<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. 25 [X]
------
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 25
------
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) 255-1244
---------------
Richard J. Flannery, 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)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
__X__ on November 1, 1999 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>
Pursuant to Rule 414 under the Securities Act of 1933, Delaware Group Tax-Free
Fund, as successor issuer of Delaware Group Tax-Free Fund, Inc., is filing this
amendment to the registration statement of Delaware Group Tax-Free Fund, Inc.
and expressly adopts the registration statement of Delaware Group Tax-Free Fund,
Inc. as its own for all purposes of the Securities Act of 1933 and the
Investment Company Act of 1940.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 25 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
INVESTMENTS
-----------
Philadelphia * London
Delaware Tax-Free USA Intermediate Fund
Delaware Tax-Free Insured Fund Fund
Delaware Tax-Free USA Fund
Delaware National High-Yield Municipal Bond Fund
Class A o Class B o Class C
Prospectus
November 2, 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.
<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
2
<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 and 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 securities are debt obligations issued by state
and local governments to raise funds for various public purposes such as
hospitals, schools and general operating expenses. The Fund will invest its
assets in securities with maturities of various lengths, depending on market
conditions, but will have a dollar-weighted average 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.
3
<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 returns for the Fund's Class A shares for the past five
calendar years, as well as the average annual returns of all shares for one- and
five-year periods and since inception, 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.
Total return (Class A)
- ---------------------------------------------------------------
1994 1995 1996 1997 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the periods illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended __________________ and its
lowest quarterly return was 0.00% for the quarter ended _________________.
The maximum Class A sales charge of 2.75%, which is normally assessed when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table on page __ do include the sales charge.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CLASS A B C Merrill Lynch 3-7 Year
Municipal Bond Index
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- -------------------------------------------------------------------------------------------------------------------------
(Inception 1/7/93) (Inception 5/2/94) (Inception 11/29/95)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
1 year
- -------------------------------------------------------------------------------------------------------------------------
5 years
- -------------------------------------------------------------------------------------------------------------------------
Lifetime**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns 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
actual 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 0.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or 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 0.00% and 0.00%,
respectively. Maximum sales charges are included in the Fund returns above.
4
<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.
- --------------------------------------------------------------------------------
Management fees 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.15%(4) 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Total operating expenses(5) 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------
3 years
- --------------------------------------------------------------------------------------------
5 years
- --------------------------------------------------------------------------------------------
10 years
- --------------------------------------------------------------------------------------------
</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.
5
<PAGE>
(5) The investment manager has agreed to waive fees and pay expenses from July
21, 1999 through December 31, 1999, 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 actual operating expenses which are based on the most
recently completed fiscal year and reflect the manager's current fee waivers and
payments.
- --------------------------------------------------------------------------------
Actual Fund operating expenses including voluntary expense caps
CLASS A B C
- --------------------------------------------------------------------------------
Management fees 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.15% 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Total operating expenses 0.80% 1.65% 1.65%
- --------------------------------------------------------------------------------
(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.
6
<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 and 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 securities are debt obligations issued by state
and local governments to raise funds for various public purposes such as
hospitals, schools and general operating expenses. The Fund will invest its
assets in securities with maturities of various lengths, depending on market
conditions, but will have a dollar-weighted average 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.
7
<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-years periods and since inception, 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>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the ten years illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended ___________ and its lowest
return was 0.00% for the quarter ended ________________.
The maximum Class A sales charge of 3.75%, which is normally deducted when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table below do include the sales charge.
8
<PAGE>
How has Tax-Free Insured Fund performed? (continued)
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Insured Municipal Bond
Index
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- --------------------------------------------------------------------------------------------------------------------------
(Inception 3/25/85) (Inception 5/2/94) (Inception 11/29/95)
- --------------------------------------------------------------------------------------------------------------------------
1 year
- --------------------------------------------------------------------------------------------------------------------------
5 years
- --------------------------------------------------------------------------------------------------------------------------
10 years or lifetime**
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns 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
actual 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 0.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or 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 00.00% and 0.00%,
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.
- --------------------------------------------------------------------------------
Management fees 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.00%(4) 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Total operating expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
9
<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.5 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS(6) A B B C C
(if redeemed) (if redeemed)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
1 year
- -----------------------------------------------------------------------------------------------
3 years
- -----------------------------------------------------------------------------------------------
5 years
- -----------------------------------------------------------------------------------------------
10 years
- -----------------------------------------------------------------------------------------------
</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) 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%.
(5) 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.
(6) 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.
10
<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 and 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 securities are debt obligations issued by state
and local governments to raise funds for various public purposes such as
hospitals, schools and general operating expenses. The Fund will invest its
assets in securities with maturities of various lengths, depending on market
conditions, but will have a dollar-weighted average 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.
11
<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 periods and since inception, 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>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the ten years illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended ___________ and its lowest
return was 0.00% for the quarter ended ________________.
The maximum Class A sales charge of 3.75%, which is normally deducted when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table below do include the sales charge.
12
<PAGE>
How has Tax-Free USA Fund performed? (continued)
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Municipal Bond Index
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- --------------------------------------------------------------------------------------------------------------------------
(Inception 1/11/84) (Inception 5/2/94) (Inception 11/29/95)
- --------------------------------------------------------------------------------------------------------------------------
1 year
- --------------------------------------------------------------------------------------------------------------------------
5 years
- --------------------------------------------------------------------------------------------------------------------------
10 years or lifetime**
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns 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 actual
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 0.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or 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 00.00% and 0.00%, 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.
- --------------------------------------------------------------------------------
Management fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees(4) 0.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Total operating expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
13
<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. (5) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS(6) A B B C C
(if redeemed) (if redeemed)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
1 year
- -----------------------------------------------------------------------------------------------
3 years
- -----------------------------------------------------------------------------------------------
5 years
- -----------------------------------------------------------------------------------------------
10 years
- -----------------------------------------------------------------------------------------------
</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) 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%.
(5) 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.
(6) 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.
14
<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 securities are debt obligations issued by state
and local governments to raise funds for various public purposes such as
hospitals, schools and general operating expenses. 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 of 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 level will vary depending on current
interest rates and the specific securities in the portfolio.
National High-Yield Municipal Bond Fund will invest primarily in lower-rated
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 even 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.
15
<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 returns for the Fund's Class A shares for the past ten
calendar years, as well as the average annual returns of all shares for one-,
five- and ten-year periods and since inception, 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.
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>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the periods illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended _____________ and its lowest
quarterly return was 0.00% for the quarter ended _________________.
The maximum Class A sales charge of 3.75%, which is normally assessed when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table on page __ do include the sales charge.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Municipal Bond Index
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- ----------------------------------------------------------------------------------------------------------------------------
(Inception 9/22/86) (Inception 12/18/96) (Inception 5/26/97)
- ----------------------------------------------------------------------------------------------------------------------------
1 year
- ----------------------------------------------------------------------------------------------------------------------------
5 years
- ----------------------------------------------------------------------------------------------------------------------------
10 years or lifetime**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns 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 actual
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 00.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or 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 00.00% and 0.00%, respectively.
Maximum sales charges are included in the Fund returns above.
16
<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.
- --------------------------------------------------------------------------------
Management fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Total operating expenses(4) 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
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.5 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS(6) A B B C C
(if redeemed) (if redeemed)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
1 year
- -----------------------------------------------------------------------------------------------
3 years
- -----------------------------------------------------------------------------------------------
5 years
- -----------------------------------------------------------------------------------------------
10 years
- -----------------------------------------------------------------------------------------------
</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.
17
<PAGE>
(4) The investment manager has agreed to waive fees and pay expenses through
December 31, 1999 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.
- --------------------------------------------------------------------------------
Actual Fund operating expenses including voluntary expense caps
CLASS A B C
- --------------------------------------------------------------------------------
Management fees 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Total operating expenses 1.00% 1.75% 1.75%
- --------------------------------------------------------------------------------
(5) 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.
(6) 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.
18
<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 exempt from federal income tax issued by or on behalf of the
District of Columbia and its political subdivisions, agencies, authorities and
instrumentalities or territories and possessions of the United States.
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 weighted maturity of between five 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 maturity of
approximately 3 to 30 years. National High-Yield Municipal Bond Fund will
generally have a weighted average maturity of between 15 and 25 years.
During times of abnormal market conditions each Fund may invest in
taxable instruments for temporary defensive purposes. These would 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.
19
<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 Under normal Under normal Under normal
obligations Commonly conditions the Fund market conditions, conditions,
known as municipal will invest 90% of each Fund will National High-Yield
bonds, these are debt its assets in invest 80% of its Municipal Bond Fund
obligations issued by tax-exempt debt assets in tax-exempt will invest at
or on behalf of a obligations rated debt obligations least 65% its net
state or territory, in the top four rated in the top assets in medium
its agencies or quality grades by four quality grades and lower grade
instrumentalities, S&P or another NRSRO. by S&P or another tax-exempt
municipalities or These bonds may NRSRO. These bonds obligations rated
other political include general may include general between BBB and B-.
sub-divisions. The obligation bonds obligation bonds
interest on these and revenues bonds. and revenue bonds. The Fund will not
debt obligations can make initial
be excluded from investments in
federal income tax as securities rated
well as personal below B-, although
income tax in the it may continue to
state where the bond hold such securities
is issued. if their rating has
Determination of a been reduced below
bond's tax-exempt that grade.
status is based on
the opinion of the The Fund may invest
bond issuer's legal all or a portion of
counsel. its assets in higher
grade securities if
the manager
determines that
abnormal market
conditions make
investing in lower
rated securities
inconsistent with
shareholders' best
interest.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
20
<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 The Fund may invest The Fund may The Fund may The Fund may invest
bonds are municipal without limit in invest in general invest without in general
bonds on which the general obligation obligation bonds; limit in general obligations and
payment of principal bonds in the top however, after the obligation bonds will typically
and interest is four quality grades application of in the top four invest in lower
secured by the or bonds that are insurance, bonds quality grades or quality bonds rated
issuer's pledge of unrated, but which representing at bonds that are between BBB and B-
its full faith, the manager least 80% of net unrated, but which by S&P or another
credit and taxing determines to be of assets will be the manager NRSRO.
power. equal quality. rated AAA by S&P determines to be
or have an of equal quality.
equivalent rating
from another NRSRO.
- -------------------------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------------------------------------
Revenue bonds are The Fund may invest The Fund may The Fund may The Fund may invest
municipal bonds on without limit in invest in revenue invest without in revenue bonds
which principal and revenue bonds in bonds; however, limit in revenue and will typically
interest payments are the top four after the bonds in the top invest in lower
made from revenues quality grades or application of four quality quality bonds rated
derived from a bonds that are insurance, bonds grades or bonds between BBB and B-
particular facility, unrated, but which representing 80% that are unrated, by S&P or another
from the proceeds of the manager of net assets will but which the NRSRO.
a special excise tax determines to be of be rated AAA by manager determines
or from revenue equal quality. S&P or have an to be of equal
generated by an equivalent rating quality.
operating project. from another NRSRO.
Principal and
interest are not
secured 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>
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>
- -------------------------------------------------------------------------------------------------------------
Insured municipal Each Fund may invest without limit in insured bonds. We do not evaluate the
bonds: Various creditworthiness of the private insurer. Instead, we focus first on the
municipal issuers may creditworthiness of the actual bond issuer and its ability to pay interest and
obtain insurance for principal.
their obligations. In
the event of a It is possible that a substantial portion of a Fund's portfolio may consist of
default, the insurer municipal bonds that are insured by a single insurance company.
is required to make
payments of interest Insurance is available on uninsured bonds and each Fund may purchase such insurance
and principal when directly. We will generally do so only if we believe that purchasing and insuring a
due to the bond provides an investment opportunity at least comparable to owning other
bondholders. available uninsured securities.
However, there is no
assurance that the The purpose of insurance is to protect against credit risk. It does not insure
insurance company against market risk or guarantee the value of the securities in the portfolio or
will meet its the value of shares of any of the Funds.
obligations. Insured -------------------------------------------------------------------------------------
obligations are Insured bonds will At least 80% of Insured bonds will typically not be a
typically rated in typically not be a Tax-Free Insured significant portion of the investments
the top quality significant portion Fund's net assets of Tax-Free USA Fund or National
grades by an NRSRO. of Tax-Free USA will be invested High-Yield Municipal Bond Fund.
Intermediate Fund. in 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>
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>
- -------------------------------------------------------------------------------------------------------------
Private activity or Each Fund may invest up to 20% of its assets in bonds whose National High-Yield
private placement income is subject to the federal alternative minimum tax. Municipal Bond Fund
bonds are municipal This means that a portion of the Fund's distributions could may invest without
bond issues whose be subject to the federal alternative minimum tax that limit in these bonds.
proceeds are used to applies to certain taxpayers.
finance certain
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>
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>
- -------------------------------------------------------------------------------------------------------------
Zero coupon bonds: We may invest in zero coupon bonds. The market prices of these bonds are generally
Zero coupon more volatile than the market prices of securities that pay interest periodically
securities are debt and are likely to react to changes in interest rates to a greater degree than
obligations which do interest-paying bonds having similar maturities and credit quality. They may have
not entitle the certain tax consequences which, under certain conditions, could be adverse to the
holder to any Fund.
periodic payments of
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>
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>
- -------------------------------------------------------------------------------------------------------------
Inverse floaters are The Fund may Tax-Free Insured Fund and Tax-Free USA The Fund may
instruments with invest in inverse Fund may invest in inverse floaters as invest in inverse
floating or variable floaters. There long as each Fund's combined investments floaters. There is no
interest rates that is no limit on in inverse floaters, futures contracts, limit on the
move in the opposite the percentage of options on futures contracts and percentage of its net
direction of its net assets securities rated below investment grade assets that may be
short-term interest that may be do not exceed 20% of total net assets. invested in these
rates, usually at an invested in these securities.
accelerated speed. securities.
Consequently, the
market 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 Each Fund may purchase "floating rate" and "variable rate" obligations without
floating rate limitation.
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>
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>
- -------------------------------------------------------------------------------------------------------------
Advance refunded Each Fund may invest without limit in advance refunded bonds. These bonds are
bonds In an generally considered to be of very high quality because of the escrow account, which
advance refunding, typically holds U.S. Treasuries.
the issuer will
use the proceeds
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
payments of
principal and
interest 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>
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>
- -------------------------------------------------------------------------------------------------------------
High-yield, high The Fund may Insured Fund may The Fund may invest National
risk municipal invest up to 10% invest a portion of up to 20% of its net High-Yield
bonds: Municipal of its net its assets in debt assets in high-yield, Municipal Bond
debt obligations assets in obligations that are high risk Fund will invest
rated lower than high-yield, high considered to be fixed-income primarily in
investment grade by risk below investment securities. lower rated,
a nationally fixed-income grade. The fund high-yield
recognized securities. presently intends to securities. In
statistical ratings limit such doing so, the
organization (NRSRO) investments to no Fund may offer
or, if unrated, of more than 5% of its higher income
comparable quality. assets, as measured potential, but
These securities are at the time the Fund may also be
often referred to as is considering such subject to
"junk bonds" and are a purchase. greater risk,
considered to be of including price
poor standing and volatility during
predominately periods of
speculative. adverse economic
conditions. The
Fund may also
experience a
higher incidence
of credit
problems.
- -------------------------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------------------------------------
Options represent a The Fund may Tax-Free Insured Fund and Tax-Free USA Fund The Fund may
right to buy or sell utilize options may not invest in Options. utilize options
a security at an transactions in transactions in
agreed upon price at order to hedge order to hedge
a future date. The against market against market
purchaser of an risk and/or risk and/or
option may or may not facilitate facilitate
choose to go through portfolio portfolio
with the transaction. management. management.
Certain options may
be considered to be The Fund may The Fund may
derivative securities. purchase purchase options
options on any on any security
security it is it is permitted
permitted to to invest in or
invest in or any index of
any index of securities that
securities that it is permitted
it is permitted to invest in.
to invest in.
Use of these
Use of these strategies can
strategies can increase the
increase the operating costs
operating costs of the Fund and
of the Fund and can lead to loss
can lead to of principal.
loss of
principal.
- -------------------------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------------------------------------
Futures contracts are Futures contracts may be used by the Funds to hedge market risks and/or
agreements for the facilitate portfolio management. Each of the Funds may enter into futures
purchase or sale of contracts for the purchase or sale of any security they are permitted to invest,
securities at a however, only the National High-Yield Municipal Bond Fund may also engage in
specified price, on a contracts based on an index of securities that they are permitted to invest in.
specified date.
Unlike an option, a At times when we anticipate adverse conditions, we may want to protect gains on
futures contract must securities without actually selling them. We might use options or futures to
be executed unless it neutralize the effect of any price declines, without selling a bond or bonds.
is sold 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 We may invest without limitation in privately placed securities that are eligible
securities are for resale only among certain institutional buyers without registration. These are
privately placed commonly known as "Rule 144A Securities."
securities whose
resale is restricted
under securities law.
- -------------------------------------------------------------------------------------------------------------
Illiquid securities Each Fund may invest up to 10% of its net assets in National High-Yield
are securities that illiquid securities. Municipal Bond Fund
do not have a ready may invest up to 15%
market, and cannot of its net assets in
be easily sold illiquid securities.
within seven days at
approximately the
price that the Fund
has valued them.
- -------------------------------------------------------------------------------------------------------------
</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>
- -----------------------------------------------------------------------------------------------------------------
Repurchase Typically, we use repurchase agreements as a short-term Typically, we use
agreements are investment for our cash position. Each Fund may use repurchase agreements
agreements between a repurchase agreements which are at least 102% as a short-term
buyer and seller of collateralized by securities in which the Fund is investment for our
securities in which permitted to invest directly. cash position. We may
the seller agrees to not enter into
buy the securities repurchase agreements
back within a that represent more
specified time at than 10% of total assets
the same price the except when investing
buyer paid for them, for defensive purposes
plus an amount equal during periods of adverse
to an agreed upon market conditions.
interest rate.
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 total
repurchase agreements assets in reverse
except that the Funds repurchase agreements.
would act as the This may be preferable to
seller and agree to a regular sale because it
buy back the avoids certain market
securities at the risk and transaction
same price the buyer costs. However, it is a
paid for them, plus form of leveraging which
an agreed upon may exaggerate any
interest rate. increases or decreases in
each Fund's net asset
value. Because use of
this technique is limited
to 10% of total assets,
we believe it may
facilitate the Fund's
ability to provide
current income without
adversely affecting our
ability to preserve
capital.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Please see the Statement of Additional Information for additional descriptions
on other securities the Funds may invest in as well as those listed in the table
above.
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 or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery up to 45 days
later. 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 investors for their use in security 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.
32
<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 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
risk that all or a provide a steady income stream regardless of interim market fluctuations. We do not
majority of the try to predict overall market movements and do 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
security risk is the bonds representing different industries and regions throughout the country in order
risk that the value to minimize the impact that a poorly performing security would have on a Fund. We
of securities in a also follow a rigorous selection process before choosing securities for the
particular industry portfolio.
or the value of an
individual security Tax-Free Insured Fund
will decline because may be less subject to
of changing industry and security
expectations for the risk because payment of
performance of that interest and principal
industry or for the on the bonds in the
individual issuer of portfolio are insured,
the security. potentially reducing the
effect that changing
expectations might have
on an individual bond.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------
Tax-Free 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
Interest rate risk increase return by aggressively capitalizing on interest rate moves.
is the risk that predicting and In an attempt to reduce interest rate risk, we will
securities, aggressively adjust the Fund's average maturity based on our
particularly bonds capitalizing on view of interest rates. In anticipation of an
with longer interest rate moves. interest rate delcine, we may extend average
maturities, will Instead, we aim to maturity and when we anticipate an increase we may
decrease in value if maintain an shorten average maturity.
interest rates rise. intermediate average
maturity that helps
us reduce the
effects of interest
rate volatility. In
an attempt to reduce
interest rate risk,
we will adjust the
Fund's average
maturity based on our
view of interest
rates. In anticipation
of an interest rate
delcine, we may extend
average maturity and
when we anticipate an
increase we may shorten
average maturity.
- -----------------------------------------------------------------------------------------------------------------
Credit Risk We conduct careful Tax-Free Insured We conduct careful National
Is the possibility credit analysis of Fund is less credit analysis of High-Yield
that a bond's issuer individual bonds; we affected by individual bonds; we Municipal Bond
(or an entity that focus on high credit risk focus on high Fund is subject to
insures the bond) quality bonds and because the quality bonds and significant credit
will be unable to limit our holdings majority of the limit our holdings risk due to its
make timely payments of bonds rated below bonds in the of bonds rated below investment in
of interest and investment grade; portfolio are investment grade; lower quality,
principal. and we hold a number insured. This and we hold a number high-yielding
of different bonds insurance is of different bonds bonds. This risk
In the case of in the portfolio. designed to in the portfolio. is described more
municipal bonds, All of this is minimize credit All of this is fully below. We
issuers may be designed to help risks to the designed to help strive to manage
affected by poor reduce credit risk. Fund, by reduce credit risk. this risk by
economic conditions increasing the maintaining a
in their states. likelihood that number of
the Fund would different bonds
still receive from different
payment even if issuers so that if
an issuer one issuer
defaulted. experiences
difficulties, it
will have a lesser
effect on the
entire portfolio.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------
Tax-Free Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Call risk is the risk We take into consideration the likelihood of prepayment when we select bonds and, in
that a bond issuer certain environments, may look for bonds that have protection against early prepayment.
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 Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Liquidity risk is the We limit exposure to illiquid securities.
possibility that
securities cannot be
readily sold within
seven days at
approximately the
price that a Fund
values them.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------
Tax-Free 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 We limit the amount of the portfolio, which may be invested We hold a number of
municipal bonds in lower quality, higher yielding bonds. different bonds
Investing in representing a
so-called variety of
"junk" bonds entails industries and
the risk of principal municipal projects,
loss, which may be seeking to minimize
greater than the risk the effect that any
involved in one bond may have
investment grade on the portfolio.
bonds. High-yield
bonds are sometimes
issued by
municipalities with
lesser financial
strength and
therefore less
ability to make
projected debt
payments on the
bonds.
Although experts
disagree on the impact
recessionary periods
have had and will have
on high-yield
municipal bonds, some
analysts believe a
protracted economic
downturn would most
likely adversely affect
the value of outstanding
bonds and the ability
of high-yield issuers
to repay principal and
interest.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
The risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------
Tax-Free Tax-Free Insured Tax-Free USA Fund National High-Yield
Intermediate Fund Fund Municipal Bond Fund
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Non-diversified funds Each Fund is a non-diversified fund and is subject to this risk. Nevertheless, we
risk Non-diversified typically hold securities from a variety of different issuers, representing different
funds are believed to sectors and different types of municipal projects. We also perform extensive credit
be subject to greater analysis on all securities. We are particularly diligent in reviewing the credit status
risks because adverse of bonds that represent a larger percentage of portfolio assets.
effects on their
individual investments
may affect a larger
portion of their
overall assets. In a
diversified fund, 75%
of the portfolio must
be diversified,
meaning that within
that portion of the
portfolio, the Fund
cannot invest more
than 5% of its net
assets in an
individual security.
When a fund is
non-diversified, it
does not have to limit
the percentage of
assets invested in
individual securities.
However, the Funds do
intend to satisfy the
Internal Revenue
Code's diversification
requirement, which
says that for 50% of a
Fund's assets, no more
than 5% of net assets
can be invested in
any one individual
security. This means
that 50% of each Fund
must be spread among
various securities,
with no more than 5%
of net assets invested
in any single
security. The other
50% can be more
concentrated with up
to 25% invested in
individual securities.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
38
<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 * *
- ----------------------------------------------------------------------------------------------------------------------------------
</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. Mr. Coyne is a member of the
Municipal Bond Club of Philadelphia.
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.
39
<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> <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
National Association of Securities Dealers, 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.
40
<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.
41
<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 described in the table below.
Class A Sales Charges
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund, Tax-Free USA Fund, National High-Yield Tax-Free USA Intermediate Fund
Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
Amount of Sales Sales charge as % of amount invested Dealer's Sales Sales Dealer's
purchase charge as Commission as charge as % charge as % Commission as
% % of offering of of amount % of offering
of price offering invested price
offering price
price
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Free Tax-Free National Tax-Free USA Intermediate Fund
Insured USA Fund High-Yield
Fund Municipal
Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
Less than 3.75% 3.25% 2.75% 2.35%
$100,000
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
$100,000 3.00% 2.50% 2.00% 1.75%
but
under
$250,000
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
$250,000 2.50% 2.00% 1.00% 0.75%
but
under
$500,000
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
$500,000 2.00% 1.75% 1.00% 0.75%
but
under $1
million
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
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 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 purchase Sales charge as % Sales charge as % of amount invested Dealer's commission as %
Of offering price of offering price
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Insured Tax-Free USA National High-Yield
Fund Fund Municipal Bond Fund
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
$1 million up to none none none none 1.00%
$5 million
- ------------------------------------------------------------------------------------------------------------------------------------
Next $20 million none none none none 0.50%
Up to $25 million
- ------------------------------------------------------------------------------------------------------------------------------------
Amount over $25 none none none none 0.25%
million
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 Tax-Free USA Intermediate Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge as % Sales charge as % of amount invested Dealer's commission as %
Of offering price of offering price
- ----------------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
$1 million up to $5 none none 0.50%
million
- ----------------------------------------------------------------------------------------------------------------------
Amount over $5 none none 0.25%
million
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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 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 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.
43
<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 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.
44
<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 you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
shares to fulfill your
Letter of Intent or
qualify for Rights of
Accumulation.
- ------------------------------------------------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings X
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.
- ------------------------------------------------------------------------------------------------------------------------------
Reinvestment of redeemed shares Up to 12 months after you X X Not
redeem shares, you can reinvest available
the proceeds without paying a
front-end sales charge for
Class A. For Class B your CDSC
will be reimbursed.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<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.
46
<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.
47
<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.
48
<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.
49
<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.
50
<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 distribuiton.
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.
51
<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
52
<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 $11.710 $11.550 $12.070 $12.040
Income from investment operations:
Net investment income 0.597 0.666 0.696 0.746
Net realized and unrealized gain
(loss) on investments 0.310 0.210 (0.460) 0.030
------- ------- ------- -------
Total from investment operations 0.907 0.876 0.236 0.776
------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.597) (0.666) (0.696) (0.746)
Distributions from net realized gain
on investments (0.190) (0.050) (0.060) none
------- ------- ------- -------
Total dividends and distributions (0.787) (0.716) (0.756) (0.746)
------- ------- ------- -------
Net asset value, end of period $11.830 $11.710 $11.550 $12.070
======= ======= ======= =======
Total return(2) 8.00% 7.79% 1.91% 6.74%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $586,848 $615,852 $700,853 $758,470
Ratio of expenses to average net
assets 0.97% 0.94% 0.94% 0.92%
Ratio of net investment income to
average net assets 5.08% 5.73% 5.82% 6.29%
Portfolio turnover 81% 44% 42% 27%
</TABLE>
53
<PAGE>
RESTUBBED FROM PREVIOUS TABLE
<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 $11.710 $11.550 $12.070 $12.040 $11.710 $11.550 $12.030
Income from investment operations:
Net investment income 0.503 0.573 0.600 0.649 0.504 0.573 0.473
Net realized and unrealized gain
(loss) on investments 0.310 0.210 (0.460) 0.030 0.310 0.210 (0.620)
------- ------- ------- ------- ------- ------- -------
Total from investment operations 0.813 0.783 0.140 0.679 0.814 0.783 (0.170)
------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.503) (0.573) (0.600) (0.649) (0.504) (0.573) (0.450)
Distributions from net realized gain
on investments (0.190) (0.050) (0.060) none (0.190) (0.050) (0.060)
------- ------- ------- ------- ------- ------- -------
Total dividends and distributions (0.693) (0.623) (0.660) (0.649) (0.694) (0.623) (0.510)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $11.830 $11.710 $11.550 $12.070 $11.830 $11.710 $11.550
======= ======= ======= ======= ======= ======= =======
Total return(2) 7.15% 6.94% 1.11% 5.88% 7.15% 6.94% (1.44%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $36,919 $35,055 $29,773 $17,779 $2,343 $1,505 $805
Ratio of expenses to average net
assets 1.77% 1.74% 1.74% 1.74% 1.77% 1.74% 1.74%
Ratio of net investment income to
average net assets 4.28% 4.93% 5.03% 5.47% 4.28% 4.93% 5.03%
Portfolio turnover 81% 44% 42% 27% 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.
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 Insured Fund
- ----------------------------------------------------------------------------------------
Year Ended 8/31
--------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.050 $10.860 $11.050 $11.020
Income from investment operations:
Net investment income 0.517 0.573 0.588 0.639
Net realized and unrealized gain
(loss) on investments 0.295 0.281 (0.160) 0.030
------- ------- ------- -------
Total from investment operations 0.812 0.854 0.428 0.669
------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.517) (0.573) (0.588) (0.639)
Distributions from net realized gain
on investments (0.195) (0.091) (0.030) none
------- ------- ------- -------
Total dividends and distributions (0.712) (0.664) (0.618) (0.639)
------- ------- ------- -------
Net asset value, end of period $11.150 $11.050 $10.860 $11.050
======= ======= ======= =======
Total return(2) 7.57% 8.07% 3.88% 6.33%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $74,246 $78,377 $81,149 $86,756
Ratio of expenses to average net
assets 1.10% 1.05% 0.98% 0.98%
Ratio of net investment income to
average net assets 4.65% 5.23% 5.29% 5.89%
Portfolio turnover 63% 42% 45% 68%
- ----------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
RESTUBBED FROM PREVIOUS TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------- ----------------------------------------
Delaware Tax-Free Class B Class C
USA Insured Fund
- -------------------------------------------------------------------------------------- ----------------------------------------
Period
Year Ended 8/31 Year Ended 8/31 11/29/95(2)
------------------------------------------------ ----------------------------- 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 $11.050 $10.860 $11.050 $11.020 $11.050 $10.860 $11.260
Income from investment operations:
Net investment income 0.427 0.485 0.499 0.550 0.425 0.485 0.375
Net realized and unrealized gain
(loss) on investments 0.295 0.281 (0.160) 0.030 0.295 0.281 (0.370)
------- ------- ------- ------- ------- ------- -------
Total from investment operations 0.722 0.766 0.339 0.580 0.720 0.766 0.005
------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.427) (0.485) (0.499) (0.550) (0.425) (0.485) (0.375)
Distributions from net realized gain
on investments (0.195) (0.091) (0.030) none (0.195) (0.091) (0.030)
------- ------- ------- ------- ------- ------- -------
Total dividends and distributions (0.622) (0.576) (0.529) (0.550) (0.620) (0.576) (0.405)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $11.150 $11.050 $10.860 $11.050 $11.150 $11.050 $10.860
======= ======= ======= ======= ======= ======= =======
Total return(2) 6.72% 7.21% 3.05% 5.47% 6.72% 7.21% 0.01%
Ratios and supplemental data:
Net assets, end of period (000
omitted) $4,268 $3,619 $3,375 $0 $321 $89 $120
Ratio of expenses to average net
assets 1.90% 1.85% 1.78% 1.80% 1.90% 1.85% 1.78%
Ratio of net investment income to
average net assets 3.85% 4.43% 4.48% 5.07% 3.85% 4.43% 4.48%
Portfolio turnover 63% 42% 45% 68% 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 $10.460 $10.320 $10.410 $10.320
Income from investment operations:
Net investment income 0.501 0.524 0.550 0.550
Net realized and unrealized gain
(loss) on investments 0.250 0.140 (0.090) 0.090
------- ------- ------- -------
Total from investment operations 0.751 0.664 0.460 0.640
------- ------- ------- -------
Less dividends:
Dividends from net investment income (0.501) (0.524) (0.550) (0.550)
------- ------- ------- -------
Total dividends (0.501) (0.524) (0.550) (0.550)
------- ------- ------- -------
Net asset value, end of period $10.710 $10.460 $10.320 $10.410
======= ======= ======= =======
Total return(2) 7.34% 6.57% 4.52% 6.43%
Ratios and supplemental data:
Net assets, end of period (000
omitted) $22,562 $21,635 $22,617 $20,492
Ratio of expenses to average net
assets 0.67% 0.43% 0.25% 0.25%
Ratio of expenses to average net
assets prior to expense limitation 1.33% 1.02% 0.95% 1.07%
Ratio of net investment income to
average net assets 4.73% 5.03% 5.29% 5.37%
Ratio of net investment income to
average net assets
prior to expense limitation 4.07% 4.44% 4.59% 4.55%
Portfolio turnover 104% 34% 15% 63%
- ----------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
RESTUBBED FROM PREVIOUS TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------- ----------------------------------------
Delaware Tax-Free Class B Class C
USA Intermediate Fund
- -------------------------------------------------------------------------------------- ----------------------------------------
Period
Year Ended 8/31 Year Ended 8/31 11/29/95(2)
------------------------------------------------ ----------------------------- 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 $10.460 $10.320 $10.410 $10.320 $10.460 $10.320 $10.480
Income from investment operations:
Net investment income 0.411 0.436 0.460 0.460 0.411 0.436 0.350
Net realized and unrealized gain
(loss) on investments 0.250 0.140 (0.090) 0.090 0.250 0.140 (0.160)
------- ------- ------- ------- ------- ------- -------
Total from investment operations 0.661 0.576 0.370 0.550 0.661 0.576 0.190
------- ------- ------- ------- ------- ------- -------
Less dividends:
Dividends from net investment income (0.411) (0.436) (0.460) (0.460) (0.411) (0.436) (0.350)
------- ------- ------- ------- ------- ------- -------
Total dividends (0.411) (0.436) (0.460) (0.460) (0.411) (0.436) (0.350)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $10.710 $10.460 $10.320 $10.410 $10.710 $10.460 $10.320
======= ======= ======= ======= ======= ======= =======
Total return(2) 6.43% 5.67% 3.63% 5.53% 6.43% 5.67% 1.84%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $1,933 $1,832 $1,490 $949 $1,996 $1,426 $193
Ratio of expenses to average net
assets 1.52% 1.28% 1.10% 1.10% 1.52% 1.28% 1.10%
Ratio of expenses to average net
assets prior to expense limitation 2.18% 1.87% 1.80% 1.92% 2.18% 1.87% 1.80%
Ratio of net investment income to
average net assets 3.88% 4.18% 4.44% 4.52% 3.88% 4.18% 4.44%
Ratio of net investment income to
average net assets
prior to expense limitation 3.22% 3.59% 3.74% 3.70% 3.22% 3.59% 3.74%
Portfolio turnover 104% 34% 15% 63% 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 at net asset value and does
not reflect the impact of a sales.
58
<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
National High-Yield
Municipal Bond Fund
- -------------------------------------------------------------------------------------------------
Year Eight Year Period Year Year
Ended Months Ended 8/1/96 Ended Ended
8/31 Ended 8/31 through 8/31 8/31
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 $10.720 $10.400 $10.190 $10.170 $10.170
Income from investment operations:
Net investment income 0.398 0.648 0.260 0.630 0.650
Net realized and unrealized gain
(loss) on investments 0.115 0.390 0.210 0.140 0.040
------- ------- ------- ------- -------
Total from investment operations 0.513 1.038 0.470 0.770 0.690
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.398) (0.647) (0.260) (0.630) (0.650)
Distributions from net realized
gain on investments (0.035) (0.071) none (0.120) (0.040)
------- ------- ------- ------- -------
Total dividends and distributions (0.433) (0.718) (0.260) (0.750) (0.690)
------- ------- ------- ------- -------
Net asset value, end of period $10.800 $10.720 $10.400 $10.190 $10.170
======= ======= ======= ======= =======
Total return(5) 4.87% 10.32% 4.52% 7.78% 7.16%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $69,606 $55,458 $59,105 $63,460 $66,357
Ratio of expenses to average net 0.92% 0.84% 0.87%(6) 0.85% 0.79%
assets
Ratio of expenses to average net
assets prior to expense limitation 1.12% 1.12% 1.07%(6) 0.96% 0.90%
Ratio of net investment income to
average net assets 5.52% 6.15% 6.06%(6) 6.10% 6.45%
Ratio of net investment income to
average net assets prior to
expense limitation 5.32% 5.87% 5.86%(6) 5.99% 6.34%
Portfolio turnover 43% 45% 7% 0% 8%
- -------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
RESTUBBED FROM PREVIOUS TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- ------------------------------------
Delaware Tax-Free 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 8/31 through 8/31 Ended through
1999 8/31/98(1) 1997(2) 12/31/96 1999 8/31/98(1) 12/31/97(2)
- ---------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.730 $10.400 $10.370 $10.740 $10.440
Income from investment operations:
Net investment income 0.348 0.534 0.010 0.345 0.315
Net realized and unrealized gain
(loss) on investments 0.122 0.433 0.030 0.128 0.391
------- ------- ------- ------- -------
Total from investment operations 0.470 0.967 0.040 0.473 0.706
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.345) (0.566) (0.010) (0.348) (0.335)
Distributions from net realized
gain on investments (0.035) (0.071) -- (0.035) (0.071)
------- ------- ------- ------- -------
Total dividends and distributions (0.380) (0.637) (0.010) (0.383) (0.406)
------- ------- ------- ------- -------
Net asset value, end of period $10.820 $10.730 $10.400 $10.830 $10.740
======= ======= ======= ======= =======
Total return(5) 4.44% 9.57% 0.43% 4.44% 6.88%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $10,620 $3,573 $88 $4,690 $1,220
Ratio of expenses to average net 1.67% 1.56% 1.45%(6) 1.67% 1.62%(6)
assets
Ratio of expenses to average net
assets prior to expense limitation 1.87% 1.84% 1.66%(6) 1.87% 1.90%(6)
Ratio of net investment income to
average net assets 4.77% 5.43% 4.65%(6) 4.77% 5.37%(6)
Ratio of net investment income to
average net assets prior to
expense limitation 4.57% 5.15% 4.44%(6) 4.57% 5.09%(6)
Portfolio turnover 43% 45% 7% 43% 45%
- ---------------------------------------------------------------------------- -----------------------------------
</TABLE>
- -------------------
(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.
60
<PAGE>
Financial highlights
The Financial highlights table is intended to help you understand each 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 Funds' financial statements, is included in the
Funds' 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
------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Net asset value, beginning of period $11.710 $11.550 $12.070 $12.040
- -------------------------------------- --------- -------- --------- --------- ---------
Income from investment
operations:
- -------------------------------------- --------- -------- --------- --------- ---------
Net investment income 0.597 0.666 0.696 0.746
- -------------------------------------- --------- -------- --------- --------- ---------
Net realized and unrealized gain
(loss) on investments 0.310 0.210 (0.460) 0.030
----- ----- ------- -----
- -------------------------------------- --------- -------- --------- --------- ---------
Total from investment operations 0.907 0.876 0.236 0.776
----- ----- ----- -----
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Less dividends and distributions:
- -------------------------------------- --------- -------- --------- --------- ---------
Dividends from net investment income (0.597) (0.666) (0.696) (0.746)
- -------------------------------------- --------- -------- --------- --------- ---------
Distributions from net realized gain
on investments (0.190) (0.050) (0.060) none
------- ------- ------- ----
- -------------------------------------- --------- -------- --------- --------- ---------
Total dividends and distributions (0.787) (0.716) (0.756) (0.746)
------- ------- ------- -------
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Net asset value, end of period $11.830 $11.710 $11.550 $12.070
======= ======= ======= =======
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Total return2 8.00% 7.79% 1.91% 6.74%
- -------------------------------------- --------- -------- --------- --------- ---------
- -------------------------------------- --------- -------- --------- --------- ---------
Ratios and supplemental data:
- -------------------------------------- --------- -------- --------- --------- ---------
Net assets, end of period (000 $586,848 $615,852 $700,853 $758,470
omitted)
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of expenses to average net 0.97% 0.94% 0.94% 0.92%
assets
- -------------------------------------- --------- -------- --------- --------- ---------
Ratio of net investment income to
average net assets 5.08% 5.73% 5.82% 6.29%
- -------------------------------------- --------- -------- --------- --------- ---------
Portfolio turnover 81% 44% 42% 27%
- -------------------------------------- --------- -------- --------- --------- ---------
</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.
61
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------- ------------------------------------------------
Delaware Tax-Free Class B
USA Fund
- -------------------------------------- ------------------------------------------------
Year Ended 8/31
------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
- -------------------------------------- --------- --------- --------- --------- --------
- -------------------------------------- --------- --------- --------- --------- --------
Net asset value, beginning of period $11.710 $11.550 $12.070 $12.040
- -------------------------------------- --------- --------- --------- --------- --------
Income from investment
operations:
- -------------------------------------- --------- --------- --------- --------- --------
Net investment income 0.503 0.573 0.600 0.649
- -------------------------------------- --------- --------- --------- --------- --------
Net realized and unrealized gain
(loss) on investments 0.310 0.210 (0.460) 0.030
----- ----- ------- -----
- -------------------------------------- --------- --------- --------- --------- --------
Total from investment operations 0.813 0.783 0.140 0.679
----- ----- ----- -----
- -------------------------------------- --------- --------- --------- --------- --------
- -------------------------------------- --------- --------- --------- --------- --------
Less dividends and distributions:
- -------------------------------------- --------- --------- --------- --------- --------
Dividends from net investment income (0.503) (0.573) (0.600) (0.649)
- -------------------------------------- --------- --------- --------- --------- --------
Distributions from net realized gain
on investments (0.190) (0.050) (0.060) none
------- ------- ------- ----
- -------------------------------------- --------- --------- --------- --------- --------
Total dividends and distributions (0.693) (0.623) (0.660) (0.649)
------- ------- ------- -------
- -------------------------------------- --------- --------- --------- --------- --------
- -------------------------------------- --------- --------- --------- --------- --------
Net asset value, end of period $11.830 $11.710 $11.550 $12.070
======= ======= ======= =======
- -------------------------------------- --------- --------- --------- --------- --------
- -------------------------------------- --------- --------- --------- --------- --------
Total return2 7.15% 6.94% 1.11% 5.88%
- -------------------------------------- --------- --------- --------- --------- --------
- -------------------------------------- --------- --------- --------- --------- --------
Ratios and supplemental data:
- -------------------------------------- --------- --------- --------- --------- --------
Net assets, end of period (000 $36,919 $35,055 $29,773 $17,779
omitted)
- -------------------------------------- --------- --------- --------- --------- --------
Ratio of expenses to average net 1.77% 1.74% 1.74% 1.74%
assets
- -------------------------------------- --------- --------- --------- --------- --------
Ratio of net investment income to 4.28% 4.93% 5.03% 5.47%
average net assets
- -------------------------------------- --------- --------- --------- --------- --------
Portfolio turnover 81% 44% 42% 27%
- -------------------------------------- --------- --------- --------- --------- --------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------- ---------------------------------------
Delaware Tax-Free Class C
USA Fund
- -------------------------------------- ---------------------------------------
11/29/951
through
Year Ended 8/31 8/31/96
---------------------------- ----------
<S> <C> <C> <C>
1999 1998 1997
- -------------------------------------- -------- --------- --------- ----------
- -------------------------------------- -------- --------- --------- ----------
Net asset value, beginning of period $11.710 $11.550 $12.030
- -------------------------------------- -------- --------- --------- ----------
Income from investment
operations:
- -------------------------------------- -------- --------- --------- ----------
Net investment income 0.504 0.573 0.473
- -------------------------------------- -------- --------- --------- ----------
Net realized and unrealized gain
(loss) on investments 0.310 0.210 (0.620)
----- ----- -------
- -------------------------------------- -------- --------- --------- ----------
Total from investment operations 0.814 0.783 (0.170)
----- ----- -------
- -------------------------------------- -------- --------- --------- ----------
- -------------------------------------- -------- --------- --------- ----------
Less dividends and distributions:
- -------------------------------------- -------- --------- --------- ----------
Dividends from net investment income (0.504) (0.573) (0.450)
- -------------------------------------- -------- --------- --------- ----------
Distributions from net realized gain
on investments (0.190) (0.050) (0.060)
------- ------- -------
- -------------------------------------- -------- --------- --------- ----------
Total dividends and distributions (0.694) (0.623) (0.510)
------- ------- -------
- -------------------------------------- -------- --------- --------- ----------
- -------------------------------------- -------- --------- --------- ----------
Net asset value, end of period $11.830 $11.710 $11.550
======= ======= =======
- -------------------------------------- -------- --------- --------- ----------
- -------------------------------------- -------- --------- --------- ----------
Total return2 7.15% 6.94% (1.44%)
- -------------------------------------- -------- --------- --------- ----------
- -------------------------------------- -------- --------- --------- ----------
Ratios and supplemental data:
- -------------------------------------- -------- --------- --------- ----------
Net assets, end of period (000 $2,343 $1,505 $805
omitted)
- -------------------------------------- -------- --------- --------- ----------
Ratio of expenses to average net 1.77% 1.74% 1.74%
assets
- -------------------------------------- -------- --------- --------- ----------
Ratio of net investment income to 4.28% 4.93% 5.03%
average net assets
- -------------------------------------- -------- --------- --------- ----------
Portfolio turnover 81% 44% 42%
- -------------------------------------- -------- --------- --------- ----------
</TABLE>
63
<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)
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.
64
<PAGE>
[begin glossary]
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.
65
<PAGE>
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
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
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
66
<PAGE>
National Association of Securities Dealers (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
(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.
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.
67
<PAGE>
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.
68
<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.
69
<PAGE>
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
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund A Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund B Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund A Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund B Class
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Fund A Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Fund B Class
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free USA Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
National High-Yield Municipal Bond Fund A Class
- ------------------------------------------------------------------------------------------------------------------------------------
National High-Yield Municipal Bond Fund B Class
- ------------------------------------------------------------------------------------------------------------------------------------
National High-Yield Municipal Bond Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
71
P-002[__]PP 10/99
<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.
DELAWARE TAX-FREE USA FUND
DELAWARE TAX-FREE INSURED FUND
DELAWARE TAX-FREE USA INTERMEDIATE FUND
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P. PART B
1818 Market Street
Philadelphia, PA 19103 STATEMENT OF
ADDITIONAL INFORMATION
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT November 1, 1999
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank -----------
4 Chase Metrotech Center DELAWARE
Brooklyn, NY 11245 INVESTMENTS
-----------
- --------------------------------------------------------------------------------
<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 report 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.
<PAGE>
(DGTXFRF/USA/INS/INT-SAI/PART B)
________________________________________________________________________________
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Cover Page 1
- --------------------------------------------------------------------------------
Investment Objectives and Policies 3
- --------------------------------------------------------------------------------
Municipal Bond Insurance
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Investment Plans
- --------------------------------------------------------------------------------
Determining Offering Price and Net Asset Value
- --------------------------------------------------------------------------------
Redemption and Exchange
- --------------------------------------------------------------------------------
Dividends and Realized Securities Profits Distributions
- --------------------------------------------------------------------------------
Taxes
- --------------------------------------------------------------------------------
Investment Management Agreements
- --------------------------------------------------------------------------------
Officers and Trustees
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
Appendix A
- --------------------------------------------------------------------------------
Appendix B - Description of Ratings
- --------------------------------------------------------------------------------
Appendix C - Investment Objectives of the Funds in the Delaware
Investments Family
- --------------------------------------------------------------------------------
-3-
<PAGE>
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.
-4-
<PAGE>
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.
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
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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.
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."
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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.
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.
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The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow Delaware Investments funds jointly to invest cash balances. A Fund may
invest cash balances in a joint repurchase agreement in accordance with the
terms of the exemptive order and subject generally to the conditions described
above.
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.
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
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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.
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.
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Rule 144A permits many privately placed and legally restricted
securities to be freely traded among certain institutional buyers such as a
Fund. While maintaining oversight, the Board of 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.
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.
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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 exchances 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.
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.
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Futures Contracts and Options on Futures Contracts
The Funds may enter into contracts f or 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.
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.
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The major risk to which a Fund would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Funds will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of 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.
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
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<PAGE>
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.
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
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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.
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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.
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."
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<PAGE>
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.
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.
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<PAGE>
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they
are acquired as part of a merger, consolidation or acquisition of assets.
12. Invest more than 25% of its total assets in any particular industry
or industries, except that a Fund may invest more than 25% of the value of its
total assets in municipal bonds and in obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
Tax-Free Fund has also adopted an additional restriction applicable
only to Insured Fund. Insured Fund will not:
13. Invest more than 20% of its assets in securities (other than U.S.
government securities, securities of agencies of the U.S. government and
securities backed by the U.S. government or its agencies or instrumentalities)
which are not covered by insurance guaranteeing the payment, when due, of
interest on and the principal of such securities, except for defensive purposes.
Tax-Free Fund 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.
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(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.
(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.
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MUNICIPAL BOND INSURANCE
The practice has developed among municipal issuers of having their
issues insured by various companies. At the present time, the MBIA Insurance
Corporation ("MBIA"), AMBAC Indemnity Corporation ("AMBAC Indemnity"), Financial
Security Assurance ("FSA") and Financial Guaranty Insurance Company ("FGIC")
provide a substantial portion of such insurance. Accordingly, at different
times, a substantial portion of a Fund's portfolio may consist of municipal
bonds of various issuers insured as to payment of principal and interest when
due by a single insurance company. It is expected that other insurance companies
or associations will enter this field, and a substantial portion of municipal
bond issues available for investment by companies such as the Funds will be
insured. In the event of a default, the insurer is required to make payments of
interest and principal when due to the bondholders. While the insurance may
affect the securities' ratings, the Manager does not look to the
creditworthiness of a private insurer. Instead, the Manager reviews the
creditworthiness of the actual issuer and its ability to pay interest and
principal. Insurance on municipal bonds that are purchased by a Fund will
generally have been obtained by the bond issuer and attached to the bonds for
their lifetime, although the Fund may obtain insurance on bonds while they are
held by the Fund.
At the present time, obligations which are subject to such insurance
generally receive a high rating from S&P or Moody's, based upon a combination of
the issuer's creditworthiness and the insurer's obligation under the insurance
policy. While such insurance reduces the risk that principal or interest will
not be paid when due, it is not a protection against market risks arising from
other factors, such as changes in prevailing interest rates. If the issuer
defaults on payment of interest or principal, the trustee and/or payment agent
of the issuer will notify the insurer who will make payment to the bondholders.
There is no assurance that any insurance company will meet its obligations.
Tax-Free Fund or Voyageur Mutual Funds, as applicable, believes such investments
are consistent with each Fund's fundamental investment policies and
restrictions.
Similar insurance is available to a Fund for uninsured obligations, and
the Fund may acquire such obligations and purchase such insurance directly, but
only if that would result in a comparable benefit to the Fund from such a
security.
As the bond insurance industry matures, the ownership and capital
structures of the insurers have evolved. Each of the municipal bond insurers has
unique ownership structures, some of which underwent significant changes in
1992.
MBIA moved to a greater percentage of public ownership during 1992 with
the sale of additional equity. MBIA Inc. is currently 88.7% publicly owned,
while the remaining ownership is distributed between Aetna Life & Casualty
Company and Credit Local de France. As of December 31, 1996, MBIA Inc. had total
equity capital (GAAP) of $2,479,697,000, up 11% from December 31, 1995 and as of
December 31, 1997, MBIA had total equity capital (GAAP) of $3,048,000,000 up 23%
from December 31, 1996. For the six months ended June 30, 1998, total equity
capital (GAAP) amounted to $3,568,500,000 (unaudited).
FGIC, until 1993 the only bond insurer with one institutional owner,
experienced a slight shift in ownership. In early January 1993, GE Capital, the
parent of FGIC Corp., sold a 1% interest of the company to Sumitomo Marine and
Fire Insurance Company Limited. The sale was undertaken primarily to facilitate
joining business ventures in the future. As of December 31, 1996, FGIC's total
equity capital (GAAP) was $1,684,400,000, up 8.8% from December 31, 1995 and as
of December 31, 1997, FGIC's total equity capital (GAAP) amounted to
$1,953,000,000, up 12% from December 31, 1996. For the six months ended June 30,
1998, total equity capital (GAAP) amounted to $2,005,000,000 (unaudited).
-23-
<PAGE>
AMBAC became the only insurer with 100% public ownership, when Citicorp
Financial Guaranty Holdings, Inc. (CFGH) sold its remaining 49.7% equity
interest in AMBAC Inc. during February 1992. As of December 31, 1996, AMBAC's
total equity capital (GAAP) was $1,615,016,000, up 15% from December 31, 1995
and as of December 31, 1997, AMBAC's total equity capital (GAAP) was
$1,872,000,000, up 16% from December 31, 1996. For the six months ended June 30,
1998, total equity capital (GAAP) amounted to $1,990,000,000 (unaudited).
FSA is the fourth largest insurer. As of December 31, 1996, FSA's total
equity capital (GAAP) was $801,260,000, up 3% from December 31, 1995 and as of
December 31, 1997, FSA's total equity capital (GAAP) was $882,000,000, up 10%
from December 31, 1996. For the six months ended June 30, 1998, total equity
capital (GAAP) was $934,000,000 (unaudited).
-24-
<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.
-25-
<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 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
10 years ended
8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
15 years ended
8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Insured Fund(2)
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
10 years ended
8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Intermediate Fund
(3)(7)
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-26-
<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>
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
National High-Yield
Fund (4)(7)
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
10 years ended
8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
</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.
-27-
<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
Insured Fund
Intermediate Fund
National High-Yield Fund
</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
Insured Fund
Intermediate Fund
National High-Yield Fund
</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
-28-
<PAGE>
federal income tax rate of 31%) and adding the product to that portion, if any,
of the yield that is not tax-exempt. In addition, a Fund may advertise a
tax-equivalent yield assuming other income tax rates, when applicable.
Investors should note that the income earned and dividends paid by a
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of a Fund may change. Unlike money market funds,
each Fund invests in longer-term securities that fluctuate in value and do so in
a manner inversely correlated with changing interest rates. Each Fund's net
asset value will tend to rise when interest rates fall. Conversely, each Fund's
net asset values will tend to fall as interest rates rise. Normally,
fluctuations in interest rates have a greater effect on the prices of
longer-term bonds. The value of the securities held in a Fund will vary from day
to day and investors should consider the volatility of a Fund's net asset values
as well as the yield before making a decision to invest.
The average weighted portfolio maturity at August 31, 1999 was 00.0
years for USA Fund, 00.0 years for Insured Fund, 0.0 years for Intermediate Fund
and 00.00 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.
-29-
<PAGE>
The performance of multiple indices compiled and maintained by
statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman
Brothers, may be combined to create a blended performance result for comparative
purposes. Generally, the indices selected will be representative of the types of
securities in which the Funds may invest and the assumptions that were used in
calculating the blended performance will be described.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare performance to that of other
compilations or indices that may be developed and made available in the future.
The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Funds (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments, or global or international investments),
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time, advertisements, sales literature,
communications to shareholders or other materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Funds. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Funds may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings 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
-30-
<PAGE>
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Funds may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Funds may include information
regarding the background and experience of its portfolio managers.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class through August 31,
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 CDSC) (including CDSC) (excluding
CDSC)(6) CDSC)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USA Fund(1)
- -----------------------------------------------------------------------------------------------------------------------------
3 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
6 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
9 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
10 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
15 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Insured Fund(2)
- -----------------------------------------------------------------------------------------------------------------------------
3 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
6 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
9 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
10 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Intermediate
Fund(3)(7)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-31-
<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>
3 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
6 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
9 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
National High- Yield
Fund (4)(7)
- -----------------------------------------------------------------------------------------------------------------------------
3 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
6 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
9 months ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
1 year ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
3 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
5 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
10 years ended 8/31/99
- -----------------------------------------------------------------------------------------------------------------------------
Life of Fund
- -----------------------------------------------------------------------------------------------------------------------------
</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
-32-
<PAGE>
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.
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.
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.
-33-
<PAGE>
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $5.00 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.
-34-
<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.
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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 National Association of
Securities Dealers, 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 81%
Insured Fund 63%
Intermediate Fund 104%
National High-Yield Fund 43%*
*Annualized
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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.
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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.
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 and Insured Fund are purchased at net asset
value and are subject to a CDSC of: (i) 4% if shares are redeemed within two
years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class B Shares of USA Fund and
Insured Fund are also subject to annual 12b-1 Plan expenses which are higher
than those to which Class A Shares are subject and are assessed against Class B
Shares for approximately eight years after purchase. Class B Shares of
Intermediate Fund are purchased at net asset value and are subject to a CDSC of:
(i) 2% if shares are redeemed within two years of purchase; and (ii) 1% if
shares are redeemed during the third year following purchase. Such shares are
also subject to annual 12b-1 Plan expenses which are higher than those to 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
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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.
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.
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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.
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.
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All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
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.
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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.
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.
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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.
-43-
<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> <C> <C> <C> <C>
Advertising
- ----------------------------------------------------------------------------------------------------------------------
Annual/Semi-Annual Reports
- ----------------------------------------------------------------------------------------------------------------------
Broker Trails
- ----------------------------------------------------------------------------------------------------------------------
Broker Sales Charges
- ----------------------------------------------------------------------------------------------------------------------
Dealer Service Expenses
- ----------------------------------------------------------------------------------------------------------------------
Interest on Broker Sales Charges
- ----------------------------------------------------------------------------------------------------------------------
Commissions to Wholesalers
- ----------------------------------------------------------------------------------------------------------------------
Promotional-Broker Meetings
- ----------------------------------------------------------------------------------------------------------------------
Promotional-Other
- ----------------------------------------------------------------------------------------------------------------------
Prospectus Printing
- ----------------------------------------------------------------------------------------------------------------------
Telephone
- ----------------------------------------------------------------------------------------------------------------------
Wholesaler Expenses
- ----------------------------------------------------------------------------------------------------------------------
Other
- ----------------------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Intermediate Fund National High-Yield Fund
- ----------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advertising
- ----------------------------------------------------------------------------------------------------------------------
Annual/Semi-Annual Reports
- ----------------------------------------------------------------------------------------------------------------------
Broker Trails
- ----------------------------------------------------------------------------------------------------------------------
Broker Sales Charges
- ----------------------------------------------------------------------------------------------------------------------
Dealer Service Expenses
- ----------------------------------------------------------------------------------------------------------------------
Interest on Broker Sales Charges
- ----------------------------------------------------------------------------------------------------------------------
Commissions to Wholesalers
- ----------------------------------------------------------------------------------------------------------------------
Promotional-Broker Meetings
- ----------------------------------------------------------------------------------------------------------------------
Promotional-Other
- ----------------------------------------------------------------------------------------------------------------------
Prospectus Printing
- ----------------------------------------------------------------------------------------------------------------------
Telephone
- ----------------------------------------------------------------------------------------------------------------------
Wholesaler Expenses
- ----------------------------------------------------------------------------------------------------------------------
Other
- ----------------------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-44-
<PAGE>
Other Payments to Dealers - Class A, Class B and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits as set
by the Distributor, may receive from the Distributor an additional payment of up
to 0.25% of the dollar amount of such sales. The Distributor may also provide
additional promotional incentives or payments to dealers that sell shares of
funds in the Delaware Investments family. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of Delaware
Investments fund shares.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be reinvested without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, 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.
-45-
<PAGE>
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or 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 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
-46-
<PAGE>
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.
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.
-47-
<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.
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
-48-
<PAGE>
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.
-49-
<PAGE>
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
-50-
<PAGE>
Delaware Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other Delaware Investments funds.
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.
-51-
<PAGE>
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by each Fund, its respective agents or certain other
authorized persons. Orders for purchases of Class B Shares and Class C Shares of
each Fund are effected at the net asset value per share next calculated by the
Fund in which shares are being purchased after receipt of the order by each
Fund, its respective agents or certain other authorized persons. Selling dealers
have the responsibility of transmitting orders promptly. See Distribution and
Service under Investment Management Agreements.
The offering price for Class A Shares consists of the net asset value
per share, plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for days on which the following holidays are
observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Fund will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of the Class A Shares, the offering price per share, is included in
each Fund's financial statements which are incorporated by reference into this
Part B.
Each Fund's net asset value per share is computed by adding the value
of all securities and other assets in the portfolio of that Fund, deducting any
liabilities of the Fund and dividing by the number of Fund shares outstanding.
In determining a Fund's total net assets, portfolio securities are valued at
fair value, using methods determined in good faith by the Board of 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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<PAGE>
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.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the respective Fund, its agent or certain other authorized
persons (see Distribution and Service under Investment Management Agreements);
provided, however, that each commitment to mail or wire redemption proceeds by a
certain time, as described below, is modified by the qualifications described in
the next paragraph.
Each Fund will process written 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
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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.
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.
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.
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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.
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.
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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.
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
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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.
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.
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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.
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
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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.
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TAXES
Federal Income Tax Aspects
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company as defined under Subchapter M of the Internal
Revenue Code of 1986 (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
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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).
"Short-term capital gains": Gains on securities sold by a Fund
that do not meet the long-term holdings 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 your 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.
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
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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 those 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 distributions 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.
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 $00 billion in assets in
various institutional or separately managed (approximately $00,000,000,000) and
investment company (approximately $00,000,000,000) accounts.
Each Fund's Investment Management Agreement is dated November 1, 1999
and was approved by shareholders on _________, 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
---------------------------------------
Insured Fund
---------------------------------------
Intermediate Fund
---------------------------------------
National High-Yield Fund
---------------------------------------
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 $0,000,000 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 $0,000,000, 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
$000,000, 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 $000,000, 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.
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
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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.
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
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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.
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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 0% of the outstanding shares
of each of its classes. As of the same date, Voyageur Mutual Funds officers and
trustees owned 0% 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.
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.
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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 Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Chairman, Chief Executive Officer and Chief
Investment Officer of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Chairman 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,
Inc.; Chairman of Delaware Distributors, L.P.; 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.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------------------
*Trustee affiliated with the Funds' investment manager and considered an "interested person" as defined in the 1940 Act.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<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.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------------------
*Director affiliated with Mutual Funds III, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<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.
- ---------------------------------------------------------------------------------------------------------------------------
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>
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<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.
- ---------------------------------------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
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.
- ---------------------------------------------------------------------------------------------------------------------------
Jan 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
Delaware Management Business Trust
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>
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<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>
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<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Tax-Free Fund 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 Benefits Total
Aggregate Aggregate Accrued Estimated Compensation
Compensation Compensation as Part of Tax-Free Annual from all 34
from from Fund and Benefits Delaware
Tax-Free Voyageur Voyageur Mutual Funds Upon Investment
Name Fund Mutural Funds Expenses Retirement(1) Companies(2)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
W. Thacher Longstreth(3) None
Ann R. Leven None $38,000
Walter P. Babich None $38,000
Anthony D. Knerr None $38,000
Charles E. Peck None $38,000
Thomas F. Madison None $38,000
- ------------------------------------------------------------------------------------------------------------------------------------
John H. Durham None $31,000
- ------------------------------------------------------------------------------------------------------------------------------------
Jan L. Yeomans(3) $38,000
</TABLE>
(1) Under the terms of the Delaware Investments Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time of
his or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each investment company in the Delaware Investments family for
which he or she serves as a director or trustee for a period equal to the
lesser of the number of years that such person served as a director or
trustee or the remainder of such person's life. The amount of such payments
will be equal, on an annual basis, to the amount of the annual retainer that
is paid to directors/trustees of each investment company at the time of such
person's retirement. If an eligible director/trustee retired as of August
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 director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,500 for serving as a director or
trustee for all 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 $31,000 for serving as a director or trustee for 19
investment companies in Delaware Investments, plus $1,757.50 for each Board
Meeting attended. Ann R. Leven, Walter P. Babich, Anthony D. Knerr and
Thomas F. Madison serve on the Fund's audit committee; Ms. Leven is the
chairperson. Members of the audit committee currently receive additional
annual compensation of $5,000 from all investment companies, in the
aggregate, with the exception of the chairperson, who receives $6,000.
(3) W. Thacher Longstreth resigned from the Board on ______________, 1999.
Jan L. Yeomans joined the Board on _________, 1999.
-76-
<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, Inc. 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.
The Distributor acts as national distributor for each Fund and for the
other mutual funds in the Delaware Investments family. The Distributor received
net commissions from each Fund on behalf of its Class A Shares, after
reallowances to dealers, as follows:
USA Fund A Class
<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ---------- ---------- --------------
<S> <C> <C> <C>
8/31/99
8/31/98 $314,525 $264,400 $ 50,125
8/31/97 615,910 511,081 104,829
</TABLE>
-77-
<PAGE>
Insured Fund A Class
<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ---------- ---------- --------------
<S> <C> <C> <C>
8/31/99
8/31/98 $38,389 $32,986 $ 5,403
8/31/97 88,637 73,401 15,236
</TABLE>
Intermediate Fund A Class
<TABLE>
<CAPTION>
Total
Amount of Amounts Net
Fiscal Underwriting Reallowed Commission
Year Ended Commission to Dealers to Distributor
---------- ---------- ---------- --------------
<S> <C> <C> <C>
8/31/99
8/31/98 $43,288 $34,492 $8,796
8/31/97 25,579 21,287 4,292
</TABLE>
The Distributor received Limited CDSC payments with respect to
Class A Shares as follows:
Limited CDSC Payments
<TABLE>
<CAPTION>
Fiscal Intermediate National
Year Ended USA Fund A Class Insured Fund A Class Fund A Class High-Yield
---------- ---------------- -------------------- ------------ ----------
<S> <C> <C> <C> <C>
8/31/99
8/31/98 --- --- --- $198
8/31/97 --- --- --- ---
</TABLE>
The Distributor received CDSC payments with respect to Class B
Shares as follows:
CDSC Payments
<TABLE>
<CAPTION>
Fiscal Intermediate National
Year Ended USA Fund A Class Insured Fund A Class Fund A Class High-Yield
---------- ---------------- -------------------- ------------ ----------
<S> <C> <C> <C> <C>
8/31/99
8/31/98 $113,024 $10,935 $2,055 $23,578
8/31/97 135,550 13,948 3,814 ---
</TABLE>
-78-
<PAGE>
The Distributor received CDSC payments with respect to Class C Shares
as follows:
CDSC Payments
<TABLE>
<CAPTION>
Fiscal Intermediate National
Year Ended USA Fund A Class Insured Fund A Class Fund A Class High-Yield
---------- ---------------- -------------------- ------------ ----------
<S> <C> <C> <C> <C>
8/31/99
8/31/98 $439 $607 $10,004 $1,194
8/31/97 $1,522 --- $74 ---
</TABLE>
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.
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
-79-
<PAGE>
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.
-80-
<PAGE>
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 report of Ernst &
Young LLP, listed above are incorporated by reference from the Annual Report
into this Part B. 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.
-81-
<PAGE>
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.
-82-
<PAGE>
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
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<PAGE>
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of 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.
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.
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<PAGE>
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.
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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.
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 multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign fixed-income securities.
Devon Series seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
the investment manager believes have the potential for above-average dividend
increases over time. Emerging Markets Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers located or
operating in emerging countries. Convertible Securities Series seeks a high
level of total return on its assets through a combination of capital
appreciation and current income by investing primarily in convertible
securities. Social Awareness Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry. 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
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personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware 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.
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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.
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.
Ratings Group 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>
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<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 issuer's
CCC, capacity to repay interest and repay principal in accordance with the terms
CC, C of the obligation for bond issues not in default. BB is the least speculative. C is
the most speculative.
</TABLE>
<TABLE>
<CAPTION>
Commercial Paper
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
State and Municipal Notes
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C>
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>
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:
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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.
Preferred Stock Rating
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Service, Aaa Considered to be a top-quality preferred stock. This rating indicates good asset
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 andasset 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>
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<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 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
CCC the issuer's capacity to pay preferred stock obligations. "BB" indicates the
lowest degree of speculation and "CCC" the highest degree of speculation. While
such issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC Reserved for a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.
C A non-paying issue.
D A non-paying issue with the issuer in default on debt instruments.
NR Indicates that no rating has been requested, that there is insufficient information
on which to base a rating, or that S&P does not rate a particular type of obligation
as a matter of policy.
</TABLE>
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PART C
Other Information
Item 23. Exhibits
(a) Agreement and Declaration of Trust.
(1) Agreement and Declaration of Trust
(December 17, 1998) attached as
Exhibit.
(2) Certificate of Trust (December 17,
1998) attached as Exhibit.
(b) By-Laws. By-Laws (December 17, 1998) attached as
Exhibit.
(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 attached as
Exhibit (a)(1).
(2) By-Laws. Article II of By-Laws attached
as Exhibit (b).
(d) Investment Management Agreement.
(1) Form of Investment Management Agreement
(November 1999) between Delaware
Management Company and the Registrant
attached as Exhibit.
(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.
(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.
<PAGE>
(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. Attached as Exhibit.
(j) Consent of Auditors. To be filed by Amendment.
(k) Inapplicable.
(l) Undertaking of Initial Shareholder. Incorporated
into this filing by reference to Pre-Effective
Amendment No. 1 filed November 22, 1983.
(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.
<PAGE>
(n) Inapplicable.
(o) Other: Trustees' Powers of Attorney. Attached as
Exhibit.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification. Article VI of the By-Laws attached as
Exhibit (b).
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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<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(1) 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(2) 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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<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(3) 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(4) 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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Joel A. Ettinger(5) 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(6) 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(7) 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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<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, Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware
Jr(8) 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 Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- ----------------------------------------------------------------------------------------------------------------------------------
<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 VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997.
2 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
3 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
4 DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to
February 1997.
5 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
6 SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation
prior to March 1997.
7 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
8 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset
Management LLC prior to May 1997.
- -------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------------
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/Corporate Senior Vice President/Corporate Controller
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, National None
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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
Chirstopher 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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------------
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.
<PAGE>
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. Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant 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
David K. Downes Officer (Principal Executive Officer, August 12, 1999
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.A1 Agreement and Declaration of Trust
EX-99.A2 Certificate of Trust
EX-99.B By-Laws
EX-99.D1 Form of Investment Management Agreement (November 1999) between
Delaware Management Company and the Registrant
EX-99.I Opinion of Counsel
EX-99.O Powers of Attorney
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
of
DELAWARE GROUP TAX-FREE FUND
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Name and Definitions.............................................. 1
Section 1. Name...........................................................1
Section 2. Registered Agent and Registered Office; Principal Place of
Business...................................................... 2
(a) Registered Agent and Registered Office........................ 2
(b) Principal Place of Business................................... 2
Section 3. Definitions................................................... 2
(a) "1940 Act".................................................... 2
(b) "Affiliate"................................................... 2
(c) "Board of Trustees"........................................... 2
(d) "By-Laws"..................................................... 2
(e) "Certificate of Trust"........................................ 2
(f) "Code"........................................................ 2
(g) "Commission".................................................. 2
(h) "DBTA"........................................................ 3
(i) "Declaration of Trust"........................................ 3
(j) "General Liabilities"......................................... 3
(k) "Interested Person"........................................... 3
(l) "Investment Adviser" or "Adviser"............................. 3
(m) "National Financial Emergency"................................ 3
(n) "Person"...................................................... 3
(o) "Principal Underwriter"....................................... 3
(p) "Series"...................................................... 3
(q) "Shares"...................................................... 3
(r) "Shareholder"................................................. 3
(s) "Trust"....................................................... 4
(t) "Trust Property".............................................. 4
(u) "Trustee" or "Trustees"....................................... 4
ARTICLE II. Purpose of Trust.................................................. 4
ARTICLE III. Shares........................................................... 8
Section 1. Division of Beneficial Interest............................... 8
Section 2. Ownership of Shares........................................... 9
Section 3. Investments in the Trust...................................... 9
Section 4. Status of Shares and Limitation of Personal Liability.........10
i
<PAGE>
Section 5. Power of Board of Trustees to Change Provisions Relating
to Shares.....................................................10
Section 6. Establishment and Designation of Series.......................11
(a) Assets Held with Respect to a Particular Series...............11
(b) Liabilities Held with Respect to a Particular Series..........12
(c) Dividends, Distributions, Redemptions and Repurchases.........13
(d) Voting........................................................13
(e) Equality......................................................13
(f) Fractions.....................................................14
(g) Exchange Privilege............................................14
(h) Combination of Series.........................................14
(i) Elimination of Series.........................................14
Section 7. Indemnification of Shareholders................................14
ARTICLE IV....................................................................14
The Board of Trustees.........................................................15
Section 1. Number, Election and Tenure...................................15
Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee.....15
Section 3. Powers........................................................16
Section 4. Payment of Expenses by the Trust..............................17
Section 5. Payment of Expenses by Shareholders...........................18
Section 6. Ownership of Trust Property...................................18
Section 7. Service Contracts.............................................18
ARTICLE V. Shareholders' Voting Powers and Meetings...........................20
Section 1. Voting Powers.................................................20
Section 2. Meetings......................................................20
Section 3. Quorum and Required Vote......................................21
Section 4. Shareholder Action by Written Consent without a
Meeting.......................................................21
Section 5. Record Dates..................................................21
Section 6. Additional Provisions.........................................22
ARTICLE VI. Net Asset Value, Distributions and Redemptions....................22
Section 1. Determination of Net Asset Value, Net Income and
Distributions.................................................22
Section 2. Redemptions at the Option of a Shareholder....................23
Section 3. Redemptions at the Option of the Trust........................24
ii
<PAGE>
ARTICLE VII. Compensation and Limitation of Liability of Officers
and Trustees..............................................................24
Section 1. Compensation..................................................24
Section 2. Indemnification and Limitation of Liability...................25
Section 3. Officers and Trustees' Good Faith Action, Expert Advice,
No Bond or Surety.............................................25
Section 4. Insurance.....................................................26
ARTICLE VIII. Miscellaneous...................................................26
Section 1. Liability of Third Persons Dealing with Trustees..............26
Section 2. Dissolution of Trust or Series................................26
Section 3. Merger and Consolidation; Conversion..........................27
(a) Merger and Consolidation......................................27
(b) Conversion....................................................27
Section 4. Reorganization................................................28
Section 5. Amendments....................................................29
Section 6. Filing of Copies, References, Headings........................29
Section 7. Applicable Law................................................29
Section 8. Provisions in Conflict with Law or Regulations................30
Section 9. Business Trust Only...........................................30
Section 10. Use of the Names "Delaware Group" and "Delaware Investments"..30
iii
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
DELAWARE GROUP TAX-FREE FUND
AGREEMENT AND DECLARATION OF TRUST made as of this 17th day of December,
1998, by the Trustees hereunder, and by the holders of shares of beneficial
interest to be issued hereunder as hereinafter provided. This Declaration of
Trust shall be effective upon the filing of the Certificate of Trust in the
office of the Secretary of State of the State of Delaware.
W I T N E S S E T H:
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
in separate Series, and to issue classes of Shares of any Series or divide
Shares of any Series into two or more classes, all in accordance with the
provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Delaware business trust in accordance with the provisions
of the Delaware Business Trust Act (12 Del. C. ss.3801, et seq.), as from time
to time amended and including any successor statute of similar import (the
"DBTA"), and the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust and the Series created hereunder
as hereinafter set forth.
ARTICLE I.
Name and Definitions
Section 1. Name. This trust shall be known as "Delaware Group Tax-Free
Fund" and the Trustees shall conduct the business of the Trust under that name,
or any other name as they may from time to time determine.
<PAGE>
Section 2. Registered Agent and Registered Office; Principal Place of
Business.
(a) Registered Agent and Registered Office. The name of the registered
agent of the Trust and the address of the registered office of the Trust are as
set forth on the Certificate of Trust.
(b) Principal Place of Business. The principal place of business of the
Trust is One Commerce Square, Philadelphia, Pennsylvania, 19103 or such other
location within or outside of the State of Delaware as the Board of Trustees may
determine from time to time.
Section 3. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) "1940 Act" shall mean the Investment Company Act of 1940 and the rules
and regulations thereunder, all as adopted or amended from time to time;
(b) "Affiliate" shall have the meaning given to it in Section 2(a)(3) of
the 1940 Act when used with reference to a specified Person.
(c) "Board of Trustees" shall mean the governing body of the Trust, which
is comprised of the Trustees of the Trust;
(d) "By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time in accordance with Article X of the By-Laws, and incorporated herein by
reference;
(e) "Certificate of Trust" shall mean the certificate of trust filed with
the Office of the Secretary of State of the State of Delaware as required under
the DBTA to form the Trust;
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder;
(g) "Commission" shall have the meaning given it in Section 2(a)(7) of the
1940 Act;
2
<PAGE>
(h) "DBTA" shall mean the Delaware Business Trust Act, (12 Del. C.ss.3801,
et seq.), as amended from time to time;
(i) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(j) "General Liabilities" shall have the meaning given it in Article III,
Section 6(b) of this Declaration Trust;
(k) "Interested Person" shall have the meaning given it in Section 2(a)(19)
of the 1940 Act;
(l) "Investment Adviser" or "Adviser" shall mean a party furnishing
services to the Trust pursuant to any contract described in Article IV, Section
7(a) hereof;
(m) "National Financial Emergency" shall mean the whole or any part of any
period set forth in Section 22(e) of the 1940 Act. The Board of Trustees may, in
its discretion, declare that the suspension relating to a national financial
emergency shall terminate, as the case may be, on the first business day on
which the New York Stock Exchange shall have reopened or the period specified in
Section 22(e) of the 1940 Act shall have expired (as to which, in the absence of
an official ruling by the Commission, the determination of the Board of Trustees
shall be conclusive);
(n) "Person" shall include a natural person, partnership, limited
partnership, trust, estate, association, corporation, custodian, nominee or any
other individual or entity in its own or any representative capacity;
(o) "Principal Underwriter" shall have the meaning given to it in Section
2(a)(29) of the 1940 Act;
(p) "Series" shall refer to each Series of Shares established and
designated under or in accordance with the provisions of Article III and shall
mean an entity such as that described in Section 18(f)(2) of the 1940 Act, and
subject to Rule 18f-2 thereunder;
(q) "Shares" shall mean the outstanding shares of beneficial interest into
which the beneficial interest in the Trust shall be divided from time to time,
and shall include fractional and whole shares;
(r) "Shareholder" shall mean a record owner of Shares;
3
<PAGE>
(s) "Trust" shall refer to the Delaware business trust established by this
Declaration of Trust, as amended from time to time;
(t) "Trust Property" shall mean any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or one or more of any Series, including, without limitation, the rights
referenced in Article VIII, Section 2 hereof;
(u) "Trustee" or "Trustees" shall refer to each signatory to this
Declaration of Trust as a trustee, so long as such signatory continues in office
in accordance with the terms hereof, and all other Persons who may, from time to
time, be duly elected or appointed, qualified and serving on the Board of
Trustees in accordance with the provisions hereof. Reference herein to a Trustee
or the Trustees shall refer to such Person or Persons in their capacity as
trustees hereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the business
of a registered management investment company registered under the 1940 Act
through one or more Series investing primarily in securities and, in addition to
any authority given by law, to exercise all of the powers and to do any and all
of the things as fully and to the same extent as any private corporation
organized for profit under the general corporation law of the State of Delaware,
now or hereafter in force, including, without limitation, the following powers:
(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, mortgage, transfer, exchange, distribute, write options on, lend
or otherwise deal in or dispose of contracts for the future acquisition or
delivery of fixed income or other securities, and securities or property of
every nature and kind, including, without limitation, all types of bonds,
debentures, stocks, preferred stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by any and all
Persons, including, without limitation, states, territories, and possessions of
the United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
4
<PAGE>
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, to change the investments of the assets of the Trust;
(b) To exercise any and all rights, powers and privileges with reference to
or incident to ownership or interest, use and enjoyment of any of such
securities and other instruments or property of every kind and description,
including, but without limitation, the right, power and privilege to own, vote,
hold, purchase, sell, negotiate, assign, exchange, lend, transfer, mortgage,
hypothecate, lease, pledge or write options with respect to or otherwise deal
with, dispose of, use, exercise or enjoy any rights, title, interest, powers or
privileges under or with reference to any of such securities and other
instruments or property, the right to consent and otherwise act with respect
thereto, with power to designate one or more Persons, to exercise any of said
rights, powers, and privileges in respect of any of said instruments, and to do
any and all acts and things for the preservation, protection, improvement and
enhancement in value of any of such securities and other instruments or
property;
(c) To sell, exchange, lend, pledge, mortgage, hypothecate, lease or write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust or any Series, subject to any requirements of
the 1940 Act;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(e) To exercise powers and right of subscription or otherwise which in any
manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating that it is
trust property, whether in bearer, unregistered or other negotiable form, or in
its own name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise or to authorize the custodian or a subcustodian or a
nominee or nominees to deposit the same in a securities depository, subject in
each case to proper safeguards according to the usual practice of investment
companies or any rules or regulations applicable thereto;
(g) To consent to, or participate in, any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
5
<PAGE>
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(k) To endorse or guarantee the payment of any notes or other obligations
of any Person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such insurance
as the Trustees may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, Investment Advisers, Principal Underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding Shares, holding, being
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such Person as Trustee, officer, employee,
agent, Investment Adviser, Principal Underwriter, or independent contractor, to
the fullest extent permitted by this Declaration of Trust, the Bylaws and by
applicable law; and
(m) To adopt, establish and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the Trust.
6
<PAGE>
(n) To purchase or otherwise acquire, own, hold, sell, negotiate, exchange,
assign, transfer, mortgage, pledge or otherwise deal with, dispose of, use,
exercise or enjoy, property of all kinds.
(o) To buy, sell, mortgage, encumber, hold, own, exchange, rent or
otherwise acquire and dispose of, and to develop, improve, manage, subdivide,
and generally to deal and trade in real property, improved and unimproved, and
wheresoever situated; and to build, erect, construct, alter and maintain
buildings, structures, and other improvements on real property.
(p) To borrow or raise moneys for any of the purposes of the Trust, and to
mortgage or pledge the whole or any part of the property and franchises of the
Trust, real, personal, and mixed, tangible or intangible, and wheresoever
situated.
(q) To enter into, make and perform contracts and undertakings of every
kind for any lawful purpose, without limit as to amount.
(r) To issue, purchase, sell and transfer, reacquire, hold, trade and deal
in Shares, bonds, debentures and other securities, instruments or other property
of the Trust, from time to time, to such extent as the Board of Trustees shall,
consistent with the provisions of this Declaration of Trust, determine; and to
repurchase, re-acquire and redeem, from time to time, its Shares or, if any, its
bonds, debentures and other securities.
The Trust shall not be limited to investing in obligations maturing before
the possible dissolution of the Trust or one or more of its Series. The Trust
shall not in any way be bound or limited by any present or future law or custom
in regard to investment by fiduciaries. Neither the Trust nor the Trustees shall
be required to obtain any court order to deal with any assets of the Trust or
take any other action hereunder.
The foregoing clauses shall each be construed as purposes, objects and
powers, and it is hereby expressly provided that the foregoing enumeration of
specific purposes, objects and powers shall not be held to limit or restrict in
any manner the powers of the Trust, and that they are in furtherance of, and in
addition to, and not in limitation of, the general powers conferred upon the
Trust by the DBTA and the other laws of the State of Delaware or otherwise; nor
shall the enumeration of one thing be deemed to exclude another, although it be
of like nature, not expressed.
7
<PAGE>
ARTICLE III.
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into Shares, all without par value. The
number of Shares authorized hereunder is unlimited. The Board of Trustees may
authorize the division of Shares into separate and distinct Series and the
division of any Series into separate classes of Shares. The different Series and
classes shall be established and designated, and the variations in the relative
rights and preferences as between the different Series and classes shall be
fixed and determined by the Board of Trustees without the requirement of
Shareholder approval. If no separate Series or classes shall be established, the
Shares shall have the rights and preferences provided for herein and in Article
III, Section 6 hereof to the extent relevant and not otherwise provided for
herein, and all references to Series and classes shall be construed (as the
context may require) to refer to the Trust. The fact that a Series shall have
initially been established and designated without any specific establishment or
designation of classes (i.e., that all Shares of such Series are initially of a
single class) shall not limit the authority of the Board of Trustees to
establish and designate separate classes of said Series. The fact that a Series
shall have more than one established and designated class, shall not limit the
authority of the Board of Trustees to establish and designate additional classes
of said Series, or to establish and designate separate classes of the previously
established and designated classes.
The Board of Trustees shall have the power to issue Shares of the Trust, or
any Series or class thereof, from time to time for such consideration (but not
less than the net asset value thereof) and in such form as may be fixed from
time to time pursuant to the direction of the Board of Trustees.
The Board of Trustees may hold as treasury shares, reissue for such
consideration and on such terms as they may determine, or cancel, at their
discretion from time to time, any Shares of any Series reacquired by the Trust.
The Board of Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series or class into one or more
Series or classes that may be established and designated from time to time.
Notwithstanding the foregoing, the Trust and any Series thereof may acquire,
hold, sell and otherwise deal in, for purposes of investment or otherwise, the
Shares of any other Series of the Trust or Shares of the Trust, and such Shares
shall not be deemed treasury shares or cancelled.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and the Shareholders
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of any Series shall be entitled to receive dividends and distributions, when, if
and as declared with respect thereto in the manner provided in Article IV,
Section 3 hereof. No Share shall have any priority or preference over any other
Share of the same Series or class with respect to dividends or distributions
paid in the ordinary course of business or distributions upon dissolution of the
Trust or of such Series or class made pursuant to Article VIII, Section 2
hereof. All dividends and distributions shall be made ratably among all
Shareholders of a particular class of Series from the Trust Property held with
respect to such Series according to the number of Shares of such class of such
Series held of record by such Shareholders on the record date for any dividend
or distribution. Shareholders shall have no preemptive or other right to
subscribe to new or additional Shares or other securities issued by the Trust or
any Series. The Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares of that Series.
Such division or combination may not materially change the proportionate
beneficial interests of the Shares of that Series in the Trust Property held
with respect to that Series or materially affect the rights of Shares of any
other Series.
Any Trustee, officer or other agent of the Trust, and any organization in
which any such Person is interested, may acquire, own, hold and dispose of
Shares of the Trust to the same extent as if such Person were not a Trustee,
officer or other agent of the Trust; and the Trust may issue and sell or cause
to be issued and sold and may purchase Shares from any such Person or any such
organization subject only to the general limitations, restrictions or other
provisions applicable to the sale or purchase of such Shares generally.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust kept by the Trust or by a transfer or similar agent
for the Trust, which books shall be maintained separately for the Shares of each
Series and class thereof that has been established and designated. No
certificates certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The Board of
Trustees may make such rules not inconsistent with the provisions of the 1940
Act as they consider appropriate for the issuance of Share certificates, the
transfer of Shares of each Series or class and similar matters. The record books
of the Trust as kept by the Trust or any transfer or similar agent, as the case
may be, shall be conclusive as to who are the Shareholders of each Series or
class thereof and as to the number of Shares of each Series or class thereof
held from time to time by each such Shareholder.
Section 3. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Board of Trustees may, from time to time, authorize. Each
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investment shall be credited to the individual Shareholder's account in the form
of full and fractional Shares of the Trust, in such Series or class as the
purchaser may select, at the net asset value per Share next determined for such
Series or class after receipt of the investment; provided, however, that the
Principal Underwriter may, in its sole discretion, impose a sales charge upon
investments in the Trust.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving to Shareholders only the rights
provided in this Declaration of Trust and under applicable law. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto. The death of a Shareholder during the existence of the Trust shall not
operate to dissolve the Trust or any Series, nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees or any Series, but entitles such
representative only to the rights of said deceased Shareholder under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust Property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. Neither the Trust
nor the Trustees, nor any officer, employee or agent of the Trust, shall have
any power to bind personally any Shareholder, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay. All Shares when issued on the terms determined by
the Board of Trustees, shall be fully paid and nonassessable. As provided in the
DBTA, Shareholders of the Trust shall be entitled to the same limitation of
personal liability extended to stockholders of a private corporation organized
for profit under the general corporation law of the State of Delaware.
Section 5. Power of Board of Trustees to Change Provisions Relating to
Shares. Notwithstanding any other provisions of this Declaration of Trust and
without limiting the power of the Board of Trustees to amend this Declaration of
Trust or the Certificate of Trust as provided elsewhere herein, the Board of
Trustees shall have the power to amend this Declaration of Trust, or the
Certificate of Trust, at any time and from time to time, in such manner as the
Board of Trustees may determine in its sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust,
provided that before adopting any such amendment without Shareholder approval,
the Board of Trustees shall determine that it is consistent with the fair and
equitable treatment of all Shareholders and that Shareholder approval is not
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otherwise required by the 1940 Act or other applicable law. If Shares have been
issued, Shareholder approval shall be required to adopt any amendments to this
Declaration of Trust which would adversely affect to a material degree the
rights and preferences of the Shares of any Series or class already issued;
provided, however, that in the event that the Board of Trustees determines that
the Trust shall no longer be operated as an investment company in accordance
with the provisions of the 1940 Act, the Board of Trustees may adopt such
amendments to this Declaration of Trust to delete those terms the Board of
Trustees identifies as being required by the 1940 Act.
Subject to the foregoing Paragraph, the Board of Trustees may amend the
Declaration of Trust to amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III.
The Board of Trustees shall have the power, in its discretion, to make such
elections as to the tax status of the Trust as may be permitted or required
under the Code as presently in effect or as amended, without the vote of any
Shareholder.
Section 6. Establishment and Designation of Series. The establishment and
designation of any Series or class of Shares shall be effective upon the
resolution by a majority of the then Board of Trustees, adopting a resolution
which sets forth such establishment and designation and the relative rights and
preferences of such Series or class. Each such resolution shall be incorporated
herein by reference upon adoption.
Each Series shall be separate and distinct from any other Series and shall
maintain separate and distinct records on the books of the Trust, and the assets
and liabilities belonging to any such Series shall be held and accounted for
separately from the assets and liabilities of the Trust or any other Series.
Shares of each Series or class established pursuant to this Section 6,
unless otherwise provided in the resolution establishing such Series, shall have
the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
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to the rights of creditors with respect to that Series, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Board of Trustees shall allocate such
General Assets to, between or among any one or more of the Series in such manner
and on such basis as the Board of Trustees, in its sole discretion, deems fair
and equitable, and any General Asset so allocated to a particular Series shall
be held with respect to that Series. Each such allocation by the Board of
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(b) Liabilities Held with Respect to a Particular Series. The assets of the
Trust held with respect to each particular Series shall be charged against the
liabilities of the Trust held with respect to that Series and all expenses,
costs, charges and reserves attributable to that Series, and any liabilities,
expenses, costs, charges and reserves of the Trust which are not readily
identifiable as being held with respect to any particular Series (collectively
"General Liabilities") shall be allocated and charged by the Board of Trustees
to and among any one or more of the Series in such manner and on such basis as
the Board of Trustees in its sole discretion deems fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Board of
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes. All Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been allocated to
any particular Series, shall look, and shall be required by contract to look
exclusively, to the assets of that particular Series for payment of such credit,
claim, or contract. In the absence of an express contractual agreement so
limiting the claims of such creditors, claimants and contract providers, each
creditor, claimant and contract provider will be deemed nevertheless to have
impliedly agreed to such limitation unless an express provision to the contrary
has been incorporated in the written contract or other document establishing the
claimant relationship.
Subject to the right of the Board of Trustees in its discretion to allocate
General Liabilities as provided herein, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular Series, whether such Series is now authorized and existing pursuant
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to this Declaration of Trust or is hereafter authorized and existing pursuant to
this Declaration of Trust, shall be enforceable against the assets held with
respect to that Series only, and not against the assets of any other Series or
the Trust generally and none of the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to the Trust
generally or any other Series thereof shall be enforceable against the assets
held with respect to such Series. Notice of this limitation on liabilities
between and among Series shall be set forth in the Certificate of Trust of the
Trust (whether originally or by amendment) as filed or to be filed in the Office
of the Secretary of State of the State of Delaware pursuant to the DBTA, and
upon the giving of such notice in the Certificate of Trust, the statutory
provisions of Section 3804 of the DBTA relating to limitations on liabilities
between and among Series (and the statutory effect under Section 3804 of setting
forth such notice in the Certificate of Trust) shall become applicable to the
Trust and each Series.
(c) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding
any other provisions of this Declaration of Trust, including, without
limitation, Article VI, no dividend or distribution including, without
limitation, any distribution paid upon dissolution of the Trust or of any Series
with respect to, nor any redemption or repurchase of, the Shares of any Series
or class shall be effected by the Trust other than from the assets held with
respect to such Series, nor, except as specifically provided in Section 7 of
this Article III, shall any Shareholder of any particular Series otherwise have
any right or claim against the assets held with respect to any other Series or
the Trust generally except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. The Board of Trustees
shall have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a matter shall vote
on the matter, separately by Series and, if applicable, by class, subject to:
(1) where the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series or classes, then
all of the Trust's Shares shall vote in the aggregate; and (2) if any matter
affects only the interests of some but not all Series or classes, then only the
Shareholders of such affected Series or classes shall be entitled to vote on the
matter.
(e) Equality. All Shares of each particular Series shall represent an equal
proportionate undivided beneficial interest in the assets held with respect to
that Series (subject to the liabilities held with respect to that Series and
such rights and preferences as may have been established and designated with
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respect to classes of Shares within such Series), and each Share of any
particular Series shall be equal to each other Share of that Series (subject to
the rights and preferences with respect to separate classes of such Series).
(f) Fractions. Any fractional Share of a Series shall carry proportionately
all the rights and obligations of a whole Share of that Series, including rights
with respect to voting, receipt of dividends and distributions, redemption of
Shares and dissolution of the Trust or that Series.
(g) Exchange Privilege. The Board of Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series in accordance with
such requirements and procedures as may be established by the Board of Trustees,
and in accordance with the 1940 Act and the rules and regulations thereunder.
(h) Combination of Series. The Board of Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities held with respect to
any two or more Series into assets and liabilities held with respect to a single
Series.
(i) Elimination of Series. At any time that there are no Shares outstanding
of any particular Series or class previously established and designated, the
Board of Trustees may by resolution of a majority of the then Board of Trustees
abolish that Series or class and rescind the establishment and designation
thereof.
Section 7. Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating solely to his or her being or having been a Shareholder of the Trust
(or by having been a Shareholder of a particular Series), and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or, in
the case of a natural person, his or her heirs, executors, administrators, or
other legal representatives or, in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust or out of the assets of the
applicable Series (as the case may be) against all loss and expense arising from
such claim or demand; provided, however, there shall be no liability or
obligation of the Trust (or any particular Series) arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of any Shares.
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ARTICLE IV.
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees constituting
the Board of Trustees may be fixed from time to time by a written instrument
signed, or by resolution approved at a duly constituted meeting, by a majority
of the Board of Trustees, provided, however, that the number of Trustees shall
in no event be less than one (1) nor more than fifteen (15). The Board of
Trustees, by action of a majority of the then Trustees at a duly constituted
meeting, may fill vacancies in the Board of Trustees or remove any Trustee with
or without cause. The Shareholders may elect Trustees, including filling any
vacancies in the Board of Trustees, at any meeting of Shareholders called by the
Board of Trustees for that purpose. A meeting of Shareholders for the purpose of
electing one or more Trustees may be called by the Board of Trustees or, to the
extent provided by the 1940 Act and the rules and regulations thereunder, by the
Shareholders. Shareholders shall have the power to remove a Trustee only to the
extent provided by the 1940 Act and the rules and regulations thereunder.
Each Trustee shall serve during the continued lifetime of the Trust until
he or she dies, resigns, is declared bankrupt or incompetent by a court of
appropriate jurisdiction, or is removed, or, if sooner than any of such events,
until the next meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his or her successor. Any
Trustee may resign at any time by written instrument signed by him or her and
delivered to any officer of the Trust or to a meeting of the Board of Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some later time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following any such event
or any right to damages on account of such events or any actions taken in
connection therewith following his or her resignation or removal.
Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee. The
death, declination, resignation, retirement, removal, declaration as bankrupt or
incapacity of one or more Trustees, or of all of them, shall not operate to
dissolve the Trust or any Series or to revoke any existing agency created
pursuant to the terms of this Declaration of Trust. Whenever a vacancy in the
Board of Trustees shall occur, until such vacancy is filled as provided in this
Article IV, Section 1, the Trustee(s) in office, regardless of the number, shall
have all the powers granted to the Board of Trustees and shall discharge all the
duties imposed upon the Board of Trustees by this Declaration of Trust. In the
event of the death, declination, resignation, retirement, removal, declaration
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as bankrupt or incapacity of all of the then Trustees, the Trust's Investment
Adviser(s) is (are) empowered to appoint new Trustees subject to the provisions
of Section 16(a) of the 1940 Act.
Section 3. Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Board of Trustees, and such
Board of Trustees shall have all powers necessary or convenient to carry out
that responsibility, including, without limitation, the power to engage in
securities or other transactions of all kinds on behalf of the Trust. The Board
of Trustees shall have full power and authority to do any and all acts and to
make and execute any and all contracts and instruments that it may consider
necessary or appropriate in connection with the administration of the Trust. The
Trustees shall not be bound or limited by present or future laws or customs with
regard to investment by trustees or fiduciaries, but shall have full authority
and absolute power and control over the assets of the Trust and the business of
the Trust to the same extent as if the Trustees were the sole owners of the
assets of the Trust and the business in their own right, including such
authority, power and control to do all acts and things as they, in their sole
discretion, shall deem proper to accomplish the purposes of this Trust. Without
limiting the foregoing, the Trustees may: (1) adopt, amend and repeal By-Laws
not inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust; (2) fill vacancies in or remove from
their number in accordance with this Declaration of Trust or the By-Laws, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate; (3) appoint from their own number and establish and
terminate one or more committees consisting of two or more Trustees which may
exercise the powers and authority of the Board of Trustees to the extent that
the Board of Trustees determine; (4) employ one or more custodians of the Trust
Property and may authorize such custodians to employ subcustodians and to
deposit all or any part of such Trust Property in a system or systems for the
central handling of securities or with a Federal Reserve Bank; (5) retain a
transfer agent, dividend disbursing agent, a shareholder servicing agent or
administrative services agent, or all of them; (6) provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
Underwriters or otherwise; (7) retain one or more Investment Adviser(s); (8)
redeem, repurchase and transfer Shares pursuant to applicable law; (9) set
record dates for the determination of Shareholders with respect to various
matters, in the manner provided in Article V, Section 5 of this Declaration of
Trust; (10) declare and pay dividends and distributions to Shareholders from the
Trust Property; (11) establish from time to time, in accordance with the
provisions of Article III, Section 6 hereof, any Series or class of Shares, each
such Series to operate as a separate and distinct investment medium and with
separately defined investment objectives and policies and distinct investment
purposes; and (12) in general delegate such authority as they consider desirable
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to any officer of the Trust, to any committee of the Board of Trustees and to
any agent or employee of the Trust or to any such custodian, transfer, dividend
disbursing or shareholder servicing agent, Principal Underwriter or Investment
Adviser. Any determination as to what is in the best interests of the Trust made
by the Board of Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the presumption
shall be in favor of a grant of power to the Trustees. Unless otherwise
specified herein or required by law, any action by the Board of Trustees shall
be deemed effective if approved or taken by a majority of the Trustees then in
office.
Any action required or permitted to be taken by the Board of Trustees, or a
committee thereof, may be taken without a meeting if a majority of the members
of the Board of Trustees, or committee thereof, as the case may be, shall
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a majority vote of the
Board of Trustees, or committee thereof, as the case may be. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Trustees, or committee thereof, as the case may be.
The Trustees shall devote to the affairs of the Trust such time as may be
necessary for the proper performance of their duties hereunder, but neither the
Trustees nor the officers, directors, shareholders or partners of the Trustees,
shall be expected to devote their full time to the performance of such duties.
The Trustees, or any Affiliate shareholder, officer, director, partner or
employee thereof, or any Person owning a legal or beneficial interest therein,
may engage in or possess an interest in any other business or venture of any
nature and description, independently or with or for the account of others.
Section 4. Payment of Expenses by the Trust. The Board of Trustees is
authorized to pay or cause to be paid out of the principal or income of the
Trust or any particular Series or class, or partly out of the principal and
partly out of the income of the Trust or any particular Series or class, and to
charge or allocate the same to, between or among such one or more of the Series
or classes that may be established or designated pursuant to Article III,
Section 6, as it deems fair, all expenses, fees, charges, taxes and liabilities
incurred by or arising in connection with the maintenance or operation of the
Trust or a particular Series or class, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses, fees, charges, taxes and liabilities for the services of the Trust's
officers, employees, Investment Adviser, Principal Underwriter, auditors,
counsel, custodian, sub-custodian (if any), transfer agent, dividend disbursing
agent, shareholder servicing agent, and such other agents or independent
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contractors and such other expenses, fees, charges, taxes and liabilities as the
Board of Trustees may deem necessary or proper to incur.
Section 5. Payment of Expenses by Shareholders. The Board of Trustees shall
have the power, as frequently as it may determine, to cause each Shareholder of
the Trust, or each Shareholder of any particular Series, to pay directly, in
advance or arrears, for charges of the Trust's custodian or transfer, dividend
disbursing, shareholder servicing or similar agent, an amount fixed from time to
time by the Board of Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends or distributions owed such
Shareholder and/or by reducing the number of Shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Trust Property. Legal title to all of the Trust
Property shall at all times be considered to be vested in the Trust, except that
the Board of Trustees shall have the power to cause legal title to any Trust
Property to be held by or in the name of any Person as nominee, on such terms as
the Board of Trustees may determine, in accordance with applicable law.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth in
the By-Laws and/or the 1940 Act, the Board of Trustees may, at any time and from
time to time, contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any corporation,
trust, association or other organization, including any Affiliate; and any such
contract may contain such other terms as the Board of Trustees may determine,
including without limitation, authority for the Investment Adviser or
administrator to determine from time to time without prior consultation with the
Board of Trustees what securities and other instruments or property shall be
purchased or otherwise acquired, owned, held, invested or reinvested in, sold,
exchanged, transferred, mortgaged, pledged, assigned, negotiated, or otherwise
dealt with or disposed of, and what portion, if any, of the Trust Property shall
be held uninvested and to make changes in the Trust's or a particular Series'
investments, or such other activities as may specifically be delegated to such
party.
(b) The Board of Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
including any Affiliate, appointing it or them as the exclusive or nonexclusive
distributor or Principal Underwriter for the Shares of the Trust or one or more
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of the Series or classes thereof or for other securities to be issued by the
Trust, or appointing it or them to act as the custodian, transfer agent,
dividend disbursing agent and/or shareholder servicing agent for the Trust or
one or more of the Series or classes thereof.
(c) The Board of Trustees is further empowered, at any time and from time
to time, to contract with any Persons to provide such other services to the
Trust or one or more of its Series, as the Board of Trustees determines to be in
the best interests of the Trust or one or more of its Series.
(d) The fact that:
(i) any of the Shareholders, Trustees, employees or officers of
the Trust is a shareholder, director, officer, partner, trustee,
employee, manager, Adviser, Principal Underwriter, distributor, or
Affiliate or agent of or for any corporation, trust, association, or
other organization, or for any parent or Affiliate of any organization
with which an Adviser's, management or administration contract, or
Principal Underwriter's or distributor's contract, or custodian,
transfer, dividend disbursing, shareholder servicing or other type of
service contract may have been or may hereafter be made, or that any
such organization, or any parent or Affiliate thereof, is a Shareholder
or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization
with which an Adviser's, management or administration contract or
Principal Underwriter's or distributor's contract, or custodian,
transfer, dividend disbursing, shareholder servicing or other type of
service contract may have been or may hereafter be made also has an
Adviser's, management or administration contract, or Principal
Underwriter's or distributor's contract, or custodian, transfer,
dividend disbursing, shareholder servicing or other service contract
with one or more other corporations, trusts, associations, or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee, employee or officer of the Trust from voting upon or
executing the same, or create any liability or accountability to the Trust or
its Shareholders, provided that the establishment of and performance under each
such contract is permissible under the provisions of the 1940 Act.
(e) Every contract referred to in this Section 7 shall comply with such
requirements and restrictions as may be set forth in the By-Laws, the 1940 Act
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or stipulated by resolution of the Board of Trustees; and any such contract may
contain such other terms as the Board of Trustees may determine.
ARTICLE V.
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article III, Section
6(d), the Shareholders shall have power to vote only (i) for the election of
Trustees, including the filling of any vacancies in the Board of Trustees, as
provided in Article IV, Section 1; (ii) with respect to such additional matters
relating to the Trust as may be required by this Declaration of Trust, the
By-Laws, the 1940 Act or any registration statement of the Trust filed with the
Commission; and (iii) on such other matters as the Board of Trustees may
consider necessary or desirable. The Shareholder of record (as of the record
date established pursuant to Section 5 of this Article V) of each Share shall be
entitled to one vote for each full Share, and a fractional vote for each
fractional Share. Shareholders shall not be entitled to cumulative voting in the
election of Trustees or on any other matter. Shares may be voted in person or by
proxy.
Section 2. Meetings. Meetings of the Shareholders may be called by the
Board of Trustees for the purpose of electing Trustees as provided in Article
IV, Section 1 and for such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the Shareholders may also be
called by the Board of Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Board of Trustees to be necessary or
desirable.
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Section 3. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
thirty-three and one-third percent (33-1/3%) of the Shares present in person or
represented by proxy and entitled to vote at a Shareholders' meeting shall
constitute a quorum at such meeting. When a separate vote by one or more Series
or classes is required, thirty-three and one-third percent (33-1/3%) of the
Shares of each such Series or class present in person or represented by proxy
and entitled to vote shall constitute a quorum at a Shareholders' meeting of
such Series or class. Subject to the provisions of Article III, Section 6(d),
Article VIII, Section 4 and any other provision of this Declaration of Trust,
the By-Laws or applicable law which requires a different vote: (1) in all
matters other than the election of Trustees, the affirmative vote of the
majority of votes cast at a Shareholders' meeting at which a quorum is present
shall be the act of the Shareholders; (2) Trustees shall be elected by a
plurality of the votes cast at a Shareholders' meeting at which a quorum is
present.
Section 4. Shareholder Action by Written Consent without a Meeting. Any
action which may be taken at any meeting of Shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of Shares having not less than the
minimum number of votes that would be necessary to authorize or take that action
at a meeting at which all Shares entitled to vote on that action were present
and voted. All such consents shall be filed with the secretary of the Trust and
shall be maintained in the Trust's records. Any Shareholder giving a written
consent or the Shareholder's proxy holders or a transferee of the Shares or a
personal representative of the Shareholder or its respective proxy-holder may
revoke the consent by a writing received by the secretary of the Trust before
written consents of the number of Shares required to authorize the proposed
action have been filed with the secretary.
If the consents of all Shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
Shareholders shall not have been received, the secretary shall give prompt
notice of the action taken without a meeting to such Shareholders. This notice
shall be given in the manner specified in the By-Laws.
Section 5. Record Dates. For purposes of determining the Shareholders
entitled to notice of any meeting or to vote or entitled to give consent to
action without a meeting, the Board of Trustees may fix in advance a record date
which shall not be more than one hundred eighty (180) days nor less than seven
(7) days before the date of any such meeting.
If the Board of Trustees does not so fix a record date:
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(a) The record date for determining Shareholders entitled to notice of or
to vote at a meeting of Shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day which is five (5) business
days next preceding to the day on which the meeting is held.
(b) The record date for determining Shareholders entitled to give consent
to action in writing without a meeting, (i) when no prior action by the Board of
Trustees has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the Board of Trustees has been taken, shall
be at the close of business on the day on which the Board of Trustees adopts the
resolution taking such prior action or the seventy-fifth (75th) day before the
date of such other action, whichever is later.
For the purpose of determining the Shareholders of any Series or class who
are entitled to receive payment of any dividend or of any other distribution,
the Board of Trustees may from time to time fix a date, which shall be before
the date for the payment of such dividend or such other distribution, as the
record date for determining the Shareholders of such Series or class having the
right to receive such dividend or distribution. Nothing in this Section shall be
construed as precluding the Board of Trustees from setting different record
dates for different Series or classes.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes, meetings and related matters.
ARTICLE VI.
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and Distributions.
Subject to Article III, Section 6 hereof, the Board of Trustees shall have the
power to fix an initial offering price for the Shares of any Series or class
thereof which shall yield to such Series or class not less than the net asset
value thereof, at which price the Shares of such Series or class shall be
offered initially for sale, and to determine from time to time thereafter the
offering price which shall yield to such Series or class not less than the net
asset value thereof from sales of the Shares of such Series or class; provided,
however, that no Shares of a Series or class thereof shall be issued or sold for
consideration which shall yield to such Series or class less than the net asset
value of the Shares of such Series or class next determined after the receipt of
the order (or at such other times set by the Board of Trustees), except in the
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case of Shares of such Series or class issued in payment of a dividend properly
declared and payable.
Subject to Article III, Section 6 hereof, the Board of Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-laws or in a
duly adopted vote of the Board of Trustees such bases and time for determining
the per Share or net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and payment of
dividends and distributions on the Shares of any Series, as they may deem
necessary or desirable.
Section 2. Redemptions at the Option of a Shareholder. Unless otherwise
provided in the prospectus of the Trust relating to the Shares, as such
prospectus may be amended from time to time ("Prospectus"):
(a) The Trust shall purchase such Shares as are offered by any Shareholder
for redemption, upon the presentation of a proper instrument of transfer
together with a request directed to the Trust or a Person designated by the
Trust that the Trust purchase such Shares or in accordance with such other
procedures for redemption as the Board of Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value thereof, in
accordance with the By-Laws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the date on which
the request is received in proper form. The obligation set forth in this Section
2 is subject to the provision that in the event that any time the New York Stock
Exchange (the "Exchange") is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when trading on the
Exchange is restricted or during any National Financial Emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets held with respect to
such Series or during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or postponed by
the Board of Trustees. If certificates have been issued to a Shareholder, any
such request by such Shareholder must be accompanied by surrender of any
outstanding certificate or certificates for such Shares in form for transfer,
together with such proof of the authenticity of signatures as may reasonably be
required on such Shares and accompanied by proper stock transfer stamps, if
applicable.
(b) Payments for Shares so redeemed by the Trust shall be made in cash,
except payment for such Shares may, at the option of the Board of Trustees, or
such officer or officers as it may duly authorize in its complete discretion, be
made in kind or partially in cash and partially in kind. In case of any payment
in kind, the Board of Trustees, or its delegate, shall have absolute discretion
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as to what security or securities of the Trust shall be distributed in kind and
the amount of the same; and the securities shall be valued for purposes of
distribution at the value at which they were appraised in computing the then
current net asset value of the Shares, provided that any Shareholder who cannot
legally acquire securities so distributed in kind by reason of the prohibitions
of the 1940 Act or the provisions of the Employee Retirement Income Security Act
("ERISA") shall receive cash. Shareholders shall bear the expenses of in-kind
transactions, including, but not limited to, transfer agency fees, custodian
fees and costs of disposition of such securities.
(c) Payment for Shares so redeemed by the Trust shall be made by the Trust
as provided above within seven days after the date on which the redemption
request is received in good order; provided, however, that if payment shall be
made other than exclusively in cash, any securities to be delivered as part of
such payment shall be delivered as promptly as any necessary transfers of such
securities on the books of the several corporations whose securities are to be
delivered practicably can be made, which may not necessarily occur within such
seven day period. Moreover, redemptions may be suspended in the event of a
National Financial Emergency. In no case shall the Trust be liable for any delay
of any corporation or other Person in transferring securities selected for
delivery as all or part of any payment in kind.
(d) The right of Shareholders to receive dividends or other distributions
on Shares may be set forth in a Plan adopted by the Board of Trustees and
amended from time to time pursuant to Rule 18f-3 of the 1940 Act. The right of
any Shareholder of the Trust to receive dividends or other distributions on
Shares redeemed and all other rights of such Shareholder with respect to the
Shares so redeemed by the Trust, except the right of such Shareholder to receive
payment for such Shares, shall cease at the time as of which the purchase price
of such Shares shall have been fixed, as provided above.
Section 3. Redemptions at the Option of the Trust. The Board of Trustees
may, from time to time, without the vote or consent of the Shareholders, and
subject to the 1940 Act, redeem Shares or authorize the closing of any
Shareholder account, subject to such conditions as may be established by the
Board of Trustees.
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ARTICLE VII.
Compensation and Limitation of Liability of
Officers and Trustees
Section 1. Compensation. Except as set forth in the last sentence of this
Section 1, the Board of Trustees may, from time to time, fix a reasonable amount
of compensation to be paid by the Trust to the Trustees and officers of the
Trust. Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability.
(a) To the fullest extent that limitations on the liability of Trustees and
officers are permitted by the DBTA, the officers and Trustees shall not be
responsible or liable in any event for any act or omission of: any agent or
employee of the Trust; any Investment Adviser or Principal Underwriter of the
Trust; or with respect to each Trustee and officer, the act or omission of any
other Trustee or officer, respectively. The Trust, out of the Trust Property,
shall indemnify and hold harmless each and every officer and Trustee from and
against any and all claims and demands whatsoever arising out of or related to
such officer's or Trustee's performance of his or her duties as an officer or
Trustee of the Trust. This limitation on liability applies to events occurring
at the time a Person serves as a Trustee or officer of the Trust whether or not
such Person is a Trustee or officer at the time of any proceeding in which
liability is asserted. Nothing herein contained shall indemnify, hold harmless
or protect any officer or Trustee from or against any liability to the Trust or
any Shareholder to which such Person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office.
(b) Every note, bond, contract, instrument, certificate or undertaking and
every other act or document whatsoever issued, executed or done by or on behalf
of the Trust, the officers or the Trustees or any of them in connection with the
Trust shall be conclusively deemed to have been issued, executed or done only in
such Person's capacity as Trustee and/or as officer, and such Trustee or
officer, as applicable, shall not be personally liable therefore, except as
described in the last sentence of the first paragraph of this Section 2 of this
Article VII.
Section 3. Officers and Trustees' Good Faith Action, Expert Advice, No Bond
or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. An officer or Trustee shall
be liable to the Trust and to any Shareholder solely for such officer's or
Trustee's own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of such officer or
Trustee, and for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. The officers and Trustees may obtain the advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as officers or Trustees. No such officer
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or Trustee shall be liable for any act or omission in accordance with such
advice and no inference concerning liability shall arise from a failure to
follow such advice. The officers and Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Section 4. Insurance. To the fullest extent permitted by applicable law,
the officers and Trustees shall be entitled and have the authority to purchase
with Trust Property, insurance for liability and for all expenses reasonably
incurred or paid or expected to be paid by a Trustee or officer in connection
with any claim, action, suit or proceeding in which such Person becomes involved
by virtue of such Person's capacity or former capacity with the Trust, whether
or not the Trust would have the power to indemnify such Person against such
liability under the provisions of this Article.
ARTICLE VIII.
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any actions made or to be made by the Trustees.
Section 2. Dissolution of Trust or Series. Unless dissolved as provided
herein, the Trust shall have perpetual existence. The Trust may be dissolved at
any time by vote of a majority of the Shares of the Trust entitled to vote or by
the Board of Trustees by written notice to the Shareholders. Any Series may be
dissolved at any time by vote of a majority of the Shares of that Series or by
the Board of Trustees by written notice to the Shareholders of that Series.
Upon dissolution of the Trust (or a particular Series, as the case may be),
the Trustees shall (in accordance with ss. 3808 of the DBTA) pay or make
reasonable provision to pay all claims and obligations of each Series (or the
particular Series, as the case may be), including all contingent, conditional or
unmatured claims and obligations known to the Trust, and all claims and
obligations which are known to the Trust but for which the identity of the
claimant is unknown. If there are sufficient assets held with respect to each
Series of the Trust (or the particular Series, as the case may be), such claims
and obligations shall be paid in full and any such provisions for payment shall
be made in full. If there are insufficient assets held with respect to each
Series of the Trust (or the particular Series, as the case may be), such claims
and obligations shall be paid or provided for according to their priority and,
among claims and obligations of equal priority, ratably to the extent of assets
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available therefor. Any remaining assets (including without limitation, cash,
securities or any combination thereof) held with respect to each Series of the
Trust (or the particular Series, as the case may be) shall be distributed to the
Shareholders of such Series, ratably according to the number of Shares of such
Series held by the several Shareholders on the record date for such dissolution
distribution.
Section 3. Merger and Consolidation; Conversion.
(a) Merger and Consolidation. Pursuant to an agreement of merger or
consolidation, the Trust, or any one or more Series, may, by act of a majority
of the Board of Trustees, merge or consolidate with or into one or more business
trusts or other business entities formed or organized or existing under the laws
of the State of Delaware or any other state or the United States or any foreign
country or other foreign jurisdiction. Any such merger or consolidation shall
not require the vote of the Shareholders affected thereby, unless such vote is
required by the 1940 Act, or unless such merger or consolidation would result in
an amendment of this Declaration of Trust which would otherwise require the
approval of such Shareholders. In accordance with Section 3815(f) of the DBTA,
an agreement of merger or consolidation may effect any amendment to this
Declaration of Trust or the By-Laws or effect the adoption of a new declaration
of trust or by-laws of the Trust if the Trust is the surviving or resulting
business trust. Upon completion of the merger or consolidation, the Trustees
shall file a certificate of merger or consolidation in accordance with Section
3810 of the DBTA.
(b) Conversion. A majority of the Board of Trustees may, without the vote
or consent of the Shareholders, cause (i) the Trust to convert to a common-law
trust, a general partnership, limited partnership or a limited liability company
organized, formed or created under the laws of the State of Delaware as
permitted pursuant to Section 3821 of the DBTA; (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another business trust
(or series thereof) created pursuant to this Section 3 of this Article VIII, or
(iii) the Shares to be exchanged under or pursuant to any state or federal
statute to the extent permitted by law; provided, however, that if required by
the 1940 Act, no such statutory conversion, Share conversion or Share exchange
shall be effective unless the terms of such transaction shall first have been
approved at a meeting called for that purpose by the "vote of a majority of the
outstanding voting securities," as such phrase is defined in the 1940 Act, of
the Trust or Series, as applicable; provided, further, that in all respects not
governed by statute or applicable law, the Board of Trustees shall have the
power to prescribe the procedure necessary or appropriate to accomplish a sale
of assets, merger or consolidation including the power to create one or more
separate business trusts to which all or any part of the assets, liabilities,
profits or losses of the Trust may be transferred and to provide for the
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conversion of Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
Section 4. Reorganization.
A majority of the Board of Trustees may cause the Trust to sell, convey and
transfer all or substantially all of the assets of the Trust, or all or
substantially all of the assets associated with any one or more Series, to
another trust, business trust, partnership, limited partnership, limited
liability company, association or corporation organized under the laws of any
state, or to one or more separate series thereof, or to the Trust to be held as
assets associated with one or more other Series of the Trust, in exchange for
cash, shares or other securities (including, without limitation, in the case of
a transfer to another Series of the Trust, Shares of such other Series) with
such transfer either (a) being made subject to, or with the assumption by the
transferee of, the liabilities associated with each Series the assets of which
are so transferred, or (b) not being made subject to, or not with the assumption
of, such liabilities; provided, however, that, if required by the 1940 Act, no
assets associated with any particular Series shall be so sold, conveyed or
transferred unless the terms of such transaction shall first have been approved
at a meeting called for that purpose by the "vote of a majority of the
outstanding voting securities," as such phrase is defined in the 1940 Act, of
that Series. Following such sale, conveyance and transfer, the Board of Trustees
shall distribute such cash, shares or other securities (giving due effect to the
assets and liabilities associated with and any other differences among the
various Series the assets associated with which have so been sold, conveyed and
transferred) ratably among the Shareholders of the Series the assets associated
with which have been so sold, conveyed and transferred (giving due effect to the
differences among the various classes within each such Series); and if all of
the assets of the Trust have been so sold, conveyed and transferred, the Trust
shall be dissolved.
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Section 5. Amendments.
Subject to the provisions of the second paragraph of this Section 5 of this
Article VIII, this Declaration of Trust may be restated and/or amended at any
time by an instrument in writing signed by a majority of the then Board of
Trustees and, if required, by approval of such amendment by Shareholders in
accordance with Article V, Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution and approval or
upon such future date and time as may be stated therein. The Certificate of
Trust of the Trust may be restated and/or amended by a similar procedure, and
any such restatement and/or amendment shall be effective immediately upon filing
with the Office of the Secretary of State of the State of Delaware or upon such
future date as may be stated therein.
Notwithstanding the above, the Board of Trustees expressly reserves the
right to amend or repeal any provisions contained in this Declaration of Trust
or the Certificate of Trust, in accordance with the provisions of Section 5 of
Article III hereof, and all rights, contractual and otherwise, conferred upon
Shareholders are granted subject to such reservation. The Board of Trustees
further expressly reserves the right to amend or repeal any provision of the
By-Laws pursuant to Article X of the By-Laws.
Section 6. Filing of Copies, References, Headings. The original or a copy
of this Declaration of Trust and of each restatement and/or amendment hereto
shall be kept at the principal executive office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
restatements and/or amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such restatements and/or amendments. In this
Declaration of Trust and in any such restatements and/or amendments, references
to this instrument, and all expressions of similar effect to "herein," "hereof"
and "hereunder," shall be deemed to refer to this instrument as amended or
affected by any such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts, each
of which shall be deemed an original.
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Section 7. Applicable Law. This Declaration of Trust is created under and
is to be governed by and construed and administered according to the laws of the
State of Delaware and the applicable provisions of the 1940 Act and the Code.
The Trust shall be a Delaware business trust pursuant to the DBTA, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a business trust.
Section 8. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if the
Board of Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the Code, the DBTA, or with other
applicable laws and regulations, the conflicting provision shall be deemed not
to have constituted a part of this Declaration of Trust from the time when such
provisions became inconsistent with such laws or regulations; provided, however,
that such determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration of Trust shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
Section 9. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the DBTA, and thereby to create the
relationship of trustee and beneficial owners within the meaning of the DBTA
between the Trustees and each Shareholder. It is not the intention of the
Trustees to create a general or limited partnership, limited liability company,
joint stock association, corporation, bailment, or any form of legal
relationship other than a business trust pursuant to the DBTA. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
Section 10. Use of the Names "Delaware Group" and "Delaware Investments".
The Trust expressly agrees and acknowledges that the names "Delaware Group" and
"Delaware Investments" are the sole property of Delaware Management Holdings,
Inc. ("DMH"), and, with respect to such names, that similar names are used by
funds in the investment business which are affiliated with DMH. DMH has
consented to the use by the Trust of the identifying words "Delaware Group" and
"Delaware Investments" and has granted to the Trust a nonexclusive license to
use the names "Delaware Group" and "Delaware Investments" as part of the name of
the Trust and the name of any Series of Shares. The Trust further expressly
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agrees and acknowledges that the non-exclusive license granted herein may be
terminated by DMH if the Trust ceases to use an Affiliate of DMH as Investment
Adviser or Delaware Distributors, L.P. ("DDLP") as Principal Underwriter (or to
use other Affiliates or successors of DMH and DDLP for such purposes). In such
event, the non-exclusive license granted herein may be revoked by DMH and the
Trust shall cease using the names "Delaware Group" and "Delaware Investments" as
part of its name or the name of any Series of Shares, unless otherwise consented
to by DMH or any successor to its interests in such names.
The Trust further understands and agrees that so long as DMH and/or its
advisory Affiliates shall continue to serve as the Trust's Investment Adviser,
other mutual funds as may be sponsored or advised by DMH or its Affiliates shall
have the right permanently to adopt and to use the words "Delaware" in their
names and in the names of any Series or class of Shares of such funds.
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into
this Declaration of Trust as of the 17th day of December, 1998.
/s/Wayne A. Stork /s/Jeffrey J. Nick
- ------------------------------------ ------------------------------------
Wayne A. Stork Jeffrey J. Nick
Trustee Trustee
/s/Walter P. Babich /s/John H. Durham
- ------------------------------------ ------------------------------------
Walter P. Babich John H. Durham
Trustee Trustee
/s/Anthony D. Knerr /s/Ann R. Leven
- ------------------------------------ ------------------------------------
Anthony D. Knerr Ann R. Leven
Trustee Trustee
/s/W. Thacher Longstreth /s/Thomas F. Madison
- ------------------------------------ ------------------------------------
W. Thacher Longstreth Thomas F. Madison
Trustee Trustee
/s/Charles E. Peck
- ------------------------------------
Charles E. Peck
Trustee
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CERTIFICATE OF TRUST OF
DELAWARE GROUP TAX-FREE FUND
This Certificate of Trust of Delaware Group Tax-Free Fund, a business
trust (the "Trust"), executed by the undersigned trustees, and filed under and
in accordance with the provisions of the Delaware Business Trust Act (12 Del. C.
ss. 3801 et seq.) (the "Act"), sets forth the following:
FIRST: The name of the business trust formed hereby is Delaware Group
Tax-Free Fund.
SECOND: The address of the registered office of the Trust in the State
of Delaware is at 1209 Orange Street, Wilmington, Delaware 19801 and
the name and address of the registered agent for service of process on
the Trust in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The Trust formed hereby is or will become an investment company
registered under the Investment Company Act of 1940, as amended
(15 U.S.C. ss.ss.80a-1 et seq.).
FOURTH: Pursuant to Section 3804 of the Act, the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing
with respect to a particular series, whether such series is now
authorized and existing pursuant to the governing instrument of the
Trust or is hereafter authorized and existing pursuant to said
governing instrument, shall be enforceable against the assets
associated with such series only, and not against the assets of the
Trust generally or any other series thereof, and, except as otherwise
provided in the governing instrument of the Trust, none of the debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to the Trust generally or any other
series thereof shall be enforceable against the assets of such series.
In witness whereof, the undersigned, being all of the trustees of
Delaware Group Tax-Free Fund, have duly executed this Certificate of Trust as of
the 17th day of December, 1998.
By: /s/Wayne A. Stork By: /s/Jeffrey J. Nick
--------------------------- ------------------------
Wayne A. Stork Jeffrey J. Nick
Trustee Trustee
By: /s/Walter P. Babich By: /s/John H. Durham
--------------------------- ------------------------
Walter P. Babich John H. Durham
Trustee Trustee
By: /s/Anthony D. Knerr By: /s/Ann R. Leven
--------------------------- ------------------------
Anthony D. Knerr Ann R. Leven
Trustee Trustee
By: /s/W. Thacher Longstreth By: /s/Thomas F. Madison
--------------------------- ------------------------
W. Thacher Longstreth Thomas F. Madison
Trustee Trustee
By: /s/Charles E. Peck
---------------------------
Charles E. Peck
Trustee
<PAGE>
Approved as of
12/17/98
BY-LAWS
OF
DELAWARE GROUP TAX-FREE FUND
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal executive office of Delaware
Group Tax-Free Fund (the "Trust") shall be One Commerce Square, Philadelphia,
Pennsylvania, 19103. The board of trustees (the "Board of Trustees") may, from
time to time, change the location of the principal executive office of the Trust
to any place within or outside the State of Delaware.
Section 2. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the Trust
intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Trustees. In the absence of any such designation by the Board of Trustees,
shareholders' meetings shall be held at the principal executive office of the
Trust. For purposes of these By-Laws, the term "shareholder" shall mean a record
owner of shares of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be called
at any time by the Board of Trustees or by the chairperson of the board or by
the president. If the Trust is required under the Investment Company Act of
1940, as amended (the "1940 Act"), to hold a shareholders' meeting to elect
trustees, the meeting shall be deemed an "annual meeting" for that year for
purposes of the 1940 Act.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than ninety-three (93) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election. Except with respect to adjournments
as provided herein, no business shall be transacted at such meeting other than
that specified in the notice.
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Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail,
courier or telegraphic, facsimile, electronic mail or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the Trust or its transfer agent or
given by the shareholder to the Trust for the purpose of notice. If no such
address appears on the Trust's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail, courier, or
telegraphic, facsimile, electronic mail or other written communication to the
Trust's principal executive office. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail, with a courier or
sent by telegram, facsimile, electronic mail or other means of written
communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust marked
to indicate that the notice to the shareholder cannot be delivered at that
address, all future notices or reports shall be deemed to have been duly given
without further mailing, or substantial equivalent thereof, if such notices
shall be available to the shareholder on written demand of the shareholder at
the principal executive office of the Trust for a period of one year from the
date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the records of the Trust. Such affidavit shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time (and at
any time during the course of the meeting) by a majority of the votes cast by
those shareholders present in person or by proxy, or by the chairperson of the
meeting. Any adjournment may be with respect to one or more proposals, but not
necessarily all proposals, to be voted or acted upon at such meeting and any
adjournment will not delay or otherwise affect the effectiveness and validity of
a vote or other action taken at a shareholders' meeting prior to adjournment.
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When any shareholders' meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than one hundred eighty (180) days from the record date
set for the original meeting, in which case the Board of Trustees shall set a
new record date. If notice of any such adjourned meeting is required pursuant to
the preceding sentence, it shall be given to each shareholder of record entitled
to vote at the adjourned meeting in accordance with the provisions of Sections 3
and 4 of this Article II. At any adjourned meeting, the Trust may transact any
business which might have been transacted at the original meeting.
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders' vote may be
by voice vote or by ballot, provided, however, that any election for trustees
must be by ballot if demanded by any shareholder before the voting has begun. On
any matter other than elections of trustees, any shareholder may vote part of
the shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, but if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such proposal.
Abstentions and broker non-votes will be included for purposes of
determining whether a quorum is present at a shareholders' meeting. Abstentions
and broker non-votes will be treated as votes present at a shareholders'
meeting, but will not be treated as votes cast. Abstentions and broker
non-votes, therefore, will have no effect on proposals which require a plurality
or majority of votes cast for approval, but will have the same effect as a vote
"against" on proposals requiring a majority of outstanding voting securities for
approval.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of a meeting of shareholders, however called and noticed and
wherever held, shall be valid as though transacted at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy.
Attendance by a person at a meeting shall also constitute a waiver of notice
with respect to that person of that meeting, except when the person objects at
the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened and except that such attendance is
not a waiver of any right to object to the consideration of matters not included
in the notice of the meeting if that objection is expressly made at the
beginning of the meeting. Whenever notice of a meeting is required to be given
to a shareholder under the Declaration of Trust or these By-Laws, a written
waiver thereof, executed before or after the meeting by such shareholder or his
or her attorney thereunto authorized and filed with the records of the meeting,
shall be deemed equivalent to such notice.
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Section 8. PROXIES. Every shareholder entitled to vote for trustees or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the shareholder and filed
with the secretary of the Trust. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the shareholder executing it by a written notice delivered to the
Trust prior to the exercise of the proxy or by the shareholder's execution of a
subsequent proxy or attendance and vote in person at the meeting; or (ii)
written notice of the death or incapacity of the shareholder is received by the
Trust before the proxy's vote is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of the
General Corporation Law of the State of Delaware.
With respect to any shareholders' meeting, the Board of Trustees may
act to permit the Trust to accept proxies by any electronic, telephonic,
computerized, telecommunications or other reasonable alternative to the
execution of a written instrument authorizing the proxy to act, provided the
shareholder's authorization is received within eleven (11) months before the
meeting. A proxy with respect to shares held in the name of two or more Persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest with the challenger.
Section 9. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any person other than nominees for office to
act as inspector of election at the meeting or its adjournment. If no inspector
of election is so appointed, the chairperson of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint an inspector
of election at the meeting. If any person appointed as inspector fails to appear
or fails or refuses to act, the chairperson of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill the vacancy.
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The inspector shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the
Declaration of Trust and these By-Laws relating to action required to be
approved by the shareholders, the business and affairs of the Trust shall be
managed and all powers shall be exercised by or under the direction of the Board
of Trustees.
Section 2. NUMBER OF TRUSTEES. The number of trustees constituting the
Board of Trustees shall be determined as set forth in the Declaration of Trust.
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled
by a majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board of Trustees calls a meeting of shareholders
for the purpose of filling such vacancies. Notwithstanding the above, whenever
and for so long as the Trust is a participant in or otherwise has in effect a
plan under which the Trust may be deemed to bear expenses of distributing its
shares as that practice is described in Rule 12b- 1 under the 1940 Act, then the
selection and nomination of the trustees who are not "interested persons" of the
Trust (as that term is defined in the 1940 Act) shall be, and is, committed to
the discretion of such disinterested trustees.
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Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the Board
of Trustees. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the Trust. Any meeting, regular or
special, may be held by conference telephone or similar communication equipment,
so long as all trustees participating in the meeting can hear one another, and
all such trustees shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the chairperson of the
board or the president or any vice president or the secretary or any two (2)
trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail, courier
or telegram, charges prepaid, or by facsimile or electronic mail, addressed to
each trustee at that trustee's address as it is shown on the records of the
Trust. In case the notice is mailed, it shall be deposited in the United States
mail at least seven (7) days before the time of the holding of the meeting. In
case the notice is delivered personally, by telephone, by courier, to the
telegraph company, or by express mail, facsimile, electronic mail or similar
service, it shall be delivered at least forty-eight (48) hours before the time
of the holding of the meeting. Any oral notice given personally or by telephone
may be communicated either to the trustee or to a person at the office of the
trustee who the person giving the notice has reason to believe will promptly
communicate it to the trustee. The notice need not specify the purpose of the
meeting or the place if the meeting is to be held at the principal executive
office of the Trust.
Section 7. QUORUM. A majority of the authorized number of trustees
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
trustees if any action taken is approved by at least a majority of the required
quorum for that meeting.
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Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any trustee who attends the meeting without protesting
before or at its commencement about the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees present, whether or
not constituting a quorum, may adjourn any matter at any meeting to another time
and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than seven (7) days, in which case notice of the time and place shall
be given before the time of the adjourned meeting to the trustees who were
present at the time of the adjournment.
Section 11. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 11 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 12. TRUSTEE EMERITUS. Upon retirement of a trustee, the Board
of Trustees may elect him or her to the position of Trustee Emeritus. Said
Trustee Emeritus shall serve for one year and may be reelected by the Board of
Trustees from year to year thereafter. Said Trustee Emeritus shall not vote at
meetings of trustees and shall not be held responsible for actions of the Board
of Trustees but shall receive fees paid to trustees for serving as such.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may, by
resolution adopted by a majority of the authorized number of trustees, designate
one or more committees, each consisting of two (2) or more trustees, to serve at
the pleasure of the Board of Trustees. The Board of Trustees may designate one
or more trustees as alternate members of any committee who may replace any
absent member at any meeting of the committee. Any committee to the extent
provided in the resolution of the Board of Trustees, shall have the authority of
the Board of Trustees, except with respect to:
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(a) the approval of any action which under the Declaration of Trust or
applicable law also requires shareholders' approval or requires approval by a
majority of the entire Board of Trustees or certain members of said Board of
Trustees;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the trustees for serving on the Board
of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of the
By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable; or
(f) the appointment of any other committees of the Board of Trustees or
the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
any committee shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
any committee may be determined either by resolution of the Board of Trustees or
by resolution of the committee. Special meetings of any committee may also be
called by resolution of the Board of Trustees, and notice of special meetings of
any committee shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of Trustees may adopt
rules for the government of any committee not inconsistent with the provisions
of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a chairperson
of the board, a president and chief executive officer, a secretary, and a
treasurer. The Trust may also have, at the discretion of the Board of Trustees,
one or more vice presidents, one or more assistant vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article V. Any number of offices may be held by the same person, except the
offices of president and vice president.
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Section 2. ELECTION OF OFFICERS. The officers of the Trust shall be
chosen by the Board of Trustees, and each shall serve at the pleasure of the
Board of Trustees, subject to the rights, if any, of an officer under any
contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and
may empower the president to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any regular
or special meeting of the Board of Trustees, or by an officer upon whom such
power of removal may be conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
Section 6. CHAIRPERSON OF THE BOARD. The chairperson of the board
shall, if present, preside at meetings of the Board of Trustees and exercise and
perform such other powers and duties as may be from time to time assigned to the
chairperson by the Board of Trustees or prescribed by the By-Laws. The
chairperson of the board shall be a member ex officio of all standing
committees. In the absence, resignation, disability or death of the president,
the chairperson shall exercise all the powers and perform all the duties of the
president until his or her return, or until such disability shall be removed or
until a new president shall have been elected.
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Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the chairperson of the board, the
president shall be the chief executive officer of the Trust and shall, subject
to the control of the Board of Trustees, have general supervision, direction and
control of the business and the officers of the Trust. In the absence of the
chairperson of the board, he shall preside at all meetings of the shareholders
and at all meetings of the Board of Trustees. He shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board of Trustees or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Trustees or if not ranked, a vice president designated by the Board of
Trustees, shall perform all the duties of the president and when so acting shall
have all powers of and be subject to all the restrictions upon the president.
The vice presidents shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the Board of
Trustees or by these By-Laws and the president or the chairperson of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept at
the principal executive office of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of trustees,
committees of trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The secretary shall cause to be kept at the principal executive office
of the Trust or at the office of the Trust's transfer agent or registrar, as
determined by resolution of the Board of Trustees, a share register or a
duplicate share register showing the names of all shareholders and their
addresses, the number, series and classes of shares held by each, the number and
date of certificates issued for the same and the number and date of cancellation
of every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of
the shareholders and of the Board of Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
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Section 10. TREASURER. The treasurer shall keep and maintain or cause
to be kept and maintained adequate and correct books and records of accounts of
the properties and business transactions of the Trust, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all reasonable times be open
to inspection by any trustee.
The treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositories as may be designated by
the Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the president and trustees,
whenever they request it, an account of all of his transactions and of the
financial condition of the Trust and shall have other powers and perform such
other duties as may be prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a trustee, officer, employee or
other agent of this Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorneys' fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. The Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the Trust) by reason of
the fact that such person is or was an agent of the Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding if such person acted in good faith and in a
manner that such person reasonably believed to be in the best interests of the
Trust and in the case of a criminal proceeding, had no reasonable cause to
believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or plea of nolo contendere
or its equivalent shall not of itself create a presumption that the person did
not act in good faith or in a manner which the person reasonably believed to be
in the best interests of the Trust or that the person had reasonable cause to
believe that the person's conduct was unlawful.
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Section 3. ACTIONS BY TRUST. The Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that the person is or was an agent of the Trust,
against expenses actually and reasonably incurred by that person in connection
with the defense or settlement of that action if that person acted in good
faith, in a manner that person believed to be in the best interests of the Trust
and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with the Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable in the performance of that person's duty
to the Trust, unless and only to the extent that the court in which that action
was brought shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason of the disabling
conduct set forth in the preceding paragraph and is fairly and reasonably
entitled to indemnity for the expenses which the court shall determine; or
(b) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a threatened
or pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
the Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
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Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by the Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who are not
parties to the proceeding and are not "interested persons" of the Trust (as
defined in the 1940 Act); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCEMENT OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than trustees
and officers of the Trust or any subsidiary thereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6, in any circumstances
where it appears:
(a) That it would be inconsistent with a provision of the Declaration
of Trust, a resolution of the shareholders, or an agreement which prohibits or
otherwise limits indemnification which was in effect at the time of accrual of
the alleged cause of action asserted in the proceeding in which the expenses
were incurred or other amounts were paid; or
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(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees to purchase such insurance, the Trust shall purchase and
maintain insurance on behalf of any agent of the Trust against any liability
asserted against or incurred by the agent in such capacity or arising out of the
agent's status as such, but only to the extent that the Trust would have the
power to indemnify the agent against that liability under the provisions of this
Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of the Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar a record of its shareholders, providing the names and
addresses of all shareholders and the number, series and classes of shares held
by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
14
<PAGE>
Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a trustee may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
ARTICLE VIII
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the shares of
beneficial interest of the Trust may, subject to the provisions of the
Declaration of Trust, if any, be declared by the Board of Trustees at any
regular or special meeting, pursuant to applicable law. Dividends may be paid in
cash, in property, or in shares of the Trust.
Section 2. RESERVES. Before payment of any dividend there may be set
aside out of any funds of the Trust available for dividends such sum or sums as
the Board of Trustees may, from time to time, in its absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Trust, or for such other
purpose as the Board of Trustees shall deem to be in the best interests of the
Trust, and the Board of Trustees may abolish any such reserve in the manner in
which it was created.
ARTICLE IX
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed by such person or persons and in such manner as from time to time shall
be determined by resolution of the Board of Trustees.
15
<PAGE>
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or ratified
by the Board of Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the chairperson of the board or the
president or vice president and by the treasurer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the series and class of shares owned by the shareholders. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
on a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the Trust with
the same effect as if such person were an officer, transfer agent or registrar
at the date of issue. Notwithstanding the foregoing, the Trust may adopt and use
a system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the Trust and cancelled at the same time. The Board
of Trustees may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST.
The chairperson of the board, the president or any vice president or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf of
the Trust any and all shares of any corporation, partnership, trust, or other
entity, foreign or domestic, standing in the name of the Trust. The authority
granted may be exercised in person or by a proxy duly executed by such
designated person.
16
<PAGE>
Section 6. TRANSFER OF SHARES. Shares of the Trust shall be
transferable only on the record books of the Trust by the Person in whose name
such Shares are registered, or by his or her duly authorized attorney or
representative. In all cases of transfer by an attorney-in-fact, the original
power of attorney, or an official copy thereof duly certified, shall be
deposited and remain with the Trust, its transfer agent or other duly authorized
agent. In case of transfers by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Trust, its
transfer agent or other duly authorized agent. No transfer shall be made unless
and until the certificate issued to the transferor, if any, shall be delivered
to the Trust, its transfer agent or other duly authorized agent, properly
endorsed.
Section 7. HOLDERS OF RECORD. The Trust shall be entitled to treat the
holder of record of any share or shares as the owner thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not the Trust
shall have express or other notice thereof.
Section 8. FISCAL YEAR. The fiscal year of the Trust and each series
thereof shall end on the last day of August each year. The fiscal year of the
Trust or any series thereof may be refixed or changed from time to time by
resolution of the Board of Trustees. The fiscal year of the Trust shall be the
taxable year of each series of the Trust.
ARTICLE X
AMENDMENTS
Section 1. AMENDMENT. These By-laws may be restated and/or amended at
any time, without the approval of the shareholders, by an instrument in writing
signed by, or a resolution of, a majority of the then Board of Trustees.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made by and between DELAWARE GROUP TAX-FREE FUND, a Delaware
business trust (the "Trust") severally on behalf of each series of shares of
beneficial interest of the Trust that is listed on Exhibit A to this Agreement,
as that Exhibit may be amended from time to time (each such series of shares is
hereinafter referred to as a "Fund" and, together with other series of shares
listed on such Exhibit, the "Funds"), and DELAWARE MANAGEMENT COMPANY, a series
of Delaware Management Business Trust, a Delaware business trust (the
"Investment Manager").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, each Fund engages in the business of investing and reinvesting
its assets in securities; and
WHEREAS, the Investment Manager is registered under the Investment
Advisers Act of 1940 as an investment adviser and engages in the business of
providing investment management services; and
WHEREAS, the Trust, severally on behalf of each Fund, and the
Investment Manager desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Trust hereby employs the Investment Manager to manage the
investment and reinvestment of each Fund's assets and to administer the Trust's
affairs, subject to the direction of the Trust's Board of Trustees and officers
for the period and on the terms hereinafter set forth. The Investment Manager
hereby accepts such employment and agrees during such period to render the
services and assume the obligations herein set forth for the compensation herein
provided. The Investment Manager shall for all purposes herein be deemed to be
an independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Trust in any way, or
in any way be deemed an agent of the Trust. The Investment Manager shall
regularly make decisions as to what securities and other instruments to purchase
and sell on behalf of each Fund and shall effect the purchase and sale of such
investments in furtherance of each Fund's objectives and policies and shall
furnish the Board of Trustees of the Trust with such information and reports
regarding each Fund's investments as the Investment Manager deems appropriate or
as the Trustees of the Trust may reasonably request.
2. The Trust shall conduct its own business and affairs and shall bear
the expenses and salaries necessary and incidental thereto, including, but not
in limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of shares,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders' and Trustees' meetings; miscellaneous office expenses; brokerage
commissions; custodian fees; legal and accounting fees; taxes; and federal and
state registration fees. Directors, trustees, officers and employees of the
Investment Manager may be directors, trustees, officers and employees of any of
the investment companies within the Delaware Investments family (including the
Trust). Directors, trustees, officers and employees of the Investment Manager
who are directors, trustees, officers and/or employees of these investment
companies shall not receive any compensation from such companies for acting in
such dual capacity.
<PAGE>
In the conduct of the respective businesses of the parties hereto and
in the performance of this Agreement, the Trust and Investment Manager may share
facilities common to each, which may include legal and accounting personnel,
with appropriate proration of expenses between them.
3. (a) Subject to the primary objective of obtaining the best
execution, the Investment Manager will place orders for the purchase and sale of
portfolio securities and other instruments with such broker/dealers selected who
provide statistical, factual and financial information and services to the
Trust, to the Investment Manager, to any sub-adviser (as defined in Paragraph 5
hereof, a "Sub-Adviser") or to any other fund for which the Investment Manager
or any Sub-Adviser provides investment advisory services and/or with
broker/dealers who sell shares of the Trust or who sell shares of any other
investment company (or series thereof) for which the Investment Manager or any
Sub-Adviser provides investment advisory services. Broker/dealers who sell
shares of any investment companies or series thereof for which the Investment
Manager or Sub-Adviser provide investment advisory services shall only receive
orders for the purchase or sale of portfolio securities to the extent that the
placing of such orders is in compliance with the Rules of the Securities and
Exchange Commission and NASD Regulation, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Manager may cause a Fund to
pay a member of an exchange, broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange, broker or dealer would have charged for effecting that
transaction, in such instances where the Investment Manager has determined in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the Investment
Manager's overall responsibilities with respect to the Trust on behalf of the
Funds and to other investment companies (or series thereof) and other advisory
accounts for which the Investment Manager or any Sub-Adviser exercises
investment discretion.
4. As compensation for the services to be rendered to a particular Fund
by the Investment Manager under the provisions of this Agreement, that Fund
shall pay monthly to the Investment Manager exclusively from that Fund's assets,
a fee based on the average daily net assets of that Fund during the month. Such
fee shall be calculated in accordance with the fee schedule applicable to that
Fund as set forth in Exhibit A hereto, which Exhibit may be amended from time to
time as provided in Paragraphs 10(b) and (c) of this Agreement.
If this Agreement is terminated prior to the end of any calendar month
with respect to a particular Fund, the management fee for such Fund shall be
prorated for the portion of any month in which this Agreement is in effect with
respect to such Fund according to the proportion which the number of calendar
days during which the Agreement is in effect bears to the number of calendar
days in the month, and shall be payable within 10 calendar days after the date
of termination.
5. The Investment Manager may, at its expense, select and contract with
one or more investment advisers registered under the Investment Advisers Act of
1940 ("Sub-Advisers") to perform some or all of the services for a Fund for
which it is responsible under this Agreement. The Investment Manager will
compensate any Sub-Adviser for its services to the Fund. The Investment Manager
may terminate the services of any Sub-Adviser at any time in its sole
discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub-Adviser is selected and the
requisite approval of the Fund's shareholders is obtained. The Investment
Manager will continue to have responsibility for all advisory services furnished
by any Sub-Adviser.
-2-
<PAGE>
6. The services to be rendered by the Investment Manager to the Trust
on behalf of each Fund under the provisions of this Agreement are not to be
deemed to be exclusive, and the Investment Manager shall be free to render
similar or different services to others so long as its ability to render the
services provided for in this Agreement shall not be impaired thereby.
7. The Investment Manager, its directors, officers, employees, agents
and shareholders may engage in other businesses, may render investment advisory
services to other investment companies, or to any other corporation,
association, firm or individual, and may render underwriting services to the
Trust or to any other investment company, corporation, association, firm or
individual.
8. It is understood and agreed that so long as the Investment Manager
and/or its advisory affiliates shall continue to serve as the investment adviser
to any of the Trust's Funds, other investment companies as may be sponsored or
advised by the Investment Manager or its affiliates shall have the right
permanently to adopt and to use the words "Delaware," "Delaware Investments" or
"Delaware Group" in their names and in the names of any series or class of
shares of such funds.
9. In the absence of willful misfeasance, bad faith, gross negligence,
or a reckless disregard of the performance of its duties as the Investment
Manager to the Trust on behalf of any Fund, the Investment Manager shall not be
subject to liability to the Trust or to any Fund or to any shareholder of the
Trust for any action or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security, or otherwise.
10. (a) This Agreement shall be executed and become effective as of the
date written below, and shall become effective with respect to a particular Fund
as of the effective date set forth in Exhibit A for that Fund, only if approved
by the vote of a majority of the outstanding voting securities of that Fund. It
shall continue in effect for an initial period of two years for each Fund and
may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by the vote
of a majority of the outstanding voting securities of that Fund and only if the
terms and the renewal hereof have been approved by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party ("Independent Trustees"), cast in person at a meeting called for the
purpose of voting on such approval.
(b) Except as provided in Paragraph 10(c) below, no amendment to
this Agreement (or to Exhibit A hereto) shall be effective with respect to any
Fund unless approved by: (i) a majority of the Trustees of the Trust, including
a majority of Independent Trustees; and (ii) a majority of the outstanding
voting securities of the particular Fund. Any such amendment that pertains to a
Fund will not change, or otherwise affect the applicability of, this Agreement
with respect to other Funds.
(c) The Agreement (and Exhibit A hereto) may be amended with respect
to a Fund without the approval of a majority of the outstanding voting
securities of that Fund if the amendment relates solely to a management fee
reduction or other change that is permitted or not prohibited under federal law,
rule, regulation or SEC staff interpretation thereof to be made without
shareholder approval. This Agreement may be amended from time to time to add or
remove one or more Funds, or to reflect changes in management fees, by an
amendment to Exhibit A hereto executed by the Trust and the Investment Manager.
Any such amendment that pertains to a Fund will not change, or otherwise affect
the applicability of, this Agreement with respect to other Funds.
-3-
<PAGE>
(d) This Agreement may be terminated as to any Fund by the Trust at
any time, without the payment of a penalty, on sixty days' written notice to the
Investment Manager of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to the vote of a majority of the
outstanding voting securities of the affected Fund. The Investment Manager may
terminate this Agreement at any time, without the payment of a penalty, on sixty
days' written notice to the Fund of its intention to do so. Upon termination of
this Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust on behalf of a Fund to pay to the
Investment Manager the fee provided in Paragraph 4 hereof, prorated to the date
of termination. This Agreement shall automatically terminate in the event of its
assignment.
11. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
12. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities"; "interested persons"; and "assignment"
shall have the meaning defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers and duly attested as of
the _____ day of ____________________, ____.
DELAWARE MANAGEMENT COMPANY, DELAWARE GROUP TAX-FREE
a series of Delaware Management Business Trust FUND on behalf of the Funds
listed on Exhibit A
By: ________________________ By: __________________________
Name: ______________________ Name: ________________________
Title: _____________________ Title: _______________________
Attest: ____________________ Attest: ______________________
Name: ______________________ Name: ________________________
Title: _____________________ Title: _______________________
-4-
<PAGE>
EXHIBIT A
THIS EXHIBIT to the Investment Management Agreement between DELAWARE
GROUP TAX-FREE FUND and DELAWARE MANAGEMENT COMPANY, a series of Delaware
Management Business Trust entered into as of the______day of October, 1999
(the "Agreement") lists the Funds for which the Investment Manager provides
investment management services pursuant to this Agreement, along with the
management fee rate schedule for each Fund and the date on which the Agreement
became effective for each Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Name Effective Date Management Fee Schedule
(as a percentage of
average daily net assets)
Annual Rate
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delaware Tax-Free Insured Fund October, 1999 0.50% on first $500 million
0.475% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA Fund October, 1999 0.55% on first $500 million
0.50% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA October, 1999 0.50% on first $500 million
Intermediate Fund 0.475% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
POWER OF ATTORNEY
Each of the undersigned, a member of the Boards of Directors/Trustees
of the Delaware Investments Funds listed on Exhibit A to this Power of Attorney,
hereby constitutes and appoints on behalf of each of the Funds listed on Exhibit
A, David K. Downes, Wayne A. Stork and Walter P. Babich and any one of them
acting singly, his or her true and lawful attorneys-in-fact, in his or her name,
place, and stead, to execute and cause to be filed with the Securities and
Exchange Commission and other federal or state government agency or body, such
registration statements, and any and all amendments thereto as any of such
designees may deem to be appropriate under the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
this 16th day of July, 1999.
/s/Walter P. Babich /s/Thomas F. Madison
- -------------------------- ---------------------------
Walter P. Babich Thomas F. Madison
/s/David K. Downes /s/Charles E. Peck
- -------------------------- ---------------------------
David K. Downes Charles E. Peck
/a/Anthony D. Knerr /s/Wayne A. Stork
- -------------------------- ---------------------------
Anthony D. Knerr Wayne A. Stork
/s/Ann R. Leven /s/Jan L. Yeomans
- -------------------------- ---------------------------
Ann R. Leven Jan L. Yeomans
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE INVESTMENTS FUNDS
DELAWARE GROUP EQUITY FUNDS I
DELAWARE GROUP EQUITY FUNDS II
DELAWARE GROUP EQUITY FUNDS III
DELAWARE GROUP EQUITY FUNDS IV
DELAWARE GROUP EQUITY FUNDS V
DELAWARE GROUP INCOME FUNDS
DELAWARE GROUP GOVERNMENT FUND
DELAWARE GROUP CASH RESERVE
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS
DELAWARE GROUP TAX-FREE FUND
DELAWARE GROUP TAX-FREE MONEY FUND
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS
DELAWARE GROUP ADVISER FUNDS
DELAWARE POOLED TRUST
DELAWARE GROUP PREMIUM FUND
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
VOYAGEUR FUNDS
VOYAGEUR INSURED FUNDS
VOYAGEUR INTERMEDIATE TAX FREE FUNDS
VOYAGEUR INVESTMENT TRUST
VOYAGEUR MUTUAL FUNDS
VOYAGEUR MUTUAL FUNDS II
VOYAGEUR MUTUAL FUNDS III
VOYAGEUR TAX FREE FUNDS
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Investments Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints on behalf of each of the Funds listed on Exhibit A,
David K. Downes, Wayne A. Stork and Walter P. Babich and any one of them acting
singly, his true and lawful attorneys-in-fact, in his name, place, and stead, to
execute and cause to be filed with the Securities and Exchange Commission and
other federal or state government agency or body, such registration statements,
and any and all amendments thereto as any of such designees may deem to be
appropriate under the Securities Act of 1933, as amended, the Investment Company
Act of 1940, as amended, and all other applicable federal and state securities
laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 16th day of July, 1999.
John H. Durham
- -----------------------
John H. Durham
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I
DELAWARE GROUP EQUITY FUNDS II
DELAWARE GROUP EQUITY FUNDS III
DELAWARE GROUP EQUITY FUNDS IV
DELAWARE GROUP EQUITY FUNDS V
DELAWARE GROUP INCOME FUNDS
DELAWARE GROUP GOVERNMENT FUND
DELAWARE GROUP CASH RESERVE
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS
DELAWARE GROUP TAX-FREE FUND
DELAWARE GROUP TAX-FREE MONEY FUND
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS
DELAWARE GROUP ADVISER FUNDS
DELAWARE POOLED TRUST
DELAWARE GROUP PREMIUM FUND
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
<PAGE>
Law Office
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8115
August 5, 1999
Delaware Group Tax-Free Fund
1818 Market Street
Philadelphia, PA 19103
Re: Legal Opinion-Securities Act of 1933
Ladies and Gentlemen:
We have examined the Agreement and Declaration of Trust, (the
"Agreement"), of Delaware Group Tax-Free Fund (the "Fund"), a series business
trust organized under Delaware law, the By-Laws of the Fund, and its proposed
form of Share Certificates (if any), and the various pertinent corporate
proceedings we deem material. We have also examined the Notification of
Registration and the Registration Statements filed under the Investment Company
Act of 1940 as amended, (the "Investment Company Act") and the Securities Act of
1933 as amended, (the "Securities Act"), relating to the Fund and its
predecessor, all as amended to date, as well as other items we deem material to
this opinion.
The Fund is authorized by the Agreement to issue an unlimited
number of shares with no par value and, like its predecessor, has authorized
shares of the Tax-Free Insured Fund, the Tax-Free USA Fund and the Tax-Free USA
Intermediate Fund series of shares. The Agreement also empowers the Board to
designate any additional series or classes and allocate shares to such series or
classes.
The Fund has filed with the U.S. Securities and Exchange
Commission, a registration statement under the Securities Act, which
registration statement is deemed to register an indefinite number of shares of
the Fund pursuant to the provisions of Section 24(f) of the Investment Company
Act. You have further advised us that the Fund, and/or its predecessor, has
filed, and each year hereafter will timely file, a Notice pursuant to Rule 24f-2
under the Investment Company Act perfecting the registration of the shares sold
by the Fund during each fiscal year during which such registration of an
indefinite number of shares remains in effect.
You have also informed us that the shares of the Fund's
predecessor, have been, and will continue to be sold and the shares of the Fund
will be sold in accordance with the Fund's usual method of distributing its
registered shares, under which prospectuses are made available for delivery to
<PAGE>
Delaware Group Tax-Free Fund
August 5, 1999
Page 2
offerees and purchasers of such shares in accordance with Section 5(b) of the
Securities Act.
Based upon the foregoing information and examination, so long
as the Fund remains a valid and subsisting entity under the laws of its state of
organization, and the registration of an indefinite number of shares of the Fund
remains effective, the authorized shares of the Fund when issued for the
consideration set by the Board of Trustees pursuant to the Agreement, and
subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid,
and non-assessable shares, and the holders of such shares will have all the
rights provided for with respect to such holding by the Agreement and the laws
of the State of Delaware.
We hereby consent to the use of this opinion, in lieu of any
other, as an exhibit to the Registration Statement of the Fund, along with any
amendments thereto, covering the registration of the shares of the Fund under
the Securities Act and the applications, registration statements or notice
filings, and amendments thereto, filed in accordance with the securities laws of
the several states in which shares of the Fund are offered, and we further
consent to reference in the registration statement of the Fund to the fact that
this opinion concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: /s/ Bruce G. Leto
-------------------------------------
Bruce G. Leto
