ratings
Classes of Shares

</TABLE>

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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.

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<PAGE>

SYNOPSIS

Investment Objective
USA Fund--The investment 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 Obligations and is consistent with prudent investment management
and preservation of capital. Typically, the Municipal Obligations in the Fund
will have a maturity range between five and 30 years.

Insured Fund--The investment 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 Obligations and is consistent with prudent investment
management and preservation of capital. Insured Fund seeks to achieve its
objective by investing primarily in Municipal Obligations protected by insurance
guaranteeing the payment of principal and interest when due. Typically, the
Municipal Obligations in the Fund will have a maturity range between five and 30
years.

Intermediate Fund--The investment 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 Obligations and is consistent with prudent
investment management and preservation of capital. The Fund seeks to achieve its
objective by investing primarily in Municipal Obligations. The portfolio will
have a dollar weighted average maturity of between three and 10 years.

National High Yield Municipal Bond Fund--The investment objective of
National High Yield Municipal Bond Fund is to seek a high level of current
income exempt from federal income tax primarily through investment in a
portfolio of medium- and lower-grade Municipal Obligations. The weighted average
maturity of the investment portfolio of the Fund is expected to be approximately
15 to 25 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 USA Fund, Insured Fund and Intermediate Fund may be
invested in bonds the income from which is subject to the federal alternative
minimum tax. National High Yield Municipal Bond Fund may invest without limit in
securities that generate such income. 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 and Other
Investment Policies and Risk Considerations.

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 "Code"), the Funds will not be diversified as defined by the 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
portfolio which is nondiversified under the 1940 Act 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. This is generally the case
because nondiversified funds are typically dependent upon the securities of a
smaller number of issuers than is the case with diversified funds.

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<PAGE>

2. USA Fund may invest up to 20% of its assets, Intermediate Fund may
invest up to 10% of its assets and National High Yield Municipal Bond Fund may
invest primarily in high-yield securities (junk bonds) and, consequently,
greater risks may be involved with an investment in the Funds. See Quality
Restrictions and Risk Considerations under Investment Objectives and Policies.

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 and National High Yield Municipal Bond Fund have
the right to engage in options and each Fund has the right to engage in futures
transactions for hedging purposes, to counterbalance portfolio volatility and,
in connection with futures transactions, will maintain certain collateral in
special accounts established by futures commission merchants in the care of The
Chase Manhattan Bank. While a Fund does not engage in such transactions for
speculative purposes, there are risks that result from the use of these
instruments by the Funds, and an investor should carefully review the
descriptions of such in this Prospectus. Certain options and futures may be
considered to be derivative securities. Neither Tax-Free Fund, Inc. nor Mutual
Funds, Inc. is registered as a commodity pool operator nor is Delaware
Management Company (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. Each 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 Transfer Agent
The Manager furnishes investment management services to the Funds,
subject to the supervision and direction of Tax-Free Fund, Inc.'s or Mutual
Funds, Inc.'s, as applicable, Board of Directors. The Manager also provides
investment management services to certain of the other funds in the Delaware
Investments family. Delaware Distributors, L.P. (the "Distributor") is the
national distributor for each Fund and for all of the other mutual funds in the
Delaware Investments family. 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 Investments family. See Summary of Expenses and Management of the Funds
for further information regarding the Manager and the fees payable under each
Fund's Investment Management Agreement.

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Sales Charges

The price of Class A Shares for USA Fund, Insured Fund and National
High Yield Municipal Bond Fund includes a maximum front-end sales charge of
3.75% of the offering price and the price for Class A Shares of Intermediate
Fund includes a maximum front-end sales charge of 2.75% of the offering price.
The front-end sales charge is reduced on certain transactions of at least
$100,000 but under $1,000,000. For purchases of $1,000,000 or more, the
front-end sales charge is eliminated; if a dealer's commission is paid in
connection with those purchases, a contingent deferred sales charge ("Limited
CDSC") of 1% will be imposed if shares are redeemed during the first year after
the purchase for each Fund's Class A Shares and 0.50% will be imposed if shares
are redeemed during the second year after the purchase for USA Fund A Class,
Insured Fund A Class and National High Yield Municipal Bond Fund A Class. See
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange. Class A Shares are
also subject to annual 12b-1 Plan expenses for the life of the investment.
The price of Class B Shares of each Fund is equal to the net asset
value per share. Class B Shares of USA Fund, Insured Fund and National High
Yield Municipal Bond Fund 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 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. Class B Shares of USA Fund, Insured Fund and National High Yield
Municipal Bond Fund are subject to annual 12b-1 Plan expenses for approximately
eight years after purchase. Class B Shares of Intermediate Fund are subject to a
CDSC of: (i) 2% if shares are redeemed within two years of purchase; (ii) 1% if
shares are redeemed during the third year following purchase; and (iii) 0%
thereafter. Class B Shares of Intermediate Fund are subject to annual 12b-1 Plan
expenses for approximately five years after purchase. See Deferred Sales Charge
Alternative - Class B Shares and 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 generally must 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 that 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. See How
to Buy Shares.

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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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. and Mutual Funds, Inc. are open-end management
investment companies. Each Fund's portfolio of assets is nondiversified as
defined by the 1940 Act. Tax-Free Fund, Inc. was organized as a Maryland
corporation on August 17, 1983. Mutual Funds, Inc. was organized as a Minnesota
corporation in April 1993. National High Yield Municipal Bond Fund is one of
several series of Mutual Funds, Inc. See Shares under Management of the Funds.

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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
National High Yield Municipal Bond Fund Intermediate Fund
Class A Class B Class C Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares Shares Shares Shares
- ----------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)....................... 3.75% None None 2.75% None None

Maximum Sales Charge Imposed
on Reinvested Dividends (as a
percentage of offering price)............ 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(1) 4.00%(2) 1.00%(4) None(1) 2.00%(3) 1.00%(4)

Redemption Fees.......................... None(5) None(5) None(5) None(5) None(5) None(5)

</TABLE>
(1) Class A purchases of $1,000,000 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
Limited CDSC of 1% will be imposed on certain redemptions made during the
first year after the purchase for each Fund's A Class Shares and 0.50% will
be imposed on certain redemptions made during the second year after the
purchase for USA Fund A Class, Insured Fund A Class and National High Yield
Municipal Bond Fund A Class. Additional Class A purchase options involving
the imposition of a CDSC may be permitted as described in this Prospectus
from time to time. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption
and Exchange.
(2) USA Fund B Class shares, Insured Fund B Class shares and National High
Yield Municipal Bond Fund 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.
(3) Intermediate Fund 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.
(4) 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.
(5) First Union National Bank currently charges $7.50 per redemption for
redemptions payable by wire.

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Annual Operating Expenses
(as a percentage of average daily net assets)
- ------------------------------------------------------------------------------------------------------------------------
Other Operating Total Operating
Management Expenses Expenses
Fees (after voluntary (after voluntary
(after voluntary expense waivers and
waivers in the payments in the payments in the
case of case of case of
Intermediate Intermediate Intermediate
Fund and 12b-1 Plan Fund and Fund and
National High Expenses National High National High
Yield Municipal (including Yield Municipal Yield Municipal
Fund Bond Fund) service fees) Bond Fund) Bond Fund)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USA Fund
Class A Shares 0.59% 0.20%(3)(4) 0.18% 0.97%
Class B Shares 0.59% 1.00%(3) 0.18% 1.77%
Class C Shares 0.59% 1.00%(3) 0.18% 1.77%

Insured Fund
Class A Shares 0.60% 0.20%(3)(4) 0.30% 1.10%
Class B Shares 0.60% 1.00%(3) 0.30% 1.90%
Class C Shares 0.60% 1.00%(3) 0.30% 1.90%

Intermediate Fund
Class A Shares 0.00%(1) 0.15%(3)(4) 0.55%(1) 0.70%(1)
Class B Shares 0.00%(1) 1.00%(3) 0.55%(1) 1.55%(1)
Class C Shares 0.00%(1) 1.00%(3) 0.55%(1) 1.55%(1)

National High Yield
Municipal Bond Fund
Class A Shares 0.46%(2) 0.25%(4) 0.29%(2) 1.00%(2)
Class B Shares 0.46%(2) 1.00%(4) 0.29%(2) 1.75%(2)
Class C Shares 0.46%(2) 1.00%(4) 0.29%(2) 1.75%(2)

</TABLE>
(1) Beginning January 1, 1998, the Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by Intermediate
Fund and to pay certain of the Fund's expenses to the extent necessary to
ensure that the Total Operating Expenses of the Fund do not exceed 0.55%
exclusive of 12b-1 plan expenses, taxes, interest expense, brokerage fees
and commissions. This waiver and expense limitation will extend through
December 31, 1998. Prior to January 1, 1998, commitments of waiver and
payment by the Manager were different from that currently in effect for
the Fund were in place. The expense information set forth above with
respect to the Fund has been restated to reflect current fees. See Expenses
under Management of the Funds for a complete history of

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the commitments of waiver and payment by the Manager. If the voluntary
expense waivers were not in effect, the Total Operating Expenses of
Intermediate Fund A Class, Intermediate Fund B Class and Intermediate Fund
C Class, as a percentage of average daily net assets, would have been
1.33%, 2.18% and 2.18% respectively, reflecting Management Fees of 0.49%
for the fiscal year ended August 31, 1998.

(2) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by the National High Yield Municipal Bond
Fund and to pay the Fund's expenses to the extent necessary to ensure that
the Fund's total operating expenses (exclusive of 12b-1 plan expenses,
taxes, interest expense, brokerage fees and commissions) do not exceed, on
an annualized basis, 0.75% of the average daily net assets of each Class of
the Fund through June 30, 1999. If the voluntary expense waivers were not
in effect, the Total Operating Expenses of National High Yield Municipal
Bond Fund A Class, National High Yield Municipal Bond Fund B Class and
National High Yield Municipal Bond Fund C Class, as a percentage of average
daily net assets, would have been 1.12%, 1.87% and 1.87% respectively,
reflecting Management Fees of 0.65% for the fiscal period ended August 31,
1998. See Expenses under Management of the Funds for a discussion of the
waivers.

(3) The actual 12b-1 Plan expenses to be paid and, consequently, the Total
Operating Expenses of USA Fund A Class and Insured Fund 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 0.30% nor less than
0.10%. The annual 12b-1 Plan expenses for Intermediate Fund A Class have
been set by the Board of Directors at 0.15% of the average daily net assets
of such Class. The maximum annual 12b-1 Plan expenses permitted under the
12b-1 Plan for Class A Shares are 0.30% of the average daily net assets of
such Class. See Distribution (12b-1) and Service under Management of the
Funds.

(4) 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.

Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per Strategy. However,
effective November 1, 1996, the annual maintenance fee is waived until further
notice. Investors who utilize the Asset Planner for an Individual Retirement
Account ("IRA") will pay an annual IRA fee of $15 per Social Security number.
See Asset Planner in Part B.

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. For Intermediate Fund and National High Yield
Municipal Bond Fund, the following example assumes the voluntary waiver of the
management fee and payment of expenses by the Manager as discussed in this
Prospectus.

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<PAGE>

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 $47(1) $67 $89 $152 $47 $67 $89 $152
Class B Shares $58 $86 $116 $187(2) $18 $56 $96 $187(2)
Class C Shares $28 $56 $96 $208 $18 $56 $96 $208

Insured Fund

Class A Shares $48(1) $71 $96 $166 $48 $71 $96 $166
Class B Shares $59 $90 $123 $201(2) $19 $60 $103 $201(2)
Class C Shares $29 $60 $103 $222 $19 $60 $103 $222

Intermediate Fund

Class A Shares $34(1) $48 $64 $112 $34 $48 $64 $112
Class B Shares $35 $58 $83(3) $127(3) $15 $48 $83(3) $127(3)
Class C Shares $25 $48 $83 $181 $15 $48 $83 $181

National High Yield Municipal Bond Fund

Class A Shares $47(1) $68 $91 $155 $47 $68 $91 $155
Class B Shares $58 $85 $115 $186(2) $18 $55 $95 $186(2)
Class C Shares $28 $55 $95 $206 $18 $95 $95 $206
</TABLE>

(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 24 months after a purchase for USA Fund, Insured Fund
and National High Yield Municipal Bond Fund and within 12 months after a
purchase for Intermediate Fund. 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 Fund B Class
shares, Insured Fund B Class shares and National High Yield Municipal Bond
Fund 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. The ten-year expense numbers for Class B Shares reflect the
expenses of Class B Shares for years one through eight and the expenses for
Class A Shares for years nine and ten. 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 Fund B
Class Shares will be automatically converted into Intermediate Fund 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 Class A Shares. See Automatic Conversion of Class B Shares under Classes
of Shares for a description of the automatic conversion feature.

-11-
<PAGE>

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.

The purpose of the above tables is to assist investors in understanding
the various costs and expenses that they will bear directly or indirectly in
owning shares of the Funds.

-12-
<PAGE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

The following financial highlights of USA Fund, Insured Fund and USA
Intermediate Fund are derived from the Funds' financial statements 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 the Funds' Annual Report (including the report
of Ernst & Young LLP) may be obtained from Tax-Free Fund, Inc. upon request at
no charge.

The following financial highlights of National High Yield Municipal
Bond Fund are also derived from its financial statements and have been audited
by Ernst & Young LLP, independent auditors for the period January 1, 1998
through August 31, 1998 and the year ended December 31, 1997, and by the Fund's
previous independent auditors for the prior fiscal periods. The data for the
most recent fiscal period 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 Fund's
performance is contained in its Annual Report to shareholders. A copy of the
Fund's Annual Report (including the report of Ernst & Young LLP) may be obtained
from Mutual Funds, Inc. upon request at no charge.

Effective with the close of business on November 8, 1996, National High
Yield Municipal Bond Fund acquired the assets and assumed all identified
liabilities of Great Hall National Tax-Exempt Fund in a tax-free exchange by
issuing new shares. The Fund had no assets or liabilities prior to the
acquisition. Consequently, the information presented for the Fund prior to
November 8, 1996 represents the financial history of Great Hall National
Tax-Exempt Fund.

- --------------------------------------------------------------------------------

-13-
<PAGE>

<TABLE>
<CAPTION>
USA Fund Class A Shares
- ----------------------------------------------------------------------------------------------
Year Ended
8/31/98(1) 8/31/97(1) 8/31/96(1) 8/31/95(1) 8/31/94(1)

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.710 $11.550 $12.070 $12.040 $12.640

Income From Investment Operations
- ---------------------------------
Net Investment Income.................. $0.597 0.666 0.696 0.746 0.751
Net Gains (Losses) on Securities
(both realized and unrealized).... 0.310 0.210 (0.460) 0.030 (0.566)
----- ----- ------- ----- -------
Total From Investment Operations 0.907 0.876 0.236 0.776 0.185
----- ----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment
Income ........................... (0.597) (0.666) (0.696) (0.746) (0.751)
Distributions from Realized Gains...... (0.190) (0.050) (0.060) none (0.034)
------- ------- ------- ---- -------
Total Distributions............... (0.787) (0.716) (0.756) (0.746) (0.785)
------- ------- ------- ------- -------

Net Asset Value, End of Period......... $11.830 $11.710 $11.550 $12.070 $12.040
======= ====== ======= ======= =======

- ---------------------------------

Total Return(2)........................ 8.00% 7.79% 1.91% 6.74% 1.49%

- ---------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000's omitted)................... $586,848 $615,852 $700,853 $758,470 $745,796
Ratio of Expenses to Average
Daily Net Assets.................. 0.97% 0.94% 0.94% 0.92% 0.89%
Ratio of Net Investment Income
to Average Daily Net Assets....... 5.08% 5.73% 5.82% 6.29% 6.07%
Portfolio Turnover Rate................ 81% 44% 42% 27% 10%

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USA Fund Class A Shares
- -------------------------------------------------------------------------------------
Year Ended
8/31/92(1) 8/31/91 8/31/90 8/31/89

<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.560 $11.070 $11.600 $11.020

Income From Investment Operations
- ---------------------------------
Net Investment Income.................. 0.765 0.783 0.817 0.844
Net Gains (Losses) on Securities
(both realized and unrealized).... 0.570 0.490 (0.530) 0.580
----- ----- ------- -----
Total From Investment Operations 1.335 1.273 0.287 1.424
----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment
Income ........................... (0.765) (0.783) (0.817) (0.844)
Distributions from Realized Gains...... none none none none
---- ---- ---- ----
Total Distributions............... (0.765) (0.783) (0.817) (0.844)
------- ------- ------- -------

Net Asset Value, End of Period......... $12.130 $11.560 $11.070 $11.600
======= ======= ======= =======

- ---------------------------------

Total Return(2)........................ 11.91% 11.88% 2.50% 13.30%

- ---------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000's omitted)................... $702,988 $669,546 $611,505 $519,867
Ratio of Expenses to Average
Daily Net Assets.................. 0.80% 0.74% 0.75% 0.75%
Ratio of Net Investment Income
to Average Daily Net Assets....... 6.47% 6.91% 7.12% 7.35%
Portfolio Turnover Rate................ 21% 19% 14% 8%

</TABLE>

- --------------------------
(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 that is or was in effect nor the
Limited CDSC of 1% that may apply if certain purchases of shares are
redeemed during the first year after the purchase and 0.50% if such
purchases of shares are redeemed during the second year after the
purchase. See Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value under Redemption and Exchange.

-14-
<PAGE>

<TABLE>
<CAPTION>
USA Fund Class B Shares
----------------------------------------------------
Period
5/2/94(1)
Year Ended through
8/31/98 8/31/97 8/31/96 8/31/95 8/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $11.710 $11.550 $12.070 $12.040 $12.080

Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.503 0.573 0.600 0.649 0.214
Net Gains (Losses) on Securities
(both realized and unrealized)........... 0.310 0.210 (0.460) 0.030 (0.040)
------- ------- ------- ------- -------
Total from Investment Operations......... 0.813 0.783 0.140 0.679 0.174
------- ------- ------- ------- -------

Less Distributions
- ------------------
Dividends from Net Investment Income.............. (0.503) (0.573) (0.600) (0.649) (0.214)
Distributions from Realized Gains................. (0.190) (0.050) (0.060) none none
------- ------- ------- ------- -------
Total Distributions...................... (0.693) (0.623) (0.660) (0.649) (0.214)
------- ------- ------- ------- -------

Net Asset Value, End of Period.................... $11.830 $11.710 $11.550 $12.070 $12.040
======= ======= ======= ======= =======
- ----------------------------------

Total Return (2).................................. 7.15% 6.94% 1.11% 5.88% 1.45%(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......... $36,919 $35,055 $29,773 $17,779 $3,937
Ratio of Expenses to Average Daily Net Assets..... 1.77% 1.74% 1.74% 1.74% 1.74%(1)
Ratio of Net Investment Income to
Average Daily Net Assets................. 4.28% 4.93% 5.03% 5.47% 5.22%(1)
Portfolio Turnover Rate........................... 81% 44% 42% 27% 10%

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
USA Fund Class C Shares
------------------------------------------
Period
11/29/95(1)
Year Ended Year Ended through
8/31/98 8/31/97 8/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $11.710 $11.550 $12.230

Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.504 0.573 0.450
Net Gains (Losses) on Securities
(both realized and unrealized)........... 0.310 0.210 (0.620)
------- ------- -------
Total from Investment Operations......... 0.814 0.783 0.170
------- ------- -------

Less Distributions
- ------------------
Dividends from Net Investment Income.............. (0.504) (0.573) (0.450)
Distributions from Realized Gains................. (0.190) (0.050) (0.060)
------- ------- -------
Total Distributions...................... (0.694) (0.623) (0.510)
------- ------- -------

Net Asset Value, End of Period.................... $11.830 $11.710 $11.550
======= ======= =======
- ----------------------------------

Total Return (2).................................. 7.15% 6.94% (1.44%)(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......... $2,343 $1,505 $805
Ratio of Expenses to Average Daily Net Assets..... 1.77% 1.74% 1.74%(1)
Ratio of Net Investment Income to
Average Daily Net Assets................. 4.28% 4.93% 5.03%(1)
Portfolio Turnover Rate........................... 81% 44% 42%

</TABLE>

- ------------------------------
(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 Fund B Class
shares nor the contingent deferred sales charge of 1% for USA Fund C Class
shares redeemed within 12 months from the date of purchase.

-15-
<PAGE>

<TABLE>
<CAPTION>
Insured Fund Class A Shares
- --------------------------------------------------------------------------------------------------
Year Ended
8/31/98(1) 8/31/97(1) 8/31/96(1) 8/31/95(1) 8/31/94(1)

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.050 $10.860 $11.050 $11.020 $11.680

Income From Investment Operations
- ---------------------------------
Net Investment Income.................. 0.517 0.573 0.588 0.639 0.622
Net Gains (Losses) on Securities
(both realized and unrealized).... 0.295 0.281 (0.16) 0.030 (0.560)
----- ----- ----- ----- -------
Total From Investment Operations 0.812 0.854 0.428 0.669 0.062
----- ----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment
Income ........................... (0.517) (0.573) (0.588) (0.639) (0.622)
Distributions from Realized Gains...... (0.195) (0.091) (0.030) none (0.100)
------- ------ ------- ---- -------
Total Distributions............... (0.712) (0.664) (0.618) (0.639) (0.722)
------- ------ ------- ------- -------

Net Asset Value, End of Period......... $11.150 $11.050 $10.860 $11.050 $11.020
======= ====== ======= ======= =======

- ---------------------------------

Total Return(2)........................ 7.57% 8.07% 3.88% 6.33% 0.54%

- --------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000's omitted)................... $74,296 $78,377 $81,149 $86,756 $91,235
Ratio of Expenses to Average
Daily Net Assets.................. 1.10% 1.05% 0.98% 0.98% 0.98%
Ratio of Net Investment Income
to Average Daily Net Assets....... 4.65% 5.23% 5.29% 5.89% 5.48%
Portfolio Turnover Rate................ 63% 42% 45% 68% 56%

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Insured Fund Class A Shares
- ----------------------------------------------------------------------------------------------
Year Ended
8/31/93(1) 8/31/92(1) 8/31/91 8/31/90 8/31/89

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.310 $10.900 $10.460 $10.690 $10.300

Income From Investment Operations
- ---------------------------------
Net Investment Income.................. 0.638 0.674 0.699 0.714 0.727
Net Gains (Losses) on Securities
(both realized and unrealized).... 0.400 0.410 0.440 (0.230) 0.390
----- ----- ----- ------- -----
Total From Investment Operations 1.038 1.084 1.139 0.484 1.117
----- ----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment
Income ........................... (0.638) (0.674) (0.699) (0.714) (0.727)
Distributions from Realized Gains...... (0.030) none none none none
------- ---- ---- ---- ----
Total Distributions............... (0.668) (0.674) (0.699) (0.714) (0.727)
------- ------ ------- ------- -------

Net Asset Value, End of Period......... $11.680 $11.310 $10.900 $10.460 $10.690
======= ======= ======= ======= =======

- ---------------------------------

Total Return(2)........................ 9.48% 10.23% 11.20% 4.63% 11.15%

- --------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000's omitted)................... $96,118 $85,660 $76,700 $61,394 $54,131
Ratio of Expenses to Average
Daily Net Assets.................. 0.98% 0.86% 0.83% 0.83% 0.82%
Ratio of Net Investment Income
to Average Daily Net Assets....... 5.58% 6.06% 6.50% 6.69% 6.86%
Portfolio Turnover Rate................ 8% 29% 10% 13% 14%

</TABLE>
- --------------------------
(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 that is or was in effect nor the
Limited CDSC of 1% that may apply if certain purchases of shares are
redeemed during the first year after the purchase and 0.50% if such
purchases of shares are redeemed during the second year after the
purchase. See Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value under Redemption and Exchange.

-16-
<PAGE>

Insured Fund Class B Shares
----------------------------------------------------

Period
5/2/94(1)
Year Ended through
8/31/98 8/31/97 8/31/96 8/31/95 8/31/94

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $11.050 $10.860 $11.050 $11.020 $10.990

Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.427 0.485 0.499 0.550 0.179
Net Gains (Losses) on Securities
(both realized and unrealized)........... 0.295 0.281 (0.160) 0.030 0.030
----- ----- ------- ----- -----
Total from Investment Operations......... 0.722 0.766 0.339 0.580 0.209
----- ----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment Income.............. (0.427) (0.485) (0.499) (0.550) (0.179)
Distributions from Realized Gains................. (0.195) (0.091) (0.030) none none
------- ------- ------- ---- ----
Total Distributions...................... (0.622) (0.576) (0.529) (0.550) (0.179)
------- ------- ------- ------- -------

Net Asset Value, End of Period.................... $11.150 $11.050 $10.860 $11.050 $11.020
======= ======= ======= ======= =======
- ----------------------------------

Total Return (2).................................. 6.72% 7.21% 3.05% 5.47% 1.91%(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......... $4,268 $3,619 $3,375 $2,448 $826
Ratio of Expenses to Average Daily Net Assets..... 1.90% 1.85% 1.78% 1.80% 1.83%(1)
Ratio of Net Investment Income
to Average Daily Net Assets.............. 3.85% 4.43% 4.48% 5.07% 4.63%(1)
Portfolio Turnover Rate........................... 63% 42% 45% 68% 56%

</TABLE>

<PAGE>

Insured Fund Class C Shares
-----------------------------------------
Period
11/29/95(1)
Year Ended Year Ended through
8/31/98 8/31/97 8/31/96

<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $11.050 $10.860 $11.260

Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.425 0.485 0.375
Net Gains (Losses) on Securities
(both realized and unrealized)........... 0.295 0.281 (0.370)
----- ----- -------
Total from Investment Operations......... 0.720 0.766 0.005
----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment Income.............. (0.425) (0.485) (0.375)
Distributions from Realized Gains................. (0.195) (0.091) (0.030)
------- ------- -------
Total Distributions...................... (0.620) (0.576) (0.405)
------- ------- -------

Net Asset Value, End of Period.................... $11.150 $11.050 $10.860
======= ======= =======
- ----------------------------------

Total Return (2).................................. 6.72% 7.21% 0.01%(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......... $321 $89 $120
Ratio of Expenses to Average Daily Net Assets..... 1.90% 1.85% 1.78%(1)
Ratio of Net Investment Income
to Average Daily Net Assets.............. 3.85% 4.43% 4.48%(1)
Portfolio Turnover Rate........................... 63% 42% 45%

</TABLE>

- ------------------------------
(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 Insured Fund B
Class shares nor the contingent deferred sales charge of 1% for Insured
Fund C Class shares redeemed within 12 months from the date of purchase.

-17-
<PAGE>

Intermediate Fund Class A Shares
----------------------------------------------------------------------------------
Period
1/7/93(1)
Year Ended through
8/31/98 8/31/97 8/31/96 8/31/95 8/31/94 8/31/93

<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $10.460 $10.320 $10.410 $10.320 $10.630 $10.000

Income From Investment Operations
- ---------------------------------
Net Investment Income........................... 0.501 0.524 0.550 0.550 0.530 0.330
Net Gains (Losses) on Securities
(both realized and unrealized).......... 0.250 0.140 (0.090) 0.090 (0.310) 0.630
----- ----- ------- ----- ------- -----
Total from Investment Operations........ 0.751 0.664 0.460 0.640 0.220 0.960
----- ----- ----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment Income............ (0.501) (0.524) (0.550) (0.550) (0.530) (0.330)
Distributions from Realized Gains............... none none none none none none
---- ---- ---- ---- ---- ----
Total Distributions..................... (0.501) (0.524) (0.550) (0.550) (0.530) (0.330)
------- ------- ------- ------- ------- -------

Net Asset Value, End of Period.................. $10.710 $10.460 $10.320 $10.410 $10.320 $10.630
======= ======= ======= ======= ======= =======
- ----------------------------------

Total Return (2)................................ 7.34% 6.57% 4.52% 6.43% 2.09% 9.75%(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)....... $22,562 $21,635 $22,617 $20,492 $28,193 $14,684
Ratio of Expenses to Average Daily Net Assets... 0.67% 0.43% 0.25% 0.25% 0.25% 0.25%(1)
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation............. 1.33% 1.02% 0.95% 1.07% 1.19% 1.94%(1)
Ratio of Net Investment Income
to Average Daily Net Assets............. 4.73% 5.03% 5.29% 5.37% 5.00% 4.84%(1)
Ratio of Net Investment Income to Average Daily
Net Assets Prior to Expense Limitation.. 4.07% 4.44% 4.59% 4.55% 4.06% 3.15%(1)
Portfolio Turnover Rate......................... 104% 34% 15% 63% 81% 53%

</TABLE>
- -----------------------------
(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) Does not reflect maximum sales charge that is or was in effect 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
Expenses under Management of the Funds.

-18-
<PAGE>

<TABLE>
<CAPTION>
Intermediate Fund Class B Shares
-----------------------------------------------------

Period
5/2/94(1)
Year Ended through
8/31/98 8/31/97 8/31/96 8/31/95 8/31/94

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $10.460 $10.320 $10.410 $10.320 $10.230

Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.411 0.436 0.460 0.460 0.150
Net Gains (Losses) on Securities
(both realized and unrealized)........... 0.250 0.140 (0.090) 0.090 0.090
----- ----- ------- ----- -----
Total from Investment Operations......... 0.661 0.576 0.370 0.550 0.240
----- ----- ----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment Income.............. (0.411) (0.436) (0.460) (0.460) (0.150)
Distributions from Realized Gains................. none none none none none
---- ---- ---- ---- ----
Total Distributions...................... (0.411) (0.436) (0.460) (0.460) (0.150)
------- ------- ------- ------- -------

Net Asset Value, End of Period.................... $10.710 $10.460 $10.320 $10.410 $10.320
======= ======= ======= ======= =======
- ----------------------------------

Total Return (2).................................. 6.43% 5.67% 3.63% 5.53% 2.31%(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......... $1,933 $1,832 $1,490 $949 $597
Ratio of Expenses to Average Daily Net Assets..... 1.52% 1.28% 1.10% 1.10% 1.10%(1)
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation.............. 2.18% 1.87% 1.80% 1.92% 2.04%(1)
Ratio of Net Investment Income
to Average Daily Net Assets.............. 3.88% 4.18% 4.44% 4.52% 4.15%(1)
Ratio of Net Investment Income to Average Daily
Net Assets Prior to Expense Limitation... 3.22% 3.59% 3.74% 3.70% 3.21%(1)
Portfolio Turnover Rate........................... 104% 34% 15% 63% 81%

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Intermediate Fund Class C Shares
------------------------------------------
Period
11/29/95(1)
Year Ended Year Ended through
8/31/98 8/31/97 8/31/96

<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $10.460 $10.320 $10.480

Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.411 0.436 0.035
Net Gains (Losses) on Securities
(both realized and unrealized)........... 0.250 0.140 (0.160)
----- ----- -------
Total from Investment Operations......... 0.661 0.576 0.190
----- ----- -----

Less Distributions
- ------------------
Dividends from Net Investment Income.............. (0.411) (0.436) (0.350)
Distributions from Realized Gains................. none none none
---- ---- ----
Total Distributions...................... (0.411) (0.436) (0.350)
------- ------- -------

Net Asset Value, End of Period.................... $10.710 $10.460 $10.320
======= ======= =======
- ----------------------------------

Total Return (2).................................. 6.43% 5.67% 1.84%(1)

- ----------------------------------

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......... $1,996 $1,426 $193
Ratio of Expenses to Average Daily Net Assets..... 1.52% 1.28% 1.10%(1)
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation.............. 2.18% 1.87% 1.80%(1)
Ratio of Net Investment Income
to Average Daily Net Assets.............. 3.88% 4.18% 4.44%(1)
Ratio of Net Investment Income to Average Daily
Net Assets Prior to Expense Limitation... 3.22% 3.59% 3.74%(1)
Portfolio Turnover Rate........................... 104% 34% 15%

</TABLE>
- -----------------------
(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%-2% depending upon the holding period for Intermediate Fund B
Class shares nor the contingent deferred sales charge of 1% for
Intermediate Fund C Class shares redeemed within 12 months from the date of
purchase. Total return reflects the waiver of fees referenced in Expenses
under Management of the Funds.

-19-
<PAGE>

<TABLE>
<CAPTION>
National High Yield Municipal Bond Fund A Class Shares
- ----------------------------------------------------------------------------------------------------------------------------
Period Period
1/1/98 Year 8/1/96
through Ended through Year Ended
8/31/98 12/31/97(1) 12/31/96(2) 7/31/96 7/31/95 7/31/94

<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $10.720 $10.400 $10.190 $10.170 $10.170 $10.500

Income from Investment Operations
- ---------------------------------
Net Investment Income.................................. 0.398 0.648 0.260 0.625 0.648 0.624
Net Gains (Losses) on Securities
(both realized and unrealized) .................... 0.115 0.390 0.210 0.148 0.045 (0.313)
----- ----- ----- ----- ----- -----
Total From Investment Operations....................... 0.513 1.038 0.470 0.773 0.693 0.311
----- ----- ----- ----- ----- -----

Less Dividends and Distributions
- --------------------------------
Dividends From Net Investment Income................... (0.398) (0.647) (0.260) (0.625) (0.648) (0.624)
Distributions From Realized
Gains ............................................. (0.035) (0.071) none (0.128) (0.045) (0.017)
------- ------- ---- ------ ----- -----
Total Distributions.................................... (0.433) (0.718) (0.260) (0.750) (0.690) (0.640)
------- ------- ------- ------ ------- -------

Net Asset Value, End of Period......................... $10.800 $10.720 $10.400 $10.190 $10.170 $10.170
======= ======= ======= ======= ======= =======
- ------------------------------
Total Return(3)........................................ 4.87% 10.32% 4.52% 7.78% 7.16% 2.99%

- ------------------------------

Ratio and Supplemental Data
- ---------------------------
Net Assets, End of Period (000's omitted).............. $69,606 $55,458 $59,105 $63,460 $66,357 $72,172
Ratio of Expenses to Average Daily Net Assets.......... 0.92%(4) 0.84% 0.87%(4) 0.85% 0.79% 0.91%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation........................ 1.12%(4) 1.12% 1.07%(4) 0.96% 0.90% 1.01%
Ratio of Net Investment Income to
Average Daily Net Assets........................... 5.52%(4) 6.15% 6.06%(4) 6.10% 6.45% 5.98%
Ratio of Net Investment Income to Average Net
Assets Prior to Expense Limitation................. 5.32%(4) 5.87% 5.86%(4) 5.99% 6.34% 5.88%
Portfolio Turnover Rate................................ 43%(4) 45% 7% 0% 8% 28%
</TABLE>

<PAGE>

Year Ended
7/31/93 7/31/92 7/31/91 7/31/90 7/31/89

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $10.220 $9.650 $9.630 $9.680 $9.250

Income from Investment Operations
- ---------------------------------
Net Investment Income.................................. 0.652 0.703 0.697 0.669 0.692
Net Gains (Losses on Securities
(both realized and unrealized)..................... 0.280 0.570 0.020 (0.050) 0.430
----- ----- ----- -----
Total From Investment Operations....................... 0.932 1.273 0.717 0.619 1.122
----- ----- ----- ----- -----

Less Dividends and Distributions
- --------------------------------
Dividends From Net Investment Income................... (0.652) (0.703) (0.697) (0.669) (0.692)
Distributions From Realized
Gains ............................................. none none none none none
---- ---- ---- ---- ----
Total Dividends and Distributions...................... (0.650) (0.703) (0.697) (0.669) (0.692)
------- ------- ------- ------- -------

Net Asset Value, End of Period......................... $10.500 $10.220 $9.650 $9.630 $9.680
======= ======= ====== ====== ======
- ------------------------------
Total Return(3)........................................ 9.45% 13.84% 7.76% 6.69% 12.55%

- ------------------------------

Ratio and Supplemental Data
- ---------------------------
Net Assets, End of Year (000's omitted)............... $58,048 $43,166 $46,812 $36,439 $34,519
Ratio of Expenses to Average Daily Net Assets......... 1.01% 0.84% 0.96% 1.23% 1.02%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation........................ 1.24% 1.14% 1.26% 1.23% 1.20%
Ratio of Net Investment Income to
Average Daily Net Assets........................... 6.32% 7.15% 7.26% 6.99% 7.36%
Ratio of Net Investment Income to Average Net
Assets Prior to Expense Limitation................. 6.09% 6.85% 6.96% 6.99% 7.18%
Portfolio Turnover Rate................................ 16% 15% 14% 33% 16%

</TABLE>
- ---------------------------
(1) Commencing May 1, 1997, the Manager replaced Voyageur Fund Managers, Inc.
as the Fund's investment manager.
(2) On November 6, 1996, the Fund's shareholders approved a change of
investment adviser from I.F.G. Asset Management Services, Inc. to Voyageur
Fund Managers, Inc.
(3) Does not reflect maximum sales charge that is or was in effect nor the
Limited CDSC of 1% that may apply if certain purchases of shares are
redeemed during the first year after the purchase and 0.50% if such
purchases of shares are redeemed during the second year after the purchase.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value. Total returns for periods less than 12
months has not been annualized. Total returns reflect any expense
limitations in effect during the period.
(4) Annualized.

-20-
<PAGE>

National High Yield Municipal Bond Fund B Class Shares
------------------------------------------------------
Period Period Period
1/1/98 Year 12/18/96(1)
through Ended through
8/31/98 12/31/97(2) 12/31/96

<S> <C> <C> <C>
Net Asset Value, Beginning of Period................ $10.730 $10.400 $10.370

Income From Investment Operations
- ---------------------------------
Net Investment Income............................... 0.348 0.534 0.010
Net Gains (Losses) on Securities
(both realized and unrealized)............... 0.122 0.433 0.030
----- ----- -----
Total From Investment Operations.................... 0.470 0.967 0.040
----- ----- -----

Less Dividends and Distributions
- --------------------------------
Dividends From Net Investment Income (Loss)......... (0.345) (0.566) (0.010)
Distributions From Realized Gains .................. (0.035) (0.071) none
------- ------- ----
Total Dividends and Distributions................... (0.380) (0.637) (0.010)
------- ------- -------

Net Asset Value, End of Period...................... $10.820 $10.730 $10.400
======= ======= =======
- -----------------------

Total Return(3)..................................... 4.44% 9.57% 0.43%

- -----------------------

Ratios and Supplemental Data
- ----------------------------
Net Assets, End of Period (000's omitted)........... $10,620 $3,573 $88
Ratio of Expenses to Average Daily Net Assets....... 1.67%(4) 1.56% 1.45%(4)
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation.................. 1.87%(4) 1.84% 1.66%(4)
Ratio of Net Investment Income to
Average Net Assets........................... 4.77%(4) 5.43% 4.65%(4)
Ratio of Net Investment Income to Average
Net Assets Prior to Expense Limitation....... 5.57%(4) 5.15% 4.44%(4)
Portfolio Turnover Rate ............................ 43%(4) 45% 7%
</TABLE>

<PAGE>

National High Yield Municipal Bond Fund C Class Shares
------------------------------------------------------
Period Period
1/1/98 5/26/97(1)
through through
8/31/98 12/31/97

<S> <C> <C>
Net Asset Value, Beginning of Period................ $10.740 $10.400

Income From Investment Operations
- ---------------------------------
Net Investment Income............................... 0.348 0.315
Net Gains (Losses on Securities
(both realized and unrealized)............... 0.122 0.391
----- -----
Total From Investment Operations.................... 0.470 0.706
----- -----

Less Dividends and Distributions
- --------------------------------
Dividends From Net Investment Income (Loss)......... (0.345) (0.335)
Distributions From Realized
Gains ...................................... (0.035) (0.071)
------- -------
Total Dividends and Distributions................... (0.380) (0.406)
------- -------

Net Asset Value, End of Period...................... $10.830 $10.740
======= -------
- -----------------------

Total Return(3)..................................... 4.44% 6.88%

- -----------------------

Ratios and Supplemental Data
- ----------------------------
Net Assets, End of Period (000's omitted)........... $4,690 $1,220
Ratio of Expenses to Average Daily Net Assets....... 1.67%(4) 1.62%(4)
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation.................. 1.87%(4) 1.90%(4)
Ratio of Net Investment Income to
Average Net Assets........................... 4.77%(4) 5.37%(4)
Ratio of Net Investment Income to Average
Net Assets Prior to Expense Limitation....... 4.57%(4) 5.09%(4)
Portfolio Turnover Rate ............................ 43%(4) 45%
</TABLE>

- --------------------------
(1) Commencement of operations.
(2) Commencing May 1, 1997, the Manager replaced Voyageur Fund Managers, Inc.
as the Fund's investment manager.
(3) Total return does not reflect the contingent deferred sales charge which
varies from 1% - 4% depending upon the holding period for Class B Shares
and 1% for Class C Shares redeemed within 12 months from the date of
purchase. See Contingent Deferred Sales Charge - Class B Shares and Class C
Shares. Total return for periods less than 12 months has not been
annualized. Total returns reflect any expense limitations in effect during
the period.
(4) Annualized.

-21-
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment 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 Obligations and is consistent with prudent investment management and
preservation of capital. Typically, the Municipal Obligations in the Fund will
have a maturity range between five and 30 years.

The investment 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 Obligations and is consistent with prudent investment management and
preservation of capital. Insured Fund seeks to achieve its objective by
investing primarily in Municipal Obligations protected by insurance guaranteeing
the payment of principal and interest when due. Typically, the Municipal
Obligations in the Fund will have a maturity range of between five and 30 years.

The investment 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 Obligations and is consistent with prudent investment management
and preservation of capital. The Fund seeks to achieve its objective by
investing primarily in Municipal Obligations. The portfolios will have a dollar
weighted average maturity of between three and 10 years.

The investment objective of National High Yield Municipal Bond Fund is
to seek a high level of current income exempt from federal income tax primarily
through investment in a portfolio of medium- and lower-grade Municipal
Obligations. The weighted average maturity of the investment portfolio of the
Fund is expected to be approximately 15 to 25 years. However, if the Manager
determines that market conditions warrant a shorter average maturity, the Fund's
investments will be adjusted accordingly.

The investment objective of each Fund cannot be changed without
approval by the shareholders of that Fund. There is no assurance that the
investment objective of each Fund can be achieved.

SUITABILITY
The Fund may be suitable for investors interested in high current
income flow exempt from federal income tax.

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 USA Fund, Insured Fund and Intermediate Fund may be
invested in bonds the income from which is subject to the federal alternative
minimum tax. National High Yield Municipal Bond Fund may invest without limit in
securities that generate such income. The Fund may not be a suitable investment
for investors who are already subject to the alternative minimum tax or who
would become subject to the alternative minimum tax as a result of an investment
in the Fund. See Taxes.

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 for an investor whose primary objective is stability of principal. The
value of shares of Intermediate Fund will tend to fluctuate less than the value
of shares of USA, Insured and National High Yield Municipal Bond Funds. This is
because the average maturity of Intermediate Fund will tend to be shorter than
the average maturity of USA, Insured and National High Yield Municipal Bond
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.

-22-
<PAGE>

Investors should be willing to accept the risk of investments in
Municipal Obligations. The insurance features of 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 other
Funds, but such bonds remain subject to the risk of market fluctuation. Also,
there is no assurance that any insurance company will meet its obligations.

National High Yield Municipal Bond Fund may invest primarily in
lower-rated securities and USA and Intermediate Funds each may invest a portion
of its assets in such securities. While investments in lower-rated securities
have the potential for higher yields, they are more speculative and increase the
credit risk of a Fund's portfolio. Changes in the market value of the portfolio
securities will not affect interest income from such securities, but will be
reflected in the Fund's net asset value. Investors should be willing to accept
the risks, including the risk of net asset value fluctuations, associated with
investing in these securities.

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 reduce the bookkeeping
and administrative inconvenience which is typically connected with direct
purchases of the type of securities in which the Funds invest.

Investors should not consider purchases of shares of the Funds as
equivalent to a complete investment program. Delaware Investments offers funds,
generally available through registered dealers, which may be used together to
create a more complete investment program.

INVESTMENT STRATEGY

Tax-Exempt Investments
Each Fund invests primarily in Municipal Obligations paying interest
income which, in the opinion of the bond issuer's counsel, is exempt from
federal income tax. Municipal Obligations include 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 Obligations 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 obligations. With respect to the National
High Yield Municipal Bond Fund, Municipal Obligations also include certain
derivative instruments. See Other Investment Policies and Risk Considerations.
Typically, the maturity of Municipal Obligations in which USA Fund and Insured
Fund invest will range between five and 30 years, Intermediate Fund will have an
average maturity between three and 10 years and National High Yield Municipal
Bond Fund will have an average maturity between approximately 15 to 25 years.

USA Fund, Insured Fund and Intermediate Fund intend to invest at least
80% of their respective net assets under normal market conditions in Municipal
Obligations, the interest of which is exempt from federal income tax as a
fundamental policy. National High Yield Municipal Bond Fund will attempt to
invest 100% (and as a matter of fundamental policy during normal circumstances
will invest at least 80%) of the value of its net assets in Municipal
Obligations, the interest on which is exempt from regular federal income tax.
USA Fund, Insured Fund and Intermediate Fund each may invest up to 20% of its
net assets and National High Yield Municipal Bond Fund may invest without limit
in obligations 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

-23-
<PAGE>

item under federal tax law and is subject to the federal alternative
minimum tax. During times of adverse market conditions when a defensive
investment posture is warranted, each Fund may temporarily select investments
without regard to the foregoing policies.

The following table shows what the impact of tax-free investing can be
for shareholders.

<TABLE>
<CAPTION>
1998 Federal Marginal Tax Rates
Tax-Exempt Yields
Federal 4.0%* 5.0%* 6.0%* 7.0%*
Taxable Taxable Marginal Federal Federal Federal Federal
Income Income Tax Taxable Taxable Taxable Taxable
Single Return Joint Return Rate Equivalent Equivalent Equivalent Equivalent
- ------------- ------------ ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$0-$25,350 $0-$42,350 15% 4.7% 5.9% 7.1% 8.2%
$25,351-$61,400 $42,351-$102,300 28% 5.6% 6.9% 8.3% 9.7%
$61,401-$128,100 $102,301-$155,950 31% 5.8% 7.2% 8.7% 10.1%
$128,101-$278,450 $155,950-$278,450 36% 6.3% 7.8% 9.4% 10.9%
Over $278,450 Over $278,450 39.6% 6.6% 8.3% 9.9% 11.6%
</TABLE>

The equivalent taxable yields are calculated on 4%, 5%, 6% and 7%
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. In addition, the tax rates do
not take into consideration any state personal or property taxes.

* This should not be considered representative of a Fund's yield at any
specific time.

Quality Restrictions

USA Fund, Insured Fund and Intermediate Fund -- 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, S&P or Fitch 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, S&P or Fitch 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, that in the Manager's
opinion equivalent in credit quality to obligations rated lower than the top
four grades. 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 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 Risk Considerations, below.

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

-24-
<PAGE>

interest or principal is not paid by the issuer when due. At present, the
Municipal Bond Insurance Association ("MBIA"), AMBAC Indemnity Corporation
("AMBAC Indemnity"), Financial Guaranty Insurance Company ("FGIC") and Financial
Security Assurance ("FSA") provide a substantial portion of such insurance.
Accordingly, at different times, a substantial portion of Insured Fund's
portfolio may consist of Municipal Obligations 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 but, instead, reviews the
creditworthiness of the actual issuer and its ability to pay interest and
principal. Insurance on Municipal Obligations that is purchased by 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.

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.

National High Yield Municipal Bond Fund -- National High Yield
Municipal Bond Fund will normally invest at least 65% of its total assets in
medium-and lower-grade Municipal Obligations rated, at the time of investment,
between BBB and B- (inclusive) by S&P, Baa and B3 (inclusive) by Moody's, or BBB
and B-(inclusive) by Fitch, or Municipal Obligations determined by the Manager
to be of comparable quality.

Medium-grade Municipal Obligations are rated BBB by S&P or Fitch, Baa
by Moody's or are determined by the Manager to be of comparable quality.

The Fund may invest in lower-grade Municipal Obligations rated, at the
time of investment, no lower than B- by S&P or Fitch, or B3 by Moody's, or in
municipal securities determined by the Manager to be of comparable quality.
Municipal Obligations rated B by S&P or Fitch generally are regarded by S&P or
Fitch, on balance, as predominantly speculative with respect to capacity to pay
interest or repay principal in accordance with the terms of the obligations.
While such securities will likely have some quality and protective
characteristics, in S&P's or Fitch's view these are outweighed by large
uncertainties or major risk exposure to adverse conditions. Securities rated B
by Moody's are viewed by Moody's as generally lacking characteristics of the
desirable investment. In Moody's view, assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.

The Fund will not make initial investments in Municipal Obligations
rated, at the time of investment, below B- by S&P or Fitch, or below B3 by
Moody's, or in Municipal Obligations determined by the Manager to be of
comparable quality. The Fund may retain Municipal Obligations which are
downgraded after investment. There is no minimum rating with respect to
securities that the Fund may hold if downgraded after investment.

Investment in medium- and lower-grade securities involves special risks
as compared with investment in higher-grade securities, including potentially
greater sensitivity to a general economic downturn or to a significant increase
in interest rates, greater market price volatility and less liquid secondary
market trading. See Risk Considerations, below. There can be no assurance that
the Fund will achieve its investment objective, and the Fund may not be an
appropriate investment for all investors.

-25-
<PAGE>

At times the Manager may judge that conditions in the markets for
medium- and lower-grade Municipal Obligations make pursuing the Fund's basic
investment strategy of investing primarily in such Municipal Obligations
inconsistent with the best interests of shareholders. At such times, the Fund
may invest all or a portion of its assets in higher grade Municipal Obligations
and in Municipal Obligations determined by the Manager to be of comparable
quality. Although such higher grade Municipal Obligations generally entail less
credit risk, such higher grade Municipal Obligations may have a lower yield than
medium and lower grade Municipal Obligations and investment in such higher grade
Municipal Obligations may result in a lower yield to Fund shareholders. The
Manager also may judge that conditions in the markets for long- and
intermediate-term Municipal Obligations in general make pursuing the Fund's
basic investment strategy inconsistent with the best interests of the Fund's
shareholders. At such times, the Fund may pursue strategies primarily designed
to reduce fluctuations in the value of the Fund's assets, including investing
the Fund's assets in high-quality, short-term Municipal Obligations and in
high-quality, short-term taxable securities. See Taxes.

The Fund may invest without limitation in short-term Municipal
Obligations or in taxable obligations on a temporary, defensive basis due to
market conditions or, with respect to taxable obligations, for liquidity
purposes. Such taxable obligations, whether purchased for liquidity purposes or
on a temporary, defensive basis, may include: obligations of the U.S.
government, its agencies or instrumentalities; other debt securities rated
within the three highest grades by either Moody's, Fitch or S&P; commercial
paper rated in the highest grade by any of such rating services (Prime-1, F-1+
or A-1, respectively); certificates of deposit and bankers' acceptances of
domestic banks which have capital, surplus and undivided profits of over $100
million; high-grade taxable Municipal Obligations; and repurchase agreements
with respect to any of the foregoing investments. The Fund also may hold its
assets in cash and in securities of tax-exempt money market mutual funds.

* * *
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.

Concentration
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, except with
respect to National High Yield Municipal Bond Fund, 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.

A brief discussion of those factors that materially affected each
Fund's performance during it's most recently completed fiscal year appears in
the Funds' Annual Report. For a further discussion of the Funds' other
investment policies, see Other Investment Policies and Risk Considerations in
this Prospectus. Part B sets forth other investment restrictions.

-26-
<PAGE>

RISK CONSIDERATIONS

General
The yields on Municipal Obligations are dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, general
economic and monetary conditions, conditions in the relevant market, the size of
a particular issue, maturity of the obligation and the rating of the issue.
Generally, the value of Municipal Obligations will tend to fall as interest
rates rise and will tend to increase as interest rates decrease. In addition,
Municipal Obligations of longer maturity generally produce higher current yields
than Municipal Obligations with shorter maturities but are subject to greater
price fluctuation due to changes in interest rates, tax laws and other general
market factors. Lower rated Municipal Obligations generally produce a higher
yield than higher rated Municipal Obligations due to the perception of a greater
degree of risk as to the payment of principal and interest. Certain Municipal
Obligations held by the a Fund may permit the issuer at its option to "call," or
redeem, its securities. If an issuer were to redeem securities held by the Fund
during a time of declining interest rates, the Fund might not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.

Special Risks Considerations Regarding Medium- and Lower-Grade Municipal
Obligations
Each Fund, except Insured Fund, invests in medium- and lower-grade
Municipal Obligations. Municipal Obligations which are in the medium and lower
grade categories generally offer a higher current yield than is offered by
higher-grade Municipal Obligations but they also generally involve greater price
volatility and greater credit and market risk. Credit risk relates to the
issuer's ability to make timely payment of interest and principal when due.
Market risk relates to the changes in market value that occur as a result of
variation in the level of prevailing interest rates and yield relationships in
the municipal securities market. Debt securities rated BB or below by S&P or
Fitch and B or below by Moody's are commonly referred to as "junk bonds."

The value of a Fund's portfolio securities can be expected to fluctuate
over time. When interest rates decline, the value of a portfolio invested in
fixed-income securities generally can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed-income
securities generally can be expected to decline. However, the secondary market
prices of medium- and lower-grade Municipal Obligations are less sensitive to
changes in interest rates and are more sensitive to adverse economic changes or
individual issuer developments than are the secondary market prices of
higher-grade debt securities. Such events also could lead to a higher incidence
of defaults by issuers of medium- and lower-grade Municipal Obligations as
compared with historical default rates. In addition, changes in interest rates
and periods of economic uncertainty can be expected to result in increased
volatility in the market price of the Municipal Obligations in the Fund's
portfolio and thus in the net asset value of the Fund invested in such
instruments. Also, adverse publicity and investor perceptions, whether or not
based on rational analysis, may affect the value and liquidity of medium- and
lower-grade Municipal Obligations. The secondary market value of Municipal
Obligations structured as zero-coupon securities and payment-in-kind securities
may be more volatile in response to changes in interest rates than debt
securities which pay interest periodically in cash. Investment in such
securities also involves certain tax considerations.

Increases in interest rates and changes in the economy may adversely
affect the ability of issuers of medium- and lower-grade Municipal Obligations
to pay interest and to repay principal, to meet projected financial goals and to
obtain additional financing. In the event that an issuer of securities held by a
Fund experiences difficulties in the timely payment of principal or interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, a Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the Fund may be
unable to obtain full recovery thereof.

-27-
<PAGE>

To the extent that there is no established retail market for some of
the medium- or lower-grade Municipal Obligations in which the Funds may invest,
trading in such securities may be relatively inactive. During periods of reduced
market liquidity and in the absence of readily available market quotations for
medium- and lower-grade Municipal Obligations held in a Fund's portfolio, the
ability of the pricing agent to value the Fund's securities becomes more
difficult and the pricing agent's use of judgment may play a greater role in the
valuation of the Fund's securities due to the reduced availability of reliable
objective data. The effects of adverse publicity and investor perceptions may be
more pronounced for securities for which no established retail market exists as
compared with the effects on securities for which such a market does exist.
Further, a Fund may have more difficulty selling such securities in a timely
manner and at their stated value than would be the case for securities for which
an established retail market does exist.

The Manager seeks to minimize the risks involved in investing in
medium- and lower-grade Municipal Obligations through multiple portfolio
holdings, careful investment analysis, and attention to current developments and
trends in the economy and financial and credit markets. A Fund will rely on the
Manager's judgment, analysis and experience in evaluating the creditworthiness
of an issue. In its analysis, 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 regulator matters. The Manager may consider the credit ratings of
Moody's, Fitch, and S&P in evaluating Municipal Obligations, although it does
not rely primarily on these ratings. Such ratings evaluate only the safety of
principal and interest payments, not market value risk. Additionally, because
the creditworthiness of an issuer may change more rapidly than is able to be
timely reflected in changes in credit ratings, the Manager monitors the issuers
of Municipal Obligations held in a Fund's portfolio on an ongoing basis.

Municipal Obligations generally are not listed for trading on any
national securities exchange, and many issuers of medium- and lower-grade
Municipal Obligations choose not to have a rating assigned to their obligations
by any nationally recognized statistical rating organization. The amount of
information available about the financial condition of an issuer of unlisted or
unrated securities generally is not as extensive as that which is available with
respect to issuers of listed or rated securities. Because of the nature of
medium- and lower-rated Municipal Obligations, achievement by a Fund of its
investment objective may be more dependent on the credit analysis of the Manager
than is the case for an investment company which invests primarily in exchange
listed higher-grade securities.

* * *

See Appendix A--Ratings for a description of Moody's, S&P's and Fitch's
ratings.

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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 Investments
family.

SHAREHOLDER PHONE DIRECTORY

Shareholder Service Center and Investor Information Center
800-523-1918
Information on Existing Investment Accounts; Wire Investments; Wire
Liquidations; Telephone Liquidations and Telephone Exchanges; Fund
Information; Literature; Price; Yield and Performance Figures

Delaphone
800-362-FUND
(800-362-3863)

Performance Information
During business hours, you can call the Investor Information Center 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 Delaware Investments' Shareholder
Service Center. Our representatives can answer any questions about your account,
the Funds, various service features and other funds in the Delaware Investments
family.

Automated Shareholder Services
You can purchase, redeem or exchange shares through Delaphone, Delaware
Investments' automated telephone system, or through Delaware Investments' web
site, www.delawarefunds.com. For more information about how to sign up for these
services, call the Shareholder Service Center.

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.

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<PAGE>

Tax Information

Each year, Tax-Free Fund, Inc. or Mutual Funds, Inc., as applicable,
will mail to you information on the tax status of your dividends and
distributions.

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 Investments 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 (SM) Services

Delaware Investments offers the following services for fast and
convenient transfer of funds between your personal bank account and your
Delaware Investments fund account.

1. MoneyLine (SM) 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 (SM) 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.

2. MoneyLine (SM) On Demand
You or your investment dealer may request purchases and redemptions of
Fund shares by phone using MoneyLine (SM) On Demand. When you authorize the Fund
to accept such requests from you or your investment dealer, funds will be
withdrawn from (for share purchases) or deposited to (for share redemptions)
your predesignated bank account. Your request will be processed the same day if
you call prior to 4 p.m., Eastern time. There is a $25 minimum and $50,000
maximum limit for MoneyLine (SM) On Demand transactions.

For each MoneyLine (SM) Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not identical
to the name and address on your Fund account, you must have your signature
guaranteed. The Fund does not charge a fee for any MoneyLine (SM) Service;
however, your bank may charge a fee. Please call the Shareholder Service Center
for additional information about these services.

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 such 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 Investments family. See Classes of Shares.

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<PAGE>

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 Investments 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 Investments family,
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 invest in the Funds through regular liquidations of
shares in your accounts in other funds in the Delaware Investments family.
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.

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 and Mutual Funds,
Inc.'s respective 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 of USA Fund and Insured Fund are subject to annual
12b-1 Plan expenses of up to a maximum of 0.30% (for Intermediate Fund A Class,
currently no more than 0.15% pursuant to Board action) of average daily net
assets of such shares. Class A Shares of National High Yield Municipal Bond Fund
are subject to annual 12b-1 Plan expenses of up to a maximum of 0.25%. Certain
purchases of Class A Shares qualify for reduced front-end sales charges. See
Front-End Sales Charge Alternative - Class A Shares, below. See also Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange, and Distribution (12b-1) and Service
under Management of the Funds.

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 they are redeemed within six years of purchase in the case of USA Fund B
Class, Insured Fund B Class and National High Yield Municipal Bond Fund B Class,
or within three years of purchase in the case of Intermediate Fund B Class.
Class B Shares are subject to annual 12b-1 Plan expenses of up to a maximum of
1% (0.25% 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 Fund B Class, Insured Fund B Class and
National High Yield Municipal Bond Fund B Class for approximately eight years
after purchase and of Intermediate Fund B Class 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. Shares of USA Fund B Class, Insured Fund B Class
and National High Yield Municipal Bond Fund B Class will automatically be
converted into Class A Shares at the end of approximately eight years after
purchase and shares of Intermediate Fund B Class will automatically be converted
into Class A Shares at the end of approximately five years after purchase.
Thereafter, for the remainder of the life of the investment, the annual 12b-1
Plan fee of up to 0.30% will apply for USA Fund A Class, Insured Fund A Class
and Intermediate Fund A Class (currently no more than 0.15% for Intermediate
Fund A Class pursuant to Board action) and the annual 12b-1 Plan fee of up to
0.25% will apply for National High Yield Municipal Bond Fund A Class. See
Automatic Conversion of Class B Shares, below.

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% (0.25% 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

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<PAGE>

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. 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, and the effect of earning a return on such
additional money will diminish over time. In comparing Class B Shares to Class C
Shares, investors should consider the duration of the annual 12b-1 Plan expenses
to which each of the classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.

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 Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and 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 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
Distribution (12b-1) and Service under Management of the Funds.

Dividends, if any, paid on Class A, Class B and Class C Shares, 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., Mutual Funds, 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 3.75% in the case of USA Fund A Class shares,
Insured Fund A Class shares and National High Yield Municipal Bond Fund A Class,
shares or 2.75% in the case of Intermediate Fund A Class Shares. See Calculation
of Offering Price and Net Asset Value Per Share.

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<PAGE>

Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.

USA Fund A Class
Insured Fund A Class
National High Yield Municipal Bond Fund A Class
- -------------------------------------------------------------------------------------------------------------------
Dealer's
Commission(3)
Front-end Sales Charge as % of as % of
Amount of Purchase Offering Amount Offering
Price Invested(2) Price
- -------------------------------------------------------------------------------------------------------------------
USA Insured National
Fund Fund High Yield
Municipal
Bond Fund
<S> <C> <C> <C> <C> <C>
Less than $100,000 3.75% 3.89% 3.86% 3.89% 3.25%
$100,000 but under $250,000 3.00 3.13 3.05 3.06 2.50
$250,000 but under $500,000 2.50 2.54 2.60 2.59 2.00
$500,000 but under $1,000,000(1) 2.00 2.03 2.06 2.04 1.75
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

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<PAGE>

Intermediate Fund A Class
- -------------------------------------------------------------------------------------------------------------------
Dealer's
Commission(3)
Front-end Sales Charge as % of as % of
Amount of Purchase Offering Amount Offering
Price Invested(2) Price
- -------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Less than $100,000 2.75% 2.80% 2.35%
$100,000 but under $250,000 2.00 2.05 1.75
$250,000 but under $500,000 1.00 1.03 0.75
$500,000 but under $1,000,000(1) 1.00 1.03 0.75
</TABLE>
(1) There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a Limited CDSC
of 1% may apply upon redemption of such shares made during the first year
after the purchase for each Fund and 0.50% may apply upon redemption of
such shares made during the second year after the purchase for USA Fund,
Insured Fund and National High Yield Municipal Bond Fund.
(2) Based upon the net asset value per share of Class A Shares as of the end of
each Fund's most recent fiscal year.
(3) 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 Investments products and services and who increase sales
of Delaware Investments funds may receive an additional commission of
up to 0.15% 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 (the "1933 Act").

- --------------------------------------------------------------------------------

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<PAGE>

Beginning July 1, 1998, 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 Fund A Class, Insured Fund A Class and
National High Yield Municipal Bond Fund A Class

Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
- ------------------ -----------------
Up to $5 million 1.00%
Next $20 million up to $25 million 0.50
Amount over $25 million 0.25

Such Class A Shares are subject to a Limited CDSC of 1% if shares are
redeemed during the first year after purchase and 0.50% if shares are redeemed
during the second year after purchase.

Intermediate Fund A Class

Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
- ------------------ -----------------
Up to $5 million 0.50%
Amount over $5 million 0.25

Such Class A Shares are subject to a Limited CDSC of 1% if shares are
redeemed during the first year after purchase.

For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other funds in the Delaware
Investments family as to which a Limited CDSC 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.

An exchange from other funds in the Delaware Investments family 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 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 other funds in the

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<PAGE>

Delaware Investments family, 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
Investments fund holdings. In addition, assets held in any stable value product
available through the Delaware Investments family may be combined with other
Delaware Investments 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 Investments 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.

This privilege 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 Investments 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 affiliate, any of the funds in the Delaware Investments family,
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
Investments 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. Investors may be charged a
fee when effecting transactions in Class A Shares through a broker or agent that
offers these special investment products.

Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Investments family at net asset value.

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<PAGE>

Shares of Intermediate Fund 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 Investments family provided that: 1) the redeemed shares were
purchased no more than five years before the proposed purchase of Intermediate
Fund A Class; and 2) a front-end sales charge was paid in connection with the
purchase of the redeemed shares or a contingent deferred sales charge was paid
upon their redemption.

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 compensates
dealers or brokers for selling USA Fund B Class shares, Insured Fund B Class
shares and National High Yield Municipal Bond Fund 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 Fund B Class shares are
currently 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 Fund B Class shares, Insured Fund B Class shares
and National High Yield Municipal Bond Fund B Class shares are redeemed within
six years of purchase and Intermediate Fund 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 Class B Shares
described in this Prospectus, even after the exchange. USA Fund B Class',
Insured Fund B Class' and National High Yield Municipal Bond Fund B Class' CDSC
schedule may be higher than the CDSC schedule for Class B Shares acquired as a
result of the exchange. See Redemption and Exchange.

Automatic Conversion of Class B Shares

USA Fund B Class shares, Insured Fund B Class shares and National High
Yield Municipal Bond Fund 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 Fund 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.

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<PAGE>

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 compensates
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.

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 Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of another
Delaware Investments 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 USA Fund B
Class, Insured Fund B Class and National High Yield Municipal Bond Fund 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 Fund B Class shares, Insured Fund B Class
shares and National High Yield Municipal Bond Fund 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 Class B Shares will
convert are subject to ongoing annual 12b-1 Plan expenses of up to a maximum of
0.30% of average daily net assets of Class A Shares of USA Fund and Insured Fund
and 0.25% shares of average daily net assets of Class A Shares of National High
Yield Municipal Bond Fund.

The following table sets forth the rates of the CDSC for Intermediate
Fund 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 Fund 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 Fund A Class shares into which
Intermediate Fund B Class shares will convert are subject to ongoing annual
12b-1 Plan expenses of up to a maximum of 0.30% (currently, no more than 0.15%)
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 Fund B Class shares, Insured Fund B Class
shares and National High Yield Municipal Bond Fund B Class shares held for more
than six years and Intermediate Fund 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.

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 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the funds in the Delaware Investments family. 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.

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Subject to pending amendments to the NASD's Conduct Rules, in
connection with the promotion of shares of funds in the Delaware Investments
family, 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 Conduct Rules 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 Conduct Rules 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 the 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.

The Funds make it easy to invest by arrangement with your investment
dealer, by mail and by wire.

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,
Delaware Investments 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
Investments 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 from Tax-Free Fund, Inc. or Mutual
Funds, Inc., as applicable. Use of this investment slip can help expedite
processing of your check when making additional purchases. Your investment may
be delayed if you send additional purchases by certified mail.

Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to First Union National Bank, ABA #031201467, account number 2014128934013
(include your name(s) and your account number for the Fund and 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 for the specific Fund and Class selected to Delaware Investments at
1818 Market Street, Philadelphia, PA 19103.

2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to First Union National Bank, as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.

Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or all of

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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. See Redemption and Exchange for more complete
information concerning your exchange privileges.

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 Investments
family, 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 Investments family. 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 Investments 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 Investments funds. 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 conversion schedule
of the fund from which the exchange is made. The holding period of 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. or Mutual Funds, Inc., as applicable, 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. or Mutual
Funds, Inc., as applicable, 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.

3. MoneyLine (SM) On Demand
Through the MoneyLine (SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine (SM) Services under The
Delaware Difference for additional information about this service.

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4. 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
Investments family. You may also elect to invest in other mutual funds in the
Delaware Investments family 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 Investments family and invested automatically
into any other account in a Delaware Investments mutual fund 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. All 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 in Wealth Builder at any time
by giving written notice to the fund from which exchanges are made. See
Redemption and Exchange.

5. 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 Investments family,
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 Investments funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Investments funds or into Class C Shares of a Fund or of other Delaware
Investments 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
Investments family, 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 Investments family 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 Investments family which offer that class of
shares. For more information about reinvestments, call the Shareholder Service
Center.

Purchase Price and Effective Date
The offering price and net asset value of 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, its agent or designee. 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.

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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 Investments family. 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,
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, as a result of redemption, have
remained below the minimum stated account balance for a period of three or more
consecutive months. Holders of such accounts may be notified of their
insufficient account balance and advised that they have until the end of the
current calendar quarter to raise their balance to the stated minimum. If the
account has not reached the minimum balance requirement by that time, the Fund
will charge a $9 fee for that quarter and each subsequent calendar quarter until
the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, 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 Investments will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
Delaware Investments directly for fund information.

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.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined 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 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 in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. 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.

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<PAGE>

Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments family
(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 Original Shares were exchanged. In an
exchange of shares from either USA Fund B Class or Insured Fund 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 Fund B Class, Insured Fund B Class or National High Yield
Municipal Bond Fund 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 shares of USA Fund B Class, Insured Fund B
Class and National High Yield Municipal Bond Fund B Class 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. A signature guarantee can be
obtained from a commercial bank, a trust company or a member of a Securities
Transfer Association Medallion Program ("STAMP"). A signature guarantee cannot
be provided by a notary public. A signature guarantee is designed to protect the
shareholders, each Fund and their agents from fraud. 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.

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 Investments family, subject to the same conditions
and limitations as other exchanges noted above.

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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
certificate(s).

The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in 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. 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 redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.

Telephone Redemption--Proceeds to Your Bank

Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. First
Union National Bank's fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no 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.

MoneyLine (SM) On Demand
Through the MoneyLine (SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MoneyLine (SM) Services under The
Delaware Difference for additional information about this service.

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 Investments family under the same
registration, subject to the same conditions and limitations as other exchanges

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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 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 (SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. See MoneyLine (SM) Services 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 2 years 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.

Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value

USA Fund A Class, Insured Fund A Class and National High Yield
Municipal Bond Fund A Class. For purchases of $1 million or more made on or
after July 1, 1998, a Limited CDSC will be imposed on certain redemptions of
Class A Shares (or shares into which such Class A Shares are exchanged) made
according to the following schedule: (1) 1.00% if shares are redeemed during the
first year after the purchase; and (2) 0.50% if shares are redeemed during the
second year after the 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 assessed
on an amount equal to the lesser of: (1) the net asset value at the time of
purchase of Class A Shares being redeemed; or (2) the net asset value of such

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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
Class A Shares even if those shares are later exchanged for shares of another
Delaware Investments 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 two years will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments 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 two-year
holding period. The Limited CDSC is assessed if such two-year 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.

Intermediate Fund A Class. 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 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 Class A Shares even
if those shares are later exchanged for shares of another Delaware Investments
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 Investments 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 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).

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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. and Mutual Funds, Inc., as applicable, 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.

Dividends, if any, 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.

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, which is 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.

Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value unless you elect otherwise. Any payment by
check 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 dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine (SM)
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. See MoneyLine (SM) Services 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 and by satisfying certain other requirements relating to the sources of its
income and diversification of its assets. 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 Obligations 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 Obligations 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.

On August 5, 1997, The Taxpayer Relief Act of 1997 (the "1997 Act") was
signed into law. This new law made sweeping changes in the Code. Because many of
these changes are complex, and only indirectly affect a Fund and its
distributions to you, they are discussed in Part B. Changes in the treatment of
capital gains, however, are discussed in this section.

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 by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a 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.

The Treatment of Capital Gain Distributions under the Taxpayer Relief Act of
1997
The 1997 Act creates a category of long-term capital gain for
individuals who will be taxed at new lower tax rates. For investors who are in
the 28% or higher federal income tax brackets, these gains will be taxed at a
maximum rate of 20%. For investors who are in the 15% federal income tax
bracket, these gains will be taxed at a maximum rate of 10%. Capital gain
distributions will qualify for these new maximum tax rates, depending on when a
Fund's securities were sold and how long they were held by the Fund before they
were sold. The holding periods for which the new rates apply were revised by the
Internal Revenue Service Restructuring and Reform Act of 1998. Investors who
want more information on holding periods and other qualifying rules relating to
these new rates should review the expanded discussion in Part B, or should
contact their own tax advisers.

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<PAGE>

Tax-Free Fund, Inc. or Mutual Funds, Inc., as applicable, will advise
you in its annual information reporting at calendar year end of the amount of
its capital gain distributions which will qualify for these maximum federal tax
rates.

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 Investments family. 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 Investments family 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.

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. Tax-Free Fund, Inc. or Mutual Funds, Inc., as applicable, 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. or Mutual Funds, Inc., as applicable,
will mail to you information on the tax status of each Fund's dividends and
distributions.

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Tax-Free Fund, Inc. and Mutual Funds, Inc., as applicable, are 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 Tax-Free Fund, Inc.'s and Mutual Funds, Inc.'s 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 and Mutual Funds, 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 per share. 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 12b-1 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. and Mutual Funds, Inc.
are managed under the direction of its Board of Directors. Part B contains
additional information regarding 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 Investments family since 1938. On August 31, 1998, the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $39 billion in assets in
the various institutional or separately managed (approximately $26,098,390,000)
and investment company (approximately $13,866,120,000) accounts.

The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a business trust
on March 1, 1998. 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.

Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as National High
Yield Municipal Bond Fund's investment adviser, subject to the authority of the
Board of Directors. Prior to that date, Voyageur was an indirect, wholly owned
subsidiary of Dougherty Financial Group, Inc. ("DFG"). After the close of
business on April 30, 1997, Voyageur became an indirect, wholly owned subsidiary
of Lincoln National, as a result of Lincoln National's acquisition of DFG.

Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, National High Yield Municipal Bond Fund's previous
investment advisory agreement with Voyageur was "assigned," as that term is
defined by the 1940 Act, and the previous agreement therefore was terminated
upon the completion of the acquisition. The Board of Directors of the Fund
unanimously approved a new investment advisory agreement at the meeting held in
person on February 14, 1997, and called for a shareholders meeting to approve
the new agreement. At a meeting held on April 11, 1997, the shareholders of the
Fund approved the investment advisory agreement with the Manager to become
effective after the close of business on April 30, 1997, the date the
acquisition was completed.

The Manager manages USA Fund's, Insured Fund's and Intermediate Fund's
portfolio and makes investment decisions which are implemented by Tax-Free Fund,
Inc.'s Trading Department. The Manager also administers Tax-Free Fund, Inc.'s
affairs and pays 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, 0.60% on the
first $500 million of average daily net assets, 0.575% on the next $250 million
and 0.55% on the average daily net assets in excess of $750 million; for Insured
Fund, 0.60% of the average daily net assets of the Fund; and for Intermediate
Fund, 0.50% of the average daily net assets of the Fund, less in each case, the
Fund's proportionate share of all directors' fees paid to the unaffiliated
directors of Tax-Free Fund, Inc. The directors of Tax-Free Fund, Inc. annually
review fees paid to the Manager. The investment management fees paid by each of
USA Fund and Insured Fund for the fiscal year ended August 31, 1998 were 0.59%
and 0.60%, respectively, of average daily net assets. The investment management

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fees incurred by Intermediate Fund for the fiscal year ended August 31, 1998
were 0.50% of average daily net assets and no fees were paid after
considering the voluntary waiver of fees by the Manager as described below.

The Manager administers the affairs of and is ultimately responsible
for the investment management of National High Yield Municipal Bond Fund under
an Investment Management Agreement with Mutual Funds, Inc. on behalf of the Fund
dated April 30, 1997. Under the Investment Management Agreement for National
High Yield Municipal Bond Fund, the Manager is paid an annual fee equal to 0.65%
of the average daily net assets of the Fund. The directors of Mutual Funds, Inc.
annually review fees paid to the Manager. The investment management fees
incurred by National High Yield Municipal Bond Fund for the period January 1,
1998 through August 31, 1998 were 0.65% (annualized) of average daily net assets
and 0.46% (annualized) was paid after considering the voluntary waiver of fees
by the Manager as described below and under Summary of Expenses.

Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager, have primary responsibility for making day-to-day investment
decisions for each Fund. Mr. Coyne has been manager of USA Fund and Insured Fund
since July 1, 1994 and manager of Intermediate Fund since its inception in 1993.
Mr. Conery joined Delaware Investments in January 1997 at which time he became
co-manager of USA Fund, Insured Fund and Intermediate Fund. Mr. Coyne and Mr.
Conery have been managing National High Yield Municipal Bond Fund since May 1,
1997. A graduate of Harvard University with an MBA from the University of
Pennsylvania's Wharton School, Mr. Coyne joined Delaware Investments'
fixed-income department in 1990. Prior to joining Delaware Investments, he was a
manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading
high grade Municipal Obligations and municipal futures contracts. Mr. Coyne is a
member of the Municipal Bond Club of Philadelphia. Mr. Conery holds a bachelor's
degree from Boston University and an MBA in Finance from the State University of
New York at Albany. He has served as an investment officer with Travelers
Insurance and as a research analyst with CS First Boston and MBIA Corporation.

In making investment decisions for the Funds, Mr. Coyne and Mr. Conery
regularly consult with Paul E. Suckow and other members of Delaware Investments'
fixed-income department. Mr. Suckow is Executive Vice President/Chief Investment
Officer, Fixed Income of Tax-Free Fund, Inc. He is a CFA charterholder and a
graduate of Bradley University with an MBA from Western Illinois University. Mr.
Suckow was a fixed-income portfolio manager at Delaware Investments from 1981 to
1985. He returned to Delaware Investments in 1993 after eight years with
Oppenheimer Management Corporation where he served as Executive Vice President
and Director of Fixed Income.

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 for each Fund is not expected to exceed 100%. A turnover
rate of 100% would occur if all the investments in the Fund's portfolio at the
beginning of the year were replaced by the end of the year.

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 funds in the Delaware Investments family
of funds in placing portfolio orders, and may place orders with broker/dealers
that have agreed to defray certain expenses of such funds, such as custodian
fees.

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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 one-, five- and ten-year (or life-of-fund, if applicable) periods. 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 for USA Fund's, Insured Fund's and Intermediate Fund's shares under
separate Distribution Agreements dated April 3, 1995, as amended on November 29,
1995 and for National High Yield Municipal Bond Fund under a Distribution
Agreement dated March 1, 1997.

Tax-Free Fund, Inc. and Mutual Funds, Inc., as applicable, 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. or Mutual Funds, Inc., as applicable.

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.

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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 (i) 0.30%
of Class A Shares of USA Fund's, Insured Fund's and Intermediate Fund's average
daily net assets in any year, (ii) 0.25% of Class A Shares of National High
Yield Municipal Bond Fund's average daily net assets in any year, and (iii) 1%
(0.25% 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. 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 USA Fund A
Class and Insured Fund A Class may be less than 0.30%, but may not be less than
0.10%, 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 Intermediate Fund A Class, pursuant to its Plan, at 0.15%. 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. See Part B.

While payments pursuant to the Plans may not exceed 0.30% annually with
respect to Class A Shares of USA Fund, Insured Fund and Intermediate Fund, 0.25%
annually with respect to Class A Shares of National High Yield Municipal Bond
Fund 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 Distributor may, however, incur such additional expenses and make
additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the Distributor
are subject to the review and approval of Tax-Free Fund, Inc.'s and Mutual
Funds, 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, November 10, 1992 for Intermediate Fund and May 1, 1997 for
National High Yield Municipal Bond 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 fees paid to the Distributor and the
Transfer Agent. The Distributor and the Transfer Agent are also indirect, wholly
owned subsidiaries of DMH.

* * *

As with other mutual funds, financial and business organizations and
individuals around the world, each Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Tax-Free Fund, Inc. and Mutual Funds,
Inc. are taking steps to obtain satisfactory assurances that the Funds' major
service providers are taking steps reasonably designed to address the Year 2000
Problem with respect to the computer systems that such service providers use.
There can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Funds.

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. For the fiscal year ended
August 31, 1998, the ratios of expenses to average daily net assets for Class A
Shares, Class B Shares and Class C Shares of each Fund were as follows:

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Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
USA Fund 0.97% 1.77% 1.77%

Insured Fund 1.10% 1.90% 1.90%

Intermediate Fund(1) 0.67% 1.52% 1.52%

National High Yield
Municipal Bond Fund(1) 0.92% 1.67% 1.67%

(1) Reflects the voluntary waiver of fees by the Manager. Without such
waiver, ratios of expenses to average daily net assets would have been
1.33% for Class A Shares, 2.18% for Class B Shares and 2.18% for Class
C Shares for Intermediate Fund and 1.12% for Class A Shares, 1.87% for
Class B Shares and 1.87% for Class C Shares for National High Yield
Municipal Bond Fund.

From the commencement of Intermediate Fund's operations through June
30, 1993, the Manager voluntarily waived that portion, if any, of the annual
management fees payable by the Fund and reimbursed the Fund's expenses to the
extend necessary to ensure that the Total Operating Expenses of the Fund,
including the 12b-1 expenses, did not exceed 0.25%. 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 0.10% (excluding 12b-1 fees). Because 12b-1 Plan fees have been set at
0.15% by Tax-Free Fund, Inc.'s Board of Directors for Intermediate Fund A Class,
the amount of the voluntary waiver with respect to each such Class, as modified,
was equivalent to the waiver operative through May 1, 1994. Beginning January 1,
1997, the Manager elected voluntarily to waiver that portion, if any, of the
annual management fees payable by Intermediate Fund and to pay certain of the
Fund's expenses to the extent necessary to ensure that the Total Operating
Expenses of the Fund did not exceed 0.35% (excluding the 12b-1 plan expenses).
This waiver and expense limitation extended through June 30, 1997. Beginning
July 1, 1997, the Manager has elected voluntarily to waive that portion, if any,
of the annual management fees payable by Intermediate Fund and to pay certain of
the Fund's expenses to the extent necessary to ensure that the Total Operating
Expenses of the Fund do not exceed 0.45% (excluding the 12b-1 plan expenses).
This waiver and expense limitation extended through December 31, 1997. Beginning
January 1, 1998, the Manager has elected voluntarily to waive that portion, if
any, of the annual management fees payable by the Intermediate Fund and to pay
certain of the Fund's expenses to the extent necessary to ensure that the Total
Operating Expenses of the Fund do not exceed 0.55% (excluding the 12b-1 plan
expenses). This waiver and expense limitation will extend through December 31,
1998.

In connection with the merger transaction described above, the Manager
has agreed for the period from May 1, 1997 through April 30, 1999, to
voluntarily waive that portion, if any, of the annual management fees payable by
National High Yield Municipal Bond Fund and to pay the Fund's expenses to the
extent necessary to ensure that the Fund's total operating expenses (excluding
12b-1 Plan fees, interest expense, taxes, brokerage fees and commissions) do not
exceed, on an annual basis, 1.00% of the average daily net assets of each Class
of the Fund. This agreement replaces a similar provision in National High Yield
Municipal Bond Fund's investment advisory contracts with the Fund's predecessor
investment adviser. The Manager and the Distributor reserve the right to
voluntarily waive their fees in whole or part and to voluntarily pay or
reimburse certain other of the Fund's expenses. See Summary of Expenses for
current fee waivers and reimbursements for National High Yield Municipal Bond
Fund.

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Tax-Free Fund, Inc. and Mutual Funds, Inc. are open-end management
investment companies. Each Fund's portfolio of assets is nondiversified as
defined by the 1940 Act. Tax-Free Fund, Inc. and Mutual Funds, Inc. are commonly
known as mutual funds. Tax-Free Fund, Inc. was organized as a Maryland
corporation in August 1983. Tax-Free Fund, Inc. currently offers three funds,
and each Fund currently offers three classes of shares. Mutual Funds, Inc. was
organized as of Minnesota corporation in April 1993. In addition to National
High Yield Municipal Bond Fund, Mutual Funds, Inc. currently offers seven other
funds, and each of those funds 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, 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 Class A Shares.

All shares have noncumulative voting rights which means that the
holders of more than 50% of Tax-Free Fund, Inc.'s or Mutual Funds, Inc.'s, as
applicable, 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,
and under Minnesota law, Mutual Funds, 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.

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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

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
rating of triple A from S&P and Moody's.

Borrowings
While the Funds are permitted, they normally do not borrow money. A
Fund will not purchase investment securities while it has an outstanding
borrowing.

Forward Commitments
New issues of Municipal Obligations and other securities are often
purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the buyer enters into the
commitment. Each Fund may enter into such "forward commitments" if it holds, and
maintains until the settlement date in a segregated account, cash or liquid
securities in an amount sufficient to meet the purchase price. There is no
percentage limitation on a Fund's total assets which may be invested in forward
commitments. Municipal Obligations purchased on a when-issued basis and the
securities held in the Fund's portfolio are subject to changes in value (both
generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Municipal Obligations purchased on
a when-issued basis may expose the Fund to risk because they may experience such
fluctuations prior to their actual delivery. Purchasing Municipal Obligations on
a when-issued basis can involve the additional risk that the yield available in
the market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Any significant commitment by a Fund to the
purchase of securities on a when-issued basis may increase the volatility of the
Fund's net asset value. Although a Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio, it may
dispose of a commitment prior to settlement if the Fund's Manager deems it
appropriate to do so. A Fund may realize short-term profits or losses upon the
sale of forward commitments.

Illiquid Securities
USA, Insured and Intermediate Funds may invest up to 10% and National
High Yield Municipal Bond Fund may invest up to 15% of its net assets in
illiquid securities. A security is considered illiquid if it cannot be sold in
the ordinary course of business within seven days at approximately the price at
which it is valued. Illiquid securities may offer a higher yield than securities
which are more readily marketable, but they may not always be marketable on
advantageous terms.

The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. The Fund may be restricted in its ability to sell such securities at a
time when the Manager deems it advisable to do so. In addition, in order to meet
redemption requests, the Fund may have to sell other assets, rather than such
illiquid securities, at a time which is not advantageous.

Certain securities in which a Fund may invest, including municipal
lease obligations, certain restricted securities and commercial paper issued

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pursuant to the private placement exemption of Section 4(2) of the 1933 Act,
historically have been considered illiquid by the staff of the SEC. In
accordance with more recent staff positions, however, the Fund will treat such
securities as liquid and not subject to the above percentage limitation when
they have been determined to be liquid by the Fund's investment adviser subject
to the oversight of and pursuant to procedures adopted by the Fund's Board of
Directors.

Inverse Floaters
Intermediate Fund and National High Yield Municipal Bond Fund may
invest in inverse floaters. USA Fund and Insured Fund may invest in inverse
floaters to the extent that investments in these securities, when combined with
futures contracts and options on such futures contracts and below investment
grade securities, do not exceed 20% of a Fund's total assets. Inverse floaters
are instruments with floating or variable interest rates that move in the
opposite direction, usually at an accelerated speed, to short-term interest
rates or interest rate indices.

Municipal Obligations
As used in this Prospectus, the term "Municipal Obligations" refers to
debt obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions. With respect to
National High Yield Municipal Bond Fund only, the term "Municipal Obligations"
also includes Derivative Municipal Obligations as defined below.

Municipal Obligations are primarily debt obligations issued to obtain
funds for various public purposes such as constructing public facilities and
making loans to public institutions. The two principal classifications of
Municipal Obligations are general obligation bonds and revenue bonds. General
obligation bonds are generally secured by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport. Municipal
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).

Within these principal classifications of Municipal Obligations, there
is a variety of types of municipal securities. Certain Municipal Obligations may
carry variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indexes, such as a
bank prime rate or a tax-exempt money market index. Accordingly, the yield on
such obligations can be expected to fluctuate with changes in prevailing
interest rates. Other Municipal Obligations are zero coupon securities, which
are debt obligations which do not entitle the holder to any periodic interest
payments prior to maturity and are issued and traded at a discount from their
face amounts. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically.

Municipal Obligations also include state or municipal leases and
participation interests therein. The Fund may invest in these types of
obligations without limitation. Municipal leases are obligations issued by state
and local governments or authorities to finance the acquisition of equipment and
facilities such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. Municipal lease obligations,
except in certain circumstances, are considered illiquid by the staff of the
SEC. Municipal lease obligations held by the Fund will be treated as illiquid
unless they are determined to be liquid pursuant to guidelines established by
the appropriate Board of Directors. Under these guidelines, the Fund's
investment adviser will consider factors including, but not limited to (1)

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whether the lease can be canceled, (2) what assurance there is that the assets
represented by the lease can be sold, (3) the municipality's general credit
strength (e.g., its debt, administrative, economic and financial
characteristics), (4) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an "event of non-appropriation"), and (5) the legal recourse in the event of
failure to appropriate. Additionally, the lack of an established trading market
for municipal lease obligations may make the determination of fair market value
more difficult.

Derivative Municipal Obligations. National High Yield Municipal Bond
Fund may also acquire Derivative Municipal Obligations, which are custodial
receipts or trust certificates ("custodial receipts") underwritten by securities
dealers or banks that evidence ownership of future interest payments, principal
payments or both on certain Municipal Obligations. The underwriter of these
certificates or receipts typically purchases and deposits the securities in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the periodic unmatured
coupon payments and the final principal payment on the obligations. Although
under the terms of a custodial receipt or trust certificate, the Fund may be
authorized to assert its rights directly against the issuer of the underlying
obligation, the Fund could be required to assert through the custodian bank
those rights as may exist against the underlying issuer. Thus, in the event the
underlying issuer fails to pay principal and/or interest when due, the Fund may
be subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of the issuer.

In addition, in the event that the trust or custodial account in which
the underlying security had been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, it would be subject
to state income tax (but not federal income tax) on the income it earned on the
underlying security, and the yield on the security paid to the National High
Yield Municipal Bond Fund and its shareholders would be reduced by the amount of
taxes paid. Furthermore, amounts paid by the trust or custodial account to the
Fund would lose their tax-exempt character and become taxable, for federal and
state purposes, in the hands of the Fund and its shareholders. However, the Fund
will only invest in custodial receipts which are accompanied by a tax opinion
stating that interest payable on the receipts is tax-exempt. If the Fund invests
in custodial receipts, it is possible that a portion of the discount at which
the Fund purchases the receipts might have to be accrued as taxable income
during the period that the Fund holds the receipts.

The principal and interest payments on the Derivative Municipal
Obligations underlying custodial receipts or trust certificates may be allocated
in a number of ways. For example, payments may be allocated such that certain
custodial receipts or trust certificates may have variable or floating interest
rates and others may be stripped securities which pay only the principal or
interest due on the underlying Municipal Obligations. National High Yield
Municipal Bond Fund may also invest in custodial receipts or trust certificates
which are "inverse floating obligations" (also sometimes referred to as
"residual interest bonds"). These securities pay interest rates that vary
inversely to changes in the interest rates of specified short term Municipal
Obligations or an index of short-term Municipal Obligations. Thus, as market
interest rates increase, the interest rates on inverse floating obligations
decrease. Conversely, as market rates decline, the interest rates on inverse
floating obligations increase. Such securities have the effect of providing a
degree of investment leverage, since the interest rates on such securities will
generally change at a rate which is a multiple of the change in the interest
rates of the specified Municipal Obligations or index. As a result, the market
values of inverse floating obligations will generally be more volatile than the
market values of other Municipal Obligations and investments in these types of
obligations will increase the volatility of the net asset value of shares of the
Fund.

Options and Futures
To the extent indicated below, the Funds may utilize put and call
transactions and may utilize futures transactions to hedge against market risk

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and facilitate portfolio management. Options and futures may be used to attempt
to protect against possible declines in the market value of a Fund's portfolio
resulting from downward trends in the debt securities markets (generally due to
a rise in interest rates), to protect the Fund's unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the Fund's
portfolio or to establish a position in the securities markets as a temporary
substitute for purchasing particular securities. The use of options and futures
is a function of market conditions. Other transactions may be used by the Fund
in the future for hedging purposes as they are developed to the extent deemed
appropriate by the appropriate Board of Directors.

Options on Securities
To the extent indicated below, each Fund may write (i.e., sell) covered
put and call options and purchase call options on the securities in which it may
invest and on indices of securities in which it may invest, to the extent such
put and call options are available. National High Yield Municipal Bond Fund may
also purchase put options on indices of securities in which it may invest, to
the extent such put options are available.

A put option gives the buyer of such option, upon payment of a premium,
the right to deliver a specified amount of a security to the writer of the
option on or before a fixed date at a predetermined price. A call option gives
the purchaser of the option, upon payment of a premium, the right to call upon
the writer to deliver a specified amount of a security on or before a fixed
date, at a predetermined price.

In purchasing a call option, the Fund would be in a position to realize
a gain if, during the option period, the price of the security increased by an
amount in excess of the premium paid. It would realize a loss if the price of
the security declined or remained the same or did not increase during the period
by more than the amount of the premium. In purchasing a put option, the Fund
would be in a position to realize a gain if, during the option period, the price
of the security declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained the same or
did not decrease during that period by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund. The Intermediate 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.

If a put option written by the Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the Fund were exercised, the Fund would be obligated to sell
the underlying security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value of the
underlying security caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its current market value. The risk
involved in writing a call option is that there could be an increase in the
market value of the underlying security caused by declining interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction. The Fund retains the premium received from writing a put or call
option whether or not the option is exercised.

Over-the-counter options are purchased or written by the Fund in
privately negotiated transactions. Such options are illiquid, and it may not be
possible for the Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when the Manager believes
it would be advantageous to do so. Over-the-counter options are subject to the
Funds' illiquid investment limitation.

Participation in the options market involves investment risks and
transaction costs to which the Fund would not be subject absent the use of this
strategy. If the Manager's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to

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the Fund may leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (a) dependence on the
Manager's ability to predict correctly movements in the direction of interest
rates and security prices; (b) imperfect correlation between the price of
options and movements in the prices of the securities being hedged; (c) the fact
that the skills needed to use these strategies are different from those needed
to select portfolio securities; (d) the possible absence of a liquid secondary
market for any particular instrument at any time; and (e) the possible need to
defer closing out certain hedged positions to avoid adverse tax consequences.

Futures Contracts and Options on Futures Contracts
The Funds may enter into contracts for the purchase or sale for future
delivery of securities or, with respect to the National High Yield Municipal
Bond Fund, contracts based on financial indices including any index of
securities in which the Fund may invest ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts ("options on
futures contracts"). USA Fund and Insured Fund may invest in futures contracts
and options on such futures contracts to the extent that investments in these
securities, when combined with inverse floaters and below investment grade
securities, do not exceed 20% of a Fund's total assets. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price on a specified date.
The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified dollar multiple
of the value of the index on the expiration date of the contract ("current
contract value") and the price at which the contract was originally struck.
Options on futures contracts to be written or purchased by a Fund will be traded
on exchanges or over-the-counter. The successful use of such instruments draws
upon the Manager's experience with respect to such instruments and usually
depends upon the Manager's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize losses and would thus be in a worse position than if
such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the prices of the securities hedged or used for cover will not be
perfect.

A Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements. To the extent required to
comply with applicable SEC releases and staff positions, when purchasing a
futures contract or writing a put option, the Fund will maintain in a segregated
account cash or liquid securities equal to the value of such contracts, less any
margin on deposit. In addition, the rules and regulations of the Commodity
Futures Trading Commission ("CFTC") currently require that, in order to avoid
"commodity pool operator" status, the Fund must use futures and options
positions (a) for "bona fide hedging purposes" (as defined in the regulations)
or (b) for other purposes so long as aggregate initial margins and premiums
required in connection with non-hedging positions do not exceed 5% of the
liquidation value of the Fund's portfolio. There are no other numerical limits
on the Fund's use of futures contracts and options on futures contracts.

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.

Private Purpose Bonds
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.

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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. National High Yield Municipal Bond Fund may invest up to 100% and each of
the other Funds may invest up to 20% of its assets in bonds the income from
which is subject to the federal alternative minimum tax.

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 the appropriate Board of Directors. Each Fund may use repurchase
agreements which are at least 102% collateralized by securities in which a Fund
can invest directly.

National High Yield Municipal Bond Fund may enter into repurchase
agreements with respect to not more than 10% of its total assets (taken at
current value), except when investing for defensive purposes during times of
adverse market conditions. National High Yield Municipal Bond Fund may enter
into repurchase agreements with respect to any securities which it may acquire
consistent with its investment policies and restrictions.

The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow funds in the Delaware Investments family jointly to invest cash balances.
The Fund may invest cash balances in a joint repurchase agreement in accordance
with the terms of the Order and subject generally to the conditions described
above.

Reverse Repurchase Agreements
National High Yield Municipal Bond Fund may engage in "reverse
repurchase agreements" with banks and securities dealers with respect to not
more than 10% of its total assets. Reverse repurchase agreements are ordinary
repurchase agreements in which the Fund is the seller of, rather than the
investor in, securities and agrees to repurchase them at an agreed upon time and
price. Use of a reverse repurchase agreement may be preferable to a regular sale
and later repurchase of the securities because it avoids certain market risks
and transaction costs. Because certain of the incidents of ownership of the
security are retained by the Fund, reverse repurchase agreements are considered
a form of borrowing by the Fund from the buyer, collateralized by the security.
At the time the Fund enters into a reverse repurchase agreement, cash or liquid
securities having a value sufficient to make payments for the securities to be
repurchased will be segregated, and will be marked to market daily and
maintained throughout the period of the obligation. Reverse repurchase
agreements may be used as a means of borrowing for investment purposes subject
to the 10% limitation set forth above. This speculative technique is referred to
as leveraging. Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs which may or may not be
recovered by income from or appreciation of the securities purchased. Because
the Fund does not currently intend to utilize reverse repurchase agreements in
excess of 10% of total assets, the Fund believes the risks of leveraging due to
use of reverse repurchase agreements to principal are reduced. The Manager
believes that the limited use of leverage may facilitate the Fund's ability to
provide high current income.

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 1933 Act, as discussed more fully below.

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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 limitation on investments in
illiquid assets. The Board has instructed the Manager to consider the following
factors in determining the liquidity of a Rule 144A Security: (i) the frequency
of trades and trading volume for the security; (ii) whether at least three
dealers are willing to purchase or sell the security and the number of potential
purchasers; (iii) whether at least two dealers are making a market in the
security; and (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, a
Fund's holdings of illiquid securities exceed the Fund's 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.

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.

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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.

* * *

Part B further describes certain of these investment policies and risk
considerations. Part B also sets forth other investment policies, risk
considerations and more specific investment restrictions.

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APPENDIX A--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, S&P or Fitch
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.

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, S&P or
Fitch 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.
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 opinion
equivalent in credit quality to obligations rated lower than the top four
grades.

National High Yield Municipal Bond Fund will normally invest at least
65% of its total assets in medium-and lower-grade Municipal Obligations rated,
at the time of investment, between BBB and B-(inclusive) by S&P, Baa and B3
(inclusive) by Moody's, or BBB and B- (inclusive) by Fitch, or Municipal
Obligations determined by the Manager to be of comparable quality.

The tables set forth below show the percentage of these 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 a
Fund's securities which are not rated. The information contained in the table
was prepared based on a dollar weighted average of a Fund's portfolio
composition based on month end data for the fiscal period ended August 31, 1998.
The paragraphs following contain excerpts from Moody's, S&P's and Fitch'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 Average Weighted
Moody's and/or S&P Percentage of Portfolio
- ------------------ -----------------------
National High Yield
USA Fund Intermediate Fund Municipal Bond Fund
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa/AAA 35.79% 54.90% 0.16%
Aa/AA 9.59% 11.71% 2.69%
A/A 18.57% -- 3.20%
Baa/BBB 20.73% 26.86% 24.08%
Ba/BB 6.27% 6.53% 5.33%
B/B -- -- 1.10%
Caa/CCC -- -- --
Not Rated/Other 8.21% -- 63.44%

</TABLE>

-71-
<PAGE>

General Rating Information

Bonds
The ratings list below can be further described as follows. For all
categories lower than Aaa, Moody's Investors Service, Inc. includes a "1", "2"
or "3" following the rating to designate a high, medium or low rating,
respectively. Similarly, for all categories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.

Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc. Aa High quality; together with Aaa bonds, they compose the high-grade
bond group
A Upper-medium-grade obligations; many favorable investment attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present, but certain protective elements may be
lacking or may be unreliable over any great length of time.
Ba More uncertain with speculative elements. Protective of interest
and principal payments not well safeguarded in good and bad times.
B Lack characteristics of desirable investment; potentially low assurance of
timely interest and principal payments or maintenance of other
contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect to principal
or interest payments.
Ca Speculative in high degree; could be in default or have other marked shortcomings.
C Lowest rated. Extremely poor prospects of ever attaining investment standing.

Standard & Poor's AAA Highest rating; extremely strong capacity to pay principal
and Ratings Group interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally
exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to
lead to weakened capacity to pay principal and interest than for
higher-rated bonds.
BB, B, Predominantly speculative with respect to the issuer's capacity to
CCC, CC meet required interest and principal payments. BB-lowest degree of
speculation; CC-the highest degree of speculation. Quality
and protective characteristics outweighed by large uncertainties or
major risk exposure to adverse conditions.
D In default.

</TABLE>

-72-
<PAGE>

<S> <C> <C>
Fitch IBCA, Inc. AAA Highest quality; obligor has exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Very high quality; obligor's ability to pay interest and repay
principal is very strong. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
F-1+.
A High quality; obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than higher-rated
bonds.
BBB Satisfactory credit quality; obligor's ability to pay interest and
repay principal is considered adequate. Unfavorable changes in
economic conditions and circumstances are more likely to adversely
affect these bonds and impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is
higher than for higher-rated bonds.
BB, Not investment grade; predominantly speculative with respect to the
CCC, issuer's capacity to repay interest and repay principal in accordance
CC, C with the terms of the obligation for bond issues not in default. BB is
the least speculative. C is the most speculative.

Commercial Paper
Moody's S&P Fitch
P-1 Superior quality A-1+ Extremely strong F-1+ Exceptionally strong quality
A-1 quality F-1 Very strong quality
Strong quality
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
P-3 Acceptable A-3 Adequate quality F-3 Fair quality
quality B Speculative quality F-S Weak credit quality
C Doubtful quality
State and Municipal Notes
Moody's S&P Fitch
MIG1/
VMIG1 Best quality SP1 Very strong quality F-1+ Exceptionally strong quality
+ Strong grade F-1 Very strong quality
SP1
MIG2/
VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
MIG3/
VMIG3 Favorable quality F-3 Fair credit quality
MIG4/
VMIG4 Adequate quality
SG Speculative SP3 Speculative grade F-S Weak credit quality
quality

</TABLE>

-73-
<PAGE>

Earnings and Dividend Rankings for Common Stocks
Standard & Poor's Ratings Group. The investment process involves
assessment of various factors --such as product and industry position, corporate
resources and financial policy -- with results that make some common stocks more
highly esteemed than others. In this assessment, Standard & Poor's believes that
earnings and dividend performance is the end result of the interplay of these
factors and that, over the long run, the record of this performance has a
considerable bearing on relative quality. The rankings, however, do not pretend
to reflect all of the factors, tangible or intangible, that bear on stock
quality.

Relative quality of bonds or other debt, that is, degrees of
protection for principal and interest, called creditworthiness, cannot be
applied to common stocks, and therefore rankings are not to be confused with
bond quality ratings which are arrived at by a necessarily different approach.

Growth and stability of earnings and dividends are deemed key
elements in establishing Standard & Poor's earnings and dividend rankings for
common stocks, which are designed to capsulize the nature of this record in a
single symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.

The point of departure in arriving at these rankings is a
computerized scoring system based on per-share earnings and dividend records of
the most recent ten years -- a period deemed long enough to measure significant
time segments of secular growth, to capture indications of basic change in trend
as they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.

Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.

The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:

A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower

NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.

The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.

A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.

-74-
<PAGE>

Preferred Stock Rating

Moody's Investors Aaa Considered to be a top-quality preferred stock. This rating indicates good
Service, Inc. asset protection and the least risk of dividend impairment within the
universe of preferred stocks.
Aa Considered a high-grade preferred stock. This rating indicates that there
is reasonable assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable future.
A Considered to be an upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa" classifications,
earnings and asset protection are, nevertheless, expected to be maintained
at adequate levels.
Baa Considered to be medium-grade, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but may
be questionable over any great length of time.
Ba Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B Generally lacks the characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms of the issue over any
long period of time may be small.
Caa Likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
Ca Speculative in a high degree and is likely to be in arrears on dividends
with little likelihood of eventual payment.
C The lowest rated class of preferred or preference stock. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Standard& Poor's AAA Has the highest rating that may be assigned by Standard& Poor's to a
Ratings Group preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.
AA Qualifies as a high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming
as for issues rated "AAA."
A Backed by a sound capacity to pay the preferred stock obligations,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
</TABLE>

-75-
<PAGE>

BBB Regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.
BB,B, Regarded, on balance, as predominantly speculative with respect to
CCC the issuer's capacity to pay preferred stock obligations. "BB" indicates
the lowest degree of speculation and "CCC" the highest degree of
speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CC Reserved for a preferred stock issue in arrears on dividends or sinking
fund payments but that is currently paying.
C A non-paying issue.
D A non-paying issue with the issuer in default on debt instruments.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
</TABLE>

-76-
<PAGE>

Delaware Investments includes funds with a ------------------------------------------------------------
wide range of investment objectives. Stock funds,
income funds, national and state-specific tax-exempt
funds, money market funds, global and international TAX-FREE USA FUND
funds and closed-end 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 Investments at 800-523-1918.
TAX-FREE INSURED FUND

------------------------------------------------------------

TAX-FREE USA INTERMEDIATE FUND

------------------------------------------------------------

DELAWARE GROUP TAX-FREE FUND, INC.

------------------------------------------------------------

INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR PART B
Delaware Distributors, L.P.
1818 Market Street STATEMENT OF
Philadelphia, PA 19103 ADDITIONAL INFORMATION

SHAREHOLDER SERVICING, ------------------------------------------------------------
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT OCTOBER 28, 1998
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank DELAWARE
4 Chase Metrotech Center INVESTMENTS
Brooklyn, NY 11245 ============

</TABLE>

<PAGE>

- --------------------------------------------------------------------------------

PART B--STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 28, 1998
- --------------------------------------------------------------------------------

DELAWARE GROUP TAX-FREE FUND, INC.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
For Prospectus and Performance: Nationwide 800-523-1918

Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
- --------------------------------------------------------------------------------

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Cover Page 1
- --------------------------------------------------------------------------------
Investment Objectives and Policies 3
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------

-1-

<PAGE>

Delaware Group Tax-Free Fund, Inc. ("Tax-Free Fund, Inc.") is a
professionally managed mutual fund of the series type which currently offers
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").

Each Fund of Tax-Free Fund, Inc. offers three retail classes: Tax-Free
USA Fund A Class ("USA Fund A Class"), Tax-Free Insured Fund A Class ("Insured
Fund A Class") and Tax-Free USA Intermediate Fund A Class ("Intermediate Fund A
Class") (the "Class A Shares"); Tax-Free USA Fund B Class ("USA Fund B Class"),
Tax-Free Insured Fund B Class ("Insured Fund B Class") and Tax-Free USA
Intermediate Fund B Class ("Intermediate Fund B Class") (the "Class B Shares");
and Tax-Free USA Fund C Class ("USA Fund C Class"), Tax-Free Insured Fund C
Class ("Insured Fund C Class") and Tax-Free USA Intermediate Fund C Class
("Intermediate Fund C Class") (the "Class C Shares"). Each class is individually
referred to as a "Class" and collectively referred to as the "Classes".

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 3.75% with respect to USA Fund and Insured
Fund and 2.75% with respect to Intermediate Fund. Class A Shares are subject to
annual 12b-1 Plan expenses which, for USA Fund A Class and Insured Fund A Class
will vary because of the formula adopted by Tax-Free Fund, Inc.'s Board of
Directors but may not exceed 0.30%, and for Intermediate Fund A Class may not
exceed 0.30% and have been fixed by the Board at 0.15%. 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 Class
C Shares for the life of the investment.

This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus of
the Funds dated October 28, 1998, as it may be amended from time to time. Part B
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.

All references to "shares" in this Part B refer to all classes of
shares of Tax-Free Fund, Inc., except where noted.

-2-

<PAGE>

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 A--Ratings in the Prospectus contains excerpts describing
ratings of municipal obligations from Standard & Poor's Ratings Group ("S&P"),
Moody's Investors Service, Inc. ("Moody's") and Fitch IBCA, Inc. ("Fitch").

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 (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.

USA Fund will normally invest at least 80% of its assets in debt
obligations, as stated above, which are rated by S&P, Moody's or Fitch 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

-3-

<PAGE>

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, S&P or Fitch 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.

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.

-4-

<PAGE>

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
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

-5-

<PAGE>

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.

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
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 102% 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.

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The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow Delaware Investments 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.

Futures -- Intermediate Fund may enter into contracts for the purchase
or sale for future delivery of securities. USA Fund and Insured Fund may invest
in futures contracts and options on such futures contracts to the extent that
investments in these securities, when combined with inverse floaters and below
investment grade securities, do not exceed 20% of a Fund's total assets.
Intermediate 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. 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 a 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 Fund's Custodian Bank. Thereafter, a "variation margin" may
be paid by a 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.

A 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 a 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 a 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, a 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 a 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.

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<PAGE>

In addition, when a 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.

A 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,
a 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, a 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 a 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, a 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,
a 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 a 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, a 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

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<PAGE>

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, a
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if a 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
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, a 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.

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 (the "SEC" or the "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.

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.

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<PAGE>

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.

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
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.

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<PAGE>
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 - 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.

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 Chase
Manhattan Bank, cash or U.S. Government securities in an amount not less than

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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.

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

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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, 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
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 SEC 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.

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<PAGE>

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.

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 MBIA Insurance
Corporation ("MBIA"), AMBAC Indemnity Corporation ("AMBAC Indemnity"), Financial
Security Assurance ("FSA") 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, 1996, MBIA Inc. had total
equity capital (GAAP) of $2,479,697,000, up 11% from December 31, 1995 and as of
December 31, 1997, MBIA had total equity capital (GAAP) of $3,048,000,000 up 23%
from December 31, 1996. For the six months ended June 30, 1998, total equity
capital (GAAP) amounted to $3,568,500,000 (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, 1996, FGIC's total
equity capital (GAAP) was $1,684,400,000, up 8.8% from December 31, 1995 and as
of December 31, 1997, FGIC's total equity capital (GAAP) amounted to
$1,953,000,000, up 12% from December 31, 1996. For the six months ended June 30,
1998, total equity capital (GAAP) amounted to $2,005,000,000 (unaudited).

-15-
<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, 1996, AMBAC's
total equity capital (GAAP) was $1,615,016,000, up 15% from December 31, 1995
and as of December 31, 1997, AMBAC's total equity capital (GAAP) was
$1,872,000,000, up 16% from December 31, 1996. For the six months ended June 30,
1998, total equity capital (GAAP) amounted to $1,990,000,000 (unaudited).

FSA is the fourth largest insurer. As of December 31, 1996, FSA's total
equity capital (GAAP) was $801,260,000, up 3% from December 31, 1995 and as of
December 31, 1997, FSA's total equity capital (GAAP) was $882,000,000, up 10%
from December 31, 1996. For the six months ended June 30, 1998, total equity
capital (GAAP) was $934,000,000 (unaudited).

-16-
<PAGE>

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;
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.

Total return performance for each Class of the Funds will be computed
by adding all reinvested income and realized securities profits distributions
plus the change in net asset value during a specific period and dividing by the
offering price at the beginning of the period. It will not reflect any income
taxes payable by shareholders on the reinvested distributions included in the
calculation. Because securities prices fluctuate, past performance should not be
considered as a representative of the results which may be realized from an
investment in each Fund in the future.

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.

-17-
<PAGE>

The performance of each Class of the Funds, as shown below, is the
average annual total return quotation through August 31, 1998, computed as
described above. The average annual total return for Class A Shares at offer
reflects the maximum front-end sales charge of 3.75% with respect to USA Fund
Class A Shares and Insured Fund Class A Shares and 2.75% with respect to
Intermediate Fund Class A Shares 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.

Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.

Average Annual Total Return
USA Fund A Class

Class A Shares Class A Shares
(at Offer)(1) (at NAV)

<S> <C> <C>
1 year ended 8/31/98 3.92% 8.00%

3 years ended 8/31/98 4.52% 5.86%

5 years ended 8/31/98 4.35% 5.15%

10 years ended 8/31/98 7.22% 7.63%

Period 1/11/84(2) through 8/31/98 8.98% 9.26%
</TABLE>

(1) Effective June 9, 1997, the maximum front-end sales charge was reduced
from 4.75% to 3.75%. The above performance numbers are calculated using
3.75% as the applicable sales charge for all time periods, and are more
favorable than they would have been had they been calculated using the
former front-end sales charges.
(2) Date of initial public offering.

-18-
<PAGE>

The performance of USA Fund B Class, as shown below, is the average
annual total return quotation through August 31, 1998. The average annual total
return for USA Fund B Class including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at August 31, 1998. The average annual total return for USA Fund B Class
excluding deferred sales charge assumes the shares were not redeemed at August
31, 1998 and therefore does not reflect the deduction of a CDSC.

Average Annual Total Return
USA Fund B Class

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
1 year ended 8/31/98 3.15% 7.15%

3 years ended 8/31/98 4.13% 5.02%

Period 5/2/94(1) through 8/31/98 4.79% 5.17%

(1) Date of initial public offering.
</TABLE>

The performance of USA Fund C Class, as shown below, is the average
annual total return quotation through August 31, 1998. The average annual total
return for USA Fund C Class including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at August 31, 1998. The average annual total return for USA Fund C Class
excluding deferred sales charge assumes the shares were not redeemed at August
31, 1998 and therefore does not reflect the deduction of a CDSC.

<TABLE>
<CAPTION>
Average Annual Total Return
USA Fund C Class

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
1 year ended 8/31/98 6.15% 7.15%

Period 11/29/95(1) through 8/31/98 4.51% 4.51%

(1) Date of initial public offering.

</TABLE>

-19-
<PAGE>

The performance of Insured Fund A Class, as shown below, is the average
annual total return quotations through August 31, 1998, computed as described
above. The average annual total return for Insured Fund A Class at offer
reflects the maximum front-end sales charge of 3.75% paid on the purchase of
shares. The average annual total return for Insured Fund A Class at net asset
value (NAV) does not reflect any front-end sales charge. Securities prices
fluctuated during the periods covered and past results should not be considered
as representative of future performance.

Average Annual Total Return
Insured Fund A Class

Class A Shares Class A Shares
(at Offer)(1) (at NAV)

<S> <C> <C>
1 year ended 8/31/98 3.54% 7.57%

3 years ended 8/31/98 5.14% 6.49%

5 years ended 8/31/98 4.43% 5.24%

10 years ended 8/31/98 6.85% 7.26%

Period 3/25/85(2) through 8/31/98 7.64% 7.95%

</TABLE>
(1) Effective June 9, 1997, the maximum front-end sales charge was reduced
from 4.75% to 3.75%. The above performance numbers are calculated using
3.75% as the applicable sales charge for all time periods, and are more
favorable than they would have been had they been calculated using the
former front-end sales charges.
(2) Date of initial public offering.

-20-
<PAGE>

The performance of Insured Fund B Class, as shown below, is the average
annual total return quotation through August 31, 1998. The average annual total
return for Insured Fund B Class including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at August 31, 1998. The average annual total return for Insured Fund B Class
excluding deferred sales charge assumes the shares were not redeemed at August
31, 1998 and therefore does not reflect the deduction of a CDSC.

Average Annual Total Return
Insured Fund B Class

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
1 year ended 8/31/98 2.72% 6.72%

3 years ended 8/31/98 4.74% 5.64%

Period 5/2/94(1) through 8/31/98 5.23% 5.62%

</TABLE>
(1) Date of initial public offering.

The performance of Insured Fund C Class, as shown below, is the average
annual total return quotation through August 31, 1998. The average annual total
return for Insured Fund C Class including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at August 31, 1998. The average annual total return for Insured Fund C Class
excluding deferred sales charge assumes the shares were not redeemed at August
31, 1998 and therefore does not reflect the deduction of a CDSC.

Average Annual Total Return
Insured Fund C Class

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
1 year ended 8/31/98 5.72% 6.72%

Period 11/29/95(1) through 8/31/98 5.01% 5.01%
</TABLE>

(1) Date of initial public offering.

-21-
<PAGE>

The performance of Intermediate Fund A Class, as shown below, is the
average total return quotation through August 31, 1998, computed as described
above. The average annual total return for Intermediate Fund A Class at offer
reflects the maximum front-end sales charge of 2.75% paid on the purchase of
shares. The average annual total return for Intermediate Fund A Class at net
asset value (NAV) does not reflect any front-end sales charge.

Average Annual Total Return
Intermediate Fund A Class(1)

Class A Shares Class A Shares
(at Offer)(3) (at NAV)

<S> <C> <C>
1 year ended 8/31/98 4.35% 7.34%

3 years ended 8/31/98 5.17% 6.14%

5 years ended 8/31/98 4.79% 5.37%

Period 1/7/93(2) through 8/31/98 5.96% 6.48%
</TABLE>

(1) Reflects voluntary waiver and payment of expenses. See Investment
Management Agreements.
(2) Date of initial public offering.
(3) Effective June 9, 1997, the maximum front-end sales charge was reduced from
3.00% to 2.75%. The above performance numbers are calculated using 2.75% as
the applicable sales charge for all time periods, and are more favorable
than they would have been had they been calculated using the former
front-end sales charges.

-22-
<PAGE>

The performance of Intermediate Fund B Class, as shown below, is the
average annual total return quotation through August 31, 1998. The average
annual total return for Intermediate Fund B Class including deferred sales
charge reflects the deduction of the applicable CDSC that would be paid if the
shares were redeemed at August 31, 1998. The average annual total return for
Intermediate Fund B Class excluding deferred sales charge assumes the shares
were not redeemed at August 31, 1998 and therefore does not reflect the
deduction of a CDSC.

Average Annual Total Return
Intermediate Fund B Class(1)

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
1 year ended 8/31/98 4.43% 6.43%

3 years ended 8/31/98 4.94% 5.24%

Period 5/2/94(2) through 8/31/98 5.45% 5.45%

</TABLE>
(1) Reflects voluntary waiver and payment of expenses. See Investment
Management Agreements.
(2) Date of initial public offering.

The performance of Intermediate Fund C Class, as shown below, is the
average annual total return quotation through August 31, 1998. The average
annual total return for Intermediate Fund C Class including deferred sales
charge reflects the deduction of the applicable CDSC that would be paid if the
shares were redeemed at August 31, 1998. The average annual total return for
Intermediate Fund C Class excluding deferred sales charge assumes the shares
were not redeemed at August 31, 1998 and therefore does not reflect the
deduction of a CDSC.

Average Annual Total Return
Intermediate Fund C Class(1)

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
1 year ended 8/31/98 5.43% 6.43%

Period 11/29/95(2) through 8/31/98 5.05% 5.05%

</TABLE>
(1) Reflects voluntary waiver and payment of expenses. See Investment
Management Agreements.
(2) Date of initial public offering.

-23-
<PAGE>

As stated in the Funds' Prospectus, each Fund may also quote the
current yield of each of its Classes in advertisements and investor
communications.

The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:

a--b 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 of the Funds, based on specified 30-day periods identified in
advertising by the Funds. 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. Past performance, such as is reflected
in quoted yields, should not be considered as a representation of the results
which may be realized from an investment in any class of Tax-Free Fund, Inc. in
the future. The yields shown below for Intermediate Fund reflect voluntary
waiver and payment of expenses. See Investment Management Agreement. For the
30-day period ended August 31, 1998, the yield of each Class of USA Fund,
Insured Fund and Intermediate Fund was as follows:

Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
USA Fund 4.17% 3.53% 3.53%
Insured Fund 3.56% 2.91% 2.91%
Intermediate Fund 3.75% 3.01% 3.01%

-24-
<PAGE>

Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
USA Fund 6.04% 5.12% 5.12%
Insured Fund 5.16% 4.22% 4.22%
Intermediate Fund 5.43% 4.36% 4.36%

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.

The average weighted portfolio maturity at August 31, 1998 was 25.3
years for USA Fund, 23.9 years for Insured Fund and 9.5 years for Intermediate
Fund.

From time to time, the Fund may also quote actual total return and/or
yield performance for its Classes in advertising and other types of literature.
This information may be compared to that of other mutual funds with similar
investment objectives and to stock, bond and other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund (or Fund Class) may be compared to data prepared by
Lipper Analytical Services, Inc., Morningstar, Inc. or to the performance of
unmanaged indices compiled or maintained by statistical research firms such as
Lehman Brothers or Salomon Brothers, Inc.

Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare the Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The total
return performance reported for these indices will reflect the reinvestment of
all distributions on a quarterly basis and market price fluctuations. The
indices do not take into account any sales charge or other fees. A direct
investment in an unmanaged index is not possible.

-25-
<PAGE>

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.

The Funds may also promote each Class' yield and/or total return
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., IBC/Donoghue's Money Market Report and
Morningstar, Inc.

Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.

The performance of multiple indices compiled and maintained by
statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman
Brothers, 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.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare performance to that of other
compilations or indices that may be developed and made available in the future.

The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Funds (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments, or global or international investments),
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time, advertisements, sales literature,
communications to shareholders or other materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Funds. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Funds may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings

-26-
<PAGE>

which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, domestic and international
stocks, and/or bonds, treasury bills and shares of the Funds. In addition,
advertisements, sales literature, communications to shareholders or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in the Funds and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax planning and investment alternatives to certificates of deposit
and other financial instruments. Such sales literature, communications to
shareholders or other materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.

Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and periodicals.
Materials may also include discussions of other funds, products, and services.

The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Funds may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Funds may include information
regarding the background and experience of its portfolio managers.

The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class through August 31,
1998. For these purposes, the calculations assume the reinvestment of any
capital gains distributions and income dividends paid during the indicated
periods. The performance does not reflect any income taxes, if applicable,
payable by shareholders on the reinvested distributions included in the
calculations. The performance of Class A Shares reflects the maximum front-end
sales charge paid on the purchase of shares but may also be shown without
reflecting the impact of any front-end sales charge. The performance of Class B
Shares and Class C Shares is calculated both with the applicable CDSC included
and excluded. Past performance is not a guarantee of future results. Performance
shown for short periods of time may not be representative of longer term
results.

-27-
<PAGE>

Cumulative Total Return
USA Fund A Class

Class A Shares
(at Offer)(1)

3 months ended 8/31/98 (2.04%)

6 months ended 8/31/98 (0.84%)(2)

9 months ended 8/31/98 1.56%

1 year ended 8/31/98 3.92%

3 years ended 8/31/98 14.20%

5 years ended 8/31/98 23.73%

10 years ended 8/31/98 100.83%

Period 1/11/84(4) through 8/31/98 252.07%

-28-
<PAGE>

Cumulative Total Return
USA Fund B Class

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
3 months ended 8/31/98 (2.42%) 1.58%

6 months ended 8/31/98 (1.38%) 2.62%

9 months ended 8/31/98 0.85% 4.85%

1 year ended 8/31/98 3.15% 7.15%

3 years ended 8/31/98 12.91% 15.85%

Period 5/2/94(1) through 8/31/98 22.47% 24.43%

(1) Date of initial public offering.

Cumulative Total Return
USA Fund C Class

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 8/31/98 0.58% 1.58%

6 months ended 8/31/98 1.62% 2.62%

9 months ended 8/31/98 3.85% 4.85%

1 year ended 8/31/98 6.15% 7.15%

Period 11/29/95(1) through 8/31/98 12.92% 12.92%

(1) Date of initial public offering.

</TABLE>

-29-
<PAGE>

Cumulative Total Return
Insured Fund A Class

Class A Shares
(at Offer)(1)

3 months ended 8/31/98 (2.15%)

6 months ended 8/31/98 (1.07%)(2)

9 months ended 8/31/98 1.03%

1 year ended 8/31/98 3.54%

3 years ended 8/31/98 16.23%

5 years ended 8/31/98 24.20%

10 years ended 8/31/98 93.93%

Period 3/25/85(4) through 8/31/98 169.05%

(2) Cumulative total return at net asset value for the six months ended
August 31, 1998 was 2.76%.
(3) Date of initial public offering.

-30-
<PAGE>

<TABLE>
<CAPTION>
Cumulative Total Return
Insured Fund B Class

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
3 months ended 8/31/98 (2.57%) 1.43%

6 months ended 8/31/98 (1.65%) 2.35%

9 months ended 8/31/98 0.36% 4.36%

1 year ended 8/31/98 2.72% 6.72%

3 years ended 8/31/98 14.90% 17.90%

Period 5/2/94(1) through 8/31/98 24.72% 26.72%

(1) Date of initial public offering.

Cumulative Total Return
Insured Fund C Class

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 8/31/98 0.43% 1.43%

6 months ended 8/31/98 1.35% 2.35%

9 months ended 8/31/98 3.36% 4.36%

1 year ended 8/31/98 5.72% 6.72%

Period 11/29/95(1) through 8/31/98 14.43% 14.43%

(1) Date of initial public offering.

</TABLE>

-31-
<PAGE>

Cumulative Total Return
Intermediate Fund A Class(1)

Class A Shares
(at Offer)(2)

<S> <C>
3 months ended 8/31/98 (0.86%)

6 months ended 8/31/98 0.33%(3)

9 months ended 8/31/98 2.26%

1 year ended 8/31/98 4.35%

3 years ended 8/31/98 16.32%

5 years ended 8/31/98 26.33%

Period 1/7/93(4) to 8/31/98 38.68%
</TABLE>

(1) Reflects voluntary waiver and payment of expenses. See Investment
Management Agreements.
(2) Effective June 9, 1997, the maximum front-end sales charge was reduced from
3.00% to 2.75%. The above performance numbers are calculated using 2.75% as
the applicable sales charge for all time periods, and are more favorable
than they would have been had they been calculated using the former
front-end sales charges.
(3) Cumulative total return at net asset value for the six months ended August
31, 1998 was 3.16%.
(4) Date of initial public offering.

-32-
<PAGE>
<TABLE>
<CAPTION>

Cumulative Total Return
Intermediate Fund B Class(1)

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
3 months ended 8/31/98 (0.28%) 1.72%

6 months ended 8/31/98 0.72% 2.72%

9 months ended 8/31/98 2.50% 4.50%

1 year ended 8/31/98 4.43% 6.43%

3 years ended 8/31/98 15.56% 16.56%

Period 5/2/94(2) through 8/31/98 25.85% 25.85%

</TABLE>
(1) Reflects voluntary waiver and payment of expenses. See Investment
Management Agreements.
(2) Date of initial public offering.

Cumulative Total Return
Intermediate Fund C Class(1)

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

<S> <C> <C>
3 months ended 8/31/98 0.72% 1.72%

6 months ended 8/31/98 1.72% 2.72%

9 months ended 8/31/98 3.50% 4.50%

1 year ended 8/31/98 5.43% 6.43%

Period 11/29/95(2) through 8/31/98 14.55% 14.55%

</TABLE>
(1) Reflects voluntary waiver and payment of expenses. See Investment
Management Agreements.
(2) Date of initial public offering.

-33-
<PAGE>

Because every investor's goals and risk threshold are different, the
Distributor, as distributor for Tax-Free Fund, Inc. and other mutual funds in
the Delaware Investments family, will provide general information about
investment alternatives and scenarios that will allow investors to assess their
personal goals. This information will include general material about investing
as well as materials reinforcing various industry-accepted principles of prudent
and responsible 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
Investments funds', investment disciplines employed in seeking the objectives of
each Fund and other funds in the Delaware Investments family. 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.

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 high fund share prices. Delaware
Investments 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.

-34-
<PAGE>

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 10
Month 4 $100 $10.00 20
- ------------------------------------------------------------------------------
$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 any stock or bond fund in the Delaware
Investments family. Dollar-cost averaging can be appropriate for investments in
shares of funds that tend to fluctuate in value. Please obtain the prospectus of
any fund in the Delaware Investments family in which you plan to invest through
a dollar-cost averaging program. The prospectus contains additional information,
including charges and expenses. Please read it carefully before you invest or
send money.

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. Each Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.

-35-
<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 past three fiscal years, no brokerage commissions were paid
by USA Fund, Insured Fund or Intermediate Fund.

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, 1998, there were no portfolio
transactions of USA Fund, Insured Fund or Intermediate Fund resulting in
brokerage commissions directed to brokers for brokerage and research services.

As provided in the Securities Exchange Act of 1934 (the "1934 Act") 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, so
long as no fund is disadvantaged, portfolio transactions

-36-
<PAGE>

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 Investments family. 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 Conduct Rules 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 expenses of the funds in the Delaware Investments family such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of shares of such funds 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%. The degree of portfolio activity may
affect taxes payable by the Funds' shareholders. A turnover rate of 100% would
occur, for example, if all the investments in a Fund's portfolio at the
beginning of the year were replaced by the end of the year. 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 (the
"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.

-37-
<PAGE>

During the past two fiscal years, the portfolio turnover rates of the
Funds were as follows:

August 31,

1998 1997
---- ----
USA Fund 81% 44%
Insured Fund 63% 42%
Intermediate Fund 104% 34%

-38-
<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 of such Classes 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 Investments
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 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 are responsible for 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 amendments to its Conduct Rules relating to
investment company sales charges. Tax-Free Fund, Inc. and the Distributor intend
to operate in compliance with these rules.

Class A Shares of USA Fund and Insured Fund are purchased at the
offering price which reflects a maximum front-end sales charge of 3.75%. Shares
of Intermediate Fund A Class are also purchased at the offering price which
reflects a maximum front-end sales charge of 2.75%. However, lower sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment. See Plans Under Rule 12b-1 under
Purchasing Shares and Determining Offering Price and Net Asset Value.

Class B Shares of USA Fund and Insured Fund are purchased at net asset
value and are subject to a CDSC of: (i) 4% if shares are redeemed within two
years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class B Shares of USA Fund and
Insured Fund 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. Class B Shares of
Intermediate Fund are purchased at net asset value and are subject to a CDSC of:
(i) 2% if shares are redeemed within two years of purchase; and (ii) 1% if
shares are redeemed during the third year following purchase. Such shares are
also subject to annual 12b-1 Plan expenses which are higher than those to

-39-
<PAGE>

which Class A Shares are subject and are assessed against 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 Plans under Rule 12b-1 under Purchasing Shares and Determining
Offering Price and Net Asset Value in this Part B.

Certificates representing shares purchased are not ordinarily issued,
in the case of Class A Shares, unless a shareholder submits a specific request.
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 full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Tax-Free Fund, Inc. for any certificate
issued. A shareholder may be subject to fees for replacement of a lost or stolen
certificate, under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact a Fund for further
information. 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
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 0.30% of the average daily net
assets of Class A Shares (currently, no more than 0.15% of the average daily net
assets of Intermediate Fund 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.

Class A Shares - USA Fund, Insured Fund, Intermediate Fund
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases over
a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for the
Funds' Classes for a table illustrating reduced front-end sales charges. See
also 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.

Certain dealers who enter into an agreement to provide extra training
and information on Delaware Investments products and services and who increase
sales of Delaware Investments funds may receive an additional commission of up
to 0.15% 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

-40-
<PAGE>

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
As described more fully in the Prospectus for the Funds' Classes, 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. See Front-End Sales Alternative - Class A Shares in the Prospectus
for the Funds' Classes for the applicable schedule and further details.

Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares 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.

During the seventh year after purchase, and thereafter, until converted
automatically into Class A Shares of the corresponding Fund, USA Fund B Class
and Insured Fund 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 Fund B
Class and Insured Fund 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.

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.

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 of shares to which the Plan applies.

-41-
<PAGE>

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 Class B Shares 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 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 0.30% of average
daily net assets of Class A Shares, and up to 1% (0.25% 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.

Effective June 1, 1992, Tax-Free Fund, Inc.'s Board of Directors has
determined that the annual fee, payable on a monthly basis, under the separate
Plans relating to USA Fund A Class and Insured Fund A Class, will be equal to
the sum of: (i) the amount obtained by multiplying 0.30% by the average daily
net assets represented by Class A Shares of the Fund that were acquired by
shareholders on or after June 1, 1992; and (ii) the amount obtained by
multiplying 0.10% by the average daily net assets represented by 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 Fund A Class and Insured
Fund A Class, the fee is a Class A Shares' expense so that all shareholders of
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 0.10% 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 0.30% of average daily net assets). In addition, on September 17,
1992, Tax-Free Fund, Inc.'s Board of Directors set the fee for Intermediate Fund
A Class at 0.15% 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 Fund A Class, Insured Fund A Class and Intermediate Fund A Class,
such Plans permit a full 0.30% 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.

-42-
<PAGE>

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 Fund's B Class. 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,
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, 1998, payments from USA Fund A
Class, USA Fund B Class and USA Fund C Class amounted to $284,166, $89,527 and
$2,083, respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>

USA Fund A Class USA Fund B Class USA Fund C Class
---------------- ---------------- ----------------

Advertising $111 --- ---
Annual/Semi-Annual Reports $3,659 --- ---
Broker Trails $268,647 $26,859 $361
Broker Sales Charges --- $34,772 $1,337
Dealer Service Expenses --- --- $70
Interest on Broker Sales Charges --- $27,896 $56
Commissions to Wholesalers $5,735 --- $175
Promotional-Broker Meetings $3,966 --- $13
Promotional-Other $2,048 --- ---
Prospectus Printing --- --- ---
Telephone --- --- $24
Wholesaler Expenses --- --- $47
Other --- --- ---
</TABLE>

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<PAGE>

For the fiscal year ended August 31, 1998, payments from Insured Fund A
Class, Insured Fund B Class and Insured Fund C Class amounted to $37,137, $9,141
and $150, respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>

Insured Fund A Class Insured Fund B Class Insured Fund C Class
-------------------- -------------------- --------------------

Advertising --- --- ---
Annual/Semi-Annual Reports $515 --- ---
Broker Trails $33,717 $2,581 $102
Broker Sales Charges --- $2,893 $30
Dealer Service Expenses $43 --- ---
Interest on Broker Sales Charges --- $3,519 $9
Commissions to Wholesalers $465 $122 ---
Promotional-Broker Meetings $676 $9 ---
Promotional-Other $974 --- ---
Prospectus Printing --- --- ---
Telephone $366 $17 $9
Wholesaler Expenses $381 --- ---
Other --- --- ---
</TABLE>

For the fiscal year ended August 31, 1998, payments from Intermediate
Fund A Class, Intermediate Fund B Class and Intermediate Fund C Class amounted
to $8,246, $4,654 and $2,850, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>

Intermediate Fund Intermediate Fund Intermediate Fund
A Class B Class C Class
----------------- ----------------- -----------------

<S> <C> <C> <C>
Advertising --- --- ---
Annual/Semi-Annual Reports $30 --- ---
Broker Trails $7,664 $649 $1,596
Broker Sales Charges --- $2,902 $888
Dealer Service Expenses --- $37 ---
Interest on Broker Sales Charges --- $360 $162
Commissions to Wholesalers --- $322 $181
Promotional-Broker Meetings $158 $17 $13
Promotional-Other $394 --- ---
Prospectus Printing --- --- ---
Telephone --- $5 $10
Wholesaler Expenses --- $362 ---
Other --- --- ---
</TABLE>

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<PAGE>

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 0.25% of the dollar amount of such sales. The Distributor may also provide
additional promotional incentives or payments to dealers that sell shares of
funds in the Delaware Investments family. 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. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of Delaware
Investments 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 Investments family, the Manager, or any of
the Manager's current affiliates and those that may in the future be created,
legal counsel to the funds and registered representatives, and employees of
broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares and shares of any of the other funds in the Delaware
Investments family, 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 Class A Shares at net asset value.
Class A Shares may also be purchased at net asset value by current and former
officers, directors and employees (and members of their families) of the
Dougherty Financial Group LLC.

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
Investments 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.

Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the Funds in the Delaware Investments family at net asset value.

Tax-Free Fund, Inc. must be notified in advance that the trade
qualifies for purchase at net asset value.

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<PAGE>

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 Investments 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 Investments 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.

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 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 funds in the
Delaware Investments family (except shares of any Delaware Investments fund
which does 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 Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). In addition, assets held by investment
advisory clients of the Manager or its affiliates in a stable value account may
be combined with other Delaware Investments fund holdings.

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 funds in the Delaware
Investments family which offer such classes (except shares of any Delaware
Investments fund which does 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 Investments fund which carried
a front-end sales charge, CDSC or Limited CDSC). If, for example, any such
purchaser has previously purchased and still holds shares of USA Fund A Class or
Insured Fund 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 Fund A

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<PAGE>

Class or Insured Fund A Class, the charge applicable to the $60,000 purchase
would be 3.00%. 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 Investments family, 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 Investments family
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
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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<PAGE>

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 quarterly. 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 Funds in the Delaware Investments Family
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 Investments family 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.

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
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.

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<PAGE>

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 Investments family. Shareholders of each Class may also elect to
invest in one or more of the other mutual funds in the Delaware Investments
family 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
Investments family, 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 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.

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<PAGE>

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 in
Wealth Builder at any time by giving written notice to the fund from which
exchanges are made.

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<PAGE>

Asset Planner
To invest in funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in Delaware Investments funds. With the help of a
financial adviser, you may also design a customized asset allocation strategy.

The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange in the
Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes of
Shares. 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 Investments family may be
used in the same Strategy with consultant class shares that are offered by
certain other Delaware Investments funds.

Investors will receive a customized quarterly Strategy Report
summarizing all Asset Planner investment performance and account activity during
the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.

Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.

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<PAGE>

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 each Fund, its respective agents or certain other
authorized persons. 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 each
Fund, its respective agents or certain other authorized persons. Selling dealers
have the responsibility of transmitting orders promptly. See Distribution and
Service under Investment Management Agreements.

The offering price for 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 days on which the following holidays are
observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Fund will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.

An example showing how to calculate the net asset value per share and,
in the case of the Class A Shares, the offering price per share, is included in
each Fund's 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 a 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 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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<PAGE>

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. A
signature guarantee can be obtained from a commercial bank, a trust company or a
member of a Securities Transfer Association Medallion Program ("STAMP"). A
signature guarantee cannot be provided by a notary public. A signature guarantee
is designed to protect the shareholders, each Fund and its respective agents
from fraud. 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,
its agent or certain other authorized persons (see Distribution and Service
under Investment Management Agreements), subject to 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 Fund B Class and
Insured Fund 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; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Shares of the Intermediate Fund B
Class are subject to a CDSC of 2% during the first two years of purchase, 1%
during the third year of purchase and 0% thereafter. 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

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<PAGE>

currently a $7.50 bank wiring cost, there is no fee charged for redemptions or
repurchases, but such fees could be charged at any time in the future.

Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the respective Fund, its agent or certain other authorized
persons (see Distribution and Service under Investment Management Agreements);
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 SEC 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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<PAGE>

* * *

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 address of record. 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 First Union National
Bank, 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.

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

-55-
<PAGE>

written confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.

Systematic Withdrawal Plans
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 funds in the Delaware Investments family
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.

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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<PAGE>

DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS

Each Fund declares a dividend to shareholders of each Class of the
respective Fund's shares from 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.

Each Class of shares of a Fund will share proportionately in the
investment income and expenses of that 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 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.

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.

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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<PAGE>

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 (the "Code"), 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.

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 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 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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<PAGE>

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.

Under the Taxpayer Relief Act of 1997 (the "1997 Act"), as revised by
the Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
Act"), each Fund is required to track its sales of portfolio securities and to
report its capital gain distributions to you according to the following
categories of holding periods:

"Mid-term capital gains" or "28 percent rate gain": securities sold by
the Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%. This category of gains applied only
to gains and distributions in 1997.

"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund
after July 28, 1997 that were held for more than 18 months. As revised
by the 1998 Act, this rate applies to securities held for more than 12
months and sold in tax years beginning after December 31, 1997. These
gains will be taxable to individual investors at a maximum rate of 20%
for investors in the 28% or higher federal income tax brackets, and at
a maximum rate of 10% for investors in the 15% federal income tax
bracket. The Onmibus Consolidated and Emergency Supplemental
Appropriations Act passed in October of 1998 included a technical
correction to the 1998 Act. The effect of this correction is that
essentially all capital gain distributions paid to shareholders during
1998 will be taxed at a maximum rate of 20%

"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at higher rate brackets may
also make an election for shares held on January 1, 2001 to recognize
gain on their shares (any loss is disallowed) in order to qualify such
shares as qualified 5-year property as though purchased after December
31, 2000. These gains will be taxable to individual investors at a
maximum rate of 18% for investors in the 28% or higher federal income
tax brackets, and at a maximum rate of 8% for investors in the 15%
federal income tax bracket.

Shareholders will be informed annually of the amount and nature of
income and capital gains. For fiscal year 1998, 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.

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<PAGE>

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 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.

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 a 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. This 30% rule was rescinded for tax years beginning after
August 5, 1997.

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.

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<PAGE>

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. Shares of each Fund,
also, will be exempt from Pennsylvania county personal property taxes.

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<PAGE>

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 Investments family since 1938. On August 31, 1998, the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $39 billion in assets in
various institutional or separately managed (approximately $13,866,120,000) and
investment company (approximately $26,098,390,000) accounts.

Each Fund's Investment Management Agreement is dated April 3, 1995 and
was approved by shareholders on March 29, 1995. Each Agreement had 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. Each 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,
0.60% on the first $500 million of its average daily net assets, 0.575% on the
next $250 million and 0.55% on the average daily net assets in excess of $750
million; for Insured Fund, 0.60% of its average daily net assets; and for
Intermediate Fund, 0.50% 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, 1998, the total net assets of Tax-Free Fund, Inc. were
$731,435,748, broken down as follows:

USA Fund $626,109,472

Insured Fund $78,834,763
Intermediate Fund $26,491,513

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, 1996, 1997
and 1998, investment management fees paid by USA Fund were $4,540,845,
$4,082,683 and $3,772,773 respectively. Investment management fees paid by
Insured Fund for the fiscal years ended August 31, 1996, 1997 and 1998 amounted
to $528,860, $488,651 and $476,167, respectively. For the fiscal years ended
August 31, 1996, 1997 and 1998, investment management fees that would have been
payable by Intermediate Fund amounted to $106,549, $125,029 and $125,100,
respectively, but no amount was paid by this Fund for 1996, 1997 or 1998 due to
the waiver of fees described below.

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<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.

From the commencement of Intermediate Fund's operations through June
30, 1993, the Manager voluntarily waived that portion, if any, of the annual
management fees payable by the Fund and reimbursed the Fund's expenses to the
extend necessary to ensure that the Total Operating Expenses of the Fund,
including the 12b-1 expenses, did not exceed 0.25%. 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 0.10% (excluding 12b-1 fees). Because 12b-1 Plan fees have been set at
0.15% by Tax-Free Fund, Inc.'s Board of Directors for Intermediate Fund A Class,
the amount of the voluntary waiver with respect to each such Class, as modified,
was equivalent to the waiver operative through May 1, 1994. Beginning January 1,
1997, the Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by Intermediate Fund and to pay certain of the
Fund's expenses to the extend necessary to ensure that the Total Operating
Expenses of the Fund did not exceed 0.35% (excluding the 12b-1 plan expenses).
This waiver and expense limitation extended through June 30, 1997. Beginning
July 1, 1997, the Manager elected voluntarily to waiver that portion, if any,
of the annual management fees payable by Intermediate Fund and to pay certain of
the Fund's expenses to the extent necessary to ensure that the Total Operating
Expenses of the Fund do not exceed 0.45% (excluding the 12b-1 plan expenses).
This waiver and expense limitation extended through December 31, 1997.
Beginning January 1, 1998, the Manager has elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Tax-Free USA
Intermediate Fund and to pay certain of the Fund's expenses to the extent
necessary to ensure that the Total Operating Expenses of the Fund do not exceed
0.55% (excluding the 12b-1 plan expenses). This waiver and expense limitation
will extend through December 31, 1998.

Distribution and Service
The Distributor, Delaware Distributors, L.P., 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. The Distributor is an indirect,
wholly owned subsidiary of Delaware Management Holdings, Inc.

The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
each Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement 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 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.

Each Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of each Fund. For purposes of pricing, each Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable,

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<PAGE>

a broker's authorized designee, accepts the order. Investors may be charged a
fee when effecting transactions through a broker or agent.

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<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 Investments family. On
September 30, 1998, Tax-Free Fund, Inc.'s officers and directors owned less than
1% of the outstanding shares of each of the Funds' Classes.

As of September 30, 1998, management believes the following accounts
held of record 5% or more of the outstanding shares of a Class. Management has
no knowledge of beneficial ownership.

<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>

USA Fund B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 280,820 8.92%

Insured Fund B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 85,575 22.37%

Gerry M Fleuriet TTEE
Kenneth MacPherson
Hazel MacPherson Grantors
621 East Tyler
Harlingen, TX 78550 22,520 5.88%

Intermediate Fund Merrill Lynch, Pierce, Fenner & Smith
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 33,532 18.73%

Maimee G. Chapin, Merlaine G. Latham
Dolores Ann Lund and Norma J. Alguard
1301 1st Street South
Jacksonville Beach, FL 32250 11,575 6.46%

</TABLE>

-65-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>

Intermediate Fund Charles D. La Motta
B Class 286 Stonegate Drive
Devon, PA 19333 9,699 5.42%

Cordie R. Williams
1418 Colony Place
Venice, FL 34292 8,956 5.00%

USA Fund C Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 83,957 41.66%

Insured Fund C Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 12,333 42.71%

Prudential Securities, Inc.
For the Benefit of
Audrey F. Arcement and
Sidney J. Arcement
4400 Folse Drive
Metairie, LA 70006 5,658 19.59%

Elaine L. Blevins
HC 4, Box 96
St. Maries, ID 83861 4,494 15.56%

Hugh A. Lindsay and Helen W. Lindsay
1300 Jacobs Drive
Morgantown, WV 26505 1,832 6.34%

Donaldson Lufkin Jenrette
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303 1,773 6.14%

</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>

Intermediate Fund Merrill Lynch, Pierce, Fenner & Smith
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 28,012 14.98%

Jeanne R. Derbes
Thomas J. Derbes
2302 N. Harbour Drive
Lynn Haven, FL 32444 25,925 13.87%

Emery Jahnke
Ann Jahnke
2402 Lilac Lane
Fargo, ND 58102 24,691 13.21%

Jewel Higginbotham
9207 Pine Crest
Boloxi, MS 39532 17,837 9.54%

Laurence Adams Malone Trust
Matthew JD Lynch
166779 Chillicothe Road
Chagrin Falls, OH 44023 17,009 9.10%

</TABLE>

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<PAGE>

DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd., Delaware Capital Management, Inc. and Retirement
Financial Services, Inc. are direct or indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.

Certain officers and directors of Tax-Free Fund, Inc. hold identical
positions in each of the other funds in the Delaware Investments family.
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.

*Wayne A. Stork (61)
Chairman and Director and/or Trustee of Tax-Free Fund, Inc. and 33
other investment companies in the Delaware Investments family
and Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc. and
Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware
Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management
Business Trust)
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd., Delaware International Holdings
Ltd. and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Retirement Financial
Services, Inc. During the past five years, Mr. Stork has
served in various executive capacities at different times
within the Delaware organization.

- ----------------------
* Director affiliated with the Fund's investment manager and considered
an "interested person" as defined in the 1940 Act.

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<PAGE>

* Jeffrey J. Nick (45)
President, Chief Executive Officer and Director and/or Trustee of
Tax-Free Fund, Inc. and 33 other investment companies in the
Delaware Investments family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
Director of Delaware International Advisers Ltd.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln
National UK plc and from 1989 to 1992, he was Senior Vice
President responsible for corporate planning and development
for Lincoln National Corporation.

Richard G. Unruh, Jr. (59)
Executive Vice President of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware
Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.

Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of
Tax-Free Fund, Inc. and 33 other investment companies in the
Delaware Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust) and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments 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 Delaware Investments.

- ----------------------
* Director affiliated with the Fund's investment manager and considered
an "interested person" as defined in the 1940 Act.

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<PAGE>

David K. Downes (58)
ExecutiveVice President, Chief Operating Officer, Chief Financial
Officer of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family, Delaware
Management Holdings, Inc, Founders CBO Corporation, Delaware
Capital Management, Inc., Delaware Management Company (a
series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc.
and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman,Chief Executive Officer and Director of Delaware Management
Trust Company and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various
executive capacities at different times within the Delaware
organization.

Walter P. Babich (71)
Director and/or Trustee of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investment family
460 North Gulph Road, King of Prussia, PA 19406 Board Chairman, Citadel
Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.

John H. Durham (61)
Director and/or Trustee of Tax-Free Fund, Inc. and 18 other investment
companies in the Delaware Investments family
Partner, Complete Care Services
120 Gibraltar Road, Horsham, PA 19044
Mr. Durham served as Chairman of the Board of each fund in the
Delaware Investments family from 1986 to 1991; President of
each fund from 1977 to 1990; and Chief Executive Officer of
each fund from 1984 to 1990. Prior to 1992, with respect to
Delaware Management Holdings, Inc., Delaware Management
Company, Delaware Distributors, Inc. and Delaware Service
Company, Inc., Mr. Durham served as a director and in various
executive capacities at different times.

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<PAGE>

Anthony D. Knerr (59)
Director and/or Trustee of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance
and Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.

Ann R. Leven (57)
Director and/or Trustee of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family
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 (77)
Director and/or Trustee of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman

Thomas F. Madison (62)
Director and/or Trustee of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Chairman of the Board, Communications Holdings, Inc.
From February to September 1994, Mr. Madison served as Vice
Chairman--Office of the CEO of The Minnesota Mutual Life
Insurance Company and from 1988 to 1993, he was President of
U.S. WEST Communications--Markets.

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<PAGE>

Charles E. Peck (72)
Director and/or Trustee of Tax-Free Fund, Inc. and 33 other investment
companies in the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
Retired.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer
of The Ryland Group, Inc., Columbia, MD.

George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Tax-Free
Fund, Inc. and 33 other investment companies in the Delaware
Investments family.
Senior Vice President and Secretary of Delaware Distributors, L.P.,
Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Management
Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp.,
Delaware Management Company, Inc., Delaware Distributors,
Inc., Delaware Service Company, Inc., Founders Holdings, Inc.,
Retirement Financial Services, Inc., Delaware Capital
Management, Inc., Delvoy, Inc. and Delaware Management
Business Trust

Executive Vice President, Secretary and Director of Delaware Management
Trust Company Senior Vice President 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
executive capacities at different times within the Delaware
organization.

Joseph H. Hastings (48)
Senior Vice President/Corporate Controller of Tax-Free Fund, Inc. and
33 other investment companies in the Delaware Investments
family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Delaware
International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust
Chief Financial Officer/Treasurer of Retirement Financial Services,
Inc. Executive Vice President/Chief Financial
Officer/Treasurer of Delaware Management Trust Company Senior
Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various
executive capacities at different times within the Delaware
organization.

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<PAGE>

Michael P. Bishof (36)
Senior Vice President/Treasurer of Tax-Free Fund, Inc. and 33 other
investment companies in the Delaware Investments family and
Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service
Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting
of Delaware Distributors, L.P. and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.
Senior Vice President and Assistant Treasurer of Founders CBO
Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.

Patrick P. Coyne (35)
Vice President/Senior Portfolio Manager of Tax-Free Fund, Inc., 18
other investment companies in the Delaware Investments family,
Delaware Capital Management, Inc., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
During the past five years, Mr. Coyne has served in various
capacities at different times within the Delaware
organization.

Mitchell L. Conery (39)
Vice President/Senior Portfolio Manager of Tax-Free Fund, Inc., 18
other investment companies in the Delaware Investments family,
Delaware Capital Management, Inc., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1997, Mr. Conery was an
investment officer with Travelers Insurance from 1995 through
1996 and a research analyst with CS First Boston from 1992 to
1995.

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<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
Investments funds for the fiscal year ended August 31, 1998 and an estimate of
annual benefits to be received upon retirement under the Delaware Investments
Retirement Plan for Directors/Trustees as of August 31, 1998. Only the
independent directors of Tax-Free Fund, Inc. receive compensation from the
Funds.

Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued Annual from all 34
from as Part of Benefits Delaware
Tax-Free Tax-Free Fund, Upon Investment
Fund, Inc. Inc. Expenses Retirement(1) Companies(2)
Name
<S> <C> <C> <C> <C>

W. Thacher Longstreth $2,532 None $38,500 $63,447
Ann R. Leven $2,809 None $38,500 $69,609
Walter P. Babich $2,763 None $38,500 $68,448
Anthony D. Knerr $2,763 None $38,500 $68,448
Charles E. Peck $2,532 None $38,500 $63,447
Thomas F. Madison $2,589 None $38,500 $64,698
John H. Durham(3) $1,031 None $31,000 $18,784
</TABLE>

(1) Under the terms of the Delaware Investments Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time of
his or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each investment company in the Delaware Investments family
for which he or she serves as a director or trustee for a period equal to
the lesser of the number of years that such person served as a director or
trustee 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/trustees of each investment company at the time
of such person's retirement. If an eligible director/trustee retired as of
July 31, 1998, he or she would be entitled to annual payments totaling the
amount noted above, in the aggregate, from all of the investment companies
in the Delaware Investments family for which he or she served as director
or trustee, based on the number of investment companies in the Delaware
Investments family as of that date.
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,500 for serving as a director
or trustee for all 34 investment companies in Delaware Investments, plus
$3,145 for each Board Meeting attended. John H. Durham currently receives a
total annual retainer fee of $31,000 for serving as a director or trustee
for 19 investment companies in Delaware Investments, plus $1,757.50 for
each Board Meeting attended. Ann R. Leven, Walter P. Babich, Anthony D.
Knerr and Thomas F. Madison serve on the Fund's audit committee; Ms. Leven
is the chairperson. Members of the audit committee currently receive
additional annual compensation of $5,000 from all investment companies, in
the aggregate, with the exception of the chairperson, who receives $6,000.
(3) John H. Durham joined the Board of Directors of Tax-Free Fund, Inc. and 18
other investment companies in the Delaware Investments family on April 16,
1998.

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<PAGE>

EXCHANGE PRIVILEGE

The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Investments family
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 Investments family. 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 Investments family 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 Investments. 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 Investments family. 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.

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<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
Investments 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 Investments funds: (1)
Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4)
Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other funds in the
Delaware Investments family are available for timed exchanges. Assets redeemed
or exchanged out of Timing Accounts in Delaware Investments funds not listed
above may not be reinvested back into that Timing Account. 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 funds
in the Delaware Investments family:

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.

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<PAGE>

Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.

Small Cap Value Fund seeks capital appreciation by investing primarily
in common stocks whose market values appear low relative to their underlying
value or future potential.

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.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Social Awareness Fund seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.

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. High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Corporate Bond Fund seeks to provide investors with total return by investing
primarily in corporate bonds. Extended Duration Bond Fund seeks to provide
investors with total return by investing primarily in corporate bonds.

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.

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.

REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.

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.

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<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. Tax-Free New
Jersey Fund seeks a high level of current interest income exempt from federal
income tax and New Jersey state and local taxes, consistent with preservation of
capital. Tax-Free Ohio Fund seeks a high level of current interest income exempt
from federal income tax and Ohio state and local taxes, consistent with
preservation of capital.

Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Income Portfolio seeks a combination of current income and preservation of
capital with capital appreciation by investing primarily in a mix of fixed
income and domestic equity securities, including fixed income and domestic
equity Underlying Funds. Foundation Funds Balanced Portfolio seeks capital
appreciation with current income as a secondary objective by investing primarily
in domestic equity and fixed income securities, including domestic equity and
fixed income Underlying Funds. Foundation Funds Growth Portfolio seeks long-term
capital growth by investing primarily in equity securities, including equity
Underlying Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.

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 Equity Fund seeks to achieve
long-term total return by investing in global securities that provide the
potential for capital appreciation and income. Emerging Markets Fund seeks
long-term capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries.

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. Overseas
Equity 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.

Delaware Group Premium Fund, Inc. offers 16 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return 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. Delchester 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.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware 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. Small Cap Value Series seeks
capital appreciation by investing primarily in small-cap common stocks whose
market values appear low relative

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<PAGE>

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. Trend Series seeks long-term
capital appreciation by investing primarily in small-cap common stocks and
convertible securities of emerging and other growth-oriented companies. These
securities will have been judged to be responsive to changes in the market place
and to have fundamental characteristics to support growth. Income is not an
objective. 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.
Strategic Income Series seeks high current income and total return by using a
multi-sector investment approach, investing primarily in three sectors of the
fixed-income securities markets: high-yield, higher risk securities; investment
grade fixed-income securities; and foreign government and other foreign
fixed-income securities. Devon Series seeks current income and capital
appreciation by investing primarily in income-producing common stocks, with a
focus on common stocks that the investment manager believes have the potential
for above-average dividend increases over time. Emerging Markets Series seeks to
achieve long-term capital appreciation by investing primarily in equity
securities of issuers located or operating in emerging countries. Convertible
Securities Series seeks a high level of total return on its assets through a
combination of capital appreciation and current income by investing primarily in
convertible securities. Social Awareness Series seeks to achieve long-term
capital appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry.

Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.

Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.

Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide
a high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.

Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income

-79-
<PAGE>

exempt from federal income tax and the Missouri personal income tax, consistent
with the preservation of capital. Delaware-Voyageur Tax-Free New Mexico Fund
seeks to provide a high level of current income exempt from federal income tax
and the New Mexico personal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Oregon Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Oregon personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free Utah Fund seeks to provide a high level of current income exempt from
federal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a high level
of current income exempt from federal income tax, consistent with the
preservation of capital.

Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level
of current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.

Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level
of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.

Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.

-80-
<PAGE>

Delaware-Voyageur Tax-Free North Dakota Fund seeks to provide a high level of
current income exempt from federal income tax and the North Dakota personal
income tax, consistent with the preservation of capital.

For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.

Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).

-81-
<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 Investments family. 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.

The Manager also manages the investment options for Delaware
Medallion[SM] III Variable Annuity. Medallion is issued by Allmerica Financial
Life Insurance and Annuity Company (First Allmerica Financial Life Insurance
Company in New York and Hawaii). Delaware Medallion offers various investment
series ranging from domestic equity funds, international equity and bond funds
and domestic fixed income funds. Each investment series available through
Medallion utilizes an investment strategy and discipline the same as or similar
to one of the Delaware Investments mutual funds available outside the annuity.
See Delaware Group Premium Fund, Inc., above.

Access persons and advisory persons of the Delaware Investments family,
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 Investments family. The Distributor received
net commissions from each Fund on behalf of its Class A Shares, after
reallowances to dealers, as follows:

USA Fund A Class

<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ---------- ---------- --------------

<S> <C> <C> <C>
8/31/98 $314,525 $264,400 $50,125
8/31/97 615,910 511,081 104,829
8/31/96 1,254,767 1,039,305 215,462

</TABLE>

-82-
<PAGE>

Insured Fund A Class

Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ---------- ---------- --------------

<S> <C> <C> <C>
8/31/98 $38,389 $32,986 $5,403
8/31/97 88,637 73,401 15,236
8/31/96 207,649 171,130 36,519

</TABLE>
Intermediate Fund A Class

<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ---------- ---------- --------------

<S> <C> <C> <C>
8/31/98 $43,288 $34,492 $8,796
8/31/97 25,579 21,287 4,292
8/31/96 65,201 53,230 11,971

</TABLE>

The Distributor received Limited CDSC payments with respect to
Class A Shares as follows:

Limited CDSC Payments

<TABLE>
<CAPTION>
Fiscal Intermediate
Year Ended USA Fund A Class Insured Fund A Class Fund A Class
---------- ---------------- -------------------- ------------

<S> <C> <C> <C>
8/31/98 -- -- --
8/31/97 -- -- --
8/31/96 -- $6,501 --

</TABLE>

The Distributor received CDSC payments with respect to Class B
Shares as follows:

CDSC Payments

<TABLE>
<CAPTION>
Fiscal Intermediate
Year Ended USA Fund B Class Insured Fund B Class Fund B Class
---------- ---------------- -------------------- ------------

<S> <C> <C> <C>
8/31/98 $113,024 $10,935 $2,055
8/31/97 135,550 13,948 3,814
8/31/96 37,160 8,344 3,293

</TABLE>

-83-
<PAGE>

The Distributor received CDSC payments with respect to Class C Shares
as follows:

CDSC Payments

<TABLE>
<CAPTION>
Fiscal Intermediate
Year Ended USA Fund C Class Insured Fund C Class Fund C Class
---------- ---------------- -------------------- ------------
<S> <C> <C> <C>
8/31/98 $ 439 $607 $10,004
8/31/97 1,522 -- 74
8/31/96* -- -- --

</TABLE>
*Commenced operations on November 29, 1995.

The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Investments family. 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
Investments family for which it provides such accounting services. Such fee is
equal to 0.25% multiplied by the total amount of assets in the complex for which
the Transfer Agent furnishes accounting services, where such aggregate complex
assets are $10 billion or less, and 0.20% of assets if such aggregate complex
assets exceed $10 billion. The fees are charged to each fund, including the
Fund, on an aggregate pro-rata basis. The asset-based fee payable to the
Transfer Agent is subject to a minimum fee calculated by determining the total
number of investment portfolios and associated classes.

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.

The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn
NY 11245, is custodian of each Fund's securities and cash. As custodian for each
Fund, Chase 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.

Capitalization
Tax-Free Fund, Inc. has present authorized capitalization of five
hundred million shares of capital stock with a $0.01 par value per share. Each
Fund offers three classes of shares, each representing a proportionate

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<PAGE>

interest in the assets of that Fund, and each having the same voting and other
rights and preferences as the other classes, except that, as a general matter,
shareholders 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, Class B Shares of a Fund may vote on any
proposal to increase materially the fees to be paid by the Fund under the Rule
12b-1 Plans relating to its Class A Shares. General expenses of a Fund will be
allocated on a pro-rata basis to the classes according to asset size, except
that expenses of the Rule 12b-1 Plans of each Fund's Class A, Class B and Class
C Shares will be allocated solely to those classes. 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 Class B Shares and twenty-five million shares to 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 Class
B Shares and twenty-five million shares to 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 Class B Shares and twenty-five million
shares to Class C Shares.

Shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable.

Prior to May 2, 1994, Tax-Free USA Fund A Class was known as Tax-Free
USA Fund, and prior to June 1, 1992, it was known as USA Series. Prior to May 2,
1994, Tax-Free Insured Fund A Class was known as Tax-Free Insured Fund, and
prior to June 1, 1992, it was known as USA Insured Series. Prior to May 2, 1994,
Tax-Free USA Intermediate Fund A Class was known as 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.

-85-
<PAGE>

FINANCIAL STATEMENTS

Ernst & Young LLP serves as the independent auditors for Tax-Free Fund,
Inc. and, in its capacity as such, audits the annual financial statements of
each of the Funds. The Funds' Statements of Net Assets, Statements of
Operations, Statements of Changes in Net Assets, Financial Highlights and Notes
to Financial Statements, as well as the report of Ernst & Young LLP, independent
auditors, for the fiscal year ended August 31, 1998, are included in the Fund's
Annual Report to shareholders. The financial statements, the notes relating
thereto, the financial highlights and the report of Ernst & Young LLP, listed
above are incorporated by reference from the Annual Report into this Part B.

-86-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>

Delaware Investments includes ----------------------------------------------------
funds with a wide range of investment
objectives. Stock funds, income funds,
national and state-specific tax-exempt NATIONAL HIGH YIELD MUNICIPAL
funds, money market funds, global and BOND FUND
international funds and closed-end funds
give investors the ability to create a ----------------------------------------------------
portfolio that fits their personal
financial goals. For more information,
shareholders of the Fund Classes should A CLASS
contact their financial adviser or call ----------------------------------------------------
Delaware Investments at 800-523-1918.

B CLASS
INVESTMENT MANAGER ----------------------------------------------------
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103 C CLASS
----------------------------------------------------
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street CLASSES OF VOYAGEUR MUTUAL FUNDS,
Philadelphia, PA 19103 INC.
----------------------------------------------------
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 PART B
Philadelphia, PA 19103
STATEMENT OF
INDEPENDENT AUDITORS ADDITIONAL INFORMATION
Ernst & Young LLP
Two Commerce Square ----------------------------------------------------
Philadelphia, PA 19103

CUSTODIANS October 28, 1998
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402

DELAWARE
INVESTMENTS
==============

</TABLE>
<PAGE>

<S> <C>

- -------------------------------------------------------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 28, 1998
- -------------------------------------------------------------------------------------------------------------------------------
VOYAGEUR MUTUAL FUNDS, INC.

- -------------------------------------------------------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- -------------------------------------------------------------------------------------------------------------------------------

For Prospectus and Performance of Class A Shares, Class B Shares and Class C Shares:
Nationwide 800-523-1918

Information on Existing Accounts of Class A Shares, Class B Shares and Class C Shares:
(SHAREHOLDERS ONLY) Nationwide 800-523-1918

Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
- -------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------------------
Cover Page
- -------------------------------------------------------------------------------------------------------------------------------
Investment Restrictions and Policies
- -------------------------------------------------------------------------------------------------------------------------------
Accounting and Tax Issues
- -------------------------------------------------------------------------------------------------------------------------------
Performance Information
- -------------------------------------------------------------------------------------------------------------------------------
Trading Practices and Brokerage
- -------------------------------------------------------------------------------------------------------------------------------
Purchasing Shares
- -------------------------------------------------------------------------------------------------------------------------------
Investment Plans
- -------------------------------------------------------------------------------------------------------------------------------
Determining Offering Price and Net Asset Value
- -------------------------------------------------------------------------------------------------------------------------------
Redemption and Repurchase
- -------------------------------------------------------------------------------------------------------------------------------
Distributions and Taxes
- -------------------------------------------------------------------------------------------------------------------------------
Investment Management Agreement
- -------------------------------------------------------------------------------------------------------------------------------
Officers and Directors
- -------------------------------------------------------------------------------------------------------------------------------
Exchange Privilege
- -------------------------------------------------------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------------------------------------------------------

Financial Statements
- -------------------------------------------------------------------------------------------------------------------------------

</TABLE>

-2-
<PAGE>

Voyageur Mutual Funds, Inc. ("Mutual Funds, Inc.") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of Mutual Funds, Inc.'s registration statement)
describes National High Yield Municipal Bond Fund series (the "Fund") of Mutual
Funds, Inc. The Fund offers Class A Shares, Class B Shares and Class C Shares
(individually, a "Class" and collectively the "Classes").

Class B Shares and Class C Shares of the Fund 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 3.75% and annual 12b-1 Plan
expenses of up to 0.25%. Class B Shares are subject to a contingent deferred
sales charge ("CDSC") which may be imposed on redemptions made within six years
of purchase and annual 12b-1 Plan expenses of up to 1% which are assessed
against Class B Shares for approximately eight years after purchase. See
Automatic Conversion of Class B Shares under Classes of Shares in the Fund's
Prospectus. Class C Shares are subject to a CDSC which may be imposed on
redemptions made within 12 months of purchase and annual 12b-1 Plan expenses of
up to 1% which are assessed against Class C Shares for the life of the
investment.

This Part B supplements the information contained in the current
Prospectus for the Fund dated October 28, 1998 as it may be amended from time to
time. It should be read in conjunction with the Prospectus. Part B is not itself
a prospectus but is, in its entirety, incorporated by reference into the
Prospectus. A Prospectus may be obtained by writing or calling your investment
dealer or by contacting the Fund's national distributor, Delaware Distributors,
L.P. (the "Distributor"), 1818 Market Street, Philadelphia, PA 19103.

All references to "shares" in this Part B refer to all Classes of
shares of the Fund, except where noted.

-3-
<PAGE>

INVESTMENT RESTRICTIONS AND POLICIES

Investment Restrictions
The Fund has adopted certain investment restrictions set forth below
which, together with the investment objectives of the Fund and other policies
which are specifically identified as fundamental in the Prospectus or herein
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. As defined in the Investment Company Act of 194
("1940 Act"), this means the lesser of the vote of (1) 67% of the shares of the
Fund at a meeting where more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (2) more than 50% of the outstanding shares of
the Fund. The following investment restrictions apply to the Fund. The Fund will
not:

(1) Borrow money (provided that the Fund may enter into reverse
repurchase agreements with respect to not more than 10% of its total assets),
except from banks for temporary or emergency purposes in an amount not exceeding
20% of the value of the Fund's total assets, including the amount borrowed. The
Fund may not borrow for leverage purposes, provided that the Fund may enter into
reverse repurchase agreements for such purposes, and securities will not be
purchased while outstanding borrowings exceed 5% of the value of the Fund's
total assets.

(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, the Fund may
be deemed to be an underwriter under federal securities laws.

(3) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.

(4) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies, and through repurchase
agreements.

(5) Invest 25% or more if its total assets in the securities of any
industry, although, for purposes of this limitation, tax-exempt securities and
U.S. government obligations are not considered to be part of any industry.

(6) Issue any senior securities (as defined in the 1940 Act), except as
set forth in investment restriction number (1) above, and except to the extent
that using options, futures contracts and options on futures contracts,
purchasing or selling on a when-issued or forward commitment basis or using
similar investment strategies may be deemed to constitute issuing a senior
security.

(7) Purchase or sell commodities or futures or options contracts with
respect to physical commodities. This restriction shall not restrict the Fund
from purchasing or selling, on a basis consistent with any restrictions
contained in its then-current prospectus, any financial contracts or instruments
which may be deemed commodities (including, by way of example and not by way of
limitation, options, futures, and options on futures with respect, in each case,
to interest rates, currencies, stock indices, bond indices or interest rate
indices).

The following non-fundamental investment restrictions may be changed by
the Board of the Fund at any time. The Fund will not:

-4-
<PAGE>

(1) Invest more than 5% of its total assets in securities of any single
investment company, nor more than 10% of its total assets in securities of two
or more investment companies, except as part of a merger, consolidation or
acquisition of assets.

(2) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.

(3) Write puts if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover such puts.

(4) Make short sales of securities or maintain a short position for the
account of the Fund, unless at all times when a short position is open it owns
an equal amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short.

Except for the Fund's policy with respect to borrowing, any investment
restriction or limitation which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or a
utilization of assets and such excess results therefrom.

The investment objectives, policies and restrictions of the Fund are
set forth in the Prospectus. Certain additional investment information is set
forth below.

Diversification
Although the Fund is characterized as a non-diversified fund under the
1940 Act, the Fund intends to conduct its operations so that it will qualify
under the Internal Revenue Code of 1986, as amended (the "Code") as a "regulated
investment company." In order to qualify as a regulated investment company, the
Fund must limit its investments so that, at the close of each quarter of the
taxable year, with respect to at least 50% of its total assets, not more than 5%
of its total assets will be invested in the securities of a single issuer. In
addition, the Code requires that not more than 25% in value of the Fund's total
assets may be invested in the securities of a single issuer at the close of each
quarter of the taxable year.

For purposes of such diversification, the identification of the issuer
of Municipal Obligations depends on the terms and conditions of the security. If
a state or a political subdivision thereof pledges its full faith and credit to
payment of a security, the state or the political subdivision, respectively, is
deemed the sole issuer of the security. If the assets and revenues of an agency,
authority or instrumentality of a state or a political subdivision thereof are
separate from those of the state or political subdivision and the security is
backed only by the assets and revenues of the agency, authority or
instrumentality, such agency, authority or instrumentality is deemed to be the
sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the state, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or specific project is deemed the sole issuer.

Similarly, in the case of an industrial development bond, if that bond
is backed only by certain revenues to be received from the non-governmental user
of the project financed by the bond, then such non-governmental user is deemed
to be the sole issuer. If, however, in any of the above cases, a state,
political subdivision or some other entity guarantees a security and the value
of all securities issued or guaranteed by the guarantor and owned by the Fund
exceeds 10% of the value of the Fund's total assets, the guarantee is considered
a separate

-5-
<PAGE>

security and is treated as an issue of the guarantor. Investments in municipal
obligations refunded with escrowed U.S. government securities will be treated as
investments in U.S. government securities for purposes of determining the Fund's
compliance with the 1940 Act diversification requirements.

Municipal Obligations
Municipal Obligations are generally issued to obtain funds for various
public purposes, including the construction or improvement 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 Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
Municipal Obligations may be issued by or on behalf of public bodies to obtain
funds to provide for the construction, equipping, repair or improvement of
housing facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities and certain local facilities for water
supply, gas, electricity, sewage or solid waste disposal.

Securities in which the Fund may invest, including Municipal
Obligations, are subject to the provisions of bankruptcy, insolvency,
reorganization and other laws affecting the rights and remedies of creditors,
such as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or a state's legislature extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations within constitutional limitations. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of
issuers to meet their obligations for the payment of interest on and principal
of their Municipal Obligations may be materially affected.

From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Municipal Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if enacted,
could affect the availability of Municipal Obligations for investment by the
Fund and the value of the Fund's portfolio. In such event, management of the
Fund may discontinue the issuance of shares to new investors and may reevaluate
the Fund's investment objective and policies and submit possible changes in the
structure of the Fund for shareholder approval.

To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.)
("Fitch"), or Standard & Poor's Ratings Group ("S&P") for Municipal Obligations
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for their
investments in accordance with the investment policies contained in the Fund's
Prospectus and this Part B. The ratings of Moody's, Fitch and S&P represent
their opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
provide an initial criterion for selection of portfolio investments, the Fund's
investment adviser, Delaware Management Company (the "Manager"), will subject
these securities to other evaluative criteria prior to investing in such
securities.

Floating and Variable Rate Demand Notes
Variable rate master demand notes, in which the Fund may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between the Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, the Fund may

-6-
<PAGE>

demand payment of principal and accrued interest at any time. While the notes
are not typically rated by credit rating agencies, issuers of variable amount
master demand notes (which are normally manufacturing, retail, financial, and
other business concerns) must satisfy the same criteria as set forth above for
commercial paper. In determining average weighted portfolio maturity, a variable
amount master demand note will be deemed to have a maturity equal to the period
of time remaining until the principal amount can be recovered from the issuer
through demand.

A variable rate note is one whose terms provide for the adjustment of
its interest rate on set dates and which, upon such adjustment, can reasonably
be expected to have a market value that approximates its par value. A floating
rate note is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by the Fund will be determined by the
Manager under guidelines established by the Fund's Board of Directors to be of
comparable quality at the time of purchase to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
the Manager will consider the earning power, cash flow and other liquidity
ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by the Fund,
the Fund may re-sell the note at any time to a third party. The absence of such
an active secondary market, however, could make it difficult for the Fund to
dispose of the variable or floating rate note involved in the event the issuer
of the note defaulted on its payment obligations, and the Fund could, for this
or other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit.

Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceed 10% of the Fund's total assets only if such notes are
subject to a demand feature that will permit the Fund to demand payment of the
Principal within seven days after demand by the Fund. If not rated, such
instruments must be found by the Manager under guidelines established by the
Fund's Board of Directors, to be of comparable quality to instruments that are
rated high quality. A rating may be relied upon only if it is provided by a
nationally recognized statistical rating organization that is not affiliated
with the issuer or guarantor of the instruments.

Escrow Secured Bonds or Defeased Bonds
Escrow secured bonds or defeased bonds are created when an issuer
refunds in advance of maturity (or pre-refunds) some of its outstanding bonds
and it becomes necessary or desirable to set aside funds for redemption or
payment of the bonds at a future date or dates. 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 an escrow agent to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive a
AAA rating from S&P, Moody's and Fitch.

State or Municipal Lease Obligations
Municipal leases may take the form of a lease with an option to
purchase, an installment purchase contract, a conditional sales contract or a
participation certificate in any of the foregoing. In determining leases in
which the Fund will invest, the Manager will evaluate the credit rating of the
lessee and the terms of the lease.

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<PAGE>

Additionally, the Manager may require that certain municipal leases be secured
by a letter of credit or put arrangement with an independent financial
institution. State or municipal lease obligations frequently have the special
risks described below which are not associated with general obligation or
revenue bonds issued by public bodies.

The United States Constitution and the statutes of many states contain
requirements with which the state and municipalities must comply whenever
incurring debt. These requirements may include approving voter referendums, debt
limits, interest rate limits and public sale requirements. Leases have evolved
as a means for public bodies to acquire property and equipment without needing
to comply with all of the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations may be inapplicable for one or
more of the following reasons: (1) the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the public body has no obligation
to make future payments under the lease or contract unless money is appropriated
for such purpose by the appropriate legislative body on a yearly or other
periodic basis (the "non-appropriation" clause); (2) the exclusion of a lease or
conditional sales contract from the definition of indebtedness under relevant
state law; or (3) the lease provides for termination at the option of the public
body at the end of each fiscal year for any reason or, in some cases,
automatically if not affirmatively renewed.

If the lease is terminated by the public body for non-appropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.

Concentration Policy
As a fundamental policy, the Fund may not invest 25% or more of its
total assets in the securities of any industry, although, for purposes of this
limitation, tax-exempt securities and U.S. government obligations are not
considered to be part of any industry. The Fund may invest 25% or more of its
total assets in industrial development revenue bonds. In addition, it is
possible that the Fund from time to time will invest 25% or more of its total
assets in a particular segment of the municipal bond market, such as housing,
health care, utility, transportation, education or industrial obligations. In
such circumstances, economic, business, political or other changes affecting one
bond (such as proposed legislation affecting the financing of a project;
shortages or price increases of needed materials; or a declining market or need
for the project) might also affect other bonds in the same segment, thereby
potentially increasing market or credit risk.

Housing Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.

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<PAGE>

Health Care Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations is
generally subject to, among other things, the capabilities of its management,
the confidence of physicians in management, the availability of physicians and
trained support staff, changes in the population or economic condition of the
service area, the level of and restrictions on federal funding of Medicare and
federal and state funding of Medicaid, the demand for services, competition,
rates, government regulations and licensing requirements and future economic and
other conditions, including any future health care reform.

Utility Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material costs and other operating costs, changes in the demand
for services and the effects of environmental and other governmental
regulations.

Transportation Obligations. The Fund may invest, from time to time, 25%
or more of its total assets in obligations issued by public bodies, including
state and municipal authorities, to finance airports and highway, bridge and
toll road facilities. The major portion of an airport's gross operating income
is generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for airport use, occupancy of
certain terminal space, service fees and leases. Airport operating income may
therefore be affected by the ability of the airlines to meet their obligations
under the use agreements. The air transport industry is experiencing significant
variations in earnings and traffic, due to increased competition, excess
capacity, increased costs, deregulation, traffic constraints and other factors,
and several airlines are experiencing severe financial difficulties. The
revenues of issuers which derive their payments from bridge, road or tunnel toll
revenues could be adversely affected by competition from toll-free vehicular
bridges and roads and alternative modes of transportation. Such revenues could
also be adversely affected by a reduction in the availability of fuel to
motorists or significant increases in the costs thereof.

Education Obligations. The Fund may invest, from time to time, 25% or
more of its total assets in obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from tuition, dormitory revenues, grants and endowments. General
problems of such issuers include the prospect of a declining percentage of the
population consisting of college aged individuals, possible inability to raise
tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants, state funding and alumni
support, and government legislation or regulations which may adversely affect
the revenues or costs of such issuers.

Industrial Revenue Obligations. The Fund may invest, from time to time,
25% or more of its total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many

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<PAGE>

factors which may have an adverse impact on the credit quality of the particular
company or industry. These include cyclicality of revenues and earnings,
regulatory and environmental restrictions, litigation resulting from accidents
or deterioration resulting from leveraged buy-outs or takeovers. The bonds may
be subject to special or extraordinary redemption provisions which may provide
for redemption at par or accredited value, plus, if applicable, a premium.

Other Risks. The exclusion from gross income for purposes of federal
income taxes for certain housing, health care, utility, transportation,
education and industrial revenue bonds depends on compliance with relevant
provisions of the Code. The failure to comply with these provisions could cause
the interest on the bonds to become includable in gross income, possibly
retroactively to the date of issuance, thereby reducing the value of the bonds,
subjecting shareholders to unanticipated tax liabilities and possibly requiring
the Fund to sell the bonds at the reduced value. Furthermore, such a failure to
meet these ongoing requirements may not enable the holder to accelerate payment
of the bond or require the issuer to redeem the bond.

Taxable Obligations
As set forth in the Prospectus, the Fund may invest to a limited extent
in obligations and instruments, the interest on which is includable in gross
income for purposes of federal income taxation.

Government Obligations
The Fund may invest in securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. These securities include a
variety of Treasury securities, which differ in their interest rates, maturities
and times of issuance. Treasury Bills generally have maturities of one year or
less; Treasury Notes generally have maturities of one to ten years; and Treasury
Bonds generally have maturities of greater than ten years. Some obligations
issued or guaranteed by U.S. government agencies and instrumentalities, such as
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; other obligations,
such as those of the Federal Home Loan Banks, are secured by the right of the
issuer to borrow from the Treasury; other obligations, such as those issued by
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the agency
or instrumentality; and other obligations, such as those issued by the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality itself. Although the U.S. government provides financial support
to such U.S. government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Fund will invest in such securities only when the Manager is satisfied that the
credit risk with respect to the issuer is minimal.

Repurchase Agreements
A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the purchaser's holding period. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Fund, if any, would be the difference between the repurchase price and the
market value of the security. The 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, the Fund must have collateral of at least 102% of the
repurchase price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis.

The funds available from the Delaware Investments family have obtained
an exemption from the joint-transaction prohibitions of Section 17(d) of the
1940 Act to allow funds in the Delaware Investments family

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<PAGE>

jointly to invest cash balances. The Fund may invest cash balances in a joint
repurchase agreement in accordance with the terms of the Order and subject
generally to the conditions described below.

Other Taxable Investments
The Fund also may invest in certificates of deposit, bankers'
acceptances and other time deposits. Certificates of deposit are certificates
representing the obligation of a bank to repay the funds deposited (plus
interest thereon) at a time certain after the deposit. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.

Options
The Fund may purchase call options, write call options on a covered
basis, write secured put options and purchase put options on a covered basis
only, and will not engage in option writing strategies for speculative purposes.

The Fund may invest in options that are either listed on a national
securities exchange (an "Exchange") or traded over-the-counter. Certain
over-the-counter options may be illiquid. Thus, it may not be possible to close
option positions and this may have an adverse impact on the Fund's ability to
effectively hedge its securities. The Fund will not, however, invest more than
15% of its assets in illiquid securities.

A. Covered Call Writing--The Fund may write covered call 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.
A call option gives the purchaser of such option the right to buy, and the
writer, in this case the Fund, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage to the
Fund of writing covered calls is that the Fund receives a premium which is
additional income. However, if the security rises in value, the Fund may not
fully participate in the market 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.

With respect to options on actual portfolio securities owned by the
Fund, the Fund may enter into closing purchase transactions. A closing purchase
transaction is one in which the Fund, when obligated as a writer of an option,
terminates its obligation by purchasing an option of the same series as the
option previously written.

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 entirety offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the

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<PAGE>

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.

The market value of a call option generally reflects the market price
of an 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.

The Fund will write call options 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 or deliver a security it would want to hold.
Options written by the Fund will normally have expiration dates between one 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 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. The advantage of purchasing call options is that the Fund
may alter portfolio characteristics, and modify portfolio maturities without
incurring the cost associated with portfolio transactions.

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 Fund 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 on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the results that the Fund would have 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.

C. Purchasing Put Options--The Fund may invest up to 2% of its total
assets in the purchase of put options. The Fund will, at all times during which
it holds a put option, own the security covered by such option.

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<PAGE>

ability to purchase put options will allow the Fund to protect an unrealized
gain in an appreciated security in its portfolio without actually selling 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.

The Fund may sell a put option purchased on individual portfolio
securities. Additionally, the Fund may enter into closing sale transactions. A
closing sale transaction is one in which the Fund, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.

D. Writing Put Options--The Fund may also write put options on a
secured basis which means that the Fund will maintain in a segregated account
with its custodian, 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.

Following the writing of a put option, the Fund may wish to terminate
the obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.

Futures
Futures contracts are agreements 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 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 account,
depending upon changes in the price of the underlying securities subject to the
futures contract.

In addition, when the Fund engages in futures transactions, to the
extent required by the Securities and Exchange Commission (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.

The Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling such securities. Similarly, when it is expected that interest rates

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<PAGE>

may decline, futures contracts may be purchased to hedge in anticipation of
subsequent purchases of government 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 government 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 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 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 government 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 government 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 government securities
from its portfolio to meet daily variation margin requirements. Such sales of
government 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.

Risks of Transactions in Futures Contracts and Options.
Hedging Risks in Futures Contracts Transactions. There are several
risks in using securities index or interest rate futures contracts as hedging
devices. One risk arises because the prices of futures contracts may not
correlate perfectly with movements in the underlying index or financial
instrument due to certain market distortions. First, all participants in the
futures market are subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors may close the
contracts through offsetting transactions which could distort the normal
relationship between the index or security and the futures market. Second, the
margin requirements in the futures market are lower than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. Increased participation by
speculators in the futures market may also cause temporary price distortions.
Because of possible price distortion in the futures market and because of
imperfect correlation between

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<PAGE>

movements in indexes of securities and movements in the prices of futures
contracts, even a correct forecast of general market trends may not result in a
successful hedging transaction over a very short period.

Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the financial instruments included in the applicable index.

Successful use of futures contracts by the Fund is subject to the
ability of the Manager to predict correctly movements in the direction of
interest rates or the relevant underlying securities market. If the Fund has
hedged against the possibility of an increase in interest rates adversely
affecting the value of fixed-income 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 security which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market or decline
in interest rates. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.

Liquidity of Futures Contracts. The Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. The Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain.

Positions in futures contracts may be closed only on an Exchange or
board of trade providing a secondary market for such futures contracts. Although
the Fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.

In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.

Risk of Options. The use of options on financial instruments and
indexes and on interest rate and index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options (plus
transactions costs). The writing of a call option generates a premium,

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which may partially offset a decline in the value of the Fund's portfolio
assets. By writing a call option, the Fund becomes obligated to sell an
underlying instrument or a futures contract, which may have a value higher than
the exercise price. Conversely, the writing of a put option generates a premium,
but the Fund becomes obligated to purchase the underlying instrument or futures
contract, which may have a value lower than the exercise price. Thus, the loss
incurred by the Fund in writing options may exceed the amount of the premium
received.

The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time when the
Manager deems it desirable to do so. Although the Fund will enter into an option
position only if the Manager believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.

The Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by the Manager,
which could prove to be inaccurate. Even if the expectations of the Manager are
correct, there may be an imperfect correlation between the change in the value
of the options and of the Fund's portfolio securities.

The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.

The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of a
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may 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. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.

Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.

-16-
<PAGE>

from writing the option or is less than the premium paid to purchase the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.

An option position may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.

The Fund may purchase put options to hedge against a decline in the
value of their portfolios. By using put options in this way, the Fund will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.

The Fund may purchase call options to hedge against an increase in
price of securities that the Fund anticipate purchasing in the future. 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, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.

As discussed above, options may be traded over-the-counter ("OTC
options"). In an over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. OTC options are illiquid
and it may not be possible for the Fund to dispose of options they have
purchased or terminate their obligations under an option they have written at a
time when the Manager believes it would be advantageous to do so. Accordingly,
OTC options are subject to the Fund's limitation that a maximum of 15% of its
net assets be invested in illiquid securities. In the event of the bankruptcy of
the writer of an OTC option, the Fund could experience a loss of all or part of
the value of the option. The Manager anticipates that options on Municipal
Obligations will consist primarily of OTC options.

Illiquid Investments
The Fund may invest no more than 15% of the value of its net assets in
illiquid securities.

The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 (the "1933 Act"). Rule 144A

-17-
<PAGE>

permits many privately placed and legally restricted securities to be freely
traded among certain institutional buyers such as the Fund.

While maintaining oversight, Mutual Funds, Inc.'s 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 15%
limitation on investments in illiquid assets. The Board has instructed the
Manager to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investment in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.

-18-
<PAGE>

ACCOUNTING AND TAX ISSUES

When the Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's 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. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which the Fund has written expires on its stipulated expiration date, the Fund
reports a realized gain. If the Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, 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.

Other Tax Requirements -- The Fund has qualified, and intends to
continue to qualify, as a regulated investment company under Subchapter M of the
Code. The Fund must meet several requirements to maintain its status as a
regulated investment company. Among these requirements are that at least 90% of
its investment company taxable income be derived from dividends, interest,
payment with respect to securities loans and gains from the sale or disposition
of securities; that at the close of each quarter of its taxable year at least
50% of the value of its assets consists 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. This 30% rule is rescinded for tax years beginning after August 5, 1997.

The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the following year, subject to the same limitation.

-19-
<PAGE>

PERFORMANCE INFORMATION

From time to time, the Fund may state each of its Classes' total return
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 periods, as applicable. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.

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 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 of the Fund.

The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV

Where: P = a hypothetical initial purchase order of
$1,000 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.

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, the Fund may present total return information that does not
reflect the deduction of the maximum front-end sales charge or any applicable
CDSC.

The Fund may also state total return performance for its Classes in the
form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return.

The performance, as shown below, is the average annual total return
quotations of each Class of the Fund through August 31, 1998, computed as
described above. The average annual total return for Class A Shares at offer
reflects the maximum front-end sales charge of 3.75% 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

-20-
<PAGE>

front-end sales charge. The average annual return for Class B Shares and 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, 1998. The
average annual total return for Class B Shares and Class C Shares excluding
deferred sales charge assumes the shares were not redeemed at August 31, 1998
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(1)

Class A Shares Class A Shares
(at offer) (at NAV)
1 year ended
8/31/98 5.05% 9.12%

3 years ended
8/31/98 7.56% 8.94%

5 years ended
8/31/98 6.42% 7.23%

10 years ended
8/31/98 8.26% 8.67%

Period 9/22/86(2)
through 8/31/98 7.83% 8.18%

(1) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fee waivers and expense payments.

(2) Date of initial public offering.

-21-
<PAGE>

Average Annual Total Return(1)

Class B Shares Class B Shares
(including CDSC)(3) (excluding CDSC)

1 year ended
8/31/98 4.40% 8.40%

Period 12/18/96(2)
through 8/31/98 6.28% 8.51%

(1) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fee waivers and expense payments.

(2) Date of initial public offering.

(3) Beginning June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.

Aggregate Total Return(1)

Class C Shares Class C Shares
(including CDSC) (excluding CDSC)

1 year ended
8/31/98 7.49% 8.49%

Period 5/26/97(2)
through 8/31/98 9.08% 9.08%

(1) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fee waivers and expense payments.

(2) Date of initial public offering.

As stated in the Prospectus, the Fund may also quote the current yield for
each Class in advertisements and investor communications. The yield computation
is determined by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period and
annualizing the resulting figure, according to the following formula:

-22-
<PAGE>

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;

d = the maximum offering price per share on the last
day of the period.

The above formula will be used in calculating quotations of yield of each
Class, based on specified 30-day periods identified in advertising by the Fund.
The yields as of August 31, 1998 using this formula were 4.40%, 3.81% and 3.80%
for Class A Shares, Class B Shares and Class C Shares, respectively. Yield
assumes the maximum front-end sales charge, if any, and does not reflect the
deduction of any CDSC or Limited CDSC and also reflects voluntary waivers in
effect during the period. Actual yield may be affected by variations in
front-end sales charges on investments. Past performance, such as is reflected
in quoted yields, should not be considered as a representation of the results
which may be realized from an investment in any class of the Fund in the future.

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, 1998, the tax-equivalent yield (assuming
a federal income tax rate of 31%) of Class A Shares, Class B Shares and Class C
Shares was 6.38%, 5.52% and 5.51%, respectively, reflecting voluntary waivers in
effect during the period. These yields were computed by dividing that portion of
a Class' yield which is tax-exempt by one minus a stated income tax rate (in
this case, a federal income tax rate of 31%) and adding the product to that
portion, if any, of the yield that is not tax-exempt. In addition, the Fund may
advertise a tax-equivalent yield assuming other income tax rates, when
applicable.

Investors should note that the income earned and dividends paid by the
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the fund may change. Unlike money market
funds, the Fund invests in longer-term securities that fluctuate in value and do
so in a manner inversely correlated with changing interest rates. The Fund's net
asset value will tend to rise when interest rates fall. Conversely, the Fund's
net asset value will tend to fall as interest rates rise. Normally, fluctuations
in interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in the Fund will vary from day to day and investors
should consider the volatility of the Fund's net asset value as well as its
yield before making a decision to invest.

Total return performance of each Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period, and the impact of the maximum
front-end sales charge or CDSC, if any, paid on the illustrated investment
amount, annualized. The results will not reflect any income taxes, if
applicable, payable by shareholders on the reinvested distributions included in
the calculations. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.

-23-
<PAGE>

From time to time, the Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund (or Class) may be compared to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or the
performance of unmanaged indices compiled or maintained by statistical research
firms such as Lehman Brothers or Salomon Brothers, Inc.

Salomon Brothers and Lehman Brothers are statistical research firms that
maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which the Fund may
invest and the assumptions that were used in calculating the blended performance
will be described.

The Fund may also promote its Classes' yield and/or total return
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., IBC/Donoghue's Money Market Report and
Morningstar, Inc.

Comparative information on the Consumer Price Index may also be included
in advertisements or other literature. The Consumer Price Index, as prepared by
the U.S. Bureau of Labor Statistics, is the most commonly used measure of
inflation. It indicates the cost fluctuations of a representative group of
consumer goods. It does not represent a return from an investment.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated

-24-
<PAGE>

with the security types in any capital market may or may not correspond directly
to those of the Fund. The Fund may also compare performance to that of other
compilations or indices that may be developed and made available in the future.

The Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Fund (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments or global or international investments),
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time advertisements, sales literature,
communications to shareholders or other materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of the Fund), as well as the views as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Fund may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, domestic and international stocks, and/or bonds, treasury bills and shares
of the Fund. In addition, advertisements, sales literature, communications to
shareholders or other materials may include a discussion of certain attributes
or benefits to be derived by an investment in the Fund and/or other mutual
funds, shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning (such as
information on Roth IRAs and Educational IRAs) and investment alternatives to
certificates of deposit and other financial instruments. Such sales literature,
communications to shareholders or other materials may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein.

Materials may refer to the CUSIP numbers of the Fund and may illustrate
how to find the listings of the Fund in newspapers and periodicals. Materials
may also include discussions of other Fund products and services.

The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Fund may include information
regarding the background and experience of its portfolio managers.

-25-
<PAGE>

the reinvested distributions included in the calculations. The performance of
Class A Shares reflects the maximum front-end sales charge paid on the purchase
of shares but may also be shown without reflecting the impact of any front-end
sales charge. The performance of Class B Shares and Class C Shares is calculated
both with the applicable CDSC included and excluded.

The net asset value of a Class fluctuates so shares, when redeemed, may
be worth more or less than the original investment, and a Class' results should
not be considered as representative of future performance.

-26-
<PAGE>

Cumulative Total Return
National High Yield Municipal Bond Fund(3)

Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC) CDSC)
<S> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (2.04%) 8/31/98 (2.42%) 1.58% 8/31/98 0.58% 1.58%

6 months 6 months 6 months
ended ended ended
8/31/98 (0.29%)(4) 8/31/98 (0.79%) 3.22% 8/31/98 2.31% 3.31%

9 months
ended
8/31/98 4.98% 5.98%

9 months 9 months 1 year
ended ended ended
8/31/98 2.44% 8/31/98 1.88% 5.88% 8/31/98 7.49% 8.49%

Period
1 year 1 year 5/26/97(1)
ended ended through
8/31/98 5.05% 8/31/98 4.40% 8.40% 8/31/98 11.63% 11.63%

Period
3 years 12/18/96(1)
ended through
8/31/98 24.42% 8/31/98 10.93% 14.93%

5 years
ended
8/31/98 36.50%

10 years
ended
8/31/98 121.07%

Period
9/22/86(1)
through
8/31/98 146.12%
</TABLE>

(1) Date of initial public offering.
(2) Beginning June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects voluntary waivers in effect during the period(s).
(4) For the period ended August 31, 1998, cumulative total return for Class A
Shares at net asset value was 3.61%.

-27-
<PAGE>

Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds available from
the Delaware Investments family, will provide general information about
investment alternatives and scenarios that will allow investors to assess their
personal goals. This information will include general material about investing
as well as materials reinforcing various industry-accepted principles of prudent
and responsible personal financial planning. One typical way of addressing these
issues is to compare an individual's goals and the length of time the individual
has to attain these goals to his or her risk threshold. In addition, the
Distributor will provide information that discusses the Manager's overriding
investment philosophy and how that philosophy impacts the Fund's, and other
funds in the Delaware Investments family, investment disciplines employed in
seeking the objective of the Fund and other funds in the Delaware Investments
family. 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 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 high fund share prices. Delaware Investments
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, Automatic Investing Plan and Wealth Builder Option under
Investment Plans for a complete description of these services, including
restrictions or limitations.

-28-
<PAGE>

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)

THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. The Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.

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<PAGE>

TRADING PRACTICES AND BROKERAGE

Fund transactions are executed by the Manager on behalf of the Fund in
accordance with the standards described below.

Brokers, dealers and banks are selected to execute transactions 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 brokers, dealers or banks 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. Trades are generally made on a net basis where
securities are either bought or sold directly from or to a broker, dealer or
bank. 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, the Fund pays a minimal share
transaction cost when the transaction presents no difficulty.

As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
the Fund's Investment Management Agreement, higher commissions are permitted to
be paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, Mutual Funds, Inc. believes that
the commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds available from
the Delaware Investments family. 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.

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<PAGE>

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 Mutual Funds,
Inc.'s Board of Directors that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.

Consistent with the Conduct Rules 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 expenses of the funds available from the Delaware Investments
family, such as custodian fees, and may, at the request of the Distributor, give
consideration to sales of shares of such funds as a factor in the selection of
brokers and dealers to execute portfolio transactions.

Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish the
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any time,
subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. However, it is generally anticipated that the Fund's
portfolio turnover rate will be less than 100%.

The degree of portfolio activity may affect brokerage costs of the Fund
and taxes payable by the Fund's shareholders to the extent of any net realized
capital gains. The Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions the Fund may experience a rate of
portfolio turnover which could exceed 100%. The Fund's portfolio turnover rate
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. A turnover rate of 100% would occur, for example, if all the
investments in the Fund's portfolio at the beginning of the year were replaced
by the end of the year.

The Fund's portfolio turnover rates were 45% for the fiscal year ended
December 31, 1997 and 43% (annualized) for the period January 1, 1998 through
August 31, 1998.

The Fund may hold securities for any period of time. The Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options which are subsequently exercised. The portfolio turnover rate also may
be affected by cash requirements from redemptions and repurchases of Fund
shares. Total brokerage costs generally increase with higher portfolio turnover
rates.

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<PAGE>

PURCHASING SHARES

The Distributor serves as the national distributor for the Fund's
shares - Class A Shares, Class B Shares and Class C Shares, and has agreed to
use its best efforts to sell shares of the Fund. See the Prospectus for
information on how to invest. Shares of the Fund are offered on a continuous
basis, and may be purchased through authorized investment dealers or directly by
contacting Mutual Funds, Inc. or the Distributor.

The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
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 fund in the Delaware Investments family, the Manager or any of
the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected.

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. Mutual Funds, Inc. will reject any purchase order
for more than $250,000 of Class B Shares and $1,000,000 or more of 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 in 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 are responsible for transmitting orders promptly.
Mutual Funds, Inc. reserves the right to reject any order for the purchase of
shares of the Fund if in the opinion of management such rejection is in the
Fund's best interests.

The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Mutual Funds, Inc. and the
Distributor intend to operate in compliance with these rules.

Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 3.75%; however, lower front-end sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment.

Class B Shares 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; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class B 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 Class B Shares for approximately eight years after purchase. Class B
Shares will automatically convert to Class A Shares at the end of approximately
eight years after purchase and, thereafter, be subject to annual 12b-1 Plan
expenses of up to a maximum of 0.25% of average daily net assets of such shares.
See Automatic Conversion of Class B Shares under Classes of Shares in the
Prospectus.

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<PAGE>

Class C Shares 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. Unlike
Class B Shares, Class C Shares do not convert to another class.

Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in a Fund's assets and will receive a proportionate
interest in that Fund's income, before application, as to Class A Shares, Class
B Shares and Class C Shares, of any expenses under that Fund's 12b-1 Plans.

Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
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 full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Mutual Funds, Inc. for any certificate
issued. A shareholder may be subject to fees for replacement of a lost or stolen
certificate under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Fund for further
information. Investors who hold certificates representing 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 Shares, Class B Shares
and Class C Shares of the Fund 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 should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares of
a Fund and incur a front-end sales charge and annual 12b-1 Plan expenses of up
to a maximum of 0.25% of the average daily net assets of Class A Shares or to
purchase either Class B or Class C Shares of a Fund and have the entire initial
purchase amount invested in the Fund with the investment thereafter subject to a
CDSC and annual 12b-1 Plan expenses.

Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases over
a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for a
table illustrating reduced front-end sales charges. See also 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.

Certain dealers who enter into an agreement to provide extra training
and information on the Delaware Investments family's products and services and
who increase sales of funds in the Delaware Investments family may receive an
additional commission of up to 0.15% of the offering price in connection with
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.

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<PAGE>

Dealer's Commission
As described more fully in the Prospectus, 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. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for the
applicable schedule and further details.

Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, 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 reinvestment of dividends or capital gains
distributions. See Waiver of Contingent Deferred Sales Charge - Class B Shares
and Class C Shares under Redemption and Exchange in the Prospectus for a list of
the instances in which the CDSC is waived. During the seventh year after
purchase and, thereafter, until converted automatically into Class A Shares,
Class B Shares will still be subject to the annual 12b-1 Plan expenses of up to
1% of average daily net assets of those shares. At the end of approximately
eight years after purchase, the investor's Class B Shares will be automatically
converted into Class A Shares of the Fund. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes in the
Prospectus.

Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, Mutual Funds, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of the Fund (the "Plans"). Each Plan permits the Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the class of shares to which the Plan applies. Such shares are not
included in calculating the Plans' fees.

The Plans permit the Fund, pursuant to its Distribution Agreement, to
pay out of the assets of 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 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 Class B Shares 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, the Fund may make payments out of the assets of Class A
Shares, Class B Shares 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 the Fund under its Plans, and the
Fund's Distribution Agreement, is on an annual basis, up to 0.25% of average
daily net assets of Class A Shares, and up to 1% (0.25% of which are service
fees to be paid to the Distributor, dealers and others for providing personal
service

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<PAGE>

and/or maintaining shareholder accounts) of each of the Class B Shares' and
Class C Shares' average daily net assets for the year. Mutual Funds, Inc.'s
Board of Directors may reduce these amounts at any time.

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 Shares, Class B Shares and Class C Shares would be borne by such persons
without any payment from the Classes. Subject to seeking best price and
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plans. From time to time, the
Distributor may pay additional amounts from its own resources to dealers for aid
in distribution or for aid in providing administrative services to shareholders.

The Plans and the Distribution Agreement, as amended, have all been
approved by the Board of Directors of Mutual Funds, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Mutual Funds, 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 the 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 Agreement, 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 the
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 Fund's B Class. 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 Mutual Funds, Inc. having no interest in the
Plans. In addition, in order for the Plans to remain effective, the selection
and nomination of directors who are not "interested persons" of Mutual Funds,
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.

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<PAGE>

For the period January 1, 1998 through August 31, 1998, payments from
Class A Shares, Class B Shares and Class C Shares of the Fund amounted to
$104,339, $48,135 and $17,677, respectively. For the period December 31, 1997
through August 31, 1998, such amounts were used for the following purposes:

A Class B Class C Class
------- ------- -------

<S> <C> <C> <C>
Advertising ----- ----- -----
Annual/Semi-Annual Reports $497 ----- -----
Broker Trails $102,495 $16,589 $249
Broker Sales Charges ----- $11,239 $11,258
Dealer Service Expenses ----- ----- -----
Interest on Broker Sales Charges ----- $18,412 $920
Commissions to Wholesalers ----- $1,895 $4,080
Promotional-Broker Meetings ----- ----- $64
Promotional-Other $470 ----- -----
Prospectus Printing $877 ----- -----
Telephone ----- ----- -----
Wholesaler Expenses ----- ----- $1,106
Other ----- ----- -----
</TABLE>

Other Payments to Dealers -- Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of Fund Classes exceed certain
limits as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of fund share in the Delaware Investments family. 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. The Distributor may
also pay a portion of the expense of preapproved dealer advertisements promoting
the sale fund shares in the Delaware Investments family.

Special Purchase Features--Class A Shares

Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.

Current and former officers, directors and employees of Mutual Funds,
Inc., any other fund in the Delaware Investments family, the Manager or any of
the Manager's current affiliates and those that may in the future be created,
legal counsel to the funds, and registered representatives and employees of
broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares of the Fund and any such class of shares of any of
the other funds available from the Delaware Investments family, including any
fund that may be created, at the net asset value per share. 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 Class A Shares at net asset value. Class A
Shares may also be purchased at net asset value by current and former officers,
directors and employees (and members of their families) of the Dougherty
Financial Group LLC. 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

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<PAGE>

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 funds in the Delaware Investments
family. 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.

Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds available from the Delaware Investments family at net asset
value.

Mutual Funds, Inc. must be notified in advance that an investment
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
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 Mutual Funds, 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 Fund and of any class of
any of the other mutual funds available from the Delaware Investments family
(except shares of any fund in the Delaware Investments family which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a fund in
the Delaware Investments family 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.

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 Class A Shares, Class B Shares and/or Class C
Shares of the Fund, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any fund in the
Delaware Investments family 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 fund in the
Delaware Investments family which carried a front-end sales charge,

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<PAGE>

CDSC or Limited CDSC). In addition, assets held by investment advisory clients
of the Manager or its affiliates in any stable value account may be combined
with other fund holdings in the Delaware Investments family.

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 funds in the Delaware
Investments family which offer such classes (except shares of any fund in the
Delaware Investments family 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 fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). If, for example, any such purchaser has previously purchased and
still holds Class A Shares 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 Class A Shares, the charge
applicable to the $60,000 purchase would currently be 3.00%. 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 in the Prospectus to determine the
applicability of the Right of Accumulation to their particular circumstances.

12-Month Reinvestment Privilege
Holders of Class A Shares of the 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 the Fund or in Class A Shares of any of the other
funds available from the Delaware Investments family, 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 available
from the Delaware Investments family 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
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 Fund's 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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<PAGE>

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 the
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 quarterly. 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
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 Funds in the Delaware Investments Family
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds available from the Delaware Investments
family, including the Fund, in states where their shares may be sold. Such
investments will be at net asset value at the close of business on the
reinvestment date without any front-end sales charge or service fee. The
shareholder must notify the Transfer Agent in writing and must have established
an account in the fund into which the dividends and/or distributions are to be
invested. Any reinvestment directed to a fund in which the investor does not
then have an account will be treated like all other initial purchases of a
fund's shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is 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 available from the Delaware Investments family may be invested
in shares of the Fund, 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.

Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for the Fund to
accept for investment in Class A Shares, Class B Shares 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 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.

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<PAGE>

Automatic Investing Plan -- Shareholders of Class A Shares, Class B
Shares 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.

* * *

Payments to the Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.

Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. The Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Mutual Funds, Inc. for proper
instructions.

Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the
Classes through regular liquidations of shares in their accounts in other mutual
funds available from the Delaware Investments family. Shareholders of the
Classes may elect to invest in one or more of the other mutual funds available
from the Delaware Investments family through the 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 available from
the Delaware Investments family, 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 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.

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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 in Wealth Builder at
any time by giving written notice to the fund from which exchanges are made.

Asset Planner
To invest in funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.

The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing accounts
in the Delaware Investments family into the Asset Planner service may be made at
net asset value under the circumstances described under Investing by Exchange in
the Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes
of Shares. The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply to
investments made using the Asset Planner service. Class A Shares, Class B Shares
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 the Fund and of other funds available from the Delaware
Investments family may be used in the same Strategy with consultant class shares
that are offered by certain other funds in the Delaware Investments family.

An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.

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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, its agent or certain other authorized persons.
Orders for purchases of Class B Shares and Class C Shares 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, its agent or certain other
authorized persons. See Distribution and Service under Investment Management
Agreement. Selling dealers are responsible for transmitting orders promptly.

The offering price for 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 days on which the following holidays are
observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Fund will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.

An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in the
Fund's financial statements which are incorporated by reference into this Part
B.

The Fund's net asset value per share is computed by adding the value
of all the Fund's securities and other assets, deducting any liabilities of the
Fund, and dividing by the number of Fund shares outstanding. Expenses and fees
are accrued daily. Portfolio securities, except for bonds, which are primarily
traded on a national or foreign securities exchange are valued at the last sale
price on that exchange. Options are valued at the last reported sales price or,
if no sales are reported, at the mean between bid and asked prices. Securities
not traded on a particular day, over-the-counter securities and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Use of a pricing service
has been approved by the Board of Directors. Subject to the foregoing,
securities for which market quotations are not readily available and other
assets are valued at fair value as determined in good faith and in a method
approved by the Board of Directors.

Each Class of the Fund will bear, pro-rata, all of the common expenses
of the Fund. The net asset values of all outstanding shares of each Class of the
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 the Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes. Due
to the specific distribution expenses and other costs that may be allocable to
each Class, the dividends paid to each Class may vary. However, the net asset
value per share of each Class is expected to be equivalent.

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REDEMPTION AND REPURCHASE

Any shareholder may require the Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. 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
of record, but a signature guarantee is not required. When the redemption is for
more than $50,000, or if payment is made to someone else or to another address,
signatures of all record owners are required and a signature guarantee may be
required. A signature guarantee can be obtained from a commercial bank, a trust
company or a member of a Securities Transfer Association Medallion Program
("STAMP"). A signature guarantee cannot be provided by a notary public. A
signature guarantee is designed to protect the shareholders, the Fund and its
agents from fraud. The Fund reserves the right to reject a signature guarantee
supplied by an institution based on its creditworthiness. The Fund may request
further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.

In addition to redemption of Fund shares, the Distributor, acting as
agent of the Fund, 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 Fund, its agent, or
certain other authorized persons, subject to any applicable CDSC or Limited
CDSC. See Distribution and Service under Investment Management Agreement. 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 the 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. Class B Shares are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class C Shares 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 described below for which, in the case of the Classes,
there is currently a $7.50 bank wiring cost, neither the Fund nor the Fund's

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<PAGE>

Distributor charges a fee for redemptions or repurchases, but such fees could be
charged at any time in the future.

Payment for shares redeemed will ordinarily be mailed the next
business day, but in no case later than seven days, after receipt of a
redemption request in good order by the Fund or certain other authorized persons
(see Distribution and Service under Investment Management Agreement); provided,
however, that each commitment to mail or wire redemption proceeds by a certain
time, as described below, is modified by the qualifications described in the
next paragraph.

The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the 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 will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Fund or to the Distributor.

In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the SEC has provided for such suspension for the
protection of shareholders, the Fund may postpone payment or suspend the right
of redemption or repurchase. In such case, the 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 either in 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 sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Mutual
Funds, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.

The value of the Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.

Small Accounts
Before the Fund involuntarily redeems shares from an account that,
under the circumstances noted in the Prospectus, has remained below the minimum
amounts required by the 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

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<PAGE>

the 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.

* * *

The Fund has made available certain redemption privileges, as
described below. The Fund reserves the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.

Expedited Telephone Redemptions
Shareholders of the Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder 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 address of record.
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.

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 First Union National
Bank 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, from 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 Fund
and a signature guarantee may be required. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.

To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.

If expedited payment under these procedures could adversely affect the
Fund, the Fund may take up to seven days to pay the shareholder.

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<PAGE>

Neither the Fund nor the Fund's Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.

Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares 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 Fund does not recommend any
specific amount of withdrawal. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.

Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of a Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may, in time, be depleted, particularly in a declining market.

Withdrawals under this plan made concurrently with the purchases 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 investing in funds in the
Delaware Investments family 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 Shares 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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<PAGE>

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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DISTRIBUTIONS AND TAXES

The Fund declares a dividend to shareholders of each Class from net
investment income on a daily basis. Dividends are declared each day the Fund is
open and paid monthly. 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
shares of the Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Investors desiring to guarantee wire payments must have an
acceptable financial condition and credit history in the sole discretion of the
Fund. Mutual Funds, 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 of shares of the Fund will share proportionately in the
investment income and expenses of the 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
same Class of the respective Fund at net asset value, unless an election to
receive dividends in cash has been made. Payment by check of cash dividends will
ordinarily be mailed within three business days after the payable date. Dividend
payments of $1.00 or less will be automatically reinvested, notwithstanding a
shareholder's election to receive dividends in cash. If such a shareholder's
dividends increase to greater than $1.00, the shareholder would have to file a
new election in order to begin receiving dividends in cash again. If a
shareholder redeems an entire account, all dividends accrued to the time of the
withdrawal will be paid by separate check at the end of that particular monthly
dividend period, consistent with the payment and mailing schedule described
above. Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. The Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's mail is returned by
the 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.

Any distributions from net realized securities profits will be made
annually. Payments would be made during the first quarter of the next fiscal
year. Such distributions will be reinvested in shares, unless the shareholders
elect to receive them in cash. The Fund will mail a quarterly statement showing
the dividends paid and all the transactions made during the period.

Under the Taxpayer Relief Act of 1997 (the "1997 Act"), as revised by
the Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
Act"), the Fund is required to track its sales of portfolio securities and to
report its capital gain distributions to you according to the following
categories of holding periods:

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"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund
after July 28, 1997 that were held for more than 18 months. As revised
by the 1998 Act, this rate applies to securities held for more than 12
months and sold in tax years beginning after December 31, 1997. These
gains will be taxable to individual investors at a maximum rate of 20%
for investors in the 28% or higher federal income tax brackets, and at
a maximum rate of 10% for investors in the 15% federal income tax
bracket. The Omnibus Consolidated and Emergency Supplemental
Appropriations Act passed in October of 1988 included a technical
corrections to the 1998 Act. The effect of this correction is that
essentially all capital gain distributions paid to shareholders during
1998 will be taxed at a maximum rate of 20%

"Qualified 5-year gains": For individuals in the 15% bracket,
qualified 5-year gains are net gains on securities held for more than
5 years which are sold after December 31, 2000. For individuals who
are subject to tax at higher rate brackets, qualified 5-year gains are
net gains on securities which are purchased after December 31, 2000
and are held for more than 5 years. Taxpayers subject to tax at a
higher rate brackets may also make an election for shares held on
January 1, 2001 to recognize gain on their shares in order to qualify
such shares as qualified 5-year property. These gains will be taxable
to individual investors at a maximum rate of 18% for investors in the
28% or higher federal income tax brackets, and at a maximum rate of 8%
for investors in the 15% federal income tax bracket.