<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-86606
File No. 811-3850
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No._____ [ ]
Post-Effective Amendment No. 26 [X]
----
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 26
----
DELAWARE GROUP TAX-FREE FUND
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-1255
--------------
Eric E. Miller, Esquire, 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: November 1, 1999
----------------
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
__X__ on November 1, 1999 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 26 to Registration File No. 2-86606 includes
the following:
1. Facing Page
2. Contents Page
3. Part A - Prospectus(1)
4. Part B - Statement of Additional Information(1)
5. Part C - Other Information(1)
6. Signatures
(1) This Post-Effective Amendment contains one Prospectus. The Prospectus and
Statement of Additional Information contained in this Post-Effective
Amendment relate to the Registrant's three series and also to the Delaware
National High-Yield Municipal Bond Fund of Voyageur Mutual Funds. The Part
C contained in this Post-Effective Amendment relates only to the
Registrant's three series. A separate Registration Statement which
incorporates by reference the Prospectus and Statement of Additional
Information as it relates to the Delaware National High-Yield Municipal
Bond Fund and includes its own Part C is being filed for Voyageur Mutual
Funds.
<PAGE>
DELAWARE(SM)
INVESTMENTS
-----------
Philadelphia * London
Delaware Tax-Free USA Intermediate Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Fund
Delaware National High-Yield Municipal Bond Fund
Class A o Class B o Class C
Prospectus
November 1, 1999
Tax-Exempt Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
2
<PAGE>
Table of contents
Fund profiles page
Tax-Free USA Intermediate Fund
Tax-Free Insured Fund
Tax-Free USA Fund
National High-Yield Municipal Bond Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Account minimums Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
3
<PAGE>
Profile: Tax-Free USA Intermediate Fund
What are the Fund's goals?
Tax-Free USA Intermediate Fund seeks as high a level of current interest income
exempt from federal income tax as is available from municipal obligations as is
consistent with prudent investment management and preservation of capital.
Although the Fund will strive to achieve its goal, there is no assurance that it
will.
What are the Fund's main investment strategies?
The Fund will invest primarily in municipal bonds and notes that are exempt from
federal income taxes. Municipal debt obligations are issued by state and local
governments to raise funds for various public purposes such as hospitals,
schools and general operating expenses. The Fund will invest its assets in
securities with maturities of various lengths, depending on market conditions,
but will have a dollar-weighted average effective maturity of between three and
10 years. We will attempt to adjust the average maturity of the bonds in the
portfolio to provide a high level of tax-exempt income consistent with
preservation of capital. The Fund's income level will vary depending on current
interest rates and the specific securities in the portfolio.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by adverse changes in interest rates. When
interest rates rise, the value of bonds in the portfolio will likely decline.
The Fund may also be affected by the ability of individual municipalities to pay
interest and repay principal on the bonds they issue. The Fund is a
non-diversified investment company under the Investment Company Act of 1940 and
may be subject to greater risk than if it were diversified. For a more complete
discussion of risk, please turn to page x.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
o Investors willing to give up some income potential in exchange for the
reduced risk of principal fluctuation that comes with an intermediate
maturity investment.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially over the short term.
4
<PAGE>
How has Tax-Free USA Intermediate Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past five calendar years, as well as the average annual returns of all
shares for one- and five-year or lifetime periods, as applicable. The Fund's
past performance does not necessarily indicate how it will perform in the
future. The returns reflect voluntary expense caps. The returns would be lower
without the voluntary caps.
Year-by-year total return (Class A)
- -------------- ----------- ------------ ----------- -----------
1994 1995 1996 1997 1998
- -------------- ----------- ------------ ----------- -----------
- -2.60% 12.18% 4.61% 6.50% 5.83%
- -------------- ----------- ------------ ----------- -----------
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
- -1.04%. During the periods illustrated in this bar chart, Class A's highest
quarterly return was 4.21% for the quarter ended March 31, 1995 and its lowest
quarterly return was -3.22% for the quarter ended March 31, 1994.
The maximum Class A sales charge of 2.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above or in the bar
chart. If this fee were included, the returns would be less than those shown.
The average annual returns in the table on page __ do include the sales charge.
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A B C Merrill Lynch 3-7 Year
Municipal Bond Index
- -----------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- -----------------------------------------------------------------------------------------------------------------------------
(Inception 1/7/93) (Inception 5/2/94) (Inception 11/29/95)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 2.92% 2.94% 3.94% 5.94%
- -----------------------------------------------------------------------------------------------------------------------------
5 years 4.62% NA NA 5.05%
- -----------------------------------------------------------------------------------------------------------------------------
Lifetime** 5.90% 5.35% 4.94% 5.47%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns over various time
periods compared to the performance of the Merrill Lynch 3-7 Year Municipal Bond
Index. You should remember that unlike the Fund, the index is unmanaged and
doesn't reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the
returns for Class B would be 4.94% and 5.35% for the one-year and lifetime
periods, respectively. Returns for Class C would be 4.94% and 4.94% for the
one-year and lifetime periods, respectively.
** Lifetime returns are shown if the Class existed for less than 10 years. The
Merrill Lynch 3-7 Year Municipal Bond Index return is for Class A lifetime.
Index returns for Class B and Class C lifetimes were 6.02% and 5.49%,
respectively. Maximum sales charges are included in the Fund returns above.
5
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------ ---------- ----------
CLASS A B C
- -------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases as a percentage of offering price 2.75% none none
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 2%(2) 1%(3)
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum sales charge (load) imposed on
reinvested dividends none none none
- -------------------------------------------------------------- ------------ ---------- ----------
Redemption fees none none none
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Management fees 0.50% 0.50% 0.50%
- -------------------------------------------------------- ----------- ---------- ----------
Distribution and service (12b-1) fees 0.15%4 1.00% 1.00%
- -------------------------------------------------------- ----------- ---------- ----------
Other expenses 0.31% 0.31% 0.31%
- -------------------------------------------------------- ----------- ---------- ----------
Total operating expenses (5) 0.96% 1.81% 1.81%
- -------------------------------------------------------- ----------- ---------- ----------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ----------------- ------------ ----------- -------------------- ----------- -------------------
CLASS(7) A B B C C
(if redeemed) (if redeemed)
- ----------------- ------------ ----------- -------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1 year $ 370 $ 184 $ 384 $ 184 $ 284
- ----------------- ------------ ----------- -------------------- ----------- -------------------
3 years $ 572 $ 569 $ 669 $ 569 $ 569
- ----------------- ------------ ----------- -------------------- ----------- -------------------
5 years $ 791 $ 980 $ 980 $ 980 $ 980
- ----------------- ------------ ----------- -------------------- ----------- -------------------
10 years $ 1,421 $ 1,601 $ 1,601 $ 2,127 $ 2,127
- ----------------- ------------ ----------- -------------------- ----------- -------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 2%, which declines to 1%
during the third year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Board of Trustees set 12b-1 plan expenses for Class A shares 0.15% of
average daily net assets. The maximum fees payable under Class A's 12b-1
Plan are 0.30% of average daily net assets.
6
<PAGE>
(5) The investment manager has agreed to waive fees and pay expenses from July
21, 1999 through February 29, 2000, in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees, extraordinary
expenses and 12b-1 fees) from exceeding 0.65% of average daily net assets.
The fees and expenses shown in the table above do not reflect this
voluntary expense cap. The following table shows operating expenses which
are based on the most recently completed fiscal year and reflect the
manager's current fee waivers and payments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Fund operating expenses including voluntary expense caps
- ------------------------------------------------ ------------ ------------ -----------
CLASS A B C
- ------------------------------------------------ ------------ ------------ -----------
<S> <C> <C> <C>
Management fees 0.34% 0.34% 0.34%
- ------------------------------------------------ ------------ ------------ -----------
Distribution and service (12b-1) fees 0.15% 1.00% 1.00%
- ------------------------------------------------ ------------ ------------ -----------
Other expenses 0.31% 0.31% 0.31%
- ------------------------------------------------ ------------ ------------ -----------
Total operating expenses 0.80% 1.65% 1.65%
- ------------------------------------------------ ------------ ------------ -----------
</TABLE>
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show. This example does not reflect the voluntary expense cap described in
footnote 5.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately five years. Information for years six through
ten reflects expenses of the Class A shares.
7
<PAGE>
Profile: Tax-Free Insured Fund
What are the Fund's goals?
Tax-Free Insured Fund seeks as high a level of current interest income exempt
from federal income tax as is available from municipal obligations as is
consistent with prudent investment management and preservation of capital.
Although the Fund will strive to achieve its goal, there is no assurance that it
will.
What are the Fund's main investment strategies?
The Fund will invest primarily in municipal bonds and notes that are exempt from
federal income taxes. Municipal debt obligations are issued by state and local
governments to raise funds for various public purposes such as hospitals,
schools and general operating expenses. The Fund will invest its assets in
securities with maturities of various lengths, depending on market conditions,
but will have a dollar-weighted average effective maturity of between five and
30 years. We will attempt to adjust the average maturity of the bonds in the
portfolio to provide a high level of tax-exempt income consistent with
preservation of capital. The Fund's income level will vary depending on current
interest rates and the specific securities in the portfolio.
The Fund will invest primarily in municipal securities whose scheduled payments
of interest and principal are fully insured. This insurance does not protect
against changes in the value of the bonds in the portfolio or changes in the
value of Fund shares.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by adverse changes in interest rates. When
interest rates rise, the value of bonds in the portfolio will likely decline.
The Fund may also be affected by the ability of individual municipalities to pay
interest and repay principal on the bonds they issue. The Fund is a
non-diversified investment company under the Investment Company Act of 1940 and
may be subject to greater risk than if it were diversified. For a more complete
discussion of risk, please turn to page x.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
o Investors seeking the extra measure of safety offered by bonds whose principal
and interest payments are insured.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially over the short term.
8
<PAGE>
How has Tax-Free Insured Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of all shares
for one-, five-, and ten-year or lifetime periods, as applicable. The Fund's
past performance does not necessarily indicate how it will perform in the
future.
Year-by-year total return (Class A)
<TABLE>
<CAPTION>
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.56% 6.12% 11.24% 7.59% 9.36% -2.93% 13.89% 2.36% 8.22% 4.78%
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
</TABLE>
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
- -2.81%. During the ten years illustrated in this bar chart, Class A's highest
quarterly return was 5.53% for the quarter ended June 30, 1989 and its lowest
return was -3.23% for the quarter ended March 31, 1994.
The maximum Class A sales charge of 3.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above or in the bar
chart. If this fee were included, the returns would be less than those shown.
The average annual returns in the table on page __ do include the sales charge.
9
<PAGE>
How has Tax-Free Insured Fund performed? (continued)
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Insured Municipal Bond
Index
- --------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- --------------------------------------------------------------------------------------------------------------------------
(Inception 3/25/85) (Inception 5/2/94) (Inception 11/29/95)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 0.88% -0.01% 2.96% 6.69%
- --------------------------------------------------------------------------------------------------------------------------
5 years 4.31% N/A N/A 6.32%
- --------------------------------------------------------------------------------------------------------------------------
10 years or lifetime** 6.51% 5.06% 4.77% 8.18%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns over various time
periods compared to the performance of the Lehman Brothers Insured Municipal
Bond Index. You should remember that unlike the Fund, the index is unmanaged and
doesn't reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the
returns for Class B would be 3.95% and 5.41% for the one-year and lifetime
periods, respectively. Returns for Class C would be 3.95% and 4.77% for the
one-year and lifetime periods, respectively.
** Lifetime returns are shown if the Class existed for less than 10 years.
Lehman Brothers Insured Municipal Bond Index returns are for 10 years.
Index returns for Class B and Class C lifetimes were 6.30% and 4.96%,
respectively. Maximum sales charges are included in the Fund returns above.
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------ ---------- ----------
CLASS A B C
- -------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases as a percentage of offering price 3.75% none none
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum sales charge (load) imposed on
reinvested dividends none none none
- -------------------------------------------------------------- ------------ ---------- ----------
Redemption fees none none none
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Management fees(4) 0.50% 0.50% 0.50%
- -------------------------------------------------------- ----------- ---------- ----------
Distribution and service (12b-1) fees 0.20%(5) 1.00% 1.00%
- -------------------------------------------------------- ----------- ---------- ----------
Other expenses 0.21% 0.21% 0.21%
- -------------------------------------------------------- ----------- ---------- ----------
Total operating expenses 0.91% 1.71% 1.71%
- -------------------------------------------------------- ----------- ---------- ----------
</TABLE>
10
<PAGE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ----------------- ----------- ------------ -------------------- ----------- -------------------
CLASS(7) A B B C C
(if redeemed) (if redeemed)
- ----------------- ----------- ------------ -------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1 year $464 $174 $574 $174 $274
- ----------------- ----------- ------------ -------------------- ----------- -------------------
3 years $654 $539 $839 $539 $539
- ----------------- ----------- ------------ -------------------- ----------- -------------------
5 years $860 $928 $1,128 $928 $928
- ----------------- ----------- ------------ -------------------- ----------- -------------------
10 years $1,453 $1,807 $1,807 $2,019 $2,019
- ----------------- ----------- ------------ -------------------- ----------- -------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the
sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) Reflects a new management fee which became effective on April 1, 1999.
(5) The Board of Trustees adopted a formula for calculating 12b-1 plan expenses
for Tax-Free Insured's Class A shares that went into effect on June 1,
1992. Under this formula, 12b-1 plan expenses will not be more than 0.30%
or less than 0.10%.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
11
<PAGE>
Profile: Tax-Free USA Fund
What are the Fund's goals?
Tax-Free USA Fund seeks as high a level of current interest income exempt from
federal income tax as is available from municipal obligations as is consistent
with prudent investment management and preservation of capital. Although the
Fund will strive to achieve its goal, there is no assurance that it will.
What are the Fund's main investment strategies?
The Fund will invest primarily in municipal bonds and notes that are exempt from
federal income taxes. Municipal debt obligations are issued by state and local
governments to raise funds for various public purposes such as hospitals,
schools and general operating expenses. The Fund will invest its assets in
securities with maturities of various lengths, depending on market conditions,
but will have a dollar-weighted average effective maturity of between five and
30 years. We will attempt to adjust the average maturity of the bonds in the
portfolio to provide a high level of tax-exempt income consistent with
preservation of capital. The Fund's income level will vary depending on current
interest rates and the specific securities in the portfolio.
What are the main risks of investing in each Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by adverse changes in interest rates. When
interest rates rise, the value of bonds in the portfolio will likely decline.
The Fund may also be affected by the ability of individual municipalities to pay
interest and repay principal on the bonds they issue. The Fund is a
non-diversified investment company under the Investment Company Act of 1940 and
may be subject to greater risk than if it were diversified. For a more complete
discussion of risk, please turn to page x.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially over the short term.
12
<PAGE>
How has Tax-Free USA Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of all shares
for one-, five-, and ten-year or lifetime periods, as applicable. The Fund's
past performance does not necessarily indicate how it will perform in the
future.
Year-by-year total return (Class A)
<TABLE>
<CAPTION>
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.46% 3.92% 12.42% 9.70% 11.62% -3.02% 13.70% 0.84% 8.31% 4.85%
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
</TABLE>
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
- -3.90%. During the ten years illustrated in this bar chart, Class A's highest
quarterly return was 6.55% for the quarter ended June 30, 1989 and its lowest
return was -2.96% for the quarter ended March 31, 1994.
The maximum Class A sales charge of 3.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above or in the bar
chart. If this fee were included, the returns would be less than those shown.
The average annual returns in the table on page __ do include the sales charge.
13
<PAGE>
How has Tax-Free USA Fund performed? (continued)
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Municipal Bond Index
- --------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- --------------------------------------------------------------------------------------------------------------------------
(Inception 1/11/84) (Inception 5/2/94) (Inception 11/29/95)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 0.91% 0.04% 3.02% 6.48%
- --------------------------------------------------------------------------------------------------------------------------
5 years 3.98% N/A N/A 6.22%
- --------------------------------------------------------------------------------------------------------------------------
10 years or lifetime** 8.83% 4.57% 4.21% 8.22%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns over various time
periods compared to the performance of the Lehman Brothers Municipal Bond Index.
You should remember that unlike the Fund, the index is unmanaged and doesn't
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the
returns for Class B would be 4.02% and 4.92% for the one-year and lifetime
periods, respectively. Returns for Class C would be 4.02% and 4.21% for the
one-year and lifetime periods, respectively.
** Lifetime returns are shown if the Class existed for less than 10 years.
Lehman Brothers Municipal Bond Index returns are for 10 years. Index
returns for Class B and Class C lifetimes were 7.72% and 6.83%,
respectively. Maximum sales charges are included in the Fund returns above.
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------ ---------- ----------
CLASS A B C
- -------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases as a percentage of offering price 3.75% none none
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum sales charge (load) imposed on
reinvested dividends none none none
- -------------------------------------------------------------- ------------ ---------- ----------
Redemption fees none none none
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Management fees(4) 0.55% 0.55% 0.55%
- -------------------------------------------------------- ----------- ---------- ----------
Distribution and service (12b-1) fees(5) 0.20% 1.00% 1.00%
- -------------------------------------------------------- ----------- ---------- ----------
Other expenses 0.23% 0.23% 0.23%
- -------------------------------------------------------- ----------- ---------- ----------
Total operating expenses 0.98% 1.78% 1.78%
- -------------------------------------------------------- ----------- ---------- ----------
</TABLE>
14
<PAGE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ----------------- ----------- ------------ -------------------- ----------- -------------------
CLASS(7) A B B C C
(if redeemed) (if redeemed)
- ----------------- ----------- ------------ -------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1 year $471 $181 $681 $181 $281
- ----------------- ----------- ------------ -------------------- ----------- -------------------
3 years $675 $560 $860 $560 $560
- ----------------- ----------- ------------ -------------------- ----------- -------------------
5 years $896 $964 $1,164 $964 $964
- ----------------- ----------- ------------ -------------------- ----------- -------------------
10 years $1,531 $1,884 $1,884 $2,095 $2,095
- ----------------- ----------- ------------ -------------------- ----------- -------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the
sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) Reflects a new management fee which became effective on April 1, 1999.
(5) The Board of Trustees adopted a formula for calculating 12b-1 plan expenses
for Tax-Free USA's Class A shares that went into effect on June 1, 1992.
Under this formula, 12b-1 plan expenses will not be more than 0.30% or less
than 0.10%.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
15
<PAGE>
National High-Yield Municipal Bond Fund Profile
What are the Fund's goals?
National High-Yield Municipal Bond Fund seeks a high level of current income
exempt from federal income tax primarily through investment in medium and lower
grade municipal obligations. Although the Fund will strive to achieve its goal,
there is no assurance that it will.
What are the Fund's main investment strategies?
The Fund will invest primarily in municipal bonds and notes that are exempt from
federal income taxes. Municipal debt obligations are issued by state and local
governments to raise funds for various public purposes such as hospitals,
schools and general operating expenses. The Fund will invest its assets in
securities with maturities of various lengths, depending on market conditions,
but will typically have a weighted average maturity between 15 and 25 years. We
will attempt to adjust the average maturity of the bonds in the portfolio to
provide a high level of tax-exempt income consistent with preservation of
capital. The Fund's income will vary depending on current interest rates and the
specific securities in the portfolio.
National High-Yield Municipal Bond Fund will invest primarily in lowerrated
municipal securities, which typically offer higher income potential and involve
greater risk than higher quality securities.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by adverse changes in interest rates. When
interest rates rise, the value of bonds in the portfolio will likely decline.
The Fund may also be affected by the ability of individual municipalities to pay
interest and repay principal on the bonds they issue. This risk is greater for
National High-Yield Municipal Bond Fund because the issuers of the bonds in the
portfolio are generally considered to be in a less secure financial situation
and may be affected more by adverse economic conditions. The Fund is a
non-diversified investment company under the Investment Company Act of 1940 and
may be subject to greater risk than if it were diversified. For a more complete
discussion of risk, please turn to page x.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
o Investors willing to accept the possibility of significant fluctuations in
share price, particularly in the short term.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially in the short term.
16
<PAGE>
How has National High-Yield Municipal Bond Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of all shares
for one-, five- and ten-year or lifetime periods, as applicable. The Fund's past
performance does not necessarily indicate how it will perform in the future. The
returns reflect voluntary expense caps. The returns would be lower without the
voluntary caps.
Year-by-year total return (Class A)
<TABLE>
<CAPTION>
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.39% 6.42% 11.34% 9.82% 11.48% -2.61% 15.00% 6.53% 10.32% 6.68%
- -------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- -----------
</TABLE>
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
- -0.77%. During the periods illustrated in this bar chart, Class A's highest
quarterly return was 5.50% for the quarter ended March 31, 1995 and its lowest
quarterly return was -3.57% for the quarter ended March 31, 1994.
The maximum Class A sales charge of 3.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above or in the bar
chart. If this fee were included, the returns would be less than those shown.
The average annual returns in the table on page __ do include the sales charge.
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Municipal Bond Index
- ----------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- ----------------------------------------------------------------------------------------------------------------------------
(Inception 9/22/86) (Inception 12/18/96) (Inception 5/26/97)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 2.65% 1.97% 4.96% 6.48%
- ----------------------------------------------------------------------------------------------------------------------------
5 years 6.20% N/A N/A 6.22%
- ----------------------------------------------------------------------------------------------------------------------------
10 years or lifetime** 7.37% 6.46% 8.09% 8.22%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns over various time
periods compared to the performance of the Lehman Brothers Municipal Bond Index.
You should remember that unlike the Fund, the index is unmanaged and doesn't
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the
returns for Class B would be 5.97% and 7.83% for the one-year and lifetime
periods, respectively. Returns for Class C would be 5.96% and 8.09% for the
one-year and lifetime periods, respectively.
** Lifetime returns are shown if the Class existed for less than 10 years.
Lehman Brothers Municipal Bond Index returns are for 10 years. Index
returns for Class B and Class C lifetimes were 7.83% and 8.51%,
respectively. Maximum sales charges are included in the Fund returns above.
17
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------ ---------- ----------
CLASS A B C
- -------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases as a percentage of offering price 3.75% none none
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum contingent deferred sales charge (load)
As a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum sales charge (load) imposed on
reinvested dividends none none none
- -------------------------------------------------------------- ------------ ---------- ----------
Redemption fees none none none
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Management fees(4) 0.55% 0.55% 0.55%
- -------------------------------------------------------------- ------------ ---------- ----------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
- -------------------------------------------------------------- ------------ ---------- ----------
Other expenses 0.37% 0.37% 0.37%
- -------------------------------------------------------------- ------------ ---------- ----------
Total operating expenses (5) 1.17% 1.92% 1.92%
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ----------------- ----------- ------------ -------------------- ----------- -------------------
CLASS(7) A B B C C
(if redeemed) (if redeemed)
- ----------------- ----------- ------------ -------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1 year $490 $195 $595 $195 $295
- ----------------- ----------- ------------ -------------------- ----------- -------------------
3 years $733 $603 $903 $603 $603
- ----------------- ----------- ------------ -------------------- ----------- -------------------
5 years $995 $1,037 $1,237 $1,037 $1,037
- ----------------- ----------- ------------ -------------------- ----------- -------------------
10 years $1,742 $2,048 $2,048 $2,243 $2,243
- ----------------- ----------- ------------ -------------------- ----------- -------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the
sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) Reflects a new management fee which became effective on April 1, 1999.
(5) The investment manager has agreed to waive fees and pay expenses through
February 29, 2000 in order to prevent total operating expenses (excluding
any taxes, interest, brokerage fees, extraordinary expenses and 12b-1 fees)
from exceeding 0.75% of average daily net assets. The fees and expenses
shown in the table above do not reflect this voluntary expense cap. The
following table shows actual operating expenses which are based on the most
recently completed fiscal year and reflect the manager's current fee
waivers and payments.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Actual Fund operating expenses including voluntary expense caps
- ------------------------------------------------ ------------ ------------ -----------
CLASS A B C
- ------------------------------------------------ ------------ ------------ -----------
<S> <C> <C> <C>
Management fees 0.38% 0.38% 0.38%
- ------------------------------------------------ ------------ ------------ -----------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
- ------------------------------------------------ ------------ ------------ -----------
Other expenses 0.37% 0.37% 0.37%
- ------------------------------------------------ ------------ ------------ -----------
Total operating expenses 1.00% 1.75% 1.75%
- ------------------------------------------------ ------------ ------------ -----------
</TABLE>
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show. This example does not reflect the voluntary expense cap described in
footnote 4.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
19
<PAGE>
How we manage the Funds
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular Fund.
Following is a general description of the investment strategies used to manage
the Funds and a list of securities the Funds may invest in.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We will generally invest in debt obligations issued by state and local
governments and their political subdivisions, agencies, authorities and
instrumentalities, exempt from federal income tax. We may also invest in debt
obligations issued by or for the District of Columbia, and its political
subdivisions, agencies, authorities and instrumentalities or territories and
possessions of the United States, which are exempt from federal income tax.
We will generally invest in securities for income rather than seeking capital
appreciation through active trading. However, we may sell securities for a
variety of reasons such as: to reinvest the proceeds in higher yielding
securities, to eliminate investments not consistent with the preservation of
capital or to honor redemption requests. As a result we may realize losses or
capital gains which could be taxable to shareholders.
Tax-Free USA Intermediate Fund will generally have a dollar-weighted average
effective maturity between three and 10 years. This is a more conservative
strategy, which should result in the Fund experiencing less price volatility
when interest rates rise or fall. Tax-Free USA Fund and Tax-Free Insured Fund
will generally have a dollar-weighted average effective maturity approximately
five to 30 years. National High-Yield Municipal Bond Fund will generally have a
weighted average maturity between 15 and 25 years.
During times of abnormal market conditions each Fund may invest in taxable
instruments for temporary defensive purposes. These could include securities
such as obligations of the U.S. government, its agencies and instrumentalities,
commercial paper, certificates of deposit of domestic banks and other debt
instruments.
20
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation. Municipal bond securities
typically pay income free of federal income taxes and may be free of state
income taxes in the state where they are issued.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax exempt obligations are Under normal Under normal market conditions, each Fund Under normal
commonly known as conditions the Fund will invest 80% of its assets in tax-exempt conditions, National
municipal bonds. These are will invest at least debt obligations rated in the top four High-Yield Municipal
debt obligations issued by 90% of its assets in quality grades by S&P or another NRSRO. Bond Fund will
or for a state or tax-exempt debt These bonds may include general obligation invest at least 65%
territory, its agencies or obligations rated in bonds and revenue bonds. its net assets in
instrumentalities, the top four quality medium and lower
municipalities or other grades by S&P or grade tax-exempt
political sub-divisions. another nationally obligations rated
The interest on these recognized between BBB and B-.
debt obligations can statistical rating
generally be excluded from organization The Fund will not
federal income tax as well (NRSRO). Of that make initial
as personal income tax in amount, 10% can be investments in
the state where the bond unrated but, in the securities rated
is issued. Determination manager's opinion, below B-, although
of a bond's tax-exempt equivalent in it may continue to
status is based on the quality to the top hold such securities
opinion of the bond four grades. These if their rating has
issuer's legal counsel. bonds may include been reduced below
general obligation that grade.
bonds and revenue
bonds. The Fund may invest
all or a portion of
its assets in higher
grade securities if
the manager
determines that
abnormal market
conditions make
investing in lower
rated securities
inconsistent with
shareholders' best
interests.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General obligation bonds The Fund may invest The Fund may invest The Fund may invest The Fund may invest
are municipal bonds on without limit in in general without limit in in general
which the payment of general obligation obligation bonds; general obligation obligations and will
principal and interest is bonds rated in the however, after the bonds in the top four typically invest in
secured by the issuer's top four quality application of quality grades or lower quality bonds
pledge of its full faith, grades or bonds that insurance, bonds bonds that are rated between BBB
credit and taxing power. are unrated, but representing at unrated, but which and B- by S&P or
which the manager least 80% of net the manager another NRSRO.
determines to be of assets must be rated determines to be of
equal quality. AAA by S&P or have equal quality.
an equivalent rating
from another NRSRO.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue bonds are The Fund may invest The Fund may invest The Fund may invest The Fund may invest
municipal bonds on which without limit in in revenue bonds; without limit in in revenue bonds and
principal and interest revenue bonds in the however, after the revenue bonds in the will typically
payments are made from top four quality application of top four quality invest in lower
revenues derived from a grades or bonds that insurance, bonds grades or bonds that quality bonds rated
particular facility, from are unrated, but representing 80% of are unrated, but between BBB and B-
the proceeds of a special which the manager net assets must be which the manager by S&P or another
excise tax or from revenue determines to be of rated AAA by S&P or determines to be of NRSRO.
generated by an operating equal quality. have an equivalent equal quality.
project. Principal and rating from another
interest are not secured NRSRO.
by the general taxing
power. Tax-exempt
industrial development
bonds, in most cases, are
a type of revenue bond
that is not backed by the
credit of the issuing
municipality and may
therefore involve more
risk.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured municipal bonds: Each Fund may invest without limit in insured bonds. We do not evaluate the
Various municipal issuers creditworthiness of the private insurer. Instead, we focus first on the creditworthiness
may obtain insurance for of the actual bond issuer and its ability to pay interest and principal.
their obligations. In the
event of a default, the It is possible that a substantial portion of a Fund's portfolio may consist of municipal
insurer is required to bonds that are insured by a single insurance company.
make payments of interest
and principal when due to Insurance is available on uninsured bonds and each Fund may purchase such insurance
the bondholders. However, directly. We will generally do so only if we believe that purchasing and insuring a bond
there is no assurance that provides an investment opportunity at least comparable to owning other available insured
the insurance company will securities.
meet its obligations.
Insured obligations are The purpose of insurance is to protect against credit risk. It does not insure against
typically rated in the top market risk or guarantee the value of the securities in the portfolio or the value of
quality grades by an NRSRO. shares of any of the Funds.
-------------------------------------------------------------------------------------------
Insured bonds will At least 80% of Insured bonds will typically not be a
typically not be a Tax-Free Insured significant portion of the investments of
significant portion Fund's net assets Tax-Free USA Fund or National High-Yield
of Tax-Free USA will be invested in Municipal Bond Fund.
Intermediate Fund. bonds that are fully
insured. All insurers must
have AAA-rated claims paying
ability by S&P or another
NRSRO at the time that the
insured bond is purchased.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private activity or Each Fund may invest up to 20% of its assets in bonds whose income National High-Yield
private placement bonds is subject to the federal alternative minimum tax. This means that Municipal Bond Fund
are municipal bond issues a portion of the Fund's distributions could be subject to the may invest without
whose proceeds are used to federal alternative minimum tax that applies to certain limit in these bonds.
finance certain taxpayers.
non-government activities,
including some types of
industrial revenue bonds
such as privately owned
sports and convention
facilities. The Tax
Reform Act of 1986
subjects interest income
from these bonds to the
federal alternative
minimum tax and makes the
tax-exempt status of
certain bonds dependent on
the issuer's compliance
with specific requirements
after the bonds are issued.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zero coupon bonds: Zero We may invest in zero coupon bonds. The market prices of these bonds are generally more
coupon securities are debt volatile than the market prices of securities that pay interest periodically and are
obligations which do not likely to react to changes in interest rates to a greater degree than interest-paying
entitle the holder to any bonds having similar maturities and credit quality. They may have certain tax
periodic payments of consequences which, under certain conditions, could be adverse to the Fund.
interest prior to maturity
or a specified date when the
securities begin paying
current interest. Therefore,
they are issued and traded
at a price lower than their
face amounts or par value.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inverse floaters are The Fund may invest Tax-Free Insured Fund and Tax-Free USA Fund The Fund may invest
instruments with floating in inverse may invest in inverse floaters as long as in inverse
or variable interest rates floaters. There is each Fund's combined investments in inverse floaters. There is
that move in the opposite no limit on the floaters, futures contracts, options on no limit on the
direction of short-term percentage of its futures contracts and securities rated below percentage of its
interest rates, usually at net assets that may investment grade do not exceed 20% of total net assets that may
an accelerated speed. be invested in net assets. be invested in these
Consequently, the market these securities. securities.
values of inverse floaters
will generally be more
volatile than other
tax-exempt investments.
These securities may be
considered to be
derivative securities.
- ------------------------------------------------------------------------------------------------------------------------
Variable rate and floating Each Fund may purchase "floating rate" and "variable limit.
rate" obligations without
rate obligations pay
interest at rates that are
not fixed, but instead
vary with changes in
specified market rates or
indexes on pre-designated
dates.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advance refunded bonds In Each Fund may invest without limit in advance refunded bonds. These bonds are generally
an advance refunding, the considered to be of very high quality because of the escrow account, which typically holds
issuer uses the proceeds U.S. Treasuries.
of a new bond issue to
purchase high grade
interest bearing debt
securities. These
securities are then
deposited into an
irrevocable escrow account
held by a trustee bank to
secure all future
principal and interest
payments on pre-existing
bonds, which are then
considered to be "advance
refunded bonds." Escrow
secured bonds often
receive the highest rating
from S&P and Moody's.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High-yield, high risk The Fund may invest Insured Fund may The Fund may invest up National High-Yield
municipal bonds: Municipal up to 10% of its invest a portion of to 20% of its net Municipal Bond Fund
debt obligations rated net assets in its assets in debt assets in high-yield, will invest primarily
lower than investment high-yield, high obligations that high risk fixed-income in lower rated,
grade by an NRSRO or, if risk fixed-income are considered to securities. high-yield
unrated, of comparable securities. be below investment securities. In doing
quality. These securities grade. The Fund so, the Fund may
are often referred to as presently intends offer higher income
"junk bonds" and are to limit such potential, but may
considered to be of poor investments to no also be subject to
standing and predominately more than 5% of its greater risk,
speculative. assets, as measured including price
at the time the volatility during
Fund is considering periods of adverse
such a purchase. economic conditions.
The Fund may also
experience a higher
incidence of credit
problems.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options represent a right The Fund may utilize Tax-Free Insured Fund and Tax-Free USA Fund The Fund may utilize
to buy or sell a security options transactions may not invest in options. options transactions
at an agreed upon price at in order to hedge in order to hedge
a future date. The against market risk against market risk
purchaser of an option may and/or facilitate and/or facilitate
or may not choose to go portfolio portfolio management.
through with the management.
transaction. The Fund may purchase
Certain options may be The Fund may options on any
considered to be purchase options on security it is
derivative securities. any security it is permitted to invest
permitted to invest in or any index of
in or any index of securities that it is
securities that it permitted to invest
is permitted to in.
invest in.
Use of these
Use of these strategies can
strategies can increase the
increase the operating costs of
operating costs of the Fund and can
the Fund and can lead to loss of
lead to loss of principal.
principal.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Futures contracts are Futures contracts may be used by the Funds to hedge market risks and/or facilitate portfolio
agreements for the management. Each of the Funds may enter into futures contracts for the purchase or sale of any
purchase or sale of security they are permitted to invest in, however, only the National High-Yield Municipal Bond Fund
securities at a specified may also engage in contracts based on an index of securities that they are permitted to invest in.
price, on a specified
date. Unlike an option, a At times when we anticipate adverse conditions, we may want to protect gains on securities without
futures contract must be actually selling them. We might use options or futures to neutralize the effect of any price
executed unless it is sold declines, without selling a bond or bonds.
before the settlement
date. Use of these strategies can increase the operating costs of the Fund and can lead to loss of
principal.
Certain futures and options
on futures may be
considered to be derivative
securities.
- -----------------------------------------------------------------------------------------------------------------------------------
Restricted securities are We may invest without limitation in privately placed securities that are eligible for resale only
privately placed among certain institutional buyers without registration. These are commonly known as "Rule 144A
securities whose resale is Securities."
restricted under
securities law.
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities are Each Fund may invest up to 10% of its net assets in illiquid securities. National High-Yield
securities that do not Municipal Bond Fund
have a ready market, and may invest up to 15%
cannot be easily sold of its net assets in
within seven days at illiquid securities.
approximately the price
that the Fund has valued
them.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchase Typically, we use repurchase agreements as a short-term investment for our cash Typically, we use
agreements are position. Each Fund may use repurchase agreements which are at least 102% repurchase agreements
agreements between a collateralized by securities in which the Fund is permitted to invest directly. as a short-term
buyer and seller of investment for our cash
securities in which position. We may not
the seller agrees to enter into repurchase
buy the securities agreements that
back within a represent more than 10%
specified time at of total assets except
the same price the when investing for
buyer paid for them, defensive purposes
plus an amount equal during periods of
to an agreed upon adverse market
interest rate. conditions.
Repurchase
agreements are often
viewed as equivalent
to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase The Funds may not use Reverse Repurchase Agreements. National High-Yield
agreements Municipal Bond Fund may
are the same as invest up to 10% of
repurchase agreements total assets in reverse
except that the Funds repurchase agreements.
would act as the This may be preferable
seller and agree to to a regular sale
buy back the because it avoids
securities at the certain market risk and
same price the buyer transaction costs.
paid for them, plus However, it is a form
an agreed upon of leveraging which may
interest rate. exaggerate any
increases or decreases
in each Fund's net
asset value. Because
use of this technique
is limited, we believe
it may facilitate the
Fund's ability to
provide current income
without adversely
affecting our ability
to preserve capital.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please see the Statement of Additional Information for additional descriptions
on these as well as those listed in the table above.
32
<PAGE>
Borrowing money
Each Fund is permitted to borrow money but normally does not do so.
Purchasing securities on a when-issued or delayed delivery basis
The Funds may buy securities on a when-issued or delayed delivery basis; that
is, entering into an agreement to buy a new issue with delivery and payment
taking place later. Usually, delivery or payment takes place 15 to 45 days
later, but the Funds may also buy forward settlement bonds which could be
delivered up to 1.5 years from purchase date. There is no percentage limit on
the amount of each Fund's total assets, which may be invested in securities
issued in this manner.
Lending securities
Tax-Free Intermediate Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in securities
transactions.
Portfolio turnover
We anticipate that each Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for a Fund.
33
<PAGE>
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund you should
carefully evaluate the risks. An investment in any of the municipal bond funds
described here typically provides the best results when held for a number of
years. The following are the chief risks you assume when investing in these
funds. Please see the Statement of Additional Information for further discussion
of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market risk is the We maintain a long-term investment approach and focus on bonds we believe will provide a steady income
risk that all or a stream regardless of interim market fluctuations. We do not try to predict overall market movements and do
majority of the not trade for short-term purposes.
securities in a
certain market--like
the stock or bond
market--will decline
in value because of
factors such as
economic conditions,
future expectations
or investor
confidence.
- -----------------------------------------------------------------------------------------------------------------------------------
Industry and We spread each Fund's assets across different types of municipal bonds and among bonds representing
security risk is the different industries and regions throughout the country in order to minimize the impact that a poorly
risk that the value performing security would have on a Fund. We also follow a rigorous selection process before choosing
of securities in a securities for the portfolio.
particular industry
or the value of an
individual security
will decline because
of changing
expectations for the
performance of that
industry or for the
individual issuer of
the security.
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund may be less
subject to industry and security
risk because payment of interest and
principal on the bonds in the
portfolio are insured, potentially
reducing the effect that changing
expectations might have on an
individual bond.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
We do not try to We do not try to increase return by predicting and In an attempt to reduce
Interest rate risk increase return by aggressively capitalizing on interest rate moves. interest rate risk, we
is the risk that predicting and will adjust the Fund's
securities, aggressively In an attempt to reduce interest rate risk, we will adjust average maturity based
particularly bonds capitalizing on the Fund's average maturity based on our view of interest on our view of interest
with longer interest rate rates. In anticipation of an interest rate decline, we rates. In anticipation
maturities, will moves. Instead, we may extend average maturity and when we anticipate an of an interest rate
decrease in value if aim to maintain an increase we may shorten average maturity. decline, we may extend
interest rates rise. intermediate average maturity and
average maturity when we anticipate an
that helps us increase we may shorten
reduce the effects average maturity.
of interest rate
volatility.
- -----------------------------------------------------------------------------------------------------------------------------------
Credit Risk We conduct careful Tax-Free Insured We conduct careful National High-Yield Municipal Bond Fund
Is the possibility credit analysis of Fund is less credit analysis of is subject to significant credit risk
that a bond's issuer individual bonds; affected by credit individual bonds; we due to its investment in lower quality,
(or an entity that we focus on high risk because the focus on high high-yielding bonds. This risk is
insures the bond) quality bonds and majority of the quality bonds and described more fully below. We strive to
will be unable to limit our holdings bonds in the limit our holdings manage this risk by maintaining a number
make timely payments of bonds rated portfolio are of bonds rated below of different bonds from different
of interest and below investment insured. This investment grade; issuers so that if one issuer
principal. grade; and we hold insurance is and we hold a number experiences difficulties, it will have a
a number of designed to of different bonds lesser effect on the entire portfolio.
In the case of different bonds in minimize credit in the portfolio.
municipal bonds, the portfolio. All risks to the Fund, All of this is
issuers may be of this is designed by increasing the designed to help
affected by poor to help reduce likelihood that reduce credit risk.
economic conditions credit risk. the Fund would
in their states. still receive
payment even if an
issuer defaulted.
- -----------------------------------------------------------------------------------------------------------------------------------
Call risk is the We take into consideration the likelihood of prepayment when we select bonds and, in certain environments,
risk that a bond we may look for bonds that have protection against early prepayment.
issuer will prepay
the bond during
periods of low
interest rates,
forcing investors to
reinvest their money
at interest rates
that might be lower
than rates on the
called bond.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liquidity risk is We limit exposure to illiquid securities.
the possibility that
securities cannot be
readily sold within
seven days at
approximately the
price that a fund
values them.
- -----------------------------------------------------------------------------------------------------------------------------------
High yield, high We limit the amount of the portfolio which may be invested in lower quality, This is a significant
risk municipal bonds higher yielding bonds. risk for the National
Investing in High-Yield Municipal
so-called "junk" Bond Fund. In striving
bonds entails the to manage this risk, we
risk of principal hold a number of
loss, which may be different bonds
greater than the representing a variety
risk involved in of industries and
investment grade municipal projects,
bonds. High-yield seeking to minimize the
bonds are sometimes effect that any one
issued by bond may have on the
municipalities with portfolio.
lesser financial
strength and
therefore less
ability to make
projected debt
payments on the
bonds.
Some analysts believe
a protracted economic
downturn would
adversely affect the
value of outstanding
bonds and the ability
of high-yield issuers
to repay principal and
interest.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-diversified Each Fund is a non-diversified fund and is subject to this risk. Nevertheless, we typically hold
funds risk: securities from a variety of different issuers, representing different sectors and different types of
Non-diversified municipal projects. We also perform extensive credit analysis on all securities. We are particularly
investment companies diligent in reviewing the credit status of bonds that represent a larger percentage of portfolio assets.
have the flexibility
to invest as much as
50% of their assets
in as few as two
issuers provided no
single issuer
accounts for more
than 25% of the
portfolio. The
remaining 50% of the
portfolio must be
diversified so that
no more than 5% of a
fund's assets is
invested in the
securities of a
single issuer.
Because a
non-diversified fund
may invest its
assets in fewer
issuers, the value
of fund shares may
increase or decrease
more rapidly than if
a fund were fully
diversified. If a
fund were to invest
a large portion of
its assets in a
single issuer, the
fund could be
significantly
affected if that
issuer was unable to
satisfy its
financial
obligations.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Tax-Free Insured Tax-Free National High-Yield
Intermediate Fund Fund USA Fund Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As a percentage of average daily net assets 0.33%* 0.56% 0.57% 0.38%*
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Reflects the voluntary waiver of fees by the manager.
Portfolio managers
Patrick P. Coyne and Mitchell L. Conery have primary responsibility for making
day-to-day investment decisions for each Fund. Mr. Coyne has been managing
Tax-Free USA Intermediate Fund since its inception, Tax-Free Insured and
Tax-Free USA Fund since July 1, 1994 and National High-Yield Municipal Bond Fund
since May 1, 1997. Mr. Conery became co-manager of Tax-Free USA Intermediate
Fund, Tax-Free Insured Fund and Tax-Free USA Fund in January 1997 and of
National High-Yield Municipal Bond Fund on May 1, 1997.
Patrick P. Coyne, Vice President/Senior Portfolio Manager for the Fund, is a
graduate of Harvard University with an MBA from the University of Pennsylvania's
Wharton School. Mr. Coyne joined Delaware Investment's 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 bonds and municipal futures contracts.
Mitchell L. Conery, Vice President/Senior Portfolio Manager for the Fund, joined
Delaware Investments in January 1997. 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.
38
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
39
<PAGE>
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
40
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 3.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge. Class A shares of Tax-Free USA Intermediate Fund
have an up-front sales charge of 2.75%.
o If you invest $100,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information for
details.
o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30%
(0.25% for National High-Yield Municipal Bond Fund) of average daily net
assets, which is lower than the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge except in the limited circumstances noted in the table below.
41
<PAGE>
<TABLE>
<CAPTION>
Class A Sales Charges
- ------------------------------------------------------------------------------------------|----------------------------------------
| Tax-Free Insured Fund, Tax-Free USA Fund, National High-Yield | Tax-Free USA Intermediate Fund
| Municipal Bond Fund |
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
Amount of | Sales charge | Sales charge as % of amount invested | Dealer's | Sales Sales Dealer's
purchase | as % | | Commission | charge charge Commission as
| of offering | | as % of | as % of as % of % of offering
| price | | offering | offering amount price
| | | price | price invested
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
| | Tax-Free Tax-Free USA National | | Tax-Free USA Intermediate Fund
| | Insured Fund High-Yield | |
| | Fund Municipal | |
| | Bond Fund | |
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
<S> | <C> | <C> <C> <C> | <C> | <C> <C> <C>
Less than | 3.75% | 3.86% 3.86% 3.87% | 3.25% | 2.75% 2.82% 2.35%
$100,000 | | | |
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
$100,000 but | 3.00% | 3.09% 3.12% 3.09% | 2.50% | 2.00% 2.04% 1.75%
under $250,000| | | |
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
$250,000 but | 2.50% | 2.61% 2.57% 2.61% | 2.00% | 1.00% 1.01% 0.75%
under $500,000| | | |
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
$500,000 but | 2.00% | 2.03% 2.02% 2.03% | 1.75% | 1.00% 1.01% 0.75%
under $1 | | | |
million | | | |
- ----------------|----------------|-----------------------------------------|--------------|----------------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year for all
Funds and 0.50% if you redeem them within the second year for Tax-Free Insured
Fund, Tax-Free USA Fund and National High-Yield Municipal Bond Fund.
<TABLE>
<CAPTION>
- ------------------|--------------------|--------------------------------------|---------------------------------------------------
Amount of | Sales charge as % | Sales charge as % of amount invested | Dealer's commission as %
purchase | Of offering price | | of offering price
- ------------------|--------------------|--------------------------------------|--------------------------|-------------------------
| | | Tax-Free Insured Fund, | Tax-Free USA
| | | Tax-Free USA Fund, | Intermediate Fund
| | All Funds | National High-Yield |
| | | Municipal Bond Fund |
- ------------------|--------------------|--------------------------------------|--------------------------|-------------------------
<S> | <C> | <C> | <C> | <C>
$1 million up to | none | none | 1.00% | 0.50%
$5 million | | | |
| | | |
- ------------------|--------------------|--------------------------------------|--------------------------|-------------------------
Next $20 million | none | none | 0.50% | 0.25%
Up to $25 million | | | |
| | | |
- ------------------|--------------------|--------------------------------------|--------------------------|-------------------------
Amount over $25 | none | none | 0.25% | 0.25%
million | | | |
- ------------------|--------------------|--------------------------------------|--------------------------|-------------------------
</TABLE>
42
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the first two years (three years for
Tax-Free USA Intermediate Fund) after you buy them, the shares will be
subject to a contingent deferred sales charge of 4%. The contingent
deferred sales charge is 3% during the third and fourth years, 2% during
the fifth year, 1% during the sixth year, and 0% thereafter. For Tax-Free
USA Intermediate Fund, the contingent deferred sales charge is 2% during
the first two years, 1% during the third year and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years (five years for Tax-Free USA Intermediate
Fund) after you buy your Class B shares, they are subject to annual 12b-1
fees no greater than 1% of average daily net assets, of which 0.25% are
service fees paid to the distributor, dealers or others for providing
services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years (five years for Tax-Free USA Intermediate Fund)
after you buy them, Class B shares automatically convert into Class A
shares with a 12b-1 fee of no more than 0.30% (0.25% for National
High-Yield Municipal Bond Fund). Conversion may occur as late as three
months after, as applicable, the eighth or fifth anniversary of purchase,
during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
44
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge of 1% if you redeem your shares within 12 months
after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid
to the distributor, dealers or others for providing services and
maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Funds has adopted a separate 12b-1 plan that allows it
to pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
45
<PAGE>
About your account (continued)
How to reduce your sales charge We offer a number of ways to reduce or eliminate
the sales charge on shares. Please refer to the Statement of Additional
Information for detailed information and eligibility requirements. You can also
get additional information from your financial adviser. You or your financial
adviser must notify us at the time you purchase shares if you are eligible for
any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------- --------------------------------- ------------------------------------------------------
Program How it works Share class
A B C
- ------------------------------------------- --------------------------------- -------------------- ------------------ --------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent X Although the Letter of Intent
you agree to invest a and Rights of Accumulation do
certain amount in Delaware not apply to the purchase of
Investment Funds (except Class B and C shares, you can
money market funds with no combine your purchase of Class
sales charge) over a A shares with your purchase of
13-month period to qualify B and C shares to fulfill your
for reduced front-end sales Letter of Intent or qualify for
charges. Rights of Accumulation.
- ------------------------------------------- --------------------------------- -------------------- ---------------------------------
Rights of Accumulation You can combine your X
holdings or purchases of all
funds in the Delaware Investments
family (except money market funds
with no sales charge) as well as
the holdings and purchases of
your spouse and children under 21
to qualify for reduced front-end
sales charges.
- ------------------------------------------- --------------------------------- -------------------- ---------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------- --------------------------------- ------------------------------------------------------
Program How it works Share class
A B C
- ------------------------------------------- --------------------------------- -------------------- ------------------ --------------
<S> <C> <C> <C>
Reinvestment of redeemed shares Up to 12 months after you For Class A, you For Class B, Not
redeem shares, you can will not have to your account available
reinvest the proceeds with pay an will be
no additional sales charge. additional credited
front-end sales with the
charge. contingent
deferred
sales charge
you
previously
paid on the
amount you
are
reinvesting.
Your
schedule for
contingent
deferred
sales
charges and
conversion
to Class A
will not
start over
again; it
will pick up
from the
point at
which you
redeemed
your shares.
- ------------------------------------------- --------------------------------- -------------------- ---------------------------------
</TABLE>
47
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
48
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can generally open an account with
an initial investment of $1,000 and make additional investments at any time for
as little as $100. If you are buying shares under the Uniform Gifts to Minors
Act or the Uniform Transfers to Minors Act; or through an Automatic Investing
Plan, the minimum purchase is $250, and you can make additional investments of
only $25.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine the Funds' net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in a Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
trustees.
49
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
50
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) you will receive the net asset value as determined on the business
day we receive your request. We will deduct any applicable contingent deferred
sales charges. You may also have to pay taxes on the proceeds from your sale of
shares. We will send you a check, normally the next business day, but no later
than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for Uniform Gift to Minors Act accounts or accounts with
automatic investing plans) for three or more consecutive months, you will have
until the end of the current calendar quarter to raise the balance to the
minimum. If your account is not at the minimum by the required time, you will be
charged a $9 fee for that quarter and each quarter after that until your account
reaches the minimum balance. If your account does not reach the minimum balance,
the Fund may redeem your account after 60 days' written notice to you.
51
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as Social Security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred sales
charge as the shares you originally purchased. The holding period for the CDSC
will also remain the same, with the amount of time you held your original shares
being credited toward the holding period of your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of dividends. You
may have to pay taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange.
52
<PAGE>
About your account (continued)
Special services (continued)
MoneyLine(SM) On Demand Service
Through our MoneyLine(SM) On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions and taxes
For each Fund, dividends, if any, are paid monthly, while any capital gains are
distributed annually. We automatically reinvest all dividends and any capital
gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your distributions from these Funds is the same whether you
reinvest your dividends or receive them in cash.
Dividends paid by the Funds are generally expected to be exempt from federal
income tax. However, a portion of each Fund's dividends may be derived from
income on "private activity" municipal bonds and a preference item under federal
tax law and subject to the federal alternative minimum tax. Also, dividends must
be included in the tax base for determining how much of a shareholder's Social
Security benefits are subject to federal income tax. Shareholders are required
to disclose tax-exempt interest received from the Funds on their federal income
tax returns.
Distributions from a Fund's long-term capital gains are taxable as capital
gains. Short-term capital gains are generally taxable as ordinary income. Any
capital gains may be taxable at different rates depending on the length of time
the Fund held the assets. Gain from the sale of a tax-exempt bond that was
bought 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. In addition, you may be subject to state and local taxes on
distributions.
The sale of Fund shares either through redemption or exchange, is a taxable
event and may result in a capital gain or loss to shareholders.
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.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year
as well as all redemptions and exchanges. No portion of a Fund's distributions
will be eligible for the dividends-received deduction for corporations. A Fund
must withhold 31% of your taxable distributions and proceeds if you do not
provide your correct taxpayer identification number, or if the IRS instructs a
Fund to do so.
53
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their 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." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The
portfolio managers and investment professionals of the Fund consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the affect of Year 2000 on any company or the performance of its
securities.
Fund companies
The Funds are separate series of the investment companies shown below.
Delaware Group Tax-Free Fund
Delaware Tax-Free USA Intermediate Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Fund
Voyageur Mutual Funds
Delaware National High-Yield Municipal Bond Fund
54
<PAGE>
Financial information
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Delaware Tax-Free Class A
USA Fund
- -------------------------------------------------------------------------------------
Year Ended 8/31
------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------- --------- --------- --------- ---------
Net asset value, beginning of period $ 11.830 $ 11.710 $ 11.550 $ 12.070 $ 12.040
- --------------------------------------------- --------- --------- --------- ---------
Income (loss) from investment
operations:
- --------------------------------------------- --------- --------- --------- ---------
Net investment income 0.593 0.597 0.666 0.696 0.746
- --------------------------------------------- --------- --------- --------- ---------
Net realized and unrealized gain
(loss) on investments (0.916) 0.310 0.210 (0.460) 0.030
-------- -------- ------- ------- -------
- --------------------------------------------- --------- --------- --------- ---------
Total from investment operations (0.323) 0.907 0.876 0.236 0.776
-------- -------- ------- ------- -------
- --------------------------------------------- --------- --------- --------- ---------
- --------------------------------------------- --------- --------- --------- ---------
Less dividends and distributions:
- --------------------------------------------- --------- --------- --------- ---------
Dividends from net investment income (0.593) (0.597) (0.666) (0.696) (0.746)
- --------------------------------------------- --------- --------- --------- ---------
Distributions from net realized
gain on investments (0.024) (0.190) (0.050) (0.060) none
-------- -------- ------- ------- ----
- --------------------------------------------- --------- --------- --------- ---------
Total dividends and distributions (0.617) (0.787) (0.716) (0.756) (0.746)
-------- -------- ------- ------- -------
- --------------------------------------------- --------- --------- --------- ---------
- --------------------------------------------- --------- --------- --------- ---------
Net asset value, end of period $ 10.890 $ 11.830 $11.710 $11.550 $12.070
======== ======== ======= ======= =======
- --------------------------------------------- --------- --------- --------- ---------
- --------------------------------------------- --------- --------- --------- ---------
Total return(2) (2.90%) 8.00% 7.79% 1.91% 6.74%
- --------------------------------------------- --------- --------- --------- ---------
- --------------------------------------------- --------- --------- --------- ---------
Ratios and supplemental data:
- --------------------------------------------- --------- --------- --------- ---------
Net assets, end of period
(000 omitted) $485,240 $586,848 $615,852 $700,853 $758,470
- --------------------------------------------- --------- --------- --------- ---------
Ratio of expenses to average net
assets 1.00% 0.97% 0.94% 0.94% 0.92%
- --------------------------------------------- --------- --------- --------- ---------
Ratio of net investment income to
average net assets 5.13% 5.08% 5.73% 5.82% 6.29%
- --------------------------------------------- --------- --------- --------- ---------
Portfolio turnover 59% 81% 44% 42% 27%
- --------------------------------------------- --------- --------- --------- ---------
</TABLE>
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
<PAGE>
______
STUB
______
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------ -----------------------------------------
Delaware Tax-Free Class B Class C
USA Fund
- ------------------------------------- ------------------------------------------------ ---------------------------- ------------
Period
Year Ended 8/31 Year Ended 8/31 11/29/95(1)
------------------------------------------------ ---------------------------- through
1999 1998 1997 1996 1995 1999 1998 1997 8/31/96
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Net asset value, beginning of period $11.830 $11.710 $11.550 $12.070 $12.040 $11.830 $11.710 $11.550 $12.030
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Income (loss) from investment
operations:
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Net investment income 0.500 0.503 0.573 0.600 0.649 0.500 0.504 0.573 0.450
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Net realized and unrealized gain
(loss) on investments (0.916) 0.310 0.210 (0.460) 0.030 (0.916) 0.310 0.210 (0.620)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Total from investment operations (0.416) 0.813 0.783 0.140 0.679 (0.416) 0.814 0.783 (0.170)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Less dividends and distributions:
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Dividends from net investment income (0.500) (0.503) (0.573) (0.600) (0.649) (0.500) (0.504) (0.573) (0.450)
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Distributions from net realized
gain on investments (0.024) (0.190) (0.050) (0.060) none (0.024) (0.190) (0.050) (0.060)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Total dividends and distributions (0.524) (0.693) (0.623) (0.660) (0.649) (0.524) (0.694) (0.623) (0.510)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Net asset value, end of period $10.890 $11.830 $11.710 $11.550 $12.070 $10.890 $11.830 $11.710 $11.550
======= ======= ======= ======= ======= ======= ======= ======= =======
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Total return(2) (3.67%) 7.15% 6.94% 1.11% 5.88% (3.67%) 7.15% 6.94% (1.44%)
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Ratios and supplemental data:
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Net assets, end of period (000
omitted) $32,249 $36,919 $35,055 $29,773 $17,779 $3,415 $2,343 $1,505 $805
- ------------------------------------- --------- --------- --------- -------- -------- -------- --------- --------- ------------
Ratio of expenses to average net
assets 1.80% 1.77% 1.74% 1.74% 1.74% 1.80% 1.77% 1.74% 1.74%
- ------------------------------------- --------- --------- --------- --------- --------- --------- -------- -------- -----------
Ratio of net investment income to
average net assets 4.33% 4.28% 4.93% 5.03% 5.47% 4.33% 4.28% 4.93% 5.03%
- ------------------------------------- --------- --------- --------- --------- --------- --------- -------- -------- ---------
Portfolio turnover 59% 81% 44% 42% 27% 59% 81% 44% 42%
- ------------------------------------- --------- --------- --------- --------- --------- --------- -------- -------- ---------
</TABLE>
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
55
<PAGE>
Financial information
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------
Delaware Tax-Free Class A
USA Insured Fund
- ------------------------------------- ------------------------------------------------
Year Ended 8/31
------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
- ------------------------------------- -------- --------- --------- --------- ---------
Net asset value, beginning of
period $11.150 $11.050 $10.860 $11.050 $11.020
- -------------------------------------- --------- -------- --------- --------- ---------
Income (loss) from investment
operations:
- -------------------------------------- --------- -------- --------- --------- ---------
Net investment income 0.510 0.517 0.573 0.588 0.639
- -------------------------------------- --------- -------- --------- --------- ---------
Net realized and unrealized gain
(loss) on investments (0.667) 0.295 0.281 (0.160) 0.030
------- ------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
Total from investment operations (0.157) 0.812 0.854 0.428 0.669
------- ------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Less dividends and distributions:
- -------------------------------------- --------- -------- --------- --------- ---------
Dividends from net investment income (0.510) (0.517) (0.573) (0.588) (0.639)
- -------------------------------------- --------- -------- --------- --------- ---------
Distributions from net realized gain
on investments (0.123) (0.195) (0.091) (0.030) none
------- ------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
Total dividends and distributions (0.633) (0.712) (0.664) (0.618) (0.639)
------- ------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Net asset value, end of period $10.360 $11.150 $11.050 $10.860 $11.050
======= ======= ======= ======= =======
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Total return(2) (1.48%) 7.57% 8.07% 3.88% 6.33%
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Ratios and supplemental data:
- -------------------------------------- --------- -------- --------- --------- ---------
Net assets, end of period (000
omitted) $68,422 $74,246 $78,377 $81,149 $86,756
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of expenses to average net
assets 0.97% 1.10% 1.05% 0.98% 0.98%
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of net investment income to
average net assets 4.74% 4.65% 5.23% 5.29% 5.89%
- -------------------------------------- --------- -------- --------- --------- ---------
Portfolio turnover 48% 63% 42% 45% 68%
- -------------------------------------- --------- -------- --------- --------- ---------
</TABLE>
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
<PAGE>
_____
STUB
_____
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------- -----------------------------------------
Delaware Tax-Free Class B Class C
USA Insured Fund
- ----------------------------------------------------------------------------------- ---------------------------- ------------
Period
Year Ended 8/31 Year Ended 8/31 11/29/95(1)
---------------------------------------------- ---------------------------- through
1999 1998 1997 1996 1995 1999 1998 1997 8/31/96
- --------------------------------------------- --------- --------- ------- -------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------- --------- --------- ------- -------- -------- --------- --------- ------------
Net asset value, beginning of
period $11.150 $11.050 $10.860 $11.050 $11.020 $11.150 $11.050 $10.860 $11.260
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Income (loss) from investment
operations:
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Net investment income 0.430 0.427 0.485 0.499 0.550 0.430 0.425 0.485 0.375
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Net realized and unrealized gain
(loss) on investments (0.667) 0.295 0.281 (0.160) 0.030 (0.667) 0.295 0.281 (0.370)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Total from investment operations (0.237) 0.722 0.766 0.339 0.580 (0.237) 0.720 0.766 0.005
------- ------- ------- ------- ------- ------- ------- ------- -------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Less dividends and distributions:
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Dividends from net investment income (0.430) (0.427) (0.485) (0.499) (0.550) (0.430) (0.425) (0.485) (0.375)
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Distributions from net realized gain
on investments (0.123) (0.195) (0.091) (0.030) none (0.123) (0.195) (0.091) (0.030)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Total dividends and distributions (0.553) (0.622) (0.576) (0.529) (0.550) (0.553) (0.620) (0.576) (0.405)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Net asset value, end of period $10.360 $11.150 $11.050 $10.860 $11.050 $10.360 $11.150 $11.050 $10.860
======= ======= ======= ======= ======= ======= ======= ======= =======
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Total return(2) (2.27%) 6.72% 7.21% 3.05% 5.47% (2.27%) 6.72% 7.21% 0.01%
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratios and supplemental data:
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Net assets, end of period (000
omitted) $5,022 $4,268 $3,619 $ 3,375 $ 2.448 $1,502 $321 $89 $120
- ---------------------------------------------- --------- --------- -------- -------- -------- --------- --------- ----------
Ratio of expenses to average net
assets 1.77% 1.90% 1.85% 1.78% 1.80% 1.77% 1.90% 1.85% 1.78%
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratio of net investment income to
average net assets 3.94% 3.85% 4.43% 4.48% 5.07% 3.94% 3.85% 4.43% 4.48%
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
Portfolio turnover 48% 63% 42% 45% 68% 48% 63% 42% 45%
- ---------------------------------------------- --------- --------- --------- -------- -------- --------- --------- ----------
</TABLE>
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
56
<PAGE>
Financial information
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------
Delaware Tax-Free Class A
USA Intermediate Fund
- ------------------------------------- ------------------------------------------------
Year Ended 8/31
------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
- ------------------------------------- -------- --------- --------- --------- ---------
Net asset value, beginning of
period $10.710 $10.460 $10.320 $10.410 $10.320
- -------------------------------------- --------- -------- --------- --------- ---------
Income (loss) from investment
operations:
- -------------------------------------- --------- -------- --------- --------- ---------
Net investment income 0.478 0.501 0.524 0.550 0.550
- -------------------------------------- --------- -------- --------- --------- ---------
Net realized and unrealized gain
(loss) on investments (0.440) 0.250 0.140 (0.090) 0.090
------- ----- ----- ------- -----
- -------------------------------------- --------- -------- --------- --------- ---------
Total from investment operations 0.038 0.751 0.664 0.460 0.640
----- ----- ----- ----- -----
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Less dividends:
- -------------------------------------- --------- -------- --------- --------- ---------
Dividends from net investment income (0.478) (0.501) (0.524) (0.550) (0.550)
------- ------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
Total dividends (0.478) (0.501) (0.524) (0.550) (0.550)
------- ------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Net asset value, end of period $10.270 $10.710 $10.460 $10.320 $10.410
======= ======= ======= ======= =======
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Total return(2) 0.29% 7.34% 6.57% 4.52% 6.43%
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Ratios and supplemental data:
- -------------------------------------- --------- -------- --------- --------- ---------
Net assets, end of period (000
omitted) $25,186 $22,562 $21,635 $22,617 $20,492
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of expenses to average net
assets 0.79% 0.67% 0.43% 0.25% 0.25%
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of expenses to average net
assets prior to expense
limitation and expenses paid
indirectly 0.96% 1.33% 1.02% 0.95% 1.07%
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of net investment income to
average net assets 4.47% 4.73% 5.03% 5.29% 5.37%
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of net investment income to
average net assets
prior to expense limitation
and expenses paid indirectly 4.25% 4.07% 4.44% 4.59% 4.55%
- -------------------------------------- --------- -------- --------- --------- ---------
Portfolio turnover 109% 104% 34% 15% 63%
- -------------------------------------- --------- -------- --------- --------- ---------
</TABLE>
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------- -----------------------------------------
Delaware Tax-Free Class B Class C
USA Intermediate Fund
- ------------------------------------------------------------------------------------- ---------------------------- ------------
Period
Year Ended 8/31 Year Ended 8/31 11/29/95(1)
------------------------------------------------ ---------------------------- through
1999 1998 1997 1996 1995 1999 1998 1997 8/31/96
- ---------------------------------------------- --------- --------- -------- -------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------- --------- --------- -------- -------- -------- --------- --------- ------------
Net asset value, beginning of
period $10.710 $10.460 $10.320 $10.410 $10.320 $10.710 $10.460 $10.320 $10.480
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Income (loss) from investment
operations:
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Net investment income 0.387 0.411 0.436 0.460 0.460 0.387 0.411 0.436 0.350
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Net realized and unrealized gain
(loss) on investments (0.440) 0.250 0.140 (0.090) 0.090 (0.440) 0.250 0.140 (0.160)
------- ----- ----- ------- ----- ------- ----- ----- -------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Total from investment operations (0.053) 0.661 0.576 0.370 0.550 (0.053) 0.661 0.576 0.190
------- ----- ----- ----- ----- ------- ----- ----- -----
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Less dividends:
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Dividends from net investment income (0.387) (0.411) (0.436) (0.460) (0.460) (0.387) (0.411) (0.436) (0.350)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Total dividends (0.387) (0.411) (0.436) (0.460) (0.460) (0.387) (0.411) (0.436) (0.350)
------- ------- ------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Net asset value, end of period $10.270 $10.710 $10.460 $10.320 $10.410 $10.270 $10.710 $10.460 $10.320
======= ======= ======= ======= ======= ======= ======= ======= =======
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Total return(2) (0.56%) 6.43% 5.67% 3.63% 5.53% (0.56%) 6.43% 5.67% 1.84%
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratios and supplemental data:
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Net assets, end of period (000
omitted) $2,195 $1,933 $1,832 $1,490 $949 $3,310 $1,996 $1,426 $193
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratio of expenses to average net
assets 1.64% 1.52% 1.28% 1.10% 1.10% 1.64% 1.52% 1.28% 1.10%
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratio of expenses to average net
assets prior to expense
limitation and expenses paid
indirectly 1.81% 2.18% 1.87% 1.80% 1.92% 1.81% 2.18% 1.87% 1.80%
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratio of net investment income to
average net assets 3.62% 3.88% 4.18% 4.44% 4.52% 3.62% 3.88% 4.18% 4.44%
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Ratio of net investment income to
average net assets
prior to expense limitation
and expenses paid indirectly 3.40% 3.22% 3.59% 3.74% 3.70% 3.40% 3.22% 3.59% 3.74%
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
Portfolio turnover 109% 104% 34% 15% 63% 109% 104% 34% 15%
- ------------------------------------- --------- --------- --------- --------- -------- -------- --------- --------- ----------
</TABLE>
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
57
<PAGE>
Financial information
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. The following financial highlights are devrived from
the financial statements of the Fund and have been audited by Ernst & Young LLP,
independent auditors for the period January 1, 1998 and August 31, 1998 and the
year ended December 31, 1997 and by the Fund's previous independent auditors for
the prior periods. The data for the most recent period should be read in
conjunction with the financial statements, related notes, and the reports of
Ernst & Young LLP, all of which are incorporated by reference into Part B.
Further information about the Fund'ss performance is contained in the Fund's
Annual Report to shareholders. A copy of the Fund's Annual Report (including the
reports of Ernst & Young LLP) may be obtained from the Fund upon request at no
charge.
<TABLE>
<CAPTION>
- ------------------------------------- -----------------------------------------------------------
Delaware Class A
National High-Yield
Municipal Bond Fund
- ------------------------------------- -----------------------------------------------------------
Year Eight Year Period Year Year
Ended Months Ended 8/1/96 Ended Ended
8/31 Ended 12/31 through 7/31 7/31
1999 8/31/98(1) 1997(2) 12/31/96(3) 1996 1995
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.800 $10.720 $10.400 $10.190 $10.170 $10.170
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Income (loss) from investment
operations:
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Net investment income 0.557 0.398 0.648 0.260 0.630 0.650
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Net realized and unrealized gain
(loss) on investments (0.435) 0.115 0.390 0.210 0.140 0.040
------- ----- ----- ----- ----- -----
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Total from investment operations 0.122 0.513 1.038 0.470 0.770 0.690
----- ----- ----- ----- ----- -----
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Less dividends and distributions:
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Dividends from net investment income (0.557) (0.398) (0.647) (0.260) (0.630) (0.650)
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Distributions from net realized
gain on investments (0.025) (0.035) (0.071) none (0.120) (0.040)
------- ------- ------- ---- ------- -------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Total dividends and distributions (0.582) (0.433) (0.718) (0.260) (0.750) (0.690)
------- ------- ------- ------- ------- -------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Net asset value, end of period $10.340 $10.800 $10.720 $10.400 $10.190 $10.170
======= ======= ======= ======= ======= =======
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Total return(5) 1.08% 4.87% 10.32% 4.52% 7.78% 7.16%
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Ratios and supplemental data:
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Net assets, end of period (000
omitted) $86,013 $69,606 $55,458 $59,105 $63,460 $66,357
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Ratio of expenses to average net
assets 1.00% 0.92% 0.84% 0.87%(6) 0.85% 0.79%
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Ratio of expenses to average net
assets prior to expense
limitation and expenses paid
indirectly 1.22% 1.12% 1.12% 1.07%(6) 0.96% 0.90%
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
Ratio of net investment income to
average net assets 5.18% 5.52% 6.15% 6.06%(6) 6.10% 6.45%
- ------------------------------------- -------- --------- --------- ---------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ---------------------------------------- ----------------------------
Delaware Class B Class C
National High-Yield
Municipal Bond Fund
- ------------------------------------- ---------------------------------------- ----------------------------
Year Eight Year Period Year Eight Period
Ended Months Ended 12/18/96(4) Ended Months 5/26/97(4)
8/31 Ended 12/31 through 8/31 Ended through
1999 8/31/98(1) 1997(2) 12/31/96 1999 8/31/98(1) 12/31/97
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.820 $10.730 $10.400 $10.370 $10.830 $10.740 $10.440
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Income (loss) from investment
operations:
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Net investment income 0.476 0.348 0.534 0.010 0.476 0.348 0.315
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Net realized and unrealized gain
(loss) on investments (0.435) 0.122 0.433 0.030 (0.435) 0.122 0.391
------- ----- ----- ----- ------- ----- -----
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Total from investment operations 0.041 0.470 0.967 0.040 0.041 0.470 0.706
----- ----- ----- ----- ----- ----- -----
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Less dividends and distributions:
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Dividends from net investment income (0.476) (0.345) (0.566) (0.010) (0.476) (0.345) (0.335)
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Distributions from net realized
gain on investments (0.025) (0.035) (0.071) -- (0.025) (0.035) (0.071)
------- ------- ------- ----- ------- ------- -------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Total dividends and distributions (0.501) (0.380) (0.637) (0.010) (0.501) (0.380) (0.406)
------- ------- ------- ------- ------- ------- -------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Net asset value, end of period $10.360 $10.820 $10.730 $10.400 $10.370 $10.830 $10.740
======= ======= ======= ======= ======= ======= =======
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Total return(5) 0.42% 4.44% 9.57% 0.43% 0.32% 4.44% 6.88%
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Ratios and supplemental data:
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Net assets, end of period (000
omitted) $21,423 $10,620 $3,573 $88 $10,267 $4,690 $1,220
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Ratio of expenses to average net
assets 1.75% 1.67% 1.56% 1.45%(6) 1.75% 1.67% 1.62%(6)
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Ratio of expenses to average net
assets prior to expense
limitation and expenses paid
indirectly 1.97% 1.87% 1.84% 1.66%(6) 1.97% 1.87% 1.90%(6)
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Ratio of net investment income to
average net assets 4.43% 4.77% 5.43% 4.65%(6) 4.43% 4.77% 5.37%(6)
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Ratio of net investment income to
average net assets
prior to expense limitation
and expenses paid indirectly 4.21% 4.57% 5.15% 4.44%(6) 4.21% 4.57% 5.09%(6)
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
Portfolio turnover 33% 43% 45% 7% 33% 43% 45%
- ------------------------------------- --------- --------- --------- ---------- ------- --------- ----------
</TABLE>
<PAGE>
(1) Ratios have been annualized and total return has not been annualized.
(2) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc. as the Fund's investment manager.
(3) On November 6, 1996, the Fund's shareholders approved a change of investment
adviser from IFG Asset Management Services, Inc. to Voyageur Fund Managers,
Inc.
(4) Commencement of operations.
(5) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
(6) Annualized.
58
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
59
<PAGE>
[begin glossary]
Alternative minimum tax
A federal tax designed to ensure that individuals and corporations with large
incomes owe at least some income tax.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
60
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Municipal Bond Index
The Lehman Brothers Municipal Bond Index is an index that includes approximately
15,000 bonds. To be included in the index, a municipal bond must meet the
following criteria: a minimum credit rating of at least Baa; has been part of a
deal of at least $50 million; been issued within the last 5 years, and has a
maturity of at least 2 years. Bonds subject to the Alternative Minimum Tax are
excluded. Bonds with floating or zero coupons are also excluded
Lehman Brothers Insured Municipal Bond Index
Lehman Brothers Insured Municipal Bond Index is an index that tracks
approximately 5100 municipal bonds that are backed by an issuer and have a
rating of BBB or better.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
Merrill Lynch 3-7 Year Municipal Bond Index
Merrill Lynch 3-7 Year Municipal Bond Index provides a broad-based measure of
the performance of the U.S. tax-exempt bond market. This index tracks bonds with
maturities between 3 and 7 years.
61
<PAGE>
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
62
<PAGE>
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
63
<PAGE>
Delaware Tax-Free USA Intermediate Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Fund
Delaware National High-Yield Municipal Bond Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- ---------------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone
redemptions and telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
Investment Company Act file number: 811-3850
Investment Company Act file number: 811-7742
64
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Fund name CUSIP number NASDAQ symbol
- ------------------------------------------------------ -------------------------------------- ---------------------------------
<S> <C> <C>
Tax-Free USA Intermediate Fund A Class 245909304 DMUSX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free USA Intermediate Fund B Class 245909601 DUIBX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free USA Intermediate Fund C Class 245909882 DUICX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free Insured Fund A Class 245909205 DMFIX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free Insured Fund B Class 245909502 DTXBX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free Insured Fund C Class 245909809 DTXCX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free USA Fund A Class 245909106 DMTFX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free USA Fund B Class 245909403 DTFCX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
Tax-Free USA Fund C Class 245909700 DUSCX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
National High-Yield Municipal Bond Fund A Class 928928241 CXHYX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
National High-Yield Municipal Bond Fund B Class 928928233 DVNYX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
National High-Yield Municipal Bond Fund C Class 928928225 DVHCX
- ------------------------------------------------------ -------------------------------------- ---------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 10/99
65
<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 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.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIANS
USA Fund, Insured Fund,
Intermediate Fund
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
National High-Yield Fund
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402
DELAWARE TAX-FREE USA FUND
- --------------------------------------------------------------------
DELAWARE TAX-FREE INSURED FUND
- --------------------------------------------------------------------
DELAWARE TAX-FREE USA INTERMEDIATE FUND
- --------------------------------------------------------------------
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
- --------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------
NOVEMBER 1, 1999
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
Delaware Group Tax-Free Fund
Voyageur Mutual Funds
1818 Market Street, Philadelphia, PA 19103
For more information about the Institutional Classes: 800-510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares and Class C Shares: Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
This Statement of Additional Information ("Part B") describes shares of
each fund listed below (individually, a "Fund" and collectively, the "Funds"),
which is a series of an open-end management investment company, commonly
referred to as a mutual fund. This Part B supplements the information contained
in the current Prospectus for the Funds dated November 1, 1999, 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 the
Funds' national distributor, Delaware Distributors, L.P. (the "Distributor"),
1818 Market Street, Philadelphia, PA 19103. The Funds' financial statements, the
notes relating thereto, the financial highlights and the reports of independent
auditors are incorporated by reference from the Annual Reports into this Part B.
The Annual Reports will accompany any request for Part B. The Annual Reports can
be obtained, without charge, by calling 800-523-1918.
Delaware Group Tax-Free Fund ("Tax-Free Fund")
Delaware Tax-Free USA Fund ("USA Fund")
Delaware Tax-Free Insured Fund ("Insured Fund")
Delaware Tax-Free USA Intermediate Fund ("Intermediate Fund")
Voyageur Mutual Funds
Delaware National High-Yield Municipal Bond Fund
("National High-Yield Fund")
Each Fund offers three retail classes of shares: "Class A Shares,"
"Class B Shares" and "Class C Shares" (individually, a "Class" and collectively,
the "Classes"). This Part B describes each Fund and each Class, except where
noted.
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TABLE OF CONTENTS
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Cover Page 1
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Investment Objectives and Policies 3
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Insurance
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Performance Information
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Trading Practices and Brokerage
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Purchasing Shares
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Investment Plans
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Determining Offering Price and Net Asset Value
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Redemption and Exchange
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Dividends and Realized Securities Profits Distributions
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Taxes
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Investment Management Agreements
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Officers and Trustees
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General Information
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Financial Statements
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Appendix A
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Appendix B - Description of Ratings
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Appendix C - Investment Objectives of the Funds in the Delaware Investments
Family
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INVESTMENT OBJECTIVES AND POLICIES
The investment 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 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 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 National High-Yield 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 market price volatility and less
liquid secondary market trading. Investment in the Fund may not be appropriate
for all investors.
The investment objective of each Fund, described above, is
non-fundamental policy and may be changed by the Board of Trustees without
shareholder approval of the affected Fund. There is no assurance that the
objective of each Fund can be achieved. Bond insurance reduces the risk of loss
due to default by an issuer, but such bonds remain subject to the risk that
market value may shift for other reasons. Also, there is no assurance that any
insurance company will meet its obligations.
Appendix B--Description of Ratings contains excerpts describing ratings
of municipal obligations from S&P, Moody's and Fitch.
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 Fund, Municipal Obligations also include certain derivative
instruments.
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.
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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 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.
National High-Yield 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.
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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.
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.
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.
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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.
Tax-Free Fund and Voyageur Mutual Funds are registered as open-end
management investment companies 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 Obligations
As used in this Part B, 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 Fund only, the term "Municipal Obligations" also includes
Derivative Municipal Obligations as defined below.
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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).
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.
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 Trustees. Under these guidelines, the Fund's investment
adviser will consider factors including, but not limited to (1) 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.
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Derivative Municipal Obligations. National High-Yield 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 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 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.
Municipal Leases
A portion of each Fund's assets may be invested in municipal lease
obligations, primarily through certificates of participation ("COPs"). COPs
function much like installment purchase agreements and are widely used by state
and local governments to finance the purchase of property. The lease format is
generally not subject to constitutional limitations on the issuance of state
debt, and COPs enable a governmental issuer to increase government liabilities
beyond constitutional debt limits. A principal distinguishing feature separating
COPs from municipal debt is the lease, which contains a "nonappropriation" or
"abatement" clause. This clause provides that, although the municipality will
use its best efforts to make lease payments, it may terminate the lease without
penalty if its appropriating body does not allocate the necessary funds. The
Funds intend to invest only in COPs rated within the four highest rating
categories of Moody's, S&P or Fitch, or in unrated COPs believed to be of
comparable quality.
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Diversification
Although each Fund is characterized as a non-diversified fund under the
1940 Act, a 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."
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 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.
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.
National High-Yield 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 Fund may enter into repurchase agreements with
respect to any securities which it may acquire consistent with its investment
policies and restrictions.
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A Fund will limit its investments in repurchase agreements to those
which the Manager, under the guidelines of the Board of Trustees, 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.
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.
Reverse Repurchase Agreements
National High-Yield 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.
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.
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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 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
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
Trustees.
Inverse Floaters
Intermediate Fund and National High-Yield 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.
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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.
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 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.
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.
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 Trustees 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.
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.
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<PAGE>
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
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 Trustees.
Options on Securities
To the extent indicated below, Intermediate Fund and National
High-Yield 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 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.
The Funds may engage in listed options transactions on the various
national securities exchanges or in the over-the-counter market.
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.
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<PAGE>
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
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 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 or subject to
the rules of the particular futures exchange designated by the Commodity Futures
Trading Commission ("CFTC"). 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 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 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.
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<PAGE>
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 Trustees 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 trustees 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 Trustees, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
The ratings of S&P, Moody's and other rating services represent their
opinion as to the quality of the money market instruments which they undertake
to rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. These ratings are the initial criteria for
selection of portfolio investments, but the Fund will further evaluate these
securities.
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 the Board of Trustees to minimize
credit risks. Any VRDN must be of high quality as determined by the Manager and
subject to review by the Board of Trustees, 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 the Board of Trustees. If the quality of any VRDN falls
below the quality level required by the Board of Trustees 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.
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Concentration Policy
National High-Yield 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.
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.
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<PAGE>
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 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.
Concentration
In applying a Fund's policy on concentration: (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.
Investment Restrictions
Tax-Free Fund and Voyageur Mutual Funds have 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.
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Each Fund may not:
1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or other thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit the Fund from investing in obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or in certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
prospectus, each Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
The Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, the Fund may not operate as a "fund of funds"
which invests primarily in the shares of other investment companies as permitted
by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2. The Fund may not invest more than 15% of its net assets in
securities which it cannot sell or dispose of in the ordinary course of business
within seven days at approximately the value at which the Fund has valued the
investment.
Additional Non-Fundamental Investment Restrictions
The following are additional non-fundamental investment restrictions
The following non-fundamental investment restrictions apply to USA
Fund, Insured Fund and Intermediate Fund. Restrictions 4, 6 and 8 listed below
apply only to USA Fund and Insured Fund.
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A Fund may not:
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.
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 has also adopted an additional restriction applicable
only to Insured Fund. Insured Fund will not:
21
<PAGE>
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 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 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 following non-fundamental investment restrictions apply to National
High-Yield 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).
(8) 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.
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
22
<PAGE>
(10) Write puts if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover such puts.
(11) 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.
23
<PAGE>
INSURANCE
The Manager anticipates that substantially the insured Tax-Exempt
Obligations in Insured Fund's investment portfolio will be covered by either
Primary Insurance or Secondary Market Insurance. However, as a non-fundamental
policy, Insured Fund must obtain Portfolio Insurance on all Tax-Exempt
Obligations requiring insurance that are not covered by either Primary Insurance
or Secondary Market Insurance. Both Primary Insurance and Secondary Market
Insurance are non-cancelable and continue in force so long as the insured
security is outstanding and the respective insurer remains in business. Premiums
for Portfolio Insurance, if any, would be paid from Fund assets and would reduce
the current yield on its investment portfolio by the amount of such premiums.
Because Portfolio Insurance coverage terminates upon the sale of an
insured security from the Fund's portfolio, such insurance does not have an
effect on the resale value of the security. Therefore, unless the Fund elects to
purchase Secondary Market Insurance with respect to such securities or such
securities are already covered by Primary Insurance, it generally will retain
any such securities insured by Portfolio Insurance which are in default or in
significant risk of default, and will place a value on the insurance equal to
the difference between the market value of the defaulted security and the market
value of similar securities which are not in default.
Insured Fund is authorized to obtain Portfolio Insurance from insurers
that have obtained a claims-paying ability rating of "AAA" from S&P or "Aaa" (or
a short-term rating of "MIG-1") from Moody's, including AMBAC Indemnity
Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"),
Financial Guaranty Insurance Company ("FGIC") and Financial Security Assurance,
Inc. ("FSA").
A Moody's insurance claims-paying ability rating is an opinion of the
ability of an insurance company to repay punctually senior policyholder
obligations and claims. An insurer with an insurance claims-paying ability
rating of Aaa is adjudged by Moody's to be of the best quality. In the opinion
of Moody's, the policy obligations of an insurance company with an insurance
claims-paying ability rating of Aaa carry the smallest degree of credit risk
and, while the financial strength of these companies is likely to change, such
changes as can be visualized are most unlikely to impair the company's
fundamentally strong position. An S&P insurance claims-paying ability rating is
an assessment of an operating insurance company's financial capacity to meet
obligations under an insurance policy in accordance with its terms. An insurer
with an insurance claims-paying ability rating of AAA has the highest rating
assigned by S&P. The capacity of an insurer so rated to honor insurance
contracts is adjudged by S&P to be extremely strong and highly likely to remain
so over a long period of time.
An insurance claims-paying ability rating by Moody's or S&P does not
constitute an opinion on any specific insurance contract in that such an opinion
can only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or cancellation penalties or the timeliness of
payment; nor does it address the ability of a company to meet non-policy
obligations (i.e., debt contracts).
The assignment of ratings by Moody's or S&P to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of insurance claims-paying ability
ratings. The likelihood of a timely flow of funds from the insurer to the
trustee for the bondholders is a likely element in the rating determination for
such debt issues.
Each of AMBAC, MBIA, FGIC, and FSA has an insurance claims-paying
ability rating of Aaa from Moody's and AAA from S&P.
24
<PAGE>
AMBAC has received a letter ruling from the Internal Revenue Service
which holds in effect that insurance proceeds representing maturing interest on
defaulted municipal obligations paid by AMBAC to municipal bond funds
substantially similar to the Insured Tax-Free Funds, under policy provisions
substantially identical to those contained in its municipal bond insurance
policy, will excludable from federal gross income under Section 103(a) of the
Code.
As of December 31, 1997, AMBAC's total equity capital (GAAP) was
$1,872,500,000, up 16% from December 31, 1996 and as of December 31, 1998,
AMBAC's total equity capital (GAAP) was $2,096,100,000, up 11.9% from December
31, 1997. For the six months ended June 30, 1999, total equity capital (GAAP)
amounted to $2,044,468,000 (unaudited).
As of December 31, 1997, MBIA had total equity capital (GAAP) of
$3,361,512,000, up 35.6% from December 31, 1996 and as of December 31, 1998,
MBIA had total equity capital (GAAP) of $3,792,217,000 up 12.8% from December
31, 1997. For the six months ended June 30, 1999, total equity capital (GAAP)
amounted to $3,547,159,000 (unaudited).
As of December 31, 1997, FGIC's total equity capital (GAAP) amounted to
$1,953,000,000, up 12% from December 31, 1996 and as of December 31, 1998,
FGIC's total equity capital (GAAP) amounted to $2,071,718,000, up 6.1% from
December 31, 1997. For the six months ended June 30, 1999, total equity capital
(GAAP) amounted to $2,028,400,000 (unaudited).
As of December 31, 1997, FSA's total equity capital (GAAP) was
$882,000,000, up 10% from December 31, 1996 and as of December 31, 1998, FSA's
total equity capital (GAAP) was $1,072,700,000, up 21.7% from December 31, 1997.
For the six months ended June 30, 1999, total equity capital (GAAP) was
$1,082,729,000 (unaudited).
25
<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.
26
<PAGE>
The performance of each Class of the Funds, as shown below, is the
average annual total return quotation through August 31, 1999, 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, Insured Fund Class A Shares and National High-Yield 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.
The average annual total return for Class B and 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, 1999. The average annual total return for
Class B and C Shares excluding deferred sales charge assumes the shares were not
redeemed at August 31, 1999 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Class B Class B Class C Class C
(at offer)(5) (at NAV) (including (excluding CDSC) (including CDSC) (excluding
CDSC)(6) CDSC)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
USA Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -6.53% -2.90% -7.35% -3.67% -4.59% -3.67%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 2.85% 4.17% 2.45% 3.34% 3.34% 3.34%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 3.43% 4.22% 3.07% 3.39% N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended 5.58% 5.99% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
15 years ended 8.20% 8.48% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 8.18% 8.44% 3.31% 3.46% 2.26% 2.26%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Insured Fund(2)
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -5.14% -1.48% -5.98% -2.27% -3.20% -2.27%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 3.31% 4.63% 2.90% 3.79% 3.80% 3.80%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 4.01% 4.81% 3.65% 3.98% N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended 5.56% 5.97% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 6.98% 7.27% 3.94% 4.09% 3.02% 3.02%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Fund
(3)(7)
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -2.44% 0.29% -2.48% -0.56% -1.52% -0.56%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 3.72% 4.69% 3.49% 3.80% 3.80% 3.80%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 4.42% 5.00% 4.11% 4.11% N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 5.09% 5.52% 4.29% 4.29% 3.53% 3.53%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Class B Class B Class C Class C
(at offer)(5) (at NAV) (including (excluding CDSC) (including CDSC) (excluding
CDSC)(6) CDSC)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
National High-
Yield Fund (4)(7)
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -2.70% 1.08% -3.41% 0.42% -0.64% 0.32%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 6.10% 7.46% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 6.26% 7.09% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended 7.26% 7.67% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 7.30% 7.61% 4.42% 5.44% 5.12% 5.12%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations for the Classes of USA Fund are as follows:
Class A--January 11, 1984
Class B--May 2, 1994
Class C--November 29, 1995
(2) Commencement of operations for the Classes of Insured Fund are as
follows:
Class A--March 25, 1985
Class B--May 2, 1994
Class C--November 29, 1995
(3) Commencement of operations for the Classes of Intermediate Fund are as
follows:
Class A--January 7, 1993
Class B--May 2, 1994
Class C--November 29, 1995
(4) Commencement of operations for the Classes of National High-Yield Fund
are as follows:
Class A--September 22, 1986
Class B--December 18, 1996
Class C--May 26, 1997
(5) Effective June 9, 1997, the maximum front-end sales charge for Class A
of USA and Insured Funds 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. Effective June 9, 1997, the maximum
front-end sales charge of Intermediate Fund 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. The performance numbers
are more favorable than they would have been had they been calculated
using the former front-end sales charges.
(6) Beginning June 9, 1997, the CDSC schedule for Class B of National
High-Yield Fund 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.
(7) Reflects expense caps in effect during the period.
28
<PAGE>
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 in the future. The yields
shown below for Intermediate Fund and National High-Yield Fund reflect voluntary
waiver and payment of expenses. See Investment Management Agreements. For the
30-day period ended August 31, 1999, the yield of each Class was as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
USA Fund 4.36% 3.73% 3.73%
Insured Fund 4.09% 3.44% 3.44%
Intermediate Fund 3.93% 3.19% 3.19%
National High-Yield Fund 4.76% 4.17% 4.17%
</TABLE>
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, 1999, the tax-equivalent yields (assuming
a federal income tax rate of 31%) of each Class were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
USA Fund 6.32% 5.41% 5.41%
Insured Fund 5.93% 4.99% 4.99%
Intermediate Fund 5.70% 4.62% 4.62%
National High-Yield Fund 6.90% 6.04% 6.04%
</TABLE>
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.
29
<PAGE>
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, 1999 was 12.99
years for USA Fund, 12.60 years for Insured Fund, 9.72 years for Intermediate
Fund and 17.12 years for National High-Yield 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.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which the Funds
may invest and the assumptions that were used in calculating the blended
performance will be described.
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.
30
<PAGE>
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 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.
31
<PAGE>
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class through August 31,
1999. 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Class B Class B Class C Class C
(at offer)(5) (at NAV) (including (excluding (including (excluding
CDSC)(6) CDSC) CDSC) CDSC)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
USA Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months ended -7.35% -3.71% -7.71% -3.91% -4.86% -3.91%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
6 months ended -7.99% -4.37% -8.48% -4.75% -5.68% -4.75%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
9 months ended -7.34% -3.71% -7.94% -4.28% -5.21% -4.28%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -6.53% -2.90% -7.35% -3.67% -4.59% -3.67%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 8.80% 13.04% 7.54% 10.37% 10.37% 10.37%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 18.35% 22.97% 16.34% 18.15% N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended 72.16% 78.84% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
15 years ended 226.24% 239.08% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 241.87% 255.13% 18.96% 19.86% 8.78% 8.78%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Class B Class B Class C Class C
(at offer)(5) (at NAV) (including (excluding (including (excluding
CDSC)(6) CDSC) CDSC) CDSC)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Insured Fund(2)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months ended -6.69% -3.06% -7.09% -3.26% -4.22% -3.26%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
6 months ended -7.03% -3.39% -7.55% -3.78% -4.72% -3.78%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
9 months ended -6.20% -2.54% -6.88% -3.12% -4.06% -3.12%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -5.14% -1.48% -5.98% -2.27% -3.20% -2.27%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 10.26% 14.53% 8.96% 11.82% 11.82% 11.82%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 21.75% 26.50% 19.65% 21.53% N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended 71.82% 78.57% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 165.07% 175.35% 22.91% 23.86% 11.84% 11.84%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate
Fund(3)(7)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months ended -4.61% -1.91% -4.06% -2.12% -3.09% -2.12%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
6 months ended -4.70% -2.03% -4.36% -2.44% -3.40% -2.44%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
9 months ended -3.54% -0.84% -3.39% -1.47% -2.43% -1.47%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -2.44% 0.29% -2.48% -0.56% -1.52% -0.56%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 11.59% 14.73% 10.85% 11.84% 11.84% 11.84%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 24.12% 27.61% 22.32% 22.32% N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 39.28% 42.98% 25.15% 25.15% 13.91% 13.91%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Class B Class B Class C Class C
(at offer)(5) (at NAV) (including (excluding (including (excluding
CDSC)(6) CDSC) CDSC) CDSC)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
National High-
Yield Fund (4)(7)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months ended -5.87% -2.18% -6.13% -2.26% -3.32% -2.36%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
6 months ended -5.07% -1.36% -5.49% -1.64% -2.69% -1.73%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
9 months ended -3.93% 0.19% -4.50% 0.65% -1.71% -0.75%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
1 year ended -2.70% 1.08% -3.41% 0.42% -0.64% 0.32%
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended 19.44% 24.10% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended 35.49% 40.83% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended 101.55% 109.35% N/A N/A N/A N/A
8/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
Life of Fund 148.78% 158.36% 12.41% 15.41% 11.99% 11.99%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations for the Classes of USA Fund are as follows:
Class A--January 11, 1984
Class B--May 2, 1994
Class C--November 29, 1995
(2) Commencement of operations for the Classes of Insured Fund are as
follows:
Class A--March 25, 1985
Class B--May 2, 1994
Class C--November 29, 1995
(3) Commencement of operations for the Classes of Intermediate Fund are as
follows:
Class A--January 7, 1993
Class B--May 2, 1994
Class C--November 29, 1995
(4) Commencement of operations for the Classes of National High-Yield Fund
are as follows:
Class A--September 22, 1986
Class B--December 18, 1996
Class C--May 26, 1997
(5) Effective June 9, 1997, the maximum front-end sales charge for Class A
of USA and Insured Funds 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. Effective June 9, 1997, the maximum
front-end sales charge of Intermediate Fund 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. The performance numbers
are more favorable than they would have been had they been calculated
using the former front-end sales charges.
(6) Beginning June 9, 1997, the CDSC schedule for Class B of National
High-Yield Fund 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.
(7) Reflects expense caps in effect during the period.
34
<PAGE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for Tax-Free Fund and Voyageur Mutual Funds 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.
35
<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.
36
<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 execution. Best 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 the Manager's 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 any 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, 1999, there were no portfolio
transactions of any Fund resulting in brokerage commissions directed to brokers
for brokerage and research services.
As provided in the Securities Exchange Act of 1934 (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 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 execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
37
<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 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
Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Conduct Rules of the NASD Regulation, Inc. (the
"NASD"), and subject to seeking best 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
It is generally anticipated that each Fund's portfolio turnover rate
will 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. A Fund 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.
During the past two fiscal years, the portfolio turnover rates of the
Funds were as follows:
August 31,
1999 1998
---- ----
USA Fund 59% 81%
Insured Fund 48% 63%
Intermediate Fund 109% 104%
National High-Yield Fund 33% 43%*
*Annualized
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 a Fund 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, trustees 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. A Fund 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. A
Fund 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.
If a purchase is canceled because your check is returned unpaid, you are
responsible for any loss incurred. A 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.
The NASD has adopted amendments to its Conduct Rules relating to
investment company sales charges. Each Fund and the Distributor intend to
operate in compliance with these rules.
39
<PAGE>
Class A Shares of USA Fund, Insured Fund and National High-Yield 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. See the tables in the
Prospectus. Class A Shares are also subject to annual 12b-1 Plan expenses for
the life of the investment.
Class B Shares of USA Fund, Insured Fund and National High-Yield 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, Insured Fund, and National High-Yield 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 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, below.
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 a Fund 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 of USA Fund, Insured Fund and Intermediate Fund
(currently, no more than 0.15% of the average daily net assets of Intermediate
Fund A Class) or 0.25% of the average daily net assets of Class A Shares of
National High-Yield Fund, 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.
40
<PAGE>
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. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also 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 Shares, Class B Shares 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 Plans under Rule 12b-1.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and 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 Determining Offering Price and Net Asset Value.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the tables in the Prospectus,
and may include a series of purchases over a 13-month period under a Letter of
Intention signed by the purchaser. See Special Purchase Features - Class A
Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
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.
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 in connection with the sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws.
Dealer's Commission
As described 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.
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 Delaware Investments
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of a
Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
41
<PAGE>
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B 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. 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. See Waiver of Contingent Deferred Sales Charge - Class
B and Class C Shares under Redemption and Exchange 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,
Insured Fund B Class and National High-Yield 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, Insured Fund B Class and National
High-Yield Fund B Class will be automatically converted into Class A Shares of
the same Fund. 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, below. Investors are reminded that the Class A Shares into which
Class B Shares will convert are subject to ongoing annual 12b-1 Plan expenses.
Such conversion will constitute a tax-free exchange for federal income tax
purposes.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that Class B Shares of USA, Insured and National
High-Yield Funds held for more than six years and Class B Shares of Intermediate
Fund 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.
42
<PAGE>
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 Class B Shares of USA, Insured and National
High-Yield Funds 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 Class B
Shares of Intermediate Fund is 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 of up to a maximum of 1% for
approximately eight years after purchase for USA, Insured and National
High-Yield Funds and approximately five years after purchase for Intermediate
Fund and, if Class B Shares of USA, Insured and National High-Yield Funds are
redeemed within six years of purchase and Class B Shares of Intermediate Fund
are redeemed within three years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, 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 Part B, even after the exchange. USA, Insured and National
High-Yield Funds Class B Shares' 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
Class B Shares of USA, Insured and National High-Yield Funds, other
than shares acquired through reinvestment of dividends, held for eight years
after purchase are eligible for automatic conversion into Class A Shares. Class
B Shares of Intermediate Fund, 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 18th business day
or next business day 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. Investors are reminded that the Class A Shares into which Class B
Shares will convert are subject to ongoing annual 12b-1 Plan expenses to the
maximum limits noted above.
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.
43
<PAGE>
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, Class C Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within 12 months 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 C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, each of the Class A, B and C
Shares have a separate distribution plan under Rule 12b-1. 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.
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 of USA Insured and Intermediate Funds and
0.25% of average daily net assets of Class A Shares of National High-Yield Fund,
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. The Board of Trustees may reduce these amounts at any time.
The Distributor has agreed to waive the distribution fees of USA, Insured and
Intermediate Funds to the extent such fee for any day exceeds the net investment
income realized by the Classes for such day.
44
<PAGE>
Effective June 1, 1992, Tax-Free Fund's Board of Trustees 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's Board of Trustees 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 execution, a Fund may,
from time to time, buy or sell portfolio securities from or to firms which
receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreements, as amended, have been
approved by the Board of Trustees of Tax Free Fund, Inc., including a majority
of the trustees 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 Trustees in
the same manner as specified above.
Each year, the trustees 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 trustees
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 trustees 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 trustees including a
majority of the noninterested trustees having no interest in the Plans. In
addition, in order for the Plans to remain effective, the selection and
nomination of trustees who are not "interested persons" of the Funds must be
effected by the trustees 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 Trustees for their review.
45
<PAGE>
The amount and purpose of 12b-1 plan payments from each Class were as
follows for the fiscal year ended August 31, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
USA Fund Insured Fund
------------------------------------- ----------------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C>
Advertising $ 435 --- --- $ 58 --- ---
Annual/Semi-Annual Reports $ 10,775 --- --- $ 891 --- ---
Broker Trails $1,030,995 $ 92,206 $15,810 $134,874 $ 11,837 $ 1,178
Broker Sales Charges --- $149,754 $12,408 --- $ 15,159 $ 8,639
Dealer Service Expenses --- --- --- --- --- ---
Interest on Broker Sales Charges --- $110,328 $ 449 --- $ 18,056 $ 841
Commissions to Wholesalers $ 31,427 $ 15,394 $ 1,342 $ 10,393 $ 2,399 $ 475
Promotional-Broker Meetings --- $ 1,104 --- --- --- ---
Promotional-Other --- --- --- $ 95 --- ---
Prospectus Printing $ 17,000 --- --- $ 2,275 --- ---
Telephone --- --- --- --- --- ---
Wholesaler Expenses --- $ 2,758 $ 410 --- --- ---
Other --- --- --- --- --- ---
Total $1,090,632 $371,544 $30,419 $148,586 $ 47,451 $11,133
Intermediate Fund National High-Yield Fund
------------------------------------- ----------------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
Advertising --- --- --- --- --- ---
Annual/Semi-Annual Reports --- --- --- --- --- ---
Broker Trails $ 32,161 $ 2,994 $10,827 $191,438 $ 37,250 $12,359
Broker Sales Charges --- $ 14,089 $15,006 --- $ 63,875 $54,721
Dealer Service Expenses --- --- --- --- --- ---
Interest on Broker Sales Charges --- $ 790 $ 84 --- $ 39,291 $ 2,396
Commissions to Wholesalers $ 3,135 $ 1,428 $,1,397 $ 2,936 $ 6,961 $ 5,564
Promotional-Broker Meetings --- $ 70 --- --- --- ---
Promotional-Other --- --- --- --- --- ---
Prospectus Printing --- --- --- --- --- ---
Telephone --- --- --- --- --- ---
Wholesaler Expenses --- $ 1,885 --- --- --- ---
Other --- --- --- --- --- ---
Total $ 35,296 $ 21,256 $27,314 $194,374 $147,377 $75,040
</TABLE>
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.
46
<PAGE>
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, trustees and employees of each Fund, 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, trustees 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, trustees 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 a Fund may reasonably
require to establish eligibility for purchase at net asset value.
A Fund must be notified in advance that the trade qualifies for
purchase at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or the Fund, which provides for
the holding in escrow by the Transfer Agent, of 5% of the total amount of Class
A Shares intended to be purchased until such purchase is completed within the
13-month period. A Letter of Intention may be dated to include shares purchased
up to 90 days prior to the date the Letter is signed. The 13-month period begins
on the date of the earliest purchase. If the intended investment is not
completed, except as noted below, the purchaser will be asked to pay an amount
equal to the difference between the front-end sales charge on 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
Investments family (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
47
<PAGE>
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 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 and Class B 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 the same Class of the Fund or in the same Class of
any of the other funds in the Delaware Investments family. In the case of Class
A Shares, the reinvestment will not be assessed a front-end sales charge and in
the case of Class B Shares, the amount of the CDSC previously charged on the
redemption will be reimbursed by the Fund. The reinvestment will be subject to
applicable eligibility and minimum purchase requirements and must be in states
where shares of such other funds may be sold. This reinvestment 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 Class C Shares.
48
<PAGE>
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. In the case of
Class B Shares, the time that the previous investment was held will be included
in determining any applicable CDSC due upon redemptions as well as the automatic
conversion into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Fund the amount of the CDSC
paid at the time of redemption as part of the reinvested shares, which may be
treated as a capital gain to the shareholder for tax purposes. 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 the 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 Class A Limited CDSC in connection with the features
described above.
49
<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 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
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.
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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. For purposes of determining the
time of the automatic conversion into Class A Shares, the holding period of
Class B Shares of a Fund acquired by exchange will be added to that of the
shares that were exchanged.
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.
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.
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.
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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 or Voyageur
Mutual Funds for proper instructions.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in Delaware Investments
family through the Wealth Builder Option. 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.
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
Fund Classes' 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.
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 Delaware Investments funds 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. Also see
Buying Class A Shares at Net Asset Value. 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.
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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 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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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 Trustees.
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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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
Exchanges are subject to the requirements of each fund and all exchanges of
shares constitute taxable events. 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 Delaware Investments will
best meet your changing objectives, and the consequences of any exchange
transaction. You may also call the 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. 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
Shares and Class C Shares, and, 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.
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.
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.
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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 or wire the proceeds until it
is reasonably satisfied that the purchase 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.
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 a 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 sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, each Fund
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.
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, below.
Class B Shares of USA, Insured and National High-Yield Fund 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 Intermediate Fund 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. Except for the applicable CDSC or
Limited CDSC, and with respect to the expedited payment by wire for which there
is currently a $7.50 bank wiring cost, there is no fee charged for redemptions
or repurchases, but such fees could be charged at any time in the future.
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Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of the 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 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 Original Shares as
described in this Part B 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 Class B of USA, Insured and National High-Yield Fund, the CDSC
schedule for such Class may be higher than the CDSC schedule relating to 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 Original Shares is added to the period of time that an
investor held New Shares. The automatic conversion schedule of Original Shares
of Class B Shares of USA, Insured and National High-Yield Fund 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 Class B
Shares USA, Insured and National High-Yield Fund shares for a longer period of
time than if the investment in New Shares were made directly.
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.
* * *
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.
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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"). 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(s) 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 Delaware Investments, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each 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. Telephone instructions received by the
Fund Classes 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.
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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. 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. First Union National Bank's fee
(currently $7.50) will be deducted from 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.
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 Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
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 each Fund reserve
the right to record exchange instructions received by telephone and to reject
exchange requests at any time in the future.
MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept such
requests from you or your investment dealer, funds will be 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. See
MoneyLine (SM) On Demand under Investment Plans.
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 Funds will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Investments funds from Timing Firms. A 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.
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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 Balanced Fund,
(4) Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware
Investments funds 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 time 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.
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 Funds do not recommend any
specific amount of withdrawal. This is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. 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 the 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.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
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.
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<PAGE>
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 Delaware Investments funds
which do not carry a sales charge. Redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. The applicable Limited CDSC for Class A Shares and CDSC for Class B
and C Shares redeemed via a Systematic Withdrawal Plan will be waived if the
annual amount withdrawn in each year is less than 12% of the account balance on
the date that the Plan is established. If the annual amount withdrawn in any
year exceeds 12% of the account balance on the date that the Systematic
Withdrawal Plan is established, all redemptions under the Plan will be subjected
to the applicable contingent deferred sales charge, including an assessment for
previously redeemed amounts under the Plan. Whether a waiver of the contingent
deferred sales charge is available or not, the first shares to be redeemed for
each Systematic Withdrawal Plan payment will be those not subject to a
contingent deferred sales charge because they have either satisfied the required
holding period or were acquired through the reinvestment of distributions.
See Waivers of Contingent Deferred Sales Charges, below.
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 Funds reserve 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.
Systematic Withdrawal Plan 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. It may take up to four business days for the transactions to
be completed. You can initiate this 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 Funds do not charge a
fee for any this service; however, your bank may charge a fee.
Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 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) according to the following
schedule: (1) 1.00% if shares are redeemed during the first year after the
purchase; and (2) 0.50% if such 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 described above.
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 the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
the Class A Shares even if those shares are later exchanged for shares of
another Delaware 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.
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<PAGE>
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.
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.
Waivers of Contingent Deferred Sales Charges
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; (ii) distributions from an account if the redemption results from
the death of the registered owner, or a registered joint owner, 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 Code) of all registered owners occurring after the purchase
of the shares being redeemed; 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
Purchasing Shares).
Waiver of Contingent Deferred Sales Charge -- Class B Shares and Class
C Shares -- The CDSC is waived on certain redemptions of Class B Shares 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 the registered owner, or a registered joint owner, 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 Code) of all registered owners occurring after the
purchase of the shares being redeemed.
The CDSC of 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 the
registered owner, or a registered joint owner, 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 Code) of all registered owners occurring after the purchase of the shares
being redeemed.
In addition, the Limited CDSC will be waived on Class A Shares and 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 withdrawn under the Plan
does not exceed 12% of the value of the account on the date that the Systematic
Withdrawal Plan was established.
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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 the Funds are 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. The Funds will mail a quarterly statement showing a Class'
dividends paid and all the transactions made during the period.
Tax-Free Fund anticipates that most of USA, Insured and Intermediate
Funds' dividends paid to shareholders will be exempt from federal income taxes.
Voyageur Mutual Funds anticipates that most of National High-Yield
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 is treated as a single
tax entity, and any capital gains and losses for each Fund are calculated
separately. The Funds have no fixed policy with regard to distributions of
realized securities profits when such realized securities profits may be offset
by capital losses carried forward. Currently, however, the Funds intend 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 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.
Tax-Free Fund and Voyageur Mutual Funds intend 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") and the Omnibus Consolidated and Emergency Supplemental Appropriations
Act, a Fund is required to track its sales of portfolio securities and to report
its capital gain distributions to you according to the following categories:
Long-term capital gains": gains on securities sold after December 31,
1997 and held for more than 12 months as capital assets in the hands of
the holder are taxed at the 20% rate when distributed to shareholders
(15% for individual investors in the 15% tax bracket.
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<PAGE>
"Short -term capital gains": Gains on securities sold by a Fund that do
not meet the long-term holdings period are considered short term
capital gains and are taxable as ordinary income.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject
to tax at higher rate brackets, qualified five-year gains are net gains
on securities which are purchased after December 31, 2000 and are held
for more than five 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 five-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 when sold after the five-year
holding period.
Any loss incurred on the redemption or exchange of shares held for six
months or less will be disallowed to the extent of any exempt-interest dividends
distributed to you with respect to your Fund shares and any remaining loss will
be treated as a long-term capital loss to the extent of any long-term capital
gains distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of
your Fund shares will be disallowed to the extent that you buy other shares in
the Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
If you redeem some or all of yours shares in a Fund, and then reinvest
the sales proceeds in such Fund or in another Delaware Investments fund within
90 days of buying the original shares, the sales charge that would otherwise
apply to your reinvestment may be reduced or eliminated. The IRS will require
you to report gain or loss on the redemption of your original shares in a Fund.
In doing so, all or a portion of the sales charge that you paid for your
original shares in a Fund will be excluded from your tax basis in the shares
sold (for the purpose of determining gain or loss upon the sale of such shares).
The portion of the sales charge excluded will equal the amount that the sales
charge is reduced on your reinvestment. Any portion of the sales charge excluded
from your tax basis in the shares sold will be added to the tax basis of the
shares you acquire from your reinvestment.
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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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 could 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 and Voyageur Mutual Funds 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; and, 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. To avoid federal excise taxes, the Internal Revenue Code requires
each Fund to distribute to you by December 31 of each year, at a minimum, the
following amounts: 98% of its taxable ordinary income earned during the calendar
year; 98% of its capital gain net income earned during the twelve month period
ending October 31; and 100% of any undistributed amounts from the prior year.
Each Fund intends to declare and pay these amounts in December (or in January
that are treated by you as received in December) to avoid these excise taxes,
but can give no assurances that its disclosures will be sufficient to eliminate
all taxes at the Fund level.
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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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 and Voyageur Mutual Funds 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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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 Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On August 31, 1999, the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $46 billion in assets in
various institutional or separately managed (approximately $28,183,690,000) and
investment company (approximately $18,686,470,000) accounts.
Each Fund's Investment Management Agreement is dated November 1, 1999
and was approved by the initial shareholder on November 1, 1999. 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 Trustees 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 trustees of each Fund who are not parties
thereto or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. Each Agreement is terminable
without penalty on 60 days' notice by the trustees of each Fund or by the
Manager. Each Agreement will terminate automatically in the event of its
assignment.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as National
High-Yield Fund's investment adviser, subject to the authority of the Board of
Directors. 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
Corporation ("Lincoln National") as a result of Lincoln National's acquisition
of DFG. LNC, headquartered in Fort Wayne, Indiana, owns and operates insurance
and investment management businesses, including Delaware Management Holding,
Inc. ("DMH"). Affiliates of DMH serve as adviser, distributor and transfer agent
for the Delaware Investments family.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Fund's previous investment advisory agreement with
Voyageur was "assigned", as that term is defined by the 1940 Act, and the
previous agreements therefore terminated upon the completion of the acquisition.
The Board of Directors of Mutual Funds, Inc. unanimously approved new advisory
agreements at a 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 its Investment Management
Agreement with the Manager, an indirect wholly-owned subsidiary of LNC, to
become effective after the close of business on April 30, 1997, the date the
acquisition was completed. On May 30, 1997, Voyageur was merged into the Manager
and the Manager became the investment manager for the Fund.
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The annual compensation paid by a Fund for investment management
services under its Investment Management Agreement is equal to the following
amount:
- --------------------------------------------------------------------------------
Insured Fund 0.50% on the first $500 million;
Intermediate Fund 0.475% on the next $500 million;
0.45% on the next $1.5 billion;
0.425% on assets in excess of $2.5
billion
- --------------------------------------------------------------------------------
USA Fund 0.55% on the first $500 million;
National High-Yield Fund 0.50% on the next $500 million;
0.45% on the next $1.5 billion;
0.425% on assets in excess of $2.5
billion
- --------------------------------------------------------------------------------
On August 31, 1999 the total net assets of Fund, Inc. were as follows:
- ---------------------------------------------------------
USA Fund $522,902,861
Insured Fund 74,945,868
Intermediate Fund 30,690,942
National High-Yield Fund 117,703,420
- ---------------------------------------------------------
The Manager makes and implements all investment decisions on behalf of
the Funds. The Manager pays the Funds' rent and the salaries of all trustees,
officers and employees of the Funds who are affiliated with both the Manager and
the Funds. Each Fund pays all of its other expenses. For the fiscal years ended
August 31, 1997, 1998 and 1999, investment management fees paid by USA Fund were
$4,082,683, $3,772,773 and $3,380,637 respectively. Investment management fees
paid by Insured Fund for the fiscal years ended August 31, 1997, 1998 and 1999
amounted to $488,651, $476,167 and $437,947, respectively. For the fiscal years
ended August 31, 1997, 1998 and 1999, investment management fees that would have
been payable by Intermediate Fund amounted to $125,029, $125,100 and $142,282,
respectively, but no amount was paid by this Fund for 1997, 1998 [or 1999] due
to the waiver of fees described below. For the period August 1, 1996 through
December 31, 1996, the fiscal year ended December 31, 1997, the period January
1, 1998 through August 31, 1998 and the fiscal year ended August 31, 1999, the
investment management fees paid by National High-Yield Fund amounted to $87,525,
$208,295, $218,873, and $000,000, respectively. The investment management fees
incurred by National High-Yield Fund for these periods amounted to $140,548,
$362,050, $315,067 and $622,425, respectively.
Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution Agreements,
each Fund is responsible for all of its own expenses. Among others, these
include the investment management fees; transfer and dividend disbursing agent
fees and costs; custodian expenses; federal and state securities registration
fees; proxy costs; and the costs of preparing prospectuses and reports sent to
shareholders.
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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's Board of Trustees 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 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 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 did not exceed 0.55% (excluding the 12b-1 plan
expenses). This waiver and expense limitation extended through January 31, 1999.
Beginning February 1, 1999, the Manager 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 0.60% (excluding 12b-1
plan expenses), as a percentage of average daily net assets. This expense
limitation extended through July 20, 1999. Beginning July 21, 1999, 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 0.65% (excluding 12b-1 plan expenses), as a
percentage of average daily net assets. This expense limitation will extend
through December 31, 1999.
The Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by National High-Yield Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total Operating
Expenses of Class A Shares, Class B Shares and Class C Shares of the Fund
(exclusive of taxes, interest, brokerage commissions, extraordinary expenses and
12b-1 fees) did not exceed, on an annual basis, 0.75%, respectively, through
June 30, 1999. In connection with the merger transaction described above, the
Manager agreed for a period of two years ending on April 30, 1999, to pay the
operating expenses (excluding interest expense, taxes, brokerage fees,
commissions and Rule 12b-1 fees) of the Fund which exceeded 1% of the Fund's
average daily net assets on an annual basis up to certain limits as set forth in
this Part B. This agreement replaced a similar provision in the Fund's
investment advisory contracts with the Fund's predecessor investment adviser.
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 November 1, 1999. 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 Shareholders Services Agreements dated November 1, 1999. 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.
70
<PAGE>
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, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.
71
<PAGE>
OFFICERS AND TRUSTEES
The business and affairs of Tax-Free Fund and Voyageur Mutual Funds are
managed under the direction of its respective Board of Trustees.
Certain officers and trustees of the Funds hold identical positions in
each of the other funds in the Delaware Investments family. On September 30,
1998, Tax-Free Fund's officers and trustees owned less than 1% of the
outstanding shares of each of its classes. As of the same date, Voyageur Mutual
Funds officers and trustees owned less than 1% of the outstanding shares of each
of its classes.
As of September 30, 1999, 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>
Tax-Free USA Merrill Lynch, Pierce, Fenner & Smith 413,210.300 13.35%
Fund B Class For the sole benefit of its customers
Attn: Fund Administration SEC#97D23
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
Tax-Free USA Merrill Lynch, Pierce, Fenner & Smith 142,828.160 44.33%
Fund C Class For the sole benefit of its customers
Attn: Fund Administration SEC#97H07
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
NFSC FEBO #BWA-000604 21,242.600 6.59%
Stuart Denton
Anne Denton
1203 Thackeray
Pflugerville, TX 78660-1815
- --------------------------------------------------------------------------------------------------
NFSC FEBO #ClA-233951 16,595.440 5.15%
Lidia Martino
Via Calderini 68
Roma, Italy 00196
- --------------------------------------------------------------------------------------------------
Tax-Free Insured Merrill Lynch, Pierce, Fenner & Smith 78,980.940 15.99%
Fund B Class For the sole benefit of its customers
Attn: Fund Administration SEC#97D26
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
Tax-Free Insured Merrill Lynch, Pierce, Fenner & Smith 38,286.690 26.79%
Fund C Class For the sole benefit of its customers
Attn: Fund Administration SEC#97H08
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
NFSC FEBO #BT9-004600 37,122.030 25.97%
Thomas J. Huber and
Carolyn W. Huber
800 North Graycroft Ave.
Madison, TN 37115-2515
- --------------------------------------------------------------------------------------------------
Wachovia Securities, Inc. 18,691.230 13.08%
FBO 7005038117
301 N. Main Street MC-32002
Winston-Salem, NC 27150-0002
- --------------------------------------------------------------------------------------------------
Legg Mason Wood Walker, Inc. 13,917.500 9.74%
397-17824-16
P.O. Box 1476
Baltimore, MD 21203-1476
- --------------------------------------------------------------------------------------------------
Prudential Securities, Inc. FBO 7,914.320 5.53%
Audrey F. Arcement &
Sidney J Arcement JT TEN
4400 Folse Dr.
Metairie, LA 70006-1227
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Class Name and Address of Account Share Amount Percentage
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Free Merrill Lynch, Pierce, Fenner & Smith 41,998.030 20.12%
Intermediate Fund For the sole benefit of its customers
B Class Attn: Fund Administration SEC#97D27
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
Donna M. Falcone and 18,151.670 8.96%
Robert A. Falcone JT WROS
837 Old National Pike
Brownsville, PA 15417-9253
- --------------------------------------------------------------------------------------------------
Tax-Free Merrill Lynch, Pierce, Fenner & Smith 56,724.240 17.88%
Intermediate Fund For the sole benefit of its customers
C Class Attn: Fund Administration SEC#97H09
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
David W. Elliott TTEE 46,685.340 14.72%
David W. Elliott Revocable Trust
Dtd 3-3-94
1291 Sunniwood Pl.
Rochester, MI 48306-2474
- --------------------------------------------------------------------------------------------------
NFSC FEBO #CJK-663425 26,882.810 8.47%
Jeanne R. Derbes
Thomas J. Derbes
2302 N. Harbour Dr.
Lynn Haven, FL 32444-2057
- --------------------------------------------------------------------------------------------------
NFSC FEBO #BTK-001430 17,009.140 5.36%
Laurence Adams Malone Trust
Matthew JD Lynch
U/A 06/22/95
16779 Chillicothe Rd.
Chagrin Falls, OH 44023-4519
- --------------------------------------------------------------------------------------------------
National Merrill Lynch, Pierce, Fenner & Smith 452,501.800 5.39%
High-Yield Fund For the sole benefit of its customers
A Class Attn: Fund Administration SEC#97L94
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
National Merrill Lynch, Pierce, Fenner & Smith 541,442.110 25.06%
High-Yield Fund For the sole benefit of its customers
B Class Attn: Fund Administration SEC#97L94
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
National Merrill Lynch, Pierce, Fenner & Smith 504,614.040 50.28%
High-Yield Fund For the sole benefit of its customers
C Class Attn: Fund Administration SEC#97L94
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------
Reagan Family Partners 55,581.350 5.53%
Robert L. Reagan General Partner
Dalene C. Reagan General Partner
125 Crestline Dr.
Kerrville, TX 78028-8801
- ---------------------------------------------------------------------------------------------------
</TABLE>
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.
72
<PAGE>
Trustees and principal officers of Tax-Free Fund and Voyageur Mutual
Funds 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Director/Officer Business Experience
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
*Wayne A. Stork (62) Chairman, Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of
the other 31 investment companies in the Delaware Investments family.
Chairman and Director of Delaware Management Holdings, Inc.
Director of Delaware International Advisers Ltd.
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital Management, Inc.;
Chairman, President and Chief Executive Officer and Director/Trustee 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 Off 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 and Chief Executive Officer of Delaware International
Advisers Ltd.; Chairman, Chief Executive Officer and Director of Delaware International
Holdings Ltd.; Chief Executive Officer of Delaware Management Holdings, Inc.; President and
Chief Executive Officer of Delvoy, In Director of Delaware Service Company, Inc. and
Retirement Financial Services, Inc.
In addition, during the five years prior to January 1, 1999, Mr. Stork has served in
various executive capacities at different times within the Delaware organization.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
*Trustee affiliated with the Funds' investment manager and considered an
"interested person" as defined in the 1940 Act.
73
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
*David K. Downes (59) President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and
Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
investment companies in the Delaware Investments family.
President and Director of Delaware Management Company, Inc.
President of Delaware Management Company (a series of Delaware Management Business Trust)
President, Chief Executive Officer and Director of Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Chairman and Director of Delaware Management Trust Company and Retirement Financial
Services, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer of Delaware
Management Holdings, Inc., Founders CBO Corporation, 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
DMH Corp., Delaware Distributors, Inc., Founders Holdings, Inc. and Delvoy, 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.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
*Director affiliated with Mutual Funds III, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
74
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh, Jr. (59) Executive Vice President and Chief Investment Officer, Equities of Tax-Free Fund and
Voyageur Mutual Funds and each of the other 31 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.
Chief Executive Officer/Chief Investment Officer/DIA Equity 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.
- ------------------------------------------------------------------------------------------------------------------------------
H. Thomas McMeekin (46) Executive Vice President and Chief Investment Officer, Fixed Income of
Tax-Free Fund and Voyageur Mutual Funds and each of the other 31 investment
companies in the Delaware Investments family.
Director of Delaware Management Holdings, Inc. and Founders CBO Corporation.
Exectuvie Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Management Business Trust, Delaware Management
Company (a series of Delaware Management Business Trust) and Delaware Capital
Management, Inc.
President and Director of Lincoln Investment Management, Inc.
Mr. McMeekin joined Delaware Investments in 1999. He has been employed in
various executive capacities by Lincoln National Corporaiton from 1994
to present.
- ------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery (41) Executive Vice President/General Counsel of Tax-Free Fund and Voyageur Mutual Funds and
each of the other 31 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., 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 Founders CBO Corporation.
Executive Vice President/General Counsel and Director of Delaware International Holdings
Ltd., Founders Holdings, Inc., Delvoy, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Service Company, Inc., Delaware Capital Management, Inc., Retirement Financial
Services, Inc., Delaware Distributors, Inc. and Delaware Management Business Trust.
Executive Vice President and Trustee of Delaware Management Business Trust.
Director of Delaware International Advisers Ltd.
Director of HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive capacities at
different times within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Walter P. Babich (71) Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
investment companies in the Delaware Investments 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 (62) Trustee and/or Director of the Tax-Free Fund and 18 other investment companies in the
Delaware Investments family.
Partner, Complete Care Services.
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.
- -------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr (60) Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
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.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Ann R. Leven (58) Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
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.
- -------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison (63) Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
investment companies in the Delaware Investments family.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications Holdings, Inc. since
1996. 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.
- -------------------------------------------------------------------------------------------------------------------------------
Charles E. Peck (73) Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
investment companies in the Delaware Investments family.
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The Ryland Group,
Inc., Columbia, MD.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Janet L. Yeomans (50) Trustee and/or Director of Tax-Free Fund and Voyageur Mutual Funds and each of the other 31
investment companies in the Delaware Investments family.
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial Markets for the 3M
Corporation; Manager of Benefit Fund Investments for the 3M Corporation, 1985-1987; Manager
of Pension Funds for the 3M Corporation, 1983-1985; Consultant--Investment Technology Group
of Chase Econometrics, 1982-1983; Consultant for Data Resources, 1980-1982; Programmer for
the Federal Reserve Bank of Chicago, 1970-1974.
- -------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings (49) Senior Vice President/Corporate Controller of Tax-Free Fund and Voyageur Mutual Funds and
each of the other 31 investment companies in the Delaware Investments family.
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., Retirement Financial Services, Inc., Founders
Holdings, Inc. and Del
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.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Michael P. Bishof (36) Senior Vice President and Treasurer of Tax-Free Fund and Voyageur Mutual Funds and each of
the other 31 investment companies in the Delaware Investments family.
Senior Vice President/Investment Accounting of Delaware Service Company, Inc. and Delaware
Capital Management, Inc.
Senior Vice President and Treasurer/ Investment Accounting 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) Delaware International
Holdings, Inc. and Founders Holdings, Inc.
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 (36) Vice President/Senior Portfolio Manager of Tax-Free Fund and Voyageur Mutual Funds and each
of the other 31 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 (41) Vice President/Senior Portfolio Manager of Tax-Free Fund and Voyageur Mutual Funds and each
of the other 31 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 the 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.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Tax-Free Fund and Voyageur Mutual Funds and the total compensation received from
all Delaware Investments funds for the fiscal year ended August 31, 1999 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 trustees of Tax-Free Fund and Voyageur Mutual Funds receive
compensation from the Funds.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Total
Aggregate Aggregate Accrued Estimated Compensation
Compensation Compensation as Part of Tax-Free Annual from all 34
from from Voyageur Fund and Benefits Delaware
Tax-Free Mutual Funds Voyageur Mutual Upon Investment
Name (3) Fund Funds Expenses Retirement(1) Companies(2)
<S> <C> <C> <C> <C> <C>
John H. Durham $2,090 $125 None $32,180 $49,989
Ann R. Leven $2,423 $289 None $38,000 $66,167
Walter P. Babich $2,197 $260 None $38,000 $59,525
Anthony D. Knerr $2,383 $284 None $38,000 $65,168
Thomas F. Madison $2,383 $284 None $38,000 $65,186
Charles E. Peck $2,277 $274 None $38,000 $62,667
Janet L. Yeomans(4) $958 $125 None $38,000 $28,405
</TABLE>
(1) Under the terms of the Delaware Group 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,
1999, 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 trustee/director (other than John H. Durham) currently
receives a total annual retainer fee of $38,000 for serving as a
trustee/director for all 33 investment companies in Delaware Investments,
plus $3,145 for each Board Meeting attended. John H. Durham currently
receives a total annual retainer fee of $31,180 for serving as a
trustee/director for 19 investment companies in Delaware Investments, plus
$1,810 for each Board Meeting attended. Ann R. Leven, Charles E. Peck,
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) W. Thacher Longstreth served as an independent trustee of Tax Free Funds
during its last fiscal year for the period August 1, 1998 through March 17,
1999, the date on which he retired. For this period, Mr. Longstreth received
$781 from Government Fund and $50,780 for all investment companies in the
Delaware Investments family.
(4) Janet L. Yeomans joined the Boards of all investment companies in the
Delaware Investments family in March 1999 for some funds and in April 1999
for other funds.
80
<PAGE>
GENERAL INFORMATION
Tax-Free Fund and Voyageur Mutual Funds are open-end management
investment companies. Each Fund's portfolio of assets is nondiversified as
defined by the 1940 Act. Tax-Free Fund was originally organized as a Maryland
corporation on August 17, 1983. USA, Insured and Intermediate Funds are series
of Tax-Free Fund. Voyageur Mutual Funds was originally organized as a Minnesota
corporation in April 1993. National High Yield Municipal Bond Fund is one of
several series of Voyageur Mutual Funds. Both Tax-Free Fund and Voyageur Mutual
Funds were reorganized as Delaware Business Trusts on November 1, 1999.
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. An affiliate of the Manager 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.
Delaware or Delaware International also manages the investment options
for Delaware-Lincoln Choice Plus and Delaware Medallion (SM) III Variable
Annuities. Choice Plus is issued and distributed by Lincoln National Life
Insurance Company. Choice Plus offers a variety of different investment styles
managed by leading money managers. 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 Choice
Plus and 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. in Appendix B.
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.
81
<PAGE>
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
- --------------------------------------------------------------------------------
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission To Dealers to Distributor
- --------------------------------------------------------------------------------
8/31/99 $321,029 $281,829 $39,200
8/31/98 314,525 264,400 50,125
12/31/97 615,910 511,081 104,829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Insured Fund A Class
- --------------------------------------------------------------------------------
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
- --------------------------------------------------------------------------------
8/31/99 $99,657 $85,806 $13,851
8/31/98 38,389 32,986 5,403
12/31/97 88,637 73,401 15,236
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Intermediate Fund A Class
- --------------------------------------------------------------------------------
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
- --------------------------------------------------------------------------------
8/31/99 $60,931 $49,236 $11,695
8/31/98 43,288 34,492 8,796
12/31/97 25,579 21,287 4,292
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
National High Yield Fund A Class
- --------------------------------------------------------------------------------
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
- --------------------------------------------------------------------------------
8/31/99 $330,680 $299,148 $31,532
8/31/98 $245,289 $211,329 $33,960
12/31/97 $110,688 $94,679 $16,009
- --------------------------------------------------------------------------------
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The Distributor received Limited CDSC payments with respect to Class A
Shares as follows:
- --------------------------------------------------------------------------------
Limited CDSC Payments
Fiscal ------------------------------------------------------------------
Year Ended National
USA Fund Insured Fund Intermediate Fund High-Yield
A Class A Class A Class Fund A Class
- --------------------------------------------------------------------------------
8/31/99 $18,494 $0 $0 $0
8/31/98 --- --- --- 198
12/31/97 --- --- --- ---
- --------------------------------------------------------------------------------
The Distributor received CDSC payments with respect to Class B Shares
as follows:
- --------------------------------------------------------------------------------
CDSC Payments
Fiscal ------------------------------------------------------------------
Year Ended National
USA Fund Insured Fund Intermediate Fund High-Yield
B Class B Class B Class Fund B Class
- --------------------------------------------------------------------------------
8/31/99 $164,331 $11,341 $4,314 $30,476
8/31/98 113,024 10,935 2,055 23,578
12/31/97 135,550 13,948 3,814 ---
- --------------------------------------------------------------------------------
The Distributor received CDSC payments with respect to Class C Shares
as
follows:
- --------------------------------------------------------------------------------
CDSC Payments
Fiscal ------------------------------------------------------------------
Year Ended National
USA Fund Insured Fund Intermediate Fund High-Yield
C Class C Class C Class Fund C Class
- --------------------------------------------------------------------------------
8/31/99 $1,533 $948 $1,940 $10,308
8/31/98 439 607 10,004 1,194
12/31/97 1,522 74 --- ---
- --------------------------------------------------------------------------------
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 Trustees, including a majority of the disinterested trustees. 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.
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The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Tax-Free Fund's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Tax-Free Fund to delete
the words "Delaware Group" from Tax-Free Fund's name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn
NY 11245, is custodian of each of USA, Insured and Intermediate 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.
Norwest Bank Minnesota, N.A. ("Norwest"), Sixth Street & Marquette
Avenue, Minneapolis, Minnesota 55402 is custodian of National High-Yield Fund's
securities and cash. As custodian for the Fund, Norwest maintains a separate
account or accounts for the Fund; receives, holds and releases portfolio
securities on account of the Fund; receives and disburses money on behalf of the
Fund; and collects and receives income and other payments and distributions on
account of the Fund's portfolio securities.
Capitalization
Each Trust has a present unlimited authorized number of shares of
beneficial interest with no par value allocated to each Class.
Each Fund offers three classes of shares, each representing a
proportionate 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. 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.
Beginning August 16, 1999, the names of Tax-Free USA Fund, Tax-Free
Insured Fund, Tax-Free USA Intermediate Fund and National High Yield Municipal
Bond Fund changed to Delaware Tax-Free USA Fund, Delaware Tax-Free Insured Fund,
Delaware Tax-Free USA Intermediate Fund and Delaware National High-Yield
Municipal Bond Fund, respectively. Corresponding changes have also been made to
each Fund's classes.
Noncumulative Voting
Tax-Free Fund's and Voyageur Mutual Funds' shares have noncumulative
voting rights which means that the holders of more than 50% of the shares of a
Trust voting for the election of trustees can elect all the trustees if they
choose to do so, and, in such event, the holders of the remaining shares will
not be able to elect any trustees.
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.
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FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Tax-Free Fund
and Voyageur Mutual Funds 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, 1999, are
included in the Fund's Annual Report to shareholders. The financial statements,
the notes relating thereto, the financial highlights and the reports of Ernst &
Young LLP, listed above are incorporated by reference from the Annual Report
into this Part B. KPMG LLP (formerly named KPMG Peat Marwick LLP), National
High-Yield Municipal Bond Fund's previous auditors, audited the annual financial
statements and financial highlights of the Fund for the fiscal years or periods
ending on or before December 31, 1996.
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APPENDIX A
General Characteristics and Risks of Options and Futures
Conditions in the securities, futures and options markets will
determine whether and in what circumstances the Fund will employ any of the
techniques or strategies described below. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the Commodity
Futures Trading Commission (the "CFTC") and the federal tax requirements
applicable to regulated investment companies. Transactions in options and
futures contracts may give rise to income that is subject to regular federal
income tax and, accordingly, in normal circumstances the Fund does not intend to
engage in such practices to a significant extent.
The use of futures and options, and the possible benefits and attendant
risks, are discussed below.
Futures Contracts and Related Options. The Fund may enter into
contracts for the purchase or sale for future delivery (a "futures contract") of
fixed-income securities or contracts based on financial indices including any
index of securities in which the Fund may invest. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the securities, or
the cash value of an index, called for by the contract at a specified price
during a specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities, or cash value
of an index, at a specified price during a specified delivery period. The Fund
may also purchase and sell (write) call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during, or at the termination of, the
period specified in the terms of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. The
Fund would be required to deposit with its custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security. The offsetting of a contractual obligation is accomplished by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. The Fund's
ability to establish and close out positions in futures contracts and options on
futures contracts will be subject to the liquidity of the market. Although the
Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance
that a liquid market on an exchange will exist for any particular futures
contract or option thereon at any particular time. Where it is not possible to
effect a closing transaction in a contract or to do so at a satisfactory price,
the Fund would have to make or take delivery under the futures contract, or, in
the case of a purchased option, exercise the option. The Fund would be required
to maintain initial margin deposits with respect to the futures contract and to
make variation margin payments until the contract is closed. The Fund will incur
brokerage fees when they purchase or sell futures contracts.
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At the time a futures contract is purchased or sold, the Fund must
deposit in a custodial account cash or securities as a good faith deposit
payment (known as "initial margin"). It is expected that the initial margin on
futures contracts the Fund may purchase or sell may range from approximately
1.5% to approximately 5% of the value of the securities (or the securities
index) underlying the contract. In certain circumstances, however, such as
during periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment. Initial margin requirements
may be increased generally in the future by regulatory action. An outstanding
futures contract is valued daily in a process known as "marking to market." If
the market value of the futures contract has changed, the Fund will be required
to make or will be entitled to receive a payment in cash or specified high
quality debt securities in an amount equal to any decline or increase in the
value of the futures contract. These additional deposits or credits are
calculated and required on a daily basis and are known as "variation margin."
There may be an imperfect correlation between movements in prices of
the futures contract the Fund purchases or sells and the portfolio securities
being hedged. In addition, the ordinary market price relationships between
securities and related futures contracts may be subject to periodic distortions.
Specifically, temporary price distortions could result if, among other things,
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet variation margin requirements,
investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions or if, because of the
comparatively lower margin requirements in the futures market than in the
securities market, speculators increase their participation in the futures
market. Because price distortions may occur in the futures market and because
movements in the prices of securities may not correlate precisely with movements
in the prices of futures contracts purchased or sold by the Fund in a hedging
transaction, even if Voyageur correctly forecasts market trends the Fund's
hedging strategy may not be successful. If this should occur, the Fund could
lose money on the futures contracts and also on the value of its portfolio
securities.
Although the Fund believes that the use of futures contracts and
options thereon will benefit it, if Voyageur's judgment about the general
direction of securities prices or interest rates is incorrect, the Fund's
overall performance may be poorer than if it had not entered into futures
contracts or purchased or sold options thereon. For example, if the Fund seeks
to hedge against the possibility of an increase in interest rates, which
generally would adversely affect the price 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 assets which it has hedged due
to the decrease in interest rates because it will have offsetting losses in its
futures positions. In addition, particularly in such situations, the Fund may
have to sell assets from its portfolio to meet daily margin requirements at a
time when it may be disadvantageous to do so.
Options on Securities. The Fund may purchase and sell (write) options
on securities, which options may be either exchange-listed or over-the-counter
options. The Fund may write call options only if the call option is "covered." A
call option written by the Fund is covered if the Fund owns the securities
underlying the option or has a contractual right to acquire them or owns
securities which are acceptable for escrow purposes. The Fund may write put
options only if the put option is "secured." A put option written by the Fund is
secured if the Fund, which is obligated as a writer of a put option, invests an
amount, not less than the exercise price of a put option, in eligible
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.
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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 the
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.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received 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 a national securities exchange ("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 its portfolio. By using put options in this way, the Fund will reduce
any profit it 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 the
price of securities that the Fund anticipates 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.
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The Fund may purchase and sell options that are exchange-traded or that
are traded over-the counter ("OTC options"). Exchange-traded options in the
United States are issued by a clearing organization affiliated with the exchange
on which the option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when the Fund
purchases OTC options, it must rely on the dealer from which it purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Although the Fund will enter into OTC options only with dealers that
agree to enter into, and which are expected to be capable of entering into,
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction in a
covered OTC call option the Fund has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or different
cover is substituted. This may impair the Fund's ability to sell a portfolio
security at a time when such a sale might be advantageous. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund.
Regulatory Restrictions. To the extent required to comply with
applicable SEC releases and staff positions, when entering into futures
contracts or certain option transactions, such as writing a put option, the Fund
will maintain, in a segregated account, cash or liquid high-grade securities
equal to the value of such contracts. Compliance with such segregation
requirements may restrict the Fund's ability to invest in intermediate- and
long-term Tax Exempt Obligations.
The Fund intend to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that futures and options
positions be used (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. The Fund currently does not
intend to engage in transactions in futures contracts or options thereon for
speculation.
Accounting Considerations. When the Fund writes an option, an amount
equal to the premium received by it is included in the Fund's Statement of
Assets and Liabilities as a liability. The amount of the liability subsequently
is marked to market to reflect the current market value of the option written.
When the Fund purchases an option, the premium paid by the Fund is recorded as
an asset and subsequently is adjusted to the current market value of the option.
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APPENDIX B--INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE
INVESTMENTS FAMILY
Following is a summary of the investment objectives of the funds in the
Delaware Investments family:
Delaware Balanced 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. Delaware 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.
Delaware Trend Fund seeks long-term growth by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential.
Delaware 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.
Delaware 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.
Delaware Decatur Equity 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. Delaware Growth
and Income Fund seeks long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation without undue risk to
principal. Delaware 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. Delaware 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.
Delaware 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. Delaware 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. Delaware High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Delaware Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Delaware Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in corporate
bonds.
Delaware 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 American Government Bond 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.
Delaware Cash Reserve Fund 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.
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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.
Delaware Tax-Free USA Fund seeks high current income exempt from
federal income tax by investing in municipal bonds of geographically-diverse
issuers. Delaware Tax-Free Insured Fund invests in these same types of
securities but with an emphasis on municipal bonds protected by insurance
guaranteeing principal and interest are paid when due. Delaware Tax-Free USA
Intermediate Fund seeks a high level of current interest income exempt from
federal income tax, consistent with the preservation of capital by investing
primarily in municipal bonds.
Delaware 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.
Delaware 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. Delaware 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. Delaware
Tax-Free Pennsylvania Fund seeks a high level of current interest income exempt
from federal income tax and Pennsylvania state and local taxes, consistent with
the preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Delaware 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. Delaware 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. Delaware 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.
Delaware 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.
Delaware 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.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation and
income. Delaware Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware 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. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware 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.
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Delaware Group Premium Fund, Inc. offers 17 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Growth and
Income Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. 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 Balanced 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 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 mult 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. Aggressive Growth
Series seeks long-term capital appreciation. The Series attempts to achieve its
investment objective by investing primarily in equity securities of companies
which the manager believes have the potential for high earnings growth.
Delaware U.S. 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 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 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 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.
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<PAGE>
Delaware 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 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 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 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 Tax-Free Missouri Insured Fund seeks to
provide a high level of current income exempt from federal income tax and the
Missouri personal income tax, consistent with the preservation of capital.
Delaware 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 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 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 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 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 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
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. Delaware 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 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 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 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.
Delaware Tax-Free Minnesota 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 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.
Delaware 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. Delaware 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. Delaware 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.
93
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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).
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APPENDIX C - DESCRIPTION OF RATINGS
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.
<TABLE>
<CAPTION>
<S> <C> <C>
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>
95
<PAGE>
<TABLE>
<CAPTION>
<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 quality F-1+ Exceptionally strong quality
A-1 Strong quality F-1 Very strong quality
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
P-3 Acceptable quality A-3 Adequate quality F-3 Fair 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
SP1 Strong grade F-1 Very strong quality
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 quality SP3 Speculative grade F-S Weak credit quality
</TABLE>
96
<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.
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<PAGE>
Preferred Stock Rating
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Aaa Considered to be a top-quality preferred stock. This rating indicates good asset
Service, Inc. 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.
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Standard & Poor's AAA Has the highest rating that may be assigned by Standard& Poor's to a preferred
Ratings Group 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.
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 the issuer's
CCC 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. od (net of reimbursements);
</TABLE>
99
<PAGE>
PART C
Other Information
Item 23. Exhibits
(a) Agreement and Declaration of Trust.
(1) Agreement and Declaration of Trust (December 17, 1998)
incorporated in this filing by reference to Post-Effective
Amendment No. 25 filed August 16, 1999.
(2) Certificate of Trust (December 17, 1998) incorporated in this
filing by reference to Post-Effective Amendment No. 25 filed
August 16, 1999.
(b) By-Laws. By-Laws (December 17, 1998) incorporated in this filing by
reference to Post-Effective Amendment No. 25 filed August 16, 1999.
(c) Copies of All Instruments Defining the Rights of Holders.
(1) Agreement and Declaration of Trust. Articles III, V and VI of
Agreement and Declaration of Trust incorporated in this filing
by reference to Post-Effective Amendment No. 25 filed August
16, 1999.
(2) By-Laws. Article II of By-Laws incorporated in this filing by
reference to Post-Effective Amendment No. 25 filed August 16,
1999.
(d) Investment Management Agreement.
(1) Form of Investment Management Agreement (November 1999) between
Delaware Management Company and the Registrant incorporated in
this filing by reference to Post-Effective Amendment No. 25
filed August 16, 1999.
(e) (1) Distribution Agreement.
(i) Form of Distribution Agreement (November 1999) between
Delaware Distributors, L.P. and the Registrant on behalf
of each series incorporated into this filing by reference
to Post-Effective Amendment No. 22 filed October 30, 1996.
(ii) Form of Amendment No. 1 to Distribution Agreement
(November 1999) on behalf of each series incorporated into
this filing by reference to Post-Effective Amendment No.
22 filed October 30, 1996.
<PAGE>
(2) Administration and Service Agreement. Form of Administration
and Service Agreement (as amended November 1995) incorporated
into this filing by reference to Post-Effective Amendment No.
21 filed November 24, 1995.
(3) Dealer's Agreement. Dealer's Agreement (as amended November
1995) incorporated into this filing by reference to
Post-Effective Amendment No. 21 filed November 24, 1995.
(4) Mutual Fund Agreement for the Delaware Group of Funds (as
amended November 1995) (Module) incorporated into this filing
by reference to Post-Effective Amendment No. 22 filed October
30, 1996.
(f) Inapplicable.
(g) Custodian Agreements.
(1) Form of Custodian Agreement (November 1999) between the
Registrant and The Chase Manhattan Bank incorporated into this
filing by reference to Post-Effective Amendment No. 24 filed
October 28, 1998.
(2) Form of Securities Lending Agreement (November 1999) between
the Registrant and The Chase Manhattan Bank incorporated into
this filing by reference to Post-Effective Amendment No. 24
filed October 28, 1998.
(h) Other Material Contracts.
(1) Form of Shareholders Services Agreement (November 1999) between
Delaware Service Company, Inc. and the Registrant on behalf of
each series incorporated into this filing by reference to
Post-Effective Amendment No. 22 filed October 30, 1996.
(2) Form of Delaware Group of Funds Fund Accounting Agreement
(November 1999) between Delaware Service Company, Inc. and the
Registrant (Module) incorporated into this filing by reference
to Post-Effective Amendment No. 22 filed October 30, 1996.
(i) Opinion of Counsel. incorporated in this filing by reference to
Post-Effective Amendment No. 25 filed August 16, 1999.
(j) Consent of Auditors. Attached as Exhibit.
(k) Inapplicable.
(l) Undertaking of Initial Shareholder. Incorporated into this filing
by reference to Pre-Effective Amendment No. 1 filed November 22,
1983.
<PAGE>
(m) Plans under Rule 12b-1.
(1) Form of Plan under Rule 12b-1 for Class A (November 1999)
incorporated into this filing by reference to Post-Effective
Amendment No. 22 filed October 30, 1996.
(b) Form of Plan under Rule 12b-1 for Class B (November 1999)
incorporated into this filing by reference to Post-Effective
Amendment No. 22 filed October 30, 1996.
(c) Form of Plan under Rule 12b-1 for Class C (November 1995)
incorporated into this filing by reference to Post-Effective
Amendment No. 22 filed October 30, 1996.
(n) Inapplicable.
(o) Other: Trustees' Powers of Attorney. incorporated in this filing by
reference to Post-Effective Amendment No. 25 filed August 16, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant. None.
Item 25. Indemnification. Article VI of the By-Laws incorporated in this filing
by reference to Post-Effective Amendment No. 25 filed August 16, 1999.
Item 26. Business and Other Connections of Investment Adviser.
Delaware Management Company, a series of Delaware Management Business Trust,
(the "Manager") serves as investment manager to the Registrant and also serves
as investment manager or sub-adviser to certain of the other funds in the
Delaware Investments family (Delaware Group Equity Funds I, Inc., Delaware Group
Equity Funds II, Inc., Delaware Group Equity Funds III, Delaware Group Equity
Funds IV, Inc., Delaware Group Equity Funds V, Inc., Delaware Group Government
Fund, Delaware Group Income Funds, Delaware Group Limited-Term Government Funds,
Inc., Delaware Group State Tax-Free Income Trust, Delaware Group Tax-Free Money
Fund, Delaware Group Premium Fund, Inc., Delaware Group Global & International
Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser Funds, Inc.,
Delaware Group Dividend and Income Fund, Inc., Delaware Group Global Dividend
and Income Fund, Inc., Delaware Group Foundation Funds, Inc., Voyageur
Intermediate Tax-Free Funds, Voyageur Tax-Free Funds, Voyageur Funds, Inc.,
Voyageur Insured Funds, Voyageur Investment Trust, Voyageur Investment Trust II,
Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III,
Inc., Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado Insured
Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income Fund,
Voyageur Minnesota Municipal Fund, Inc., Voyageur Minnesota Municipal Fund II,
Inc. and Voyageur Minnesota Municipal Fund III, Inc.). In addition, certain
officers of the Manager also serve as directors/trustees of the other funds in
the Delaware Investments family, and certain officers are also officers of these
other funds. A company indirectly owned by the Manager's indirect parent company
acts as principal underwriter to the mutual funds in the Delaware Investments
family (see Item 29 below) and another such company acts as the shareholder
services, dividend disbursing, accounting servicing and transfer agent for all
of the mutual funds in the Delaware Investments family.
<PAGE>
The following persons serving as directors or officers of the Manager have held
the following positions during the past two years:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
David K. Downes President of Delaware Management Company (a series of Delaware Management Business Trust); Executive
Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Management Holdings,
Inc.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of DMH
Corp.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of
Delvoy, Inc.; President and Director of Delaware Management Company, Inc.; Executive Vice President,
Chief Operating Officer, Chief Financial Officer and Trustee of Delaware Management Business Trust;
Executive Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Chairman, President, Chief Executive Officer
and Director of Delaware Service Company, Inc.; President, Chief Executive Officer and Director of
Delaware Capital Management, Inc.; Chairman and Director of Retirement Financial Services, Inc.;
Chairman and Director of Delaware Management Trust Company; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director of Delaware Distributors, Inc.; Executive Vice President,
Chief Operating Officer and Chief Financial Officer of Delaware Distributors, L.P.; President, Chief
Operating Officer, Chief Financial Officer and Director of Delaware International Holdings Ltd.;
Director of Delaware International Advisers Ltd.; Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of Founders Holdings, Inc.; Executive Vice President, Chief
Operating Officer and Chief Financial Officer of Founders CBO Corporation; President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Director/Trustee of each fund in the
Delaware Investments family.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and General Counsel of Delaware Management
Holdings, Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice
President, General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and
Director of Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of
Delaware Management Business Trust; Executive Vice President and General Counsel of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Executive Vice President, General Counsel and
Director of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of
Delaware Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement
Financial Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management
Trust Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.;
Executive Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President,
General Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International
Advisers Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.;
Executive Vice President and General Counsel of Founders CBO Corporation; Executive Vice President and
General Counsel of each fund in the Delaware Investments family.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and Member of
Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
- ------------------------------------------------------------------------------------------------------------------------------------
Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management Company (a series
of Delaware Management Business Trust); Executive Vice President of Delaware Management Holdings, Inc.;
Executive Vice President and Trustee of Delaware Management Business Trust; Chief Executive Office,
Chief Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management
Business Trust; Executive Vice President of Delaware Capital Management, Inc.; Director of Delaware
Investment Advisers Ltd.; Executive Vice President, Chief Investment Officer/Equity of each fund in the
Delaware Investments family.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc.
since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
H. Thomas McMeekin(1) Executive Vice President of Delaware Management Business Trust; Executive Vice President of Delaware
Management Company (a series of Delaware Management Business Trust); Executive Vice President of
Delaware Capital Management, Inc.; Executive Vice President and Director of Founders Holdings, Inc.;
Director of Delaware Management Holdings, Inc., Director of Founders CBO Corporation, Director of
Vantage Investment Advisers; Director of Lincoln National Investment Companies; Executive Vice President
and Chief Investment Officer, Fixed Income of each Fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of Delaware Management
Business Trust; Senior Vice President/Operations of Delaware Service Company, Inc.; Senior Vice
President/Operations of Retirement Financial Services, Inc.; Senior Vice President/Operations of
Delaware Management Trust Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President, Treasurer/Investment Accounting of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President, Treasurer/Investment Accounting of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Investment
Accounting of Delaware Service Company, Inc.; Senior Vice President/Investment Accounting of Delaware
Capital Management, Inc.; Senior Vice President, Treasurer/Investment Accounting of Delaware
Distributors, L.P.; Senior Vice President, Manager of Investment Accounting of Delaware International
Holdings Ltd.; Senior Vice President, Treasurer/Investment Accounting of Founders Holdings, Inc.; Senior
Vice President and Assistant Treasurer of Founders CBO Corporation; Senior Vice President and Treasurer
of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President/Head of Equity Trading of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Senior Vice President/Head of Equity Trading of
Delaware Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware
Management Business Trust); Trustee of Delaware Management Business Trust; Senior Vice President/Senior
Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President/Senior Portfolio Manager of Delaware Capital Mangement, Inc.; Senior Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Susan L. Hanson Senior Vice President/Global Marketing and Client Services of Delaware Management Company (a series
of Delaware Management Business Trust); Senior Vice President/Global Marketing and Client Services of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings Senior Vice President/Treasurer/Corporate Controller of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President/Treasurer/Corporate Controller of Delaware
Management Holdings, Inc.; Senior Vice President/Treasurer/Corporate Controller of DMH Corp; Senior
Vice President/Treasurer/Corporate Controller of Delvoy, Inc.; Senior Vice President/Treasurer/Corporate
Controller of Delaware Management Company, Inc.; Senior Vice President/Treasurer/Corporate Controller
of Delaware Management Business Trust; Senior Vice President/Treasurer/Corporate Controller of
Delaware Service Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of Delaware Capital
Management, Inc.; Senior Vice President/Treasurer/Corporate Controller of Retirement Financial Services,
Inc.; Executive Vice President/Corporate Controller/Treasurer of Delaware Management Trust Company;
Senior Vice President/Treasurer/Corporate Controller of Delaware Distributors, L.P.; Senior Vice
President/Treasurer/Corporate Controller of Delaware International Holdings; Senior Vice
President/Treasurer/Corporate Controller of Founders Holdings, Inc.; Senior Vice President/ Assistant
Treasurer Founders CBO Corporation; Senior Vice President/Corporate Controller of each fund in the
Delaware Investments family
- ------------------------------------------------------------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President/Human Resources of Delaware Management Holdings,
Inc.; Senior Vice President/Human Resources of DMH Corp.; Senior Vice President/Human Resources of
Delvoy, Inc.; Senior Vice President/Human Resources of Delaware Management Company, Inc.; Senior
Vice President/Human Resources of Delaware Management Business Trust; Senior Vice President/Human
Resources of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior
Vice President/Human Resources of Delaware Service Company, Inc.; Senior Vice President/Human
Resources of Delaware Capital Management, Inc.; Senior Vice President/Human Resources of Delaware
Retirement Financial Services, Inc.; Senior Vice President/Human Resources of Delaware Management
Trust Company; Senior Vice President/Human Resources of Delaware Distributors, Inc.; Senior Vice
President/Human Resources of Delaware Distributors, L.P.; Senior Vice President/Human Resources of
each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company
(a series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and
Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management,
Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial
Services, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware
Distributors, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware
Distributors, L.P.; Senior Vice President, Secretary and Deputy General Counsel of Delaware
International Holdings Ltd.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Founders Holdings, Inc.; Secretary of Founders CBO Corporation; Senior Vice President, Assistant
Secretary and Deputy General Counsel of each fund in the Delaware Investments family.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA.
- ------------------------------------------------------------------------------------------------------------------------------------
Eric E. Miller Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company
(a series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and
Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management,
Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial
Services, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware
Distributors, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware
Distributors, L.P.; Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders
Holdings, Inc.; Senior Vice President, Secretary and Deputy General Counsel of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
James L. Shields Senior Vice President, Chief Information Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President, Chief Information Officer of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Senior Vice President, Chief Information
Officer of Delaware Service Company, Inc.; Senior Vice President, Chief Information Officer of Delaware
Capital Management Company, Inc.; Senior Vice President, Chief Information Officer of Retirement
Financial Services, Inc.; Senior Vice President, Chief Information Officer of Delaware Distributors,
L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher S. Adams Vice President/Business Manager, Equity of Delaware Management Company (a series of Delaware
Management Business Trust); Vice President/Business Manager, Equity of Delaware Investment Advisers (a
series of Delaware Management Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert L. Arnold Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of Delaware Capital Management, Inc., Vice
President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Marshall T. Bassett Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher S. Beck Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
Trustee of New Castle County Pension Board since October 1992, Wilmington DE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Richard E. Beister Vice President/Trading Operations of Delaware Management Company (a series of Delaware Management
Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley Vice President/Compliance Director of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Compliance Director of Delaware Management Holdings, Inc.;Vice
President/Compliance Director of DMH Corp.;Vice President/Compliance Director of Delvoy, Inc.;Vice
President/Compliance Director of Delaware Management Company, Inc.;Vice President/Compliance
Director of Delaware Management Business Trust; Vice President/Compliance Director of Delaware
Investment Advisers (a series of Delaware Management Business Trust);Vice President/Compliance
Director of Delaware Service Company, Inc.;Vice President/Compliance Director of Delaware Capital
Management, Inc.;Vice President/Compliance Director of Retirement Financial Services, Inc.; Vice
President/Compliance Director/Assistant Secretary of Delaware Management Business Trust; Vice
President/Compliance Director of Delaware Distributors, Inc.;Vice President/Compliance Director of
Delaware Distributors, L.P.;Vice President/Compliance Director of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Client Services of Delaware Investment Advisers (a series of Delaware Management
Business Trust);Vice President/Client Services of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen R. Cianci Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell L. Conery Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy G. Connors Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Capital
Management, Inc.; Vice President/Senior Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy M. Crouse Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
James P. Dokas Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/ Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Dugan Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Joel A. Ettinger(2) Vice President/Taxation of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Taxation of Delaware Management Holdings, Inc.;Vice President/Taxation of DMH
Corp.;Vice President/Taxation of Delvoy, Inc.; Vice President/Taxation of Delaware Management Company,
Inc.;Vice President/Taxation of Delaware Management Business Trust; Vice President/Taxation of Delaware
Investment Advisers (a series of Delaware Management Business Trust);Vice President/Taxation of Delaware
Service Company, Inc.;Vice President/Taxation of Delaware Capital Management, Inc.;Vice
President/Taxation of Retirement Financial Services, Inc.;Vice President/Taxation of Delaware
Distributors, Inc.;Vice President/Taxation of Delaware Distributors, L.P.;Vice President/Taxation of
Founders Holdings, Inc.; Vice President/Taxation of Founders CBO Corporation; Vice President/Taxation of
each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald S. Frey Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
James A. Furgele Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management
Business Trust);Vice President/Investment Accounting of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Investment Accounting of Delaware Service Company,
Inc.;Vice President/Investment Accounting of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Stuart M. George Vice President/Equity Trading of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Equity Trading of Delaware Investment Advisers (a series of Delaware Management
Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Paul Grillo Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Brian T. Hannon Vice President of Delaware Management Company (a series of Delaware Management Business Trust); Vice
President of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Heffern Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Elizabeth H. Howell Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Hynoski Vice President/Analyst of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Analyst of Delaware Investment Advisers (a series of Delaware Management Business
Trust);Vice President/Analyst of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Karina J. Ivstan Vice President/Strategic Planning of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Strategic Planning of Delaware Management Holdings, Inc.;Vice
President/Strategic Planning of Delaware Management Business Trust; Senior Vice President, Assistant
Secretary and Deputy General Counsel of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Strategic Planning of Delaware Service Company, Inc.;Vice
President/Strategic Planning of Delaware Capital Management, Inc.; Vice President/Strategic Planning of
Retirement Financial Services, Inc.; Vice President/Strategic Planning of Delaware Management Trust
Company; Vice President/Strategic of Delaware Distributors, L.P.; Vice President/Strategic Planning of
each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Audrey E. Kohart Vice President/Assistant Controller/Corporate Accounting of Delaware Management Company (a series of
Delaware Management Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Steven T. Lampe Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Philip Y. Lin Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Management Trust Company; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.;Vice
President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael D. Mabry Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc.,
President and Director of Founders CBO Corporation; Vice President/Senior Portfolio Manager of each fund
in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew M. McCullagh, Jr. Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Francis X. Morris Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc.,
Treasurer, Assistant Secretary and Director of Founders CBO Corporation; Vice President/Senior Portfolio
Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert A. Norton, Jr. Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
David P. O'Connor Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Business Positions and Offices with Delaware Management Company and its affiliates
Address* and other Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Salus Vice President/Assistant Controller of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Assistant Controller of Delaware Management Trust
Company; Vice President/Assistant Controller of Delaware International Holdings Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard D. Siedel Vice President/Assistant Controller/Manager Payroll of Delaware Management Company (a series of Delaware
Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Alan R. Stuart Vice President/Trading of Delaware Management Company (a series of Delaware Management Business Trust);
Vice President/Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities and Administration Services of Delaware Management Company (a series of
Delaware Management Business Trust);Vice President/Facilities and Administration Services of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Vice President/Facilities and
Administration Services of Delaware Service Company, Inc.;Vice President/Facilities and Administration
Services of Delaware Distributors, L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas J. Trottman Vice President/Senior Corporate Bond Analyst of Delaware Management Company (a series of Delaware
Management Business Trust); Vice President/Senior Corporate Bond Analyst of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Vice President/Senior Corporate Bond Analyst of each
fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Lori P. Wachs Vice President/Assistant Portfolio Manager of Delaware Management Company (a series of Delaware
Management Business Trust);Vice President/Assistant Portfolio Manager of Delaware Investment Advisers (a
series of Delaware Management Business Trust);Vice President/Assistant Portfolio Manager of each fund in
the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Business Address is 1818 Market Street, Philadelphia, PA 19103.
- --------------------------------------------------------------------------------
1 PRESIDENT AND DIRECTOR, Lincoln Investment Management, Inc. prior to 1999.
2 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
- --------------------------------------------------------------------------------
Item 27. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter for all
the mutual funds in the Delaware Investments family.
(b) Information with respect to each director, officer or partner of
principal underwriter:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Distributors, Inc. General Partner None
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Investment Advisers Limited Partner None
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Capital Management, Inc. Limited Partner None
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce D. Barton President and Chief Executive Officer None
- ------------------------------------------------------------------------------------------------------------------------------------
David K. Downes Executive Vice President/Chief Operating President/Chief Executive Officer/Chief
Officer/Chief Financial Officer Operating Officer/Chief Financial
Officer/Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President/General Counsel Executive Vice President/General Counsel
- ------------------------------------------------------------------------------------------------------------------------------------
Diane M. Anderson Senior Vice President/Retirement None
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President/Treasurer/ Senior Vice President/Treasurer
Investment Accounting
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. Brooks III Senior Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Terrence P. Cunningham Senior Vice President/National Sales None
Director, Financial Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen J. Deangelis Senior Vice President/National Sales, None
Managed Account Services
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings Senior Vice President/Treasurer/ Senior Vice President/Corporate Controller
Corporate Controller
- ------------------------------------------------------------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources Senior Vice President/Human Resources
- ------------------------------------------------------------------------------------------------------------------------------------
Bradley L. Kolstoe Senior Vice President/Western Division None
Sales, IPI Channel
- ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Mac Macaulliffe Senior Vice President/Divisional Sales None
Manager
- ------------------------------------------------------------------------------------------------------------------------------------
J. Chris Meyer Senior Vice President/Director, Product None
Management
- ------------------------------------------------------------------------------------------------------------------------------------
Eric E. Miller Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen C. Nell Senior Vice President/National None
Retirement Sales
- ------------------------------------------------------------------------------------------------------------------------------------
Henry W. Orvin Senior Vice President/Eastern Division None
Sales
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher H. Price Senior Vice President/Channel Manager None
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas E. Sawyer Senior Vice President/Director, None
National Sales
- ------------------------------------------------------------------------------------------------------------------------------------
James L. Shields Senior Vice President/Chief Information None
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Richard P. Allen Vice President/Wholesaler, Midwest None
- ------------------------------------------------------------------------------------------------------------------------------------
David P. Anderson, Jr. Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey H. Arcy Vice President/Wholesaler, South East None
Region
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick A. Bearss Vice President/Wholesaler - Midwest None
- ------------------------------------------------------------------------------------------------------------------------------------
Gabriella Bercze Vice President/Wholesaler, Financial None
Institution
- ------------------------------------------------------------------------------------------------------------------------------------
Denise D. Bradley Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Larry Bridwell Vice President/Financial Institutions None
Wholesaler
- ------------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley Vice President/Compliance Director Vice President/Compliance Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terrance L. Bussard Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel H. Carlson Vice President/Marketing Services None
- ------------------------------------------------------------------------------------------------------------------------------------
Larry Carr Vice President/VA Sales Manager None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
William S. Carroll Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew Coldren Vice President/National Accounts None
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick A Connelly Vice President/RIA Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
Jessie V. Emery Vice President/Marketing Communications None
- ------------------------------------------------------------------------------------------------------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
- ------------------------------------------------------------------------------------------------------------------------------------
Susan T. Friestedt Vice President/Retirement Services None
- ------------------------------------------------------------------------------------------------------------------------------------
Douglan R. Glennon Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Darryl S. Grayson Vice President/Director, Internal Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
Rhonda J. Guido Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Haimowitz Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Edward J. Hecker Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Herron Vice President/VA Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Dinah J. Huntoon Vice President/Product Manager, Equities None
- ------------------------------------------------------------------------------------------------------------------------------------
Karina J. Istvan Vice President/Strategic Planning None
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher L. Johnston Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Jordan Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Carolyn Kelly Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Richard M. Koerner Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Ellen M. Krott Vice President/Marketing None
- ------------------------------------------------------------------------------------------------------------------------------------
John Leboeuf Vice President/VA Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
SooHee Lee Vice President/Fixed Income & None
International Product Management
- ------------------------------------------------------------------------------------------------------------------------------------
Philip Y. Lin Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Logan Vice President/Wholesaler, Financial None
Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Michael D. Mabry Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Thoedore T. Malone Vice President/IPI Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Debbie Marler Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Gregory J. McMillan Vice President/National Accounts None
- ------------------------------------------------------------------------------------------------------------------------------------
Nathan W. Medin Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Scott L. Metzger Vice President/Business Development None
- ------------------------------------------------------------------------------------------------------------------------------------
Roger J. Miller Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher W. Moore Vice President/VA Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew F. Morris Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick L. Murphy Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Scott E. Naughton Vice President/IPI Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Julie Nusbaum Vice President/Wholesaler, Financial None
Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Julie A. Nye Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. O'Brien Vice President/Insurance Products None
- ------------------------------------------------------------------------------------------------------------------------------------
David P. O'Connor Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph T. Owczarek Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Otis S. Page Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Mark A. Pletts Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Philip G. Rickards Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Laura E. Roman Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Rovert A. Rosso Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Linda D. Shulz Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Gordan E. Searles Vice President/Client Services None
- ------------------------------------------------------------------------------------------------------------------------------------
James R. Searles Vice President/VA Sales Manager None
- ------------------------------------------------------------------------------------------------------------------------------------
Catherine A. Seklecki Vice President/Retirement Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
John C. Shalloe Vice President/Wrap Fee Wholesaler, None
Western Region
- ------------------------------------------------------------------------------------------------------------------------------------
Edward B. Sheridan Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stansbury Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities and None
Administration Services
- ------------------------------------------------------------------------------------------------------------------------------------
Julia R. Vander-Els Vice President/Retirement Plan None
Communications
- ------------------------------------------------------------------------------------------------------------------------------------
Wayne W. Wagner Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Wells Vice President/Marketing Technology None
- ------------------------------------------------------------------------------------------------------------------------------------
Courtney S. West Vice President/Institutional Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew J. Wittaker Vice President/Wholesaler, Financial None
Institutions
- ----------------------------------------------------------------------------------------------------------------------------------
Theordore V. Wood Vice President/Technical Systems Officer None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Inapplicable.
Item 28. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818 Market
Street, Philadelphia, PA 19103 or One Commerce Square, Philadelphia, PA
19103.
Item 29. Management Services. None.
Item 30. Undertakings. Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this
12th day of August, 1999.
DELAWARE GROUP TAX-FREE FUND
By /s/David K. Downes
--------------------------
David K. Downes
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- ----------------------------------------- ----------------
<S> <C> <C>
/s/David K. Downes President/Chief Executive Officer/
- -------------------------------- Chief Operating Officer/Chief Financial August 12, 1999
David K. Downes Officer (Principal Executive Officer,
Principal Financial Officer and Principal
Accounting Officer) and Trustee
/s/Wayne A. Stork * Trustee August 12, 1999
- --------------------------------
Wayne A. Stork
/s/Walter P. Babich * Trustee August 12, 1999
- --------------------------------
Walter P. Babich
/s/ Anthony D. Knerr * Trustee August 12, 1999
- --------------------------------
Anthony D. Knerr
/s/ Ann R. Leven * Trustee August 12, 1999
- --------------------------------
Ann R. Leven
/s/Thomas F. Madison * Trustee August 12, 1999
- --------------------------------
Thomas F. Madison
/s/Charles E. Peck * Trustee August 12, 1999
- --------------------------------
Charles E. Peck
/s/John H. Durham * Trustee August 12, 1999
- --------------------------------
John H. Durham
/s/Jan L. Yeomans * Trustee August 12, 1999
- --------------------------------
Jan L. Yeomans
*By /s/ Wayne A. Stork
------------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.J Consent of Auditors
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 26 to the Registration Statement (Form N-1A) (No.
2-86606) of Delaware Group Tax-Free Fund, Inc. (comprised of Delaware Tax-Free
USA Fund, Delaware Tax-Free Insured Fund and Delaware Tax-Free USA Intermediate
Fund) of our report dated October 1, 1999, included in the 1999 Annual Report to
shareholders.
/s/ Ernst & Young
-------------------------------
Ernst and Young
Philadelphia, Pennsylvania
October 27, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Tax-Free Fund, Inc.
We have audited the accompanying statements of net assets of Delaware Group
Tax-Free Fund, Inc. (comprised of the Delaware Tax-Free USA Fund, the Delaware
Tax-Free Insured Fund, and the Delaware Tax-Free USA Intermediate Fund) and the
statement of assets and liabilities for the Delaware Tax-Free USA Intermediate
Fund as of August 31, 1999, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the periods then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Delaware Group Tax-Free Fund, Inc.
at August 31, 1999, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young
-------------------------------
Ernst and Young
Philadelphia, Pennsylvania
October 1, 1999
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statements of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 24 to the Registration Statement (Form N-1A) (No.
33-63238) of Voyageur Mutual Funds, Inc. (comprised of Delaware Tax-Free Arizona
Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, Delaware
Tax-Free Iowa Fund, Delaware Minnesota High-Yield Municipal Bond Fund, Delaware
National High-Yield Municipal Bond Fund, Delaware Tax-Free New York Fund, and
Delaware Tax-Free Wisconsin Fund) of our reports dated October 1, 1999, included
in the 1999 Annual Reports to shareholders.
/s/ Ernst & Young
-------------------------------
Ernst and Young
Philadelphia, Pennsylvania
October 27, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware National High-Yield Municipal Bond Fund
We have audited the accompanying statements of net assets of Delaware National
High Yield Municipal Bond Fund (the "Fund") as of August 31, 1999, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the periods indicated therein, and the
financial highlights for each of the periods presented from January 1, 1997
through August 31, 1999. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the periods presented through December 31,
1996 were audited by other auditors whose report thereon dated February 14, 1997
expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Delaware National High-Yield Municipal Bond Fund at August 31, 1999, the results
of its operations for the year then ended, the changes in its net assets for
each of the periods presented therein, and its financial highlights for each of
the periods presented from January 1, 1997 through August 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young
-------------------------------
Ernst and Young
Philadelphia, Pennsylvania
October 1, 1999
