<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 33-63238
File No. 811-7742
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No._____ [ ]
Post-Effective Amendment No. 21 [X]
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22
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VOYAGEUR MUTUAL FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-2923
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George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
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(Name and Address of Agent for Service)
Approximate Date of Public Offering: December 29, 1998
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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X 60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
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<PAGE>
Title of Securities Being Registered
Tax-Free Arizona Fund A Class
Tax-Free Arizona Fund B Class
Tax-Free Arizona Fund C Class
Tax-Free California Fund A Class
Tax-Free California Fund B Class
Tax-Free California Fund C Class
Tax-Free Iowa Fund A Class
Tax-Free Iowa Fund B Class
Tax-Free Iowa Fund C Class
Tax-Free Idaho Fund A Class
Tax-Free Idaho Fund B Class
Tax-Free Idaho Fund C Class
Minnesota High Yield Municipal Bond Fund A Class
Minnesota High Yield Municipal Bond Fund B Class
Minnesota High Yield Municipal Bond Fund C Class
Tax-Free New York Fund A Class
Tax-Free New York Fund B Class
Tax-Free New York Fund C Class
Tax-Free Wisconsin Fund A Class
Tax-Free Wisconsin Fund B Class
Tax-Free Wisconsin Fund C Class
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 22 to Registration File No. 33-63238 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheets(1)
4. Part A - Prospectus(1)(2)
5. Part B - Statement of Additional Information(1)(2)
6. Part C - Other Information(1)(2)
7. Signatures
(1) This Post-Effective Amendment relates to seven of the Registrant's eight
series of shares and their classes. Shares of National High Yield Municipal
Bond Fund are described in separate a Prospectus and Statement of Additional
Information. The Prospectus of National High Yield Municipal Bond Fund,
dated October 28, 1998, is incorporated into this filing by reference to the
electronic filing of Post-Effective Amendment No. 24 to the Registration
Statement of Delaware Group Tax-Free Funds, Inc. (File No. 2-86606) filed
October 28, 1998. The Statement of Additional Information and Part C of
National High Yield Municipal Bond Fund is incorporated by reference to the
electronic filing of Post-Effective Amendment No. 20 to the Registration
Statement of Voyageur Mutual Funds, Inc. filed October 28, 1998. Shares of
the other seven Series are described in a common Prospectus, Statement of
Additional Information and Part C included herein.
(2) This Registration Statement contains one Prospectus and one Statement of
Additional Information for six registrants (each of which offers its shares
in one or more series). This Registration Statement contains one Part C for
the Registrant. Separate Registration Statements, each of which incorporates
by reference the common Prospectus and common Statement of Additional
Information and includes its own Part C, also are being filed each of the
five other registrants.
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CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
<S> <C> <C>
1 Cover Page................................................. Cover Page
2 Synopsis................................................... Synopsis; Summary
of Expenses
3 Condensed Financial Information............................ Financial Highlights
4 General Description of Registrant.......................... Investment Objectives and
Policies; Classes of Shares
5 Management of the Fund..................................... Management of the Funds
6 Capital Stock and Other Securities......................... The Delaware
Difference; Dividends and
Distributions; Taxes; Classes
of Shares
7 Purchase of Securities Being Offered....................... Cover Page; How to Buy
Shares; Calculation of
Offering Price and Net Asset
Value Per Share; Management
of the Funds
8 Redemption or Repurchase................................... How to Buy Shares;
Redemption and Exchange
9 Legal Proceedings.......................................... None
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Item No. Description Location in Statement of
- -------- ----------- Additional Information
----------------------
<S> <C> <C>
10 Cover Page................................................. Cover Page
11 Table of Contents.......................................... Table of Contents
12 General Information and History............................ Inapplicable
13 Investment Objectives and Policy........................... Investment Policies
and Restrictions
14 Management of the Registrant............................... Officers and Directors
15 Control Persons and Principal Holders of Securities ....... Officers and Directors
16 Investment Advisory and Other Services..................... Officers and Directors;
Investment Management
Agreement: General Information;
Financial Statements
17 Brokerage Allocation....................................... Trading Practices and Brokerage
18 Capital Stock and Other Securities......................... Capitalization and
Noncumulative Voting
(under General Information)
19 Purchase, Redemption and Pricing of Securities
Being Offered.............................................. Purchasing Shares;
Determining Offering Price
and Net Asset Value;
Redemption and Repurchase;
Exchange Privilege
20 Tax Status................................................. Distributions; Taxes
21 Underwriters............................................... Purchasing Shares
22 Calculation of Performance Data............................ Performance Information
23 Financial Statements....................................... Financial Statements
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART C
<TABLE>
<CAPTION>
Item No. Description Location in Part C
- -------- ----------- ------------------
<S> <C> <C>
24 Financial Statements and Exhibits................................... Item 24
25 Persons Controlled by or under Common Control
with Registrant..................................................... Item 25
26 Number of Holders of Securities..................................... Item 26
27 Indemnification..................................................... Item 27
28 Business and Other Connections of Investment Adviser................ Item 28
29 Principal Underwriters.............................................. Item 29
30 Location of Accounts and Records.................................... Item 30
31 Management Services................................................. Item 31
32 Undertakings........................................................ Item 32
</TABLE>
<PAGE>
CLASS A SHARES PROSPECTUS
CLASS B SHARES DECEMBER 29, 1998
CLASS C SHARES
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1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance: Nationwide 800-523-1918
Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
This Prospectus describes shares of each fund listed on this page
(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.
Four styles of funds are contained in this combined Prospectus: tax-free
intermediate funds (the "Tax-Free Intermediate Funds"), longer term tax-free
funds (the "Tax-Free Funds"), longer term insured municipal funds (the
"Insured Funds") and a high yield municipal bond fund (the "Minnesota High
Yield Fund"). The investment objective of each Tax-Free Intermediate Fund is to
provide investors with preservation of capital and, secondarily, current income
exempt from federal income tax and the personal income tax, if any, of the
Fund's particular state, by maintaining a weighted average portfolio maturity of
10 years or less. The investment objective of each Tax-Free Fund and Insured
Fund is to seek as high a level of current income exempt from federal income tax
and from the personal income tax, if any, of the Fund's particular state, as is
consistent with preservation of capital. The investment objective of the
Minnesota High Yield Fund is to seek as high a level of current income exempt
from federal income tax and from Minnesota personal income tax, primarily
through investment in a portfolio of medium- and lower-grade Municipal
Obligations. The weighted average maturity of the investment portfolio of each
Tax-Free Fund , Insured Fund and Minnesota High Yield Fund is expected to be
approximately 15 to 25 years. There is no assurance that any Fund will achieve
its investment objective.
<TABLE>
<CAPTION>
<S> <C>
Delaware-Voyageur Tax-Free Arizona Intermediate Fund Delaware-Voyageur Tax-Free Minnesota Intermediate Fund(1)
Delaware-Voyageur Tax-Free Arizona Insured Fund(1) Delaware-Voyageur Minnesota Insured Fund(1)
Delaware-Voyageur Tax-Free Arizona Fund Delaware-Voyageur Tax-Free Minnesota Fund(1)
Delaware-Voyageur Tax-Free California Intermediate Fund Delaware-Voyageur Minnesota High Yield Municipal Bond Fund
Delaware-Voyageur Tax-Free California Insured Fund Delaware-Voyageur Tax-Free Missouri Fund
Delaware-Voyageur Tax-Free California Fund Delaware-Voyageur Tax-Free New Mexico Fund
Delaware-Voyageur Tax-Free Colorado Intermediate Fund Delaware-Voyageur Tax-Free New York Fund
Delaware-Voyageur Tax-Free Colorado Insured Fund Delaware-Voyageur Tax-Free North Dakota Fund
Delaware-Voyageur Tax-Free Colorado Fund(1) Delaware-Voyageur Tax-Free Oregon Insured Fund
Delaware-Voyageur Tax-Free Florida Insured Fund Delaware-Voyageur Tax-Free Utah Fund
Delaware-Voyageur Tax-Free Florida Fund Delaware-Voyageur Tax-Free Washington Insured Fund
Delaware-Voyageur Tax-Free Idaho Fund Delaware-Voyageur Tax-Free Wisconsin Fund
Delaware-Voyageur Tax-Free Iowa Fund
Delaware-Voyageur Tax-Free Kansas Fund
</TABLE>
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(1) Diversified Series
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"). These alternatives permit an investor to choose the method of
purchasing shares that is most suitable for his or her needs.
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. The Funds' Statement of Additional Information ("Part B" of their
respective registration statements), dated December 29, 1998, as it may be
amended from time to time, contains additional information about the Funds and
has been filed with the Securities and Exchange Commission (the "SEC"). Part B
is incorporated by reference into this Prospectus and is available, without
charge, by writing to Delaware Distributors, L.P. at the above address or by
calling the above numbers. Each Fund's financial statements appear in its Annual
Report for the fiscal year ended August 31, 1998, which will accompany any
response to requests for Part B. Also, the SEC maintains a Web site
(http://www.sec.gov) that contains Part B, material we incorporated by reference
and other information regarding registrants that electronically file with the
SEC.
TABLE OF CONTENTS
Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and Distributions
Financial Highlights Taxes
Investment Objectives and Policies Calculation of Offering Price and
Suitability Net Asset Value Per Share
Investment Strategy Management of the Funds
Special Risk Considerations Other Investment Policies and
The Delaware Difference Risk Considerations
Plans and Services Appendix A -- Ratings
Classes of Shares
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUNDS ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
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<PAGE>
SYNOPSIS
Investment Objectives
Tax-Free Intermediate Funds -- The investment objective of each Tax-Free
Intermediate Fund is to provide investors with preservation of capital and,
secondarily, current income exempt from federal income tax and the personal
income tax, if any, of the Fund's particular state, by maintaining a weighted
average portfolio maturity of 10 years or less.
Tax-Free Funds and Insured Funds -- The investment objective of each
Tax-Free Fund and Insured Fund is to seek as high a level of current income
exempt from federal income tax and from the personal income tax, if any, of the
Fund's particular state, as is consistent with preservation of capital. The
weighted average maturity of the investment portfolio of each Tax-Free Fund and
Insured Fund is expected to be approximately 15 to 25 years.
Minnesota High Yield Fund -- The investment objective of Minnesota High
Yield Fund is to seek as high a level of current income exempt from federal
income tax and from Minneosta personal income tax, if any, primarily through
investment in a portfolio of medium- and lower-grade Municipal Obligations. The
weighted average maturity of the investment portfolio of Minnesota High Yield
Fund is expected to be approximately 15 to 25 years.
For further details, see Investment Objectives and Policies and Other
Investment Policies and Risk Considerations.
Risk Factors and Special Considerations
Prospective investors should consider the following factors:
1. While each Fund has qualified, and intends to continue to qualify, as
a "diversified" investment company under provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended, (the "Code"), certain of the Funds
will not be diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). Thus, while at least 50% of a Fund's total assets will be
represented by cash, cash items, and other securities limited in respect of any
one issuer to an amount not greater than 5% of the Fund's total assets, a
"non-diversified" portfolio will not satisfy this test with respect to 75% of
such Fund's assets, as required by the 1940 Act's definition of "diversified." A
nondiversified portfolio is believed to be subject to greater risk because
adverse effects on the portfolio's security holdings may affect a larger portion
of the overall assets.
2. Minnesota High Yield Fund will invest primarily in, and each of the
Tax-Free Funds and Tax-Free Intermediate Funds may invest up to 20% of its
assets in, high-yield securities (junk bonds) . Consequently, greater risks may
be involved with an investment in such Funds. See Special Risk Considerations
under Investment Objectives and Policies.
3. Each Fund has the right to engage in options transactions, and certain
Funds have the right to engage in futures transactions, for hedging purposes, to
counter-balance portfolio volatility and, in connection with futures
transactions, will maintain certain collateral in special accounts established
for the benefit of futures commission merchants. While the Funds do not engage
in options and futures for speculative purposes, there are risks that result
from the use of these instruments by the Funds, and an investor should carefully
review the descriptions of such in this Prospectus. Certain options and futures
may be considered to be derivative securities. See Options and Futures under
Other Investment Policies and Risk Considerations.
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<PAGE>
4. The Funds may invest in inverse floaters which may be considered to be
derivative securities. The interest rates attributable to inverse floaters may
move in the opposite direction to short-term interest rates at an accelerated
speed causing rapid fluctuations in the value of such securities. See Tax Exempt
Obligations under Investment Objectives and Policies - Investment Strategy.
Investment Manager, Distributor and Transfer Agent
Delaware Management Company (the "Manager") furnishes investment
management services to the Funds, subject to the supervision and direction of
the Board of Directors or Trustees. The Manager also provides investment
management services to certain other funds in the Delaware Investments
family. Delaware Distributors, L.P. (the "Distributor") is the national
distributor for each Fund and for all of the other mutual funds in the
Delaware Investments family. Delaware Service Company, Inc. (the "Transfer
Agent") is the shareholder servicing, dividend disbursing, accounting services
and transfer agent for each Fund and for all of the other mutual funds in the
Delaware Investments family.
See Summary of Expenses and Management of the Funds for further
information regarding the Manager and the fees payable under each Fund's
Investment Management Agreement.
Sales Charges
The price of Class A Shares of Tax-Free Funds , Insured Funds and
Minnesota High Yield Fund includes a maximum front-end sales charge of 3.75% of
the offering price. The price of Class A Shares of the Tax-Free Intermediate
Funds includes a maximum front-end sales charge of 2.75% of the offering price.
The front-end sales charge is reduced on certain transactions of at least
$100,000 but under $1,000,000. For purchases of $1,000,000 or more, the
front-end sales charge is eliminated; if a dealer's commission is paid in
connection with those purchases, a contingent deferred sales charge ("Limited
CDSC") of 1% will be imposed if shares are redeemed during the first year
after the purchase and a Limited CDSC of 0.50% will be imposed if shares are
redeemed during the second year after the purchase. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange. Class A Shares are also subject to annual
12b-1 Plan expenses for the life of the investment.
The price of Class B Shares of each Fund is equal to the net asset value
per share. Class B Shares of Tax-Free Funds , Insured Funds and Minnesota 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 Tax-Free Funds ,
Insured Funds and Minnesota High Yield Fund are subject to annual 12b-1 Plan
expenses which are assessed against such shares for approximately eight years
after purchase (after which point Class B Shares will be converted to Class A
Shares). Class B Shares of Tax-Free Intermediate Funds are subject to a CDSC of:
(i) 2% if shares are redeemed within two years of purchase; (ii) 1% if shares
are redeemed during the third year following purchase; and (iii) 0% thereafter.
Class B Shares of Tax-Free Intermediate Funds are subject to annual 12b-1 Plan
expenses which are assessed against such shares for approximately five years
after purchase. See Automatic Conversion of Class B Shares under Classes of
Shares.
The price of Class C Shares of each Fund is equal to the net asset value
per share. Class C Shares of each Fund are subject to a CDSC of 1% if shares are
redeemed within 12 months of purchase. Class C Shares of each Fund are subject
to annual 12b-1 Plan expenses which are assessed against such shares for the
life of the investment.
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<PAGE>
See Classes of Shares, and Distribution (12b-1) and Service under
Management of the Funds.
Purchase Amounts
The minimum initial investment in any Class generally is $1,000.
Subsequent investments generally must be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed the maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B Shares and Class C Shares and generally are not subject to a CDSC.
See How to Buy Shares.
Redemption and Exchange
Class A Shares of each Fund may be redeemed or exchanged at the net asset
value calculated after receipt of the redemption or exchange request. Neither
the Funds nor the Distributor assesses a charge for redemptions or exchanges of
Class A Shares except for certain redemptions of shares purchased at net asset
value, which may be subject to a Limited CDSC or other CDSC if a dealer's
commission was paid in connection with such purchases. See Front-End Sales
Charge Alternative - Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the net
asset value next calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Funds
nor the Distributor assesses any additional charges for redemptions or
exchanges of Class B Shares or Class C Shares. There are certain limitations on
an investor's ability to exchange shares between the various classes of shares
that are offered. See Redemption and Exchange.
Open-End Investment Company
The shares of the Funds constitute separate series of parent entities,
which are open-end investment companies. Certain of the parent entities are
organized as Minnesota corporations. Other parent entities are organized as
business trusts under the laws of the State of Maryland. The Funds which are
diversified, as such term is defined in the 1940 Act are designated as such by a
footnote on the cover page of this Prospectus. All other Funds are
non-diversified. See Shares under Management of the Funds.
Shares of the Funds covered by this prospectus are not registered in all
states. Shares that are not registered in one or more states are not being
offered and sold in such states.
-6-
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<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
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Shareholder Transaction Expenses
-------------------------------- Annual Fund Operating Expenses Total Fund Manage-
(as a Percentage of Average Net Assets) Operating ment
Maximum After Fee Waivers and Payment Arrangements Expenses Fees
Maximum Sales ------------------------------------------ Without Without
Front-End Charge Maximum Total Voluntary Voluntary
Sales Load Imposed on CDSC Fund Waiver Waiver
Delaware-Voyageur Imposed on Reinvested Imposed on Redemption Management 12b-1 Other Operating and and
Funds Purchases Dividends Redemptions Fees(1) Fee(5) Fee(7) Expenses Expenses Payment(2) Payment
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona
Class A 3.75% None 1.00%(2) None 0.00% 0.25% 0.24% 0.49%(5) 1.07% 0.50%
Class B None None 4.00(3) None 0.00 1.00 0.24 1.24(5) 1.81 0.50
Class C None None 1.00(4) None 0.00 1.00 0.24 1.24(5) 1.81 0.50
Arizona Insured
Class A 3.75% None 1.00%(2) None 0.43% 0.25% 0.16% 0.84%(5) 0.91% 0.50%
Class B None None 4.00(3) None 0.43 1.00 0.16 1.59(5) 1.66 0.50
Class C None None 1.00(4) None 0.43 1.00 0.16 1.59(5) 1.66 0.50
Arizona Intermediate
Class A 2.75% None 1.00%(2) None 0.17% 0.15% 0.58% 0.90%(5) 1.23% 0.50%
Class B None None 2.00(3) None 0.17 1.00 0.58 1.75(5) 1.98 0.50
Class C None None 1.00(4) None 0.17 1.00 0.58 1.75(5) 1.98 0.50
Tax-Free California
Class A 3.75% None 1.00%(2) None 0.00% 0.25% 0.00% 0.25%(5) 1.07% 0.50%
Class B None None 4.00(3) None 0.00 1.00 0.00 1.00(5) 1.82 0.50
Class C None None 1.00(4) None 0.00 1.00 0.00 1.00(5) 1.82 0.50
California Insured(10)
Class A 3.75% None 1.00%(2) None 0.50% 0.25% 0.19% 0.94%(6) 0.94% 0.50%(8)
Class B None None 4.00(3) None 0.50 1.00 0.19 1.69(6) 1.69 0.50(8)
Class C None None 1.00(4) None 0.50 1.00 0.19 1.69(6) 1.69 0.50(8)
California Intermediate
Class A 2.75% None 1.00%(2) None 0.17% 0.15% 0.58% 0.90%(5) 1.23% 0.50%
Class B None None 2.00(3) None 0.17 1.00 0.58 1.75(5) 1.98 0.50
Class C None None 1.00(4) None 0.17 1.00 0.58 1.75(5) 1.98 0.50
Tax-Free Colorado
Class A 3.75% None 1.00%(2) None 0.41% 0.25% 0.17% 0.83%(5) 0.92% 0.50%
Class B None None 4.00(3) None 0.41 1.00 0.17 1.58(5) 1.67 0.50
Class C None None 1.00(4) None 0.41 1.00 0.17 1.58(5) 1.67 0.50
Colorado Insured
Class A 3.75% None 1.00%(2) None 0.18% 0.25% 0.57% 1.00%(5) 1.32% 0.50%
Class B None None 4.00(3) None 0.18 1.00 0.57 1.75(5) 2.07 0.50
Class C None None 1.00(4) None 0.18 1.00 0.57 1.75(5) 2.07 0.50
Colorado Intermediate
Class A 2.75% None 1.00%(2) None 0.17% 0.15% 0.58% 0.90%(5) 1.23% 0.50%
Class B None None 2.00(3) None 0.17 1.00 0.58 1.75(5) 1.98 0.50
Class C None None 1.00(4) None 0.17 1.00 0.58 1.75(5) 1.98 0.50
Tax-Free Florida(10)
Class A 3.75% None 1.00%(2) None 0.01% 0.25% 0.30% 0.56%(5) 1.15% 0.55%(9)
Class B None None 4.00(3) None 0.01 1.00 0.30 1.31(5) 1.90 0.55(9)
Class C None None 1.00(4) None 0.01 1.00 0.30 1.31(5) 1.90 0.55(9)
Florida Insured(10)
Class A 3.75% None 1.00%(2) None 0.50% 0.25% 0.30% 1.05%(5) 1.05% 0.50%(8)
Class B None None 4.00(3) None 0.50 1.00 0.30 1.80(5) 1.80 0.50(8)
Class C None None 1.00(4) None 0.50 1.00 0.30 1.80(5) 1.80 0.50(8)
Tax-Free Idaho
Class A 3.75% None 1.00%(2) None 0.43% 0.25% 0.27% 0.95%(6) 1.02% 0.50%
Class B None None 4.00(3) None 0.43 1.00 0.27 1.70(6) 1.77 0.50
Class C None None 1.00(4) None 0.43 1.00 0.27 1.70(6) 1.77 0.50
</TABLE>
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<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
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Shareholder Transaction Expenses
--------------------------------
Maximum
Maximum Sales
Front-End Charge Maximum
Sales Load Imposed on CDSC
Delaware-Voyageur Imposed on Reinvested Imposed on Redemption
Funds Purchases Dividends Redemptions Fees(1)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Free Iowa
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free Kansas(10)
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free Minnesota
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Minnesota Insured
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Minnesota Intermediate
Class A 2.75% None 1.00%(2) None
Class B None None 2.00(3) None
Class C None None 1.00(4) None
Minnesota High Yield Fund
Class A 3.75% None None(2) None
Class B None None 4.00%(3) None
Class C None None 1.00(4) None
Missouri Insured(10)
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free New Mexico(10)
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free New York
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free North Dakot a
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Oregon Insured
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free Utah(10)
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Washington Insured
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
Tax-Free Wisconsin(10)
Class A 3.75% None 1.00%(2) None
Class B None None 4.00(3) None
Class C None None 1.00(4) None
</TABLE>
<PAGE>
[RESTUBED TABLE FOR ABOVE]
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Annual Fund Operating Expenses Total Fund Manage-
(as a Percentage of Average Net Assets) Operating ment
After Fee Waivers and Payment Arrangements Expenses Fees
------------------------------------------ Without Without
Total Voluntary Voluntary
Fund Waiver Waiver
Management 12b-1 Other Operating and and
Fee(5) Fee(7) Expenses Expenses Payment(2) Payment
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax-Free Iowa
Class A 0.40% 0.25% 0.31% 0.96%(5) 1.06% 0.50%
Class B 0.40 1.00 0.31 1.71(5) 1.81 0.50
Class C 0.40 1.00 0.31 1.71(5) 1.81 0.50
Tax-Free Kansas
Class A 0.55% 0.25% 0.24% 0.99%(5) 1.04% 0.55%(9)
Class B 0.55 1.00 0.24 1.74(5) 1.79 0.55(9)
Class C 0.55 1.00 0.24 1.74(5) 1.79 0.55(9)
Tax-Free Minnesota
Class A 0.47% 0.25% 0.17% 0.89%(5) 0.92% 0.50%
Class B 0.47 1.00 0.17 1.64(5) 1.67 0.50
Class C 0.47 1.00 0.17 1.64(5) 1.67 0.50
Minnesota Insured
Class A 0.48% 0.25% 0.19% 0.92%(5) 0.94% 0.50%
Class B 0.48 1.00 0.19 1.67(5) 1.69 0.50
Class C 0.48 1.00 0.19 1.67(5) 1.69 0.50
Minnesota Intermediate
Class A 0.40% 0.15% 0.25% 0.80%(6) 0.80% 0.40%
Class B 0.40 1.00 0.25 1.65(6) 1.65 0.40
Class C 0.40 1.00 0.25 1.65(6) 1.65 0.40
Minnesota High Yield Fund
Class A 0.00% 0.25% 0.15% 0.40%(5) 1.20% 0.65%
Class B 0.00 1.00 0.15 1.15(5) 1.95 0.65
Class C 0.00 1.00 0.15 1.15(5) 1.95 0.65
Missouri Insured
Class A 0.38% 0.25% 0.27% 0.90%(5) 1.02% 0.50%(8)
Class B 0.38 1.00 0.27 1.65(5) 1.77 0.50(8)
Class C 0.38 1.00 0.27 1.65(5) 1.77 0.50(8)
Tax-Free New Mexico
Class A 0.50% 0.25% 0.35% 1.10%(5) 1.20% 0.55%(9)
Class B 0.50 1.00 0.35 1.85(5) 1.95 0.55(9)
Class C 0.50 1.00 0.35 1.85(5) 1.95 0.55(9)
Tax-Free New York
Class A 0.35% 0.25% 0.40% 1.00%(5) 1.15% 0.50%
Class B 0.35 1.00 0.40 1.75(5) 1.90 0.50
Class C 0.35 1.00 0.40 1.75(5) 1.90 0.50
Tax-Free North Dakota
Class A 0.35% 0.25% 0.40% 1.00%(5) 1.15% 0.50%
Class B 0.35 1.00 0.40 1.75(5) 1.90 0.50
Class C 0.35 1.00 0.40 1.75(5) 1.90 0.50
Oregon Insured
Class A 0.18% 0.25% 0.28% 0.71%(5) 1.03% 0.50%(8)
Class B 0.18 1.00 0.28 1.46(5) 1.78 0.50(8)
Class C 0.18 1.00 0.28 1.46(5) 1.78 0.50(8)
Tax-Free Utah
Class A 0.18% 0.25% 0.37% 0.80%(5) 1.22% 0.55%(9)
Class B 0.18 1.00 0.37 1.55(5) 1.97 0.55(9)
Class C 0.18 1.00 0.37 1.55(5) 1.97 0.55(9)
Washington Insured
Class A 0.00% 0.25% 0.25% 0.50%(5) 1.34% 0.50%(8)
Class B 0.00 1.00 0.25 1.25(5) 2.09 0.50(8)
Class C 0.00 1.00 0.25 1.25(5) 2.09 0.50(8)
Tax-Free Wisconsin
Class A 0.46% 0.25% 0.29% 1.00%(5) 1.04% 0.50%
Class B 0.46 1.00 0.29 1.75(5) 1.79 0.50
Class C 0.46 1.00 0.29 1.75(5) 1.79 0.50
</TABLE>
-8-
<PAGE>
(1) First Union National Bank currently charges $7.50 per redemption for
redemptions payable by wire.
(2) Class A purchases of $1,000,000 or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is
paid to the financial adviser through whom such purchase is effected, a
Limited CDSC of 1% will be imposed on certain redemptions made during
the first year after the purchase, and 0.50% will be imposed on certain
redemptions made during the second year after the purchase. Additional
Class A purchase options involving the imposition of a CDSC may be
permitted as described in this Prospectus from time to time. See
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
(3) Class B Shares of Tax-Free Funds , Insured Funds and Minnesota 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
Tax-Free Intermediate Funds are subject to a CDSC of (i) 2% if shares are
redeemed within the first two years of purchase; (ii) 1% if shares are
redeemed during the third year following purchase; and (iii) 0%
thereafter. See Deferred Sales Charge Alternative - Class B Shares and
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Classes of Shares.
(4) Class C Shares are subject to a CDSC of 1% if the shares are redeemed
within 12 months of purchase. See Level Sales Charge Alternative - Class C
Shares and Contingent Deferred Sales Charge - Class B Shares and Class C
Shares under Classes of Shares.
(5) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by a Fund and to pay that Fund's expenses
to the extent necessary to ensure that a Fund's total operating expenses
(exclusive of taxes, interest expense, brokerage fees and commissions) do
not exceed, on an annualized basis, the amounts noted above corresponding
to the caption "Total Fund Operating Expenses" through December 31, 1998.
The Annual Operating Expenses for each Fund have been restated using the
current fees and operating expenses that would have been applicable had
they been in effect during the last fiscal year. The Manager may waive any
or all of its fee and may pay certain expenses of each Fund from time to
time. See Expenses under Management of the Funds for a discussion of the
waivers.
(6) The Manager has elected to waive that portion, if any, of the annual
management fees payable by the Fund and to pay the Fund's expenses to the
extent necessary to ensure that the Fund's total operating expenses
(exclusive of 12b-1 Plan Expenses, taxes, interest expenses, brokerage
fees and commissions) do not exceed, on an annualized basis, 0.75% of the
average daily net assets of the Fund. The Annual Operating Expenses for
each Fund have been restated using the current fees and operating expenses
that would have been applicable had they been in effect during the last
fiscal year. The Manager may waive any or all of its fee and may pay
certain expenses of each Fund from time to time. See Expenses under
Management of the Funds for a discussion of the waivers.
(7) The annual 12b-1 Plan expenses for Class A Shares of Tax-Free Intermediate
Funds have been set at 0.15% of the average daily net assets of such
Class, and such expenses for Class A Shares of each of the other Funds
has been set at 0.25% of the average daily net assets of such Class. The
maximum annual 12b-1 Plan expenses permitted under the 12b-1 Plan for
Class A Shares are 0.25% of the average daily net assets of such Class.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD"). See Distribution (12b-1)
and Service under Management of the Fund.
-9-
<PAGE>
(8) Effective January 1, 1999, management fees prior to any voluntary waiver
or payment, as a percentage of the average daily net assets, will be:
0.50% on the first $500 million; 0.475% on the next $500 million; 0.45% on
the next $1,500 million; and 0.425% on assets in excess of $2,500 million.
(9) Effective January 1, 1999, management fees prior to any voluntary waiver
or payment, as a percentage of the average daily net assets, will be:
0.55% on the first $500 million; 0.50% on the next $500 million; 0.45% on
the next $1,500 million; and 0.425% on assets in excess of $2,500 million.
(10) Management Fees, Other Expenses, Total Fund Operating Expenses and Total
Fund Operating Expenses Without Voluntary Waiver and Payment have been
restated to reflect current expenses.
Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per Strategy. However, the
annual maintenance fee is waived until further notice. See Asset Planner in Part
B.
The following examples illustrate the expenses that an investor would
pay on a $1,000 investment in the Classes over various time periods assuming
(1) 5% annual return, (2) redemption and no redemption at the end of each
time period and (3) for Class B Shares and Class C Shares, payment of a CDSC
at the time of redemption, if applicable. The following examples assume any
voluntary waiver of fees and payments of expenses by the Manager as discussed
above.
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona
Class A $42(1) $53 $ 64 $ 97 $42 $53 $64 $ 97
Class B 53 69 88 129(2) 13 39 68 129(2)
Class C 23 39 68 150 13 39 68 150
Arizona Insured
Class A $46(1) $63 $ 82 $137 $46 $63 $82 $137
Class B 56 80 107 169(2) 16 50 87 169(2)
Class C 26 50 87 189 16 50 87 189
Arizona Intermediate
Class A $36(1) $55 $ 76 $135 $36 $55 $76 $135
Class B 38 65 95(3) 158(3) 18 55 95(3) 153(3)
Class C 28 55 95 206 18 55 95 206
Tax-Free California
Class A $40(1) $45 $ 51 $68 $40 $45 $51 $ 68
Class B 50 62 75 101(2) 10 32 55 101(2)
Class C 20 32 55 122 10 32 55 122
California Insured
Class A $47(1) $66 $ 85 $149 $47 $66 $88 $149
Class B 57 83 112 180(2) 17 53 92 180(2)
Class C 27 53 92 200 17 53 92 200
California Intermediate
Class A $36(1) $55 $ 85 $135 $36 $55 $76 $135
Class B 38 95 115(3) 153(3) 18 55 95(3) 153(3)
Class C 28 55 95 206 18 55 95 206
Tax-Free Colorado
Class A $46(1) $63 $ 82 $136 $46 $63 $82 $136
Class B 56 80 106 168(2) 16 50 86 168(2)
Class C 26 50 86 188 16 50 86 188
Colorado Insured
Class A $47(1) $68 $ 91 $155 $47 $68 $91 $155
Class B 58 85 115 186(2) 18 55 95 186(2)
Class C 28 55 95 206 18 55 95 206
Colorado Intermediate
Class A $36(1) $55 $ 76 $135 $36 $55 $76 $135
Class B 38 65 95(3) 153(3) 18 55 95(3) 153(3)
Class C 28 55 95 206 18 55 95 206
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Florida
Class A $43(1) $55 $ 68 $105 $43 $55 $68 $105
Class B 53 72 92 137(2) 13 42 72 137(2)
Class C 23 42 72 158 13 42 72 158
Florida Insured
Class A $48(1) $70 $ 93 $161 $48 $70 $93 $161
Class B 58 87 117 192(2) 18 57 97 192(2)
Class C 28 57 97 212 18 57 97 212
Tax-Free Idaho
Class A $47(1) $67 $ 93 $161 $47 $67 $88 $150
Class B 57 84 117 192(2) 17 54 92 181(2)
Class C 27 57 97 212 17 54 92 201
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Iowa
Class A $47(1) $67 $ 89 $151 $47 $67 $89 $151
Class B 57 84 113 182(2) 17 54 93 182(2)
Class C 27 54 93 205 17 54 93 202
Tax-Free Kansas
Class A $47(1) $68 $ 90 $154 $47 $68 $90 $154
Class B 58 85 114 185(2) 18 55 94 185(2)
Class C 28 55 94 205 18 55 94 205
Tax-Free Minnesota
Class A $46(1) $66 $ 85 $143 $46 $65 $85 $143
Class B 57 82 109 174(2) 17 52 89 174(2)
Class C 27 52 89 194 17 52 89 194
Minnesota Insured
Class A $47(1) $66 $ 87 $146 $47 $66 $87 $146
Class B 57 83 111 178(2) 17 53 91 178(2)
Class C 27 53 91 198 17 53 91 198
Minnesota Intermediate
Class A $35(1) $52 $ 71 $124 $35 $52 $71 $124
Class B 37 62 90(3) 142(3) 17 52 90(3) 142(3)
Class C 27 52 90 206 17 52 90 195
Minnesota High Yield Fund
Class A $41(1) $50 $ 59 $86 $41 $50 $59 $86
Class B 52 67 83 119(2) 12 37 63 119(2)
Class C 22 37 63 140 12 37 63 140
Missouri Insured
Class A $46(1) $65 $ 85 $144 $46 $65 $85 $144
Class B 57 82 110 175(2) 17 52 90 175(2)
Class C 27 52 90 195 17 52 90 195
Tax-Free New Mexico
Class A $48(1) $71 $ 96 $166 $48 $71 $96 $166
Class B 59 88 120 197(2) 19 58 100 197(2)
Class C 29 58 100 217 19 58 100 217
Tax-Free New York
Class A $47(1) $68 $ 91 $155 $47 $68 $91 $155
Class B 58 85 115 186(2) 18 55 95 186(2)
Class C 28 55 95 206 18 55 95 206
Tax-Free North Dakota
Class A $47(1) $68 $ 91 $155 $47 $68 $91 $155
Class B 58 85 115 186(2) 18 55 95 186(2)
Class C 28 55 95 206 18 55 95 206
Oregon Insured
Class A $45(1) $59 $ 76 $122 $45 $59 $76 $122
Class B 55 76 100 154(2) 15 46 80 154(2)
Class C 25 46 80 175 15 46 80 175
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Utah
Class A $45(1) $62 $80 $133 $45 $62 $80 $133
Class B 56 79 104(2) 164 16 19(2) 84 164
Class C 26 49 85 185 16 49 84 185
Washington Insured
Class A $42(1) $53 $64 98 $42 $53 $64 $ 98
Class B 53 70 89 130(2) 13 40 69 130(2)
Class C 23 40 69 151 13 40 69 151
Tax-Free Wisconsin
Class A $47(1) $68 $91 $155 $47 $68 $91 $155
Class B 58 85 115 186(2) 18 55 95 186(2)
Class C 28 55 95 206 18 55 95 206
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Generally, no redemption charge is assessed upon redemption of
Class A Shares. Under certain circumstances, however, a Limited
CDSC or other CDSC, which has not been reflected in this
calculation, may be imposed on certain redemptions. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B
Shares of Tax-Free Funds , Insured Funds and Minnesota High Yield
Fund will be automatically converted into Class A Shares of the
relevant Fund. The example above assumes conversion of Class B
Shares at the end of the eighth year. However, the conversion may
occur as late as three months after the eighth anniversary of
purchase, during which time the higher 12b-1 Plan fees payable by
Class B Shares will continue to be assessed. The ten-year expense
numbers for Class B Shares reflect the expenses of Class B Shares
for years one through eight and the expenses of Class A Shares for
years nine and ten. See Automatic Conversion of Class B Shares
under Classes of Shares for a description of the automatic
conversion feature.
(3) At the end of approximately five years after purchase, Class B
Shares of Tax-Free Intermediate Funds will be automatically
converted into Class A Shares of the relevant Fund. The example
above assumes conversion of Class B Shares at the end of the fifth
year. However, the conversion may occur as late as three months
after the fifth anniversary of purchase, during which time the
higher 12b-1 Plan fees payable by Class B Shares will continue to
be assessed. The ten-year expense numbers for Class B Shares
reflect the expenses of Class B Shares for years one through five
and the expenses of Class A Shares for years six through ten. See
Automatic Conversion of Class B Shares under Classes of Shares
for a description of the automatic conversion feature.
The example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
The purpose of the above tables is to assist investors in understanding
the various costs and expenses that they will bear directly or indirectly in
owning shares of the Funds.
-12-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial highlights are derived from the financial statements of
the Funds and have been audited by Ernst & Young LLP, independent auditors for
the period January 1, 1998 through August 31, 1998 and the year ended December
31, 1997, and by the Funds' previous independent auditors for the prior periods.
The data for the most recent period should be read in conjunction with the
financial statements, related notes, and the reports of Ernst & Young LLP, all
of which are incorporated by reference into Part B. Further information about
the Funds' performance is contained in each Fund's Annual Report to
shareholders. A copy of the Funds' Annual Reports (including the reports of
Ernst & Young LLP) may be obtained from the Funds upon request at no charge.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Free Arizona(11)
Class A - 8/31/98 $11.140 0.376 0.170 (0.376) (0.100)
Class A - 12/31/97 10.700 0.589 0.455 (0.589) (0.015)
Class A - 12/31/96 10.750 0.580 (0.010) (0.580) (0.040)
Class A - 12/31/95(1) 10.000 0.460 0.840 (0.460) (0.090)
Class B - 8/31/98 11.140 0.319 0.160 (0.319) (0.100)
Class B - 12/31/97 10.690 0.502 0.469 (0.506) (0.015)
Class B - 12/31/96 10.740 0.510 (0.010) (0.510) (0.040)
Class B - 12/31/95(1) 10.300 0.260 0.53 (0.260) (0.090)
Class C - 8/31/98 11.160 0.313 0.176 (0.319) (0.100)
Class C - 12/31/97 10.710 0.534 0.437 (0.506) (0.015)
Class C - 12/31/96 10.760 0.500 (0.010) (0.500) (0.040)
Class C - 12/31/95(1) 10.200 0.300 0.650 (0.300) (0.090)
Arizona Insured(11)
Class A - 8/31/98 11.470 0.358 0.080 (0.358) none
Class A - 12/31/97 11.060 0.548 0.416 (0.554) none
Class A - 12/31/96 11.150 0.530 (0.090) (0.530) none
Class A - 12/31/95 9.860 0.540 1.310 (0.560) none
Class A - 12/31/94 11.310 0.550 (1.370) (0.530) (0.100)(6)
Class A - 12/31/93 10.710 0.580 0.740 (0.580) (0.140)
Class A - 12/31/92 10.390 0.610 0.380 (0.610) (0.060)
Class A - 12/31/91(1 10.000 0.500 0.470 (0.500) (0.080)
Class B - 8/31/98 11.460 0.300 0.091 (0.301) none
Class B - 12/31/97 11.050 0.455 0.414 (0.459) none
Class B - 12/31/96 11.140 0.450 (0.090) (0.450) none
Class B - 12/31/95(1) 10.440 0.380 0.690 (0.370) none
Class C - 8/31/98 11.470 0.301 0.090 (0.301) none
Class C - 12/31/97 11.060 0.456 0.414 (0.460) none
Class C - 12/31/96 11.150 0.430 (0.090) (0.430) none
Class C - 12/31/95 9.860 0.450 1.310 (0.470) none
Class C - 12/31/94(1) 10.480 0.270 (0.560) (0.250) (0.08)(6)
- --------------------------------------------------------------------------------
</TABLE>
[RESTUBBED TABLE]
<PAGE>
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona(11)
Class A - 8/31/98 $11.210 4.99% $12,177 0.49% 5.03% 96% 1.07%
Class A - 12/31/97 11.140 10.07 10,916 0.48 5.42 39 1.08
Class A - 12/31/96 10.700 5.48 9,755 0.46 5.43 70 1.25
Class A - 12/31/95(1) 10.750 13.27 6,225 0.52(4) 5.19(4) 38 1.25(4)
Class B - 8/31/98 11.200 4.38 4,952 1.23 4.29 96 1.81
Class B - 12/31/97 11.140 9.34 3,711 1.22 4.68 39 1.82
Class B - 12/31/96 10.690 4.84 3,491 1.11 4.77 70 2.00
Class B - 12/31/95(1) 10.740 7.74 1,629 0.99(4) 4.60(4) 38 2.00(4)
Class C - 8/31/98 11.230 4.46 632 1.23 4.29 96 1.81
Class C - 12/31/97 11.160 9.32 332 1.23 4.67 39 1.83
Class C - 12/31/96 10.710 4.70 23 1.21 4.68 70 2.00
Class C - 12/31/95(1) 10.760 9.43 27 1.20(4) 4.65(4) 38 2.00(4)
Arizona Insured(11)
Class A - 8/31/98 11.550 3.88 179,306 0.84 4.68 21 0.91
Class A - 12/31/97 11.470 8.96 186,485 0.84 4.92 42 0.89
Class A - 12/31/96 11.060 4.09 209,258 0.82 4.89 42 0.95
Class A - 12/31/95 11.150 19.10 238,114 0.69 5.07 42 0.95
Class A - 12/31/94 9.860 (7.41) 231,736 0.72 5.20 25 0.92
Class A - 12/31/93 11.310 12.64 263,312 0.59 5.00 34 1.03
Class A - 12/31/92 10.710 9.86 124,120 0.35 5.60 40 1.16
Class A - 12/31/91(1 10.390 9.98 38,322 none(5) 6.58(4) 178 1.24(4)
Class B - 8/31/98 11.550 3.46 4,782 1.59 3.93 21 1.66
Class B - 12/31/97 11.460 8.06 3,657 1.65 4.11 42 1.70
Class B - 12/31/96 11.050 3.32 3,110 1.59 4.11 42 1.70
Class B - 12/31/95(1) 11.140 10.36 2,048 1.33(4) 4.08(4) 42 1.60(4)
Class C - 8/31/98 11.560 3.46 627 1.59 3.93 21 1.66
Class C - 12/31/97 11.470 8.05 675 1.65 4.11 42 1.70
Class C - 12/31/96 11.060 3.18 554 1.70 4.01 42 1.70
Class C - 12/31/95 11.150 18.10 541 1.54 4.18 42 1.69
Class C - 12/31/94(1) 9.860 (2.84) 326 1.50(4) 4.10(4) 25 1.71(4)
- ---------------------------------------------------------------------------------------------------------
See Notes to Financial Highlights
</TABLE>
-13-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Free California(11)
Class A - 8/31/98 $11.050 0.387 0.163 (0.380) none
Class A - 12/31/97 10.430 0.590 0.665 (0.595) (0.040)
Class A - 12/31/96 10.640 0.600 (0.180) (0.600) (0.030)
Class A - 12/31/95(1) 10.000 0.470 0.700 (0.470) (0.060)
Class B - 8/31/98 11.080 0.319 0.186 (0.325) none
Class B - 12/31/97 10.440 0.520 0.688 (0.528) (0.040)
Class B - 12/31/96 10.650 0.560 (0.180) (0.560) (0.030)
Class B - 12/31/95(1) 9.960 0.200 0.740 (0.190) (0.060)
Class C - 8/31/98 11.050 0.335 0.170 (0.325) none
Class C - 12/31/97 10.420 0.487 0.696 (0.513) (0.040)
Class C - 12/31/96(1) 10.070 0.370 0.380 (0.370) (0.030)
California Insured(11)
Class A - 8/31/98 10.980 0.345 0.150 (0.345) none
Class A - 12/31/97 10.500 0.513 0.486 (0.519) none
Class A - 12/31/96 10.650 0.520 (0.150) (0.520) none
Class A - 12/31/95 9.330 0.530 1.340 (0.550) none
Class A - 12/31/94 9.510 0.100 (0.180) (0.090) (0.010)
Class A - 10/31/94 11.080 0.550 (1.520) (0.540) (0.060)
Class A - 10/31/93 10.020 0.600 1.110 (0.600) (0.050)
Class A - 10/31/92(1) 10.000 none 0.020 none none
Class B - 8/31/98 10.990 0.290 0.140 (0.290) none
Class B - 12/31/97 10.500 0.457 0.495 (0.462) none
Class B - 12/31/96 10.650 0.480 (0.150) (0.480) none
Class B - 12/31/95 9.330 0.500 1.330 (0.510) none
Class B - 12/31/94 9.510 0.080 (0.170) (0.080) (0.010)
Class B - 10/31/94(1) 10.680 0.310 (1.160) (0.300) (0.020)
Class C - 8/31/98 10.940 0.289 0.151 (0.290) none
Class C - 12/31/97 10.460 0.485 0.432 (0.437) none
Class C - 12/31/96 10.650 0.440 (0.190) (0.440) none
Class C - 12/31/95(1) 10.190 0.250 0.530 (0.320) none
- -------------------------------------------------------------------------------
</TABLE>
(RESTUBBED TABLE)
<PAGE>
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free California(11)
Class A - 8/31/98 $11.220 5.07% $11,600 0.22% 5.00% 62% 1.07%
Class A - 12/31/97 11.050 12.43 4,385 0.13 5.32 17 1.19
Class A - 12/31/96 10.430 4.21 1,218 0.27 5.71 8 1.25
Class A - 12/31/95(1) 10.640 11.97 1,012 0.46(4) 5.57(4) 40 1.22(4)
Class B - 8/31/98 11.260 4.62 8,962 0.97 4.27 62 1.82
Class B - 12/31/97 11.080 11.91 5,576 0.80 4.65 17 1.86
Class B - 12/31/96 10.440 3.77 660 0.50 5.34 8 2.00
Class B - 12/31/95(1) 10.650 9.52 128 0.60(4) 5.33(4) 40 1.93(4)
Class C - 8/31/98 11.230 4.64 774 0.97 4.27 62 1.82
Class C - 12/31/97 11.050 11.69 109 0.87 4.58 17 1.93
Class C - 12/31/96(1) 10.420 7.58 94 0.78 5.13(4) 8 2.00(4)
California Insured(11)
Class A - 8/31/98 11.130 4.58 28,579 0.94 4.69 44 0.94
Class A - 12/31/97 10.980 9.78 26,923 0.99 4.85 63 1.02
Class A - 12/31/96 10.500 3.63 30,551 0.82 5.05 55 1.01
Class A - 12/31/95 10.650 20.51 33,860 0.70 5.23 107 1.02
Class A - 12/31/94 9.330 (0.84) 27,994 0.10(4) 6.30(4) 7 1.24(4)
Class A - 10/31/94 9.510 (8.97) 27,282 0.20 5.37 18 1.25
Class A - 10/31/93 11.080 17.29 12,509 none 5.26 24 1.25
Class A - 10/31/92(1) 10.020 0.20 2,056 none none 7 none
Class B - 8/31/98 11.130 3.96 6,588 1.69 3.94 44 1.69
Class B - 12/31/97 10.990 9.29 6,629 1.53 4.31 63 1.56
Class B - 12/31/96 10.500 3.22 6,717 1.21 4.64 55 1.76
Class B - 12/31/95 10.650 20.01 6,029 1.10 4.75 107 1.75
Class B - 12/31/94 9.330 (0.92) 2,219 0.57(4) 5.54(4) 7 1.94(4)
Class B - 10/31/94(1) 9.510 (7.93) 1,427 0.73(4) 4.82(4) 18 1.95(4)
Class C - 8/31/98 11.090 4.08 461 1.69 3.94 44 1.69
Class C - 12/31/97 10.940 8.98 476 1.71 4.13 63 1.74
Class C - 12/31/96 10.460 2.47 55 1.58 4.02 55 1.77
Class C - 12/31/95(1) 10.650 7.77 53 1.53(4) 4.25(4) 107 1.77(4)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
-14-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Free Colorado(11)
Class A - 8/31/98 $11.380 0.376 0.130 (0.376) none
Class A - 12/31/97 10.780 0.574 0.618 (0.592) none
Class A - 12/31/96 10.900 0.560 (0.130) (0.550) none
Class A - 12/31/95 9.530 0.540 1.380 (0.550) none
Class A - 12/31/94 11.100 0.550 (1.540) (0.540) (0.040)
Class A - 12/31/93 10.570 0.560 0.850 (0.560) (0.320)
Class A - 12/31/92 10.270 0.580 0.450 (0.580) (0.150)
Class A - 12/31/91 10.020 0.610 0.430 (0.610) (0.180)
Class A - 12/31/90 10.000 0.640 0.020 (0.640) none
Class A - 12/31/89 9.740 0.670 0.320 (0.670) (0.060)
Class A - 12/31/88(1) 9.430 0.690 0.340 (0.690) (0.030)
Class B - 8/31/98 11.380 0.319 0.130 (0.319) none
Class B - 12/31/97 10.780 0.483 0.616 (0.499) none
Class B - 12/31/96 10.900 0.470 (0.130) (0.460) none
Class B - 12/31/95(1) 10.250 0.350 0.650 (0.350) none
Class C - 8/31/98 11.380 0.319 0.140 (0.319) none
Class C - 12/31/97 10.780 0.484 0.615 (0.499) none
Class C - 12/31/96 10.900 0.460 (0.130) (0.450) none
Class C - 12/31/95 9.530 0.450 1.370 (0.450) none
Class C - 12/31/94(1) 10.210 0.290 (0.670) (0.270) (0.030)
Tax-Free Florida(11)
Class A - 8/31/98 11.020 0.363 0.226 (0.374) (0.005)
Class A - 12/31/97 10.520 0.591 0.523 (0.594) (0.020)
Class A - 12/31/96 10.730 0.590 (0.210) (0.590) none
Class A - 12/31/95(1) 10.000 0.470 0.750 (0.470) (0.020)
Class B - 8/31/98 11.030 0.346 0.187 (0.318) (0.005)
Class B - 12/31/97 10.530 0.527 0.531 (0.538) (0.020)
Class B - 12/31/96 10.730 0.560 (0.200) (0.560) none
Class B - 12/31/95(1) 10.370 0.150 0.380 (0.150) (0.020)
Class C - 8/31/98 11.020 0.350 0.193 (0.318) (0.005)
Class C - 12/31/97 10.520 0.511 0.521 (0.512) (0.020)
Class C - 12/31/96 10.730 0.370 (0.210) (0.370) none
Class C - 12/31/95(1) 10.200 0.330 0.560 (0.340) (0.020)
Florida Insured(7)(11)
Class A - 8/31/98 11.240 0.355 0.130 (0.355) none
Class A - 12/31/97 10.710 0.548 0.536 (0.554) none
Class A - 12/31/96 10.940 0.530 (0.230) (0.530) none
Class A - 12/31/95 9.520 0.540 1.440 (0.560) none
Class A - 12/31/94 9.640 0.100 (0.120) (0.090) (0.010)
Class A - 10/31/94 11.150 0.550 (1.460) (0.540) (0.060)
Class A - 10/31/93 10.110 0.580 1.120 (0.580) (0.080)
Class A - 10/31/92(1) 10.000 0.510 0.150 (0.510) (0.040)
Class B - 8/31/98 11.230 0.299 0.139 (0.298) none
Class B - 12/31/97 10.710 0.477 0.523 (0.480) none
Class B - 12/31/96 10.940 0.480 (0.230) (0.480) none
Class B - 12/31/95 9.520 0.500 1.440 (0.520) none
Class B - 12/31/94 9.630 0.090 (0.110) (0.080) (0.010)
Class B - 10/31/94(1) 10.640 0.310 (1.010) (0.300) (0.010)
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Colorado(11)
Class A - 8/31/98 $11.510 4.51% $357,127 0.83% 4.93% 36% 0.92%
Class A - 12/31/97 11.380 11.40 357,993 0.81 5.25 54 0.86
Class A - 12/31/96 10.780 4.08 358,328 0.78 5.27 40 0.91
Class A - 12/31/95 10.900 20.54 392,815 0.76 5.18 82 0.93
Class A - 12/31/94 9.530 (9.12) 354,138 0.66 5.35 69 0.72
Class A - 12/31/93 11.100 13.72 399,218 0.75 4.97 59 0.75
Class A - 12/31/92 10.570 10.42 202,165 0.80 5.59 70 0.80
Class A - 12/31/91 10.270 10.80 104,863 0.82 6.15 92 0.82
Class A - 12/31/90 10.020 6.81 53,987 1.00 6.38 70 1.00
Class A - 12/31/89 10.000 10.73 34,625 1.00 6.37 33 1.00
Class A - 12/31/88(1) 9.740 10.57 19,767 1.00 6.77 56 1.00
Class B - 8/31/98 11.510 3.99 10,726 1.58 4.18 36 1.67
Class B - 12/31/97 11.380 10.47 7,798 1.62 4.44 54 1.67
Class B - 12/31/96 10.780 3.25 4,172 1.58 4.45 40 1.65
Class B - 12/31/95(1) 10.900 9.96 1,643 1.39(4) 3.96(4) 82 1.60(4)
Class C - 8/31/98 11.520 4.08 2,068 1.58 4.18 36 1.67
Class C - 12/31/97 11.380 10.47 1,697 1.64 4.42 54 1.69
Class C - 12/31/96 10.780 3.17 1,522 1.66 4.40 40 1.66
Class C - 12/31/95 10.900 19.44 1,042 1.66 4.20 82 1.66
Class C - 12/31/94(1) 9.530 (3.75) 465 1.80(4) 4.23(4) 69 1.81(4)
Tax-Free Florida(11)
Class A - 8/31/98 11.230 5.44 9,988 0.55 4.92 20 1.10
Class A - 12/31/97 11.020 10.93 7,506 0.56 5.53 19 1.11
Class A - 12/31/96 10.520 3.74 5,761 0.33 5.66 70 1.25
Class A - 12/31/95(1) 10.730 12.49 4,421 0.32(4) 5.26(4) 64 1.25(4)
Class B - 8/31/98 11.240 4.91 3,368 1.30 4.17 20 1.85
Class B - 12/31/97 11.030 10.35 2,685 1.10 4.99 19 1.65
Class B - 12/31/96 10.530 3.51 1,635 0.76 5.23 70 2.00
Class B - 12/31/95(1) 10.730 5.10 101 0.44(4) 4.88(4) 64 2.00(4)
Class C - 8/31/98 11.240 5.01 554 1.30 4.17 20 1.85
Class C - 12/31/97 11.020 10.09 133 1.31 4.78 19 1.86
Class C - 12/31/96 10.520 2.97 16 1.15 4.83 70 2.00
Class C - 12/31/95(1) 10.730 8.88 9 1.11(4) 4.57(4) 64 2.00(4)
Florida Insured(7)(11)
Class A - 8/31/98 11.370 4.38 146,659 0.87 4.72 13 1.05
Class A - 12/31/97 11.240 10.42 162,097 0.79 5.07 15 0.85
Class A - 12/31/96 10.710 2.90 192,171 0.73 5.02 57 0.96
Class A - 12/31/95 10.940 21.22 242,425 0.51 5.24 101 0.95
Class A - 12/31/94 9.520 (0.11) 240,228 0.20(4) 6.24(4) 3 1.06(4)
Class A - 10/31/94 9.640 (8.38) 259,702 0.44 5.24 49 0.96
Class A - 10/31/93 11.150 17.27 289,682 0.18 5.18 54 1.12
Class A - 10/31/92(1) 10.110 6.74 50,666 none 5.38(4) 208 1.25(4)
Class B - 8/31/98 11.370 3.95 4,202 1.62 3.97 13 1.80
Class B - 12/31/97 11.230 9.58 3,943 1.46 4.40 15 1.52
Class B - 12/31/96 10.710 2.40 3,222 1.24 4.51 57 1.72
Class B - 12/31/95 10.940 20.76 2,814 0.89 4.80 101 1.68
Class B - 12/31/94 9.520 (0.03) 1,477 0.59(4) 5.68(4) 3 1.81(4)
Class B - 10/31/94(1) 9.630 (6.69) 1,135 1.00(4) 4.63(4) 49 1.28(4)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
-15-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Free Idaho(11)
Class A - 8/31/98 $11.450 0.356 0.115 (0.356) (0.005)
Class A - 12/31/97 10.910 0.551 0.552 (0.563) none
Class A - 12/31/96 11.020 0.580 (0.120) (0.570) none
Class A - 12/31/95(1) 10.000 0.600 1.100 (0.600) (0.080)
Class B - 8/31/98 11.440 0.298 0.117 (0.300) (0.005)
Class B - 12/31/97 10.890 0.487 (0.560) (0.497) none
Class B - 12/31/96 11.010 0.520 (0.130) (0.510) none
Class B - 12/31/95(1) 10.500 0.420 0.590 (0.420) (0.080)
Class C - 8/31/98 11.430 0.302 0.123 (0.300) (0.005)
Class C - 12/31/97 10.900 0.459 0.549 (0.478) none
Class C - 12/31/96 11.020 0.500 (0.130) (0.490) none
Class C - 12/31/95(1) 10.040 0.500 1.060 (0.500) (0.080)
Tax-Free Iowa(11)
Class A - 8/31/98 10.060 0.294 0.100 (0.294) none
Class A - 12/31/97 9.620 0.449 0.440 (0.449) none
Class A - 12/31/96 9.830 0.440 (0.210) (0.440) none
Class A - 12/31/95 8.560 0.450 1.290 (0.470) none
Class A - 12/31/94 9.260 0.170 (0.720) (0.150) none
Class A - 8/31/94(1) 10.000 0.490 (0.740) (0.490) none
Class B - 8/31/98 10.060 0.243 0.100 (0.243) none
Class B - 12/31/97 9.610 0.366 0.457 (0.373) none
Class B - 12/31/96 9.830 0.380 (0.220) (0.380) none
Class B - 12/31/95(1) 9.180 0.310 0.640 (0.300) none
Class C - 8/31/98 10.060 0.243 0.100 (0.243) none
Class C - 12/31/97 9.610 0.360 0.456 (0.366) none
Class C - 12/31/96 9.830 0.360 (0.220) (0.360) none
Class C - 12/31/95(1) 8.550 0.370 1.280 (0.370) none
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Idaho(11)
Class A - 8/31/98 $11.560 4.19% $39,843 0.95% 4.65% 8% 1.02%
Class A - 12/31/97 11.450 10.41 33,788 0.87 4.98 19 1.02
Class A - 12/31/96 10.910 4.36 27,684 0.60 5.29 35 1.10
Class A - 12/31/95(1) 11.020 17.48 13,540 0.26(4) 5.24(4) 42 1.25(4)
Class B - 8/31/98 11.550 3.68 7,474 1.70 3.90 8 1.77
Class B - 12/31/97 11.440 9.87 6,827 1.46 4.39 19 1.61
Class B - 12/31/96 10.890 3.75 4,945 1.11 4.78 35 1.85
Class B - 12/31/95(1) 11.010 9.86 1,977 0.79(4) 4.68(4) 42 1.90(4)
Class C - 8/31/98 11.550 3.77 1,719 1.70 3.90 8 1.77
Class C - 12/31/97 11.430 9.49 1,125 1.62 4.23 19 1.77
Class C - 12/31/96 10.900 3.48 822 1.33 4.57 35 1.82
Class C - 12/31/95(1) 11.020 15.81 789 1.05(4) 4.48(4) 42 2.00(4)
Tax-Free Iowa(11)
Class A - 8/31/98 10.160 3.98 39,345 0.96 4.38 13 1.06
Class A - 12/31/97 10.060 9.49 38,343 0.91 4.62 14 0.97
Class A - 12/31/96 9.620 2.56 40,037 0.92 4.68 14 1.06
Class A - 12/31/95 9.830 20.80 42,374 0.72 4.88 21 1.06
Class A - 12/31/94 8.560 (5.86) 32,373 0.11(4) 5.71(4) 7 1.25(4)
Class A - 8/31/94(1) 9.260 (2.67) 38,669 0.12 4.89 119 1.25
Class B - 8/31/98 10.160 3.46 3,910 1.71 3.63 13 1.81
Class B - 12/31/97 10.060 8.75 2,910 1.67 3.86 14 1.73
Class B - 12/31/96 9.610 1.76 1,645 1.61 3.97 14 1.81
Class B - 12/31/95(1) 9.830 10.62 819 1.28(4) 4.06(4) 21 1.65(4)
Class C - 8/31/98 10.160 3.46 1,255 1.71 3.63 13 1.81
Class C - 12/31/97 10.060 8.68 871 1.74 3.79 14 1.80
Class C - 12/31/96 9.610 1.56 670 1.75 3.82 14 1.81
Class C - 12/31/95(1) 9.830 19.66 462 1.61(4) 3.74(4) 21 1.72(4)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
-16-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Free Kansas(11)
Class A - 8/31/98 $11.060 0.351 0.100 (0.351) none
Class A - 12/31/97 10.560 0.526 0.506 (0.532) none
Class A - 12/31/96 10.730 0.520 (0.170) (0.520) none
Class A - 12/31/95 9.500 0.560 1.220 (0.550) none
Class A - 12/31/94 9.630 0.090 (0.130) (0.090) none
Class A - 10/31/94 10.850 0.570 (1.210) (0.570) (0.010)
Class A - 10/31/93(1) 10.000 0.560 0.850 (0.560) none
Class B - 8/31/98 11.080 0.296 0.099 (0.295) none
Class B - 12/31/97 10.570 0.440 0.516 (0.446) none
Class B - 12/31/96 10.740 0.450 (0.170) (0.450) none
Class B - 12/31/95(1) 10.190 0.340 0.540 (0.330) none
Class C - 8/31/98 11.050 0.296 0.110 (0.296) none
Class C - 12/31/97 10.550 0.439 0.504 (0.443) none
Class C - 12/31/96 10.720 0.430 (0.170) (0.430) none
Class C - 12/31/95(1) 10.200 0.320 0.510 (0.310) none
Tax-Free Minnesota(11)
Class A - 8/31/98 12.910 0.431 0.136 (0.435) (0.022)
Class A - 12/31/97 12.400 0.654 0.511 (0.655) none
Class A - 12/31/96 12.630 0.630 (0.230) (0.630) none
Class A - 12/31/95 11.330 0.620 1.320 (0.640) none
Class A - 12/31/94 12.850 0.630 (1.480) (0.610) (0.060)(8)
Class A - 12/31/93 12.210 0.640 0.870 (0.640) (0.230)
Class A - 12/31/92 12.070 0.700 0.230 (0.700) (0.090)
Class A - 12/31/91 11.670 0.750 0.490 (0.750) (0.090)
Class A - 12/31/90 11.680 0.770 0.020 (0.770) (0.030)
Class A - 12/31/89 11.480 0.800 0.220 (0.800) (0.020)
Class A - 12/31/88(1) 11.160 0.800 0.320 (0.800) none
Class B - 8/31/98 12.910 0.366 0.136 (0.370) (0.022)
Class B - 12/31/97 12.400 0.574 0.508 (0.572) none
Class B - 12/31/96 12.620 0.560 (0.220) (0.560) none
Class B - 12/31/95(1) 11.900 0.450 0.710 (0.440) none
Class C - 8/31/98 12.920 0.374 0.138 (0.370) (0.022)
Class C - 12/31/97 12.410 0.564 0.508 (0.562) none
Class C - 12/31/96 12.630 0.540 (0.220) (0.540) none
Class C - 12/31/95 11.330 0.530 1.320 (0.550) none
Class C - 12/31/94(1) 11.960 0.340 (0.610) (0.320) (0.040)
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Kansas(11)
Class A - 8/31/98 $11.160 4.14% $12,548 0.89% 4.75% 40% 0.99%
Class A - 12/31/97 11.060 10.06 10,663 0.84 4.92 30 1.03
Class A - 12/31/96 10.560 3.43 10,176 0.83 4.97 56 1.21
Class A - 12/31/95 10.730 19.13 10,677 0.37 5.32 19 1.11
Class A - 12/31/94 9.500 (0.38) 7,355 0.01(4) 5.88(4) none 1.25(4)
Class A - 10/31/94 9.630 (6.10) 6,469 0.06 5.30 38 1.25
Class A - 10/31/93(1) 10.850 14.49 2,057 none 5.26(4) 28 1.25(4)
Class B - 8/31/98 11.180 3.62 3,694 1.64 4.00 40 1.74
Class B - 12/31/97 11.080 9.28 3,452 1.61 4.15 30 1.80
Class B - 12/31/96 10.570 2.69 2,402 1.61 4.16 56 2.00
Class B - 12/31/95(1) 10.740 8.76 677 0.94(4) 4.63(4) 19 1.68(4)
Class C - 8/31/98 11.160 3.72 127 1.64 4.00 40 1.74
Class C - 12/31/97 11.050 9.17 108 1.64 4.12 30 1.83
Class C - 12/31/96 10.550 2.52 90 1.77 4.02 56 2.00
Class C - 12/31/95(1) 10.720 8.29 40 1.27(4) 4.21(4) 19 1.79(4)
Tax-Free Minnesota(11)
Class A - 8/31/98 13.020 4.46 416,113 0.89 5.00 13 0.92
Class A - 12/31/97 12.910 9.68 417,365 0.91 5.22 19 0.95
Class A - 12/31/96 12.400 3.33 428,380 0.92 5.13 28 0.92
Class A - 12/31/95 12.630 17.49 455,220 0.93 5.11 51 0.93
Class A - 12/31/94 11.330 (6.73) 406,497 0.90 5.29 24 0.90
Class A - 12/31/93 12.850 12.70 458,145 1.02 5.02 32 1.02
Class A - 12/31/92 12.210 7.97 331,314 0.96 5.73 24 1.04
Class A - 12/31/91 12.070 11.04 251,594 0.83 6.44 27 0.98
Class A - 12/31/90 11.670 7.03 197,629 0.82 6.68 21 1.02
Class A - 12/31/89 11.680 9.11 172,476 0.77 6.85 23 0.77
Class A - 12/31/88(1) 11.480 10.31 150,031 0.77 7.01 10 0.77
Class B - 8/31/98 13.020 3.94 10,246 1.64 4.25 13 1.67
Class B - 12/31/97 12.910 8.95 8,215 1.56 4.57 19 1.60
Class B - 12/31/96 12.400 2.83 6,233 1.50 4.53 28 1.67
Class B - 12/31/95(1) 12.620 9.95 2,701 1.38(4) 4.43(4) 51 1.63(4)
Class C - 8/31/98 13.040 4.02 4,914 1.64 4.25 13 1.67
Class C - 12/31/97 12.920 8.82 3,083 1.65 4.48 19 1.69
Class C - 12/31/96 12.410 2.64 3,083 1.67 4.38 28 1.67
Class C - 12/31/95 12.630 16.62 2,319 1.67 4.33 51 1.67
Class C - 12/31/94(1) 11.330 (2.30) 1,061 1.72(4) 4.56(4) 24 1.72(4)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
-17-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minnesota Insured(11)
Class A - 8/31/98 $10.940 0.349 0.111 (0.350) none
Class A - 12/31/97 10.600 0.533 0.341 (0.534) none
Class A - 12/31/96 10.730 0.520 (0.130) (0.520) none
Class A - 12/31/95 9.610 0.510 1.140 (0.530) none
Class A - 12/31/94 11.020 0.540 (1.390) (0.520) (0.040)
Class A - 12/31/93 10.270 0.540 0.840 (0.540) (0.090)
Class A - 12/31/92 10.070 0.590 0.250 (0.590) (0.050)
Class A - 12/31/91 9.650 0.600 0.480 (0.600) (0.060)
Class A - 12/31/90 9.640 0.610 0.020 (0.610) (0.010)
Class A - 12/31/89 9.480 0.630 0.200 (0.630) (0.040)
Class A - 12/31/88(1) 9.190 0.670 0.290 (0.670) none
Class B - 8/31/98 10.930 0.294 0.111 (0.295) none
Class B - 12/31/97 10.580 0.454 0.348 (0.452) none
Class B - 12/31/96 10.720 0.450 (0.140) (0.450) none
Class B - 12/31/95(1) 10.140 0.380 0.580 (0.380) none
Class C - 8/31/98 10.940 0.295 0.110 (0.295) none
Class C - 12/31/97 10.600 0.454 0.338 (0.452) none
Class C - 12/31/96 10.730 0.440 (0.130) (0.440) none
Class C - 12/31/95 9.610 0.430 1.140 (0.450) none
Class C - 12/31/94(1) 10.230 0.300 (0.620) (0.280) (0.020)
Minnesota Intermediate(11)
Class A - 8/31/98 11.170 0.363 (0.009) (0.364) none
Class A - 12/31/97 10.990 0.535 0.180 (0.535) none
Class A - 12/31/96 11.140 0.510 (0.150) (0.510) none
Class A - 12/31/95 10.500 0.510 0.640 (0.510) none
Class A - 12/31/94 11.160 0.450 (0.660) (0.450) none
Class A - 12/31/93 10.830 0.470 0.370 (0.470) (0.040)
Class A - 12/31/92 10.690 0.510 0.180 (0.510) (0.040)
Class A - 12/31/91 10.320 0.550 0.370 (0.550) none
Class A - 12/31/90 10.260 0.600 0.060 (0.600) none
Class A - 12/31/89 10.210 0.590 0.050 (0.590) none
Class A - 12/31/88(1) 10.170 0.530 0.040 (0.530) none
Class B - 8/31/98 11.170 0.301 0.009 (0.300) none
Class B - 12/31/97 10.990 0.437 0.190 (0.447) none
Class B - 12/31/96 11.140 0.440 (0.150) (0.440) none
Class B - 12/31/95(1) 10.950 0.170 0.190 (0.170) none
Class C - 8/31/98 11.170 0.301 (0.001) (0.300) none
Class C - 12/31/97 10.990 0.440 0.187 (0.447) none
Class C - 12/31/96 11.130 0.430 (0.140) (0.430) none
Class C - 12/31/95 10.500 0.420 0.630 (0.420) none
Class C - 12/31/94(1) 10.740 0.240 (0.240) (0.240) none
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expense
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Asset
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Minnesota Insured(11)
Class A - 8/31/98 $11.050 4.28% $283,057 0.92% 4.79% 6% 0.94%
Class A - 12/31/97 10.940 8.49 288,494 0.92 5.01 21 0.94
Class A - 12/31/96 10.600 3.75 304,877 0.92 4.93 14 0.92
Class A - 12/31/95 10.730 17.52 307,734 0.87 4.92 54 0.92
Class A - 12/31/94 9.610 (7.88) 284,132 0.61 5.29 25 0.94
Class A - 12/31/93 11.020 13.80 311,187 0.70 4.93 18 1.02
Class A - 12/31/92 10.270 8.57 162,728 0.37 5.66 14 1.06
Class A - 12/31/91 10.070 11.59 68,250 0.78 6.13 44 1.16
Class A - 12/31/90 9.650 6.63 29,394 0.74 6.30 15 1.25
Class A - 12/31/89 9.640 8.96 8,217 0.78 6.55 28 1.00
Class A - 12/31/88(1) 9.480 10.70 4,707 0.86 7.08 68 1.00
Class B - 8/31/98 11.040 3.76 10,374 1.67 4.04 6 1.69
Class B - 12/31/97 10.930 7.77 8,926 1.67 4.26 21 1.69
Class B - 12/31/96 10.580 3.03 6,817 1.56 4.29 14 1.68
Class B - 12/31/95(1) 10.720 9.59 4,655 1.34(4) 4.15(4) 54 1.64(4)
Class C - 8/31/98 11.050 3.76 3,207 1.67 4.04 6 1.69
Class C - 12/31/97 10.940 7.66 3,096 1.67 4.26 21 1.69
Class C - 12/31/96 10.600 2.98 3,126 1.68 4.18 14 1.68
Class C - 12/31/95 10.730 16.63 3,166 1.66 4.11 54 1.67
Class C - 12/31/94(1) 9.610 (3.14) 1,525 1.36(4) 4.68(4) 25 1.68(4)
Minnesota Intermediate(11)
Class A - 8/31/98 11.160 3.22 54,281 0.80 4.90 14 0.80
Class A - 12/31/97 11.170 6.69 57,524 0.91 4.86 21 0.95
Class A - 12/31/96 10.990 3.46 66,024 0.89 4.69 28 0.89
Class A - 12/31/95 11.140 11.00 72,405 0.91 4.61 40 0.91
Class A - 12/31/94 10.500 (1.91) 84,168 0.92 4.18 42 0.92
Class A - 12/31/93 11.160 7.88 75,374 0.99 4.18 19 0.99
Class A - 12/31/92 10.830 6.62 48,210 1.09 4.71 26 1.09
Class A - 12/31/91 10.690 9.24 27,268 1.23 5.35 43 1.23
Class A - 12/31/90 10.320 6.59 22,526 1.18 5.81 51 1.18
Class A - 12/31/89 10.260 6.43 21,884 0.84 5.74 68 0.84
Class A - 12/31/88(1) 10.210 6.02 24,157 0.84 5.15 16 0.84
Class B - 8/31/98 11.180 2.82 1,375 1.65 4.05 14 1.65
Class B - 12/31/97 11.170 5.84 910 1.81 3.96 21 1.85
Class B - 12/31/96 10.990 2.74 408 1.56 3.99 28 1.62
Class B - 12/31/95(1) 11.140 3.26 27 1.30(4) 3.93(4) 40 1.55(4)
Class C - 8/31/98 11.170 2.73 1,601 1.65 4.05 14 1.65
Class C - 12/31/97 11.170 5.84 1,512 1.77 4.00 21 1.81
Class C - 12/31/96 10.990 2.69 1,137 1.64 3.94 28 1.64
Class C - 12/31/95 11.130 10.18 694 1.63 3.82 40 1.63
Class C - 12/31/94(1) 10.500 (0.03) 341 1.71(4) 3.35(4) 42 1.71(4)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
-18-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minnesota High Yield Fund(11)
Class A - 8/31/98 $10.650 0.392 0.170 (0.402) none
Class A - 12/31/97 10.180 0.643 0.463 (0.636) none
Class A - 12/31/96(1) 10.000 0.350 0.180 (0.350) none
Class B - 8/31/98 10.660 0.343 0.159 (0.352) none
Class B - 12/31/97 10.190 0.557 0.470 (0.557) none
Class B - 12/31/96 9.780 0.290 0.410 (0.290) none
Class C - 8/31/98 10.650 0.340 0.170 (0.350) none
Class C - 12/31/97 10.180 0.572 0.455 (0.557) none
Class C - 12/31/96 9.990 0.300 0.190 (0.300) none
Missouri Insured(11)
Class A - 8/31/98 10.810 0.333 0.060 (0.333) none
Class A - 12/31/97 10.370 0.504 0.446 (0.510) none
Class A - 12/31/96 10.540 0.520 (0.180) (0.510) none
Class A - 12/31/95 9.270 0.520 1.290 (0.540) none
Class A - 12/31/94 9.370 0.100 (0.110) (0.090) none
Class A - 10/31/94 10.820 0.550 (1.430) (0.540) (0.030)
Class A - 10/31/93(1) 10.000 0.550 0.890 (0.550) (0.070)
Class B - 8/31/98 10.810 0.279 0.060 (0.279) none
Class B - 12/31/97 10.370 0.425 0.451 (0.436) none
Class B - 12/31/96 10.540 0.460 (0.180) (0.450) none
Class B - 12/31/95 9.270 0.480 1.280 (0.490) none
Class B - 12/31/94 9.370 0.080 (0.100) (0.080) none
Class B - 10/31/94(1) 10.300 0.330 (0.940) (0.320) none
Class C - 8/31/98 10.810 0.279 0.070 (0.279) none
Class C - 12/31/97 10.370 0.405 0.455 (0.420) none
Class C - 12/31/96 10.540 0.430 (0.180) (0.420) none
Class C - 12/31/95(1) 10.360 0.060 0.170 (0.050) none
Tax-Free New Mexico(11)
Class A - 8/31/98 11.280 0.364 0.171 (0.365) none
Class A - 12/31/97 10.790 0.547 0.503 (0.560) none
Class A - 12/31/96 10.890 0.540 (0.110) (0.530) none
Class A - 12/31/95 9.590 0.520 1.330 (0.550) none
Class A - 12/31/94 9.770 0.110 (0.200) (0.090) none
Class A - 10/31/94 10.920 0.560 (1.160) (0.550) none
Class A - 10/31/93 10.000 0.570 0.980 (0.570) (0.060)
Class A - 10/31/92(1) 10.000 none none none none
Class B - 8/31/98 11.290 0.309 0.169 (0.308) none
Class B - 12/31/97 10.790 0.465 0.508 (0.473) none
Class B - 12/31/96 10.890 0.460 (0.110) (0.450) none
Class B - 12/31/95 9.590 0.460 1.320 (0.480) none
Class B - 12/31/94 9.770 0.090 (0.190) (0.080) none
Class B - 10/31/94(1) 10.690 0.310 (0.930) (0.300) none
Class C - 8/31/98 11.280 0.305 0.183 (0.308) none
Class C - 12/31/97 10.790 0.459 0.495 (0.464) none
Class C - 12/31/96(1) 10.410 0.280 0.370 (0.270) none
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Minnesota High Yield Fund(11)
Class A - 8/31/98 $10.810 5.37% $33,296 0.40% 5.50% 7% 1.20%
Class A - 12/31/97 10.650 11.26 19,017 0.09 6.16 23 1.24
Class A - 12/31/96(1) 10.180 5.40 6,068 0.24(4) 5.78(4) 15 1.25(4)
Class B - 8/31/98 10.810 4.77 13,351 1.15 4.75 7 1.95
Class B - 12/31/97 10.660 10.41 8,201 0.85 5.40 23 2.00
Class B - 12/31/96 10.190 7.29 2,738 0.95(4) 5.14(4) 15 2.00(4)
Class C - 8/31/98 10.810 4.87 5,165 1.15 4.75 7 1.95
Class C - 12/31/97 10.650 10.41 3,178 0.83 5.42 23 1.98
Class C - 12/31/96 10.180 5.02 900 0.99(4) 4.90(4) 15 2.00(4)
Missouri Insured(11)
Class A - 8/31/98 10.870 3.70 46,939 0.92 4.64 18 1.02
Class A - 12/31/97 10.810 9.43 48,565 0.91 4.81 12 0.93
Class A - 12/31/96 10.370 3.41 49,301 0.71 5.05 28 1.03
Class A - 12/31/95 10.540 19.96 50,211 0.50 5.25 31 1.07
Class A - 12/31/94 9.270 (0.07) 37,790 0.11(4) 6.00(4) 8 1.12(4)
Class A - 10/31/94 9.370 (8.28) 37,384 0.15 5.39 32 1.13
Class A - 10/31/93(1) 10.820 14.74 30,270 none 4.82(4) 76 1.25(4)
Class B - 8/31/98 10.870 3.19 11,317 1.67 3.89 18 1.77
Class B - 12/31/97 10.810 8.66 11,507 1.61 4.11 12 1.63
Class B - 12/31/96 10.370 2.93 10,432 1.29 4.46 28 1.78
Class B - 12/31/95 10.540 19.18 6,195 0.97 4.70 31 1.81
Class B - 12/31/94 9.270 (0.14) 2,742 0.60(4) 5.32(4) 8 1.84(4)
Class B - 10/31/94(1) 9.370 (6.16) 1,701 0.49(4) 4.89(4) 32 1.83(4)
Class C - 8/31/98 10.880 3.28 112 1.67 3.89 18 1.77
Class C - 12/31/97 10.810 8.49 225 1.74 3.98 12 1.76
Class C - 12/31/96 10.370 2.48 152 1.62 4.10 28 1.78
Class C - 12/31/95(1) 10.540 2.24 20 1.22(4) 4.09(4) 31 1.55(4)
Tax-Free New Mexico(11)
Class A - 8/31/98 11.450 4.81 21,155 1.00 4.81 20 1.15
Class A - 12/31/97 11.280 10.01 18,959 0.99 5.00 28 1.04
Class A - 12/31/96 10.790 4.13 20,133 0.88 5.06 42 1.07
Class A - 12/31/95 10.890 19.64 21,402 0.87 5.07 55 1.09
Class A - 12/31/94 9.590 (0.90) 19,706 0.06(4) 6.38(4) 2 1.25(4)
Class A - 10/31/94 9.770 (5.56) 23,096 0.29 5.26 23 1.16
Class A - 10/31/93 10.920 15.77 17,302 none 5.10 31 1.25
Class A - 10/31/92(1) 10.000 none 361 none none none none
Class B - 8/31/98 11.460 4.29 1,782 1.75 4.06 20 1.90
Class B - 12/31/97 11.290 9.24 1,065 1.76 4.23 28 1.82
Class B - 12/31/96 10.790 3.39 794 1.61 4.31 42 1.82
Class B - 12/31/95 10.890 18.84 605 1.53 4.33 55 1.83
Class B - 12/31/94 9.590 (0.98) 272 0.75(4) 5.60(4) 2 2.00(4)
Class B - 10/31/94(1) 9.770 (5.84) 264 0.98(4) 4.57(4) 23 1.86(4)
Class C - 8/31/98 11.460 4.38 394 1.75 4.06 20 1.90
Class C - 12/31/97 11.280 9.06 315 1.84 4.15 28 1.89
Class C - 12/31/96(1) 10.790 6.30 341 1.74(4) 4.21(4) 42 1.83(4)
</TABLE>
See Notes to Financial Highlights
-19-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Free New York(11)
Class A - 8/31/98 $10.640 0.362 0.040 (0.362) (0.010)
Class A - 12/31/97 10.690 0.603 0.128 (0.606) (0.175)
Class A - 12/31/96(10) 10.720 0.120 0.010 (0.120) (0.040)
Class A - 9/30/96 10.870 0.550 (0.130) (0.550) (0.020)
Class A - 9/30/95 10.740 0.570 0.170 (0.590) (0.020)
Class A - 9/30/94 10.810 0.150 (0.060) (0.160) none
Class A - 6/30/94 11.510 0.620 (0.540) (0.620) (0.160)
Class A - 6/30/93 11.030 0.650 0.650 (0.660)(9) (0.160)
Class A - 6/30/92 10.570 0.660 0.620 (0.660) (0.160)
Class A - 6/30/91 10.270 0.480 0.300 (0.480) none
Class A - 9/30/90 10.500 0.670 (0.220) (0.670) (0.010)
Class A - 9/30/89 10.300 0.720 0.200 (0.720) none
Class A - 9/30/88(1) 10.000 0.640 0.300 (0.640) none
Class B - 8/31/98 10.610 0.311 0.049 (0.310) (0.010)
Class B - 12/31/97 10.650 0.524 0.136 (0.525) (0.175)
Class B - 12/31/96(10) 10.690 0.100 none (0.100) (0.040)
Class B - 9/30/96 10.840 0.470 (0.130) (0.470) (0.020)
Class B - 9/30/95(1) 10.340 0.430 0.540 (0.450) (0.020)
Class C - 8/31/98 10.610 0.308 0.042 (0.310) (0.010)
Class C - 12/31/97 10.660 0.522 0.128 (0.525) (0.175)
Class C - 12/31/96(10) 10.700 0.100 none (0.100) (0.040)
Class C - 9/30/96 10.850 0.470 (0.130) (0.470) (0.020)
Class C - 9/30/95(1) 10.790 0.210 0.060 (0.210) none
Tax-Free North Dakota(11)
Class A - 8/31/98 11.320 0.364 0.120 (0.364) none
Class A - 12/31/97 10.880 0.546 0.451 (0.557) none
Class A - 12/31/96 11.000 0.540 (0.130) (0.530) none
Class A - 12/31/95 9.850 0.540 1.180 (0.570) none
Class A - 12/31/94 11.070 0.560 (1.150) (0.530) (0.100)(12)
Class A - 12/31/93 10.590 0.580 0.580 (0.580) (0.100)
Class A - 12/31/92 10.340 0.620 0.340 (0.620) (0.090)
Class A - 12/31/91(1) 10.000 0.490 0.410 (0.490) (0.070)
Class B - 8/31/98 11.320 0.308 0.119 (0.307) none
Class B - 12/31/97 10.880 0.484 0.451 (0.495) none
Class B - 12/31/96 11.000 0.490 (0.130) (0.480) none
Class B - 12/31/95 9.850 0.480 1.180 (0.510) none
Class B - 12/31/94(1) 10.310 0.300 (0.390) (0.270) (0.100)(12)
Class C - 8/31/98 11.320 0.307 0.110 (0.307) none
Class C - 12/31/97 10.870 0.441 0.468 (0.459) none
Class C - 12/31/96 11.000 0.440 (0.140) (0.430) none
Class C - 12/31/95(1) 10.510 0.170 0.500 (0.180) none
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Free New York(11)
Class A - 8/31/98 $10.670 3.85% $ 9,978 1.00% 5.12% 21% 1.15%
Class A - 12/31/97 10.640 7.09 9,563 1.00 5.66 30 1.39
Class A - 12/31/96 10.690 1.21 10,044 0.97(4) 5.31(4) 5 1.12(4)
Class A - 9/30/96(10) 10.720 3.94 10,548 1.34 5.14 12 1.55
Class A - 9/30/95 10.870 7.31 11,931 1.31 5.66 10 1.82
Class A - 9/30/94 10.740 0.79 12,797 1.09(4) 5.74(4) none 1.09(4)
Class A - 6/30/94 10.810 0.63 12,851 0.99 5.55 4 1.09
Class A - 6/30/93 11.510 12.19 13,915 0.99 5.74 17 1.05
Class A - 6/30/92 11.030 12.53 14,943 1.00 6.15 19 1.26
Class A - 6/30/91 10.570 5.49 15,592 1.23(4) 6.08(4) 18 1.48(4)
Class A - 9/30/90 10.270 4.44 27,065 1.09 6.35 31 1.49
Class A - 9/30/89 10.500 9.21 23,069 0.60 6.75 11 1.70
Class A - 9/30/88(1) 10.300 10.09 9,260 0.45(4) 6.87(4) 18 2.04(4)
Class B - 8/31/98 10.650 3.44 469 1.75 4.37 21 1.90
Class B - 12/31/97 10.610 6.39 167 1.75 4.91 30 2.14
Class B - 12/31/96(10) 10.650 0.95 254 1.87(4) 4.43(4) 5 2.00(4)
Class B - 9/30/96 10.690 3.14 448 2.09 4.39 12 2.30
Class B - 9/30/95(1) 10.840 9.46 266 2.09(4) 4.68(4) 10 2.60(4)
Class C - 8/31/98 10.640 3.35 58 1.75 4.37 21 1.90
Class C - 12/31/97 10.610 6.29 56 1.75 4.91 30 2.14
Class C - 12/31/96(10) 10.660 0.95 53 1.84(4) 4.45(4) 5 2.00(4)
Class C - 9/30/96 10.700 3.14 52 2.09 4.39 12 2.30
Class C - 9/30/95(1) 10.850 2.54 51 2.09(4) 4.44(4) 10 2.60(4)
Tax-Free North Dakota(11)
Class A - 8/31/98 11.440 4.35 30,496 1.00 4.82 23 1.15
Class A - 12/31/97 11.320 9.43 30,965 1.00 4.97 41 1.04
Class A - 12/31/96 10.880 3.89 33,713 0.88 5.01 58 1.08
Class A - 12/31/95 11.000 17.81 36,096 0.81 5.07 45 1.05
Class A - 12/31/94 9.850 (5.47) 33,829 0.46 5.36 33 1.14
Class A - 12/31/93 11.070 11.20 34,880 0.59 5.11 27 1.25
Class A - 12/31/92 10.590 9.70 15,846 0.40 5.78 26 1.25
Class A - 12/31/91(1) 10.340 9.23 4,914 0.16(4) 6.43(4) 126 1.25(4)
Class B - 8/31/98 11.440 3.83 980 1.75 4.07 23 1.90
Class B - 12/31/97 11.320 8.82 889 1.55 4.42 41 1.59
Class B - 12/31/96 10.880 3.39 700 1.36 4.52 58 1.83
Class B - 12/31/95 11.000 17.24 375 1.29 4.56 45 1.79
Class B - 12/31/94(1) 9.850 (0.77) 144 0.99(4) 4.97(4) 33 1.89(4)
Class C - 8/31/98 11.430 3.74 30 1.75 4.07 23 1.90
Class C - 12/31/97 11.320 8.57 41 1.87 4.10 41 1.91
Class C - 12/31/96 10.870 2.81 40 1.75 4.06 58 1.75
Class C - 12/31/95(1) 11.000 6.47 20 1.73(4) 4.00(4) 45 1.73(4)
</TABLE>
See Notes to Financial Highlights
-20-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oregon Insured(11)
Class A - 8/31/98 $10.310 0.320 0.120 (0.320) none
Class A - 12/31/97 9.870 0.481 0.444 (0.485) none
Class A - 12/31/96 10.050 0.480 (0.180) (0.480) none
Class A - 12/31/95 8.920 0.490 1.140 (0.500) none
Class A - 12/31/94 9.000 0.090 (0.090) (0.080) none
Class A - 10/31/94 10.240 0.500 (1.240) (0.500) none
Class A - 10/31/93(1) 10.000 0.130 0.240 (0.130) none
Class B - 8/31/98 10.310 0.268 0.120 (0.268) none
Class B - 12/31/97 9.870 0.422 0.434 (0.416) none
Class B - 12/31/96 10.050 0.430 (0.180) (0.430) none
Class B - 12/31/95 8.920 0.440 1.140 (0.450) none
Class B - 12/31/94 9.000 0.080 (0.090) (0.070) none
Class B - 10/31/94(1) 9.850 0.270 (0.850) (0.270) none
Class C - 8/31/98 10.320 0.268 0.120 (0.268) none
Class C - 12/31/97 9.880 0.411 0.431 (0.402) none
Class C - 12/31/96 10.050 0.400 (0.170) (0.400) none
Class C - 12/31/95(1) 9.630 0.190 0.410 (0.180) none
Tax-Free Utah(11)
Class A - 8/31/98 11.330 0.372 0.110 (0.372) none
Class A - 12/31/97 10.840 0.565 0.495 (0.570) none
Class A - 12/31/96 11.040 0.550 (0.200) (0.550) none
Class A - 12/31/95 9.800 0.590 1.240 (0.590) none
Class A - 12/31/94 9.940 0.100 (0.150) (0.090) none
Class A - 10/31/94 11.070 0.600 (1.070) (0.600) (0.060)
Class A - 10/31/93 10.000 0.650 1.070 (0.650) none
Class A - 10/31/92(1) 10.000 none none none none
Class B - 8/31/98 11.330 0.313 0.120 (0.313) none
Class B - 12/31/97 10.830 0.464 0.515 (0.479) none
Class B - 12/31/96 11.040 0.470 (0.210) (0.470) none
Class B - 12/31/95(1) 10.630 0.300 0.390 (0.280) none
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oregon Insured(11)
Class A - 8/31/98 $10.430 4.33% $24,336 0.71% 4.64% 5% 1.03%
Class A - 12/31/97 10.310 9.66 22,071 0.71 4.83 5 0.94
Class A - 12/31/96 9.870 3.15 20,913 0.71 4.92 40 1.07
Class A - 12/31/95 10.050 18.71 21,590 0.54 5.12 41 1.11
Class A - 12/31/94 8.920 0.06 14,650 0.05(4) 5.79(4) 5 1.25(4)
Class A - 10/31/94 9.000 (7.35) 14,086 0.03 5.17 49 1.25
Class A - 10/31/93(1) 10.240 3.64 4,609 none 4.61(4) 11 1.25(4)
Class B - 8/31/98 10.430 3.82 6,011 1.46 3.89 5 1.78
Class B - 12/31/97 10.310 8.90 6,461 1.39 4.15 5 1.62
Class B - 12/31/96 9.870 2.61 4,758 1.25 4.37 40 1.83
Class B - 12/31/95 10.050 18.10 2,786 1.04 4.57 41 1.86
Class B - 12/31/94 8.920 0.03 1,303 0.60(4) 5.19(4) 5 2.00(4)
Class B - 10/31/94(1) 9.000 (5.95) 1,146 0.75(4) 4.43(4) 49 2.00(4)
Class C - 8/31/98 10.440 3.81 999 1.46 3.89 5 1.78
Class C - 12/31/97 10.320 8.75 532 1.51 4.03 5 1.74
Class C - 12/31/96 9.880 2.38 360 1.55 4.03 40 1.82
Class C - 12/31/95(1) 10.050 6.35 250 1.39(4) 4.00(4) 41 1.74(4)
Tax-Free Utah(11)
Class A - 8/31/98 11.440 4.30 2,803 0.76 4.89 84 1.17
Class A - 12/31/97 11.330 10.08 3,223 0.69 5.10 39 3.12
Class A - 12/31/96 10.840 3.35 3,861 0.68 5.14 39 1.25
Class A - 12/31/95 11.040 19.06 4,142 0.38 5.51 35 1.25
Class A - 12/31/94 9.800 (0.41) 3,728 0.11(4) 6.38(4) none 1.14(4)
Class A - 10/31/94 9.940 (4.50) 4,054 0.10 5.64 2 1.25
Class A - 10/31/93 11.070 17.54 3,913 none 5.65 44 1.25
Class A - 10/31/92(1) 10.000 none 19 none none none none
Class B - 8/31/98 11.450 3.87 608 1.51 4.14 84 1.92
Class B - 12/31/97 11.330 9.28 558 1.50 4.29 39 3.93
Class B - 12/31/96 10.830 2.47 397 1.46 4.34 39 2.00
Class B - 12/31/95(1) 11.040 6.60 363 0.92(4) 4.74(4) 35 2.00(4)
</TABLE>
See Notes to Financial Highlights
-21-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from
Investment
Operations Less Distributions
------------------------------ ---------------------
Net
Realized
Net and Distri-
Asset Net Unrealized Dividends butions
Value Invest- Gain from Net from
Delaware-Voyageur Beginning ment (Loss) on Investment Realized
Funds of Period Income Securities Income Gains
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Washington Insured(11)
Class A - 8/31/98 $10.770 0.355 0.131 (0.356) none
Class A - 12/31/97 10.300 0.541 0.481 (0.552) none
Class A - 12/31/96 10.440 0.540 (0.140) (0.540) none
Class A - 12/31/95 9.210 0.590 1.210 (0.570) none
Class A - 12/31/94 9.370 0.090 (0.160) (0.090) none
Class A - 10/31/94 10.670 0.550 (1.260) (0.570) (0.020)
Class A - 10/31/93(1) 10.000 0.150 0.670 (0.150) none
Class B - 8/31/98 10.780 0.301 0.141 (0.302) none
Class B - 12/31/97 10.310 0.471 0.470 (0.471) none
Class B - 12/31/96 10.440 0.470 (0.140) (0.460) none
Class B - 12/31/95(1) 10.180 0.090 0.250 (0.080) none
Class C - 8/31/98 10.770 0.302 0.140 (0.302) none
Class C - 12/31/97 10.300 0.465 0.469 (0.464) none
Class C - 12/31/96 10.430 0.450 (0.140) (0.440) none
Class C - 12/31/95(1) 9.940 0.310 0.480 (0.300) none
Tax-Free Wisconsin(11)
Class A - 8/31/98 10.010 0.304 0.070 (0.304) none
Class A - 12/31/97 9.640 0.466 0.383 (0.479) none
Class A - 12/31/96 9.780 0.460 (0.140) (0.460) none
Class A - 12/31/95 8.740 0.480 1.040 (0.480) none
Class A - 12/31/94 9.280 0.160 (0.550) (0.150) none
Class A - 8/31/94(1) 10.000 0.490 (0.720) (0.490) none
Class B - 8/31/98 10.000 0.255 0.070 (0.255) none
Class B - 12/31/97 9.630 0.395 0.382 (0.407) none
Class B - 12/31/96 9.770 0.410 (0.140) (0.410) none
Class B - 12/31/95(1) 9.390 0.280 0.370 (0.270) none
Class C - 8/31/98 10.030 0.259 0.075 (0.254) none
Class C - 12/31/97 9.660 0.380 0.390 (0.400) none
Class C - 12/31/96 9.790 0.390 (0.130) (0.390) none
Class C - 12/31/95(1) 9.340 0.300 0.440 (0.290) none
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------
Ratio of
Ratio of Ratio Expenses
Expenses of Net to Average
Net Net to Investment Daily
Asset Assets Average Income to Net Assets
Value End of Daily Average Portfolio Prior to
Delaware-Voyageur End of Total Period Net Daily Turnover Expense
Funds Period Return(3) (000s) Assets(2) Assets Rate Limitation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington Insured(11)
Class A - 8/31/98 $10.900 4.59% $2,325 0.50% 4.94% 1% 1.34%
Class A - 12/31/97 10.770 10.23 2,372 0.49 5.20 20 1.38
Class A - 12/31/96 10.300 3.98 2,382 0.44 5.29 33 1.25
Class A - 12/31/95 10.440 19.94 2,099 0.28 5.57 51 1.25
Class A - 12/31/94 9.210 (0.69) 2,049 0.10(4) 6.18(4) none 1.25(4)
Class A - 10/31/94 9.370 (6.85) 2,118 0.14 5.44 none 1.25
Class A - 10/31/93(1) 10.670 8.05 2,108 none 5.50(4) 45 1.25(4)
Class B - 8/31/98 10.920 4.16 1,304 1.25 4.19 1 2.09
Class B - 12/31/97 10.780 9.38 963 1.24 4.45 20 2.13
Class B - 12/31/96 10.310 3.32 516 1.21 4.47 33 2.00
Class B - 12/31/95(1) 10.440 3.30 15 1.04(4) 4.44(4) 51 2.00(4)
Class C - 8/31/98 10.910 4.17 284 1.25 4.19 1 2.09
Class C - 12/31/97 10.770 9.31 69 1.29 4.40 20 2.18
Class C - 12/31/96 10.300 3.12 19 1.37 4.36 33 2.00
Class C - 12/31/95(1) 10.430 8.13 19 1.30(4) 4.45(4) 51 2.00(4)
Tax-Free Wisconsin(11)
Class A - 8/31/98 10.080 3.80 34,489 1.00 4.56 16 1.04
Class A - 12/31/97 10.010 9.07 30,879 0.99 4.76 30 1.07
Class A - 12/31/96 9.640 3.49 28,292 0.98 4.90 38 1.09
Class A - 12/31/95 9.780 17.74 26,449 0.88 5.05 12 1.09
Class A - 12/31/94 8.740 (4.12) 20,167 0.08(4) 5.54(4) 20 1.25(4)
Class A - 8/31/94(1) 9.280 (2.40) 16,093 0.04 4.89 86 1.25
Class B - 8/31/98 10.070 3.29 2,621 1.75 3.81 16 1.79
Class B - 12/31/97 10.000 8.27 1,931 1.72 4.03 30 1.80
Class B - 12/31/96 9.630 2.84 1,339 1.66 4.37 38 1.85
Class B - 12/31/95(1) 9.770 7.08 725 1.45(4) 4.31(4) 12 1.70(4)
Class C - 8/31/98 10.110 3.38 1,283 1.75 3.81 16 1.79
Class C - 12/31/97 10.030 8.16 689 1.81 3.94 30 1.89
Class C - 12/31/96 9.660 2.74 555 1.75 4.12 38 1.83
Class C - 12/31/95(1) 9.790 8.06 73 1.77(4) 4.04(4) 12 1.77(4)
</TABLE>
See Notes to Financial Highlights
-22-
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
(1) Except for Tax-Free Colorado Fund, Tax-Free Minnesota Fund, Minnesota
Insured Fund and Tax-Free Minnesota Intermediate Fund, the information is
for the period from each Fund's commencement of operations to the Fund's
year end. The classes of each Fund commenced operations on the following
dates:
<TABLE>
<CAPTION>
<S> <C> <C>
Tax-Free Arizona Fund Tax-Free Iowa Fund Tax-Free New York Fund
Class A March 2, 1995 Class A September 1, 1993 Class A November 6, 1987
Class B June 29, 1995 Class B March 24, 1995 Class B November 14, 1994
Class C May 13, 1995 Class C January 4, 1995 Class C April 26, 1995
Tax-Free Arizona Insured Fund Tax-Free Kansas Fund Tax-Free North Dakota Fund
Class A April 1, 1991 Class A November 30, 1992 Class A April 1, 1991
Class B March 10, 1995 Class B April 8, 1995 Class B May 10, 1994
Class C May 26, 1994 Class C April 12, 1995 Class C July 29, 1995
Tax-Free California Fund Tax-Free Minnesota Fund Tax-Free Oregon Insured Fund
Class A March 2, 1995 Class A February 27, 1984 Class A August 1, 1993
Class B August 23, 1995 Class B August 11, 1995 Class B March 12, 1994
Class C April 9, 1996 Class C May 4, 1994 Class C July 7, 1995
Tax-Free California Insured Fund Minnesota Insured Fund Tax-Free Utah Fund
Class A October 15, 1992 Class A May 1, 1987 Class A October 5, 1992
Class B March 1, 1994 Class B March 7, 1995 Class B May 27, 1995
Class C April 12, 1995 Class C May 4, 1994
Tax-Free Washington Insured Fund
Tax-Free Colorado Fund Tax-Free Minnesota Intermediate Fund Class A August 1, 1993
Class A April 23, 1987 Class A October 27, 1985 Class B October 24, 1995
Class B March 22, 1995 Class B August 15, 1995 Class C April 21, 1995
Class C May 6, 1994 Class C April 30, 1994
Tax-Free Wisconsin Fund
Tax-Free Florida Fund Minnesota High Yield Municipal Bond Class A September 1, 1993
Class A March 2, 1995 Class A June 4, 1996 Class B April 22, 1995
Class B September 15, 1995 Class B June 12, 1996 Class C March 28, 1995
Class C April 22, 1995 Class C June 7, 1996
Tax-Free Florida Insured Fund Tax-Free Missouri Insured Fund
Class A January 1, 1992 Class A November 2, 1992
Class B March 11, 1994 Class B March 12, 1994
Class C November 11, 1995
Tax-Free Idaho Fund
Class A January 4, 1995 Tax-Free New Mexico Fund
Class B March 16, 1995 Class A October 5, 1992
Class C January 11, 1995 Class B March 3, 1994
Class C May 7, 1996
</TABLE>
-23-
<PAGE>
(2) For the years ended December 31, 1995 and December 31, 1996, the
expense ratio reflects the effect of gross expense attributable to
earnings credits on uninvested cash balances received by the Fund.
(3) 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 (1) any maximum sales charge, (2)
the Limited CDSC that varies from 0.50% - 1% depending on the holding
period for Class A Shares, applicable to certain redemptions made
within two years after purchase, (3) the CDSC which varies from 1% - 4%
depending upon the holding period for Class B Shares, or (4) the CDSC
of 1% for Class C Shares redeemed within 12 months from the date of
purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value and Contingent Deferred
Sales Charge - Class B Shares and Class C Shares in this Prospectus.
Total return for periods less than 12 months have not been annualized.
(4) Annualized.
(5) The Fund's adviser at the time also paid $25,631 for Tax-Free Arizona
Insured Fund for the period ended December 31, 1991.
(6) Includes (.06) and (.04) in excess of net realized gains for Class A
Shares and Class C Shares, respectively.
(7) For the period September 29, 1997 through December 18, 1997, Florida
Insured Fund Class C sold shares which were subsequently redeemed by
shareholders. At December 31, 1997, there were no shares outstanding.
This share data is excluded from the Financial Highlights because the
data is believed to be immaterial.
(8) Includes (.01) in excess of net realized gains.
(9) Includes (.01) in excess distributions of net investment income.
(10) Effective November 16, 1996, the Fund's shareholders approved a change
of investment adviser from Fortis Advisers, Inc. to Voyageur Fund
Managers, Inc.
(11) Effective May 1, 1997, shareholders approved the Manager as investment
manager of Tax-Free Arizona Intermediate Fund, Tax-Free California
Intermediate Fund, Tax-Free Colorado Insured Fund, Tax-Free Colorado
Intermediate Fund, the Florida Funds, Minnesota High Yield Fund and
Tax-Free New York Fund, and shareholders approved Voyageur Fund
Managers, Inc. as investment manager for the other Funds. On May 30,
1997, Voyageur was merged into the Manager and the Manager became the
investment manager for these other Funds.
(12) Includes (.02) and (.02) in excess of net realized gains for Class A
Shares and Class B Shares, respectively.
-24-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Tax-Free Intermediate Fund is to
provide investors with preservation of capital and, as a secondary objective,
current income exempt from federal income tax and the personal income tax, if
any, of the Fund's particular state, by maintaining a weighted average portfolio
maturity of 10 years or less. The investment objective of each Tax-Free Fund and
Insured Fund is to seek as high a level of current income exempt from federal
income tax and from the personal income tax, if any, of a Fund's particular
state, as is consistent with preservation of capital. The investment objective
of Minnesota High Yield Fund is to seek as high a level of current income exempt
from federal income tax and from Minnesota personal income tax, if any,
primarily through investment in a portfolio of medium- and lower-grade Municipal
Obligations. The weighted average maturity of the investment portfolio of each
Tax-Free Fund , each Insured Fund and Minnesota High Yield Fund is expected to
be approximately 15 to 25 years. Both Tax-Free Florida Fund and Tax-Free
Florida Insured Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
SUITABILITY
The Funds may be suitable for the longer-term investor who is a
resident subject to income tax of a Fund's respective state. The investor should
be willing to accept the risks of investment in municipal bonds in general and
the respective state bonds in particular. The net asset value of each Fund's
shares can generally be expected to fluctuate inversely to changes in interest
rates.
The risks associated with an investment in each Fund are discussed
below and under Special Risk Considerations, below, and Other Investment
Policies and Risk Considerations. The risks inherent in an investment in a fund
that invests in obligations of a specific state, such as the Funds, are
described below under Special Risk Considerations.
* * *
Ownership of shares of each Fund can reduce the bookkeeping and
administrative inconvenience which is typically connected with direct
purchases of the type of securities in which the Funds invest.
Investors should not consider a purchase of shares of any of the
Funds as equivalent to a complete investment program. Delaware Investments
offers funds, generally available through registered dealers, which may be
used together to create a more complete investment program.
INVESTMENT STRATEGY
The Funds which are diversified, as such term is defined in the 1940
Act, are designated as such by a footnote on the cover page of this Prospectus.
All other Funds are non-diversified. Each non-diversified Fund will be able to
invest, subject to certain federal tax requirements, a relatively higher
percentage of its assets in the securities of a limited number of issuers than
each diversified Fund. This higher percentage of investment may result in such
Fund's securities being more susceptible to any single economic, political or
regulatory occurrence than the securities of a diversified Fund. The investment
objectives and policies of each Fund are described below. Except where noted, an
investment objective or policy description applies to all Funds.
Each Fund anticipates that, in normal market conditions, it will invest
substantially all of its assets in Tax Exempt Obligations (as defined below),
the interest on which is exempt from federal income tax and from the personal
income tax, if any, of its respective state (and with respect to Tax-Free New
York Fund, New York City personal income tax). As a fundamental policy,
Minnesota High Yield Fund and Tax-Free New York Fund will
-25-
<PAGE>
invest at least 80% of the value of its net assets in such obligations under
normal market conditions (not including obligations subject to the alternative
minimum tax). In normal circumstances, the weighted average maturity of the
investment portfolio of each Tax-Free Fund, each Insured Fund and Minnesota High
Yield Fund is expected to be approximately 15 to 25 years. However, if the
Manager determines that market conditions warrant a shorter average maturity,
Minnesota High Yield Fund's investments will be adjusted accordingly. Up to 20%
of the securities owned by each such Fund may generate interest that is an item
of tax preference for purposes of federal and state alternative minimum tax
("AMT"), except that Minnesota Insured Fund and Minnesota High Yield Fund may
invest without limitation in such securities, and Tax-Free Minnesota Fund may
not invest in such AMT securities. Tax-Free New York Fund may also invest in
such securities which generate an item of tax preference for purposes of New
York City alternative minimum tax.
During times of adverse market conditions when a defensive investment
posture is warranted, each Fund may temporarily select investments without
regard to the foregoing policy. There are risks in any investment program, and
there is no assurance that a Fund's investment objective will be achieved. The
value of each Fund's shares will fluctuate with changes in the market value of
its investments. The investment objectives of Tax-Free California Insured
Fund, Tax-Free Florida Fund, Tax-Free Florida Insured Fund, Tax-Free Kansas
Fund, Tax-Free Missouri Insured Fund, Tax-Free New Mexico Fund, Tax-Free Oregon
Insured Fund, Tax-Free Utah Fund and Tax-Free Washington Insured Fund are
non-fundamental, which means that they can be changed without the vote of its
respective shareholders as provided in the 1940 Act. The investment objectives
of each of the other Funds, as well as certain other investment policies of all
Funds explicitly designated herein as such, are fundamental and cannot be
changed without the vote of each Fund's respective shareholders as provided in
the 1940 Act.
Tax-Free Funds and Tax-Free Intermediate Funds
Each Tax-Free Fund and each Tax-Free Intermediate Fund may invest
without limitation in securities rated "investment grade," i.e., within the four
highest investment grades, at the time of investment by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch
IBCA, Inc. (formerly Fitch Investors Service, L.P.) ("Fitch") or, if unrated,
judged by the Manager to be of comparable quality. Bonds included in the lowest
investment grade rating category involve certain speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case for higher rated bonds. Up to 20% of the Tax Exempt Obligations purchased
by the Funds may be rated lower than investment grade at the time of investment;
however, all bonds must be rated "B" or better by Moody's, S&P or Fitch (or, if
unrated, judged by the Manager to be of comparable quality). Such bonds are
often referred to as "junk" bonds or "high yield" bonds. Bonds rated below "BBB"
have a greater vulnerability to default than higher grade bonds. See Special
Risk Considerations, for a discussion of the risks of investing in lower grade
Tax Exempt Obligations. A description of the ratings assigned by Moody's, S&P
and Fitch is set forth in Appendix A.
Insured Funds
The Tax Exempt Obligations in each Insured Fund's portfolio will
consist of (a) obligations that at all times are fully insured as to scheduled
payments of principal and interest ("insured securities") and (b) "escrow
secured" or "defeased" bonds. Insured securities may consist of bonds covered by
Primary Insurance, Market Insurance or Portfolio Insurance (as defined below).
All insurers must have a AAA-rated claims paying ability (as assigned by any or
all of Moody's, S&P and Fitch) at the time of investment. Securities that are
covered by either Primary or Secondary Market Insurance will carry a AAA rating
at the time of investment by a Fund. However, securities that are not covered by
either Primary or Secondary Market Insurance at the time of investment (or that
are not "escrow secured" or "defeased") must be covered by Portfolio Insurance
immediately after their acquisition. The Funds' Manager anticipates that such
securities, at the time of investment, generally
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will be rated investment grade. However, all securities in each Insured Fund's
portfolio, after application of insurance, will be rated Aaa by Moody's and/or
AAA by S&P or Fitch at the time of investment. Pending the investment or
reinvestment of its assets in longer-term Tax Exempt Obligations, each Insured
Fund may invest up to 35% of its net assets in short-term tax exempt
instruments, without obtaining insurance, provided such instruments carry an
A-l+, SP-l+ or F-1+ short-term rating or AAA or Aaa long-term rating by S&P,
Fitch or Moody's and may invest up to 10% of its net assets in securities of tax
exempt money market mutual funds. The "insured securities" in each Insured
Fund's investment portfolio are insured as to the scheduled payment of all
installments of principal and interest as they fall due. The purpose of such
insurance is to minimize credit risks to such Funds and their shareholders
associated with defaults in Tax Exempt Obligations owned by such Funds. Such
insurance does not insure against market risk and therefore does not guarantee
the market value of the securities in an Insured Fund's investment portfolio or
the value of any Insured Funds' shares.
Certain insurance companies will issue policies guaranteeing the timely
payment of principal of, and interest on, particular Tax Exempt Obligations or
on a portfolio of Tax Exempt Obligations. Insurance may be purchased by the
issuer of a Tax Exempt Obligation or by a third party at the time of issuance of
the Tax Exempt Obligation ("Primary Insurance") or by the Fund or a third party
subsequent to the original issuance of a Tax Exempt Obligation ("Secondary
Market Insurance"). In each case, a single premium is paid to the insurer by the
party purchasing the insurance when the insurance is obtained. Primary Insurance
and Secondary Market Insurance policies are non-cancelable and remain in effect
for so long as the insured Tax Exempt Obligation is outstanding and the insurer
is in business.
Insured Funds may also purchase insurance covering certain Tax Exempt
Obligations which Insured Funds intend to purchase for their portfolios or which
Insured Funds already own ("Portfolio Insurance"). Portfolio Insurance policies
guarantee the timely payment of principal of, and interest on, covered Tax
Exempt Obligations only while they are owned by Insured Funds. Such policies
are non-cancelable and remain in effect until the Fund terminates, provided the
Fund pays the applicable insurance premiums and the insurer remains in business.
Tax Exempt Obligations in Insured Funds' portfolios covered by a Portfolio
Insurance policy will not be covered by such policy after they are sold by a
Fund unless such Fund elects to obtain some form of Secondary Market Insurance
for them at the time of sale. Insured Funds would obtain such Secondary Market
Insurance only if, in the Manager's view, it would be economically advantageous
for Insured Funds to do so. Further information about insurance (including its
limitations) is set forth in Part B.
Minnesota High Yield Fund
In normal market or economic situations, the Fund will invest at least
65% of its total assets in medium-and lower-grade Tax-Exempt Obligations rated,
at the time of investment, between BBB and B- (inclusive) by S&P, Baa and B3
(inclusive) by Moody's, and BBB and B- (inclusive) by Fitch, and in Tax-Exempt
Obligations determined by the Manager to be of comparable quality.
Medium-grade Tax-Exempt Obligations are rated BBB by S&P or Fitch, Baa
by Moody's or are determined by the Manager to be of comparable quality.
Tax-Exempt Obligations rated BBB by S&P or Fitch generally are regarded by S&P
or Fitch as having an adequate capacity to pay interest and repay principal;
adverse economic conditions or changing circumstances are, however, more likely
in S&P's or Fitch's view to lead to a weakened capacity to pay interest and
repay principal as compared with higher rated Tax Exempt Obligations. Tax-Exempt
Obligations rated Baa by Moody's generally are considered by Moody's as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. In Moody's view, interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time.
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In Moody's view, such securities lack outstanding investment characteristics and
have speculative characteristics as well.
The Fund may invest in lower-grade Tax-Exempt Obligations rated, at the
time of investment, no lower than B- by S&P or Fitch, or B3 by Moody's, and in
municipal securities determined by the Manager to be of comparable quality.
Tax-Exempt 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.
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. Furthermore, interest on certain
"private activity" obligations in which the Fund may invest is treated as a
preference item for the purpose of calculating the federal and state alternative
minimum tax and, accordingly, a portion of the income produced by the Fund may
be taxable under the federal and state alternative minimum tax. The Fund may not
be a suitable investment for investors who are already subject to the
alternative minimum tax or who would become subject to the alternative minimum
tax as a result of an investment in the Fund. See Taxes.
At times the Manager may judge that conditions in the markets for
medium and lower grade Tax-Exempt Obligations make pursuing the Fund's basic
investment strategy of investing primarily in such Tax-Exempt 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 Tax-Exempt Obligations
and in Tax-Exempt Obligations determined by the Manager to be of comparable
quality. Although such higher grade Tax-Exempt Obligations generally entail less
credit risk, such higher grade Tax-Exempt Obligations may have a lower yield
than medium and lower grade Tax-Exempt Obligations, and investment in such
higher grade Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt Obligations
and in high-quality, short-term taxable securities. See Taxes.
All Funds
Except with respect to Minnesota High Yield Fund, the foregoing
policies as to credit quality of portfolio investments will apply only at the
time of the purchase of a security, and the Funds are not required to dispose of
securities in the event that Moody's, S&P or Fitch downgrades its assessment of
the credit characteristics of a particular issuer or, in the case of unrated
securities, in the event the Manager reassesses its view with respect to the
credit quality of the issuer thereof. In no event, however, will more than 5% of
each Fund's total assets consist of securities that have been downgraded to a
rating lower than the minimum rating in which each Fund is permitted to invest
or, in the case of unrated securities, that the Manager has determined to
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have a quality lower than such minimum rating. With respect to Insured Funds, up
to 35% of each such Fund's total assets may consist of securities that have been
downgraded to AA or Aa subsequent to initial investment in such securities by an
Insured Fund. Minnesota High Yield Fund will not make initial investments in
Tax-Exempt Obligations rated, at the time of investment, below B- by S&P or
Fitch, or below B3 by Moody's, or in Tax-Exempt Obligations determined by the
Manager to be of comparable quality. Minnesota High Yield Fund may retain
Tax-Exempt Obligations which are downgraded after investment. There is no
minimum rating with respect to securities that Minnesota High Yield Fund may
hold if downgraded after investment. See Appendix A to this Prospectus for a
description of Tax-Exempt Obligations ratings.
Each Fund may invest without limitation in short term Tax Exempt
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, S&P or Fitch; commercial
paper rated in the highest grade by either of such rating services (Prime-1, A-1
or F-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 bonds; and repurchase agreements with
respect to any of the foregoing investments. Each Fund also may hold its assets
in cash and in securities of tax exempt money market mutual funds.
Tax Exempt Obligations
As used in this Prospectus, the term "Tax Exempt Obligations" refers to
debt obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions, the interest
payable on which is, in the opinion of bond counsel, excludable from gross
income for purposes of federal income tax and from the personal income tax, if
any, of the state specified in a Fund's name. The term "Tax Exempt Obligations"
also includes Derivative Tax Exempt Obligations as defined below. In certain
instances the interest on Tax Exempt Obligations may be an item of tax
preference includable in alternative minimum taxable income depending upon the
shareholder's tax status. See Taxes.
Tax Exempt 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 Tax
Exempt 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. Tax Exempt
Obligations that benefit private parties in a manner different than members of
the public generally (so-called private activity bonds or industrial development
bonds) are in most cases revenue bonds, payable solely from specific revenues of
the project to be financed. The credit quality of private activity bonds is
usually directly related to the creditworthiness of the user of the facilities
(or the creditworthiness of a third-party guarantor or other credit enhancement
participant, if any).
Within these principal classifications of Tax Exempt Obligations, there
is a variety of types of municipal securities. Certain Tax Exempt 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 Tax Exempt 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
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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.
Tax Exempt Obligations also include state or municipal leases and
participation interests therein. The Funds 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 a Fund will be treated as illiquid
unless they are determined to be liquid pursuant to guidelines established by
such Fund's Board of Directors or Trustees. Under these guidelines, the Manager
will consider factors including, but not limited to (a) whether the lease can be
canceled, (b) what assurance there is that the assets represented by the lease
can be sold, (c) the municipality's general credit strength (e.g., its debt,
administrative, economic and financial characteristics), (d) 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 (e)
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. See Concentration Policy
under Investment Policies and Restrictions--Tax Exempt Obligations in Part B.
Each Fund may also acquire Derivative Tax Exempt Obligations, which are
custodial receipts or certificates underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain Tax Exempt Obligations. The sponsor of these certificates or receipts
typically purchases and deposits the securities in an irrevocable trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of
a custodial receipt, a Fund typically would be authorized to assert its rights
directly against the issuer of the underlying obligation, a 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, a Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if a 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 (and with respect to Tax-Free New York Fund, potentially New York City)
income tax (but not federal income tax) on the income it earned on the
underlying security, and the yield on the security paid to such Fund and its
shareholders would be reduced by the amount of taxes paid. Furthermore, amounts
paid by the trust or custodial account to a Fund would lose their tax exempt
character and become taxable, for federal and state purposes, in the hands of
such Fund and its shareholders. However, each 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 a Fund invests in custodial receipts, it is
possible that a portion of the discount at which that Fund purchases the
receipts might have to be accrued as taxable income during the period that such
Fund holds the receipts.
The principal and interest payments on the Tax Exempt 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 Tax Exempt Obligations. The Funds 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
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interest rates of specified short-term Tax Exempt Obligations or an index of
short-term Tax Exempt 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 Tax Exempt
Obligations or index. As a result, the market values of inverse floating
obligations will generally be more volatile than the market values of other Tax
Exempt Obligations and investments in these types of obligations will increase
the volatility of the net asset value of shares of the Funds.
Investments in Derivative Tax Exempt Obligations, when combined with
investments in below investment grade rated securities, will not exceed 20% of
each Fund's total assets.
Concentration Policy
No Fund will 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.
For certain Funds, this policy is fundamental. Each Fund may invest 25% or more
of its total assets in industrial development revenue bonds. In addition, it is
possible that the Funds from time to time will invest 25% or more of their total
assets in a particular segment of the municipal bond market such as in housing,
health care, and/or utility obligations. In addition, Tax-Free Arizona
Intermediate Fund, Tax-Free Arizona Fund, Tax-Free California Intermediate Fund,
Tax-Free California Fund, Tax-Free Colorado Intermediate Fund, Tax-Free Colorado
Insured Fund, Tax-Free Florida Fund, Tax-Free Idaho Fund, Minnesota High Yield
Fund and Tax-Free New York Fund may invest in transportation, education and/or
industrial obligations. In such circumstances, economic, business, political and
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. For a
discussion of these segments of the municipal bond market, see Concentration
Policy under Investment Policies and Restrictions -- Tax Exempt Obligations in
Part B.
Each Fund's Board may change any of the foregoing policies that are not
specifically designated fundamental.
Diversification
Certain Funds are nondiversified investment companies. This means that
the Manager has the flexibility to invest as much as 50% of the assets of such
Funds in as few as two issuers provided no single issuer accounts for more than
25% of the portfolio. The remaining 50% of the portfolio must be diversified so
that no more than 5% of the assets of such Funds is invested in the securities
of a single issuer. A Fund may invest without limitation in U.S. government and
government agency securities backed by the U.S. government, its agencies or
instrumentalities. Because a non-diversified Fund may invest its assets in fewer
issuers, the value of Fund shares may increase or decrease more rapidly than if
such Fund was fully diversified. If a Fund were to invest more than 5% of its
assets in a single issuer, such Fund would be affected more than a
fully-diversified fund in the event that issuer encountered difficulties in
satisfying its financial obligations.
SPECIAL RISK CONSIDERATIONS
General
The yields on Tax Exempt Obligations are dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, general
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economic and monetary conditions, conditions in the relevant market, the size of
a particular issue, maturity of the obligation and the rating of the issue.
Generally, the value of Tax Exempt Obligations will tend to fall as interest
rates rise and will tend to increase as interest rates decrease. In addition,
Tax Exempt Obligations of longer maturity produce higher current yields than Tax
Exempt Obligations with shorter maturities but are subject to greater price
fluctuation due to changes in interest rates, tax laws and other general market
factors. Lower-rated Tax Exempt Obligations generally produce a higher yield
than higher-rated Tax Exempt Obligations due to the perception of a greater
degree of risk as to the payment of principal and interest. Certain Tax Exempt
Obligations held by a Fund may permit the issuer at its option to "call," or
redeem, its securities. If an issuer were to redeem securities held by a Fund
during a time of declining interest rates, such Fund may not be able to reinvest
the proceeds in securities providing the same investment return as the
securities redeemed.
In normal circumstances, each Fund (except for Insured Funds) may
invest up to 20% of its total assets in Tax Exempt Obligations rated below
investment grade (but not rated lower than B by S&P, Moody's or Fitch) or in
unrated Tax Exempt Obligations considered by the Funds' Manager to be of
comparable quality to such securities. Investment in such lower grade Tax Exempt
Obligations involves special risks as compared with investment in higher grade
Tax Exempt Obligations. The market for lower grade Tax Exempt Obligations is
considered to be less liquid than the market for investment grade Tax Exempt
Obligations, which may adversely affect the ability of a Fund to dispose of such
securities in a timely manner at a price which reflects the value of such
securities in the Manager's judgment. The market price for less liquid
securities tends to be more volatile than the market price for more liquid
securities. The lower liquidity of and the absence of readily available market
quotations for lower grade Tax Exempt Obligations may make the Manager's
valuation of such securities more difficult, and the Manager's judgment may play
a greater role in the valuation of a Fund's lower grade Tax Exempt Obligations.
Periods of economic uncertainty and changes may have a greater impact on the
market price of such bonds and, therefore, the net asset value of any Fund
investing in such obligations.
Lower grade Tax Exempt Obligations generally involve greater credit
risk than higher grade Tax Exempt Obligations and are more sensitive to adverse
economic changes, significant increases in interest rates and individual issuer
developments. Because issuers of lower grade Tax Exempt Obligations frequently
choose not to seek a rating of such securities, a Fund will rely more heavily on
the Manager's ability to determine the relative investment quality of such
securities than if such Fund invested exclusively in higher grade Tax Exempt
Obligations. A Fund may, if deemed appropriate by the Manager, retain a security
whose rating has been downgraded below B by S&P, Moody's or Fitch, or whose
rating has been withdrawn. In no event, however, will more than 5% of each
Fund's total assets consist of securities that have been downgraded to a rating
lower than the minimum rating in which each Fund is permitted to invest or, in
the case of unrated securities, that have been determined by the Manager to be
of a quality lower than such minimum rating. Additional information concerning
the risks associated with instruments in lower grade Tax Exempt Obligations is
included in Part B.
Special Risk Considerations Regarding Medium- and Lower-Grade Tax-Exempt
Obligations
Minnesota High Yield Fund invests in medium- and lower-grade Tax-Exempt
Obligations.
Tax-Exempt Obligations which are in the medium and lower grade categories
generally offer a higher yield than is offered by higher-grade Tax-Exempt
Obligations but they also generally involve greater price volatility and greater
credit and market risk. Credit risk relates to the issuer's ability to make
timely payment of interest and principal when due. Market risk relates to the
changes in market value that occur as a result of variation in the level of
prevailing interest rates and yield relationships in the municipal securities
market. Debt securities rated BB or below by S&P or Fitch and B or below by
Moody's are commonly referred to as "junk bonds." Although the Fund primarily
will invest in medium- and lower-grade Tax-Exempt Obligations, the Fund may
invest in higher-grade Tax-Exempt Obligations for
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temporary defensive purposes. Such investments may result in lower current
income than if the Fund were fully invested in medium and lower-grade
securities.
The value of the Fund's portfolio securities can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed-income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities generally can be expected to decline. However, the
secondary market prices of medium- and lower-grade Tax-Exempt Obligations are
less sensitive to changes in interest rates and are more sensitive to adverse
economic changes or individual issuer developments than are the secondary market
prices of higher-grade debt securities. Such events also could lead to a higher
incidence of defaults or credit problems by issuers of medium- and lower-grade
Tax-Exempt Obligations as compared with historical default rates. In addition,
changes in interest rates and periods of economic uncertainty can be expected to
result in increased volatility in the market price of the Tax-Exempt Obligations
in the Fund's portfolio and thus in the net asset value of the Fund. Also,
adverse publicity and investor perceptions, whether or not based on rational
analysis, may affect the value and liquidity of medium-and lower-grade
Tax-Exempt Obligations. The secondary market value of Tax-Exempt Obligations
structured as zero-coupon securities and payment-in-kind securities may be more
volatile in response to changes in interest rates than debt securities which pay
interest periodically in cash. Investment in such securities also involves
certain tax considerations.
Increases in interest rates and changes in the economy may adversely
affect the ability of issuers of medium- and lower-grade Tax-Exempt Obligations
to pay interest and to repay principal, to meet projected financial goals and to
obtain additional financing. In the event that an issuer of securities held by
the Fund experiences difficulties in the timely payment of principal or interest
and such issuer seeks to restructure the terms of its borrowings, the Fund may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the Fund may be
unable to obtain full recovery thereof.
To the extent that there is no established retail market for some of
the medium- or lower-grade Tax-Exempt Obligations in which the Fund may invest,
trading in such securities may be relatively inactive. The Manager has
contracted with pricing agents and the Manager is responsible for determining
the net asset value of the Fund, subject to the supervision of the Board of
Directors. During periods of reduced market liquidity and in the absence of
readily available market quotations for medium- and lower-grade Tax-Exempt
Obligations held in the Fund's portfolio, the ability of the pricing agent to
value the Fund's securities becomes more difficult and the pricing agent's use
of judgment may play a greater role in the valuation of the Fund's securities
due to the reduced availability of reliable objective data. The effects of
adverse publicity and investor perceptions may be more pronounced for securities
for which no established retail market exists as compared with the effects on
securities for which such a market does exist. Further, the Fund may have more
difficulty selling such securities in a timely manner and at their stated value
than would be the case for securities for which an established retail market
does exist.
The Fund may invest in zero-coupon and payment-in-kind Tax-Exempt
Obligations. Zero-coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. They are issued and traded at
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit
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quality of the issuer. The Code requires that regulated investment companies
distribute at least 90% of their net investment income each year, including
tax-exempt and non-cash income. Accordingly, although the Fund will receive no
coupon payments on zero-coupon securities prior to their maturity, the Fund is
required, in order to maintain its desired tax treatment, to include in its
distributions to shareholders in each year any income attributable to
zero-coupon securities that is in excess of 10% of the Fund's net investment
income in that year. The Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. Payment-in-kind securities are securities that pay
interest through the issuance of additional securities. Such securities
generally are more volatile in response to changes in interest rates and are
more speculative investments than are securities that pay interest periodically
in cash.
The Manager seeks to minimize the risks involved in investing in
medium- and lower-grade Tax-Exempt Obligations through multiple portfolio
holdings, careful investment analysis, and attention to current developments and
trends in the economy and financial and credit markets. The Fund will rely on
the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issue. In its analysis, the Manager will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulator matters. The Manager may
consider the credit ratings of Moody's, Fitch, and S&P in evaluating Tax-Exempt
Obligations, although it does not rely primarily on these ratings. Such ratings
evaluate only the safety of principal and interest payments, not market value
risk. Additionally, because the creditworthiness of an issuer may change more
rapidly than is able to be timely reflected in changes in credit ratings, the
Manager continuously monitors the issuers of Tax-Exempt Obligations held in the
Fund's portfolio on an ongoing basis.
Tax-Exempt Obligations generally are not listed for trading on any
national securities exchange, and many issuers of medium- and lower-grade
Tax-Exempt Obligations choose not to have a rating assigned to their obligations
by any national recognized statistical rating organization. The amount of
information available about the financial condition of an issuer of unlisted or
unrated securities generally is not as extensive as that which is available with
respect to issuers of listed or rated securities. Because of the nature of
medium- and lower- rated Tax-Exempt Obligations, achievement by the Fund of its
investment objective may be more dependent on the credit analysis of the Fund's
investment adviser than is the case for an investment company which invests
primarily in exchange listed higher-grade securities.
State Considerations
The value of Tax Exempt Obligations owned by the Funds may be adversely
affected by local political and economic conditions and developments within a
particular state. Adverse conditions in an industry significant to a local
economy could have a correspondingly adverse effect on the financial condition
of local issuers. Other factors that could affect Tax Exempt Obligations include
a change in the local, state or national economy, demographic factors,
ecological or environmental concerns, statutory limitations on the issuer's
ability to increase taxes and other developments generally affecting the
revenues of issuers (i.e., legislation or court decisions reducing state aid to
local governments or mandatory additional services). A discussion of certain
factors affecting, and statistics describing, issuers of Tax Exempt Obligations
of each applicable state is set forth below. Such information has been taken
from publicly available offering documents relating to the relevant state or
issuers located in such state. Neither the Manager nor any Fund has
independently verified this information and no Fund or the Manager makes any
representation regarding such information. See Appendix A - Special Factors
Affecting the Funds in Part B.
-34-
<PAGE>
Arizona's primary economic sectors include services, trade,
tourism and manufacturing. Arizona maintained a general fund surplus of $515.9
million (on general fund revenues of approximately $5.03 billion) for its 1997
fiscal year. Currently there are no general obligation ratings for the state.
California's primary economic sectors are agriculture, services, trade and
manufacturing. California projects a general fund surplus of $773.8 million for
its 1997-98 fiscal year (on estimated revenues of approximately $52.9 billion).
Currently, California's general obligation bonds are rated A1 by Moody's, A+ by
S&P and A+ by Fitch. Colorado's economy is based primarily on services. Colorado
breached its spending limitation for the first time in its 1997 fiscal year (on
general fund revenues of $4.231 billion) leaving $139.0 million of excess
revenue to be refunded to taxpayers in 1998. Currently there are no general
obligation ratings for Colorado. Florida's economy is based primarily on the
services sector and tourism in particular. Florida projects unencumbered
reserves of $263.2 million for its 1997-98 fiscal year (on estimated revenues of
approximately $16.598 billion). Currently, Florida's general obligation bonds
are rated Aa2 by Moody's and AA+ by S&P. Idaho's primary economic sectors are
services, agriculture, manufacturing and mining. Idaho maintained a fiscal year
1997 general fund surplus of approximately $13.3 million (on revenues of
approximately $1.392 billion). Currently there are no general obligation ratings
for Idaho. Iowa's primary economic sectors are services, manufacturing and
agriculture. Iowa maintained an unreserved fund balance of approximately $348.7
million (on revenues of approximately $4.648 billion) for its fiscal year 1997.
Currently there are no general obligation ratings for Iowa. Kansas' economy is
based primarily on agriculture, manufacturing, and services. Kansas projects a
positive general fund balance for its 1998 fiscal year (on estimated general
fund revenues of approximately $3.94 billion). Currently there are no general
obligation ratings for Kansas. In October 1997, S&P assigned an issuer credit
rating of AA+ to Kansas. Minnesota's economy is based primarily on agriculture,
manufacturing and services. Minnesota's unreserved, undesignated general fund
balance at the end of its 1997 biennium was $812.7 million (based on General
Fund revenues of $20.34 billion). Currently Minnesota's general obligation bonds
are rated Aaa by Moody's, AAA by S&P and AAA by Fitch. Missouri's primary
economic sectors are services, manufacturing and agriculture. Missouri had a
general fund surplus of $49.5 million for its 1997 fiscal year (on revenues of
approximately $5.843 billion). Currently Missouri's general obligation bonds are
rated Aaa by Moody's, AAA by S&P and AAA by Fitch. New Mexico's economy is based
primarily on agriculture but also has tourism, services and mining sectors. New
Mexico had a $95.4 million general fund surplus for its 1997 fiscal year (on
revenues of approximately $3.0 billion). Currently New Mexico's general
obligation bonds are rated Aa1 by Moody's and AA+ by S&P. New York's economy is
based primarily on services and tourism. New York projects a general fund
balance of $465 million for its 1998 fiscal year, and a projected surplus of
$1.83 billion for its 1997-98 General Fund Financial Plan (based on total
estimated revenues of $35.197 billion). This will be the third consecutive
budget surplus generated by the Governor's administration. Currently, New York's
general obligation bonds are rated A2 by Moody's and A by S&P. The City's
general obligation bonds are rated A3 by Moody's and BBB+ by S&P. North Dakota's
economy is based primarily on agriculture and services. North Dakota's GAAP
General Fund ending balance for its 1997 fiscal year was $109.3 million (on
revenues of approximately $1.6 billion). Currently, North Dakota's general
obligation bonds are rated Aa3 by Moody's and AA- by S&P. Oregon's economy is
based primarily on forestry, agriculture, manufacturing and tourism sectors.
Oregon's general fund surplus was approximately $794.2 million for its 1997
biennium (on revenues of approximately $7.732 billion). Currently Oregon's
general obligation bonds are rated Aa2 by Moody's and AA by S&P. Utah's<0-
32>economy is based primarily on services, agriculture and mining sectors. Utah
maintained a general and Uniform School fund surplus of approximately $35.8
million for its 1997 fiscal year (on revenues of approximately $2.88 billion).
Currently Utah's general obligation bonds are rated Aaa by Moody's, AAA by S&P
and AAA by Fitch. Washington's economy is based primarily on manufacturing and
service sectors as well as agriculture and timber production. Washington's
general fund surplus for its 1995-1997 biennium was $3.9 billion (on revenues of
approximately $25.86 billion). Currently Washington's general obligation bonds
are rated Aa1 by Moody's and AA+ by S&P. Wisconsin's economy is based primarily
on agriculture, services and manufacturing. Wisconsin maintained a general fund
balance of $47 million for its 1997 fiscal year (on revenues
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<PAGE>
of approximately $8.826 billion). Currently Wisconsin's general obligation
bonds are rated Aa2 by Moody's and AA by S&P.
* * *
If there were a national credit crisis, an issuer became insolvent
or interest rates were to rise, principal values could be adversely affected.
For additional information about each Fund's investment policies
and certain risks associated with investments in certain types of securities,
see Other Investment Policies and Risk Considerations.
Part B sets forth other more specific investment restrictions. A
brief discussion of those factors that materially affected each Fund's
performance during its most recently completed fiscal year appears in each
Fund's Annual Report.
-36-
<PAGE>
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with
superior information and quality service on your investments in funds in the
Delaware Investments family.
SHAREHOLDER PHONE DIRECTORY
Shareholder Service Center and Investor Information Center
800-523-1918
Information on Existing Investment Accounts; Wire Investments;
Wire Liquidations; Telephone Liquidations and Telephone Exchanges;
Fund Information; Literature; Price; Yield and Performance Figures
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
During business hours, you can call the Investor Information
Center for current performance information. Current yield and total return
information may also be included in advertisements and information given to
shareholders. Yields are computed on an annual basis over a 30-day period.
Shareholder Services
During business hours, you can call Delaware Investments'
Shareholder Service Center. The representatives can answer any questions about
your account, the Funds, various service features and other funds in the
Delaware Investments family.
Delaphone Service
Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information on your account
faster than the mailed statements and confirmations. Delaphone also provides
current performance information on the Funds, as well as other funds in the
Delaware Investments family. Delaphone is available seven days a week, 24 hours
a day.
Dividend Payments
Dividends, capital gains and other distributions, if any, are
automatically reinvested in your account, unless you elect to receive them in
cash. You may also elect to have the dividends earned in one fund automatically
invested in another fund in the Delaware Investments family with a different
investment objective, subject to certain exceptions and limitations.
For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.
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<PAGE>
MoneyLine(SM) Services
Delaware Investments offers the following services for fast and
convenient transfer of funds between your personal bank account and your fund
account.
1. MoneyLine(SM) Direct Deposit Service
If you elect to have your dividends and distributions paid
in cash and such dividends and distributions are in an amount of
$25 or more, you may choose the MoneyLine(SM) Direct Deposit
Service and have such payments transferred from your Fund account
to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic
Withdrawal Plan payments transferred from your Fund account to your
predesignated bank account through this service. See Systematic
Withdrawal Plans under Redemption and Exchange.
2. MoneyLine(SM) On Demand
You or your investment dealer may request purchases and
redemptions of Fund shares by using MoneyLine(SM) On Demand. When
you authorize a Fund to accept such requests from you or your
investment dealer, funds will be withdrawn from (for share
purchases) or deposited to (for share redemptions) your
predesignated bank account. Your request will be processed the same
day if you call prior to 4 p.m. Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine(SM) On Demand
transactions.
For each MoneyLine(SM) Service, it may take up to four business
days for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address on your
predesignated bank account 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 MoneyLine(SM) Service; however, your bank may charge a fee. Please
call the Shareholder Service Center for additional information about these
services.
Statements and Confirmations
You will receive quarterly statements of your account summarizing
all transactions during the period. A confirmation statement will be sent
following all transactions other than those involving a reinvestment of
dividends. You should examine statements and confirmations immediately and
promptly report any discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
Tax Information
Each year, the Funds will mail to you information on the tax status
of your dividends and distributions.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of a Fund with the dollar amount
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<PAGE>
of new purchases of Class A Shares of a Fund to qualify for a reduced front-end
sales charge on such purchases of Class A Shares. Under the Combined Purchases
Privilege, you may also include certain shares that you own in other funds in
the Delaware Investments family. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of shares of funds in the Delaware Investments family over a
13-month period. See Classes of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest
proceeds from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.
Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your
shares into shares of other mutual funds in the Delaware Investments family,
subject to certain exceptions and limitations. For additional information on
exchanges, see Investing by Exchange under How to Buy Shares and Redemption and
Exchange.
Wealth Builder Option
You may elect to invest in the Funds through regular liquidations
of shares in your accounts in other funds in the Delaware Investments family.
Investments under this feature are exchanges and are therefore subject to the
same conditions and limitations as other exchanges of Fund shares. See
Additional Methods of Adding to Your Investment - Wealth Builder Option and
Investing by Exchange under How to Buy Shares, and Redemption and Exchange.
Financial Information about the Funds
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Each Fund's fiscal year ends on
August 31.
-39-
<PAGE>
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.25% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See Front-End
Sales Charge Alternative - Class A Shares, below. See also Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange and Distribution (12b-1) and Service under
Management of the Funds.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if shares are redeemed within six years of purchase in the case of Tax-Free
Funds , Insured Funds and Minnesota High Yield Fund, or within three years of
purchase in the case of Tax-Free Intermediate Funds. Class B Shares are subject
to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are
service fees to be paid to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of average daily net
assets of Tax-Free Funds , Insured Funds and Minnesota High Yield Fund for
approximately eight years after purchase and of Tax-Free Intermediate Funds for
approximately five years after purchase. Class B Shares permit all of the
investor's dollars to work from the time the investment is made. The higher
12b-1 Plan expenses paid by Class B Shares will cause such shares to have a
higher expense ratio and to pay lower dividends than Class A Shares. Class B
Shares of Tax-Free Funds , Insured Funds and Minnesota High Yield Fund will
automatically be converted into Class A Shares at the end of approximately eight
years after purchase, and Class B Shares of Tax-Free Intermediate Funds
automatically will be converted into Class A Shares at the end of approximately
five years after purchase. See Automatic Conversion of Class B Shares, below.
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for the life of the investment. The higher 12b-1 Plan expenses paid
by Class C Shares will cause such shares to have a higher expense ratio and to
pay lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares
do not convert to another class.
The alternative purchase arrangements described above permit
investors to choose the method of purchasing shares that is most suitable given
the amount of their purchase, the length of time they expect to hold their
shares and other relevant circumstances. Investors should determine whether,
given their particular circumstances, it is more advantageous to purchase Class
A Shares and incur a front-end sales charge, purchase Class B Shares and have
the entire initial purchase amount invested in a Fund with their investment
being subject to a CDSC if they redeem shares within the applicable time
periods, or purchase Class C Shares and have the
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<PAGE>
entire initial purchase amount invested in a Fund with their investment being
subject to a CDSC if they redeem shares within 12 months of purchase. In
addition, investors should consider the level of annual 12b-1 Plan expenses
applicable to each Class. The higher 12b-1 Plan expenses on Class B Shares and
Class C Shares will be offset to the extent a return is realized on the
additional money initially invested upon the purchase of such shares. However,
there can be no assurance as to the return, if any, that will be realized on
such additional money, and the effect of earning a return on such
additional money will diminish over time. In comparing Class B Shares to Class C
Shares, investors should consider the duration of the annual 12b-1 Plan expenses
to which each of the Classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the
expenses borne on behalf of, the Funds, the Distributor and others will be paid,
in the case of Class A Shares, from the proceeds of the front-end sales charge
and 12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from
the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A 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 Distribution (12b-1) and Service under Management of the Funds.
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, when assessed, the additional
amount of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will
be borne exclusively by such shares. See Calculation of Offering Price and Net
Asset Value Per Share.
The NASD has adopted certain rules relating to investment company
sales charges. The Funds and the Distributor intend to operate in compliance
with these rules.
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<PAGE>
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which
reflects a maximum front-end sales charge of 3.75% in the case of Tax-Free Funds
, Insured Funds and Minnesota High Yield Fund, or 2.75% in the case of Tax-Free
Intermediate Funds. See Calculation of Offering Price and Net Asset Value Per
Share.
Purchases of $100,000 or more carry a reduced front-end sales
charge as shown in the following tables.
<TABLE>
<CAPTION>
A Classes of Minnesota High Yield Fund,
Tax-Free Funds and Insured Funds (4)
- ---------------------------------------------------------------------------------------------------------------------
Dealer's
Commission (3)
Front-End Sales Charge as % of as % of
Amount of Purchase Offering Price Amount Invested(2) Offering Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.75% 3.25%
$100,000 but less than $250,000 3.00 2.50
$250,000 but less than $500,000 2.50 2.00
$500,000 but less than $1,000,000(1) 2.00 1.75
- ---------------------------------------------------------------------------------------------------------------------
A Classes of Tax-Free Intermediate Funds (5)
- ---------------------------------------------------------------------------------------------------------------------
Dealer's
Commission (3)
Front-End Sales Charge as % of as % of
Amount of Purchase Offering Price Amount Invested(2) Offering Price
- ---------------------------------------------------------------------------------------------------------------------
Less than $100,000 2.75% 2.35%
$100,000 but less than $250,000 2.00 1.75
$250,000 but less than $500,000 1.00 0.75
$500,000 but less than $1,000,000(1) 1.00 0.75
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a
Limited CDSC of 1% may apply upon redemption of such shares made during
the first year after purchase and a Limited CDSC of 0.50% may apply
upon redemption of such shares made during the second year after
purchase.
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<PAGE>
(2) The front-end sales charge as a percentage of the amount invested is
based on the net asset value per share of the respective Class A Shares
as of the end of the most recent fiscal period. Those amounts are as
follows:
<TABLE>
<CAPTION>
Front-End Sales Charge Front-End Sales Charge
----------------------------------------------------------------------------------------
3.75% 3.00% 2.50% 2.00% 2.75% 2.00% 1.00%
------------------------------ ----------------------
Front-End Sales Charge Front-End Sales Charge
as a Percentage of the Amount Invested as a Percentage of the Amount Invested
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona 3.93% 3.12% 2.59% 2.05% Tax-Free Minnesota Intermed 2.87% 2.06% 0.99%
Tax-Free Arizona Insured 3.90 3.12 2.60 2.08
Tax-Free California 3.92 3.12 2.58 2.05
Tax-Free California Insured 3.86 3.05 2.61 2.07
Tax-Free Colorado 3.91 3.13 2.61 2.00
Tax-Free Florida 3.92 3.12 2.58 2.05
Tax-Free Florida Insured 3.87 3.08 2.55 2.02
Tax-Free Idaho 3.89 3.11 2.60 2.08
Tax-Free Iowa 3.94 3.05 2.56 2.07
Tax-Free Kansas 3.85 3.14 2.60 2.06
Tax-Free Minnesota 3.92 3.07 2.53 2.07
Minnesota Insured 3.89 3.08 2.53 2.08
Minnesota High Yield Fund 3.89 3.05 2.59 2.04
Tax-Free Missouri Insured 3.96 3.13 2.58 2.02
Tax-Free New Mexico 3.93 3.06 2.53 2.01
Tax-Free New York Fund 3.94 3.09 2.53 2.06
Tax-Free North Dakota 3.93 3.06 2.53 2.01
Tax-Free Oregon Insured 3.93 3.07 2.59 2.01
Tax-Free Washington Insur 3.85 3.12 2.57 2.02
Tax-Free Wisconsin 3.87 3.08 2.58 2.08
Tax-Free Utah 3.93 3.06 2.53 2.01
</TABLE>
(3) Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
(4) Tax-Free Funds and Insured Funds: Tax-Free Arizona, Tax-Free Arizona
Insured, Tax-Free California, Tax-Free California Insured, Tax-Free
Colorado, Tax-Free Colorado Insured, Tax-Free Florida, Tax-Free Florida
Insured, Tax-Free Idaho, Tax-Free Iowa, Tax-Free Kansas, Tax-Free
Minnesota, Minnesota Insured, Tax-Free Missouri Insured, Tax-Free New
Mexico, Tax-Free New York Fund, Tax-Free North Dakota, Tax-Free Oregon
Insured, Tax-Free Washington Insured, Tax-Free Wisconsin and Tax-Free
Utah.
(5) Tax-Free Intermediate Funds: Tax-Free Arizona Intermediate, Tax-Free
California Intermediate, Tax-Free Colorado Intermediate and Tax-Free
Minnesota Intermediate.
- --------------------------------------------------------------------------------
A Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by such Fund. Such reduced
front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on the Delaware Investments family's products and services and who
increase sales of funds in the Delaware Investments family may receive
an additional commission of up to 0.15% of the offering price. Dealers
who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933 (the "1933 Act").
- --------------------------------------------------------------------------------
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<PAGE>
Beginning July 1, 1998, for initial purchases of Class A Shares of
Tax-Free Funds , Insured Funds and Minnesota High Yield Fund of $1,000,000 or
more, a dealer's commission may be paid by the Distributor to financial advisers
through whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -------------------
Up to $5 million 1.00%
Next $20 million up to $25 million 0.50
Amount over $25 million 0.25
Such Class A Shares are subject to a Limited CDSC of 1% if shares are
redeemed during the first year after purchase and a Limited CDSC of 0.50% if
shares are redeemed during the second year after purchase.
Beginning July 1, 1998, for initial purchases of Class A shares of
Tax-Free Intermediate Funds of $1,000,000 or more, a dealer's commission may be
paid by the Distributor to financial advisers through whom such purchases are
made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -------------------
Up to $5 million 0.50%
Amount over $5 million 0.25
Such Class A Shares are subject to a Limited CDSC of 1% if shares are
redeemed during the first year after purchase and a Limited CDSC of 0.50% if
shares are redeemed during the second year after purchase.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other funds in the Delaware
Investments family as to which a Limited CDSC applies may be aggregated with
those of Class A Shares of a Fund. Financial advisers also may be eligible for a
dealer's commission in connection with certain purchases made under a Letter of
Intention or pursuant to an investor's Right of Accumulation. Financial advisers
should contact the Distributor concerning the applicability and calculation of
the dealer's commission in the case of combined purchases.
An exchange from other funds in the Delaware Investments family will not
qualify for payment of the dealer's commission, unless a dealer's commission or
similar payment has not been previously paid on the assets being exchanged. The
schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
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<PAGE>
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of Class
B Shares and/or Class C Shares of a Fund and shares of other funds in the
Delaware Investments family, except as noted below, you can reduce the
front-end sales charges on any additional purchases of Class A Shares. Shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with
ownership of variable insurance products may be combined with other Delaware
Investments fund holdings. In addition, assets held by investment advisory
clients of the Manager or its affiliates in a stable value account may be
combined with other fund holdings in the Delaware Investments family. Shares
of other funds that do not carry a front-end sales charge or CDSC may not be
included unless they were acquired through an exchange from a fund in the
Delaware Investments family that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
This privilege also permits you to use these combinations under a
Letter of Intention. A Letter of Intention allows you to make purchases over a
13-month period and qualify the entire purchase for a reduction in front-end
sales charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares of a Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege or the 12-Month Reinvestment Privilege.
See The Delaware Difference and Redemption and Exchange for additional
information.
Purchases of Class A Shares may be made at net asset value by current and
former officers, directors or trustees and employees (and members of their
families) of the Manager, any affiliate, any of the funds in the Delaware
Investments family, certain of their agents and registered representatives and
employees of authorized investment dealers and by employee benefit plans for
such entities. Individual purchases, including those in retirement accounts,
must be for accounts in the name of the individual or a qualifying family
member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of the funds in
the Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special investment products.
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Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Investments family at net asset value.
A Fund must be notified in advance that an investment qualifies for
purchase at net asset value.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares of Tax-Free Funds , Insured Funds
and Minnesota High Yield Fund 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 Tax-Free Intermediate Funds are currently in an amount
equal to no more than 2%. In addition, from time to time, upon written notice to
all of its dealers, the Distributor may hold special promotions for specified
periods during which the Distributor may pay additional compensation to dealers
or brokers for selling Class B Shares at the time of purchase. As discussed
below, however, Class B Shares are subject to annual 12b-1 Plan expenses of up
to a maximum of 1% for approximately eight years after purchase for Tax-Free
Funds, Insured Funds and Minnesota High Yield Fund and approximately five years
after purchase for Tax-Free Intermediate Funds and, if Tax-Free Funds , Insured
Funds and Minnesota High Yield Fund are redeemed within six years of purchase
and Tax-Free Intermediate Funds 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 Prospectus, even after the exchange. Tax-Free Funds' Class B
Shares , Insured Funds' Class B Shares and Minnesota High Yield Fund's Class C
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 Tax-Free Funds , Insured Funds and Minnesota High
Yield Fund, 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 Tax-Free Intermediate Funds, other than shares
acquired through reinvestment of dividends, held for five years after purchase
are eligible for automatic conversion into Class A Shares. Conversions of Class
B Shares into Class A Shares will occur only four times in any calendar year, on
the last business day of the second full week of March, June, September and
December (each, a "Conversion Date"). If, as applicable, the eighth or fifth
anniversary after a purchase of Class B Shares falls on a Conversion Date, an
investor's Class B Shares will be converted on that date. If such anniversary
occurs between Conversion Dates, an investor's Class B Shares will be converted
on the next Conversion Date after the anniversary. Consequently, if a
shareholder's anniversary falls on the day after a Conversion Date, that
shareholder will have to hold Class B Shares for as long as three additional
months after, as applicable, the eighth or fifth anniversary of purchase before
the shares will automatically convert into Class A Shares. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.25% of
average daily net assets representing such shares.
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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. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, 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 Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within prescribed periods after purchase may be
subject to a CDSC at the rates set forth below and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. A CDSC is charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestments of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of another
fund in the Delaware Investments family. 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.
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The following table sets forth the rates of the CDSC for Class B Shares
of Tax-Free Funds , Insured Funds and Minnesota High Yield Fund:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ -------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares of Tax-Free Funds , Insured
Funds and Minnesota High Yield Fund will still be subject to the annual 12b-1
Plan expenses of up to 1% of average daily net assets of those shares. See
Automatic Conversion of Class B Shares, above. Investors are reminded that the
Class A Shares into which Class B Shares will convert are subject to ongoing
annual 12b-1 Plan expenses of up to a maximum of 0.25% of average daily net
assets of such shares.
The following table sets forth the rates of the CDSC for Class B Shares
of Tax-Free Intermediate Funds:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ -------------------
0-2 2%
3 1%
4 and thereafter None
During the fourth year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares of Tax-Free Intermediate Funds
will still be subject to the annual 12b-1 Plan expenses of up to 1% of average
daily net assets of those shares. See Automatic Conversion of Class B Shares,
above. Investors are reminded that the Class A Shares into which Class B Shares
will convert are subject to ongoing annual 12b-1 Plan expenses of up to a
maximum of 0.25% of average daily net assets representing such shares.
In determining whether a CDSC applies to a redemption of Class B Shares,
it will be assumed that Class B Shares of Tax-Free Funds , Insured Funds and
Minnesota High Yield Fund held for more than six years and Class B Shares of
Tax-Free Intermediate Funds held for more than three years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year or
three-year period, as applicable. With respect to Class C Shares, it will be
assumed that shares held for more than 12 months are redeemed first followed by
shares acquired through the reinvestment of dividends or distributions, and
finally by shares held for 12 months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
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The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A Shares, Class B Shares and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of 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.
Subject to pending amendments to the NASD's Conduct Rules, in connection
with the promotion of shares of funds in the Delaware Investments family, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time to
time, pay or allow additional promotional incentives to dealers, which shall
include non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the SEC. It is likely that the NASD's
Conduct Rules will be amended such that the ability of the Distributor to pay
non-cash compensation as described above will be restricted in some fashion. The
Distributor intends to comply with the NASD's Conduct Rules as they may be
amended.
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HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under the Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares, and (ii) generally are not subject to a CDSC.
The Funds make it easy to invest by mail, by wire and by arrangement
with your investment adviser.
Investing through Your Investment Dealer
You can make a purchase of shares of the Funds through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one,
Delaware Investments can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check, payable to the specific Fund and Class selected to Delaware
Investments at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class selected. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from your Fund. Use of this investment
slip can help expedite processing of your check when making additional
purchases. Your investment may be delayed if you send additional purchases by
certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to First Union National Bank, ABA # 031201467, account number
2014128934013 (include your name(s) and your account number for the Fund and
Class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application for the specific Fund and Class selected, to Delaware Investments at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to First Union National Bank, as described above. You should advise
the Shareholder Service Center by telephone of each wire you send.
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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
Shares for Class B Shares or Class C Shares of a 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 funds in the Delaware Investments family. 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 funds in the Delaware Investments
family. Class A Shares of Tax-Free Minnesota Fund, Tax-Free Minnesota
Intermediate Fund and Minnesota Insured Fund may also be exchanged for Class A
Shares of the Minnesota Municipal Cash Trust offered through Delaware
Investments. Class B Shares of a Fund and Class C Shares of a Fund acquired by
exchange will continue to carry the CDSC and, in the case of Class B Shares, the
automatic conversion schedule of the fund from which the exchange is made. The
holding period of Class B Shares of a Fund acquired by exchange will be added to
that of the shares that were exchanged for purposes of determining the time of
the automatic conversion into Class A Shares of that Fund.
Permissible exchanges into Class A Shares of a Fund will be made without
a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize the Fund in
which you have your account to transfer a designated amount monthly from your
checking account to your Fund account. Many shareholders use this as an
automatic savings plan. Shareholders should allow a reasonable amount of time
for initial purchases and changes to these plans to become effective.
2. Direct Deposit
You may have your employer or bank make regular investments directly to
your account for you (for example: payroll deduction, pay by phone, annuity
payments). Each Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, the Fund in which you have
your account has the right to liquidate your shares to reimburse the government
or transmitting bank. If there are insufficient funds in your account, you are
obligated to reimburse such Fund.
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3. MoneyLine (SM) On Demand
Through the MoneyLine (SM) On Demand service, you or your investment
dealer may call a Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine (SM) Services under The
Delaware Difference for additional information about this service.
4. Wealth Builder Option
You can use the Wealth Builder Option to invest in a Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Investments family. You may also elect to invest in other mutual funds in the
Delaware Investments family through the Wealth Builder Option through regular
liquidations of shares in your Fund account.
Under this automatic exchange program, you can authorize regular monthly
amounts (minimum of $100 per fund) to be liquidated from your account in one or
more funds in the Delaware Investments family and invested automatically into
any other account in a mutual fund available from the Delaware Investments
family that you may specify. If in connection with the election of the Wealth
Builder Option, you wish to open a new account to receive the automatic
investment, such new account must meet the minimum initial purchase requirements
described in the prospectus of the fund that you select. All investments under
this option are exchanges and are therefore subject to the same conditions and
limitations as other exchanges noted above. You can terminate your participation
in Wealth Builder at any time by giving written notice to the fund from which
the exchanges are made. See Redemption and Exchange.
5. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your Fund account. Or, you may
invest your distributions in certain other funds in the Delaware Investments
family, subject to the exceptions noted below as well as the eligibility and
minimum purchase requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Fund or of other
funds in the Delaware Investments family are made without a front-end sales
charge. Reinvestments of distributions into Class B Shares of a Fund or of other
funds in the Delaware Investments family or into Class C Shares of a Fund or
of other funds in the Delaware Investments family are also made without any
sales charge and will not be subject to a CDSC if later redeemed. See Automatic
Conversion of Class B Shares under Classes of Shares for information concerning
the automatic conversion of Class B Shares acquired by reinvesting dividends.
Holders of Class A Shares of a Fund may not reinvest their distributions
into Class B Shares or Class C Shares of any fund in the Delaware Investments
family, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware
Investments family which offer that class of shares. Similarly, holders of Class
C Shares of a Fund may reinvest their distributions only into Class C Shares of
the funds in the Delaware Investments family which offer that class of shares.
For more information about reinvestments, call the Shareholder Service Center.
Purchase Price and Effective Date
The offering price and net asset value of Class A Shares, Class B Shares
and Class C Shares are determined as of the close of regular trading on the New
York Stock Exchange (ordinarily, 4 p.m. Eastern time) on days when the Exchange
is open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the fund in which the shares are being
purchased, its agent or designee. The effective date of a direct purchase is the
day your wire, electronic transfer or check is received, unless it is received
after the time the offering price or net asset value of shares is determined, as
noted above. Purchase orders received after such time will be effective the next
business day.
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The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a purchase
is canceled because your check is returned unpaid, you are responsible for any
loss incurred. 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 non-retirement 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, a
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in bond funds, equity funds , money market funds
or tax-advantaged funds. This service is also useful if you are anticipating a
major expenditure and want to move a portion of your investment into a fund that
has the checkwriting feature. Exchanges are subject to the requirements of each
fund and all exchanges of shares constitute taxable events. 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
available from the Delaware Investments family will best meet your changing
objectives and the consequences of any exchange transaction. You may also call
Delaware Investments directly for fund information.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. See Purchase Price and Effective Date under
How to Buy Shares. A shareholder submitting a redemption request may indicate
that he or she wishes to receive redemption proceeds of a specific dollar
amount. In the case of such a request, a Fund will redeem the number of shares
necessary to deduct the applicable CDSC in the case of Class B 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.
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.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
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Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of the other funds in the Delaware Investments
family (in each case, "New Shares") in a permitted exchange, will not be subject
to a CDSC that might otherwise be due upon redemption of Original Shares.
However, such shareholders will continue to be subject to the CDSC and, in the
case of Class B Shares, the automatic conversion schedule of Original Shares
as described in this Prospectus and any CDSC assessed upon redemption will be
charged by the fund from which the Original Shares were exchanged. In an
exchange of shares from Tax-Free Funds B Class , Insured Funds B Class or
Minnesota High Yield Fund B Class, 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 Tax-Free Funds , Insured Funds and Minnesota 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 of Tax-Free Funds , Insured Funds and Minnesota High Yield Fund shares
for a longer period of time than if the investment in New Shares were made
directly.
Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B Shares and Class C Shares
and the Limited CDSC applicable to certain redemptions of Class A Shares
purchased at net asset value, there is no fee charged by the Fund or the
Distributor for redeeming or exchanging your shares, but such fees could be
charged in the future. You may have your investment dealer arrange to have your
shares redeemed or exchanged. Your investment dealer may charge for this
service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by a Fund or its agent.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Funds require a signature by all owners of the account and a
signature guarantee for each owner. A signature guarantee can be obtained
from a commercial bank, a trust company or a member of a securities transfer
association medallion program. A signature guarantee cannot be provided by a
notary public. A signature guarantee is designed to protect the shareholders,
the Funds and their agents from fraud. Each Fund reserves the right to reject a
signature guarantee supplied by an institution based on its creditworthiness.
The Funds may require further documentation from corporations, executors,
retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in the Delaware Investments family, subject to the same conditions and
limitations as other exchanges noted above.
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Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificate(s).
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. 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. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. First
Union National Bank's fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.
MoneyLine (SM) On Demand
Through the MoneyLine (SM) On Demand service, you or your investment
dealer may call a Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MoneyLine (SM) Services under The
Delaware Difference for additional information about this service.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Investments family under the same
registration, subject to the same conditions and limitations as other exchanges
noted above. Telephone exchanges may be subject to limitations as to amounts or
frequency.
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Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or quarterly)
payment. This is particularly useful to shareholders living on fixed incomes,
since it can provide them with a stable supplemental amount. With accounts of at
least $5,000, you may elect monthly withdrawals of $25 (quarterly $75) or more.
The Funds do not recommend any particular monthly amount, as each shareholder's
situation and needs vary. Payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine (SM) Direct
Deposit Service. It may take up to four business days for such transactions
to be completed. There are no separate fees for this redemption method. See
MoneyLine (SM) Services under The Delaware Difference for more information about
this service.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value, below.
The applicable CDSC for Class B Shares and Class C Shares redeemed via a
Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge - Class B Shares and Class C Shares, below.
For more information on Systematic Withdrawal Plans, please call the
Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 or more, 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% if shares are
redeemed during the first year after the purchase, and (2) 0.50% if shares are
redeemed during the second year after the purchase, if such purchases were made
at net asset value and triggered the payment by the Distributor of the dealer's
commission previously described. See Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be assessed on
an amount equal to the lesser of : (1) the net asset value at the time of
purchase of Class A Shares being redeemed; or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
Class A Shares even if those shares are later exchanged for shares of another
fund in the Delaware Investments family and, in the event of an exchange of
Class A Shares, the "net asset value of such shares at the time of redemption"
will be the net asset value of the shares acquired in the exchange.
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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 fund in the Delaware Investments family will not trigger the
imposition of the Limited CDSC at the time of such exchange. The period a
shareholder owns shares into which Class A Shares are exchanged will count
towards satisfying the two-year holding period. The Limited CDSC is assessed
if such two-year period is not satisfied irrespective of whether the
redemption triggering its payment is of Class A Shares of a Fund or Class A
Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; and (ii) redemptions by the classes of shareholders who
are permitted to purchase shares at net asset value, regardless of the size of
the purchase (see Buying Class A Shares at Net Asset Value under Classes of
Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares and Class C
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 all registered owners of the account (in the case of
accounts established under the Uniform Gifts to Minors or Uniform Transfers to
Minors Acts or trust accounts, the waiver applies upon the death of all
beneficial owners) or a total and permanent disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed.
In addition, the CDSC will be waived on Class B Shares and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of the value
of the account on the date that the Systematic Withdrawal Plan was established
or modified.
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DIVIDENDS AND DISTRIBUTIONS
The present policy of each Fund is to declare a distribution from net
investment income on each day that the Fund is open for business. Thus, when
redeeming shares, dividends continue to be credited up to and including the date
of redemption. Distributions of net investment income are paid monthly. Payment
by check of cash dividends will ordinarily be mailed within three business days
after the payable date. Net realized long term capital gains, if any, are
distributed annually, after utilization of any available capital loss
carryovers.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying such Fund's credit policies, the purchase will start earning
dividends on the date the wire is received. Purchases by check earn dividends
upon conversion to Federal Funds, normally one business day after receipt.
Each Class of a Fund will share proportionately in the investment income
and expenses of that Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares will vary
due to the expenses under the 12b-1 Plan applicable to each Class. Generally,
the dividends per share on Class B Shares and Class C Shares can be expected to
be lower than the dividends per share on Class A Shares because the expenses
under the 12b-1 Plans relating to Class B Shares and Class C Shares will be
higher than the expenses under the 12b-1 Plan relating to Class A Shares. See
Distribution (12b-1) and Service under Management of the Funds.
Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value, unless you elect otherwise. See The Delaware
Difference for more information on reinvestment options. Any check in payment
of dividends or other distributions which cannot be delivered by the United
States Post Office or which remains uncashed for a period of more than one year
may be reinvested in your account at the then-current net asset value and the
dividend option may be changed from cash to reinvest. If you elect to take your
dividends and distributions in cash and such dividends and distributions are in
an amount of $25 or more, you may choose the MoneyLine (SM) Direct Deposit
Service and have such payments transferred from your Fund account to your
predesignated bank account. See MoneyLine (SM) Services under The Delaware
Difference for more information about this service.
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TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the Code.
Because many of these changes are complex, and only indirectly affect the Funds
and their distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, each Fund
will not be subject to federal income tax, or to any excise tax, to the extent
its earnings are distributed as provided in the Code and it satisfies certain
other requirements relating to the sources of income and diversification of its
assets. Each Fund is treated as a separate entity for federal income tax
purposes.
Each Fund intends to distribute substantially all of the its net
investment income and net capital gains, if any. Each Fund intends to invest a
sufficient portion of its assets in municipal bonds and notes so that it will
qualify to pay "exempt-interest dividends" to shareholders. Such exempt-interest
dividends distributed to shareholders are excluded from a shareholder's gross
income for federal tax purposes.
A portion of each Fund's dividends may be derived from income on
"private activity" municipal bonds and therefore may be a preference item under
federal tax law and subject to the federal alternative minimum tax. No portion
of a Fund's distributions will be eligible for the dividends-received deduction
for corporations.
To the extent dividends are derived from taxable income on temporary
investments or short-term capital gains, they are treated as ordinary income,
whether received in cash or in additional shares. In addition, gain from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of the accrued market discount.
Distributions paid by a Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in such Fund. The Funds do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a capital gains distribution, a portion of
the investment will be returned as a taxable distribution.
The Treatment of Capital Gain Distributions under the Taxpayer Relief Act of
1997
The 1997 Act creates a category of long-term capital gain for
individuals that will be taxed at new lower tax rates. For investors who are in
the 28% or higher federal income tax brackets, these gains will be taxed at a
maximum rate of 20%. For investors who are in the 15% federal income tax
bracket, these gains will be taxed at a maximum rate of 10%. Capital gain
distributions will qualify for these new maximum tax rates, depending on when a
Fund's securities were sold and how long they were held by that Fund before they
were sold. The holding periods for which the new rates apply were revised by the
Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998 Act").
Investors who want more information on holding periods and other qualifying
rules relating to these new rates should review the expanded discussion in Part
B, or should contact their own tax advisers.
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The Funds will advise you in their annual information reporting at
calendar year end of the amount of their capital gain distributions which will
qualify for these maximum federal tax rates.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the year declared.
The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund available from the Delaware Investments family. Any
loss incurred on a sale or exchange of Fund shares that had been held for six
months or less, will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares and will be
disallowed to the extent of exempt-interest dividends paid with respect to such
shares. All or a portion of the sales charge incurred in acquiring Fund shares
will be excluded from the federal tax basis of any of such shares sold or
exchanged within 90 days of their purchase (for purposes of determining gain or
loss upon sale of such shares) if the sale proceeds are reinvested in a Fund or
in another fund in the Delaware Investments family and a sales charge that would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of
such sales charge excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment.
Exempt-interest dividends paid by each Fund, although exempt from
regular federal income tax in the hands of a shareholder, are includable in the
tax base for determining the extent to which a shareholder's Social Security
benefits would be subject to federal income tax. Shareholders are required to
disclose their receipt of tax-exempt interest on their federal income tax
returns.
The automatic conversion of Class B Shares into Class A Shares of the
relevant Fund will be tax-free for federal tax purposes. See Automatic
Conversion of Class B Shares under Classes of Shares.
The exemption of dividends for regular federal income tax purposes may
not result in similar exemptions under the laws of a particular state or local
taxing authority. It is recommended that shareholders consult their tax advisers
in this regard.
In addition to the federal taxes described above, shareholders may or
may not be subject to various state and local taxes. For example, distributions
of interest income and capital gains realized from certain types of U.S.
government securities may be exempt from state personal income taxes. Because
investors' state and local taxes may be different than the federal taxes
described above, investors should consult their own tax advisers. The Funds will
report annually the percentage of interest income earned on the tax-exempt
obligations on a state-by-state basis during the proceeding calendar year.
Each year, the Funds will mail to you information on the tax status of
the dividends and distributions paid by the Fund in which you hold shares.
Shareholders will also receive each year information as to the portion of
dividend income, if any, that is derived from U.S. government securities that
are exempt from state income tax. Of course, shareholders who are not subject to
tax on their income would not be required to pay tax on amounts distributed to
them by a Fund.
Each Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this
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withholding requirement by certifying on your Investment Application your proper
Taxpayer Identification Number and by certifying that you are not subject to
backup withholding.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986 to finance private activities
are treated as an item of tax preference for purposes of computing the
alternative minimum tax for individuals, estates and trusts.
See Taxes in Part B for additional information on tax matters relating
to each Fund and its shareholders.
The treatment of certain dividends from each Fund under particular state
taxes is discussed below. It should be noted that this treatment may change if a
Fund ever fails to qualify as a regulated investment company for federal income
tax purposes. This discussion is based on state laws as enacted and construed on
the date of this Prospectus, and in certain cases is based on administrative
guidance from state revenue departments. These laws and interpretations can, of
course, change at any time. Only certain specific taxes are discussed below, and
Fund shares and Fund distributions may be subject to other state and local
taxes. In addition, the discussions below are generally limited to Fund
distributions attributable to certain tax-exempt interest. Generally, other
distributions from a Fund are subject to all state income taxes, except that
under certain circumstances, many states do provide exemptions for distributions
attributable to interest on certain United States government obligations.
Generally, unlike the federal individual income tax, state income taxes
do not provide beneficial treatment of long-term capital gains, including
capital gains dividends from a Fund. Further, most states restrict deductions
for capital losses.
Ownership of shares in a Fund could result in other state and local
income tax consequences to certain taxpayers. For example, interest expense
incurred or continued to purchase or carry shares of a Fund, if a Fund
distributes dividends exempt from a particular state income tax, generally is
not deductible for purposes of that income tax.
Prospective investors should consult their tax advisors with respect to
all state and local tax issues related to the ownership of shares in a Fund and
the receipt of distributions from a Fund.
Arizona State Considerations
Exempt interest dividends from the Arizona Funds that are excluded from
gross income for federal income tax purposes and that are derived from interest
on (i) obligations of the State of Arizona and its political subdivisions and
(ii) obligations of United States possessions that are exempt from state
taxation under federal law, are excluded from taxable income for Arizona income
tax purposes to the same extent as the interest income would be excluded from
taxable income for Arizona income tax purposes if such obligations were directly
held by a shareholder.
California State Taxation
Shareholders of the California Funds that are individuals may exclude
from taxable income for purposes of the California Personal Income Tax dividends
received from the California Funds that are properly designated by the
California Funds in a written notice mailed to the shareholders as California
exempt interest dividends. The portion of the California Funds' dividends
designated as California exempt interest dividends may not exceed the amount of
interest the California Funds receive during their taxable year on obligations
the interest on which, if held by an individual, is exempt from taxation by the
State of California, reduced by certain non-deductible expenses. The California
Funds may designate California exempt interest dividends only if the California
Funds qualify as regulated investment companies under the Code, and if, at the
close of each quarter of its taxable year, at least 50 percent of the value of
its total assets consists of obligations the interest on which, when held by an
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individual, is exempt from taxation by the State of California. Distributions
from the California Funds, including California exempt interest dividends,
received by shareholders subject to the California Bank and Corporation Tax Law
may be subject to the California franchise tax.
Colorado State Taxation
Exempt interest dividends from the Colorado Funds that are excluded from
gross income for federal income tax purposes and that are attributable to
interest on (i) obligations of the State of Colorado or its political
subdivisions which are issued on or after May 1, 1980, (ii) obligations of the
State of Colorado or its political subdivisions which were issued before May 1,
1980, to the extent that such interest is specifically exempt from income
taxation under the laws of the State of Colorado authorizing the issuance of
such obligations and (iii) obligations of possessions of the United States that
are exempt from state taxation under federal law, are excluded from taxable
income for purposes of the income tax imposed by the State of Colorado on
individuals and corporations.
Florida State Taxation
Florida does not currently impose an income tax on individuals. Florida
does, however, impose a tax on intangible personal property held by individuals
as of the first day of each calendar year. Under interpretations promulgated by
the Florida Department of Revenue, shares in the Florida Funds are not subject
to the intangible property tax so long as, on the last business day of each
calendar year, all of the assets of the Florida Funds consist of obligations of
the U. S. government and its agencies and territories that are exempt from state
taxation under federal law, and obligations of the State of Florida and its
municipalities, counties and other taxing districts. If the Florida Funds hold
any other types of assets on that date, then the entire value of the shares in
the Florida Funds (except for the portion of the value of the shares
attributable to U. S. government obligations) are subject to the intangible
property tax. The Florida Funds must sell any non-exempt assets held in its
portfolio during the year and reinvest the proceeds in exempt assets prior to
December 31. Transaction costs involved in converting the portfolio's assets to
such exempt assets would likely reduce the Florida Funds' investment return and
might, in extraordinary circumstances, exceed any increased investment return
the Florida Funds had achieved by investing in non-exempt assets during the
year. Florida does impose an income tax on corporations and certain other
entities, and distributions from the Florida Funds may be subject to this income
tax.
Idaho State Taxation
The Idaho Fund has received a ruling from the Idaho Department of Revenue
dated December 13, 1994 to the effect that dividends paid by a fund such as the
Idaho Fund that are attributable to (a) interest earned on bonds issued by the
State of Idaho, its cities and political subdivisions, and (b) interest earned
on obligations of the U.S. government or its territories and possessions that
are exempt from state taxation under federal law, are not included in the income
of Idaho Fund shareholders subject to either the Idaho personal income tax or
the Idaho corporate income tax.
Iowa State Taxation
The Iowa Fund has received a ruling from the Iowa Department of Revenue
and Finance dated May 21, 1993 to the effect that dividends paid by a fund such
as the Iowa Fund that are attributable to (a) interest earned on bonds issued by
the State of Iowa, its political subdivisions, agencies and instrumentalities,
the interest on which is expressly exempt from state income taxation by Iowa
statute, and (b) interest earned on obligations of the U. S. government or its
territories and possessions and which have interest that is exempt from state
taxation under federal law, are not included in the income of the Iowa Fund
shareholders subject to either the Iowa personal income tax or the Iowa
corporate income tax (except in the case of shareholders that are financial
institutions subject to the tax imposed by Iowa Code ss.422.60), if the
Iowa Fund provides statements to the shareholders as to the percentage of
dividends from the Iowa Fund that are attributable to such interest.
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Kansas State Taxation
Exempt interest dividends from the Kansas Fund that are excluded from
gross income for federal income tax purposes and that are attributable to
interest on (i) obligations of the State of Kansas or its political subdivisions
issued after December 31, 1987, (ii) obligations of the State of Kansas or its
political subdivisions issued prior to January 1, 1988, the interest on which is
expressly exempt from income tax under Kansas law and (iii) obligations of
possessions of the United States that are exempt from state taxation under
federal law, are excluded from taxable income for purposes of the income tax
imposed by the State of Kansas on individuals, fiduciaries and corporations
(other than insurance companies, banks, trust companies and savings and loan
associations). Distributions from the Kansas Fund, including exempt interest
dividends, may be subject to the taxes imposed by the State of Kansas on
insurance companies and on banks, trust companies and savings and loan
associations, when received by shareholders subject to such taxes.
Minnesota State Taxation
Minnesota taxable net income is based generally on federal taxable
income. The portion of exempt-interest dividends that is derived from interest
income on Minnesota Tax-Exempt Obligations is excluded from the Minnesota
taxable net income of individuals, estates and trusts , provided that the
portion of the exempt-interest dividends from such Minnesota sources paid to
all shareholders represents 95 percent or more of the exempt-interest
dividends paid by all Minnesota Funds. Exempt interest dividends that are
treated as an item of tax preference for purposes of the federal alternative
minimum tax are also subject to the Minnesota alternative minimum tax on
individuals, estates and trusts. Distributions from the Minnesota Funds,
including exempt interest dividends, may be subject to the Minnesota income tax
imposed on corporations when received by shareholders subject to such tax.
In 1995, the Minnesota Legislature enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota income
tax purposes if a court determines that Minnesota's exemption of such interest
unlawfully discriminates against interstate commerce because interest on
obligations of governmental issuers located in other states is subject to tax.
This provision applies to taxable years that begin during or after the calendar
year in which any such court decision becomes final, irrespective of the date on
which the obligations were issued. The Minnesota Funds are not aware of any
decision in which a court has held that a state's exemption of interest on its
own bonds or those of its political subdivisions or Indian tribes, but not of
interest on the bonds of other states or their political subdivisions or Indian
tribes, unlawfully discriminates against interstate commerce or otherwise
contravenes the United States Constitution. Nevertheless, the Minnesota Funds
cannot predict the likelihood that interest on the Minnesota obligations held by
the Minnesota Funds would become taxable under this Minnesota statutory
provision.
Missouri State Taxation
Exempt interest dividends from the Missouri Fund that are excluded from
gross income for federal income tax purposes and that are derived from interest
on (i) obligations of the State of Missouri or any of its political subdivisions
or authorities or (ii) obligations of territories and possessions of the United
States that are exempt from state taxation under federal law, as designated by
the Missouri Fund in an annual notice mailed to shareholders, are not included
in taxable income for purposes of the Missouri income tax imposed on
individuals, trusts, estates and certain corporations (not including banking
institutions, credit institutions, credit unions and savings and loan
associations.) Distributions from the Missouri Fund, including exempt interest
dividends, may be subject to the franchise taxes imposed on banking
institutions, credit institutions, credit unions and savings and loan
associations when received by shareholders subject to such taxes.
New York State and City Taxation
Exempt interest dividends from the New York Fund that are excluded from
gross income for federal income tax purposes and that are derived from interest
on (i) obligations of the State of New York or its political subdivisions and
(ii) obligations of possessions of the United States that are exempt from state
taxation under
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federal law, are excluded from taxable income for purposes of the income taxes
imposed by the State of New York and New York City on resident individuals,
estates and trusts. Dividends from the New York Fund, including exempt interest
dividends, may be taken into account in determining the New York State and New
York City income and franchise taxes on business corporations, banking
corporations and insurance companies when received by shareholders subject to
such taxes.
New Mexico State Taxation
Shareholders may exclude from income subject to the New Mexico Income Tax
imposed on individuals and the New Mexico Corporate Income and Franchise Tax
imposed on corporations the portion of the dividends of the New Mexico Fund that
is attributable to interest on (i) obligations of the United States, (ii)
obligations of the State of New Mexico or any of its agencies, institutions,
instrumentalities or political subdivisions and (iii) obligations of United
States territories and possessions that are exempt from state taxation under
federal law, provided that the New Mexico Fund provides an annual statement to
each shareholder that identifies the source of income that was distributed to
the shareholder.
North Dakota State Taxation
Exempt interest dividends from the North Dakota Fund that are excluded
from gross income for federal income tax purposes and that are attributable to
interest earned on obligations of the State of North Dakota or its political
subdivisions are excluded from taxable income for purposes of the North Dakota
personal income tax imposed on individuals, estates and trusts, if the North
Dakota Fund provides certain required information to the North Dakota tax
commissioner in each year. However, to the extent a portion of an exempt
interest dividend from the North Dakota Fund is treated as an item of tax
preference for purposes of the federal alternative minimum tax, such a dividend
could affect a taxpayer's North Dakota income tax liability if the taxpayer
computes North Dakota income tax liability pursuant to the optional percentage
of federal income tax liability method permitted by North Dakota law.
Distributions from the North Dakota Fund, including exempt interest dividends,
may be subject to the North Dakota income tax imposed on corporations and the
North Dakota tax imposed on the income of financial institutions when received
by shareholders subject to such taxes.
Oregon State Taxation
Exempt interest dividends from the Oregon Fund that are excluded from
gross income for federal income tax purposes and that are attributable to
interest on (i) obligations of the State of Oregon or its political subdivisions
and (ii) obligations of possessions of the United States that are exempt from
state taxation under federal law, are excluded from taxable income for the
purposes of the income tax imposed by the State of Oregon on individuals.
Distributions from the Oregon Fund, including exempt interest dividends, may be
subject to the Oregon Corporate Excise Tax or Corporate Income Tax when received
by shareholders subject to such taxes.
Utah State Taxation
Exempt interest dividends from the Utah Fund that are excluded from gross
income for federal income tax purposes are excluded from taxable income for
purposes of the Utah personal income tax imposed on individuals, estates and
trusts. Distributions from the Utah Fund, including exempt interest dividends,
may be subject to the Utah corporate franchise and income taxes when received by
shareholders subject to such taxes.
Washington State Taxation
The State of Washington does not currently impose an income tax on
individuals or corporations. Dividends from the Fund may be taken into account
in calculating the Washington Business and Occupation Tax in the case of certain
shareholders who are subject to that tax.
Wisconsin State Taxation
The Wisconsin Fund has received a ruling from the Wisconsin Department of
Revenue dated July 7, 1993 to the effect that dividends paid by a fund such as
the Wisconsin Fund that are attributable to (a) interest earned
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on certain obligations of the State of Wisconsin, or Wisconsin agencies or
political subdivisions, the interest on which is expressly exempt from Wisconsin
personal income taxation by Wisconsin statute, and (b) interest earned on
obligations of the U.S. government or its territories and possessions the
interest on which is exempt from state taxation under federal law, are excluded
from the income of the Wisconsin Fund shareholders subject to the Wisconsin
personal income tax. Distributions from the Wisconsin Fund, including exempt
interest dividends, may be subject to the Wisconsin Corporate Franchise Tax or
Corporate Income Tax when received by shareholders subject to such taxes.
The foregoing discussion relates to federal and state taxation as of the
date of this Prospectus. See Distributions and Taxes in Part B. Distributions
from the Funds, including exempt-interest dividends, may be subject to tax in
other states. This discussion is not intended as a substitute for careful tax
planning. You are urged to consult your tax adviser with specific reference to
your own tax situation.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share for a Fund is computed by adding
the value of all securities and other assets in that Fund's portfolio, deducting
any liabilities of that Fund (expenses and fees are accrued daily) and dividing
by the number of that Fund's shares outstanding. Debt securities are priced on
the basis of valuations provided by an independent pricing service using methods
approved by the Board of Directors or Trustees. Short-term investments having a
maturity of less than 60 days are valued at amortized cost, which approximates
market value. All other securities are valued at their fair value as determined
in good faith and in a method approved by the Board of Directors or Trustees.
See Determining Offering Price and Net Asset Value in Part B.
Class A Shares are purchased at the offering price per share, while Class
B Shares and Class C Shares are purchased at the NAV per share. The offering
price per share of Class A Shares consists of the NAV per share next computed
after the order is received, plus any applicable front-end sales charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m. Eastern time) on
days when the Exchange is open.
The net asset values of all outstanding shares of each Class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that Class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in that Fund represented by the value of shares of such Classes,
except that Class A Shares, Class B Shares and Class C Shares will bear only the
12b-1 Plan expenses payable under their respective 12b-1 Plan. Due to the
specific distribution expenses and other costs that may be allocable to each
Class, the dividends paid to each Class of a particular Fund may vary. However,
the NAV per share of each Class of a particular Fund is expected to be
equivalent.
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MANAGEMENT OF THE FUNDS
Directors and Trustees
The business and affairs of each Fund are managed under the direction of
its Board of Directors or Trustees. Part B contains additional information
regarding each Fund's directors, trustees and officers.
Investment Manager
The Manager furnishes investment management services to each Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On August 31, 1998, the Manager and
its affiliates within Delaware Investments , including Delaware International
Advisers Ltd., were managing in the aggregate more than $39 billion in assets
in the various institutional or separately managed (approximately
$26,098,390,000) and investment company (approximately $13,866,120,000)
accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had been
retained under an investment advisory contract to act as each Fund's investment
adviser, subject to the authority of each Fund's Board of Directors/Trustees.
Prior to that date, Voyageur was an indirect, wholly-owned subsidiary of
Dougherty Financial Group, Inc. ("DFG"). After the close of business on April
30, 1997, Voyageur became an indirect, wholly owned subsidiary of Lincoln
National Corporation ("Lincoln National") as a result of Lincoln National's
acquisition of DFG. Lincoln National, headquartered in Fort Wayne, Indiana,
owns and operates insurance and investment management businesses, including
Delaware Management Holdings, Inc. ("DMH"). Affiliates of DMH serve as adviser,
distributor and transfer agent for Delaware Investments. As of August 31,
1998, DMH, through its subsidiaries, was responsible for the management of
approximately $00 billion.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Funds' previous investment advisory agreements with
Voyageur were "assigned," as that term is defined by the 1940 Act, and the
previous agreements therefore terminated upon the completion of the acquisition.
On February 14, 1997, new advisory agreements with the Manager on behalf of
Tax-Free Arizona Intermediate Fund, Tax-Free California Intermediate Fund,
Tax-Free Colorado Insured Fund, Tax-Free Colorado Intermediate Fund, the Florida
Funds, Minnesota High Yield Fund and Tax-Free New York Fund, and with Voyageur
on behalf of the other Funds, were unanimously approved by each Fund's
respective board at a meeting held in person, and each such board called a
shareholder meeting to approve these agreements. At a meeting held on April 11,
1997, the shareholders of each Fund approved its respective investment
management agreement to become effective after the close of business on April
30, 1997, the date the acquisition was completed.
Beginning May 1, 1997, the Manager, an indirect, wholly-owned subsidiary
of Lincoln National, was retained as investment manager of Tax-Free Arizona
Intermediate Fund, Tax-Free California Intermediate Fund, Tax-Free Colorado
Insured Fund, Tax-Free Colorado Intermediate Fund, the Florida Funds, Minnesota
High Yield Fund and Tax-Free New York Fund, and Voyageur was retained as
investment manager for the other Funds. On May 30, 1997, Voyageur was merged
into the Manager and the Manager became the investment manager for those other
Funds. The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a business trust
on March 1, 1998.
Each Tax-Free Fund and Insured Fund pays the Manager a monthly investment
advisory and management fee equivalent on an annual basis to 0.50% of its
average daily net assets. Minnesota High Yield Fund pays the Manager a monthly
investment advisory and management fee equivalent on an annual basis to 0.65% of
its average daily net assets. Each Tax-Free Intermediate Fund pays the Manager a
monthly investment advisory and management fee equivalent on an annual basis to
0.40% of its average daily net assets. The directors or trustees of each Fund
annually review the fees paid to the Manager.
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Andrew M. McCullagh, Jr. has had, since inception, day-to-day portfolio
management responsibility for Tax-Free Arizona Insured Fund and Tax-Free Arizona
Fund, Tax-Free California Insured Fund and Tax-Free California Fund, Tax-Free
Colorado Fund, Tax-Free New Mexico Fund and Tax-Free Utah Fund. Mr. McCullagh
serves as Vice President/Senior Portfolio Manager for these Funds. Mr. McCullagh
is a graduate of Washington College and has a Graduate Certificate in Public
Finance from the University of Michigan. Prior to joining Delaware Investments,
he served as a Senior Vice President and Senior Portfolio Manager of Voyageur
Asset Management. Mr. McCullagh was a Director of Voyageur and the Voyageur Fund
Distributors, Inc. from 1993 through 1995 and a Senior Tax Exempt Portfolio
Manager for Voyageur from January 1990 through May 1997. He was also President
of Tax-Free Colorado Fund and an Executive Vice President of each of the other
Voyageur Funds. Mr. McCullagh currently has over 26 years experience in
municipal bond trading, underwriting and portfolio management. Mr. McCullagh is
a past member of the Board of Directors of the Colorado Municipal Bond Dealers
Association.
Elizabeth H. Howell has had, since 1991, day-to-day portfolio management
responsibility for all Minnesota Funds, as well as, since inception, Tax-Free
Idaho Fund, Tax-Free Kansas Fund, Tax-Free Missouri Fund, Tax-Free Oregon Fund
and Tax-Free Washington Fund. In addition, on May 1, 1997, Ms. Howell resumed
day-to-day portfolio management responsibility for Tax-Free Iowa Fund and
Tax-Free Wisconsin Fund, which she managed from their inception to July 1995.
Ms. Howell assumed day-to-day portfolio management responsibility for the
Tax-Free North Dakota Fund on November 1, 1997. Ms. Howell holds a BA in
Economics from Skidmore College and an MBA from Babson College. Prior to joining
Delaware Investments, she served as a Senior Portfolio Manager with Voyageur
Fund Managers, Inc. Ms. Howell serves as Vice President/Senior Portfolio Manager
for these Funds. Ms. Howell was a Vice President and Senior Tax Exempt Portfolio
Manager for Voyageur from 1991 through 1997 and was a Vice President of each
of the Voyageur Funds. Ms. Howell has over 14 years experience as a securities
analyst and portfolio manager.
Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager of Tax-Free Florida Fund, Tax-Free Florida Insured Fund and
Tax-Free New York Fund assumed primary responsibility for making day-to-day
investment decisions for these Funds on May 1, 1997. Mr. McCullagh assists Mr.
Coyne and Mr. Conery with the management of the Florida Funds. Mr. Coyne is a
graduate of Harvard University with an MBA from the University of Pennsylvania's
Wharton School. Prior to joining Delaware Investments' fixed-income department
in 1990, Mr. Coyne was as 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. Mr. Conery joined Delaware Investments in January 1997. He holds a
bachelor's degree from Boston University and an MBA in Finance from the State
University of New York at Albany. He has served as an investment officer with
Travelers Insurance and as a research analyst with CS First Boston and MBIA
Corporation.
In making investment decisions for the Florida Funds, Mr. Coyne and Mr.
Conery regularly consult with Paul E. Suckow and other members of Delaware
Investments' fixed-income department. Mr. Suckow is Executive Vice
President/Chief Investment Officer, Fixed Income of the Funds and each of the
other funds in the Delaware Investments family. He is a CFA charterholder and a
graduate of Bradley University with an MBA from Western Illinois University. Mr.
Suckow was a fixed-income portfolio manager at Delaware Investments from 1981
through 1985. He returned to Delaware Investments in 1993 after eight years with
Oppenheimer Manager Corporation where he served as Executive Vice President and
Director of Fixed Income.
Portfolio Trading Practices
Each Fund normally will not invest for short-term trading purposes.
However, each Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect
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brokerage costs of each Fund and may affect taxes payable by such Fund's
shareholders to the extent that net capital gains are realized. Given each
Fund's investment objective, it is anticipated that the portfolio turnover rate
of each Fund will not exceed 100%. A turnover rate of 100% would occur if all
the investments in a Fund's portfolio at the beginning of the year were replaced
by the end of the year.
Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
their advisory clients. These services may be used by the Manager in servicing
any of its accounts. Subject to best price and execution, the Manager may
consider a broker/dealer's sales of shares of funds in the Delaware Investments
family in placing portfolio orders and may place orders with broker/dealers that
have agreed to defray certain expenses of such funds, such as custodian fees.
Performance Information
From time to time, each Fund may quote yield and total return performance
of its Classes in advertising and other types of literature.
The current yield for each Class will be calculated by dividing the
annualized net investment income earned by the Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year, or life, of fund periods, as applicable. Each Fund
may also advertise aggregate and average total return information concerning a
Class over additional periods of time. 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. In this case, such total return information
would be more favorable than total return information that includes deductions
of the maximum front-end sales charge or any applicable CDSC.
Securities prices and investment results fluctuate over time and
are not guaranteed. Past performance should not be considered representative
of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor for each Fund's shares under separate Distribution Agreements dated
March 1, 1997.
Each of the Class A Shares, Class B Shares and Class C Shares of the
Funds have a separate distribution plan under Rule 12b-1 (the "Plans"). Each
Plan permits a Fund to which the Plan relates to pay the Distributor from the
assets of its respective Classes a monthly fee for the Distributor's services
and expenses in distributing and promoting sales of shares. These expenses
include, among other things, preparing and distributing advertisements, sales
literature, and prospectuses and reports used for sales purposes, compensating
sales and marketing personnel, holding special promotions for specified periods
of time and paying distribution and maintenance fees to brokers, dealers and
others. In connection with the promotion of shares of the Classes, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, and reimburse dealers for expenses incurred in
connection with preapproved seminars, conferences and advertising. The
Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of
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such Class. In addition, each Fund may make payments from the 12b-1 Plan fees of
its respective Classes directly to others, such as banks, who aid in the
distribution of Class shares or provide services in respect of such Classes,
pursuant to service agreements with the Funds.
The 12b-1 Plan expenses relating to each of the Class B Shares and Class
C Shares of the Funds are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by a Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.25%
of a Class A Shares' average daily net assets in any year, and (ii) 1% (0.25% of
which are service fees to be paid by the Fund to the Distributor, dealers and
others, for providing personal service and/or maintaining shareholder accounts)
of each Fund's Class B Shares' and Class C Shares' average daily net assets in
any year. The Funds' Class A Shares, Class B Shares and Class C Shares will not
incur any distribution expenses beyond these limits, which may not be increased
without shareholder approval.
While payments pursuant to the Plans may not exceed 0.25% annually with
respect to each Fund's Class A Shares, and 1% annually with respect to each of
the Fund's Class B Shares and Class C Shares, the Plans do not limit fees to
amounts actually expended by the Distributor. It is therefore possible that the
Distributor may realize a profit in any particular year. However, the
Distributor currently expects that its distribution expenses will likely equal
or exceed payments to it under the Plans. The Distributor may, however, incur
such additional expenses and make additional payments to dealers from its own
resources to promote the distribution of shares of the Classes. The monthly fees
paid to the Distributor under the Plans are subject to the review and approval
of the unaffiliated directors and trustees, who may reduce the fees or terminate
the Plans at any time.
The Distributor pays broker-dealers and financial institutions an annual
fee equal to 0.25% of the average daily net assets attributable to Class A
Shares (0.15% for Class A Shares of Tax-Free Intermediate Funds), 0.25% of the
average daily net assets attributable to Class B Shares (0.15% for Class B
Shares of Tax-Free Intermediate Funds), and 1% of the average daily net assets
attributable to Class C shares held by their customers. The fee is paid
quarterly commencing when such shares are sold for Class A Shares and Class B
Shares. The fee is paid quarterly commencing in the thirteenth month after such
shares are sold for Class C Shares.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under a Shareholders Services Agreement dated as of April 30, 1997. The Transfer
Agent also provides accounting services to the Funds pursuant to the terms of a
separate Fund Accounting Agreement.
The directors or trustees of each Fund annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.
* * *
As with other mutual funds, financial and business organizations and
individuals around the world, 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 the Funds' major service providers are taking steps
reasonably designed to address the Year 2000 Problem with respect to the
computer systems that such service providers use. There can be no assurance that
these steps will be sufficient to avoid any adverse impact on the business of
the Funds.
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Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreements and those borne
by the Distributor under the Distribution Agreements.
In connection with the merger transaction described above, the Manager
has agreed for the period from May 1, 1997 through April 30, 1999, to
voluntarily waive that portion, if any, of the annual management fees payable by
a Fund and to pay each Fund's expenses to the extent necessary to ensure
that each Fund's total operating expenses (excluding 12b-1 Plan fees, interest
expense, taxes, brokerage fees and commissions) do not exceed, on an annual
basis, 1% of the average daily net assets of each Class of a Fund. This
agreement replaces a similar provision in the Funds' investment advisory
contracts with their predecessor investment adviser. In addition, for the
period May 1, 1997 through December 31, 1998, the Manager agreed to adhere to
certain additional management fee waivers and expense payments. See Summary of
Expenses for current management fee waivers and expense payments. The Manager
and the Distributor reserve the right to voluntarily waive their fees in whole
or part and to voluntarily pay or reimburse certain other of the Fund's
expenses.
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For the fiscal year ended August 31, 1998, the ratios of operating
expenses to average daily net assets for Class A Shares, Class B Shares and
Class C Shares of each Fund were as follows:
<TABLE>
<CAPTION>
Assuming Fee Waivers and Assuming No Fee Waiver and
Payments by the Manager Payments by the Manager
Fund Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Arizona Insured Fund 0.84% 1.59% 1.59% 0.91% 1.66% 1.66%
Arizona Fund 0.49 1.23 1.23 1.07 1.81 1.81
California Insured Fund 0.94 1.69 1.69 0.94 1.69 1.69
California Fund 0.22 0.97 0.97 1.07 1.82 1.82
Colorado Fund 0.83 1.58 1.58 0.92 1.67 1.67
Florida Insured Fund 0.87 1.62 N/A 1.05 1.80 N/A
Florida Fund 0.55 1.30 1.30 1.10 1.85 1.85
Idaho Fund 0.95 1.70 1.70 1.02 1.77 1.77
Iowa Fund 0.96 1.71 1.71 1.06 1.81 1.81
Kansas Fund 0.89 1.64 1.64 0.99 1.74 1.74
Minnesota Intermediate Fund 0.80 1.65 1.65 0.80 1.65 1.65
Minnesota Insured Fund 0.92 1.67 1.67 0.94 1.69 1.69
Minnesota Fund 0.89 1.64 1.64 0.92 1.67 1.67
Minnesota High Yield Fund 0.40 1.15 1.15 1.20 1.95 1.95
Missouri Insured Fund 0.92 1.67 1.67 1.02 1.77 1.77
New Mexico Fund 1.00 1.75 1.75 1.15 1.90 1.90
New York Fund 1.00 1.75 1.75 1.15 1.90 1.90
North Dakota Fund 1.00 1.75 1.75 1.15 1.90 1.90
Oregon Insured Fund 0.71 1.46 1.46 1.03 1.78 1.78
Utah Fund 0.76 1.51 N/A 1.17 1.92 N/A
Washington Insured Fund 0.50 1.25 1.25 1.34 2.09 2.09
Wisconsin Fund 1.00 1.75 1.75 1.04 1.79 1.79
</TABLE>
The ratios reflect the impact of each Class' 12b-1 Plan.
Shares
The shares of the Funds constitute separate series of the parent
entities listed below. Certain of these parent entities are organized as
Minnesota corporations, and the shares of the series thereof are transferable
common stock, $.01 par value per share, of such corporations. Other parent
entities are organized as business trusts under the laws of the State of
Maryland, and the shares of the series thereof represent transferable common
shares of beneficial interest. All shares of each corporation and of each trust,
are non assessable and fully transferable when issued and paid for in accordance
with the terms thereof and possess no cumulative voting, preemptive or
conversion rights. The Board of each corporation and trust is empowered to issue
other series of common stock or common shares of beneficial interest without
shareholder approval. Set forth below is a listing of the parent entities and
constituent series, form of organization and date of organization of the parent.
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Parent Form of Organization Date Organized
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Voyageur Tax-Free Funds, Inc. Minnesota Corporation November 10, 1983
Tax-Free Minnesota
Tax-Free North Dakota
Voyageur Intermediate Tax-Free Funds, Inc. Minnesota Corporation January 21, 1985
Tax-Free Arizona Intermediate
Tax-Free California Intermediate
Tax-Free Colorado Intermediate
Tax-Free Minnesota Intermediate
Voyageur Insured Funds, Inc. Minnesota Corporation January 6, 1987
Tax-Free Arizona Insured
Tax-Free Colorado Insured
Minnesota Insured
Voyageur Investment Fund, Inc. Maryland Business Trust [DATE]
Tax-Free California Insured
Tax-Free Florida Insured
Tax-Free Florida
Tax-Free Kansas
Tax-Free Missouri Insured
Tax-Free New Mexico
Tax-Free Oregon Insured
Tax-Free Utah
Tax-Free Washington Insured
Voyageur Mutual Funds, Inc. Minnesota Corporation April 14, 1993
Tax-Free Arizona
Tax-Free California
Tax-Free Idaho
Tax-Free Iowa
Tax-Free New York
Minnesota High Yield Fund
Tax-Free Wisconsin
Voyageur Mutual Funds II, Inc. Minnesota Corporation January 13, 1987
Tax-Free Colorado
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
All shares have noncumulative voting rights which means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so. Under Minnesota and
Maryland law, each Fund is not required, and does not intend, to hold annual
meetings of shareholders unless, under certain circumstances, it is required to
do so under the 1940 Act.
Shares of each class within a Fund represent proportionate interests in
the assets of that Fund and have the same voting and other rights and
preferences as the other classes of shares of that Fund, except that, as a
general matter, holders of Class A Shares, Class B Shares and Class C Shares of
a Fund may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, Class B Shares of a Fund may vote on
any proposal upon which Class A Shares vote to increase materially the fees to
be paid by that Fund under the Rule 12b-1 Plan relating to Class A Shares.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Forward Commitments
New issues of Tax Exempt 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 each Fund's total assets which may be invested in
forward commitments. Tax Exempt Obligations purchased on a when-issued basis and
the securities held in a 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. Tax Exempt Obligations purchased on
a when-issued basis may expose a Fund to risk because they may experience such
fluctuations prior to their actual delivery. Purchasing Tax Exempt 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 each 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 Manager deems it appropriate
to do so. The Funds may realize short-term profits or losses upon the sale of
forward commitments.
Illiquid Securities
Each 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. A Fund may be restricted in its ability to sell such securities at a
time when such Fund's investment adviser deems it advisable to do so. In
addition, in order to meet redemption requests, a 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, a Fund will treat such
securities as liquid and not subject to the above 15% limitation when they have
been determined to be liquid by such Fund's investment adviser subject to the
oversight of and pursuant to procedures adopted by the Fund's Board of Directors
or Trustees. See Illiquid Investments under Investment Restrictions and Policies
in Part B.
Repurchase Agreements
Each 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. Each Fund may
enter into repurchase agreements with respect to any securities which it may
acquire consistent with its investment policies and restrictions. In order to
invest its short-term cash reserves or when in a temporary defensive posture, a
Fund may enter into repurchase agreements with banks or broker/dealers
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deemed to be creditworthy by the Manager, under guidelines approved by the
Funds' Board of Directors/Trustees.
A repurchase agreement is a short-term investment in which the
purchaser (i.e. a Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the purchaser's holding period. Generally,
repurchase agreements are of short duration, often less than one week but on
occasion for longer periods. 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.
Each Fund will limit its investments in repurchase agreements to those which the
Manager under guidelines of the Board of Directors or Trustees determines to
present minimal credit risks and which are of high quality. In addition, each
Fund must have collateral of at least 102% of the repurchase price, including
the portion representing the Fund's yield under such agreements, which is
monitored on a daily basis.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow funds in the Delaware Investments family jointly to invest cash balances.
A Fund may invest cash balances in a joint repurchase agreement in accordance
with the terms of the Order and subject generally to the conditions described
above.
Reverse Repurchase Agreements
Certain Funds (Tax-Free Arizona Intermediate Fund, Tax-Free Arizona
Fund, Tax-Free California Intermediate Fund, Tax-Free California Fund, Tax-Free
Colorado Intermediate Fund, Tax-Free Colorado Insured Fund, Tax-Free Florida
Fund, Tax-Free Idaho Fund, Minnesota High Yield Fund and Tax-Free New York Fund)
may engage in "reverse repurchase agreements" with banks and securities dealers
with respect to not more than 10% of the Fund's 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 a Fund enters into a reverse
repurchase agreement, cash or liquid 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 Funds do not currently intend to utilize reverse
repurchase agreements in excess of 10% of total assets, the Funds believe 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 Funds' ability to provide current income without adversely affecting the
Funds' ability to preserve capital.
Options and Futures
Each Fund may utilize put and call transactions, and certain Funds (see
Futures Contracts and Options on Futures Contracts below) may utilize futures
transactions to hedge against market risk and facilitate portfolio management.
See Options and Futures Transactions under Investment Policies and Restrictions
in Part B. 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 a 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 a Fund's portfolio or
to establish a
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<PAGE>
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 Funds in the future for
hedging purposes as they are developed to the extent deemed appropriate by the
Board of Directors or Trustees.
Options on Securities
Each Fund may write (i.e., sell) covered put and call options and
purchase put and 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.
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, a 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, a 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 a Fund were permitted to expire without being
sold or exercised, its premium would be lost by the Fund.
If a put option written by a Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by a 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 as described in
Appendix A - Special Factors Affecting the Funds in Part B. The Fund retains the
premium received from writing a put or call option whether or not the option is
exercised.
Over-the-counter options are purchased or written by a Fund in
privately negotiated transactions. Such options are illiquid, and it may not be
possible for a 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 each
Fund's 15% illiquid investment limitation. See Appendix A - Special Factors
Affecting the Funds to Part B for a further discussion of the general
characteristics and risks of options.
Participation in the options market involves investment risks and
transaction costs to which the Funds 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
a 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 securities 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)
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<PAGE>
the possible need to defer closing out certain hedged positions to avoid adverse
tax consequences. See Investment Policies and Restrictions-- Risks of
Transactions in Futures Contracts and Options in Part B for further discussion.
Futures Contracts and Options on Futures Contracts
Certain Funds (Tax-Free Arizona Intermediate Fund, Tax-Free Arizona
Fund, Tax-Free California Intermediate Fund, Tax-Free California Fund, Tax-Free
Colorado Intermediate Fund, Tax-Free Colorado Insured Fund, Tax-Free Florida
Fund, Tax-Free Idaho Fund, Minnesota High Yield Fund and Tax-Free New York Fund)
may enter into contracts for the purchase or sale for future delivery of fixed
income securities or contracts based on financial indices including any index of
securities in which a Fund may invest ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts ("options on
futures contracts"). A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price on a specified date. The purchaser of a futures contract on an
index agrees to take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of the index on the
expiration date of the contract ("current contract value") and the price at
which the contract was originally struck. Options on futures contracts to be
written or purchased by a Fund will be traded on exchanges or
over-the-counter. The successful use of such instruments draws upon the
Manager's experience with respect to such instruments and usually depends upon
the Manager's ability to forecast interest rate movements correctly. Should
interest rates move in an unexpected manner, a 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, a Fund will maintain in a segregated
account cash liquid securities equal to the value of such contracts, less any
margin on deposit. In addition, the rules and regulations of the Commodity
Futures Trading Commission ("CFTC") currently require that, in order to avoid
"commodity pool operator" status, a 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 a Fund's portfolio. There are no other numerical limits
on a Fund's use of futures contracts and options on futures contracts. For a
discussion of the tax treatment of futures contracts and options on futures
contracts, see Taxes in Part B. For a further discussion on the general
characetistics and risks of futures, see Appendix A - General Characteristics
and Risks of Options and Futures in Part B.
Investment Restrictions
Each Fund has adopted certain investment restrictions in addition to
those set forth above, which are set forth in their entirety in Part B.
Certain of these restrictions are fundamental and cannot be changed without
shareholder approval, including the restriction providing that no Fund may
borrow money, except from banks for temporary or emergency purposes in an amount
not exceeding 20% of the value of its total assets (10% for Tax-Free Colorado
Fund) (certain Funds may also borrow money in the form of reverse repurchase
agreements up to 10% of total assets). Also, certain Funds may not, as a matter
of fundamental policy invest more than 15% of their net assets in illiquid
securities and pledge, hypothecate, mortgage or otherwise encumber their assets
in excess of 10% of net assets. See Investment Restrictions under Investment
Policies and Restrictions in Part B. Each Fund also has a number of
non-fundamental investment restrictions which may be changed by a Fund's Board
of Directors or Trustees without the shareholder approval. These include
restrictions providing that no Fund may (a) invest more than 5% of its total
assets in securities of any single investment company or (b) invest more than
10% of its total assets in securities of two or more investment companies and
that Minnesota High
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<PAGE>
Yield Fund may not (a) invest more than 15% of its net assets in illiquid
securities or (b) pledge, hypothecate, mortgage or otherwise encumber its assets
in excess of 10% of net assets. If a Fund invests in the securities of other
open-end investment companies, the Manager will take appropriate action to avoid
subjecting such Fund's shareholders to duplicate management and other fees and
expenses.
Except for Minnesota High Yield 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.
* * *
Part B describes certain of these investment policies and risk
considerations. Part B also sets forth other investment policies, risk
considerations and more specific investment restrictions.
-80-
<PAGE>
APPENDIX A - RATINGS
The following table sets forth the weighted average percentage of total
investments with respect to the portfolios of certain Funds during the year
ended as of August 31, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Moody's Rating
(S&P Rating) Aaa Aa A Baa Ba B Unrated
(AAA) (AA) (A) (BBB) (BB) (B) Bonds/Other Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free Fund 44% 13% 17% 16% 4% -- 6% 100%
Colorado Tax-Free Fund 19% 16% 17% 29% -- -- 19% 100%
Florida Tax-Free Fund 54% 15% 8% 10% -- -- 13% 100%
Idaho Tax-Free Fund 22% 7% 25% 34% -- -- 12% 100%
Iowa Tax-Free Fund 26% -- 46% 16% 12% 100%
Kansas Tax-Free Fund 25% 14% 6% 14% -- -- 41% 100%
Minnesota Tax-Free Fund 48% 10% 19% 6% -- -- 17% 100%
Minnesota High Yield Fund 9% 16% 15% 15% 1% -- 45% 100%
New Mexico Tax-Free Fund 40% 14% 28% 5% -- -- 13% 100%
North Dakota Tax-Free Fund 31% 28% 14% 12% -- 15% 100%
Utah Tax-Free Fund 55% 11% 17% 5% -- -- 12% 100%
Wisconsin Tax-Free Fund 36% 6% 16% 11% -- -- 31% 100%
Minnesota Tax-Free
Intermediate Fund 39% 9% 8% 24% -- -- 20% 100%
===================================================================================================================
</TABLE>
Bonds
The ratings list below can be further described as follows. For all
categories lower than Aaa, Moody's Investors Service, Inc. includes a "1", "2"
or "3" following the rating to designate a high, medium or low rating,
respectively. Similarly, for all categories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.
Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc. Aa High quality; together with Aaa bonds, they compose the
high-grade bond group
A Upper-medium-grade obligations; many favorable
investment attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate
for the present, but certain protective elements may be
lacking or may be unreliable over any great length of
time.
Ba More uncertain with speculative elements. Protective of
interest and principal payments not well safeguarded
in good and bad times.
B Lack characteristics of desirable investment;
potentially low assurance of timely interest and
principal payments or maintenance of other contract
terms over time.
Caa Poor standing, may be in default; elements of danger
with respect to principal or interest payments.
Ca Speculative in high degree; could be in default or have
other marked shortcomings.
C Lowest rated. Extremely poor prospects of ever
attaining investment standing.
Standard & Poor's AAA Highest rating; extremely strong capacity to pay
principal and interest.
-81-
<PAGE>
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 meet required
CCC, interest and principal payments. BB-lowest degree of
speculation; C-the
CC,C highest degree of speculation. Quality and protective
characteristics outweighed by large uncertainties or
major risk exposure to adverse conditions.
D In default.
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 of the
CC, C obligation for bond issues not in default. BB is the
least speculative. C is the most speculative.
Commercial Paper
<TABLE>
<CAPTION>
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C>
P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong quality
quality 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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<PAGE>
State and Municipal Notes
<TABLE>
<CAPTION>
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>
Preferred Stock Rating
Moody's Investors Aaa Considered to be a top-quality preferred stock. This
rating indicates good Service, Inc. asset protection and
the least risk of dividend impairment within the
universe of preferred stocks.
Aa Considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that
earnings and asset protection will remain relatively
well maintained in the foreseeable future.
A Considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in
the "Aaa" and "Aa" classifications, earnings and asset
protection are, nevertheless, expected to be maintained
at adequate levels.
Baa Considered to be medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any
great length of time.
Ba Considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
B Generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long
period of time may be small.
Caa Likely to be in arrears on dividend payments. This
rating designation does not purport to indicate the
future status of payments.
Ca Speculative in a high degree and is likely to be in
arrears on dividends with little likelihood of eventual
payment.
C The lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment
standing.
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<PAGE>
Standard & Poor's AAA Has the highest rating that may be assigned by
Standard & Poor's to a Ratings Group preferred stock
issue and indicates an extremely strong capacity to pay
the preferred stock obligations.
AA Qualifies as a high-quality fixed income security. The
capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues
rated "AAA."
A Backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions.
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
CCC respect to 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.
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<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, shareholders of the Classes should
contact their financial adviser or call Delaware Investments at 800-523-1918.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402
- ------------------------------------------
Voyageur Tax Free Funds, Inc.
Voyageur Intermediate Tax-Free Funds, Inc.
Voyageur Insured Funds, Inc.
Voyageur Investment Fund, Inc.
(formerly known as Voyageur Investment Trust)
Voyageur Mutual Funds, Inc.
Voyageur Mutual Funds II, Inc.
- ------------------------------------------
A CLASS
- ------------------------------------------
B CLASS
- ------------------------------------------
C CLASS
- ------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- ------------------------------------------
^ DECEMBER 29, 1998
[GRAPHIC OMITTED]
<PAGE>
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1998
- --------------------------------------------------------------------------------
Voyageur Tax Free Funds, Inc.
Voyageur Intermediate Tax-Free Funds, Inc.
Voyageur Insured Funds, Inc.
Voyageur Investment Fund, Inc.
Voyageur Mutual Funds, Inc.
Voyageur Mutual Funds II, Inc.
- --------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
For Prospectus and Performance of Class A Shares, Class B Shares
and Class C Shares: Nationwide 800-523-1918
Information on Existing Accounts of Class A Shares, Class B Shares
and Class C Shares: (SHAREHOLDERS ONLY) Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Cover Page
- --------------------------------------------------------------------------------
Investment Restrictions and Policies
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Investment Plans
- --------------------------------------------------------------------------------
Determining Offering Price and Net Asset Value
- --------------------------------------------------------------------------------
Redemption and Repurchase
- --------------------------------------------------------------------------------
Distributions
- --------------------------------------------------------------------------------
Taxes
- --------------------------------------------------------------------------------
Investment Management Agreements
- --------------------------------------------------------------------------------
Officers and Directors/Trustees
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
Appendix A--Special Factors Affecting the Funds
- --------------------------------------------------------------------------------
-1-
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
Delaware-Voyageur Tax-Free Arizona Intermediate Fund Delaware-Voyageur Tax-Free Minnesota Intermediate Fund
Delaware-Voyageur Tax-Free Arizona Insured Fund Delaware-Voyageur Minnesota Insured Fund
Delaware-Voyageur Tax-Free Arizona Fund Delaware-Voyageur Tax-Free Minnesota Fund
Delaware-Voyageur Tax-Free California Intermediate Fund Delaware-Voyageur Minnesota High Yield Municipal Bond Fund
Delaware-Voyageur Tax-Free California Insured Fund Delaware-Voyageur Tax-Free Missouri Insured Fund
Delaware-Voyageur Tax-Free California Fund Delaware-Voyageur Tax-Free New Mexico Fund
Delaware-Voyageur Tax-Free Colorado Intermediate Fund Delaware-Voyageur Tax-Free New York Fund
Delaware-Voyageur Tax-Free Colorado Insured Fund Delaware-Voyageur Tax-Free North Dakota Fund
Delaware-Voyageur Tax-Free Colorado Fund Delaware-Voyageur Tax-Free Oregon Insured Fund
Delaware-Voyageur Tax-Free Florida Insured Fund Delaware-Voyageur Tax-Free Utah Fund
Delaware-Voyageur Tax-Free Florida Fund Delaware-Voyageur Tax-Free Washington Insured Fund
Delaware-Voyageur Tax-Free Idaho Fund Delaware-Voyageur Tax-Free Wisconsin Fund
Delaware-Voyageur Tax-Free Iowa Fund
Delaware-Voyageur Tax-Free Kansas Fund
</TABLE>
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.
Class B Shares and Class C Shares of each Fund may be purchased at a price
equal to the next determined net asset value per share. Class A Shares may be
purchased at the public offering price, which is equal to the next determined
net asset value per share, plus a front-end sales charge. Class A Shares are
subject to a maximum front-end sales charge of 3.75% with respect to Tax-Free
Funds and Insured Funds and 2.75% with respect to Tax-Free Intermediate Funds.
Class A Shares are subject to annual 12b-1 Plan ("12b-1 Plan") expenses which
may not exceed 0.25%. Class B Shares are subject to a contingent deferred sales
charge ("CDSC") which may be imposed on redemptions made within six years of
purchase with respect to Tax-Free Funds and Insured Funds and three years of
purchase with respect to Tax-Free Intermediate Funds. Class B Shares are subject
to annual 12b-1 Plan expenses of 1%, which are assessed for approximately eight
years after purchase against Class B Shares of Tax-Free Funds and Insured Funds
and approximately five years after purchase against Class B Shares of Tax-Free
Intermediate Funds. See Automatic Conversion of Class B Shares under Classes of
Shares in the Prospectus. Class C Shares of each Fund are subject to a CDSC
which may be imposed on redemptions made within 12 months of purchase and annual
12b-1 Plan expenses of 1%, which are assessed against Class C Shares for the
life of the investment.
This Part B supplements the information contained in the current Prospectus
for the Funds dated ^ December 29, 1998, as it may be amended from time to time.
Part B should be read in conjunction with the Funds' Prospectus. Part B is not
itself a prospectus but is, in its entirety, incorporated by reference into the
Prospectus. The Prospectus for the Funds may be obtained by writing or calling
your investment dealer or by contacting the Funds' national distributor,
Delaware Distributors, L.P. (the "Distributor"), 1818 Market Street,
Philadelphia, PA 19103.
All references to "shares" in this Part B refer to each Class of shares of
the Funds, except where noted.
-2-
<PAGE>
INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions
The Funds have adopted certain investment restrictions set forth below
which, together with the investment objectives of each Fund and other policies
which are specifically identified as fundamental in the Prospectus or herein,
cannot be changed without approval by holders of a majority of the outstanding
voting shares of a Fund. As defined in the Investment Company Act of 1940 (the
"1940 Act"), this means the lesser of the vote of (1) 67% of the shares of a
Fund at a meeting where more than 50% of the outstanding shares of a Fund are
present in person or by proxy, or (2) more than 50% of the outstanding shares of
a Fund.
The following fundamental investment restrictions apply to Tax-Free
California Insured Fund, Tax-Free Florida Fund, Tax-Free Florida Insured Fund,
Tax-Free Kansas Fund, Tax-Free Missouri Fund, Tax-Free New Mexico Fund,
Tax-Free Oregon Insured Fund, Tax-Free Utah Fund and Tax-Free Washington
Insured Fund. Such Funds may not:
(1) Make investments that will result in the concentration (as that term
is defined in the 1940 Act, any rule or order thereunder, or 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 a Fund from investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in tax-exempt securities or
certificates of deposits.
(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 scurities of other issuers, except that a 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 investments and provided that this restriction
does not prevent a 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 a 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 a 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.
The following investment restrictions are fundamental to Tax-Free
Arizona Insured Fund, Tax-Free Colorado Fund, Minnesota Insured Fund, Tax-Free
Minnesota Intermediate Fund, Tax-Free Minnesota Fund and Tax-Free North Dakota
Fund, and are non-fundamental to Tax-Free California Insured Fund, Tax-Free
Florida Fund, Tax-Free Florida Insured Fund, Tax-Free Kansas Fund, Tax-Free
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Missouri Fund, Tax-Free New Mexico Fund, Tax-Free Oregon Insured Fund, Tax-Free
Utah Fund and Tax-Free Washington Insured Fund. No such Fund will:
(1) Borrow money, except from banks for temporary or emergency purposes
in an amount not exceeding 20% (10% for Tax-Free Colorado Fund) of the value of
such Fund's total assets, including the amount borrowed. The Funds may not
borrow for leverage purposes, and securities will not be purchased while
borrowings are outstanding. Interest paid on any money borrowed will reduce such
Fund's net income.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of its total assets (taken at the lower of cost or current value)
and then only to secure borrowings permitted by restriction (1) above.
(3) Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities.
(4) Make short sales of securities or maintain a short position for the
account of such 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.
(5) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.
(6) Purchase or sell real estate, although it may purchase securities
which are secured by or represent interests in real estate.
(7) Purchase or sell commodities or commodity contracts (including
futures contracts).
(8) Make loans, except by purchase of debt obligations in which such
Fund may invest consistent with its investment policies, and through repurchase
agreements.
(9) Invest in securities of any issuer if, to the knowledge of such
Fund, officers and directors or trustees of such Fund or officers and directors
or trustees of such Fund's investment adviser who beneficially own more than 1/2
of 1% of the securities of that issuer together own more than 5% of such
securities.
(10) Invest 25% or more of its assets in the securities of issuers in
any single industry, except that the Funds may invest without limitation, in
circumstances in which other appropriate available investments may be in limited
supply, in housing, health care and utility obligations; provided that there
shall be no limitation on the purchase of Tax Exempt Obligations and, for
defensive purposes, obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities. (Note: For purposes of this investment
restriction, the Funds' investment adviser (the "Manager") interprets "Tax
Exempt Obligations" to exclude limited obligation bonds payable only from
revenues derived from facilities or projects within a single industry.)
(11) Invest more than 15% of its net assets in illiquid investments.
The following fundamental investment restrictions apply to Tax-Free Iowa
Fund and Tax-Free Wisconsin Fund. These Funds will not:
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(1) Borrow money, except from banks for temporary or emergency purposes
in an amount not exceeding 20% of the value of such Fund's total assets,
including the amount borrowed. The Funds may not borrow for leverage purposes,
and securities will not be purchased while borrowings are outstanding. Interest
paid on any money borrowed will reduce such Fund's net income.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it 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 such
Fund may invest consistent with its investment policies, and through repurchase
agreements.
(5) Invest 25% or more of its assets in the securities of issuers in any
single industry, except that it may invest without limitation, in circumstances
in which other appropriate available investments may be in limited supply, in
housing, health care and/or utility obligations; provided that there shall be no
limitation on the purchase of Tax Exempt Obligations and, for defensive
purposes, obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities. (Note: For purposes of this investment restriction, the
Manager interprets "Tax Exempt Obligations" to exclude limited obligation bonds
payable only from revenues derived from facilities or projects within a single
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 purchasing or selling on a when-issued or forward commitment basis may be
deemed to constitute issuing a senior security.
(7) Purchase or sell commodities or commodity contracts (including
futures contracts). This restriction shall not restrict such 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) Make short sales of securities or maintain a short position for the
account of such 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.
The following restrictions are fundamental to Tax-Free Arizona
Intermediate Fund, Tax-Free Arizona Fund, Tax-Free California Intermediate Fund,
Tax-Free California Fund, Tax-Free Colorado Intermediate Fund, Tax-Free Colorado
Insured Fund, Tax-Free Idaho Fund, Minnesota High Yield Municipal Bond Fund
("Minnesota High Yield Fund") and Tax-Free New York Fund, and are
non-fundamental to Tax-Free Florida Fund. No such Fund will:
(1) Borrow money (provided that such Fund may enter into reverse
repurchase agreements and, with respect to Minnesota High Yield Fund only,
repurchase agreements may not exceed 10% of its total assets), except from banks
for temporary or emergency purposes in an amount not exceeding 20% of the value
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of such Fund's total assets, including the amount borrowed. The Funds may not
borrow for leverage purposes, provided that such Funds may enter into reverse
repurchase agreements for such purposes, and securities will not be purchased
while outstanding borrowings exceed 5% of the value of such Fund's total assets.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of portfolio investments, such 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 such
Fund may invest consistent with its investment policies, and through repurchase
agreements.
(5) Except with respect to Minnesota High Yield Fund, invest 25% or
more of its assets in the securities of issuers in any single industry (except
that it may invest without limitation, in circumstances in which other
appropriate available investments may be in limited supply, in housing, health
care, utility, transportation, education and/or industrial obligations);
provided that there shall be no limitation on the purchase of Tax Exempt
Obligations and, for defensive purposes, obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities. (Note: For purposes of this
investment restriction, the Manager interprets "Tax Exempt Obligations" to
exclude limited obligation bonds payable only from revenues derived from
facilities or projects within a single industry.) Minnesota 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.
(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 such Fund
from purchasing or selling, on a basis consistent with any restrictions
contained in its then-current prospectus, any financial contracts or instruments
which may be deemed commodities (including, by way of example and not by way of
limitation, options, futures, and options on futures with respect, in each case,
to interest rates, currencies, stock indices, bond indices or interest rate
indices).
The following non-fundamental investment restrictions may be changed by
the Board of each Fund at any time. None of the Funds will:
(1) Invest more than 5% of its total assets in securities of any single
investment company, nor more than 10% of its total assets in securities of two
or more investment companies, except as part of a merger, consolidation or
acquisition of assets.
(2) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
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(3) With respect to Tax-Free Arizona Intermediate Fund, Tax-Free Arizona
Fund, Tax-Free California Intermediate Fund, Tax-Free California Fund, Tax-Free
Colorado Intermediate Fund, Tax-Free Colorado Insured Fund, Tax-Free Florida
Fund, Tax-Free Idaho Fund, Minnesota High Yield Fund and Tax-Free New York Fund,
make short sales of securities or maintain a short position for the account of
such 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.
(4) With respect to Minnesota High Yield Fund, write puts if, as a
result, more than 50% of such Fund's assets would be required to be segregated
to cover such puts.
Except for Minnesota High Yield 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.
Tax Exempt Obligations
The term "Tax Exempt Obligations" refers to debt obligations issued by
or on behalf of a state or territory or its agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income taxation (except, in certain instances, the alternative minimum
tax, depending upon the shareholder's tax status) and with respect to the Funds,
other than the three national funds, personal income tax of the state specified
in a Fund's name, if any. Tax-Exempt Obligations are generally issued to obtain
funds for various public purposes, including the construction or improvement of
a wide range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Tax Exempt Obligations may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses and lending such funds to other public institutions and facilities. In
addition, Tax Exempt Obligations may be issued by or on behalf of public bodies
to obtain funds to provide for the construction, equipping, repair or
improvement of housing facilities, convention or trade show facilities, airport,
mass transit, industrial, port or parking facilities and certain local
facilities for water supply, gas, electricity, sewage or solid waste disposal.
Securities in which the Funds may invest, including Tax Exempt
Obligations, are subject to the provisions of bankruptcy, insolvency,
reorganization and other laws affecting the rights and remedies of creditors,
such as the federal Bankruptcy Code, and laws, if any, which may be enacted by
the United States Congress or a state's legislature extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations within constitutional limitations. There is also
the possibility that, as a result of litigation or other conditions, the power
or ability of issuers to meet their obligations for the payment of interest on
and principal of their Tax Exempt Obligations may be materially affected.
From time to time, legislation has been introduced in the United States
Congress for the purpose of restricting the availability of or eliminating the
federal income tax exemption for interest on Tax Exempt Obligations, some of
which have been enacted. Additional proposals may be introduced in the future
which, if enacted, could affect the availability of Tax Exempt Obligations for
investment by the Funds and the value of each Fund's portfolio. In such event,
management of the Funds may discontinue the issuance of shares to new
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investors and may reevaluate each Fund's investment objective and policies and
submit possible changes in the structure of each Fund for shareholder approval.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P"), or Fitch IBCA, Inc.
(formerly Fitch Investors Service, L.P.) ("Fitch") for Tax Exempt Obligations
may change as a result of changes in such organizations or their rating systems,
the Funds will attempt to use comparable ratings as standards for their
investments in accordance with the investment policies contained in the Funds'
Prospectus and this Part B. The ratings of Moody's, S&P and Fitch represent
their opinions as to the quality of the Tax Exempt Obligations which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
provide an initial criterion for selection of portfolio investments, the Manager
will subject these securities to other evaluative criteria prior to investing in
such securities.
Floating and Variable Rate Demand Notes
Variable rate master demand notes, in which the Funds may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by
credit rating agencies, issuers of variable amount master demand notes (which
are normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the period of time remaining
until the principal amount can be recovered from the issuer through demand.
A variable rate note is one whose terms provide for the adjustment of
its interest rate on set dates and which, upon such adjustment, can reasonably
be expected to have a market value that approximates its par value. A floating
rate note is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by a Fund will be determined by the
Funds' Manager under guidelines established by the Funds' Board of
Directors/Trustees to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under a Fund's investment policies. In making
such determinations, the Manager will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, such Fund may re-sell the note at any time to a third
party. The absence of such an active secondary market, however, could make it
difficult for a Fund to dispose of the variable or floating rate note involved
in the event the issuer of the note defaulted on its payment obligations, and a
Fund could, for this or other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit.
With respect to Minnesota High Yield Fund, variable and floating rate
notes for which no readily available market exists will be purchased in an
amount which, together with securities with legal or contractual restrictions on
resale or for which no readily available market exists (including repurchase
agreements providing for settlement more than seven days after notice), exceed
10% of such Fund's total
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assets only if such notes are subject to a demand feature that will permit that
Fund to demand payment of the Principal within seven days after demand by such
Fund. If not rated, such instruments must be found by Minnesota High Yield
Fund's Manager under guidelines established by such Fund's Board of Directors,
to be of comparable quality to instruments that are rated high quality. A rating
may be relied upon only if it is provided by a nationally recognized statistical
rating organization that is not affiliated with the issuer or guarantor of the
instruments.
Escrow Secured Bonds or Defeased Bonds
Escrow secured bonds or defeased bonds are created when an issuer
refunds in advance of maturity (or pre-refunds) some of its outstanding bonds
and it becomes necessary or desirable to set aside funds for redemption or
payment of the bonds at a future date or dates. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by an escrow agent to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive a
triple A rating from S&P, Moody's and Fitch. The Tax-Free Insured Funds will
purchase escrow secured bonds without additional insurance only where the escrow
is invested in securities of the U.S. government or agencies or
instrumentalities of the U.S. government.
State or Municipal Lease Obligations
Municipal leases may take the form of a lease with an option to
purchase, an installment purchase contract, a conditional sales contract or a
participation certificate in any of the foregoing. In determining leases in
which the Funds will invest, the Manager will evaluate the credit rating of the
lessee and the terms of the lease. Additionally, the Manager may require that
certain municipal leases be secured by a letter of credit or put arrangement
with an independent financial institution. State or municipal lease obligations
frequently have the special risks described below which are not associated with
general obligation or revenue bonds issued by public bodies.
The statutes of many states contain requirements with which such
states and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits, interest rate
limits and public sale requirements. Leases have evolved as a means for public
bodies to acquire property and equipment without needing to comply with all of
the statutory requirements for the issuance of debt. The debt-issuance
limitations may be inapplicable for one or more of the following reasons: (1)
the inclusion in many leases or contracts of "nonappropriation" clauses that
provide that the public body has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis (the
"nonappropriation" clause); (2) the exclusion of a lease or conditional sales
contract from the definition of indebtedness under relevant state law; or (3)
the lease provides for termination at the option of the public body at the end
of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If the lease is terminated by the public body for nonappropriation or
another reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to repossession
of the leased property without any recourse to the general credit of the public
body. The disposition of the leased property by the lessor in the event of
termination of the lease might, in many cases, prove difficult or result in
loss.
Concentration Policy
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As set forth in the Funds' Prospectus, except with respect to Minnesota
High Yield Fund, although each Fund may invest 25% or more of its total assets
in limited obligation bonds, no Fund will invest 25% or more of its total assets
in limited obligation bonds payable only from revenues derived from facilities
or projects within a single industry, except that the Funds may invest without
limitation, in circumstances in which other appropriate available investments
may be in limited supply, in housing, health care and/or utility obligations.
Tax-Free Arizona Intermediate Fund, Tax-Free Arizona Fund, Tax-Free California
Intermediate Fund, Tax-Free California Fund, Tax-Free Colorado Intermediate
Fund, Tax-Free Colorado Insured Fund, Tax-Free Florida Fund, Tax-Free Idaho
Fund and Tax-Free New York Fund also may, under such circumstances, invest in
transportation, education and/or industrial obligations. Minnesota High Yield
Fund has a fundamental policy that restricts it from investing 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. Minnesota High Yield Fund may invest 25%
or more of its total assets in industrial development revenue bonds. In
addition, it is possible that such 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.
Appropriate available investments may be in limited supply, from time to
time in the opinion of the Manager, due to, among other things, each Fund's
investment policy of investing primarily in obligations of its state (and the
state's municipalities, other political subdivisions and public authorities) and
of investing primarily in investment grade (high grade, with respect to the
Tax-Free Insured Funds) securities. Additionally, the insurance policies of the
Tax-Free Insured Funds may affect the appropriate available investment supply
from time to time in the opinion of the Manager. Certain of the risks set forth
below may be reduced or eliminated to the extent a Fund invests in insured Tax
Exempt Obligations.
Housing Obligations. Each Fund may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Economic and
political developments, including fluctuations in interest rates, increasing
construction and operating costs and reductions in federal housing subsidy
programs, may adversely impact on revenues of housing authorities. Furthermore,
adverse economic conditions may result in an increasing rate of default of
mortgagors on the underlying mortgage loans. In the case of some housing
authorities, inability to obtain additional financing also could reduce revenues
available to pay existing obligations. Single-family mortgage revenue bonds are
subject to extraordinary mandatory redemption at par at any time in whole or in
part from the proceeds derived from prepayments of underlying mortgage loans and
also from the unused proceeds of the issue within a stated period which may be
within a year from the date of issue.
Health Care Obligations. Each 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,
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government regulations and licensing requirements and future economic and other
conditions, including any future health care reform.
Utility Obligations. Each 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. Certain Funds may invest, from time to time,
25% or more of their 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. Certain Funds may invest, from time to time, 25%
or more of their 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. Certain Funds may invest, from time to
time, 25% or more of their total assets in obligations issued by public bodies,
including state and municipal authorities, to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the bonds to the extent that funds are available from the
unexpended proceeds of the bonds or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments of
the issuer are designed to be sufficient to meet the payments of amounts due on
the bonds. Regardless of the structure, payment of bonds is solely dependent
upon the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or deterioration resulting from leveraged buy-outs or takeovers. The
bonds may be subject to special or extraordinary redemption provisions which may
provide for redemption at par or accredited value, plus, if applicable, a
premium.
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Other Risks. The exclusion from gross income for purposes of federal
income taxes and the personal income taxes of certain states for certain
housing, health care, utility, transportation, education and industrial revenue
bonds depends on compliance with relevant provisions of the Internal Revenue
Code of 1986, as amended (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 Funds to sell the bonds at the reduced value.
Furthermore, such a failure to meet these ongoing requirements may not enable
the holder to accelerate payment of the bond or require the issuer to redeem the
bond.
Taxable Obligations
As set forth in the Prospectus, the Funds may invest to a limited
extent in obligations and instruments, the interest on which is includable in
gross income for purposes of federal and state income taxation.
Government Obligations
The Funds may invest in securities issued or guaranteed by the U. S.
government or its agencies or instrumentalities. These securities include a
variety of Treasury securities, which differ in their interest rates, maturities
and times of issuance. Treasury Bills generally have maturities of one year or
less; Treasury Notes generally have maturities of one to ten years; and Treasury
Bonds generally have maturities of greater than ten years. Some obligations
issued or guaranteed by U.S. government agencies and instrumentalities, such as
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; other obligations,
such as those of the Federal Home Loan Banks, are secured by the right of the
issuer to borrow from the Treasury; other obligations, such as those issued by ^
Fannie Mae, are supported by the discretionary authority of the U.S. government
to purchase certain obligations of the agency or instrumentality; and other
obligations, such as those issued by the Student Loan Marketing Association, are
supported only by the credit of the instrumentality itself. Although the U.S.
government provides financial support to such U.S. government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law. The Funds will invest in such securities only
when the Manager is satisfied that the credit risk with respect to the issuer is
minimal.
Repurchase Agreements
The Funds may invest in repurchase agreements. A repurchase agreement is
a short-term investment by which the purchaser acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Should an issuer of a repurchase agreement fail to repurchase the underlying
security, the loss to a Fund, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which the Manager, under the
guidelines of the Board of Directors/Trustees, determines to present minimal
credit risks and which are of high quality. In addition, each 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.
The Funds' custodian will hold the securities underlying any repurchase
agreement or such securities will be part of the Federal Reserve Book Entry
System. The market value of the collateral underlying the repurchase agreement
will be determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the obligor under the agreement will promptly
furnish additional collateral to the Funds' custodian (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
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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 funds in the Delaware Investments family jointly to invest cash balances.
The Funds may invest cash balances in a joint repurchase agreement in accordance
with the terms of the Order and subject generally to the conditions described
above.
Other Taxable Investments
The Funds also may invest in certificates of deposit, bankers'
acceptances and other time deposits. Certificates of deposit are certificates
representing the obligation of a bank to repay the Funds deposited (plus
interest thereon) at a time certain after the deposit. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
With respect to Colorado Fund, investments in time deposits generally are
limited to London branches of domestic banks that have total assets in excess of
one billion dollars.
Options and Futures Transactions
To the extent set forth in the Prospectus, each Fund may buy and sell
put and call options on the securities in which they may invest, and certain
Funds may enter into futures contracts and options on futures contracts with
respect to fixed-income securities or based on financial indices including any
index of securities in which a Fund may invest. Futures and options will be used
to facilitate allocation of a Fund's investments among asset classes, to
generate income or to hedge against changes in interest rates or declines in
securities prices or increases in prices of securities proposed to be purchased.
Different uses of futures and options have different risk and return
characteristics. Generally, selling futures contracts, purchasing put options
and writing (i.e. selling) call options are strategies designed to protect
against falling securities prices and can limit potential gains if prices rise.
Purchasing futures contracts, purchasing call options and writing put options
are strategies whose returns tend to rise and fall together with securities
prices and can causes losses if prices fall. If securities prices remain
unchanged over time option writing strategies tend to be profitable, while
option buying strategies tend to decline in value. The ability of Minnesota High
Yield Fund to engage in options is discussed separately, below.
Writing Options. The Funds may write (i.e. sell) covered put and call
options with respect to the securities in which they may invest. By writing a
call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call option, or purchased,
in the case of a put option; the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. By writing a put option, a
Fund becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised. With
respect to put options written by any Fund, there will have been a
predetermination that acquisition of the underlying security is in accordance
with the investment objective of such Fund.
"Covered options" means that so long as a Fund is obligated as the
writer of a call option, it will own the underlying securities subject to the
option (or comparable securities satisfying the cover requirements of securities
exchanges). A Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of a put option, it deposits
and maintains with its custodian cash, U.S. government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
exercise price of the option.
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Through the writing of call or put options, a Fund may obtain a greater
current return than would be realized on the underlying securities alone. A Fund
receives premiums from writing call or put options, which it retains whether or
not the options are exercised. By writing a call option, a Fund might lose the
potential for gain on the underlying security while the option is open, and by
writing a put option, a Fund might become obligated to purchase the underlying
security for more than its current market price upon exercise.
Purchasing Options. The Funds may purchase put options in order to
protect portfolio holdings in an underlying security against a decline in the
market value of such holdings. Such protection is provided during the life of
the put because a Fund may sell the underlying security at the put exercise
price, regardless of a decline in the underlying security's market price. Any
loss to a Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit a Fund realizes on the sale of the security
will be reduced by the premium paid for the put option less any amount for which
the put is sold.
A Fund may wish to protect certain portfolio securities against a
decline in market value at a time when no put options on those particular
securities are available for purchase. A Fund may therefore purchase a put
option on securities other than those it wishes to protect even though it does
not hold such other securities in its portfolio.
Each of the Funds may also purchase call options. During the life of the
call option, a Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
Minnesota High Yield Fund. Minnesota High Yield Fund may purchase call
options, write call options on a covered basis, write secured put options and
purchase put options on a covered basis only, and will not engage in option
writing strategies for speculative purposes. The Fund may invest in options that
are either listed on a national securities exchange (an "Exchange") or traded
over-the-counter. The Fund may write covered call options from time to time on
such portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. The Fund may
purchase call options to the extent that premiums paid by the Fund do not
aggregate more than 2% of the Fund's total assets. The Fund may liquidate such a
position by effecting a closing transaction. The Fund also may invest up to 2%
of its total assets in the purchase of put options. The Fund will, at all times
during which it holds a put option, own the security covered by such option. The
Fund may sell a put option which it previously purchased prior to the sale of
the underlying options. The Fund may sell a put option purchased on individual
securities and may enter into closing transactions.
Minnesota High Yield Fund may also write put options on a secured basis
which means that the Fund will maintain in a segregated account with its
custodian, cash or U.S. government securities in an amount not less than the
exercise price of the option at all times during the option period. The amount
of cash or U.S. government securities held in the segregated account will be
adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Manager wishes to purchase
the underlying security for the Fund's portfolio at a price lower than the
current market price of the
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security. In such event, the Fund would write a secured put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay. The Fund may effect closing transactions
with respect to put options it previously wrote.
The risks associated with Minnesota High Yield Fund's options
transactions are the same as those discussed above for Tax-Free Funds, Insured
Funds and Tax-Free Intermediate Funds.
Securities Index Option Trading. The Funds, other than Minnesota High
Yield Fund, may purchase and write put and call options on securities indexes.
Options on securities indexes are similar to options on securities except that,
rather than the right to take or make delivery of a security at a specified
price, an option on an index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. The writer of the option
is obligated to make delivery of this amount.
The effectiveness of purchasing or writing index options as a hedging
technique depends upon the extent to which price movements in a Fund's portfolio
correlate with price movements of the index selected. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular security, whether a Fund will realize a gain or loss from
the purchase or writing of options on an index depends upon movements in the
level of prices in the relevant underlying securities markets generally or, in
the case of certain indexes, in an industry market segment, rather than
movements in the price of a particular security. Accordingly, successful use by
a Fund of options on security indexes will be subject to the Manager's ability
to predict correctly movements in the direction of the stock market or interest
rates market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities. In the event the Manager is unsuccessful in predicting the movements
of an index, a Fund could be in a worse position than had no hedge been
attempted.
Because exercises of index options are settled in cash, a Fund cannot
determine the amount of its settlement obligations in advance and, with respect
to call writing, cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. When a Fund
writes an option on an index, that Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option, cash,
high-grade liquid debt securities or "qualified securities" with a market value
determined on a daily basis of not less than 100% of the current market value of
the option.
Options purchased and written by a Fund may be exchange traded or may be
options entered into by that Fund in negotiated transactions with investment
dealers and other financial institutions (over-the-counter or "OTC" options)
(such as commercial banks or savings and loan associations) deemed creditworthy
by the Manager. OTC options are illiquid and it may not be possible for a Fund
to dispose of options it has purchased or to terminate its obligations under an
option it has written at a time when the Manager believes it would be
advantageous to do so.
Futures Contracts and Options on Futures Contracts. Certain Funds may
enter into futures contracts and purchase and write options on these contracts,
including but not limited to interest rate and securities index contracts and
put and call options on these futures contracts. These contracts will be entered
into on domestic and foreign exchanges and boards of trade, subject to
applicable regulations of the Commodity Futures Trading Commission. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes.
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In connection with transactions in futures contracts and writing related
options, each Fund will be required to deposit as "initial margin" a specified
amount of cash or short-term, U.S. government securities. The initial margin
required for a futures contract is set by the exchange on which the contract is
traded. It is expected that the initial margin would be approximately 1-1/2% to
5% of a contract's face value. Thereafter, subsequent payments (referred to as
"variation margin") are made to and from the broker to reflect changes in the
value of the futures contract. No Fund will purchase or sell futures contracts
or related options if, as a result, the sum of the initial margin deposit on
that Fund's existing futures and related options positions and premiums paid for
options or futures contracts entered into for other than bona fide hedging
purposes would exceed 5% of such Fund's assets.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded, a
Fund will incur brokerage fees when it purchases or sells futures contracts.
Risks of Transactions in Futures Contracts and Options.
Hedging Risks in Futures Contracts Transactions. There are several risks
in using securities index or interest rate futures contracts as hedging devices.
One risk arises because the prices of futures contracts may not correlate
perfectly with movements in the underlying index or financial instrument due to
certain market distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements. Rather than making
additional variation margin payments, investors may close the contracts through
offsetting transactions which could distort the normal relationship between the
index or security and the futures market. Second, the margin requirements in the
futures market are lower than margin requirements in the securities market, and
as a result the futures market may attract more speculators than does the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Because of possible price distortion
in the futures market and because of imperfect correlation between movements in
indexes of securities and movements in the prices of futures contracts, even a
correct forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to index futures contracts, the risk of
imperfect correlation increases as the composition of a Fund's portfolio
diverges from the financial instruments included in the applicable index.
Successful use of futures contracts by a Fund is subject to the ability
of the Manager to predict correctly movements in the direction of interest rates
or the relevant underlying securities market. If a Fund has hedged against the
possibility of an increase in interest rates adversely affecting the value of
fixed-income securities held in its portfolio and interest rates decrease
instead, that Fund will lose part or all of the benefit of the increased value
of its security which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
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Although each Fund believes that the use of futures contracts and
options thereon will benefit it, if the Manager's judgment about the general
direction of securities prices or interest rates is incorrect, a 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 a 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, such 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, a 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.
Liquidity of Futures Contracts. A Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by that Fund. A Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to a Fund, and that
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. Although
the Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
Risk of Options. The use of options on financial instruments and indexes
and on interest rate and index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transactions costs). The writing
of a call option generates a premium, which may partially offset a decline in
the value of a Fund's portfolio assets. By writing a call option, such Fund
becomes obligated to sell an underlying instrument or a futures contract, which
may have a value higher than the exercise price. Conversely, the writing of a
put option generates a premium, but such Fund becomes obligated to purchase the
underlying instrument or futures contract, which may have a value lower than the
exercise price. Thus, the loss incurred by a Fund in writing options may exceed
the amount of the premium received.
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The effective use of options strategies is dependent, among other
things, on a Fund's ability to terminate options positions at a time when the
Manager deems it desirable to do so. Although a Fund will enter into an option
position only if the Manager believes that a liquid secondary market exists for
such option, there is no assurance that such Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Funds'
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
A Fund's purchase or sale of put or call options will be based upon
predictions as to anticipated interest rates or market trends by the Manager,
which could prove to be inaccurate. Even if the expectations of the Manager are
correct, there may be an imperfect correlation between the change in the value
of the options and of the Fund's portfolio securities.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of a
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option
will permit a 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 a 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 a 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.
A 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; a 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 a 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
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particular options with the result that a Fund would have to exercise the
options in order to realize any profit. If a 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 may
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.
Certain Funds may purchase put options to hedge against a decline in the
value of their portfolios. By using put options in this way, such Funds will
reduce any profit they might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.
Certain Funds may purchase call options to hedge against an increase in
price of securities that such Funds anticipate purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option may expire
worthless to that Fund.
As discussed above, options may be traded over-the-counter ("OTC
options"). In an over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. OTC options are illiquid
and it may not be possible for the Funds to dispose of options they have
purchased or terminate their obligations under an option they have written at a
time when the Manager believes it would be advantageous to do so. Accordingly,
OTC options are subject to each Fund's limitation that a maximum of 15% of its
net assets be invested in illiquid securities. In the event of the bankruptcy of
the writer of an OTC option, a Fund could experience a loss of all or part of
the value of the option. The Manager anticipates that options on Tax Exempt
Obligations will consist primarily of OTC options.
Illiquid Investments
Each Fund is permitted to invest up to 15% of the value of its net
assets in illiquid investments. For certain Funds, this policy is fundamental.
See Investment Restrictions above. An investment is generally deemed to be
"illiquid" if it cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the investment company is
valuing the investment. "Restricted securities" are securities which were
originally sold in private placements and which have not been registered under
the Securities Act of 1933 (the "1933 Act"). Such securities generally have been
considered illiquid by the staff of the Securities and Exchange Commission (the
"SEC"), since such securities may be resold only subject to statutory
restrictions and delays or if registered under the 1933 Act. However, the SEC
has acknowledged that a market exists for certain restricted securities (for
example, securities qualifying for resale to certain "qualified institutional
buyers" pursuant to Rule 144A under the 1933 Act, certain forms of interest-only
and principal-only, mortgaged-backed U.S. government securities and commercial
paper issued pursuant to the private placement exemption of Section 4(2) of the
1933 Act). As a fundamental policy (nonfundamental with
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respect to Minnesota High Yield Fund), the Funds may invest without limitation
in these forms of restricted securities if such securities are deemed by the
Manager to be liquid in accordance with standards established by the Funds'
Board of Directors or Trustees. Minnesota High Yield Fund, however, is subject
to a 10% limit with respect to certain restricted floating or variable rate
demand notes. Under these guidelines, the Manager must consider, among other
things, (a) the frequency of trades and quotes for the security, (b) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (c) dealer undertakings to make a market in the security,
and (d) the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer.)
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed such Fund's 15% limit on investment in such
securities, the Manager will determine what action to take to ensure that such
Fund continues to adhere to such limitation.
At the present time, it is not possible to predict with accuracy how the
markets for certain restricted securities will develop. Investing in restricted
securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified purchasers of the securities become, for a time,
uninterested in purchasing these securities.
As more fully described in the Funds' Prospectus, the Funds are
permitted to invest in municipal leases. Traditionally, municipal leases have
been viewed by the SEC staff as illiquid investments. However, subject to Board
standards similar to the standards applicable to restricted securities (as
discussed above), the Manager may treat certain municipal leases as liquid
investments and not subject to the policy limiting illiquid investments.
Diversification
Each Fund designated as such on the cover of the Prospectus operates as
a "diversified" management investment company, as defined in the 1940 Act, which
means that at least 75% of its total assets must be represented by cash and cash
items (including receivables), government securities, securities of other
investment companies and other securities for the purposes of this calculation
limited in respect of any one issuer to an amount not greater in value than 5%
of the value of total assets of such Fund and to not more than 10% of the
outstanding voting securities of such issuer. The other Funds are
"non-diversified," as defined in the 1940 Act. See the Prospectus regarding
certain considerations relating to "non-diversified" status.
In order to qualify as a regulated investment company, each Fund must
limit its investments so that, at the close of each quarter of the taxable year,
with respect to at least 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer. In addition, the
Code requires that not more than 25% in value of each Fund's total assets may be
invested in the securities of a single issuer at the close of each quarter of
the taxable year. Each Fund intends to conduct its operations so that it will
comply with diversification requirements and qualify under the Code as a
"regulated investment company."
For purposes of diversification (both under the 1940 Act and the Code),
the identification of the issuer of Tax Exempt 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
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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 one of the
Funds exceeds 10% of the value of such 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 a Fund's compliance with the 1940 Act diversification
requirements.
Insurance
The Manager anticipates that substantially all of the insured Tax-Exempt
Obligations in each Insured Fund's investment portfolio will be covered by
either Primary Insurance or Secondary Market Insurance. However, as a
non-fundamental policy, the Insured Funds must obtain Portfolio Insurance on all
Tax-Exempt Obligations requiring insurance that are not covered by either
Primary Insurance or Secondary Market Insurance. Both Primary Insurance and
Secondary Market Insurance are non-cancelable and continue in force so long as
the insured security is outstanding and the respective insurer remains in
business. Premiums for Portfolio Insurance, if any, would be paid from Fund
assets and would reduce the current yield on its investment portfolio by the
amount of such premiums.
Because Portfolio Insurance coverage terminates upon the sale of an
insured security from a Fund's portfolio, such insurance does not have an effect
on the resale value of the security. Therefore, unless a Fund elects to purchase
Secondary Market Insurance with respect to such securities or such securities
are already covered by Primary Insurance, it generally will retain any such
securities insured by Portfolio Insurance which are in default or in significant
risk of default, and will place a value on the insurance equal to the difference
between the market value of the defaulted security and the market value of
similar securities which are not in default.
The Insured Funds are authorized to obtain Portfolio Insurance from
insurers that have obtained a claims-paying ability rating of "AAA" from S&P or
"Aaa" (or a short-term rating of "MIG-1") from Moody's, including AMBAC
Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ("FGIC") and Financial Security
Assurance, Inc. ("FSA").
A Moody's insurance claims-paying ability rating is an opinion of the
ability of an insurance company to repay punctually senior policyholder
obligations and claims. An insurer with an insurance claims-paying ability
rating of Aaa is adjudged by Moody's to be of the best quality. In the opinion
of Moody's, the policy obligations of an insurance company with an insurance
claims-paying ability rating of Aaa carry the smallest degree of credit risk
and, while the financial strength of these companies is likely to change, such
changes as can be visualized are most unlikely to impair the company's
fundamentally strong position. An S&P insurance claims-paying ability rating is
an assessment of an operating insurance company's financial capacity to meet
-21-
<PAGE>
obligations under an insurance policy in accordance with its terms. An insurer
with an insurance claims-paying ability rating of AAA has the highest rating
assigned by S&P. The capacity of an insurer so rated to honor insurance
contracts is adjudged by S&P to be extremely strong and highly likely to remain
so over a long period of time.
An insurance claims-paying ability rating by Moody's or S&P does not
constitute an opinion on any specific insurance contract in that such an opinion
can only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or cancellation penalties or the timeliness of
payment; nor does it address the ability of a company to meet non-policy
obligations (i.e., debt contracts).
The assignment of ratings by Moody's or S&P to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of insurance claims-paying ability
ratings. The likelihood of a timely flow of funds from the insurer to the
trustee for the bondholders is a likely element in the rating determination for
such debt issues.
Each of AMBAC, MBIA, FGIC, and FSA has a insurance claims-paying ability
rating of Aaa from Moody's and AAA from S&P.
AMBAC has received a letter ruling from the Internal Revenue Service
which holds in effect that insurance proceeds representing maturing interest on
defaulted municipal obligations paid by AMBAC to municipal bond funds
substantially similar to the Insured Tax-Free Funds, under policy provisions
substantially identical to those contained in its municipal bond insurance
policy, will excludable from federal gross income under Section 103(a) of the
Code.
As of August 31, 1998, the total admitted assets of AMBAC were
approximately $0.0 billion with statutory capital of approximately $0.0
billion. Statutory capital consists of the AMBAC's statutory contingency reserve
and policyholders' surplus.
As of August 31, 1998, the total admitted assets (unaudited) of MBIA
were approximately $0.0 billion with statutory capital of approximately $0
billion.
As of August 31, 1998, the total admitted assets (unaudited) of FGIC
were approximately $0.0 billion total capital and surplus (unaudited)
approximately $0.0 billion.
As of August 31, 1998, admitted assets of FSA were approximately
$0.0 billion with statutory capital of approximately $000 million.
None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has any
material business relationship, direct or indirect, with the Funds.
AMBAC, MBIA, FGIC and FSA are subject to regulation by the department of
insurance in each state in which they are qualified to do business. Such
regulation however, is not a guarantee that any of AMBAC, MBIA, FGIC and FSA
will be able to perform on its contractual insurance in the event a claim should
be made thereunder at some time in the future.
-22-
<PAGE>
The information relating to AMBAC, MBIA, FGIC and FSA set forth above,
including the financial information, has been furnished by such corporations or
has been obtained from publicly available sources. Financial information with
respect to AMBAC, MBIA, FGIC and FSA appears in reports filed by AMBAC, MBIA,
FGIC and FSA with insurance regulatory authorities and is subject to audit and
review by such authorities. No representation is made herein as to the accuracy
or adequacy of such information with respect to AMBAC, MBIA, FGIC and FSA or as
to the absence of material adverse changes in such information subsequent to the
date thereof.
-23-
<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 periods, as applicable. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC or other CDSC, applicable only to 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.
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 Class A Shares only, the maximum front-end
sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000 purchase at the
end of the period after the deduction of the applicable CDSC,
if any, with respect to Class B Shares and Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made and that all distributions are reinvested at net asset
value, and with respect to Class B Shares and Class C Shares, reflects the
deduction of the CDSC that would be applicable upon complete redemption of such
shares. In addition, each Fund may present total return information that does
not reflect the deduction of the maximum front-end sales charge or any
applicable CDSC.
-24-
<PAGE>
Each Fund may also state total return performance for its Classes in
the form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return. From time
to time, each Fund may quote actual total return performance for its Classes in
advertising and other types of literature compared to indices or averages of
alternative financial products available to prospective investors. For example,
the performance comparisons may include the average return of various bank
instruments, some of which may carry certain return guarantees offered by
leading banks and thrifts as monitored by Bank Rate Monitor, and those of
generally-accepted corporate bond and government security price indices of
various durations prepared by Lehman Brothers and Salomon Brothers, Inc. These
indices are not managed for any investment goal.
The performance, as shown below, is the average annual total return
quotations of each Class of each Fund through August 31, 1998, computed as
described above. The average annual total return for Class A Shares at offer
reflects the maximum front-end sales charge of 3.75% with respect to Tax-Free
Funds and Insured Funds and 2.75% with respect to Tax-Free Intermediate Funds
paid on the purchase of shares. The average annual total return for Class A
Shares at net asset value (NAV) does not reflect the payment of any front-end
sales charge. The average annual return for Class B Shares and Class C Shares
including deferred sales charge reflects the deduction of the applicable CDSC
that would be paid if the shares were redeemed at August 31, 1998. The
average annual total return for Class B Shares and Class C Shares excluding
deferred sales charge assumes the shares were not redeemed at August 31,
1998 and therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
-25-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Arizona Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 5.39% 9.46% 8/31/98 4.66% 8.66% 8/31/98 7.73% 8.73%
3 years 3 years 3 years
ended ended ended
8/31/98 7.97% 9.36% 8/31/98 7.74% 8.59% 8/31/98 8.60% 8.60%
Period Period Period
3/2/95(1) 6/29/95(1) 5/13/95(1)
through through through
8/31/98 8.46% 9.65% 8/31/98 7.53% 8.33% 8/31/98 8.47% 8.47%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Arizona Insured Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 3.82% 7.89% 8/31/98 3.09% 7.09% 8/31/98 6.18% 7.18%
3 years 3 years 3 years
ended ended ended
8/31/98 6.01% 7.37% 8/31/98 5.69% 6.58% 8/31/98 6.51% 6.51%
Period Period
5 years 3/10/95(1) 5/26/94(1)
ended through through
8/31/98 4.90% 5.69% 8/31/98 6.49% 7.22% 8/31/98 6.79% 6.79%
Period
4/1/91(1)
through
8/31/98 7.42% 7.98%
</TABLE>
- ----------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; (iv) 1% if shares are redeemed during the
sixth year following purchase; and (v) 0% thereafter. The above figures
have been calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through
April 30, 1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-26-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free California Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 6.43% 10.60% 8/31/98 5.74% 9.74% 8/31/98 8.77% 9.77%
Period
3 years 3 years 4/9/96(1)
ended ended through
8/31/98 8.50% 9.88% 8/31/98 8.52% 9.37% 8/31/98 10.02% 10.02%
Period Period
3/2/95(1) 8/23/95(1)
through through
8/31/98 8.41% 9.60% 8/31/98 9.08% 9.91%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free California Insured Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.77% 8.88% 8/31/98 4.07% 8.07% 8/31/98 7.11% 8.11%
3 years 3 years 3 years
ended ended ended
8/31/98 6.85% 8.24% 8/31/98 6.81% 7.68% 8/31/98 7.31% 7.31%
Period Period
5 years 3/1/94(1) 4/12/95(1)
ended through through
8/31/98 4.82% 5.62% 8/31/98 5.34% 5.71% 8/31/98 6.87% 6.87%
Period
10/15/92(1)
through
8/31/98 6.70% 7.40%
</TABLE>
- ------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; (iv) 1% if shares are redeemed during the
sixth year following purchase; and (v) 0% thereafter. The above figures
have been calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through
April 30, 1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-27-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Colorado Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 5.65% 9.77% 8/31/98 4.95% 8.95% 8/31/98 8.05% 9.05%
3 years 3 years 3 years
ended ended ended
8/31/98 7.28% 8.67% 8/31/98 6.94% 7.81% 8/31/98 7.76% 7.76%
Period Period
5 years 3/22/95(1) 5/6/94(1)
ended through through
8/31/98 5.58% 6.39% 8/31/98 7.26% 7.99% 8/31/98 7.44% 7.44%
10 years
ended
8/31/98 8.09% 8.50%
Period
4/23/87(1)
through
8/31/98 8.01% 8.37%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Florida Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 6.15% 10.31% 8/31/98 5.48% 9.48% 8/31/98 8.58% 9.58%
Period
3 years 9/15/95(1) 3 years
ended through ended
8/31/98 7.77% 9.17% 8/31/98 7.22% 8.10% 8/31/98 8.38% 8.38%
Period Period
3/2/95(1) 4/22/95(1)
through through
8/31/98 8.10% 9.29% 8/31/98 8.02% 8.02%
</TABLE>
- -----------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-28-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- --------------------------------------------------------------------------------
Tax-Free Florida Insured Fund(3)
Class B Class B
Class A Class A Shares Shares
Shares Shares (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC)
---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 year 1 year
ended ended
8/31/98 4.85% 8.97% 8/31/98 4.17% 8.17%
3 years 3 years
ended ended
8/31/98 6.82% 8.20% 8/31/98 6.69% 7.56%
Period
5 years 3/11/94(1)
ended through
8/31/98 5.12% 5.92% 8/31/98 5.91% 6.28%
Period
1/1/92(1)
through
8/31/98 7.16% 7.77%
</TABLE>
- ------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
-29-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Idaho Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.97% 9.02% 8/31/98 4.23% 8.23% 8/31/98 7.32% 8.32%
3 years 3 years 3 years
ended ended ended
8/31/98 6.92% 8.30% 8/31/98 6.81% 7.68% 8/31/98 7.46% 7.46%
Period Period Period
1/4/95(1) 3/16/95(1) 1/11/95(1)
through through through
8/31/98 8.72% 9.86% 8/31/98 7.11% 7.83% 8/31/98 8.86% 8.86%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Iowa Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.14% 8.18% 8/31/98 3.37% 7.37% 8/31/98 6.37% 7.37%
3 years 3 years 3 years
ended ended ended
8/31/98 6.32% 7.67% 8/31/98 6.01% 6.89% 8/31/98 6.81% 6.81%
Period Period Period
9/1/93(1) 3/24/95(1) 1/4/95(1)
through through through
8/31/98 4.46% 5.26% 8/31/98 6.35% 7.10% 8/31/98 8.91% 8.91%
</TABLE>
- ------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-30-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Kansas Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 5.05% 9.17% 8/31/98 4.34% 8.34% 8/31/98 7.36% 8.36%
3 years 3 years 3 years
ended ended ended
8/31/98 6.55% 7.91% 8/31/98 6.26% 7.14% 8/31/98 7.02% 7.02%
Period Period
5 Years 4/8/95(1) 4/12/95(1)
ended through through
8/31/98 5.39% 6.20% 8/31/98 6.40% 7.15% 8/31/98 6.98% 6.98%
Period
11/30/92(1)
through
8/31/98 6.74% 7.45%
</TABLE>
- ----------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-31-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Minnesota Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.69% 8.76% 8/31/98 3.95% 7.95% 8/31/98 7.03% 8.03%
3 years 3 years 3 years
ended ended ended
8/31/98 6.44% 7.80% 8/31/98 6.25% 7.13% 8/31/98 7.05% 7.05%
Period Period
5 years 3/11/95(1) 5/4/94(1)
ended through through
8/31/98 5.16% 5.97% 8/31/98 6.64% 7.37% 8/31/98 6.69% 6.69%
10 years
ended
8/31/98 7.33% 7.74%
Period
2/27/84(1)
through
8/31/98 8.68% 8.97%
</TABLE>
- --------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-32-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Minnesota Insured Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.06% 8.13% 8/31/98 3.33% 7.33% 8/31/98 6.23% 7.23%
3 years 3 years 3 years
ended ended ended
8/31/98 5.90% 7.25% 8/31/98 5.64% 6.53% 8/31/98 6.44% 6.44%
Period Period
5 years 3/7/95(1) 5/4/94(1)
ended through through
8/31/98 4.82% 5.62% 8/31/98 6.18% 6.91% 8/31/98 6.24% 6.24%
10 years
ended
8/31/98 7.32% 7.73%
Period
5/1/87(1)
through
8/31/98 7.21% 7.57%
</TABLE>
- -------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-33-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Minnesota Intermediate Fund(4)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(3) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 3.12% 6.01% 8/31/98 3.30% 5.30% 8/31/98 4.21% 5.21%
3 years 3 years 3 years
ended ended ended
8/31/98 4.30% 5.27% 8/31/98 4.28% 4.58% 8/31/98 4.45% 4.45%
Period Period
5 years 8/15/95(1) 5/4/94(1)
ended through through
8/31/98 4.31% 4.89% 8/31/98 4.82% 4.82% 8/31/98 4.89% 4.89%
10 years
ended
8/31/98 5.74% 6.04%
Period
10/27/85(1)
through
8/31/98 5.93% 6.16%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Minnesota High Yield Fund(4)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(3) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 6.31% 10.42% 8/31/98 5.51% 9.51% 8/31/98 8.62% 9.62%
Period Period Period
6/4/96(1) 6/12/96 6/7/96
through through through
8/31/98 8.03% 9.89% 8/31/98 9.00% 10.21% 8/31/98 9.14% 9.14%
</TABLE>
- -------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
(4) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
-34-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Missouri Insured Fund(3)
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.07% 8.12% 8/31/98 3.32% 7.32% 8/31/98 6.41% 7.41%
Period
3 years 3 years 11/11/95(1)
ended ended through
8/31/98 6.26% 7.61% 8/31/98 6.05% 6.93% 8/31/98 5.86% 5.86%
Period
5 years 3/12/94(1)
ended through
8/31/98 5.00% 5.80% 8/31/98 5.47% 5.84%
Period
11/2/92(1)
through
8/31/98 6.26% 6.96%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free New Mexico Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.96% 9.05% 8/31/98 4.33% 8.33% 8/31/98 7.33% 8.33%
Period
3 years 3 years 5/7/96(1)
ended ended through
8/31/98 6.89% 8.26% 8/31/98 6.63% 7.50% 8/31/98 8.56% 8.56%
Period
5 years 3/3/94(1)
ended through
8/31/98 5.51% 6.31% 8/31/98 5.72% 6.09%
Period
10/5/92(1)
through
8/31/98 7.08% 7.78%
</TABLE>
- -------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-35-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free New York Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 3.16% 7.22% 8/31/98 2.45% 6.45% 8/31/98 5.35% 6.35%
3 years 3 years 3 years
ended ended ended
8/31/98 4.25% 5.57% 8/31/98 3.84% 4.74% 8/31/98 4.68% 4.68%
Period Period
5 years 11/14/94(1) 4/26/95(1)
ended through through
8/31/98 3.85% 4.64% 8/31/98 5.46% 6.14% 8/31/98 4.88% 4.88%
10 years
ended
8/31/98 6.84% 7.25%
Period
11/6/87(1)
through
8/31/98 7.03% 7.41%
</TABLE>
- ---------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-36-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free North Dakota Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.32% 8.37% 8/31/98 3.57% 7.57% 8/31/98 6.47% 7.47%
3 years 3 years 3 years
ended ended ended
8/31/98 6.41% 7.76% 8/31/98 6.28% 7.16% 8/31/98 6.79% 6.79%
Period Period
5 years 5/10/94(1) 7/29/95(1)
ended through through
8/31/98 5.22% 6.02% 8/31/98 7.21% 7.58% 8/31/98 7.00% 7.00%
Period
4/1/91(1)
through
8/31/98 7.36% 7.91%
</TABLE>
- ----------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-37-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Oregon Insured Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.71% 8.78% 8/31/98 3.97% 7.97% 8/31/98 6.96% 7.96%
3 years 3 years 3 years
ended ended ended
8/31/98 6.35% 7.73% 8/31/98 6.18% 7.06% 8/31/98 6.88% 6.88%
Period Period
5 years 3/12/94(1) 7/5/95(1)
ended through through
8/31/98 4.91% 5.72% 8/31/98 5.45% 5.82% 8/31/98 6.76% 6.76%
Period
8/1/93(1)
through
8/31/98 5.22% 6.02%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- --------------------------------------------------------------------------------
Tax-Free Utah Fund(3)
<S> <C> <C> <C> <C> <C>
Class B Class B
Class A Class A Shares Shares
Shares Shares (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC)
---------- -------- ---------- ----------
1 year 1 year
ended ended
8/31/98 4.95% 9.04% 8/31/98 4.23% 8.23%
3 years 3 years
ended ended
8/31/98 6.63% 7.99% 8/31/98 6.32% 7.19%
Period
5 years 5/27/95(1)
ended through
8/31/98 5.57% 6.38% 8/31/98 6.00% 6.80%
Period
10/5/92(1)
through
8/31/98 7.34% 8.03%
</TABLE>
- ------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-38-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Washington Insured Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 5.32% 9.44% 8/31/98 4.72% 8.72% 8/31/98 7.72% 8.72%
Period
3 years 10/24/95(1) 3 years
ended through ended
8/31/98 7.05% 8.43% 8/31/98 6.15% 7.08% 8/31/98 7.54% 7.54%
Period
5 years 4/21/95(1)
ended through
8/31/98 5.66% 6.47% 8/31/98 7.35% 7.35%
Period
8/1/93(1)
through
8/31/98 6.59% 7.39%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Wisconsin Fund(3)
Class B Class B Class C Class C
Class A Class A Shares Shares Shares Shares
Shares Shares (including (excluding (including (excluding
(at offer) (at NAV) CDSC)(2) CDSC) CDSC)(4) CDSC)
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1 year 1 year
ended ended ended
8/31/98 4.08% 8.13% 8/31/98 3.23% 7.23% 8/31/98 6.30% 7.30%
3 years 3 years 3 years
ended ended ended
8/31/98 5.91% 7.28% 8/31/98 5.66% 6.54% 8/31/98 6.51% 6.51%
Period Period Period
9/1/93(1) 4/22/95(1) 3/28/95(1)
through through through
8/31/98 4.43% 5.23% 8/31/98 5.61% 6.39% 8/31/98 6.51% 6.51%
</TABLE>
- ------------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-39-
<PAGE>
As stated in the Funds' Prospectus, each Fund may also quote its
respective Classes' current yield 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 payments);
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
The above formula will be used in calculating quotations of yield for
each Class, based on specified 30-day periods identified in advertising by the
Funds. Using this formula, the yields for the Funds for the 30-day period ended
August 31, 1998 were as follows:
30-Day Yield at ^ 8/31/98*
--------------------------
Tax-Free Arizona Insured Fund - Class A 3.71%
Tax-Free Arizona Insured Fund - Class B 3.11
Tax-Free Arizona Insured Fund - Class C 3.11
Tax-Free Arizona Fund - Class A 4.58
Tax-Free Arizona Fund - Class B 4.01
Tax-Free Arizona Fund - Class C 4.00
Tax-Free California Insured Fund - Class A 3.76
Tax-Free California Insured Fund - Class B 3.16
Tax-Free California Insured Fund - Class C 3.17
Tax-Free California Fund - Class A 4.67
Tax-Free California Fund - Class B 4.09
Tax-Free California Fund - Class C 4.11
Tax-Free Colorado Fund - Class A 4.09
Tax-Free Colorado Fund - Class B 3.50
Tax-Free Colorado Fund - Class C 3.50
- --------------
* Reflects fee waivers and payment of expenses in effect during the period.
Performance would have been lower without fee waivers and expense payments.
See Investment Management Agreements for information about voluntary fee
waivers and expense payments in effect through April 30, 1999.
-40-
<PAGE>
30-Day Yield at 8/31/98*
--------------------------
Tax-Free Florida Insured Fund - Class A 3.82%
Tax-Free Florida Insured Fund - Class B 3.22
Tax-Free Florida Fund - Class A 4.46
Tax-Free Florida Fund - Class B 3.89
Tax-Free Florida Fund - Class C 3.88
Tax-Free Idaho Fund - Class A 3.72
Tax-Free Idaho Fund - Class B 3.12
Tax-Free Idaho Fund - Class C 3.13
Tax-Free Iowa Fund - Class A 3.80
Tax-Free Iowa Fund - Class B 3.20
Tax-Free Iowa Fund - Class C 3.20
Tax-Free Kansas Fund - Class A 4.13
Tax-Free Kansas Fund - Class B 3.53
Tax-Free Kansas Fund - Class C 3.54
Tax-Free Minnesota Insured Fund - Class A 3.91
Tax-Free Minnesota Insured Fund - Class B 3.32
Tax-Free Minnesota Insured Fund - Class C 3.32
Tax-Free Minnesota Intermediate Fund - Class A 3.98
Tax-Free Minnesota Intermediate Fund - Class B 3.24
Tax-Free Minnesota Intermediate Fund - Class C 3.25
Tax-Free Minnesota Fund - Class A 4.16
Tax-Free Minnesota Fund - Class B 3.58
Tax-Free Minnesota Fund - Class C 3.57
Minnesota High Yield Fund - Class A 4.90
Minnesota High Yield Fund - Class B 4.35
Minnesota High Yield Fund - Class C 4.35
Tax-Free Missouri Insured Fund - Class A 3.81
Tax-Free Missouri Insured Fund - Class B 3.22
Tax-Free Missouri Insured Fund - Class C 3.21
Tax-Free New Mexico Fund - Class A 4.19
Tax-Free New Mexico Fund - Class B 3.60
Tax-Free New Mexico Fund - Class C 3.60
Tax-Free New York Fund - Class A 3.76
Tax-Free New York Fund - Class B 3.17
Tax-Free New York Fund - Class C 3.17
Tax-Free North Dakota Fund - Class A 3.87
Tax-Free North Dakota Fund - Class B 3.28
Tax-Free North Dakota Fund - Class C 3.29
- -----------
* Reflects fee waivers and payment of expenses in effect during the period.
Performance would have been lower without fee waivers and expense payments.
See Investment Management Agreements for information about voluntary fee
waivers and expense payments in effect through April 30, 1999.
-41-
<PAGE>
30-Day Yield at 8/31/98*
--------------------------
Tax-Free Oregon Insured Fund - Class A 3.73%
Tax-Free Oregon Insured Fund - Class B 3.13
Tax-Free Oregon Insured Fund - Class C 3.12
Tax-Free Utah Fund - Class A 4.02
Tax-Free Utah Fund - Class B 3.43
Tax-Free Washington Insured Fund - Class A 4.20
Tax-Free Washington Insured Fund - Class B 3.61
Tax-Free Washington Insured Fund - Class C 3.61
Tax-Free Wisconsin Fund - Class A 4.02
Tax-Free Wisconsin Fund - Class B 3.43
Tax-Free Wisconsin Fund - Class C 3.41
- --------------
* Reflects fee waivers and payment of expenses in effect during the period.
Performance would have been lower without fee waivers and expense payments.
See Investment Management Agreements for information about voluntary fee
waivers and expense payments in effect through April 30, 1999.
Yield calculations assume the maximum front-end sales charge, if any,
and do not reflect the deduction of any CDSC or Limited CDSC. Actual yield on
Class A Shares may be affected by variations in front-end sales charges on
investments. Past performance, such as is reflected in quoted yields, should not
be considered as a representation of the results which may be realized from an
investment in any Class of a Fund in the future.
The Funds may also publish a tax-equivalent yield for a Class based on
federal tax rates and, if applicable, state tax rates, which demonstrates the
taxable yield necessary to produce an after-tax yield equivalent to such Class'
yield. Taxable equivalent yield is computed by dividing that portion of a
Class' yield which is tax-exempt by one minus a stated marginal income tax rate
and adding the product to that portion, if any, of the yield of that Fund that
is not tax-exempt.
The taxable equivalent yields for the Funds for the 30-day period ended
August 31, ^ 1998 are set forth below. These taxable equivalent yields are
based on the Federal marginal income tax rates combined with state marginal
income tax rates indicated in the footnotes following this table. Each combined
marginal rate assumes a single taxpayer and that state income taxes paid are
fully deductible for purposes of computing federal taxable income. The combined
marginal rates do not reflect federal rules concerning the phase-out of personal
exemptions and limitations on the allowance of itemized deductions for certain
high-income taxpayers. In addition, the combined marginal rates do not reflect
any state personal property taxes, such as the Florida intangible tax, or any
local taxes that may apply. The highest state marginal tax rate was used for
each Federal taxable income bracket.
ARIZONA(1)*
----------------------------------
31.74% 34.59% 39.58% 42.98%
Tax-Free Arizona Insured Fund - Class A 5.44% 5.67% 6.14% 6.51%
Tax-Free Arizona Insured Fund - Class B 4.56 4.75 5.15 5.45
Tax-Free Arizona Insured Fund - Class C 4.56 4.75 5.15 5.45
Tax-Free Arizona Fund - Class A 6.71 7.00 7.58 8.03
Tax-Free Arizona Fund - Class B 5.87 6.13 6.64 7.03
Tax-Free Arizona Fund - Class C 5.86 6.12 6.62 7.02
-42-
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA(2)*
-----------------------------------------------
<S> <C> <C> <C> <C>
34.70% 37.42% 41.95% 45.22%
Tax-Free California Insured Fund - Class A 5.76% 6.01% 6.48% 6.86%
Tax-Free California Insured Fund - Class B 4.84 5.05 5.44 5.77
Tax-Free California Insured Fund - Class C 4.85 5.07 5.46 5.79
Tax-Free California Fund - Class A 7.15 7.46 8.04 8.53
Tax-Free California Fund - Class B 6.26 6.54 7.05 7.47
Tax-Free California Fund - Class C 6.29 6.57 7.08 7.50
COLORADO (3)*
-----------------------------------------------
31.60% 34.45% 39.20% 42.62%
Tax-Free Colorado Fund - Class A 5.98% 6.24% 6.73% 7.13%
Tax-Free Colorado Fund - Class B 5.12 5.34 5.76 6.10
Tax-Free Colorado Fund - Class C 5.12 5.34 5.76 6.10
FLORIDA*
-----------------------------------------------
28.00% 31.00% 36.00% 39.60%
Tax-Free Florida Insured Fund - Class A 5.31% 5.54% 5.97% 6.32%
Tax-Free Florida Insured Fund - Class B 4.47 4.67 5.03 5.33
Tax-Free Florida Fund - Class A 6.19 6.46 6.97 7.38
Tax-Free Florida Fund - Class B 5.40 5.64 6.08 6.44
Tax-Free Florida Fund - Class C 5.39 5.62 6.06 6.42
IDAHO(4)*
-----------------------------------------------
33.90% 36.66% 41.25% 44.55%
Tax-Free Idaho Fund - Class A 5.63% 5.87% 6.33% 6.71%
Tax-Free Idaho Fund - Class B 4.72 4.93 5.31 5.63
Tax-Free Idaho Fund - Class C 4.74 4.94 5.33 5.64
IOWA (5)*
-----------------------------------------------
33.32% 35.90% 40.24% 43.39%
Tax-Free Iowa Fund - Class A 5.70% 5.93% 6.36% 6.71%
Tax-Free Iowa Fund - Class B 4.80 4.99 5.35 5.65
Tax-Free Iowa Fund - Class C 4.80 4.99 5.35 5.65
KANSAS (6)*
-----------------------------------------------
33.58% 36.35% 40.96% 44.28%
Tax-Free Kansas Fund - Class A 6.22% 6.49% 7.00% 7.41%
Tax-Free Kansas Fund - Class B 5.31 5.55 5.98 6.34
Tax-Free Kansas Fund - Class C 5.33 5.56 6.00 6.35
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA (7)*
-----------------------------------------------
<S> <C> <C> <C> <C>
34.12% 36.87% 41.44% 44.73%
Minnesota Insured Fund - Class A 5.94% 6.19% 6.68% 7.07%
Minnesota Insured Fund - Class B 5.04 5.26 5.67 6.01
Minnesota Insured Fund - Class C 5.04 5.26 5.67 6.01
Tax-Free Minnesota Intermediate Fund - Class A 6.04 6.30 6.80 7.20
Tax-Free Minnesota Intermediate Fund - Class B 4.92 5.13 5.53 5.86
Tax-Free Minnesota Intermediate Fund - Class C 4.93 5.15 5.55 5.88
Tax-Free Minnesota Fund - Class A 6.31 6.59 7.10 7.53
Tax-Free Minnesota Fund - Class B 5.43 5.67 6.11 6.48
Tax-Free Minnesota Fund - Class C 5.42 5.65 6.10 6.46
Minnesota High Yield Fund - Class A 7.44 7.76 8.37 8.87
Minnesota High Yield Fund - Class B 6.60 6.89 7.43 7.87
Minnesota High Yield Fund - Class C 6.60 6.89 7.43 7.87
MISSOURI(8)*
-----------------------------------------------
31.16% 33.91% 38.51% 41.84%
Tax-Free Missouri Insured Fund - Class A ^ 5.53% 5.76% 6.20% 6.55%
Tax-Free Missouri Insured Fund - Class B ^ 4.68 4.87 5.24 5.54
Tax-Free Missouri Insured Fund - Class C ^ 4.66 4.86 5.22 5.52
NEW MEXICO(9)*
-----------------------------------------------
33.69% 36.87% 41.44% 44.73%
Tax-Free New Mexico Fund - Class A 6.32% 6.64% 7.16% 7.58%
Tax-Free New Mexico Fund - Class B 5.43 5.70 6.15 6.51
Tax-Free New Mexico Fund - Class C 5.43 5.70 6.15 6.51
NEW YORK(10)*
-----------------------------------------------
33.13% 35.92% 40.56% 43.90%
Tax-Free New York Fund - Class A 5.62% 5.87% 6.33% 6.70%
Tax-Free New York Fund - Class B 4.74 4.95 5.33 5.65
Tax-Free New York Fund - Class C 4.74 4.95 5.33 5.65
NORTH DAKOTA(11)*
-----------------------------------------------
30.72% 33.87% 39.07% 42.77%
Tax-Free North Dakota Fund - Class A 5.59% 5.85% 6.35% 6.76%
Tax-Free North Dakota Fund - Class B 4.73 4.96 5.38 5.73
Tax-Free North Dakota Fund - Class C 4.75 4.98 5.40 5.75
OREGON(12)*
-----------------------------------------------
34.48% 37.21% 41.76% 45.04%
Tax-Free Oregon Insured Fund - Class A 5.69% 5.94% 6.40% 6.79%
Tax-Free Oregon Insured Fund - Class B 4.78 4.98 5.37 5.70
Tax-Free Oregon Insured Fund - Class C 4.76 4.97 5.36 5.68
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
UTAH(13)*
-----------------------------------------------
<S> <C> <C> <C> <C>
32.38% 35.13% 39.72% 43.04%
Tax-Free Utah Fund - Class A 5.94% 6.20% 6.67% 7.06%
Tax-Free Utah Fund - Class B 5.07 5.29 5.69 6.02
WASHINGTON*
-----------------------------------------------
28.00% 31.00% 36.00% 39.60%
Tax-Free Washington Insured Fund - Class A 5.83% 6.09% 6.56% 6.95%
Tax-Free Washington Insured Fund - Class B 5.01 5.23 5.64 5.98
Tax-Free Washington Insured Fund - Class C 5.01 5.23 5.64 5.98
WISCONSIN(14)*
-----------------------------------------------
32.99% 35.78% 40.44% 43.79%
Tax-Free Wisconsin Fund - Class A 6.00% 6.26% 6.75% 7.15%
Tax-Free Wisconsin Fund - Class B 5.12 5.34 5.76 6.10
Tax-Free Wisconsin Fund - Class C 5.09 5.31 5.73 6.07
</TABLE>
* Reflects fee waivers and payment of expenses in effect during the
period. Performance would have been lower without fee waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through
April 30, 1999.
(1) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 5.2% Arizona marginal rate and a 26.54%
federal marginal rate, (b) a 5.2% Arizona marginal rate and a 29.39%
federal marginal rate, (c) a 5.6% Arizona marginal rate and a 33.98%
federal marginal rate, and (d) a 5.6% Arizona marginal rate and a
37.38% federal marginal rate.
(2) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 9.3% California marginal rate and (a) a 25.4%
federal marginal rate, (b) a 28.12% federal marginal rate, (c) a 32.65%
federal marginal rate, and (d) a 35.92% federal marginal rate.
(3) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 5% Colorado rate and (a) a 26.6% federal
marginal rate, (b) a 29.45% federal marginal rate, (c) a 34.20% federal
marginal rate, and (d) 37.62% federal marginal rate.
(4) The four combined rates listed above assume, respectively, that the
taxpayer is subject to an 8.20% Idaho tax rate and (a) a 25.70% federal
marginal rate, (b) a 28.46% federal marginal rate, (c) a 33.05% federal
marginal rate, and (d) a 36.35% federal marginal rate.
(5) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 7.39% Iowa marginal rate and a 25.93%
federal marginal rate, (b) a 7.11% Iowa marginal rate and a 28.8%
federal marginal rate, (c) a 6.63% Iowa marginal rate and a 33.61%
federal marginal rate, and (d) a 6.28% Iowa marginal rate and a 37.11%
federal marginal rate.
(6) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 7.75% Kansas marginal rate and (a) a 25.83%
federal marginal rate, (b)a 28.60% federal marginal rate, (c) a 33.21%
federal marginal rate, and (d) a 36.53% federal marginal rate.
(7) The four combined rates listed above assume, respectively, that the
taxpayer is subject to an 8.5% Minnesota marginal rate and (a) a 25.62%
federal marginal rate, (b) a 28.37% federal marginal rate, (c) a 32.94%
federal marginal rate, and (d) a 36.23% federal marginal rate.
(8) The four combined rates listed above assume that the taxpayer is
subject to (a) a 4.39% Missouri marginal rate and a 26.77% federal
marginal rate, (b) a 4.22% Missouri marginal rate and a 29.69% federal
marginal rate, (c) a 3.92% Missouri marginal rate and a 34.59% federal
marginal rate, and (d) a 3.71% Missouri marginal rate and a 38.13%
federal marginal rate.
-45-
<PAGE>
(9) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 7.9% New Mexico marginal rate and a 25.79%
federal marginal rate, (b) a 8.5% New Mexico marginal rate and a 28.37%
federal marginal rate, (c) a 8.5% New Mexico marginal rate and a 32.94%
federal marginal rate, and (d) a 8.5% New Mexico marginal rate and a
36.23% federal marginal rate.
(10) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 7.125% New York marginal rate and (a) a 26%
federal marginal rate, (b) a 28.79% federal marginal rate, (c) a 33.43%
federal marginal rate and (d) a 36.77% federal marginal rate.
(11) The four combined rates listed above assume that the taxpayer is
subject to (a) 26.94%, (b) 29.71%, (c) 34.27%% and (d) 37.52% federal
marginal rates and elects to determine his or her North Dakota income
tax liability as an amount equal to 14% of his or her adjusted federal
income tax liability.
(12) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 9% Oregon tax rate and (a) a 25.48% federal
marginal rate, (b) a 28.21% federal marginal rate, (c) a 32.76% federal
marginal rate, and (d) a 36.04% federal marginal rate.
(13) The four combined rates listed above assume, respectively, that the
taxpayer is subject to (a) a 6.08% Utah marginal rate and a 26.30%
federal marginal rate, (b) a 5.98% Utah marginal rate and a 29.15%
federal marginal rate, (c) a 5.81% Utah marginal rate and a 33.91%
federal marginal rate, and (d) a 5.69% Utah marginal rate and a 37.35%
federal marginal rate.
(14) The four combined rates listed above assume, respectively, that the
taxpayer is subject to a 6.93% Wisconsin marginal rate and (a) a 26.06%
federal marginal rate, (b) a 28.85% federal marginal rate, (c) a 33.51%
federal marginal rate, and (d) a 36.86% federal marginal rate.
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.
From time to time, the Funds may quote each Class' actual total return
and/or yield performance 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 an 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 a Fund (or Class) may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. or the performance of unmanaged
indices compiled or maintained by statistical research firms such as Lehman
Brothers or Salomon Brothers, Inc.
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.
-46-
<PAGE>
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which the Funds
may invest and the assumptions that were used in calculating the blended
performance will be described.
The Funds may also promote each Class' yield and/or total return
performance and use comparative performance information computed by and
available from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc., IBC/Donoghue's Money Market Report and
Morningstar, Inc.
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.
The performance of multiple indices compiled and maintained by
statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman
Brothers, may be combined to create a blended performance result for comparative
purposes. Generally, the indices selected will be representative of the types of
securities in which the Funds may invest and the assumptions that were used in
calculating the blended performance will be described.
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
-47-
<PAGE>
composition of a Fund), as well as the views as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Funds. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Funds may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, domestic and international stocks, and/or bonds, treasury bills and shares
of the Funds. In addition, advertisements, sales literature, communications to
shareholders or other materials may include a discussion of certain attributes
or benefits to be derived by an investment in the Funds and/or other mutual
funds, shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax planning and investment alternatives to
certificates of deposit and other financial instruments. Such sales literature,
communications to shareholders or other materials may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein.
Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and periodicals.
Materials may also include discussions of other funds, products, and services.
The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Funds may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Funds may include information
regarding the background and experience of its portfolio managers.
The total return performance for each Class will reflect the
appreciation or depreciation of principal, reinvestment of income and any
capital gains distributions paid during any indicated period, and, in the case
of Class A Shares, the impact of the maximum front-end sales charge, if any,
paid on the illustrated investment amount, annualized. Performance of Class A
Shares may also be shown without reflecting the impact of any front-end sales
charge. Performance of Class B Shares and Class C Shares will be calculated with
both the applicable CDSC included and excluded. The results will not reflect any
income taxes, if applicable, payable by shareholders on the reinvested
distributions included in the calculations.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class of each Fund through
August 31, 1998. For these purposes, the calculations assume the reinvestment
of any capital gains distributions, realized securities profits, distributions
and income dividends paid during the indicated periods. The performance also
reflects maximum sales charges, if any, but not any income taxes 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 purchases of shares but may also be shown without reflecting the impact of
any front-end sales charge. The performance of Class B Shares and Class C Shares
is calculated both with the applicable CDSC included and excluded.
The net asset value of a Class fluctuates so shares, when redeemed, may
be worth more or less than the original investment, and past performance should
not be considered as representative of future results.
-48-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ---------------------------------------------------------------------------------------------------
Tax-Free Arizona Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.86%) 8/31/98 (2.29%) 1.70% 8/31/98 0.79% 1.79%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.60%)(4) 8/31/98 (1.09%) 2.91% 8/31/98 1.99% 2.99%
9 months 9 months 9 months
ended ended ended
8/31/98 2.73% 8/31/98 2.16% 6.16% 8/31/98 5.24% 6.24%
1 year 1 year 1 year
ended ended ended
8/31/98 5.39% 8/31/98 4.66% 8.66% 8/31/98 7.73% 8.73%
3 years 3 years 3 years
ended ended ended
8/31/98 25.88% 8/31/98 25.05% 28.05% 8/31/98 28.09% 28.09%
Period Period Period
3/2/95(1) 6/29/95(1) 5/13/95(1)
through through through
8/31/98 32.88% 8/31/98 25.91% 28.91% 8/31/98 30.83% 30.83%
</TABLE>
- -----------------
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year following
purchase; (iv) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the periods.
Performance would have been lower without fees waivers and expense
payments. See Investment Management Agreements for information about
voluntary fee waivers and expense payments in effect through April 30,
1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.29%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00% if
shares are redeemed within 12 months of purchase. The above figures have
been calculated using this new schedule.
-49-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- --------------------------------------------------------------------------------------------------
Tax-Free Arizona Insured Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.97%) 8/31/98 (2.31%) 1.69% 8/31/98 0.78% 1.78%
6 months 6 months 6 months
ended ended ended
8/31/98 (1.05%)(4) 8/31/98 (1.47%) 2.53% 8/31/98 1.53% 2.53%
9 months 9 months 9 months
ended ended ended
8/31/98 1.63% 8/31/98 0.99% 4.99% 8/31/98 4.08% 5.08%
1 year 1 year 1 year
ended ended ended
8/31/98 3.82% 8/31/98 3.09% 7.09% 8/31/98 6.18% 7.18%
3 years 3 years 3 years
ended ended ended
8/31/98 19.15% 8/31/98 18.08% 27.08% 8/31/98 20.84% 20.84%
Period Period
5 years 3/10/95(1) 5/26/94(1)
ended through through
8/31/98 27.01% 8/31/98 24.47% 27.47% 8/31/98 32.35% 32.35%
Period
4/1/91(1)
through
8/31/98 70.10%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; (iv) 1% if shares are redeemed during the
sixth year following purchase; and (v) 0% thereafter. The above figures
have been calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through
April 30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at
NAV for Class A Shares was 2.82%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-50-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- --------------------------------------------------------------------------------------------------
Tax-Free California Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.27%) 8/31/98 (1.65%) 2.36% 8/31/98 1.36% 2.36%
6 months 6 months 6 months
ended ended ended
8/31/98 0.03%(4) 8/31/98 (0.49%) 3.51% 8/31/98 2.62% 3.62%
9 months 9 months 9 months
ended ended ended
8/31/98 3.00% 8/31/98 2.35% 6.35% 8/31/98 5.47% 6.47%
1 year 1 year 1 year
ended ended ended
8/31/98 6.43% 8/31/98 5.74% 9.74% 8/31/98 8.77% 9.77%
Period
3 years 3 years 4/9/96(1)
ended ended through
8/31/98 27.75% 8/31/98 27.82% 30.82% 8/31/98 25.72% 25.72%
Period Period
3/2/95(1) 8/23/95(1)
through through
8/31/98 32.67% 8/31/98 30.08% 33.08%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth
year following purchase; and (v) 0% thereafter. The above figures have
been calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.91%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-51-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free California Insured Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.72%) 8/31/98 (2.09%) 1.91% 8/31/98 0.92% 1.92%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.64%)(4) 8/31/98 (1.16%) 2.84% 8/31/98 1.86% 2.86%
9 months 9 months 9 months
ended ended ended
8/31/98 2.11% 8/31/98 1.35% 5.35% 8/31/98 4.48% 5.48%
1 year 1 year 1 year
ended ended ended
8/31/98 4.77% 8/31/98 4.07% 8.07% 8/31/98 7.11% 8.11%
3 years 3 years 3 years
ended ended ended
8/31/98 22.00% 8/31/98 21.85% 24.85% 8/31/98 23.58% 23.58%
Period Period
5 years 3/1/94(1) 4/12/95(1)
ended through through
8/31/98 26.53% 8/31/98 26.39% 28.39% 8/31/98 25.26% 25.26%
Period
10/15/92(1)
through
8/31/98 46.40%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.23%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-52-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Colorado Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (2.08%) 8/31/98 (2.42%) 1.58% 8/31/98 0.66% 1.66%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.94%)(4) 8/31/98 (1.44%) 2.56% 8/31/98 1.57% 2.57%
9 months 9 months 9 months
ended ended ended
8/31/98 2.17% 8/31/98 1.58% 5.58% 8/31/98 4.57% 5.57%
1 year 1 year 1 year
ended ended ended
8/31/98 5.65% 8/31/98 4.95% 8.95% 8/31/98 8.05% 9.05%
3 years 3 years 3 years
ended ended ended
8/31/98 23.48% 8/31/98 22.31% 25.31% 8/31/98 25.13% 25.13%
Period Period
5 years 3/22/95(1) 5/6/94(1)
ended through through
8/31/98 31.18% 8/31/98 27.34% 30.34% 8/31/98 36.37% 36.37%
10 years
ended
8/31/98 117.68%
Period
4/23/87(1)
through
8/31/98 139.91%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 2.95%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-53-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Florida Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.35%) 8/31/98 (1.72%) 2.28% 8/31/98 1.38% 2.38%
6 months 6 months 6 months
ended ended ended
8/31/98 0.20%(4) 8/31/98 (0.21%) 3.79% 8/31/98 2.79% 3.79%
9 months 9 months 9 months
ended ended ended
8/31/98 3.09% 8/31/98 1.58% 5.58% 8/31/98 5.55% 6.55%
1 year 1 year 1 year
ended ended ended
8/31/98 6.15% 8/31/98 5.48% 9.48% 8/31/98 8.58% 9.58%
Period
3 years 9/15/95(1) 3 years
ended through ended
8/31/98 25.19% 8/31/98 22.95% 25.95% 8/31/98 27.32% 27.32%
Period Period
3/2/95(1) 4/22/95(1)
through through
8/31/98 31.37% 8/31/98 29.61% 29.61%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 4.09%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-54-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ---------------------------------------------------------------------------------
Tax-Free Florida Insured Fund(3)
Class B Class B
Class A Shares Shares
Shares (including (excluding
(at offer) CDSC)(2) CDSC)
---------- ---------- ----------
<S> <C> <C> <C> <C>
3 months 3 months
ended ended
8/31/98 (1.91%) 8/31/98 (2.19%) 1.81%
6 months 6 months
ended ended
8/31/98 (0.66%)(4) 8/31/98 (1.08%) 2.93%
9 months 9 months
ended ended
8/31/98 2.07% 8/31/98 1.43% 5.43%
1 year 1 year
ended ended
8/31/98 4.85% 8/31/98 4.17% 8.17%
3 years 3 years
ended ended
8/31/98 21.89% 8/31/98 21.45% 24.45%
Period
5 years 3/11/94(1)
ended through
8/31/98 28.35% 8/31/98 29.33% 31.33%
Period
1/1/92(1)
through
8/31/98 58.52%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.22%.
-55-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Idaho Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.78%) 8/31/98 (2.12%) 1.89% 8/31/98 0.89% 1.89%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.51%)(4) 8/31/98 (0.90%) 3.10% 8/31/98 2.10% 3.10%
9 months 9 months 9 months
ended ended ended
8/31/98 1.86% 8/31/98 1.24% 5.24% 8/31/98 4.23% 5.23%
1 year 1 year 1 year
ended ended ended
8/31/98 4.97% 8/31/98 4.23% 8.23% 8/31/98 7.32% 8.32%
3 years 3 years 3 years
ended ended ended
8/31/98 22.22% 8/31/98 21.85% 24.85% 8/31/98 24.11% 24.11%
Period Period Period
1/4/95(1) 3/16/95(1) 1/11/95(1)
through through through
8/31/98 35.75% 8/31/98 26.84% 29.84% 8/31/98 36.18% 36.18%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.40%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-56-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- -----------------------------------------------------------------------------------------------
Tax-Free Iowa Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.81%) 8/31/98 (2.20%) 1.80% 8/31/98 0.80% 1.80%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.43%)(4) 8/31/98 (0.95%) 3.05% 8/31/98 2.05% 3.05%
9 months 9 months 9 months
ended ended ended
8/31/98 1.43% 8/31/98 0.81% 4.81% 8/31/98 3.92% 4.92%
1 year 1 year 1 year
ended ended ended
8/31/98 4.14% 8/31/98 3.37% 7.37% 8/31/98 6.37% 7.37%
3 years 3 years 3 years
ended ended ended
8/31/98 20.18% 8/31/98 19.12% 22.12% 8/31/98 21.84% 21.84%
Period Period Period
9/1/93(1) 3/24/95(1) 1/4/95(1)
through through through
8/31/98 24.37% 8/31/98 23.61% 26.61% 8/31/98 36.64% 36.64%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.44%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-57-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Kansas Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.80%) 8/31/98 (2.18%) 1.82% 8/31/98 0.82% 1.82%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.70%)(4) 8/31/98 (1.14%) 2.86% 8/31/98 1.86% 2.86%
9 months 9 months 9 months
ended ended ended
8/31/98 2.15% 8/31/98 1.49% 5.49% 8/31/98 4.50% 5.50%
1 year 1 year 1 year
ended ended ended
8/31/98 5.05% 8/31/98 4.34% 8.34% 8/31/98 7.36% 8.36%
3 years 3 years 3 years
ended ended ended
8/31/98 20.96% 8/31/98 19.99% 22.99% 8/31/98 22.58% 22.58%
Period Period
5 years 4/8/95(1) 4/12/95(1)
ended through through
8/31/98 29.99% 8/31/98 23.47% 26.47% 8/31/98 25.71% 25.71%
Period
11/30/92(1)
through
8/31/98 45.56%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.16%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-58-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Minnesota Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.67%) 8/31/98 (2.05%) 1.95% 8/31/98 1.02% 2.02%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.33%)(4) 8/31/98 (0.86%) 3.14% 8/31/98 2.21% 3.21%
9 months 9 months 9 months
ended ended ended
8/31/98 1.92% 8/31/98 1.31% 5.31% 8/31/98 4.47% 5.47%
1 year 1 year 1 year
ended ended ended
8/31/98 4.69% 8/31/98 3.95% 7.95% 8/31/98 7.03% 8.03%
3 years 3 years 3 years
ended ended ended
8/31/98 20.60% 8/31/98 19.94% 22.94% 8/31/98 22.66% 22.66%
Period Period
5 years 3/11/95(1) 5/4/94(1)
ended through through
8/31/98 28.61% 8/31/98 25.04% 28.04% 8/31/98 32.34% 32.34%
10 years
ended
8/31/98 102.96%
Period
2/27/84(1)
through
8/31/98 234.66%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.53%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-59-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- --------------------------------------------------------------------------------------------------
Minnesota Insured Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.73%) 8/31/98 (2.06%) 1.94% 8/31/98 0.94% 1.94%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.61%)(4) 8/31/98 (1.09%) 2.91% 8/31/98 1.90% 2.90%
9 months 9 months 9 months
ended ended ended
8/31/98 1.72% 8/31/98 1.07% 5.07% 8/31/98 3.97% 4.97%
1 year 1 year 1 year
ended ended ended
8/31/98 4.06% 8/31/98 3.33% 7.33% 8/31/98 6.23% 7.23%
3 years 3 years 3 years
ended ended ended
8/31/98 18.78% 8/31/98 17.89% 20.89% 8/31/98 20.61% 20.61%
Period Period
5 years 3/7/95(1) 5/4/94(1)
ended through through
8/31/98 26.54% 8/31/98 23.26% 26.26% 8/31/98 29.95% 29.95%
10 years
ended
8/31/98 102.59%
Period
5/1/87(1)
through
8/31/98 120.15%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.29%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-60-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Minnesota Intermediate Fund(2)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(3) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.23%) 8/31/98 (0.61%) 1.39% 8/31/98 0.40% 1.40%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.52%)(4) 8/31/98 (0.02%) 1.98% 8/31/98 0.98% 1.98%
9 months 9 months 9 months
ended ended ended
8/31/98 1.45% 8/31/98 1.81% 3.81% 8/31/98 2.72% 3.72%
1 year 1 year 1 year
ended ended ended
8/31/98 3.12% 8/31/98 3.30% 5.30% 8/31/98 4.21% 5.21%
3 years 3 years 3 years
ended ended ended
8/31/98 13.48% 8/31/98 13.39% 14.39% 8/31/98 13.96% 13.96%
Period Period
5 years 8/15/95(1) 5/4/94(1)
ended through through
8/31/98 23.51% 8/31/98 15.42% 15.42% 8/31/98 22.97% 22.97%
10 years
ended
8/31/98 74.77%
Period
10/27/85(1)
through
8/31/98 109.62%
</TABLE>
(1) Date of initial public offering.
(2) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(3) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 2% if shares are redeemed within two years of purchase; and
(ii) 1% if shares are redeemed during the third year following purchase.
The above figures have been calculated using this new schedule.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 2.32%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-61-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Minnesota High Yield Bond Fund(1)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.32%) 8/31/98 (1.72%) 2.28% 8/31/98 1.28% 2.28%
6 months 6 months 6 months
ended ended ended
8/31/98 0.10%(3) 8/31/98 (0.35%) 3.65% 8/31/98 2.65% 3.65%
9 months 9 months 9 months
ended ended ended
8/31/98 3.17% 8/31/98 2.51% 6.51% 8/31/98 5.55% 6.55%
1 year 1 year 1 year
ended ended ended
8/31/98 6.31% 8/31/98 5.51% 9.51% 8/31/98 8.62% 9.62%
Period Period Period
6/4/96(4) 6/12/96(4) 6/7/96(4)
through through through
8/31/98 18.92% 8/31/98 21.10% 24.10% 8/31/98 21.60% 21.60%
</TABLE>
(1) Reflects voluntary waivers in effect during the period(s).
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 4.03%.
(4) Date of initial public offering.
-62-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Missouri Insured Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.91%) 8/31/98 (2.19%) 1.81% 8/31/98 0.81% 1.81%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.93%)(4) 8/31/98 (1.37%) 2.64% 8/31/98 1.63% 2.63%
9 months 9 months 9 months
ended ended ended
8/31/98 1.47% 8/31/98 0.88% 4.88% 8/31/98 3.97% 4.97%
1 year 1 year 1 year
ended ended ended
8/31/98 4.07% 8/31/98 3.32% 7.32% 8/31/98 6.41% 7.41%
Period
3 years 3 years 11/11/95(1)
ended ended through
8/31/98 19.97% 8/31/98 19.26% 22.26% 8/31/98 17.34% 17.34%
Period
5 years 3/12/94(1)
ended through
8/31/98 27.62% 8/31/98 26.89% 28.89%
Period
11/2/92(1)
through
8/31/98 42.46%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 2.93%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-63-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free New Mexico Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.89%) 8/31/98 (2.28%) 1.72% 8/31/98 0.81% 1.81%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.51%)(4) 8/31/98 (1.05%) 2.96% 8/31/98 2.05% 3.05%
9 months 9 months 9 months
ended ended ended
8/31/98 2.43% 8/31/98 1.78% 5.78% 8/31/98 4.78% 5.78%
1 year 1 year 1 year
ended ended ended
8/31/98 4.96% 8/31/98 4.33% 8.33% 8/31/98 7.33% 8.33%
Period
3 years 3 years 5/7/96(1)
ended ended through
8/31/98 22.12% 8/31/98 21.23% 24.23% 8/31/98 21.00% 21.00%
Period
5 years 3/3/94(1)
ended through
8/31/98 30.77% 8/31/98 28.45% 30.45%
Period
10/5/92(1)
through
8/31/98 49.80%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.35%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-64-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free New York Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.87%) 8/31/98 (2.26%) 1.74% 8/31/98 0.64% 1.64%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.93%)(4) 8/31/98 (1.50%) 2.50% 8/31/98 1.41% 2.41%
9 months 9 months 9 months
ended ended ended
8/31/98 1.18% 8/31/98 0.64% 4.64% 8/31/98 3.54% 4.54%
1 year 1 year 1 year
ended ended ended
8/31/98 3.16% 8/31/98 2.45% 6.45% 8/31/98 5.35% 6.35%
3 years 3 years 3 years
ended ended ended
8/31/98 13.30% 8/31/98 11.97% 14.91% 8/31/98 14.70% 14.70%
Period Period
5 years 11/14/94(1) 4/26/95(1)
ended through through
8/31/98 20.78% 8/31/98 22.39% 25.39% 8/31/98 17.31% 17.31%
10 years
ended
8/31/98 93.76%
Period
11/6/87(1)
through
8/31/98 108.67%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 2.88%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-65-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free North Dakota Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.71%) 8/31/98 (2.09%) 1.91% 8/31/98 0.91% 1.91%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.59%)(4) 8/31/98 (1.04%) 2.96% 8/31/98 1.88% 2.88%
9 months 9 months 9 months
ended ended ended
8/31/98 1.81% 8/31/98 1.22% 5.22% 8/31/98 4.23% 5.23%
1 year 1 year 1 year
ended ended ended
8/31/98 4.32% 8/31/98 3.57% 7.57% 8/31/98 6.47% 7.47%
3 years 3 years 3 years
ended ended ended
8/31/98 20.48% 8/31/98 20.05% 23.05% 8/31/98 21.79% 21.79%
Period Period
5 years 5/10/94(1) 7/29/95(1)
ended through through
8/31/98 28.99% 8/31/98 35.02% 37.02% 8/31/98 23.29% 23.29%
Period
4/1/91(1)
through
8/31/98 69.34%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.26%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-66-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Oregon Insured Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.93%) 8/31/98 (2.34%) 1.66% 8/31/98 0.66% 1.66%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.78%)(4) 8/31/98 (1.44%) 2.57% 8/31/98 1.66% 2.66%
9 months 9 months 9 months
ended ended ended
8/31/98 2.35% 8/31/98 1.78% 5.78% 8/31/98 4.88% 5.88%
1 year 1 year 1 year
ended ended ended
8/31/98 4.71% 8/31/98 3.97% 7.97% 8/31/98 6.96% 7.96%
3 years 3 years 3 years
ended ended ended
8/31/98 20.28% 8/31/98 19.72% 22.72% 8/31/98 22.08% 22.08%
Period Period
5 years 3/12/94(1) 7/7/95(1)
ended through through
8/31/98 27.08% 8/31/98 26.82% 28.82% 8/31/98 22.90% 22.90%
Period
8/1/93(1)
through
8/31/98 29.55%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.05%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-67-
<PAGE>
Cumulative Total Return
- ------------------------------------------------------------
Tax-Free Utah Fund(3)
Class B Class B
Class A Shares Shares
Shares (including (excluding
(at offer) CDSC)(2) CDSC)
---------- ---------- ----------
3 months 3 months
ended ended
8/31/98 (1.71%) 8/31/98 (2.00%) 2.00%
6 months 6 months
ended ended
8/31/98 (0.74%)(4) 8/31/98 (1.20%) 2.80%
9 months 9 months
ended ended
8/31/98 2.22% 8/31/98 1.74% 5.74%
1 year 1 year
ended ended
8/31/98 4.95% 8/31/98 4.23% 8.23%
3 years 3 years
ended ended
8/31/98 21.24% 8/31/98 20.17% 23.17%
Period
5 years 5/27/95(1)
ended through
8/31/98 31.15% 8/31/98 20.98% 23.98%
Period
10/5/92(1)
through
8/31/98 52.00%
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.10%.
-68-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Washington Insured Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.64%) 8/31/98 (2.02%) 1.99% 8/31/98 0.99% 1.99%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.40%)(4) 8/31/98 (0.83%) 3.17% 8/31/98 2.18% 3.18%
9 months 9 months 9 months
ended ended ended
8/31/98 2.56% 8/31/98 2.01% 6.01% 8/31/98 5.02% 6.02%
1 year 1 year 1 year
ended ended ended
8/31/98 5.32% 8/31/98 4.72% 8.72% 8/31/98 7.72% 8.72%
Period
3 years 10/24/95(1) 3 years
ended through ended
8/31/98 22.68% 8/31/98 18.59% 21.59% 8/31/98 24.36% 24.36%
Period
5 years 4/21/95(1)
ended through
8/31/98 31.67% 8/31/98 26.96% 26.96%
Period
8/1/93(1)
through
8/31/98 38.34%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.47%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-69-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
- ------------------------------------------------------------------------------------------------
Tax-Free Wisconsin Fund(3)
Class B Class B Class C Class C
Class A Shares Shares Shares Shares
Shares (including (excluding (including (excluding
(at offer) CDSC)(2) CDSC) CDSC)(5) CDSC)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months 3 months 3 months
ended ended ended
8/31/98 (1.77%) 8/31/98 (2.13%) 1.87% 8/31/98 0.86% 1.86%
6 months 6 months 6 months
ended ended ended
8/31/98 (0.63%)(4) 8/31/98 (1.14%) 2.86% 8/31/98 1.85% 2.85%
9 months 9 months 9 months
ended ended ended
8/31/98 1.48% 8/31/98 0.90% 4.90% 8/31/98 3.98% 4.98%
1 year 1 year 1 year
ended ended ended
8/31/98 4.08% 8/31/98 3.23% 7.23% 8/31/98 6.30% 7.30%
3 years 3 years 3 years
ended ended ended
8/31/98 18.80% 8/31/98 17.95% 20.95% 8/31/98 20.82% 20.82%
Period Period Period
9/1/93(1) 4/22/95(1) 3/28/95(1)
through through through
8/31/98 24.22% 8/31/98 20.15% 23.15% 8/31/98 24.14% 24.14%
</TABLE>
(1) Date of initial public offering.
(2) Effective June 9, 1997, the CDSC schedule for Class B Shares changed as
follows: (i) 4% if shares are redeemed within two years of purchase;
(ii) 3% if shares are redeemed during the third or fourth year following
purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. The above figures have been
calculated using this new schedule.
(3) Reflects fee waivers and payment of expenses in effect during the
periods. Performance would have been lower without fees waivers and
expense payments. See Investment Management Agreements for information
about voluntary fee waivers and expense payments in effect through April
30, 1999.
(4) For the six months ended August 31, 1998, cumulative total return at NAV
for Class A Shares was 3.24%.
(5) Effective June 9, 1997, the CDSC applicable to Class C Shares is 1.00%
if shares are redeemed within 12 months of purchase. The above figures
have been calculated using this new schedule.
-70-
<PAGE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the 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 funds in the
Delaware Investments family, investment disciplines employed in seeking ^ the
objectives of the Funds and of the 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. Investors also should consider their 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, Investing by Electronic Fund Transfer
- -Automatic Investing Plan ^ and Wealth Builder Option under Investment Plans for
a complete description of these services, including restrictions or limitations.
-71-
<PAGE>
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share of a stock or bond fund over a
period of time will be lower than the average price per share of the same time
period.
Number
Investment Price Per of Shares
Amount Share Purchased
---------- --------- ---------
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
--------------------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of 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.
-72-
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Funds select brokers, dealers and banks to execute transactions on
behalf of a Fund for the purchase or sale of portfolio securities on the basis
of the Manager's judgment of their professional capability to provide the
service. The primary consideration is to have banks, brokers or dealers execute
transactions at best price and execution. Best price and execution refers to
many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. When a commission is
paid, a Fund pays reasonably competitive brokerage commission rates based upon
the professional knowledge of its trading department as to rates paid and
charged for similar transactions throughout the securities industry. In some
instances, a Fund pays a minimal share transaction cost when the transaction
presents no difficulty. Trades generally are made on a net basis where a Fund
either buys or sells the securities directly from or to a broker, dealer or
bank. In these instances, there is no direct commission charged but there is a
spread (the difference between the ask and bid price) which is the equivalent of
a commission.
During the fiscal years ended December 31, 1996 and December 31, 1997
and the fiscal period ended August 31, 1998, no brokerage commissions were paid
by the Funds.
The Manager may allocate out of all commission business generated by all
of the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These services include
advice, either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software and hardware used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended December 31, 1997 and the fiscal period
ended August 31, 1998, 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
-73-
<PAGE>
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 price and execution, commissions allocated
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and the Board of
Directors or 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 price and
execution, the Funds 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 the funds in the Delaware Investments family as a factor
in the selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Each Fund anticipates that its portfolio turnover rate will generally be
less than 100%. However, 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 or dispose of securities at any time, subject
to complying with the Code and the 1940 Act, when changes in circumstances or
conditions make such a move desirable in light of the investment objective. To
that extent, the Funds 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
that Fund, during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.
The degree of portfolio activity may affect brokerage costs of a Fund
and taxes payable by such Fund's shareholders to the extent of any net realized
capital gains. Each Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions a Fund may experience a rate of
portfolio turnover which could exceed 100%. 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's portfolio turnover will be increased if that Fund writes a
large number of call options which are subsequently exercised. The portfolio
turnover rate also may be affected by cash requirements
-74-
<PAGE>
from redemptions and repurchases of Fund shares. Total brokerage costs generally
increase with higher portfolio turnover rates.
The portfolio turnover rates for each Fund for the past two fiscal
periods were as follows:
Fund 1997 1998
- ---- ---- ----
Tax-Free Arizona Insured Fund 42% 21%
Tax-Free Arizona Fund 39 96
Tax-Free California Insured Fund 63 44
Tax-Free California Fund 17 62
Tax-Free Colorado Fund 54 36
Tax-Free Florida Insured Fund 15 13
Tax-Free Florida Fund 19 20
Tax-Free Idaho Fund 19 8
Tax-Free Iowa Fund 14 13
Tax-Free Kansas Fund 30 40
Tax-Free Minnesota Intermediate Fund 21 14
Minnesota Insured Fund 21 6
Tax-Free Minnesota Fund 19 13
Minnesota High Yield Fund 23 7
Tax-Free Missouri Insured Fund 12 18
Tax-Free New Mexico Fund 28 20
Tax-Free New York Fund 30 21
Tax-Free North Dakota Fund 41 23
Tax-Free Oregon Insured Fund 5 5
Tax-Free Utah Fund 39 84
Tax-Free Washington Insured Fund 20 1
Tax-Free Wisconsin Fund 30 16
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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 generally must be at least $100. The initial and
subsequent minimum investments for Class A Shares will be waived for purchases
by officers, directors or trustees and employees of any fund in the Delaware
Investments family, 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^ which
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and generally are not subject to a CDSC.
Selling dealers have the responsibility of transmitting orders promptly.
Each Fund reserves the right to reject any order for the purchase of its shares
if in the opinion of management such rejection is in such Fund's best interest.
The NASD has adopted amendments to its Conduct Rules relating to
investment company sales charges. The Funds and the Distributor intend to
operate in compliance with these rules.
Class A Shares of Tax-Free Funds, Insured Funds and Minnesota High
Yield Fund are purchased at the offering price which reflects a maximum
front-end sales charge of 3.75%. Class A Shares of Tax-Free Intermediate Funds
are also purchased at the offering price which reflects a maximum front-end
sales charge of 2.75%. Lower sales charges apply for larger purchases. Class A
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment. See Determining Offering Price and Net Asset Value and Plans Under ^
Rule 12b-1 in this Part B.
Class B Shares of Tax-Free Funds, Insured Funds and Minnesota High
Yield Fund are purchased at net asset value and are subject to a CDSC of: (i) 4%
if shares are redeemed within two years of purchase; (ii) 3% if shares are
redeemed during the third or fourth year following purchase; (iii) 2% if shares
are redeemed during the fifth year following purchase; (iv) 1% if shares are
redeemed during the sixth year following purchase; and (v) 0% thereafter. Shares
of such Funds 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 Tax-Free
Funds, Insured Funds and Minnesota High Yield Fund will automatically convert to
Class A Shares at the end of approximately eight years after purchase and,
thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of 0.25%
of
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<PAGE>
average daily net assets of such shares. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus.
Class B Shares of Tax-Free Intermediate Funds are purchased at net asset
value and are subject to a CDSC of: (i) 2% if shares are redeemed within two
years of purchase; (ii) 1% if shares are redeemed during the third year
following purchase; and (iii) 0% thereafter. Shares of such Funds 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. Class B Shares of Tax-Free Intermediate Funds will
automatically convert to Class A Shares at the end of approximately five years
after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up
to a maximum of 0.25% of average daily net assets of such shares. See Automatic
Conversion of Class B Shares under Classes of Shares in the Prospectus.
Class C Shares of each Fund are purchased at net asset value and are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. Class C Shares are also subject to annual 12b-1 Plan expenses for the
life of the investment which are equal to those to which Class B Shares are
subject. Unlike Class B Shares, Class C Shares do not convert to another class.
Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in a Fund's assets and will receive a proportionate
interest in that Fund's income, before application, as to Class A Shares, Class
B Shares and Class C Shares, of any expenses under the Fund's 12b-1 Plans.
See Determining Offering Price and Net Asset Value and Plans Under Rule
12b-1 in this Part B.
Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares, 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 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 the
Funds for any certificate issued. A shareholder may be subject to fees for
replacement of a lost or stolen certificate under certain conditions, including
the cost of obtaining a bond covering the lost or stolen certificate. Please
contact the Funds for further information. Investors who hold certificates
representing their shares may only redeem those shares by written request. The
investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable for their needs given the amount of their purchase, the length of time
they expect to hold their shares and other relevant circumstances. Investors
should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of 0.25% of the average daily net
assets of Class A Shares, 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.
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<PAGE>
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges, and may include a series of purchases
over a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for a
table illustrating reduced front-end sales charges. See also Special Purchase
Features - Class A Shares, below for more information on ways in which investors
can avail themselves of reduced front-end sales charges and other purchase
features.
Certain dealers who enter into an agreement to provide extra training
and information on Delaware Investments products and services and who increase
sales of funds in the Delaware Investments family may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws.
Dealer's Commission
As described more fully in the Prospectus, for initial purchases of
Class A Shares of $1,000,000 or more, a dealer's commission may be paid by the
Distributor to financial advisers through whom such purchases are effected. See
Front-End Sales Charge Alternative - Class A Shares in the Prospectus for the
applicable schedule and further details.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within prescribed periods after purchase
may be subject to a CDSC imposed at the rates and within the time periods set
forth above, and Class C Shares redeemed within 12 months of purchase may be
subject to a CDSC of 1%. CDSCs are charged as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the net asset value at the time of purchase of shares being redeemed
or the net asset value of those shares at the time of redemption. No CDSC will
be imposed on increases in net asset value above the initial purchase price, nor
will a CDSC be assessed on redemption of shares acquired through the
reinvestment of dividends or capital gains distributions. See Waiver of
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Redemption and Exchange in the Prospectus for a list of the instances in which
the CDSC is waived. During the seventh year after purchase and, thereafter,
until converted automatically into Class A Shares, Class B Shares of Tax-Free
Funds, Insured Funds and Minnesota High Yield Fund will still be subject to
the annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, in the Prospectus. Such
conversion will constitute a tax-free exchange for federal income tax purposes.
See Taxes in the Prospectus.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, each of the Class A Shares,
Class B Shares and Class C Shares of the Funds have a separate distribution plan
under Rule 12b-1 (the "Plans"). Each Plan permits the particular Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the Class to which the Plan applies. Such shares are not included in
calculating the Plans' fees.
The Plans permit the Funds, 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
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<PAGE>
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 the
respective Class A Shares, Class B Shares and Class C Shares directly to other
unaffiliated parties, such as banks, who either aid in the distribution of
shares of, or provide services to, such Classes.
The maximum aggregate fee payable by a Fund under its Plans, and each
Fund's Distribution Agreement, is on an annual basis, up to 0.25% of average
daily net assets of Class A Shares, and up to 1% (0.25% of which are service
fees to be paid to the Distributor, dealers 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. Each Fund's Board of
Directors or Trustees may reduce these amounts at any time.
All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A
Shares, Class B Shares and Class C Shares would be borne by such persons without
any payment from such Classes. Subject to seeking best price and execution, a
Fund may, from time to time, buy or sell portfolio securities from or to firms
which receive payments under the Plans. From time to time, the Distributor may
pay additional amounts from its own resources to dealers for aid in distribution
or for aid in providing administrative services to shareholders.
The Plans and the Distribution Agreements, as amended, have been
approved by the Board of Directors or Trustees of the Funds, including a
majority of the directors or trustees who are not "interested persons" (as
defined in the 1940 Act) 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 Distribution Agreements. Continuation of the Plans
and the Distribution Agreements, as amended, must be approved annually by the
Board of Directors or Trustees in the same manner as specified above.
Each year, the directors or 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 at any time without penalty by a majority of those directors or
trustees who are not "interested persons" or by a majority vote of the relevant
Fund 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 Fund Class' outstanding voting securities, as well as by a
majority vote of those directors or 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
directors or trustees including a majority of the noninterested directors or
trustees of the Funds having no interest in the Plans. In addition, in order for
the Plans to remain effective, the selection and nomination of directors or
trustees who are not "interested persons" of the Funds must be effected by the
directors or 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 Directors or Trustees for their review.
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<PAGE>
For the fiscal year ended August 31, 1998, Rule 12b-1 fees (after any
waivers) for each Fund are set forth below:
August 31, 1998
12b-1 Fee
---------------
Tax-Free Arizona Insured Fund
Class A 301,834
Class B 27,754
Class C 4,549
Tax-Free Arizona Fund
Class A 18,799
Class B 27,018
Class C 3,377
Tax-Free California Insured Fund
Class A 42,898
Class B 43,656
Class C 3,152
Tax-Free California Fund
Class A 9,056
Class B 49,486
Class C 2,184
Tax-Free Colorado Fund
Class A 592,839
Class B 59,381
Class C 12,430
Tax-Free Florida Insured Fund
Class A 256,918
Class B 25,596
Tax-Free Florida Fund
Class A 14,626
Class B 17,947
Class C 2,134
Tax-Free Idaho Fund
Class A 62,635
Class B 43,309
Class C 12,546
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<PAGE>
August 31, 1998
12b-1 Fee
---------------
Tax-Free Iowa Fund
Class A 64,522
Class B 22,057
Class C 6,815
Tax-Free Kansas Fund
Class A 19,161
Class B 24,794
Class C 712
Tax-Free Minnesota Intermediate Fund
Class A 56,303
Class B 7,368
Class C 10,427
Minnesota Insured Fund
Class A 474,490
Class B 62,370
Class C 20,841
Tax-Free Minnesota Fund
Class A 687,846
Class B 59,295
Class C 25,914
Minnesota High Yield Fund
Class A 38,993
Class B 74,036
Class C 27,566
Tax-Free Missouri Insured Fund
Class A 79,109
Class B 75,652
Class C 1,111
Tax-Free New Mexico Fund
Class A 33,816
Class B 9,051
Class C 2,264
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<PAGE>
August 31, 1998
12b-1 Fee
---------------
Tax-Free New York Fund
Class A 16,452
Class B 1,680
Class C 378
Tax-Free North Dakota Fund
Class A 56,664
Class B 7,310
Class C 398
Tax-Free Oregon Insured Fund
Class A 37,259
Class B 43,322
Class C 5,704
Tax-Free Utah Fund
Class A 5,090
Class B 3,891
Tax-Free Washington Insured Fund
Class A 3,344
Class B 6,565
Class C 1,290
Tax-Free Wisconsin Fund
Class A 55,369
Class B 15,254
Class C 7,647
For the period January 1, 1998 through August 31, 1998, payments from
each Class of each Fund were used for the following purposes:
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<TABLE>
<CAPTION>
Annual/ Interest on
Semi- Broker Dealer Broker Commissions Promotional-
Annual Broker Sales Service Sales to Broker
Advertising Reports Trails Charges Expenses Charges Wholesalers Meetings
----------- ------- ------ ------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona Insured Fund
Class A $0,000 $3,738 $130,478 $0,000 $21,735 $0,000 $25,030 $10,272
Class B $0,000 $0,000 $6,083 $11,171 $0,000 $7,677 $1,783 $210
Class C $0,000 $0,000 $2,522 $1,537 $0,000 $103 $350 $19
Tax-Free Arizona Fund
Class A $0,000 $1,811 $17,690 $0,000 $4,906 $0,000 $5,908 $4,458
Class B $0,000 $0,000 $6,483 $11,105 $68 $7,245 $1,092 $0,000
Class C $0,000 $0,000 $299 $1,971 $0,000 $260 $538 $0,000
Tax-Free California Insured Fund
Class A $0,000 $860 $41,359 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $10,246 $23,127 $64 $7,415 $1,691 $444
Class C $0,000 $0,000 $394 $1,445 $0,000 $305 $838 $0,000
Tax-Free California Fund
Class A $0,000 $65 $7,858 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $11,783 $15,346 $0,000 $17,283 $1,879 $163
Class C $0,000 $0,000 $176 $963 $0,000 $196 $288 $0,000
Tax-Free Colorado Fund
Class A $0,000 $11,773 $228,284 $0,000 $39,635 $0,000 $78,505 $32,441
Class B $0,000 $0,000 $14,307 $22,443 $0,000 $17,461 $2,426 $151
Class C $0,000 $0,000 $7,860 $2,218 $0,000 $605 $1,165 $0,000
Tax-Free Florida Insured Fund
Class A $0,000 $12,427 $66,753 $0,000 $15,465 $0,000 $27,819 $22,359
Class B $0,000 $0,000 $4,374 $13,200 $319 $4,082 $1,609 $174
Class C $0,000 $0,000 $0,000 $0,000 $0,000 $12 $0,000 $0,000
Tax-Free Florida Fund
Class A $0,000 $453 $12,439 $0,000 $0,000 $0,000 $0,000 $41
Class B $0,000 $0,000 $4,393 $9,139 $0,000 $3,652 $1,090 $0,000
Class C $0,000 $0,000 $207 $728 $0,000 $690 $155 $0,000
Tax-Free Idaho Fund
Class A $0,000 $1,262 $57,031 $0,000 $0,000 $0,000 $313 $0,000
Class B $0,000 $0,000 $11,849 $24,736 $0,000 $8,590 $2,308 $67
Class C $0,000 $0,000 $4,339 $2,750 $0,000 $374 $1,294 $0,000
</TABLE>
[RESTUB FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Promotional- Prospectus Wholesaler
Other Printing Telephone Expenses Other
------------ ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Tax-Free Arizona Insured Fund
Class A $4,121 $29,30 $16,092 $51,305 $0,000
Class B $0,000 $0,000 $0,000 $0,000 $0,000
Class C $0,000 $0,000 $0,000 $50 $0,000
Tax-Free Arizona Fund
Class A $4,726 $89 $0,000 $14,458 $0,000
Class B $0,000 $0,000 $84 $139 $0,000
Class C $0,000 $0,000 $0,000 $56 $0,000
Tax-Free California Insured Fund
Class A $242 $619 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $644 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free California Fund
Class A $6 $4 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $159 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Colorado Fund
Class A $19,978 $9,108 $25,715 $116,842 $0,000
Class B $0,000 $0,000 $0,000 $219 $0,000
Class C $0,000 $0,000 $0,000 $375 $0,000
Tax-Free Florida Insured Fund
Class A $15,238 $2,852 $15,683 $61,525 $0,000
Class B $0,000 $0,000 $90 $840 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Florida Fund
Class A $579 $544 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $0,000 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Idaho Fund
Class A $749 $909 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $58 $0,000 $0,000
Class C $0,000 $0,000 $0,000 $280 $0,000
</TABLE>
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<TABLE>
<CAPTION>
Interest
Annual/ on
Semi- Broker Dealer Broker Commissions Promotional-
Annual Broker Sales Service Sales to Broker
Advertising Reports Trails Charges Expenses Charges Wholesalers Meetings
----------- ------- ------ ------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free Iowa Fund
Class A $0,000 $3,714 $38,419 $0,000 $1,647 $0,000 $6,725 $1,365
Class B $0,000 $0,000 $5,303 $9,112 $0,000 $5,720 $897 $58
Class C $0,000 $0,000 $4,345 $1,432 $0,000 $227 $497 $0,000
Tax-Free Kansas Fund
Class A $0,000 $982 $15,370 $0,000 $0,000 $0,000 $0,000 $140
Class B $0,000 $0,000 $6,133 $11,108 $0,000 $6,018 $1,143 $46
Class C $0,000 $0,000 $475 $187 $0,000 $46 $7 $0,000
Tax-Free Minnesota Intermediate Fund
Class A $0,000 $1,503 $49,728 $0,000 $0,000 $0,000 $2,230 $253
Class B $0,000 $0,000 $1,033 $3,233 $56 $1,586 $865 $62
Class C $0,000 $0,000 $5,276 $3,215 $0,000 $390 $632 $0,000
Minnesota Insured Fund
Class A $0,000 $3,012 $461,826 $0,000 $0,000 $0,000 $1,599 $762
Class B $0,000 $0,000 $15,316 $26,385 $59 $16,435 $2,666 $208
Class C $0,000 $0,000 $16,151 $2,374 $0,000 $734 $689 $191
Tax-Free Minnesota Fund
Class A $0,000 $9,819 $561,900 $0,000 $3,615 $0,000 $42,439 $21,105
Class B $0,000 $0,000 $14,020 $22,797 $0,000 $17,708 $2,535 $520
Class C $0,000 $0,000 $11,864 $5,647 $0,000 $1,539 $4,361 $285
Minnesota High Yield Fund
Class A $0,000 $101 $34,247 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $17,230 $23,180 $0,000 $23,333 $2,101 $250
Class C $0,000 $0,000 $8,843 $9,645 $0,000 $1,541 $3,051 $0,000
Tax-Free Missouri Insured Fund
Class A $0,000 $4,944 $47,004 $0,000 $6,644 $0,000 $3,693 $2,080
Class B $0,000 $0,000 $16,251 $39,147 $584 $13,930 $1,360 $798
Class C $0,000 $0,000 $582 $399 $0,000 $92 $58 $0,000
Tax-Free New Mexico Fund
Class A $0,000 $753 $19,996 $0,000 $2,198 $0,000 $5,238 $737
Class B $0,000 $0,000 $2,022 $3,395 $0,000 $2,496 $505 $0,000
Class C $0,000 $0,000 $1,585 $295 $0,000 $240 $45 $0,000
Tax-Free New York Fund
Class A $0,000 $135 $15,805 $0,000 $0,000 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $373 $763 $0,000 $282 $42 $7
Class C $0,000 $0,000 $352 $20 $0,000 $229 $0,000 $0,000
</TABLE>
[RESTUB FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Promotional- Prospectus Wholesaler
Other Printing Telephone Expenses Other
------------ ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Tax-Free Iowa Fund
Class A $1,989 $1,165 $777 $8,526 $0,000
Class B $0,000 $0,000 $0,000 $98 $0,000
Class C $0,000 $0,000 $0,000 $49 $0,000
Tax-Free Kansas Fund
Class A $1,543 $754 $0,000 $202 $0,000
Class B $0,000 $0,000 $0,000 $16 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Minnesota Intermediate Fund
Class A $1,052 $1,232 $420 $174 $0,000
Class B $0,000 $0,000 $0,000 $50 $0,000
Class C $0,000 $0,000 $122 $504 $0,000
Minnesota Insured Fund
Class A $2,661 $5,877 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $101 $0,000
Class C $0,000 $0,000 $15 $809 $0,000
Tax-Free Minnesota Fund
Class A $14,817 $9,675 $5,887 $19,040 $0,000
Class B $0,000 $0,000 $0,000 $284 $0,000
Class C $0,000 $0,000 $0,000 $923 $0,000
Minnesota High Yield Fund
Class A $175 $167 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $357 $0,000
Class C $0,000 $0,000 $0,000 $1,559 $0,000
Tax-Free Missouri Insured Fund
Class A $1,717 $1,272 $968 $11,063 $0,000
Class B $400 $0,000 $335 $3,002 $0,000
Class C $0,000 $0,000 $0,000 $77 $0,000
Tax-Free New Mexico Fund
Class A $1,233 $534 $399 $2,262 $0,000
Class B $0,000 $0,000 $0,000 $0,000 $0,000
Class C $0,000 $0,000 $0,000 $36 $0,000
Tax-Free New York Fund
Class A $321 $151 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $24 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Interest
Annual/ on
Semi- Broker Dealer Broker Commissions Promotional-
Annual Broker Sales Service Sales to Broker
Advertising Reports Trails Charges Expenses Charges Wholesalers Meetings
----------- ------- ------ ------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free North Dakota Fund
Class A $0,000 $3,974 $21,991 $0,000 $1,969 $0,000 $4,691 $2,801
Class B $0,000 $0,000 $1,333 $2,660 $104 $1,397 $221 $28
Class C $0,000 $0,000 $212 $19 $0,000 $52 $0,000 $0,000
Tax-Free Oregon Insured Fund
Class A $0,000 $2,358 $30,970 $0,000 $0,000 $0,000 $1,145 $202
Class B $0,000 $0,000 $8,960 $19,026 $164 $10,342 $1,676 $221
Class C $0,000 $0,000 $1,946 $1,545 $0,000 $318 $587 $0,000
Tax-Free Utah Fund
Class A $0,000 $421 $1,767 $0,000 $904 $0,000 $369 $973
Class B $0,000 $0,000 $628 $2,418 $0,000 $283 $101 $28
Tax-Free Washington Insured Fund
Class A $0,000 $201 $2,786 $0,000 $0,000 $0,000 $0,000 $30
Class B $0,000 $0,000 $1,844 $2,630 $0,000 $2,500 $321 $34
Class C $0,000 $0,000 $109 $360 $0,000 $167 $104 $0,000
Tax-Free Wisconsin Fund
Class A $0,000 $2,191 $45,146 $0,000 $0,000 $0,000 $3,451 $202
Class B $0,000 $0,000 $3,631 $6,225 $0,000 $4,069 $726 $0,000
Class C $0,000 $0,000 $3,113 $2,384 $0,000 $392 $834 $0,000
</TABLE>
[RESTUB FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Promotional- Prospectus Wholesaler
Other Printing Telephone Expenses Other
------------ ---------- --------- ---------- ------
<S> <C> <C> <C> <C> <C>
Tax-Free North Dakota Fund
Class A $2,449 $1,173 $2,051 $10,317 $0,000
Class B $0,000 $0,000 $0,000 $137 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Oregon Insured Fund
Class A $2,109 $1,135 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $81 $1,485 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Utah Fund
Class A $845 $255 $388 $1,906 $0,000
Class B $0,000 $0,000 $0,000 $403 $0,000
Tax-Free Washington Insured Fund
Class A $295 $565 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $0,000 $0,000 $0,000
Class C $0,000 $0,000 $0,000 $0,000 $0,000
Tax-Free Wisconsin Fund
Class A $2,235 $1,356 $0,000 $0,000 $0,000
Class B $0,000 $0,000 $55 $0,000 $0,000
Class C $0,000 $0,000 $0,000 $289 $0,000
</TABLE>
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<PAGE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits as set
by the Distributor, may receive from the Distributor an additional payment of up
to 0.25% of the dollar amount of such sales. The Distributor may also provide
additional promotional incentives or payments to dealers that sell shares of the
funds in the Delaware Investments family. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of fund shares
in the Delaware Investments family.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be reinvested without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors or 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 of a Fund and shares of any of the 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 shares at net asset
value. Class A Shares may also be purchased at net asset value by current and
former officers, directors and employees (and members of their families) of the
Dougherty Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months of a change of the registered representative's employment, if the
purchase is funded by proceeds from an investment where a front-end sales
charge, contingent deferred sales charge or other sales charge has been
assessed. Purchases of Class A Shares may also be made at net asset value by
bank employees who provide services in connection with agreements between the
bank and unaffiliated brokers or dealers concerning sales of shares of funds in
the Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. 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 the Funds may reasonably require to establish eligibility for
purchase at net asset value.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Investments family at net asset value.
Each Fund must be notified in advance that the trade qualifies for
purchase at net asset value.
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<PAGE>
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
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 Funds, 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 fund in the Delaware Investments family which do not carry a front-end
sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a fund in
the Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter. For purposes of satisfying an
investor's obligation under a Letter of Intention, Class B Shares and Class C
Shares of each Fund and the corresponding classes of shares of other funds in
the Delaware Investments family which offer such shares may be aggregated with
Class A Shares of a Fund and the corresponding class of shares of the other
funds in the Delaware Investments family.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of the Class A Shares, Class B Shares and/or
Class C Shares of the Funds, as well as any other class of any of the other
funds available from the Delaware Investments family (except shares of any
funds in the Delaware Investments family which do not carry a front-end sales
charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund,
Inc. beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). 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 family 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 funds in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired
-87-
<PAGE>
through an exchange from a fund in the Delaware Investments family which carried
a front-end sales charge, CDSC or Limited CDSC). Using the Tax-Free Funds as an
example, if any such purchaser has previously purchased and still holds shares
of Class A Shares of those Funds 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 a Tax-Free Fund, the
charge applicable to the $60,000 purchase would be 3.00%. For the purpose of
this calculation, the shares presently held shall be valued at the public
offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges in the Prospectus for Class A Shares to determine the
applicability of the Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in Class A Shares of that Fund or in Class A Shares of any of the other
funds in the Delaware Investments family, subject to applicable eligibility and
minimum purchase requirements, in states where shares of such other funds may be
sold, at net asset value without the payment of a front-end sales charge. This
privilege does not extend to Class A Shares where the redemption of the shares
triggered the payment of a Limited CDSC. Persons investing redemption proceeds
from direct investments in mutual funds in the Delaware Investments family
offered without a front-end sales charge, will be required to pay the applicable
sales charge when purchasing Class A Shares. The reinvestment privilege does not
extend to a redemption of either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account, will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus) in connection with the features
described above.
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<PAGE>
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Classes in which an investor has an account (based on the net asset value of
that Fund in effect on the reinvestment date) and will be credited to the
shareholder's account on that date. A confirmation 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 Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions from a Fund in any of the other mutual funds in the Delaware
Investments family, 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, service
fee, CDSC or Limited CDSC. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Additional Methods of Adding to Your Investment - Dividend Reinvestment
Plan under How to Buy Shares in the Prospectus.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Investments family may be invested in shares of
the Funds at net asset value, provided an account has been established.
Dividends from Class A Shares may not be directed to Class B Shares or Class C
Shares. Dividends from Class B Shares may only be directed to other Class B
Shares, and dividends from Class C Shares may only be directed to other Class C
Shares.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for a Fund to
accept for investment, through an agent bank, preauthorized government or
private recurring payments. This method of investment assures the timely credit
to the shareholder's account of payments such as social security, veterans'
pension or compensation benefits, federal salaries, Railroad Retirement
benefits, private payroll checks, dividends, and disability or pension fund
benefits. It also eliminates lost, stolen and delayed checks.
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<PAGE>
Automatic Investing Plan-- The Automatic Investing Plan enables
shareholders to make regular monthly investments without writing checks.
Shareholders may authorize, in advance, to make arrangements for their bank to
withdraw a designated amount monthly directly from their checking account for
deposit into a Class. 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 such
Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact the Funds for proper
instructions.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in a Class
through regular liquidations of shares in their accounts in other mutual funds
available from the Delaware Investments family. Shareholders of each Class may
also elect to invest in one or more of the other mutual funds in the Delaware
Investments family through our Wealth Builder Option. See Wealth Builder Option
and Redemption and Exchange in the Prospectus.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Prospectus. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
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<PAGE>
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation in Wealth Builder at
any time by giving written notice to the Fund from which exchanges are made.
Asset Planner
To invest in funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing accounts
in the Delaware Investments family into the Asset Planner service may be made at
net asset value under the circumstances described under Investing by Exchange in
the Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes
of Shares in the Prospectus. The minimum initial investment per Strategy is
$2,000; subsequent investments must be at least $100. Individual fund minimums
do not apply to investments made using the Asset Planner service. Class A
Shares, Class B Shares and Class C Shares are available through the Asset
Planner service. Generally, only shares within the same class may be used within
the same Strategy. However, Class A Shares of a Fund and of other funds in the
Delaware Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other funds in the Delaware Investments
family.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
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<PAGE>
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by that Fund, its agent 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 that Fund or its
agent. Selling dealers have the responsibility of transmitting orders promptly.
The offering price of Class A Shares consists of the net asset value
per share, plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m. Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for 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 Funds will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in 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 and dividing by the number of shares outstanding. Expenses and
income are accrued daily. In determining a Fund's total net assets, certain
portfolio securities are valued at fair value, using methods determined in good
faith by the Board of Directors or 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 Funds. In
addition, money market instruments having a maturity of less than 60 days are
valued at amortized cost.
In addition, when determining a Fund's total net assets, certain
portfolio securities, except for bonds, which are primarily listed or traded on
a national or foreign securities exchange are valued at the last sale price on
that exchange. Options are valued at the last reported sales price or, if no
sales are reported, at the mean between bid and asked prices. Securities not
traded on a particular day, over-the-counter securities and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Use of a pricing service
has been approved by the Board of Directors.
Each Class of a Fund will bear, pro-rata, all of the common expenses of
the particular Fund. The net asset values of all outstanding shares of each
Class of each Fund will be computed on a pro-rata basis for each outstanding
share based on the proportionate participation in such Fund represented by the
value of shares of that Class. All income earned and expenses incurred by a Fund
will be borne on a pro-rata basis by each outstanding share of a Class, based on
each Class' percentage in such Fund represented by the value of shares of such
Classes, except that the Class A Shares, Class B Shares and Class C Shares alone
will bear the 12b-1 Plan
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expenses payable under their respective Plans. Due to the specific distribution
expenses and other costs that would be allocable to each Class, the dividends
paid to each Class of a Fund may vary. However, the net asset value per share of
each Class of a Fund is expected to be equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require a Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to that Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares only if a shareholder specifically requests them. Certificates are not
issued for Class B Shares or Class C Shares. If stock certificates have been
issued for shares being redeemed, they must accompany the written request. For
redemptions of $50,000 or less paid to the shareholder at the address of record,
the request must be signed by all owners of the shares or the investment dealer
or record, but a signature guarantee is not required. When the redemption is for
more than $50,000, or if payment is made to someone else or to another address,
signatures of all record owners and a signature guarantee are required. A
signature guarantee can be obtained from a commercial bank, a trust company or a
member of a securities transfer association medallion program. A signature
guarantee cannot be provided by a notary public. A signature guarantee is
designed to protect the shareholders, the Funds and their agents from fraud.
Each Fund reserves the right to reject a signature guarantee supplied by an
eligible institution based on its creditworthiness. The Funds may request
further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund,
its agent, or certain other authorized persons less any applicable CDSC or
Limited CDSC. This is computed and effective at the time the offering price and
net asset value are determined. See Determining Offering Price and Net Asset
Value. The Funds and the Distributor end their business days at 5 p.m. Eastern
time. This offer is discretionary and may be completely withdrawn without
further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to any applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus. Class B Shares of Tax-Free Funds,
Insured Funds and Minnesota 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 Tax-Free Intermediate Funds are subject to a CDSC of: (i) 2% if
shares are redeemed within two years of purchase; (ii) 1% if shares are redeemed
during the third year following purchase; and (iii) 0% thereafter. See
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Classes of Shares in the Prospectus. Except for the applicable CDSC or Limited
CDSC, and with respect to the expedited payment by wire for which there is
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currently a $7.50 bank wiring cost, neither the Funds nor the Distributor
charges a fee for redemptions or repurchases, but such fees could be charged at
any time in the future.
Payment for shares redeemed will ordinarily be mailed the next business
day, but no later than seven days, after receipt of a redemption request in good
order by a Fund, its agent or certain other authorized persons (see Distribution
and Service under Management of the Funds); provided, however, that each
commitment to mail or wire redemption proceeds by a certain time, as described
below, is modified by the qualifications described in the next paragraph.
Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the check has cleared. The hold period against a
recent purchase may be up to but not in excess of 15 days, depending upon the
origin of the investment check. Dividends will continue to be earned until the
redemption is processed. This potential delay can be avoided by making
investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the Fund
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to such Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, a shareholder may withdraw the request for redemption
or leave it standing as a request for redemption at the net asset value next
determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made in either cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sales by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, the Funds
have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
the Funds are obligated to redeem Fund shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of such Fund during any 90-day period for
any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Small Accounts
Before a Fund involuntarily redeems shares from an account that, under
the circumstances noted in the relevant Prospectus, has remained below the
minimum amounts required by the Prospectus and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than the minimum required by the Prospectus and
will be allowed 60 days from the date of notice to
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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.
Expedited Telephone Redemptions
Shareholders or their investment dealers of record wishing to redeem
any amount of shares of $50,000 or less for which certificates have not been
issued may call the Shareholders Service Center at 800-523-1918 prior to the
time the offering price and net asset value are determined, as noted above, and
have the proceeds mailed to them at the record address. Checks payable to the
shareholder(s) of record will normally be mailed the next business day, but no
later than seven days, after the receipt of the redemption request. This option
is only available to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with a Fund before the request is received. Payment will
be made by wire or check to the bank account designated on the authorization
form as follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by First Union National
Bank which will be deducted from the withdrawal proceeds each time the
shareholder requests a redemption. If the proceeds are wired to the
shareholder's account at a bank which is not a member of the Federal Reserve
System, there could be a delay in the crediting of the funds to the
shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, after the date of
the telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the
relevant Fund and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
If expedited payment under these procedures could adversely affect a
Fund, that Fund may take up to seven days to pay the shareholder.
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Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, a Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders are generally tape recorded. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone.
Systematic Withdrawal Plan
Shareholders of Class A 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. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder, (unless such date falls on a holiday or a weekend) and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of a Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may in time be depleted, particularly in a declining market.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated.
Withdrawals under this plan made concurrently with the purchase of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in a
retirement plan or is investing in funds in the Delaware Investments family
which do not carry a sales charge. Redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount
selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge - Class B Shares and Class C Shares and Waiver of Limited
Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange
in the Prospectus. Shareholders should consult their financial advisers to
determine whether a Systematic Withdrawal Plan would be suitable for them.
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
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signature on this authorization must be guaranteed. Each signature guarantee
must be supplied by an eligible guarantor institution. Each Fund reserves the
right to reject a signature guarantee supplied by an eligible institution based
on its creditworthiness. This plan may be terminated by the shareholder or the
Transfer Agent at any time by giving written notice.
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DISTRIBUTIONS
Each Fund declares a dividend to shareholders of that Fund's net
investment income on a daily basis. Dividends are declared each day the Funds
are open and cash dividends are paid monthly. Net investment income earned on
days when each Fund is not open will be declared as a dividend on the next
business day. 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.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying such Fund's credit policies, the purchase will start earning
dividends on the date the wire is received. Investors desiring to guarantee wire
payments must have an acceptable financial condition and credit history in the
sole discretion of that Fund. The Funds reserve the right to terminate this
option at any time. Purchases by check earn dividends upon conversion to Federal
Funds, normally one business day after receipt.
Each Class will share proportionately in the investment income and
expenses of its respective Fund, except that Class A Shares, Class B Shares and
Class C Shares alone will incur distribution fees under their respective 12b-1
Plan.
Dividends are automatically reinvested in additional shares of the
paying Fund at net asset value, unless an election to receive dividends in cash
has been made. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid by separate check
at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above.
Any distributions from net realized securities profits will be made
annually during the quarter following the close of the fiscal year. Such
distributions will be reinvested in shares, unless the shareholder elects to
receive them in cash. Shareholders will receive a quarterly statement showing a
Class' dividends paid and all the transactions made during the period.
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
such Fund's effort to locate a shareholder if a shareholder's mail is returned
by the United States Post Office or such 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.
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Each Fund anticipates that most of its dividends paid to shareholders
will be exempt from federal income taxes.
Under the Taxpayer Relief act of 1997 (the "1997 Act"), as revised by
the Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
Act"), 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 of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities sold by
a Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by a Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by a Fund after
July 28, 1997 that were held for more than 18 months. As revised by the
1998 Act, this rate applies to securities held for more than 12 months
for tax years beginning after December 31, 1997. These gains will be
taxable to individual investors at a maximum rate of 20% for investors
in the 28% or higher federal income tax brackets, and at a maximum rate
of 10% for investors in the 15% federal income tax bracket.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares (any loss is disallowed) in order to
qualify such shares as qualified 5-year property. These gains will be
taxable to individual investors at a maximum rate of 18% for investors
in the 28% or higher federal income tax brackets, and at a maximum rate
of 8% for investors in the 15% federal income tax bracket.
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TAXES
Under the Code, all or a portion of the interest on indebtedness
incurred or continued to purchase or carry shares of an investment company
paying exempt-interest dividends, such as each of the Funds, will not be
deductible by a shareholder. Indebtedness may be allocated to shares of a Fund
even though not directly traceable to the purchase of such shares.
Each Fund's present policy is to designate exempt-interest dividends at
each daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
Each Fund will be subject to a nondeductible excise tax equal to 4% of
the excess, if any, of the taxable amount required to be distributed for each
calendar year over the amount actually distributed. In order to avoid this
excise tax, each Fund must declare dividends by the end of the calendar year
representing 98% of such Fund's ordinary income for the calendar year and 98% of
its capital gain net income (both long- and short-term capital gain) for the
12-month period ending on October 31 of such year. For purposes of the excise
tax, any income on which a Fund has paid corporate-level tax is considered to
have been distributed. Each Fund intends to make sufficient distributions each
year to avoid the payment of the excise tax.
Under a special provision of the Revenue Reconciliation Act of 1993,
all or a portion of the gain that a Fund realizes on the sale of a Tax Exempt
Obligation that it purchased at a market discount may have to be treated as
ordinary income rather than capital gain.
For shareholders who are recipients of Social Security benefits,
exempt-interest dividends are includable in computing "modified adjusted gross
income" for purposes of determining the amount of Social Security benefits, if
any, that is required to be included in gross income. The maximum amount of
Social Security benefits that may be included in gross income is 85%.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's
regular income tax liability (with certain adjustments). Exempt-interest
dividends attributable to interest income on certain tax-exempt obligations
issued after August 7, 1986 to finance private activities are treated as an item
of tax preference that is included in alternative minimum taxable income for
purposes of computing the federal AMT for all taxpayers and the federal
environmental tax on corporations. In addition, all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be included
in adjusted current earnings for purposes of determining the federal corporate
AMT and the environmental tax imposed on corporations by Section 59A of the
Code. Liability for AMT will depend on each shareholder's individual tax
situation.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
bonds held by the Funds. The Funds will avoid investment in bonds which, in the
opinion of the investment adviser, pose a material risk of the loss of tax
exemption. Further, if a bond in any Fund's portfolio lost its exempt status,
such Fund would make every effort to dispose of such investment on terms that
are not detrimental to that Fund.
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Gain or loss on options is taken into account when realized by entering
into a closing transaction or by exercise. In addition, with respect to many
types of options held at the end of a Fund's taxable year, unrealized gain or
loss on such contracts is taken into account at the then current fair market
value thereof under a special "marked-to-market, 60/40 system," and such gain or
loss is recognized for tax purposes. The gain or loss from such options
(including premiums on certain options that expire unexercised) is treated as
60% long-term and 40% short-term capital gain or loss, regardless of their
holding period. The amount of any capital gain or loss actually realized by a
Fund in a subsequent sale or other disposition of such options will be adjusted
to reflect any capital gain or loss taken into account by such Fund in a prior
year as a result of the constructive sale under the "marked-to-market, 60/40
system."
Certain information about state taxation is contained in the
Prospectus. Additional information about California, Iowa and Wisconsin follows:
California State Taxation. Present California law taxes both long-term
and short-term capital gains at the rates applicable to ordinary income.
Interest on indebtedness incurred or continued by a shareholder in connection
with the purchase of shares of California Funds will not be deductible for
California personal income tax purposes. California has an alternative minimum
tax similar to the federal alternative minimum tax described above. However, the
California alternative minimum tax does not include interest from private
activity bonds as an item of tax preference. Generally, corporate shareholders
of a California Fund subject to the California franchise tax will be required to
include any gain on an exchange or redemption of shares and all distributions of
exempt interest, capital gains and other taxable income, if any, as income
subject to such tax. The California Funds will not be subject to California
franchise or corporate income tax on interest income or net capital gain
distributed to the shareholders. Shares of the California Funds will be exempt
from local property taxes in California.
Iowa State Taxation. Iowa taxes long-term capital gains at the same
rates as ordinary income, while imposing limitations on the deductibility of
capital losses similar to those under federal law.
Iowa imposes an alternative minimum tax on individuals and corporations
to the extent that such tax exceeds the taxpayer's regular tax liability. Iowa
AMT is based on federal alternative minimum taxable income, with certain
adjustments. The Fund has received a ruling to the effect that dividends paid by
the Iowa Fund that are attributable to interest paid on obligations issued by
the State of Iowa, its political subdivisions, agencies and instrumentalities,
the interest on which is exempt under Iowa statute, and on obligations of U. S.
territories and possessions will not be subject to the AMT that Iowa imposes on
individuals and corporations.
Wisconsin State Taxation. Wisconsin taxes long-term capital gains at
the same rates as ordinary income, while imposing limitations on the
deductibility of capital losses similar to those under federal law.
Wisconsin imposes an alternative minimum tax on individuals, trusts and
estates to the extent that such tax exceeds a taxpayer's regular tax liability.
Wisconsin's AMT is based on federal alternative minimum taxable income, with
certain adjustments. The Fund has received a ruling to the effect that dividends
paid by the Wisconsin Fund that are attributable to interest paid on obligations
issued by the State of Wisconsin or its agencies, the interest on which is
exempt from Wisconsin personal income tax under Wisconsin statute, and on
obligations of U. S. territories and possessions will not be subject to the
Wisconsin AMT when received by shareholders subject to the Wisconsin personal
income tax.
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INVESTMENT MANAGEMENT AGREEMENTS
Delaware Management Company (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 its Board of Directors or
Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On August 31, 1998, the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $39 billion in assets in
the various institutional or separately managed (approximately $26,098,390,000)
and investment company (approximately $13,866,120,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as each Fund's
investment adviser, subject to the authority of the Board of Directors or
Trustees. 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. Lincoln National, 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 Funds' previous investment advisory agreements with
Voyageur were "assigned", as that term is defined by the 1940 Act, and the
previous agreements therefore terminated upon the completion of the acquisition.
On February 14, 1997, new advisory agreements with the Manager on behalf of the
Tax-Free Arizona Intermediate Fund, Tax-Free California Intermediate Fund,
Tax-Free Colorado Insured Fund, Tax-Free Colorado Intermediate Fund, the Florida
Funds, and Tax-Free New York Fund and with Voyageur on behalf of the other Funds
were unanimously approved by each Fund's respective board at a meeting held in
person, and each such board called a shareholder meeting to approve these
agreements. At a meeting held on April 11, 1997, the shareholders of each Fund
approved its respective investment management agreement 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 these other Funds.
Beginning May 1, 1997, the Manager, an indirect, wholly owned
subsidiary of LNC, was retained as investment manager of Tax-Free Arizona
Intermediate Fund, Tax-Free California Intermediate Fund, Tax-Free Colorado
Insured Fund, Tax-Free Colorado Intermediate Fund, the Florida Funds, and
Tax-Free New York Fund and Voyageur was retained as investment manager for the
other Funds.^ The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a business trust
on March 1, 1998.
The Investment Management Agreement, into which each Fund's investment
manager has entered, has an initial term of two years and may be renewed each
year only so long as such renewal and continuance are specifically approved at
least annually by the Board of Directors or Trustees or by vote of a majority of
the outstanding voting securities of the Fund to which the Agreement relates,
and only if the terms and the renewal thereof have been approved by the vote of
a majority of the directors or trustees of the Funds who are not parties thereto
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. Each Agreement is terminable without
penalty on 60 days' notice by the directors or
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trustees of the Funds or by the Manager. Each Agreement will terminate
automatically in the event of its assignment.
Effective January 1, 1999, each Fund pays the Manager a monthly
investment advisory and management fee equivalent on an annual basis, of its
average daily net assets, to the rates set forth below.
Tax-Free Arizona Insured Fund 0.50%
Tax-Free Arizona Intermediate Fund 0.40%
Tax-Free Arizona Fund 0.50%
Tax-Free California Insured Fund (1)
Tax-Free California Intermediate Fund 0.40%
Tax-Free California Fund 0.50%
Tax-Free Colorado Insured Fund 0.50%
Tax-Free Colorado Intermediate Fund 0.40%
Tax-Free Colorado Fund 0.50%
Tax-Free Florida Insured Fund (1)
Tax-Free Florida Fund (2)
Tax-Free Idaho Fund 0.50%
Tax-Free Iowa Fund 0.50%
Tax-Free Kansas Fund (2)
Minnesota Insured Fund 0.50%
Tax-Free Minnesota Intermediate Fund 0.40%
Tax-Free Minnesota Fund 0.50%
Minnesota High Yield Fund 0.65%
Tax-Free Missouri Insured Fund (1)
Tax-Free New Mexico Fund (2)
Tax-Free New York Fund 0.50%
Tax-Free North Dakota Fund 0.50%
Tax-Free Oregon Insured Fund (1)
Tax-Free Utah Fund (2)
Tax-Free Washington Insured Fund (1)
Tax-Free Wisconsin Fund 0.50%
(1) 0.50% on the first $500 million; 0.475% on the next $500 million; 0.45%
on the next $1,500 million; and 0.425% on assets in excess of $2,500
million.
(2) 0.55% on the first $500 million; 0.50% on the next $500 million; 0.45%
on the next $1,500 million; and 0.425% on assets in excess of $2,500
million.
In connection with the merger transaction described above, the Manager
has agreed for a period of two years ending on April 30, 1999, to voluntarily
waive that portion, if any, of the annual management fees payable by each Fund
and to pay that Fund's expenses to the extent necessary to ensure that such
Fund's total operating expenses (excluding 12b-1 Plan fees, interest expense,
taxes, brokerage fees and commissions) do not exceed, on an annual basis, 1.00%
of the average daily net assets of each Class of that Fund. This agreement
replaces a similar provision in the Funds' investment advisory contracts with
the Funds' predecessor investment adviser. The Manager and the Distributor
reserve the right to voluntarily waive their fees in whole or part and
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to voluntarily pay or reimburse certain other of the Fund's expenses. This
agreement replaces a similar provision in the Fund's investment advisory
contracts with the Fund's predecessor investment adviser.
On August 31, 1998, the total net assets of each Fund were as follows:
Tax-Free Arizona Insured Fund $184,715,115
Tax-Free Arizona Fund $17,760,529
Tax-Free California Insured Fund $35,624,802
Tax-Free California Fund $21,336,053
Tax-Free Colorado Fund $369,921,391
Tax-Free Florida Insured Fund $150,861,624
Tax-Free Florida Fund $13,910,425
Tax-Free Idaho Fund $49,035,875
Tax-Free Iowa Fund $44,479,722
Tax-Free Kansas Fund $16,368,658
Minnesota Insured Fund $296,638,076
Tax-Free Minnesota Intermediate Fund $57,256,434
Tax-Free Minnesota Fund $431,272,464
Minnesota High Yield Fund $51,811,770
Tax-Free Missouri Insured Fund $58,367,598
Tax-Free New Mexico Fund $23,331,323
Tax-Free New York Fund $10,505,033
Tax-Free North Dakota Fund $31,505,567
Tax-Free Oregon Insured Fund $31,346,335
Tax-Free Utah Fund $3,411,122
Tax-Free Washington Insured Fund $3,913,284
Tax-Free Wisconsin Fund $38,392,887
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The Manager makes and implements all investment decisions on behalf of
the Funds. The Funds pay all of their other expenses. Set forth below is
information regarding the amount of investment advisory fees incurred, paid and
waived, if any, by each Fund to the Manager or Voyageur, whichever the case may
be, during the periods indicated.
<TABLE>
<CAPTION>
Investment Investment Fees Waived
Advisory Fees Advisory Fees and Expenses
Incurred Paid Paid
------------- ------------- ------------
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund
1/1/98-8/31/98 $619,756 $535,646 $84,110
5/1/97-12/31/97 $652,289 $584,130 $68,159
1/1/97-4/30/97 $341,216 $311,799 $29,417
1/1/96-12/31/96 $1,119,609 $1,119,609 None
1/1/95-12/31/95 $1,223,121 $1,163,121 $60,000
Tax-Free Arizona Fund
1/1/98-8/31/98 $53,250 None $61,174
5/1/97-12/31/97 $48,532 None $49,907
1/1/97-4/30/97 $21,995 None $34,425
1/1/96-12/31/96 $55,464 None $90,000
3/2//95(1)-12/31/95 $14,301 None $29,842
Tax-Free California Insured Fund
1/1/98-8/31/98 $109,350 $108,264 $1,086
5/1/97-12/31/97 $114,802 $113,884 $918
1/1/97-4/30/97 $60,088 $51,460 $8,628
1/1/96-12/31/96 $192,101 $117,101 $75,000
1/1/95-12/31/95 $184,315 $194,315 $90,000
Tax-Free California Fund
1/1/98-8/31/98 $44,783 None $76,468
5/1/97-12/31/97 $21,305 None $43,102
1/1/97-4/30/97 $3,980 None $10,565
1/1/96-12/31/96 $7,369 None $40,001
3/3/95(1)-12/31/95 $ 4,468 None $18,442
Tax-Free Colorado Fund
1/1/98-8/31/98 $1,229,144 $1,003,319 $225,825
5/1/97-12/31/97 $1,199,154 $1,020,963 $178,191
1/1/97-4/30/97 $588,023 $588,023 None
1/1/96-12/31/96 $1,865,515 $1,865,515 None
1/1/95-12/31/95 $1,944,802 $1,944,802 None
</TABLE>
-106-
<PAGE>
<TABLE>
<CAPTION>
Investment Investment Fees Waived
Advisory Fees Advisory Fees and Expenses
Incurred Paid Paid
------------- ------------- ------------
<S> <C> <C> <C>
Tax-Free Florida Insured Fund
1/1/98-8/31/98 $529,873 $340,976 $188,897
5/1/97-12/31/97 $571,547 $461,777 $109,770
1/1/97-4/30/97 $305,198 $305,198 None
1/1/96-12/31/96 $1,074,026 $1,049,026 $25,000
1/1/95-12/31/95 $1,235,118 $755,118 $480,000
Tax-Free Florida Fund
1/1/98-8/31/98 $39,404 None $43,020
5/1/97-12/31/97 $27,555 None $28,543
1/1/97-4/30/97 $12,388 None $15,447
1/1/96-12/31/96 $29,915 None $60,727
3/2/95(1)-12/31/95 $10,974 None $25,984
Tax-Free Idaho Fund
1/1/98-8/31/98 $152,524 $132,155 $20,369
5/1/97-12/31/97 $130,918 $76,955 $26,963
1/1/97-4/30/97 $57,986 $27,984 $30,002
1/1/96-12/31/96 $131,410 $1,410 $130,000
1/4/95(1)-12/31/95 $38,282 None $68,278
Tax-Free Iowa Fund
1/1/98-8/31/98 $143,522 $115,543 $27,979
5/1/97-12/31/97 $139,262 $122,155 $17,107
1/1/97-4/30/97 $68,692 $62,756 $5,936
1/1/96-12/31/96 $217,160 $212,160 $5,000
1/1/95-12/31/95 $193,451 $148,451 $45,000
Tax-Free Kansas Fund
1/1/98-8/31/98 $51,288 $41,153 $10,135
5/1/97-12/31/97 $44,934 $22,579 $22,355
1/1/97-4/30/97 $21,163 $18,426 $2,737
1/1/96-12/31/96 $60,154 $30,154 $30,000
1/1/95-12/31/95 $ 47,512 None $50,000
Tax-Free Minnesota Intermediate Fund
1/1/98-8/31/98 $157,232 $157,232 None
5/1/97-12/31/97 $162,269 $162,269 None
1/1/97-4/30/97 $84,555 $59,658 $24,897
1/1/96-12/31/96 $281,038 $281,038 None
1/1/95-12/31/95 $298,529 $278,529 None
Minnesota Insured Fund
1/1/98-8/31/98 $990,662 $951,207 $39,455
5/1/97-12/31/97 $1,000,967 $968,290 $32,677
1/1/97-4/30/97 $502,457 $473,267 $29,190
1/1/96-12/31/96 $1,518,301 $1,518,301 None
1/1/95-12/31/95 $1,541,687 $1,516,687 $25,000
</TABLE>
-107-
<PAGE>
<TABLE>
<CAPTION>
Investment Investment Fees Waived
Advisory Fees Advisory Fees and Expenses
Incurred Paid Paid
------------- ------------- ------------
<S> <C> <C> <C>
Tax-Free Minnesota Fund
1/1/98-8/31/98 $1,427,564 $1,340,807 $86,757
5/1/97-12/31/97 $1,423,345 $1,353,410 $69,935
1/1/97-4/30/97 $706,459 $612,643 $93,816
1/1/96-12/31/96 $2,222,690 $2,222,690 None
1/1/95-12/31/95 $2,229,862 $2,229,862 None
Minnesota High Yield Fund
1/1/98-8/31/98 $168, 083 None $204,795
1/1/97-12/31/97 $136,823 None $136,823
6/4/96(1)-12/31/96 $17,203 None $17,203
Tax-Free Missouri Insured Fund
1/1/98-8/31/98 $196,563 $156,816 $39,747
5/1/97-12/31/97 $200,279 $185,491 $14,788
1/1/97-4/30/97 $97,877 $97,877 None
1/1/96-12/31/96 $290,247 $195,247 $95,000
1/1/95-12/31/95 $250,578 $80,578 $170,000
Tax-Free New Mexico Fund
1/1/98-8/31/98 $73,889 $53,004 $20,885
5/1/97-12/31/97 $68,560 $59,118 $9,442
1/1/97-4/30/97 $34,332 $34,332 None
1/1/96-12/31/96 $107,784 $107,784 None
1/1/95-12/31/95 $108,209 $108,209 None
Tax-Free New York Fund
1/1/98-8/31/98 $33,403 $25,972 $9,796
5/1/97-12/31/97 $30,450 $21,543 $8,907
1/1/97-4/30/97 $16,645 None $27,742
10/1/96-12/31/96(2) $17,615 None $23,062
10/1/95-9/30/96 $93,048 $68,468 $24,580
10/1/94-9/30/95 $99,309 $36,213 $63,096
Tax-Free North Dakota Fund
1/1/98-8/31/98 $105,393 $73,673 $31,720
5/1/97-12/31/97 $106,481 $93,426 $13,055
1/1/97-4/30/97 $54,890 $54,890 None
1/1/96-12/31/96 $175,239 $175,239 None
1/1/95-12/31/95 $179,121 $179,121 None
Tax-Free Oregon Insured Fund
1/1/98-8/31/98 $100,177 $36,024 $64,153
5/1/97-12/31/97 $92,073 $50,164 $41,909
1/1/97-4/30/97 $42,995 $23,231 $19,764
1/1/96-12/31/96 $124,769 $59,769 $65,000
1/1/95-12/31/95 $103,343 $28,343 $75,000
</TABLE>
-108-
<PAGE>
<TABLE>
<CAPTION>
Investment Investment Fees Waived
Advisory Fees Advisory Fees and Expenses
Incurred Paid Paid
------------- ------------- ------------
<S> <C> <C> <C>
Tax-Free Utah Fund
1/1/98-8/31/98 $12,120 $2,122 $9,998
5/1/97-12/31/97 $12,748 $3,176 $9,572
1/1/97-4/30/97 $6,749 None $85,084
1/1/96-12/31/96 $21,935 None $30,000
1/1/95-12/31/95 $20,769 None $35,000
Tax-Free Washington Insured Fund
1/1/98-8/31/98 $12,090 None $20,276
5/1/97-12/31/97 $10,565 None $14,700
1/1/97-4/30/97 $4,896 None $12,854
1/1/96-12/31/96 $12,662 None $34,628
1/1/95-12/31/95 $10,374 None $23,126
Tax-Free Wisconsin Fund
1/1/98-8/31/98 $123,329 $113,696 $9,633
5/1/97-12/31/97 $100,882 $79,307 $21,575
1/1/97-4/30/97 $48,044 $46,138 $1,906
1/1/96-12/31/96 $141,262 $131,262 $10,000
1/1/95-12/31/95 $123,548 $123,548 None
</TABLE>
(1) Commencement of operations.
(2) Effective December 31, 1996, Tax-Free New York Fund changed its fiscal
year from September 30 to December 31.
Set forth below is information regarding the amount of transfer agent
fees and accounting services fee paid by each Fund to Delaware Service Company,
Inc. during the fiscal period ended August 31,1998.
<TABLE>
<CAPTION>
Transfer Agent Fees Accounting Services Fees
------------------- ------------------------
<S> <C> <C>
Tax-Free Arizona $8,762 $5,124
Tax-Free Arizona Insured 59,920 48,400
Tax-Free California 8,450 3,498
Tax-Free California Insured 11,600 8,800
Tax-Free Colorado 186,968 102,524
Tax-Free Florida 6,096 2,112
Tax-Free Florida Insured 84,767 44,374
Tax-Free Idaho 27,978 11,960
Tax-Free Iowa 26,872 10,624
Tax-Free Kansas 11,022 4,011
Tax-Free Minnesota 217,074 111,476
Minnesota Insured 132,000 78,100
Tax-Free Minnesota Intermediate 30,720 15,600
Minnesota Bond 25,454 10,080
Tax-Free Missouri Insured 35,285 15,850
Tax-Free New Mexico 13,639 5,766
</TABLE>
-109-
<PAGE>
<TABLE>
<CAPTION>
Transfer Agent Fees Accounting Services Fees
------------------- ------------------------
<S> <C> <C>
Tax-Free New York 8,725 2,765
Tax-Free North Dakota 25,879 7,938
Tax-Free Oregon Insured 19,634 7,875
Tax-Free Utah 5,076 1,070
Tax-Free Washington Insured 5,232 840
Tax-Free Wisconsin 20,108 9,771
</TABLE>
Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution Agreements, the
Funds are responsible for all of their 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.
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 March 1, 1997. 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 Plan for
each such Class. Delaware Distributors, L.P. 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 ^ an Amended and Restated Shareholders Services Agreement dated
April 30, 1997. 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. and, therefore, Lincoln National Corporation.
The Funds have authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Funds. For purposes of pricing, the Funds
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.
-110-
<PAGE>
OFFICERS AND DIRECTORS/TRUSTEES
The business and affairs of the Funds are managed under the direction of
its Board of Directors or Trustees.
Certain officers and directors or trustees of the Funds hold identical
positions in each of the other funds in the Delaware Investments family. As of
September 30, 1998, the officers and directors or trustees of each investment
company, as a group, owned less than 1% of the of the outstanding shares of each
class of the Funds.
As of September 30, 1998, management believes the following accounts
held 5% or more of a Class of shares of a Fund. With the exception of DMC Profit
Sharing Plans, the Funds have no knowledge of beneficial ownership.
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Arizona Merrill Lynch, Pierce, Fenner & Smith 1,351,889 8.70%
Insured Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Arizona Robert D Wickwire TTEE 43,000 9.80%
Insured Fund Class B Shares Robert D. Wickwire Rev
6050 N. Camino Esplendora
Tucson, AZ 85718
Southwest Securities, Inc. 28,541 6.50%
For the Benefit of John N. Booth
P.O. Box 509002
Dallas, TX 75250
BA Investment Services, Inc. 23,217 5.29%
185 Berry St., Third Floor, #2640
San Francisco, CA 94107
Tax-Free Arizona Dean Witter for the Benefit of the 19,929 36.59%
Insured Fund Class C Shares Arp Trust 1986 Survivors Trust
Mary Arp & Carol Linda Dodge TTEES
Church St. Station - P.O. Box 250
New York, NY 10013
BA Investment Services, Inc. 8,942 16.42%
185 Berry St., Third Floor #2640
San Francisco, CA 94107
BT Alex Brown Incorporated 6,000 11.01%
P.O. Box 1346
Baltimore, MD 21203
</TABLE>
-111-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Arizona Harriet J. Welch TTEE 3,888 7.14%
Insured Fund Class C Shares The Welch Family Trust
15612 East Willis
Gilbert, AZ 85296
Dean Witter 2,811 5.16%
For the Benefit of Paul A. Zucarelli and
Mary Beth Zucarelli
5 World Trade Center - 6th Floor
New York, NY 10048
Tax-Free Arizona Fund Dain Rauscher Incorporated. 186,714 17.11%
Class A Shares For the Benefit of Gaylord Rubin &
Beverly Rubin CO-TTEES
Gaylord & Beverly Rubin Family Trust
4712 East Palo Verde Drive
Phoenix, AZ 85018
Dorothy H. Green TTEE 77,561 7.10%
Green Family Trust
5002 E. Mesquite Wood Court, Ste. 700
Phoenix, AZ 85044
Merrill Lynch, Pierce Fenner & Smith 56,090 5.13%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Tax-Free Arizona Fund Dain Rauscher Incorporated 27,212 6.05%
Class B Shares FBO Gaylord Rubin & Beverly Rubin CO-TTEES
Gaylord & Beverly Rubin Family Trust
4712 East Palo Verde Drive
Phoenix, AZ 85018
Tax-Free Arizona Fund Margaret L. Minder Urban TTEE 22,646 40.18%
Class C Shares Margaret L. Minder Urban REV TRUST
6710 Mamaronick Drive
Tucson, AZ 85718
BA Investments Services, Inc. 8,251 14.63%
For the Benefit of #428737371
185 Berry Street - 3rd Floor
San Francisco, CA 94107
Mabel F. Peterson TTE 6,862 12.17%
Peterson Family Trust
9689 East Frito Avenue
Mesa, AZ 85208
</TABLE>
-112-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Paine Webber 5,691 10.09%
FBO Carol J. Griffin and
Dale Griffin JT/WROS
6738 North Shadow Run Drive
Tucson, AZ 85704
BA Investments, Inc. 3,978 7.05%
For the Benefit of #428737291
185 Berry Street - 3rd Floor
San Francisco, CA 94107
Tax-Free California Insured Margaret R. Peterson TTEE 271,248 10.56%
Fund Class A Shares The Peterson Family Trust
539 East Walnut
Burbank, CA 91501
Tax-Free California Insured Dorothy L. Auger & Peter J. Bassing
40,388 6.70%
Fund Class B Shares Dorothy L. Auger Rev. Trust
17 St. Francis Lane
San Rafael, CA 94901
Tax-Free California Insured Donaldson Lufkin Jenrette 34,404 82.79%
Fund Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
BT Alex Brown Incorporated 4,530 10.90%
P.O. Box 1346
Baltimore, MD 21203
Tax-Free California Fund U.S. Bancorp 321,378 25.20%
Class A Shares For the Benefit of #348872081
100 South Fifth Street, Ste. 1400
Minneapolis, MN 55402
Donaldson Lufkin Jenrette 182,063 14.27%
Securities Corporation, Inc.
Jersey City, NJ 07303
Margaret R. Peterson TTEE 179,372 14.06%
The Peterson Family Trust
539 East Walnut
Burbank, CA 91501
Tax-Free California Fund Merrill Lynch, Pierce, Fenner & Smith 48,932 5.81%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
</TABLE>
-113-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free California Fund James Hitchin Trust 27,329 39.04%
Class C Shares James Hitchin TTEE
14074 Rue St. Raphael
Del Mar, CA 92014
Merrill Lynch. Pierce, Fenner & Smith 9,018 12.88%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Robert W. Oates 4,626 6.60%
and Cynthia S. Oates JT WROS
656 West School Street
Cotati, CA 94931
Paine Webber 4,608 6.58%
For the Benefit of Sol Selik Trustee of
The Selik Family Trust
23046 Eriel Avenue
Torrance, CA 90505
Long Q. Nguyen 4,362 6.23%
Thoa K. Nguyen JT TEN
3229 Adelanto Lane
San Jose, CA 95135
Tax-Free Colorado Fund Merrill Lynch, Pierce, Fenner & Smith 19,751 10.52%
Class C Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
MBR Electric 16,127 8.59%
7135 Newton Street
Westminster, CO 80030
Marjorie J. Ottino TTEE 9,467 5.04%
Joseph W. Ottino TTEE
Joseph W. & Marjorie J. Ottino Trust
4258 South Shore Court
Fort Collins, CO 80524
Tax-Free Florida Merrill Lynch, Pierce, Fenner & Smith 34,736 14.25%
Intermediate Fund For the Sole Benefit of its Customers
Class A Shares Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
</TABLE>
-114-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
William Holskin 13,362 5.48%
Frances Holskin JT TEN
9289 Byron Avenue
Surfside, FL 33154
Gloria R. Johnson et al TTEES 12,959 5.31%
Gloria Holt Russell Trust
Bears Paw Country Club
1512 Wildwood Lane
Naples, FL 34105
Tax-Free Florida Salomon Smith Barney 9,833 13.20%
Intermediate Fund 388 Greenwich St.
Class B Shares New York, NY 10013
John A. Dragseth TTEE 7,686 10.32%
John A. Dragseth Trust
3623 South East Old St. Lucie Blvd.
Stuart, FL 34996
Smith Barney 5,784 7.76%
388 Greenwich Street
New York, NY 10013
WCG Investment Partnership 5,729 7.69%
Attn: Howard Wolofsky
c/o Reflections
3400 North East 34th Street, Ste. 101
Ft. Lauderdale, FL 33308
Paine Webber 5,702 7.65%
For the Benefit of Michael Nader
P.O. Box 1031
Elfers, FL 34680
James R. Dunn 5,433 7.29%
746 Riverside Drive
Ormond Beach, FL 32176
Georgellen E. Wilder TTEE 4,340 5.82%
Georgellen E. Wilder Trust
5489 Lake Tyner Drive
Orlando, FL 32839
Tax-Free Florida Prudential Securities, Inc. 5,209 100.00%
Intermediate Fund FBO Mrs. June L. Mason
Class C Shares June L. Mason REV LIV TRUST
1180 Reef Road, Apt. A19
Vero Beach FL 32963
</TABLE>
-115-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Florida Insured Merrill Lynch, Pierce, Fenner & Smith 1,347,729 10.54%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Florida Insured Merrill Lynch, Pierce, Fenner & Smith 41,115 10.89%
Fund Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Florida Fund SunTrust Bank Tampa Bay 68,829 7.77%
Class A Shares FBO Ron Slivka
Donna Slivka
P.O. Box 105870
Atlanta, GA 30348
Advest, Inc. 65,815 7.43%
90 State House Square
Hartford, CT 06103
Tax-Free Florida Fund Merrill Lynch, Pierce, Fenner & Smith 64,145 20.54%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
June Canfield TTEE 22,533 7.21%
Bertha Deboor Char. Unitrust
5450 Northeast 22nd Avenue
Fort Lauderdale, FL 33308
Tax-Free Florida Fund Jack C. Shaw and Lula A. Shaw ^ TTEES 12,774 25.82%
Class C Shares BQK # 021083
2156 Northeast 24th Street
Wilton Manors, FL 33305
Jack C. Shaw and Lula A. Shaw 10,776 21.85%
2156 Northeast 24th Street
Wilton Manors, FL 33305
Mary J. Manns 9,918 20.11%
2628 Nantucket Lane
Tallahassee, FL 32308
</TABLE>
-116-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Paine Webber 6,309 12.79%
For the Benefit of William H. Opalka and
Lotte S. Opalka TTEES
William H. Opalka Loving Trust
3825 Ming Tree Drive
New Port Richey, FL 34652
Dorothy C. Fisher and Harry F. Fisher JT TTEES 4,529 9.18%
Dorothy Fisher Rev. Trust
1048 Main Street
Sebastain, FL 32958
Tax-Free Idaho Fund Merrill Lynch, Pierce, Fenner & Smith 636,647 18.54%
Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Idaho Fund Merrill Lynch, Pierce, Fenner & Smith 211,578 31.49%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Idaho Fund Joseph Daltoso 11,005 7.37%
Class C Shares 1225 Warm Spring Ave.
Boise, ID 83712
Merrill Lynch, Pierce, Fenner & Smith 10,960 7.34%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Archie Lurus & Georgia Lurus JT/WROS 10,468 7.01%
2391 North 55th East
Idaho Falls, ID 83401
Key Clearing Corp. 8,935 5.98%
4900 Tiedeman Road
Brooklyn, OH 44144
</TABLE>
-117-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Iowa Fund Alex P. Despenas 67,113 16.78%
Class B Shares Ethel Despenas TEN COM
960 Briarstone
Mason City, IA 50401
c/o Earl Van Zante 29,384 7.34%
Edith Roorda
2220 Adams Avenue
Pella, IA 50219
Tax-Free Iowa Fund David W. Oberbroeckling and 12,654 10.98%
Class C Shares Julia A. Oberbroeckling JT WROS
3702 Wisconsin Avenue
Davenport, IA 52806
c/o McCullough Law Firm 11,962 10.38%
Paine Webber
For the Benefit of Erin McCullough
326 Fourth Street - P.O. Box 305
Lake View, IA 51450
Donald R. Kurtz 11,002 9.55%
Mildred Kurtz JT TEN
1010 Plane Street
Burlington, IA 52601
Mary M. Phillips 7,115 6.17%
1001 Gary Avenue
Spirit Lake, IA 51360
Tax-Free Kansas Fund Alena M. Hess, Trustee 72,903 6.41%
Class A Shares Alena M. Hess Trust
P.O. Box 53
Louisburg, KS 66053
Thomas B. Robinson TR 57,302 5.03%
Thomas B. Robinson Donor
6401 Norwood Drive
Shawnee Mission, KS 66208
Tax-Free Kansas Fund Merrill Lynch, Pierce, Fenner & Smith 27,538 8.18%
Class B Shares For the Sole Benefit of its Customers
Attn Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Prudential Securities, Inc. 23,803 7.07%
FBO Frank F. Castellano and
Patricia J. Castellano JT WROS
14032 Hayes Street
Overland Park, KS 66221
</TABLE>
-118-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
William T. Martin TTEE 23,324 6.93%
William T. Martin TR
2652 West 118th Terrace
Leawood, KS 66211
Tax-Free Kansas Fund Gilbert O. Sears 4,149 36.59%
Class C Shares TOD Megan R. Fishpool
Lisa Papadopoulos
Tricia R. Sears
213 East Parliament
Smith Center, KS 66967
Harold L. Smith 2,999 26.45%
TOD Sheryl S. Olson
David A. Smith
Jayne A. Radley & Marcia L. Vaughn
1708 Arrowhead
Derby, KS 67037
O.J. O'Connell, Jr. TEN 2,311 20.38%
O.J. O'Connell, Jr. REV LIV TR
P.O. Box 6
El Dorado, KS 67042
Richard L. McClelland 12,771 11.26%
Nyllia Jo McClelland JT TEN
15405 West 144th Terrace
Olathe, KS 66062
Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith 236,626 5.36%
Intermediate Fund For the Sole Benefit of its Customers
Class A Shares Attn Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Minnesota Shirley L. McClure 12,970 9.33%
Intermediate Fund 4749 Maryland Avenue, North
Class B Shares Minneapolis, MN 55428
CIBC Oppenheimer Corp. 11,764 8.47%
P.O. Box 3484
Church Street Station
New York, NY 10008
John E. Carlson 10,886 7.83%
921 Western Avenue, North
St. Paul, MN 55117
</TABLE>
-119-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Larry C. Jordan 10,063 7.24%
1633 Eustis
St Paul, MN 55108
Band & Co. 9,510 6.84%
c/o Firststar Trust Co. TTEE
P.O. Box 1787
Milwaukee, WI 53201
U.S. Bancorp Investments, Inc. 7,737 5.57%
100 South Fifth Street, Ste. 1400
Minneapolis, MN 55402
Lois M. Hoffman TTEE 7,733 5.56%
Lois M. Hoffman Trust
2265 Youngman Avenue, #203E
St. Paul, MN 55116
Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith 24,321 16.31%
Intermediate Fund For the Sole Benefit of its Customers
Class C Shares Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Emery Jahnke 13,080 8.77%
Ann Jahnke JT TEN
2402 Lilac Lane
Fargo, ND 58102
Allen J. and Diane K. Volkenant TTEES 9,323 6.25%
Allen J. Volkenant ^ Rev. Trust
808 Coventry Place
Edina, MN 55435
Minnesota Insured Fund Merrill Lynch, Pierce, Fenner & Smith 43,497 14.91%
Class C Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Lucille P. Weimert 19,440 6.66%
238 North Plainview Ave
Mankato, MN 56001
</TABLE>
-120-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith 2,088,023 6.50%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Minnesota Merrill Lynch, Pierce, Fenner & Smith 47,642 5.89%
Fund Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Minnesota Donaldson Lufkin Jenrette 47,721 11.68%
Fund Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Mark A. Hamre 38,757 9.48%
130 Lake Park Place
Fairmont, MN 56031
Merrill Lynch, Pierce, Fenner & Smith 35,571 8.70%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Donald E. Horne 30,658 7.50%
Beatice Y. Horne JT TEN
4515 Merrywood Lane
Excelsior, MN 55331
Minnesota High-Yield Woodland Development Corporation 370,714 11.51%
Municipal Bond Fund Attn: Larry Carlson
Class A Shares 830 West Main Street
Anoka, MN 55303
George A. Vitale & Ada A. Vitale 238,103 7.39%
George A & Ada A. Vitale Rev. Trust
P.O. Box 628
Nisswa, MN 56468
</TABLE>
-121-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Minnesota High-Yield Merrill Lynch, Pierce, Fenner & Smith 232,815 17.98%
Municipal Bond Fund For the Sole Benefit of its Customers
Class B Shares Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Minnesota High-Yield Merrill Lynch, Pierce, Fenner & Smith 93,803 18.83%
Municipal Bond Fund For the Sole Benefit of its Customers
Class C Shares Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Andrew Ellis 39,508 7.93%
Harriet A. Ellis JT TEN
5201 Belmont
Minneapolis, MN 55419
Bonnie D. Kersting and 38,711 7.77%
Steven M. Kersting TTEES
Bonnie D. Kersting Rev. Trust
17751 Layton Path
Lakeville, MN 55044
Tax-Free Missouri Insured Merrill Lynch, Pierce, Fenner & Smith 233,202 5.54%
Fund Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Missouri Insured George A. Rhodes 5,000 46.54%
Fund Class C Shares TOD Russell G. Rhodes
1359 East Stoneridge Dr.
Springfield, MO 65803
Bryan E. Jaynes 2,020 18.80%
6434 Alamo Avenue, Apt #2W
St Louis, MO 63105
Maida Ann VanPelt 1,876 17.46%
Donald Lee VanPelt
2401 Still Meadows Lane
Blue Springs, MO 64015
Norman R. Meier 934 8.69%
Norman R. & Martha Jean Meier
1569 Autumn Leaf Drive
Ballwin, MO 60321
</TABLE>
-122-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free New Mexico Fund Merrill Lynch, Pierce, Fenner & Smith 323,969 17.49%
Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free New Mexico Fund Legg Mason Wood Walker, Inc. 13,181 8.92%
Class B Shares P.O. Box 1476
Baltimore, MD 21203
Arnold A. Elsbernd & 11,841 8.01%
Helen G. Elsbernd
Elsbernd Family Trust
5525 Edwards Dr., NE
Albuquerque, NM 87111
Jeanne Chintis and Nicholas Chintis TTEES 9,998 6.76%
For the Benefit of the Chintis Family Trust
P.O. Box 2332
Silver City, NM 88062
Virginia Blakeslee 8,949 6.05%
250 East Alameda Street
Santa Fe, NM 87501
Norwest Investment Services, Inc. 8,863 5.99%
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402
J. Thomas Brewer 8,636 5.84%
Nona Brewer JT TEN
2102 Runyan Avenue
Artesia, NM 88210
Byrd T. Mooney 7,613 5.15%
610 East 16th Street
Farmington, NM 87401
Adele A. Anderson TTEE 7,484 5.06%
For the Adele A. Anderson Rev. Living Trust
2916 Cutler Avenue NE
Albuquerque, NM 87106
</TABLE>
-123-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free New Mexico Fund Title Services, Inc 8,417 23.23%
Class C Shares Attn: Bob Harris
P.O. Box 696
Raton, NM 87740
Donaldson Lufkin Jenrette 7,029 19.40%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
R. Harold Wingo 3,287 9.07%
Ethel J. Wingo JT TEN
TOD David N. Wingo & Raymond M. Wingo
725 Collier Avenue
Raton, NM 87740
Bob Harris 3,287 9.07%
Kathy R. Harris
712 South 5th Street
Raton, NM 87740
Donaldson Lufkin Jenrette 2,956 8.15%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Kathleen Porter Harris 2,080 5.74%
TOD Bob Harris
712 South 5th Street
Raton, NM 87740
Michael D. Cox & 2,038 5.62%
Sharon A. Sivinski JT WROS
1336 Lobo Place, NE
Albuquerque, NM 87106
</TABLE>
-124-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free New York Fund Merrill Lynch, Pierce, Fenner & Smith 10,696 24.20%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, Fl 32246
Charlotte A. Corbett 9,543 21.59%
6211 Seneca Street
P.O. Box 46
Springbrook, NY 14140
Robert J. Potts and 2,897 6.55%
Theodora M. Potts JT WROS
77 Steven Place
Smithtown, NY 11787
Claudia Schellenberg 2,878 6.51%
3243 90th Street, Apt. 202
Flushing, NY 11369
Ann Dexter Jones 2,509 5.67%
279 Central Park West
New York, NY 10024
Key Clearing Corp. 2,362 5.34%
4900 Tiedeman Road
Brooklyn, OH 44144
Tax-Free New York Fund Donaldson Lufkin Jenrette 5,463 74.59%
Class C Shares Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
Sarah R. Sealy 1,860 25.40%
3244 Hone Avenue
Bronx, NY 10469
Tax-Free North Dakota Wilkota and Company 245,937 9.23%
Fund Class A Shares 1st National Bank & Trust Co. of Williston
P.O. Box 1827
Williston, ND 58802
Tax-Free North Dakota Merrill Lynch, Pierce, Fenner & Smith 9,725 10.77%
Fund Class B Shares For The Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Edward D Jones & Co F/A/O 9,298 10.29%
Arthur N. Lee
P.O. Box 2500
Maryland Heights, MO 63043
Susan K Krueger 4,732 5.24%
P.O. Box 716
West Fargo, ND 58078
Wesley W. Weeding 4,683 5.18%
Geraldine M. Weeding JTTEN
331 West 6th Street
West Fargo, ND 58078
</TABLE>
-125-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free North Dakota Jacob N. Gust 2,476 95.11%
Fund Class C Shares Barbara A. Olive JT TEN
4614 81st N
Fargo, ND 58102
Tax-Free Oregon Insured Merrill Lynch, Pierce, Fenner & Smith 232,796 9.49%
Class A Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Tax-Free Oregon Insured Glenn F. Taylor & 23,128 19.38%
Class B Shares Opal E. Taylor JT WROS
3760 Highway 101
Florence, OR 97439
Ralph W. Sheffer & 19,047 15.96%
Marciel L. Sheffer TTEE
Ralph W. & L. Marciel Sheffer Rev. Liv. Trust
2147 Madison Street SE
Albany, OR 97321
PaineWebber 15,436 12.93%
For the Benefit of the Herbert L. Bodner Trust
and The Bodner Family Trust
1419 NW 14th
Portland, OR 97209
Donaldson Lufkin Jenrette 10,856 9.09%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303
G. Collen Kinney & 8,776 7.35%
Dale G. Kinney JT WROS
2345 Salem Avenue SE
Albany, OR 97321
Kenneth E. Hansen and 8,776 7.35%
Melanie L. Hansen JT WROS
1444 4th Street
Astoria, OR 97103
Laveta Louise Bizon 6,199 5.19%
17661 Boones Ferry Road NE
Hubbard, OR 97032
</TABLE>
-126-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Utah Fund Merrill Lynch, Pierce, Fenner & Smith 21,560 8.82%
Class A Shares For The Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Salomon Smith Barney Inc. 19,293 7.89%
388 Greenwich Street
New York, NY 10013
Prudential Securities 14,842 6.07%
For the Benefit of Janet G. Parberry TTEE
Arden B. Gundersen and
Valoise Gundersen Trust
3276 English Way
Sandy, UT 84093
Paine Webber 14,117 5.77%
For the Benefit of Harry D. Burkhalter
P.O. Box 711
Midway, UT 84049
Paine Webber 13,319 5.45%
For the Benefit of Reed A. Stout TTEE
For the Benefit of Eunice R. Stout Trust
3839 Highland Cove Lane Apt. 304
Salt Lake City, UT 84106
Prudential Securities, Inc. 13,014 5.32%
For the Benefit of Morris E. Sorenson TTEE
Morris E. Sorenson Family Rev. Trust
Ephraim, UT 84627
</TABLE>
-127-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Utah Fund Prudential Securities, Inc. 24,624 48.25%
Class B Shares For the Benefit of William T. Logan &
Sally M. Logan JT TEN
2426 Iron Canyon Drive
Park City, UT 84060
Salomon Smith Barney Inc. 11,446 21.49%
388 Greenwich Street
New York, NY 10013
Prudential Securities Inc. 10,163 19.08%
For the Benefit of Robert Frank Mensel TTEE
Rev. Trust
1270 North Cottonwood Circle
Heber, UT 84032
Tax-Free Washington Salomon Smith Barney, Inc. 13,619 6.34%
Insured Fund Class A 388 Greenwich Street
Shares New York, NY 10013
Raymond James & Assoc., Inc. 11,988 5.58%
James & Geneva Kirkland TTEES
2802 Ocean Beach Highway
Longview, WA 98632
Edward D. Jones and Co. 11,388 5.30%
Elsie H. Hansch
P.O. Box 2500
Maryland Heights, MO 63043
Tax-Free Washington PaineWebber 25,055 18.63%
Insured Fund Class B For the Benefit of the Hogin Family Trust
Shares Richard D. Hogin & Mariann Hogin TTEES
7624 North Panorama Drive
Spokane, WA 99208
Edward D. Jones & Co. 9,290 6.90%
Randall J. McEwen and Frances A. McEwen TTEES
P.O. Box 2500
Maryland Heights, MO 63043
PaineWebber 7,649 5.68%
FBO Arne L. Filan
40 South Division
Walla Walla, WA 99362
W. J. Ryan & Mary Forrestal Ryan TTEES 7,572 5.63%
W. J. Ryan and Mary Forrestal Ryan Trust
720 Seneca Street, Room 203
Seattle, WA 98101
</TABLE>
-128-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Washington PaineWebber 18,781 70.63%
Insured Fund Class For the Benefit of Delbert L. Moore
C Shares 1702 Moore Road
Colfax, WA 99111
Leonard F. Jansen 4,834 18.17%
2027 East Upriver Drive, Apt. S-31
Spokane, WA 99207
Walter G. Neiman 2,034 7.64%
2041 Cloverdale Rd
Kalama, WA 98625
Tax-Free Wisconsin Fund Salomon Smith Barney 347,437 9.95%
Class A Shares 388 Greenwich Street
New York, NY 10013
Paine Webber 332,520 9.52%
For the Benefit of Bayban
c/o First State Bank of Bayport
Attn: Barb Monteith
950 North Highway 95
Bayport, MN 55003
Tax-Free Wisconsin Fund Merrill Lynch, Pierce, Fenner & Smith 16,192 5.99%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Dean G. Thomas 15,237 5.63%
c/o Carl Pieper
P.O. Box 177
Stoughton, WI 53589
</TABLE>
-129-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Tax-Free Wisconsin Fund Everen Clearing Corp. 26,900 20.74%
Class C Shares Alan R. Hyman & Harriet S. Hyman
111 East Kilbourn Avenue
Milwaukee, WI 53202
Everen Clearing Corp. 20,389 15.72%
Beverly Humleker Calhoun Trust
111 East Kilbourn Avenue
Milwaukee, WI 53202
Dean Witter 12,111 9.33%
For the Benefit of Eugene Cudewicz
3856 East Somens Avenue
Cudahy, WI 53110
Everen Clearing Corp. 8,775 6.76%
Robert P. Fahey
111 East Kilbourn Avenue
Milwaukee, WI 53202
Merrill Lynch, Pierce, Fenner & Smith 8,425 6.49%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, Second Floor
Jacksonville, FL 32246
Everen Clearing Corp. 6,931 5.34%
Harry A. Palmiter
111 East Kilbourn Avenue
Milwaukee, WI 53202
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., Delaware
Management Business Trust, Delaware Management Company ^(a series of Delaware
Management Business Trust), 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 Delaware
Investment & Retirement 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 was
completed. DMH and the Manager are indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
Certain officers and directors or trustees of the Funds hold identical
positions in each of the other funds in the Delaware Investments family.
Directors or Trustees and principal officers of the 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 or trustee is One
Commerce Square, Philadelphia, PA 19103.
-130-
<PAGE>
*Wayne A. Stork (61)
Chairman and Director and/or Trustee of each of the six investment
companies, 28 other investment companies in the Delaware
Investments family and Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc. and
Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware
Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management
Business Trust)
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd., Delaware International Holdings
Ltd. and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc. Chairman of
Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Retirement Financial
Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
* Jeffrey J. Nick (45)
President, Chief Executive Officer and Director and/or Trustee of each
of the six investment companies and 28 other investment companies in
the Delaware Investments family President and Director of Delaware
Management Holdings, Inc. President, Chief Executive Officer and
Director of Lincoln National Investment Companies, Inc. President of
Lincoln Funds Corporation Director of Delaware International Advisers
Ltd. From 1992 to 1996, Mr. Nick was Managing Director of Lincoln
National UK plc and from 1989 to
1992, he was Senior Vice President responsible for corporate
planning and development for Lincoln National Corporation.
- ---------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-131-
<PAGE>
Richard G. Unruh, Jr. (59)
Executive Vice President of each of the six investment companies and 28
other investment companies in the Delaware Investments family,
Delaware Management Holdings, Inc., Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware
Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.
Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of each
of the six investment companies and 28 other investment
companies in the Delaware Investments family, Delaware
Management Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and
Delaware Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for Delaware Investments.
-132-
<PAGE>
David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of each of the six investment companies and 28 other
investment companies in the Delaware Investments family,
Delaware Management Holdings, Inc, Founders CBO Corporation,
Delaware Capital Management, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc. and
Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Delaware Management
Trust Company and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
During the past five years, Mr. Downes has served in various executive
capacities at different times within the Delaware organization.
Walter P. Babich (71)
Director and/or Trustee of each of the six investment companies and
28 other investment companies in the Delaware Investment family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
-133-
<PAGE>
Anthony D. Knerr (59)
Director and/or Trustee of each of the six investment companies and
28 other investment companies in the Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989,
he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group, Inc.,
New York, from 1988 to 1990. Mr. Knerr founded The Publishing
Group, Inc. in 1988.
Ann R. Leven (57)
Director and/or Trustee of each of the six investment companies and 28
other investment companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975 to
1992, she was Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (77)
Director and/or Trustee of each of the six investment companies and
28 other investment companies in the Delaware Investments
family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman
Thomas F. Madison (62)
Director and/or Trustee of each of the six investment companies and
28 other investment companies in the Delaware Investments
family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc
Mr. Madison has also been Chairman of the Board of
Communications Holdings, Inc. since 1996. From February to
September 1994, Mr. Madison served as Vice Chairman--Office of
the CEO of The Minnesota Mutual Life Insurance Company and from
1988 to 1993, he was President of U.S. WEST
Communications--Markets.
Charles E. Peck (72)
Director and/or Trustee of each of the six investment companies and
28 other 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.
-134-
<PAGE>
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of each of the
six investment companies and 28 other investment companies in
the Delaware Investments family
Senior Vice President and Secretary of Delaware Distributors, L.P.,
Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Management
Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp.,
Delaware Management Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings, Inc.,
Retirement Financial Services, Inc., Delaware Capital
Management, Inc.,
Delvoy, Inc. and Delaware Management Business Trust
Executive Vice President, Secretary and Director of Delaware Management
Trust Company
Senior Vice President and Director of Delaware International Holdings
Ltd.
Director of Delaware International Advisers Ltd.
Secretary of Lincoln Funds Corporation
Attorney.
During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware
organization.
Joseph H. Hastings (48)
Senior Vice President/Corporate Controller of each of the six
investment companies and 28 other investment companies in the
Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delawar
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Delaware International
Holdings Ltd., Delvoy, Inc. and Delaware Management Business
Trust
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Treasurer of Lincoln Funds Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.
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<PAGE>
Michael P. Bishof (36)
Senior Vice President/Treasurer of each of the six investment
companies and 28 other investment companies in the Delaware
Investments family and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service
Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting
of Delaware Distributors, L.P. and Delaware Investment Advisers
(a series of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.
Patrick P. Coyne (35)
Vice President/Senior Portfolio Manager of each of the six
investment companies, of 17 other funds in the Delaware
Investments family, Delaware Capital Management, Inc., Delaware
Management Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust) and Delaware Investment
Advisers (a series of Delaware
Management Business Trust)
During the past five years, Mr. Coyne has served in various capacities
at different times within the Delaware organization.
Mitchell L. Conery (39)
Vice President/Senior Portfolio Manager of each of the six
investment companies, of 17 other funds 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.
Elizabeth H. Howell (36)
Vice President/Senior Portfolio Manager of each of the six
investment companies, Delaware Management Company, Inc. and
Delaware Management Company (a series of Delaware Management
Business Trust)
Before joining Delaware Investments in 1997, Ms. Howell was a senior
portfolio manager with Voyageur Fund Managers, Inc.
Andrew M. McCullagh, Jr. (50)
Vice President/Senior Portfolio Manager of each of the six
investment companies, one other investment company in Delaware
Investments, Delaware Management Company, Inc. and Delaware
Management Company (a series of Delaware Management Business
Trust)
Before joining Delaware Investments in 1997, Mr. McCullagh was a
senior portfolio manager with Voyageur Funds Managers.
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<PAGE>
The following is a compensation table listing for each director or
trustee entitled to receive compensation, the aggregate compensation expected to
be received from each investment company noted below during the actual fiscal
year and the total compensation received from all investment companies in the
Delaware Investments family for the fiscal period ended August 31, 1998 and an
estimate of annual benefits to be received upon retirement under the Delaware
Investments Retirement Plan for Directors/Trustees as of August 31, 1998. Only
the independent directors or trustees of the Funds receive compensation from the
Funds.
<TABLE>
<CAPTION>
Total
Compensation
from all 34
Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur Investment
Tax Free Insured Invest- Inter. Tax Mutual Mutual Companies
Funds Funds ment Free Funds Funds Funds II in Delaware
Director/Trustee Inc.(1) Inc.(1) Trust(1) Inc.(1) Inc.(1) Inc.(1) Investments(2)
<S> <C> <C> <C> <C> <C> <C> <C>
W. Thacher Longstreth $1,099 $1,148 $914 $475 $765 $956 $63,447
Ann R. Leven $1,211 $1,268 $997 $490 $825 $1,045 $69,609
Walter P. Babich $1,193 $1,248 $984 $487 $815 $1,030 $68,448
Anthony D. Knerr $1,193 $1,248 $984 $487 $815 $1,030 $68,448
Charles E. Peck $1,099 $1,148 $914 $475 $765 $956 $63,447
Thomas F. Madison $1,134 $1,186 $940 $480 $784 $984 $64,698
Pension or Retirement Benefits Accrued
as Part of each Investment Company's Expenses
Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur
Tax Free Insured Invest- Inter. Tax Mutual Mutual
Funds Funds ment Free Funds Funds Funds II
Director Inc. Inc. Trust Inc. Inc. Inc.
W. Thacher Longstreth none none none none none none
Ann R. Leven none none none none none none
Walter P. Babich none none none none none none
Anthony D. Knerr none none none none none none
Charles E. Peck none none none none none none
Thomas F. Madison none none none none none none
</TABLE>
(1) The current Board of Directors or Trustees was elected by shareholders of
each investment company on April 11, 1997 and began serving on May 1, 1997.
With the exception of Thomas F. Madison, none of the current directors or
trustees had served on the prior Board. Compensation figures are estimates
of payments for each investment company's current fiscal year.
(2) Each independent director/trustee currently receives a total annual retainer
fee of $38,500 for serving as a director or trustee for all 34 investment
companies in Delaware Investments, plus $3,145 for each Board Meeting
attended. Ann R. Leven, Walter P. Babich, Anthony D. Knerr and Thomas F.
Madison serve on each 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.
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<PAGE>
<TABLE>
<CAPTION>
Estimated Annual Benefits Upon Retirement(3)
Voyageur Voyageur Voyageur Voyageur Voyageur Voyageur
Tax Free Insured Invest- Inter. Tax Mutual Mutual
Funds Funds ment Free Funds Funds Funds II
Director Inc. Inc. Trust Inc. Inc. Inc.
<S> <C> <C> <C> <C> <C> <C>
W. Thacher Longstreth $38,500 $38,500 $38,500 $38,500 $38,500 $38,500
Ann R. Leven $38,500 $38,500 $38,500 $38,500 $38,500 $38,500
Walter P. Babich $38,500 $38,500 $38,500 $38,500 $38,500 $38,500
Anthony D. Knerr $38,500 $38,500 $38,500 $38,500 $38,500 $38,500
Charles E. Peck $38,500 $38,500 $38,500 $38,500 $38,500 $38,500
Thomas F. Madison $38,500 $38,500 $38,500 $38,500 $38,500 $38,500
</TABLE>
(3) 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
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, 1998, he or she would be entitled
to annual payments totaling $38,500, in the aggregate, from all of the
investment companies in the Delaware Investments family, based on the number
of investment companies in the Delaware Investments family as of that date.
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<PAGE>
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of each Fund's
Classes and for shareholders of classes of other funds in the Delaware
Investments family are set forth in the relevant prospectuses for such classes.
The following supplements that information. Each Fund may modify, terminate or
suspend the exchange privilege upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current prospectus
and an authorization form for any of the other mutual funds available from the
Delaware Investments family. Exchange instructions must be signed by the record
owner(s) exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Investments family on behalf of their clients by telephone
or other expedited means. This service may be discontinued or revised at any
time by the Transfer Agent. Such exchange requests may be rejected if it is
determined that a particular request or the total requests at any time could
have an adverse effect on any of the Funds. Requests for expedited exchanges may
be submitted with a properly completed exchange authorization form, as described
above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds available from the Delaware Investments family.
This service is automatically provided unless the relevant Fund receives written
notice from the shareholder to the contrary.
Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 to effect an exchange. The
shareholder's current Fund account number must be identified, as well as the
registration of the account, the share or dollar amount to be exchanged and the
fund into which the exchange is to be made. Requests received on any day after
the time the offering price and net asset value are determined will be processed
the following day. See Determining Offering Price and Net Asset Value. Any new
account established through the exchange will automatically carry the same
registration, shareholder information and dividend option as the account from
which the shares were exchanged. The exchange requirements of the fund into
which the exchange is being made, such as sales charges, eligibility and
investment minimums, must be met. (See the prospectus of the fund desired or
inquire by calling the Transfer Agent or, as relevant, your Client Services
Representative.) Certain funds are not available for retirement plans.
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.
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<PAGE>
As described in the Funds' Prospectus, 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.
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"), each Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in funds in
the Delaware Investments family 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 a Fund within two weeks
of an earlier exchange request out of a Fund; (ii) makes more than two
exchanges out of a 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 funds in the Delaware Investments
family: (1) Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware
Fund, (4) Limited-Term Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash
Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other funds
in the Delaware Investments family are available for timed exchanges. Assets
redeemed or exchanged out of Timing Accounts in funds in the Delaware
Investments family not listed above may not be reinvested back into that Timing
Account. Each Fund reserves the right to apply these same restrictions to the
account(s) of any person whose transactions seem to follow a timing pattern (as
described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, a 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 such Fund's assets. In particular, a pattern of exchanges that coincide with
a "market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other funds
in the Delaware Investments family:
Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
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<PAGE>
Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.
Small Cap Value Fund seeks capital appreciation by investing primarily
in common stocks whose market values appear low relative to their underlying
value or future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Decatur Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Decatur Total Return Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Social Awareness Fund seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium-to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.
Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Corporate Bond Fund seeks to provide investors with total return by investing
primarily in corporate bonds. Extended Duration Bond Fund seeks to provide
investors with total return by investing primarily in corporate bonds
U.S. Government Fund seeks high current income by investing primarily
in long-term U.S. government debt obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. it seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.
Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of
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<PAGE>
securities but with an emphasis on municipal bonds protected by insurance
guaranteeing principal and interest are paid when due. 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.
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.
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.
Tax-Free New Jersey Fund seeks a high level of current interest income
exempt from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital. Tax-Free Ohio Fund seeks a high level of current
interest income exempt from federal income tax and Ohio state and local taxes,
consistent with preservation of capital. Tax-Free Pennsylvania Fund seeks a high
level of current interest income exempt from federal and, to the extent
possible, certain Pennsylvania state and local taxes, consistent with the
preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Income Portfolio seeks a combination of current income and preservation of
capital with capital appreciation by investing primarily in a mix of fixed
income and domestic equity securities, including fixed income and domestic
equity Underlying Funds. Foundation Funds Balanced Portfolio seeks capital
appreciation with current income as a secondary objective by investing primarily
in domestic equity and fixed income securities, including domestic equity and
fixed income Underlying Funds. Foundation Funds Growth Portfolio seeks long term
capital growth by investing primarily in equity securities, including equity
Underlying Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Equity Fund seeks to achieve
long-term total return by investing in global securities that provide the
potential for appreciation and income growth. Emerging Markets Fund seeks
long-term capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries.
U.S. Growth Fund seeks to maximize capital appreciation by investing in
companies of all sizes which have low dividend yields, strong balance sheets and
high expected earnings growth rates relative to their industry. Overseas Equity
Fund seeks to maximize total return (capital appreciation and income),
principally through investments in an internationally diversified portfolio of
equity securities. New Pacific Fund seeks long-term capital appreciation by
investing primarily in companies which are domiciled in or have their principal
business activities in the Pacific Basin.
Delaware Group Premium Fund, Inc. offers 16 funds available
exclusively as funding vehicles for certain insurance company separate accounts.
Decatur Total Return Series seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. Delchester Series seeks as high a
current income as possible by investing in rated and unrated corporate bonds,
U.S. government securities and commercial paper. Capital Reserves Series seeks
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<PAGE>
a high stable level of current income while minimizing fluctuations in principal
by investing in a diversified portfolio of short- and intermediate-term
securities. Cash Reserve Series seeks the highest level of income consistent
with preservation of capital and liquidity through investments in short-term
money market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Small Cap Value Series seeks
capital appreciation by investing primarily in small-cap common stocks whose
market value appears 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.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high
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<PAGE>
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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<PAGE>
GENERAL INFORMATION
The Manager is the investment manager of each Fund. The Manager also
provides investment management services to certain of the other funds in the
Delaware Investments family. The Manager, through a separate division, also
manages private investment accounts. While investment decisions for each Fund
are made independently from those of the other funds and accounts, investment
decisions for such other funds and accounts may be made at the same time as
investment decisions for each Fund.
Delaware International Advisers Ltd., or its affiliate the Manager,
also manages the investment options for Delaware Medallion(SM) III Variable
Annuity. Medallion is issued by Allmerica Financial Life Insurance and Annuity
Company (First Allmerica Financial Life Insurance Company in New York and
Hawaii). Delaware Medallion offers a variety of different investment series
ranging from domestic equity funds, international equity and bond funds and
domestic fixed income funds. Each investment series available through Medallion
utilizes an investment strategy and discipline the same as or similar to one of
the mutual funds in the Delaware Investments family available outside the
annuity. See Delaware Group Premium Fund, Inc., above.
Access persons and advisory persons of the funds in 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.
Effective March 1, 1997, the Distributor acts as sole national
distributor for each Fund and for the other mutual funds in the Delaware
Investments family. Prior thereto, the Distributor and/or Voyageur Fund
Distributors, Inc. ("VFD") acted as national distributor(s) for each Fund. The
Distributor and/or VFD received net commissions from each Fund, after
reallowances to dealers, as follows:
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<PAGE>
<TABLE>
<CAPTION>
Underwriting Commissions
Total Underwriting Commissions Retained by Underwriter
------------------------------ -----------------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
period ended year ended year ended year ended year ended year ended
8/31/98 12/31/97 12/31/96 8/31/98 12/31/97 12/31/96
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tax-Free Arizona Insured Fund $125,139 $162,464 $339,087 $18,977 $22,139 $40,338
Tax-Free Arizona Fund 34,624 47,805 104,978 5,377 6,805 13,217
Tax-Free California Insured Fund 30,767 30,039 107,617 4,563 4,208 14,226
Tax-Free California Fund 28,096 16,692 11,751 3,880 2,201 1,641
Tax-Free Colorado Fund 347,853 453,936 525,069 52,239 79,332 68,666
Tax-Free Florida Insured Fund 43,501 93,605 174,064 7,037 12,762 20,261
Tax-Free Florida Fund 52,188 26,437 41,214 7,799 3,569 5,271
Tax-Free Idaho Fund 188,855 158,771 313,894 28,012 23,159 32,689
Tax-Free Iowa Fund 78,483 95,358 167,735 10,975 12,752 26,641
Tax-Free Kansas Fund 24,725 32,401 55,360 3,464 4,550 7,686
Tax-Free Minnesota Intermediate Fund 30,062 58,451 71,429 4,484 14,687 5,306
Tax-Free Minnesota Fund 295,201 428,428 650,734 45,681 74,750 69,682
Minnesota Insured Fund 207,531 275,689 454,762 31,523 41,538 33,673
Minnesota High Yield Fund 139,770 137,364 N/A 23,189 117,637 N/A
Tax-Free Missouri Insured Fund 35,876 59,498 211,558 5,223 8,119 29,607
Tax-Free New Mexico Fund 50,817 46,722 45,937 8,164 4,168 6,724
Tax-Free New York Fund 15,202 11,429 465 2,123 1,603 0
Tax-Free North Dakota Fund 11,209 9,217 38,688 1,553 1,251 5,425
Tax-Free Oregon Insured Fund 102,635 71,994 149,165 15,563 9,496 20,166
Tax-Free Utah Fund 4,478 0 4,575 567 0 800
Tax-Free Washington Insured Fund 4,250 9,330 17,167 556 1,272 2,196
Tax-Free Wisconsin Fund 57,432 60,987 107,671 8,312 8,433 11,170
</TABLE>
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<PAGE>
The Distributor and/or VFD received in the aggregate Limited CDSC
payments with respect to Class A Shares of each Fund as follows:
Limited CDSC Payments
Class A Shares
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund 8/31/98 12/31/97 12/31/96
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund $-0- $-0- $-0-
Tax-Free Arizona Fund -0- -0- -0-
Tax-Free California Insured Fund -0- -0- -0-
Tax-Free California Fund -0- -0- -0-
Tax-Free Colorado Fund -0- -0- -0-
Tax-Free Florida Insured Fund -0- 2,443 -0-
Tax-Free Florida Fund -0- 600 -0-
Tax-Free Idaho Fund -0- 12,500 -0-
Tax-Free Iowa Fund -0- -0- -0-
Tax-Free Kansas Fund -0- -0- -0-
Tax-Free Minnesota Intermediate Fund -0- -0- -0-
Tax-Free Minnesota Fund -0- 5,000 -0-
Minnesota Insured Fund -0- -0- -0-
Minnesota High Yield Fund -0- -0- -0-
Tax-Free Missouri Insured Fund -0- -0- -0-
Tax-Free New Mexico Fund -0- -0- -0-
Tax-Free New York Fund -0- -0- -0-
Tax-Free North Dakota Fund -0- -0- -0-
Tax-Free Oregon Insured Fund -0- -0- -0-
Tax-Free Utah Fund -0- -0- -0-
Tax-Free Washington Insured Fund -0- -0- -0-
Tax-Free Wisconsin Fund -0- -0- -0-
</TABLE>
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<PAGE>
The Distributor and/or VFD received in the aggregate CDSC payments with
respect to Class B Shares of each Fund as follows:
CDSC Payments
Class B Shares
<TABLE>
<CAPTION>
Fiscal Period Ended Fiscal Year Ended Fiscal Year Ended
Fund 8/31/98 12/31/97 12/31/96
- ---- ------------------- ----------------- -----------------
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund $10,032 $27,983 $3,776
Tax-Free Arizona Fund 11,254 20,921 5,674
Tax-Free California Insured Fund 12,696 17,873 4,911
Tax-Free California Fund 6,336 2,542 -0-
Tax-Free Colorado Fund 6,647 15,156 12,013
Tax-Free Florida Insured Fund 19,856 6,964 6,555
Tax-Free Florida Fund 20,047 7,251 199
Tax-Free Idaho Fund 20,547 14,466 47
Tax-Free Iowa Fund 4,557 3,628 -0-
Tax-Free Kansas Fund 6,850 4,170 1,820
Tax-Free Minnesota Intermediate Fund 4,757 1,116 -0-
Tax-Free Minnesota Fund 12,155 13,282 11,641
Minnesota Insured Fund 16,552 5,440 3,613
Minnesota High Yield Fund 15,556 14,833 -0-
Tax-Free Missouri Insured Fund 26,709 35,076 16,189
Tax-Free New Mexico Fund -0- 3,500 4,739
Tax-Free New York Fund -0- -0- 2,119
Tax-Free North Dakota Fund 417 1,850 1,398
Tax-Free Oregon Insured Fund 13,858 1,587 12,186
Tax-Free Utah Fund -0- 600 -0-
Tax-Free Washington Insured Fund 943 1,372 317^
Tax-Free Wisconsin Fund 9,156 4 -0-
</TABLE>
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The Distributor and/or VFD^ received in the aggregate CDSC payments with
respect to Class C Shares of each Fund as follows:
CDSC Payments
Class C Shares
<TABLE>
<CAPTION>
Ended Fiscal Period Ended Fiscal Year Ended Fiscal Year
Fund 8/31/98 12/31/97 12/31/96
- ---- ------------------- ----------------- -----------
<S> <C> <C> <C>
Tax-Free Arizona Insured Fund $-0- $-0- $-0-
Tax-Free Arizona Fund -0- -0- -0-
Tax-Free California Insured Fund -0- -0- -0-
Tax-Free California Fund -0- -0- -0-
Tax-Free Colorado Fund 1,416 -0- 384
Tax-Free Florida Insured -0- -0- -0-
Tax-Free Florida Fund -0- -0- -0-
Tax-Free Idaho Fund 909 6 752
Tax-Free Iowa Fund 921 -0- -0-
Tax-Free Kansas Fund -0- 433 -0-
Tax-Free Minnesota Intermediate Fund 989 26 421
Tax-Free Minnesota Fund 143 753 16
Minnesota Insured Fund 486 497 41
Minnesota High Yield Fund 2,411 2,925 -0-
Tax-Free Missouri Insured Fund -0- -0- -0-
Tax-Free New Mexico Fund -0- 119 -0-
Tax-Free New York Fund -0- -0- -0-
Tax-Free North Dakota Fund -0- -0- -0-
Tax-Free Oregon Insured Fund 96 182 232
Tax-Free Utah Fund -0- -0- -0-
Tax-Free Washington Insured Fund -0- -0- -0-
Tax-Free Wisconsin Fund 29 30 -0-
</TABLE>
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Funds and for the
other mutual funds ^ available from the Delaware Investments family. The
Transfer Agent is paid a fee by each Fund for providing these services
consisting of an annual per account charge of $11.00 plus transaction charges
for particular services according to a schedule. Compensation is fixed each year
and approved by the Board of Directors or Trustees, including a majority of the
disinterested directors or trustees. The Transfer Agent also provides accounting
services to the Funds. Those services include performing all functions related
to calculating each 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 Funds, on an aggregate pro-rata basis. The asset-based fee
payable to the Transfer Agent is
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subject to a minimum fee calculated by determining the total number of
investment portfolios and associated classes.
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Norwest Bank Minnesota, N.A. ("Norwest"), Sixth Street & Marquette
Avenue, Minneapolis, Minnesota 55402 is custodian of each Fund's securities and
cash. As custodian for the Funds, Norwest maintains a separate account or
accounts for each Fund; receives, holds and releases portfolio securities on
account of each Fund; receives and disburses money on behalf of each Fund; and
collects and receives income and other payments and distributions on account of
each Fund's portfolio securities.
Capitalization
The Board of Directors or Trustees has allocated the following number
of shares to each Fund and their respective classes:
Voyageur Insured Funds, Inc. 10 trillion
Delaware-Voyageur Tax-Free Arizona Insured Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Delaware-Voyageur Tax-Free Colorado Insured Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Delaware-Voyageur Minnesota Insured Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Voyageur Intermediate Tax Free Funds, Inc. 10 trillion
Delaware-Voyageur Tax-Free Arizona Intermediate Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Delaware-Voyageur Tax-Free California Intermediate Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Delaware-Voyageur Tax-Free Colorado Intermediate Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Voyageur Mutual Funds II, Inc. 10 trillion
Delaware-Voyageur Tax-Free Colorado Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
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Voyageur Tax Free Funds, Inc. 10 trillion
Delaware-Voyageur Tax-Free Minnesota Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Delaware-Voyageur Tax-Free North Dakota Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Voyageur Mutual Funds, Inc.
Delaware-Voyageur Minnesota High Yield Municipal Bond Fund 100 billion
A Class 10 billion
B Class 10 billion
C Class 10 billion
Voyageur Investment Fund, Inc. has a present unlimited authorized
number of shares of beneficial interest with no par value allocated to each
Class.
While all shares have equal voting rights on matters affecting each
corporate entity, shareholders of each Fund would vote separately on any matter,
such as any change in its own investment objective and policies or action to
dissolve a Fund and as prescribed by the 1940 Act. Shares of a Fund have a
priority in the assets of that Fund, and in gains on and income from the
portfolio of such Fund. Class A Shares, Class B Shares and Class C Shares of
each Fund represent a proportionate interest in the assets of a Fund and have
the same voting and other rights and preferences, except that, as a general
matter, Class A Shares, Class B Shares and Class C Shares may vote only on
matters affecting the 12b-1 Plan that relates to the class of shares that they
hold. However, Class B Shares may vote on any proposal to increase materially
the fees to be paid by a Fund under the Plan relating to the respective Class A
Shares. The shares of each Class have no preemptive rights are fully
transferable and, when issued, are fully paid and nonassessable.
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Effective June 9, 1997, the names of the Funds were changed as follows:
<TABLE>
<CAPTION>
Previous Name New Name
<S> <C>
Voyageur Arizona Limited Term Tax Free Fun Delaware-Voyageur Tax-Free Arizona Intermediate Fund
Voyageur Arizona Insured Tax Free Fund Delaware-Voyageur Tax-Free Arizona Insured Fund
Voyageur Arizona Tax Free Fund Delaware-Voyageur Tax-Free Arizona Fund
Voyageur California Limited Term Tax Free Fund Delaware-Voyageur Tax-Free California Intermediate Fund
Voyageur California Insured Tax Free Fund Delaware-Voyageur Tax-Free California Insured Fund
Voyageur California Tax Free Fund Delaware-Voyageur Tax-Free California Fund
Voyageur Colorado Limited Term Tax Free Fund Delaware-Voyageur Tax-Free Colorado Intermediate Fund
Voyageur Colorado Insured Tax Free Fund Delaware-Voyageur Tax-Free Colorado Insured Fund
Voyageur Colorado Tax Free Fund Delaware-Voyageur Tax-Free Colorado Fund
Voyageur Florida Insured Tax Free Fund Delaware-Voyageur Tax-Free Florida Insured Fund
Voyageur Florida Tax Free Fund Delaware-Voyageur Tax-Free Florida Fund
Voyageur Idaho Tax Free Fund Delaware-Voyageur Tax-Free Idaho Fund
Voyageur Iowa Tax Free Fund Delaware-Voyageur Tax-Free Iowa Fund
Voyageur Kansas Tax Free Fund Delaware-Voyageur Tax-Free Kansas Fund
Voyageur Minnesota Limited Term Tax Free Fund Delaware-Voyageur Tax-Free Minnesota Intermediate Fund
Voyageur Minnesota Insured Fund Delaware-Voyageur Minnesota Insured Fund
Voyageur Minnesota Tax Free Fund Delaware-Voyageur Tax-Free Minnesota Fund
Voyageur Minnesota High Yield Municipal Bond Fund Delaware-Voyageur Minnesota High Yield Municipal Bond Fund
Voyageur Missouri Insured Tax Free Fund Delaware-Voyageur Tax-Free Missouri Insured Fund
Voyageur New Mexico Tax Free Fund Delaware-Voyageur Tax-Free New Mexico Fund
Voyageur New York Tax Free Fund Delaware-Voyageur Tax-Free New York Fund
Voyageur North Dakota Tax Free Fund Delaware-Voyageur Tax-Free North Dakota Fund
Voyageur Oregon Insured Tax Free Fund Delaware-Voyageur Tax-Free Oregon Insured Fund
Voyageur Utah Tax Free Fund Delaware-Voyageur Tax-Free Utah Fund
Voyageur Washington Insured Tax Free Fund Delaware-Voyageur Tax-Free Washington Insured Fund
Voyageur Wisconsin Tax Free Fund Delaware-Voyageur Tax-Free Wisconsin Fund
</TABLE>
Effective , Voyageur Investment Trust changed its name to
Voyageur Investment Fund, Inc.
Noncumulative Voting
Each investment company's shares have noncumulative voting rights which
means that the holders of more than 50% of the shares an investment company
voting for the election of directors or trustees can elect all the directors or
trustees if they choose to do so, and, in such event, the holders of the
remaining shares will not be able to elect any directors or trustees.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
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FINANCIAL STATEMENTS
Effective May 1, 1997, Ernst & Young LLP serves as the independent
auditors for each Fund and, in its capacity as such, audits the annual financial
statements of the Funds. Each Fund's Statement of Net Assets and Statement of
Assets and Liabilities, if applicable as of August 31, 1998, the Statement of
Operations, Statements of Changes in Net Assets, and Financial Highlights for
the period January 1, 1998 through August 31, 1998 and the year ended December
31, 1997, and Notes to Financial Statements, as well as the reports of Ernst &
Young LLP thereon are included in each Fund's Annual Report to shareholders. The
financial statements and financial highlights, the notes relating thereto and
the reports of Ernst & Young LLP are incorporated by reference from the Annual
Reports into this Part B. KPMG Peat Marwick LLP, the Funds' previous auditors,
audited the annual financial statements and financial highlights of the Funds
for fiscal years ending on or before December 31, 1996.
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APPENDIX A - SPECIAL FACTORS AFFECTING THE FUNDS
The following information is a brief summary of particular state
factors effecting the Funds and does not purport to be a complete description of
such factors. The financial condition of a state, its public authorities and
local governments could affect the market values and marketability of, and
therefore the net asset value per share and the interest income of the
respective state Fund, or result in the default of existing obligations,
including obligations which may be held by a Fund. Further, each state faces
numerous forms of litigation seeking significant damages which, if awarded, may
adversely affect the financial situation of such state or issuers located in
such state. It should be noted that the creditworthiness of obligations issued
by local issues may be unrelated to the creditworthiness of a state, and there
is no obligation on the part of a state to make payment on such local
obligations in the event of default in the absence of a specific guarantee or
pledge provided by a state.
Bond ratings received on a state's general obligation bonds, if
any, are discussed below. Moody's, S&P and/or Fitch provide an assessment/rating
of the creditworthiness of an obligor. The debt rating is not a recommendation
to purchase, sell, or hold a security, inasmuch as it does not comment as to
market price or suitability for a particular investor. The ratings are based on
current information furnished by the issuer or obtained by the rating service
from other sources it considers reliable. Each rating service does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstance. There is no assurance that such ratings will continue for any
given period of time or that they will not be revised or withdrawn entirely by
any such rating agencies, if in their respective judgments, circumstances so
warrant. The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation.
2. Nature of, and provisions of, the obligation.
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement(s) under the
laws of bankruptcy and other laws affecting creditors rights.
A revision or withdrawal of any such credit rating could have an
effect on the market price of the related debt obligations. An explanation of
the significance and status of such credit ratings may be obtained from the
rating agencies furnishing the same. In addition, a description of Moody's and
S&P's bond ratings is set forth in Appendix A to the Prospectus.
The information contained below is based primarily upon information
derived from state official statements, Certified Annual Financial Reports,
state and industry trade publications, newspaper articles, other public
documents relating to securities offerings of issuers of such states, and other
historically reliable sources. It has not been independently verified by the
Funds. The Funds make no representation or warranty regarding the completeness
or accuracy of such information. The market value of shares of any Fund may
fluctuate due to factors such as changes in interest rates, matters affecting a
particular state, or for other reasons.
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Factors Affecting Arizona Funds
General Economic Conditions. Progressing from its traditional
reliance on a cyclical construction industry, Arizona's economic base is
maturing and diversifying.
One of the nation's leaders in employment growth, Arizona has been
among the top five employment-growth States for more than four years, and it
should remain there through 1998. After climbing by 6.2% in 1994, during which
the state's economy produced the second-highest number of jobs of any year in
Arizona history, job creation in Arizona is leveling off with employment growth
of 5.6% in 1996-97, although this compares favorably with the national figure of
2.0%. Arizona's wage and salary employment grew 5.6% in 1996, 4.5% in 1997 and
is forecast to increase by 3.5% to 4.5% in 1998, and 3.5% in 1999. The
unemployment rate, around 4.5% for 1997, should remain low before increasing in
late 1998 and 1999.
Arizona ranked third in the nation in personal income growth during
1991-96. Personal income, after growing 7.2% in 1997, is estimated at 6.7% in
1998 and 6.5% in 1999.
Overall, Arizona's forecast is for continued but moderate rates of
growth in employment and personal income. Employment growth will continue to be
stronger in the Phoenix area than in the balance of the state. Housing has
probably peaked and is likely to decline after seven extremely strong years.
Retail sales should also continue to slow.
Population, because of continued employment growth, will record
above-average growth rates. After population growth of 3.2% in 1996 and 3% in
1997, the forecast calls for 2.8% in 1998 and 2.5% in 1999. That translates into
almost 130,000 more people in the state in 1998 and 117,000 in 1999.
Budgetary Process. Annually, no later than five days after the
regular Legislative session convenes, the Governor must submit a budget to the
Legislature. Before July 1 the budget is enacted through the passage of a
General Appropriations Act, a Capital Outlay Bill and various Omnibus
Reconciliation Bills (ORBs). The reconciliation bills are used for statutory
adjustments that must be implemented to carry out the adopted budget. Upon
presentation, the Governor has five days to sign the bills into law, veto it in
its entirety, line-item veto individual items of appropriations, or allow the
bill to become law without his signature. The Legislature may, with a two-thirds
vote, override a veto or line-item veto.
The Budget Reform Act of 1997 made significant changes to the
State's planning and budgeting systems. Beginning with the FY 2000/FY 2001
biennial period, all State agencies, including capital improvement budgeting,
will be moved to a biennial budgeting system. From FY 2000 to 2006, all State
agencies will move to a budget format that reflects the program structure in the
"Master List of State Government Programs."
The Budget Reform Act of 1993 established the current budgeting
system of one-and two-year budget reviews. Agencies selected for annual review
and appropriation are designated as Major Budget Units (MBUs). MBUs can be
described as agencies with difficult issues requiring frequent and critical
review and, ultimately, more resources. The 18 MBUs account for over 90% of the
total General Fund expenditures. Agencies selected for biennial review and
appropriation are designated as Other Budget Units (OBUs). In 1997, combined MBU
and OBU in the General Fund totaled $4.68 billion, and is estimated at $5.10
billion in 1998.
Revenues and Expenditures. The General Fund closed fiscal year 1997
with a $515.9 million ending balance, setting a new record for the state, and
the Executive plan for fiscal year 1998 anticipates a $497.1 million balance.
Overall, fiscal year 1997 revenues totaled $5,028.2 million. Corporate income
tax revenue jumped by
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34%, from $448 million in fiscal year 1996 to $600 million in fiscal year 1997.
Individual income tax revenues grew by 12% from fiscal year 1996 to fiscal year
1997. Expenditures for fiscal year 1997 totaled $4,826.5 million.
Revertments totaled $80.17 million in fiscal year 1997.
Fiscal Year 1998. The current Executive forecast for fiscal year
1998 revenue is $5.289 billion. The major revenue source, transaction privilege
taxes, is forecast to produce $2.3 billion for fiscal year 1998. All three major
revenue categories - individual income taxes, corporate income taxes and
transaction privilege taxes -showed gains on a year-over-year basis. The most
significant impact on fiscal year 1998 revenues will be the various tax cutting
measures enacted over the past several years, which has decreased revenues by
some 3.2%. Overall, the Executive estimates a 3.7% or $196.9 million increase in
base revenues of the current FY 1998 estimate. This compares to the 4.5%, or
$227.5 million increase in base revenues between fiscal year 1997 fiscal year
1998.
Fiscal Year 1999. The Executive is recommending a base operating
budget of $5.4 billion for fiscal year 1999, an increase of approximately $260.6
million. The majority of recommended expenditures for fiscal year 1999 are in
the area of education. The K-12 budget (Department of Education) and the higher
education budgets (Community Colleges and University system) account for 57%
(over $3.1 billion) of the General Fund operating budget. Additionally, the
health and welfare area accounts for over 22% (more than $1.2 billion), the
protection and safety area accounts for over 12% ($688.3 million), and other
areas of government account for less than 7% of the General Fund operating
budget.
The Executive fiscal plan for fiscal year 1998 is based on revenue
estimates, yet still provides for Executive-initiated program changes and school
finance of $127.7 million; a $210 million tax reduction and a $96.0 million
capital program. The Executive projects a fiscal year 1998 ending balance of
$497.1 million.
The Executive's projected fiscal year 1999 ending balance of $19.9
million would ordinarily be considered "thin" at only 0.4% of expenditures.
However, given the prudent revenue forecast and the available reserves of $393
million in the Budget Stabilization Fund, $95.0 million in the Medical Services
Stabilization Fund, and $42.4 million in the Temporary Assistance Stabilization
Fund, the $19.9 million amount is appropriate.
Significant Litigation. In response to the court's ruling in the
Roosevelt v. Bishop case in 1994, the Executive recommended $30 million for the
first-year implementation of a capital assistance program for Arizona's schools.
The program is designed to help school districts that lack bonding capacity due
to low value or rapid growth. It requires an application that includes
documentation of need and is submitted to a capital equity board. Income is
provided for in a Capital Equity Fund which contains monies appropriated by the
Legislature and $30 million annually from the Common School Land Fund (Permanent
State School Fund). The Permanent State School Fund consists of revenues from
the proceeds of the sale of natural resources or property from lands that have
been granted by the United States to the State of Arizona for the support of
common schools. In future years, the Capital Equity Fund may contain monies
remitted by school districts for the repayment of loans. Funds are used to
assist school districts with capital needs. For fiscal year 1999, the Governor
recommends $40.5 million be appropriated from the Permanent State School Fund,
which includes the $30 million appropriated to the Capital Equity Fund.
Debt Administration and Limitation. The State is not permitted to
issue general obligation debt. The particular source of payment and security for
each of the Arizona Tax Exempt Obligations is detailed in the debt instruments
themselves and in related offering materials. There can be no assurances with
respect to whether the market value or marketability of any of the Arizona Tax
Exempt Obligations issued by an entity other than the
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State of Arizona will be affected by financial or other conditions of the State
or of any entity located within the State. In addition, it should be noted that
the State of Arizona, as well as counties, municipalities, political
subdivisions and other public authorities of the State, are subject to
limitations imposed by Arizona's Constitution with respect to ad valorem
taxation, bonded indebtedness and other matters. For example, the State
legislature cannot appropriate revenues in excess of 7% of the total personal
income of the State in any fiscal year. These limitations may affect the ability
of the issuers to generate revenues to satisfy their debt obligations.
Although most of the Arizona Tax Exempt Obligations are revenue
obligations of local governments or authorities in the State, there can be no
assurance that the fiscal and economic conditions referred to above will not
affect the market value or marketability of the Arizona Tax Exempt Obligations
or the ability of the respective obligors to pay principal of and interest on
the Arizona Tax Exempt Obligations when due.
Factors Affecting California Funds
General Economic Conditions. California's economy is the largest
among the 50 states and one of the largest in the world. This diversified
economy has major components in agriculture, manufacturing, high-technology,
trade, entertainment, tourism, construction and services. Total State gross
domestic product of $1 trillion in 1997 will be larger than all but seven
nations in the world and California will become the first state to produce over
one trillion dollars worth of goods and services in a single year.
Events in Asia could have implications for California. Over half of
California-made goods exports are sold to Asia, and the State has already seen
declines in cargoes destined for Japan, South Korea, Singapore and Malaysia. At
the same time, strong growth continues in exports to Taiwan, Hong Kong, and
Mexico. Overall, exports of California-made goods slowed to 2% growth in the
first half of 1997, from over 8% the year before. Strong export growth was a
major element during the initial stages of the state's recovery in 1994 and
1995. The upturn has broadened sufficiently over the last two years, to the
point that California is now posting solid gains in employment and income
despite the slowing of exports.
After suffering through a severe recession, California's economy
has been on a steady recovery since the start of 1994. In 1996, California had
eight consecutive months of record high employment levels. Employment grew over
330,000 non-farm jobs in 1996, and between November 1996 and November 1997,
335,000 jobs were added for a growth rate of 2.6%. All industry divisions showed
job gains over the year. The service industries continue to post the largest job
growth, on a numerical basis, up 151,400 jobs or 3.8%. The growth continues to
be primarily in the business service sector. On a percentage basis, employment
in construction shows the strongest job growth, up 8.1%, for an increase of
43,000 jobs. The growth in construction is predominantly in the special trade
contractors sector. Other industries posting strong job growth over the year
were wholesale and trade (up 43,200 jobs), manufacturing (up 38,500) and
government (up 33,200). Residential housing construction reached a seven year
high at an annual rate of 134,000 units in October, 1997, up 29% from the
year-ago pace, showing the state's economic growth.
California's population grew by 386,000 people in 1996 to total
32.6 million in January of 1997. This reflects a 1.2% increase of population for
the year, compared to 1.0% growth posted in calendar year 1995. California's
population is concentrated in metropolitan areas. The Los Angeles County posted
the highest annual numerical population gain, adding 113,800 people in 1996 for
a total of 9.49 million. San Diego County posted the second highest numerical
growth, gaining 42,300 for a total of 2.7 million.
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California enjoys a large and diverse labor force. As of November,
1997, the total civilian labor force was 15,931,000 with 15,000,000 individuals
employed and 931,000, or 5.8%, unemployed. In comparison, the unemployment rate
for the United States during the same time was 4.6%.
Budgetary Process. The State's fiscal year begins on July 1 and
ends on June 30. The annual budget is proposed by the Governor by January 10 of
each year for the next fiscal year (the "Governor's Budget"). Under State law,
the annual proposed Governor's Budget cannot provide for projected expenditures
in excess of projected revenues and balances available from prior fiscal years.
Under the State Constitution, money may be drawn from the Treasury only through
an appropriation made by law. The primary source of the annual expenditure
authorizations is the Budget Act as approved by the Legislature and signed by
the Governor. The Budget Act must be approved by a two-thirds majority vote of
each House of the Legislature. The Governor may reduce or eliminate specific
line items in the Budget Act or any other appropriations bill without vetoing
the entire bill. Such individual line-item vetoes are subject to override by a
two-thirds majority vote of each House of the Legislature.
Appropriations also may be included in legislation other than the
Budget Act. Bills containing appropriations (except K-14 education) must be
approved by a two-thirds majority vote in each House of the Legislature and be
signed by the Governor. Bills containing K-14 education appropriations only
require a simple majority vote. Continuing appropriations, available without
regard to fiscal year, may also be provided by statute or the State
Constitution. Funds necessary to meet an appropriation need not be in the State
Treasury at the time such appropriation is enacted; revenues may be appropriated
in anticipation of their receipt.
Revenues and Expenditures. The moneys of the State are segregated
into the General Fund and approximately 600 Special Funds. The General Fund
consists of revenues received by the State Treasury and not required by law to
be credited to any other fund, as well as earnings from the investment of State
moneys not allocable to another fund. The General Fund is the principal
operating fund for the majority of governmental activities and is the depository
of most of the major revenue sources of the State. The General Fund may be
expended as a consequence of appropriation measures enacted by the Legislature
and approved by the Governor, as well as appropriations pursuant to various
constitutional authorizations and initiative statutes.
Moneys on deposit in the State's Centralized Treasury System are
invested by the Treasurer in the Pooled Money Investment Account ("PMIA"). As of
December 17, 1997, the PMIA held approximately $16.8 billion of State moneys,
and $10.3 billion of moneys invested for 2,538 local governmental entities
through the Local Agency Investment Fund ("LAIF"). The total assets of the PMIA
as of December 17, 1997, were $27.1 billion. The Treasurer does not invest in
leveraged products or inverse floating rate securities. The investment policy
permits the use of reverse repurchase agreements subject to limits of no more
than 10% of PMIA. All reverse repurchase agreements are cash matched either to
the maturity of the reinvestment or an adequately positive cash flow date which
is approximate to the maturity date. The average life of the investment
portfolio of the PMIA as of December 17, 1997 was 199 days.
Special Fund for Economic Uncertainties. The Special Fund for
Economic Uncertainties ("SFEU") is funded with General Fund revenues and was
established to protect the State from unforeseen revenue reductions and/or
unanticipated expenditure increases. Amounts in the SFEU may be transferred by
the State Controller as necessary to meet cash needs of the General Fund. The
State Controller is required to return moneys so transferred without payment of
interest as soon as there are sufficient moneys in the General Fund. For
budgeting and accounting purposes, any appropriation made from the SFEU is
deemed an appropriation from the General Fund. For year-end reporting purposes,
the State Controller is required to add the balance in the SFEU to the balance
in the General Fund so as to show the total moneys then available for General
Fund purposes. Inter-fund borrowing
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has been used for many years to meet temporary imbalances of receipts and
disbursements in the General Fund. As of November 30, 1997, the General Fund had
outstanding internal loans from Special Funds of $2.8 billion (in addition,
there are $3 billion of external loans represented by the 1997 Revenue
Anticipation Notes, which mature on June 30, 1998). The revised projected
1997-98 fiscal year General Fund Reserve for Economic Uncertainties is $329
million.
Proposition 13. The primary units of local government in California
are the counties. Counties are responsible for the provision of many basic
services, including indigent health care, welfare, courts, jails and public
safety in unincorporated areas. There are also about 480 unincorporated cities,
and thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes, and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. A recent California Supreme Court decision has upheld the
constitutionality of an initiative statute, previously held invalid by lower
courts, which requires voter approval for "general" as well as "special" taxes
at the local level. Counties, in particular, have had fewer options to raise
revenues than many other local government entities, yet have been required to
maintain many services.
In the aftermath of Proposition 13, the State provided aid from the
General Fund to make up some of the loss of property tax moneys, including
taking over the principal responsibility for funding local K-12 schools and
community colleges. Under the pressure of the recent recession, the Legislature
has eliminated the remnants of this post-Proposition 13 aid to entities other
than K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.
State Appropriations Limit. The State is subject to an annual
appropriations limit imposed by Article XIII B of the State Constitution (the
"Appropriations Limit"). The Appropriations Limit does not restrict
appropriations to pay debt service on voter-authorized bonds. Article XIII B
prohibits the State from spending "appropriations subject to limitation" in
excess of the Appropriations Limit. "Appropriations subject to limitation," with
respect to the State, are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such proceeds
exceed "the cost reasonably borne by that entity in providing the regulation,
product or service," but "proceeds of taxes" exclude most state subventions to
local governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees and certain other
non-tax funds.
Not included in the Appropriations Limit are appropriations for the
debt service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriation of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.
Orange County, CA. On December 6, 1994, Orange County, together
with its pooled investment funds (the "Pools") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Pools had
suffered significant market losses in their investments, causing a liquidity
crisis for the Pools and Orange County. More than 200 other public entities,
most of which, but not all, are located in Orange County, were also depositors
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in the Pools. Orange County has reported the Pools' loss at about $1.69 billion,
or about 23% of their initial deposits of approximately $7.5 billion. Many of
the entities which deposited moneys in the Pools, including Orange County, faced
interim and/or extended cash flow difficulties because of the bankruptcy filing
and may be required to reduce programs or capital projects. Orange County has
embarked on a fiscal recovery plan based on sharp reductions in services and
personnel, and rescheduling of outstanding short term debt using certain new
revenues transferred to Orange County from other local governments pursuant to
special legislation enacted in October, 1995. The State has no existing
obligation with respect to any outstanding obligations or securities of Orange
County or any of the other participating entities.
Litigation Generally. The State is a party to numerous legal
proceedings, many of which normally occur in governmental operations. In the
consolidated state case of Malibu Video Systems, et al. v. Kathleen Brown and
Abramovitz, et al., a stipulated judgment has been entered requiring return of
$119 million plus interest to specified special funds over a period of up to
five years beginning in fiscal year 1996-1997. The lawsuit challenges the
transfer of monies from special fund accounts within the State Treasury to the
State's General Fund pursuant to the Budget Acts of 1991, 1992, 1993, and 1994.
Plaintiffs allege that the monetary transfers violated various statutes and
provisions of the State Constitution.
Fiscal Year 1996-1997. General Fund revenues and transfers for
fiscal year 1996-97 were $49.2 billion, a 6% increase from the prior year.
Expenditures for the 1996-97 fiscal year were $49.1 billion, an 8% increase. As
of June 30, 1997, the General Fund balance was $906 million.
Overall, General Fund revenues and transfers represent about 78% of
total revenues. The remaining 22% are special funds, dedicated to specific
programs. The three largest revenue sources (personal income, sales, and bank
and corporation) account for about 73% of total revenues.
Several important tax changes were enacted in 1996. The bank and
corporation tax was reduced by 5%, and a number of targeted business tax
incentives were put into place.
1997-98 Fiscal Year. A revised balance of $329 million is expected
in the General Fund Reserve for Economic Uncertainties at June 30, 1998. The
balance in the General Fund at the end of fiscal year 1998 is forecast at $773.8
million. Special Fund revenues are estimated to be $14.2 billion and
appropriated Special Fund expenditures are projected at $14.4 billion.
K-12 education remains the state's top funding priority -- nearly
42 cents of every General Fund dollar is spent on K-12 education. Education,
public safety, and health and welfare expenditures constitute nearly 93% of all
state General Fund expenditures. General Fund expenditures for 1997-98 were
proposed in the following amounts and programs: $20.9 billion or 41.6% for K-12
education, $14.6 billion or 28.9% for health and welfare, $6.5 billion or 12.9%
for higher education, and $4.3 billion, or 8.5% for youth and correctional
programs. The remaining expenditures were in areas such as business,
transportation, housing, and environmental protection.
As of November, 1997, General Fund cash receipts for the year are
$407 million below the 1997 Budget Act Forecast. Also, personal income tax
revenues for the year are below expectations by $56 million. Yet, year-to-date
sales and use tax receipts are $48 million above forecast. Bank and corporation
tax receipts are $384 million below the 1997 Budget Act Forecast.
Debt Administration and Limitation. The State Treasurer is
responsible for the sale of debt obligations of the State and its various
authorities and agencies. The State Constitution prohibits the creation of
indebtedness
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of the State unless a bond law is approved by a majority of the electorate
voting at a general election or a direct primary. General obligation bond acts
provide that debt service on general obligation bonds shall be appropriated
annually from the General Fund and all debt service on general obligation bonds
is paid from the General Fund. Under the State Constitution, debt service on
general obligation bonds is the second charge to the General Fund after the
application of moneys in the General Fund to the support of the public school
system and public institutions of higher education. Certain general obligation
bond programs receive revenues from sources other than the sale of bonds or the
investment of bond proceeds. The State had $14.9 billion aggregate principal
amount of non-self liquidating general obligation bonds outstanding, and $6.4
billion authorized and unissued, as of December 31, 1997. Outstanding lease
revenue bonds totaled $7.2 billion as of December 31, 1997, and are estimated to
total $7.5 billion as of June 30, 1998.
From July 1, 1996 to July 1, 1997, the State issued approximately
$1.03 billion in non-self liquidating general obligation bonds and $1.26 billion
in revenue bonds. Refunding bonds, which are used to refinance existing
long-term debt, accounted for none of the general obligation bonds and $841.38
million of the revenue bonds.
General Fund general obligation debt service expenditures for
fiscal year 1996-97 were $1.92 billion, and are estimated at $1.89 billion for
fiscal year 1997-98.
The State's general obligation bonds have received ratings of "A1"
by Moody's, "A+" by S&P and "A+" by Fitch.
Factors Affecting Colorado Funds
General Economic Conditions. Colorado entered the Union on August
1, 1876, and was called the "Centennial State" in honor of the 100th anniversary
of the Declaration of Independence. It is the eighth largest state in the
nation, with an area of 104,247 square miles. The main feature of the state's
geography is the Continental Divide, extending northeast to southwest and
roughly bisecting Colorado into the Eastern and Western Slopes. The major rivers
of Colorado are the Arkansas, Platte, Rio Grande, and Colorado. Colorado enjoys
an average of nearly 300 days of sunshine per year. Precipitation varies from 8
inches per year in lower elevations to 23 inches in the mountains, with a yearly
statewide average of 16.5 inches.
The U.S. Bureau of Census estimates Colorado's population as of
July 1, 1997 at 3.893 million. This represents a 2.0% increase over the July 1,
1996 estimate of 3.816 million. A large part of Colorado's current growth is
related to growth in the West and to decentralization trends that emanate from
California.
Colorado employment has slowed from 5.1% at its peak in 1994 to
3.4% in 1996. Job creation back in 1994 hit 85,200. During 1996, only 62,500
jobs were created with services and trade being the number one and two,
respectively, largest growing industries in Colorado. Construction reported the
largest percentage gain from 1995 to 1996, at 8.8%, or an additional 9,000
employees. Mining continued to be the weakest industry sector with a loss of
8.1% or 1,200 employees in 1996.
Colorado's job growth is expected to remain at 3.4% for 1997 and an
estimated 64,500 jobs will be created. Growth is expected in every industry
except TCPU (Transportation, Communications and Public Utilities). High
technology industries such as computer services and manufacturing, telephone
communications, cable television and communications equipment manufacturing
continue to expand. The pace of growth in 1997 was brisk, even with such high
profile losses as Southern Pacific's merger with Union Pacific and subsequent
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relocation to Nebraska and the Public Service Company's merger and downsizing.
In 1998, overall growth is expected to continue to shrink as the building and
real estate sectors begin to top out and as manufacturing slows.
Unemployment will bottom out at 3.4% of the workforce in 1997,
breaking through the 4.2% threshold that has held for three years in a row. In
comparison, the national unemployment rate in 1996 was 5.4%. In 1973, Colorado's
unemployment rate was at 3.0%. In this business cycle, however, that 24-year low
will not be breached. Unemployment rates will rise slightly in 1998 and continue
to creep upward until 2001, as a result of slower labor force growth and slowing
participation rates. Furthermore, as newly-trained former welfare recipients
enter the labor market, the ranks of the unemployed will grow. Those looking for
first time jobs and those who must go through several employment situations
before finding the right job will add to the unemployment rate.
Total personal income in Colorado during 1997 is projected to reach
$104.7 billion, an increase of 6.5%, yet lower than the 7.1% increase reached in
1996. During 1996, total United States personal income increased 5.6% and is
estimated to increase 5.8% in 1997. Preliminary estimates for Colorado personal
income predict an annual growth rate of 6.7% for 1998.
Significant Litigation. On June 19, 1995, the Colorado Supreme
Court affirmed the December 1993 Arapahoe County District Court decision in
favor of the Littleton School District. The Bolt v. Littleton School District
case was a class action lawsuit brought by three taxpayers residing in the
District. Plaintiffs argued that Littleton School District's 1993 property tax
millage rate increase violated Amendment 1. The Amendment states that all
Districts must obtain voter approval in advance of any new tax, tax rate
increase, or mill levy above that for the prior year, unless annual District
revenue is less than annual payments on G.O. bonds, pensions, and final court
judgments, with certain exceptions. The School District increased its 1993 mill
levy to pay debt service on its Series 1985 G.O. bonds. In affirming the Trial
Court's ruling in favor of the District, the Supreme Court reasoned that the
increase in the District's bond redemption mill levy for 1993 did not violate
the provisions of Amendment 1 because the District already received voter
approval for the tax rate increase when the Bonds originally were authorized by
voters at an election in 1984. The ruling has significance for the Colorado
municipal bond market because it upholds the right of Municipalities to increase
property tax millage rates to pay debt service on G.O.
bonds issued before Amendment 1.
The Littleton ruling follows another important ruling by the
Colorado Supreme Court in September, 1995 in the case of Bickel v. City and
County of Boulder and Boulder Valley School District. In that case the court
upheld the right of Municipalities to request and obtain voter approval to issue
G.O. bonds after passage of Amendment 1. Together, the Boulder and Littleton
cases settle two of the most controversial Amendment 1 issues and should lead to
a more orderly primary and secondary market for Colorado municipal bonds.
Budgetary Process. The financial operations of the legislative, judicial,
and executive branches of the state's government, with the exception of
custodial funds or federal moneys not requiring matching state funds, are
controlled by annual appropriation made by the General Assembly. The
Transportation Department's portion of the Highway Fund is appropriated to the
State Transportation Commission. Within the legislative appropriation, the
Commission may appropriate the specific projects and other operations of the
Department. In addition, the Commission may appropriate available fund balance
from their portion of the Highway Fund.
The legislative appropriation is constitutionally limited to the
unrestricted funds held at the beginning of the year plus revenues estimated to
be received during the year as determined by the modified accrual basis of
accounting. The Governor has line item veto authority over the Long
Appropriations Bill, but the General Assembly may override each individual line
item veto by a two-thirds majority vote in each house. For budgetary
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purposes, cash funds are all funds received by the state that are neither
general purpose revenues, nor revenues received from the federal government.
General and cash fund appropriations, with the exception of capital
construction, lapse at year-end unless executive action is taken to roll-forward
all or part of the remaining unspent budget authority. Appropriations that meet
the strict criteria for roll-forward are reserved at year-end. Capital
construction appropriations are generally available for three years after
appropriations.
Revenues and Expenditures. Audited GAAP financial statements for the
year-ended June 30, 1997 report an unreserved general fund balance of $375.1
million, or about 8.3% of general fund expenditures, and after setting aside
reserve monies, as required by statute, the ending fund balance was $208.4
million. This is in contrast to the unreserved general fund balance of just
$16.3 million in 1991 but lower than $488.5 million in 1995. In fiscal 1997,
challenged to deliver on a 1988 plan to increase the state's contribution toward
primary and secondary education, the state budget provided approximately $1.7
billion to K-12 education. Revenue growth was 9.6% in 1997, and 10.7% estimated
in 1998, with sales tax collections growing 7.9% in fiscal 1997 and an estimated
6.8% in 1998, while individual income taxes grew 11% in fiscal 1997 and are
projected to grow 11.5% in 1998.
According to the Colorado Economic Perspective, Second Quarter, FY
1997-98, December 20, 1997 (the "Economic Report"), inflation for 1995 was 4.3%
and population grew at the rate of 2.3% in Colorado. Accordingly, under the
Amendment, increases in State expenditures during the 1997 fiscal year were
limited to 6.6% over expenditures during the 1996 fiscal year. The 1996 fiscal
year is the base year for calculating the limitation for the 1997 fiscal year.
The limitation for the 1998 fiscal year is 5.5%, based on inflation of 3.5% and
population growth of 2.0% during 1996. For the 1996 fiscal year, General Fund
revenues totaled $4,230.8 million and program revenues (cash funds) totaled
$1,893.5 million, resulting in total base revenues of $6,124.3 million.
Expenditures for the 1997 fiscal year, therefore, could not exceed $6,508.6
million. The 1997 fiscal year General Fund and program revenues (cash funds)
totaled $6,647.6 million, or $139.0 million more than expenditures allowed under
the spending limitation. This is the first time the state breached the limit
since its implementation in 1992. This excess revenue of $139.0 million will be
refunded to Colorado taxpayers during the 1998 tax filing season. The Economic
Report estimates that the limit will be breached by $360.1 million in fiscal
year 1997-98.
General fund revenues for fiscal year 1997-98 are estimated at
$5,178.6 million with expenditures estimated at $4,716.3 million. After reserve
set-asides, the state is estimated to have an ending fund balance of $148.1
million.
The State Controller may allow certain over expenditures of the
legal appropriation with the approval of the Governor. If the State Controller
restricts the subsequent year appropriation, the agency is required to seek a
supplemental appropriation from the General Assembly or reduce their subsequent
year's expenditures. As provided by statute, there is unlimited authority for
Medicaid over expenditures. The Department of Human Services is allowed $1
million in over expenditures not related to Medicaid and unlimited over
expenditures for self-insurance of its workers' compensation plan. An additional
$1 million over expenditure is allowed for the Judicial Branch. State statute
also allows over expenditures up to $1 million in total for the remainder of the
executive branch.
Debt Administration and Limitation. The Constitution prohibits
Colorado from incurring G.O. debt, and most long-term financing takes the form
of lease purchase obligations. The state relies on general fund appropriations
for pay-as-you-go capital projects, with $233 million transferred to the capital
construction fund in 1997 and $181.8 million estimated in 1998. Since 1988, the
State's master lease purchase program primarily has been used to finance new
correctional facilities. Lottery revenues are intended for repayment on these
obligations, but deficiencies are appropriated from the general fund. In
November 1992, Colorado voters approved an
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amendment that redirects lottery revenues to outdoor recreation. After 1998,
alternate general fund resources will need to be allocated for future lease
payments, but the annual lease payment obligation by then is only about $2.5
million. The State supports affordable housing through the Colorado Housing
Finance Authority, whose G.O.s ultimately are secured by the State's moral
obligation pledge.
The Funds Management Act (the "Act") was enacted to allow the State
to provide for temporary cash flow deficits caused by fluctuations in revenues
and expenditures. Under the Act the State Treasurer is authorized to sell Tax
and Revenue Anticipation Notes which are payable from the future anticipated
pledged revenues. The law directs the State Auditor to review information
relating to the Notes and report this information to the General Assembly. On
July 1, 1997, the State Treasurer issued General Fund Tax Revenue Anticipation
Notes (the "Notes") in the amount of $200 million. These Notes have a maturity
date of June 1998, and are not subject to redemption prior to maturity. The
amount due at maturity is $209,000,000 consisting of the Note principal of
$200,000,000 and interest of $9,000,000. To ensure the payment of the Notes, the
Treasurer has agreed to deposit pledged revenues into the Account so that the
balance will be no less than the amount to be repaid. The Note agreement also
provides remedies for holders of the Notes in the event of default.
Since the State of Colorado does not have G.O. debt, it does not
have S&P, Moody's or Fitch ratings.
Factors Affecting Florida Funds
General Economic Conditions. Florida is the twenty-second (22nd)
largest state with an area of 54,136 square miles and a water area of 4,424
square miles. The State is 447 miles long (St. Marys River to Key West) and 361
miles wide (Atlantic Ocean to Perdido River) and has tidal shoreline of almost
2,300 miles. Florida has grown dramatically since 1980 and from 1996-1997,
ranked fourth among the fifty states with an estimated population of 14.63
million. By 1999, Florida's population is expected to average 15.18 million. The
State's strong population growth is one fundamental reason why its economy has
typically performed better than the nation as a whole. Between 1980 and 1990,
Florida added almost 3.2 million persons, more than any other state except
California. Net migration reached a peak of 229,000 in FY 1993-94. It remained
close to this peak in FY 1994-95 and FY 1995-96. In FY 1996-97, net migration is
estimated to have reached a new peak of 253,000. In FY 1997-98, it is expected
to decline to 242,000. In the long term, national demographic trends will
continue to slow net migration into Florida, resulting in slower job and income
growth. Yet, Florida has been, and continues to be, the fastest growing of the
eleven (11) largest states.
While many of the Nation's senior citizens choose Florida as their
place of retirement, the State is also recognized as attracting a significant
number of working age people. Since 1985, the prime working age population
(18-44) has grown at an average annual rate of 2.2%. Florida's economic assets,
such as competitive wages and low per capita taxes, have attracted new
businesses and consequently have created many new job opportunities. The share
of Florida's total working age population (18-59) to total population is
approximately 54%.
Over the years, Florida's personal income has grown and has
generally outperformed both the U.S. as a whole and the southeast in particular.
The reasons for this are two fold. First, Florida's population has expanded.
Second, the State's economy since the early seventies has diversified in such a
way as to provide a broader economic base. As a result, Florida's personal
income has tracked closely with the national average and, historically, above
that of the southeast. Florida's personal income growth is expected to exceed
that for the United States in both FY 1997-98 and 1998-99. Real personal income
will increase 3.6% in FY 1998-99, slower than the 5.1% increase expected for FY
1997-98, and only a little faster than the 3.2% increase of FY 1996-97. Real per
capita income will slow to a 1.8% growth rate in FY 1998-99 from 3.1% in FY
1997-98.
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In recent years, the State's service sector employment has
accounted for approximately 85% of total non-farm employment. While structurally
the southeast and the nation are endowed with a greater proportion of
manufacturing jobs, which tend to pay higher wages, service jobs, historically,
tend to be less sensitive to business cycle swings. Florida has a concentration
of manufacturing jobs in high-tech and high value-added sectors, such as
electrical and electronic equipment, as well as printing and publishing.
Manufacturing employment is forecasted to decline slightly in both FY 1997-98
and FY 1998-99.
Total non-farm employment is expected to increase 3.9% in 1997-98
and 2.6% in 1998-99. Florida ranked third nationally and created more than
217,000 new jobs prior to the end of 1997. The strongest areas in job growth in
Florida in fiscal year 1997-98 and 1998-99 are expected to be in services and a
combination of retail and wholesale trade. Services are forecast to lead the
economy, growing 4.7% (105,400 jobs) in fiscal year 1997-98, and accounting for
about 50% of total new jobs in that year. Services are the single largest source
of employment in Florida, making up about a third of the total in fiscal year
1997-98.
Wholesale and retail trade is projected to increase 3.6% in fiscal
year 1997-98 (59,700 new jobs), which parallels general economic growth. This
sector is the second largest, with about 25% of all jobs in the state, and is
anticipated to increase 2.3% (39,100 jobs) in fiscal year 1998-99. Construction
job growth is expected to decline from 12% (42,000 jobs) in FY 1997-98 to 1.5%
(5,600 jobs) in FY 1998-99 because of a slowing economy. Manufacturing will
continue to struggle with the effects of international competition.
As the State's economic growth has slowed from its previous highs,
the unemployment rate has tracked above the national average. More recently,
Florida's unemployment rate has been below the national average. Florida's
unemployment rate was 4.8% in November 1996 and 4.6% for November 1997. The
national unemployment rate was 5.4% in 1996 and 4.6% as of November 1997.
Tourism is one of Florida's most important industries.
Approximately 41 million people visited the State in 1995. In terms of business
activities and State tax revenues, tourists in Florida effectively represented
additional residents, spending their dollars predominantly at eating and
drinking establishments, hotels and motels, and amusements and recreation parks.
The State's tourist industry over the years has become more sophisticated,
attracting visitors year-round, thus, to a degree, reducing its seasonality.
Besides a sub-tropical climate and clean beaches that attract people in the
winter months, the State has added, among other attractions, a variety of
amusement and educational theme parks. This diversification has helped to reduce
the seasonal and cyclical character of the industry and has effectively
stabilized tourist related employment as a result. By the end of fiscal year
1998, 43.8 million domestic and international tourists are expected to have
visited the State. In 1998-1999, tourist arrival should reach a high of 45.6
million, representing 4.1% growth from 1997-98. The current Florida Economic
Consensus Estimating Conference forecast shows that the Florida economy is
expected to decelerate along with the nation, but will continue to outperform
the U.S. as a whole as a result of relatively rapid population growth.
Budgetary Process. The budgetary process is an integrated,
continuous system of planning, evaluation and controls. Individual state
agencies prepare and submit appropriation requests to the Office of Planning and
Budgeting, Executive Office of the Governor, no later than September 1 of the
year next preceding Legislative consideration. After an evaluation of the
agencies' requests, the Office of Planning and Budgeting, Executive Office of
the Governor, makes recommendations to the Governor that are within previously
established policy guidelines of the Governor and revenue estimates. Florida
Statutes provide that financial operations of the State covering all receipts
and expenditures be maintained through the use of three funds - the General
Revenue Fund, Trust Funds, and Working Capital Fund. The General Revenue Fund
receives the majority of State tax revenues.
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Monies for all funds are expended pursuant to appropriations acts. The Trust
Funds consist of monies received by the State which under law or trust agreement
are segregated for a purpose authorized by law. Revenues in the General Fund
which are in excess of the amount needed to meet appropriations may be
transferred to the Working Capital Fund. The Florida Constitution adds a fourth
fund, the Budget Stabilization Fund. The Florida Constitution and Statutes
mandate that the State budget as a whole, and each separate fund within the
State budget be kept in balance from currently available revenues each State
Fiscal year (July 1-June 30). The Governor and Comptroller are responsible for
insuring that sufficient revenues are collected to meet appropriations and that
no deficit occurs in any State fund.
Revenues and Expenditures. Financial operations of the State of
Florida covering all receipts and expenditures are maintained through the above
described four fund types - General Revenue Fund, Trust Funds, Working Capital
Fund, and Budget Stabilization Fund. In fiscal year 1998-1999, an estimated 39%
of total direct revenues to these funds will be derived from State taxes and
fees compared to 40% from the previous fiscal year. Federal funds and other
special revenues account for the remaining revenues. Major sources of tax
revenues to the General Revenue Fund are the sales and use tax, corporate income
tax, intangible personal property tax, and beverage tax, which are estimated to
amount to 71%, 8%, 4%, and 3%, respectively, of total General Revenue funds
available.
State expenditures are categorized for budget and appropriation
purposes by type of fund and spending unit, which are further subdivided by line
item. For fiscal year 1998-1999, the Governor recommended appropriations from
the General Revenue Fund for education, health and welfare, and public safety
amounted to approximately 53%, 24%, and 16%, respectively, of total General
Revenue funds available.
Estimated fiscal year 1997-98 General Revenue plus Working Capital
and Budget Stabilization funds available to the State total $18,150.9 million.
Of the total General Revenue plus Working Capital and Budget Stabilization funds
available to the State, $16,598.5 million of that is Estimated Revenues. With
effective General Revenues plus Working Capital Fund appropriations at $17,201.7
million, unencumbered reserves at the end of 1997-98 are estimated at $263.2
million. Estimated fiscal year 1998-99 General Revenue plus Working Capital and
Budget Stabilization funds available total $18,546.1 million, a 2.2% increase
over 1997-98. The $17,405.5 million in Estimated Revenues represents an increase
of 4.9% over the previous year's Estimated Revenues.
The State Treasurer is responsible for investing the General
Revenue Fund and trust fund monies. Authorized investments include certificates
of deposits in Florida banks and savings and loan associations, direct
obligations of the United States Treasury, commercial paper and banker's
acceptances, medium-term corporate notes and co-mingled and mutual funds. Among
other functions, the Treasurer also serves as administrator of the Florida
Security for Public Deposit Program. This program encompasses all governmental
entities in the State. Participating banks and savings and loan associations
guarantee government deposits and pledge collateral at levels varying between
50% and 125%. Acceptable collateral includes obligations of the United States
Government and its agencies, obligations of the State of Florida and its
political subdivisions, and obligations of several states.
Debt Administration. By law, the State of Florida is not authorized
to issue obligations to fund governmental operations. State bonds, pledging the
full faith and credit of the State of Florida may be issued only to finance or
refinance the cost of State fixed capital outlay projects upon approval by a
vote of the electors. Article III, Section 11(d) of the Florida Constitution
provides that revenue bonds may be issued by the State of Florida or its
agencies without a vote of the electors only to finance or refinance the cost of
State fixed capital outlay projects which shall be payable solely from funds
derived directly from sources other than State tax revenues.
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Florida maintains a bond rating from Moody's (Aa2), S&P (AA+) and
Fitch (AA) on all of its general obligation bonds. As of June 30, 1996, the
state's net outstanding debt totaled $9.0 billion. Approximately 67% of
Florida's debt is full faith and credit bonds while the remaining 33% is
comprised of revenue bonds pledging a specific tax or revenue. Debt was issued
to finance capital outlay for educational projects of local school districts,
community colleges and state universities, environmental protection and highway
construction.
Financial Issues. The State of Florida and the tobacco industry
settled a lawsuit on August 25, 1997, in which the state sought to recover the
costs associated with tobacco usage by Floridians. The settlement provided for
$750 million in payments to the state on or before September 15, 1997, then
annual payments beginning September 15, 1998, that will accumulate to about
$10.5 billion over 25 years. The estimated payment for FY 1998-99 is $220
million.
Factors Affecting Idaho Fund
General Economic Conditions. State Government in Idaho originates
from the State Constitution adopted at the constitutional convention of August
6, 1889, and ratified by the people in November of the same year. Congress
approved the Constitution and admitted Idaho to the Union on July 3, 1890.
Idaho, located in the northwestern portion of the United States, is bordered by
Washington, Oregon, Nevada, Utah, Wyoming, Montana and Canada. Idaho's land area
consists of 83,557 square miles of varied terrain including prairies, rolling
hills and mountains with altitudes ranging from 736 feet to 12,662 feet.
With close of 1997, Idaho completed the eleventh consecutive year
of economic expansion, yet at a much slower pace than previously. Employment is
estimated to increase 2.9% in 1997 and 2.5% in 1998 after a 3.2% growth rate in
1996, and personal income increased 5.5% during 1996 and is estimated at 5.3%
for 1997. The rapid employment increases enjoyed by the state for the last ten
years have already begun to slow and are anticipated to continue slowing. The
unemployment rate dropped to 5.0% in 1996, its lowest level since 1978 and as of
November, 1997, the unemployment rate was 4.8%. Personal income is expected to
remain in the range of 5.4% and 5.2% during 1998 and 1999, respectively. Idaho's
population growth, which peaked at 3.0% in 1994, is expected to taper gradually
to 2.2% over the next few years, which will have a dampening effect on the
state's housing industry.
Exports. Exports of agricultural and manufactured goods play an
ever increasingly important role in Idaho's economic performance. Japan, the
United Kingdom, Canada, Singapore, and Taiwan are the state's biggest customers.
It should be noted that the recent Asian currency crises could dampen the
outlook for foot exports. Exports of American-style snack and fast foods,
including frozen french fries and other potato products, to this region have
expanded with rising incomes and the westernization of Asian diets. These
products will become relatively more expensive due to the devaluation of several
Asian currencies. Also due to worldwide excess manufacturing capacity, Asian
competitors will attempt to export their way back to a profit. These competitors
will be aided by the recent currency devaluation.
The jobs supported by Idaho's recent experiences in exports markets
are relatively evenly distributed between farm and manufacturing jobs. The
return to the state government from its investment in promoting Idaho products
abroad is elevated tax revenues. In 1997, the state tax revenues increased 3.0%
to $1.39 billion, a decrease from the 5% gain in 1996; taxable income rose 8.3%
in 1997 to $704.8 million, offsetting a considerable amount of softness in the
sales tax. State tax revenues are expected to grow 4.9% in fiscal year 1998 to
$1.460 billion, with approximately 51% of the revenues expected to come from
income tax and 34% from sales tax.
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Importance of Water. Although located in the arid West, Idaho has
large water resources which have dominated its history and development and may
prove equally important to its future. There are 26,000 miles of rivers and
streams and more than 2,000 natural lakes. Three of Idaho's rivers--Clearwater,
the Kootenai and the Salmon--are more than half as large as the Colorado. The
Snake Plain Aquifer is one of the largest fractured basalt aquifers in the
world. Equally important to quantity is the quality of Idaho's waters, which
remains outstanding. The drop in elevation of rivers like the Snake allow
valuable hydropower production, allowing the State some of the lowest
electricity rates in the nation.
Agriculture. Idaho has traditionally been an agriculture state.
Livestock, beef, dairy cattle, and sheep are important to the economy, while the
major crops of Idaho's farmers include potatoes, wheat, barley, sugar beets,
peas, lentils, seed crops and fruit. According to recent estimates, agricultural
related products make up 16% of Idaho's Gross State Product, making them key
elements in Idaho's economic performance. Idaho farm cash receipts declined
nearly 10% in 1997. Livestock receipts improved marginally in 1997, increasing
2%. Strong prices halted the recent slide in cash receipts for cattle. Higher
prices also extended the sheep and lamb industry's run of good years. Its
revenue has doubled since 1991. However, dairy receipts fell victim to lower
prices in 1997, ending several years of gain. Low prices for some of the state's
largest commodities in 1997 dropped total crop receipts about 15% below its 1996
level. The value of the 1997 potato crop was 30% off its record showing in 1996.
Yet, hay receipts rose 16% in 1997 while onions, sugar beets, and peas and
lentils posted smaller gains. Reduced beef supplies should push prices up in
1998. Dairy industry receipts and the production and prices for hay should also
rise in 1998. Unfortunately, a supply glut is expected to push wheat prices down
17% in 1998.
Service Producing Sector. By the most important economic
measures, the service producing sector is the heart of Idaho's economy; it
accounts for 68% of Gross State Product and 78% of all nonagricultural jobs. For
1997, and the next three years, employment growth in the service producing
sector is expected to slow from its 1995 rate of 4.5% to 3.0% in 1997 and around
2.9% the next few years. Within the service producing sector, the weakest
performer is expected to be the federal government, which will have stable
employment with some decreases due to downsizing of services and employees. The
retail trade and services sector recorded the largest gains in 1997 at 2.8% and
5.2%, respectively, with such increases continuing in the 2.9% and 5.0% range,
respectively. State and local governments, including public education, are
expected to expand at an average of 2% per year over the forecast period in
response to population pressures. This is lower than the 3-4% growth rates in
previous years. The remaining components of the service producing sector,
including the finance, insurance, transportation, communication and public
utility industries, are expected to continue to have mixed experiences with
employment; growth partly offset by right-sizing. The net result is that these
industries are expected to average around 1.5% per year employment growth
through 2000.
Goods Producing Sector. The goods producing sector, composed of
manufacturing, mining, and construction, had two of the star performers in the
state's ten years of economic expansion; electronics and construction. Both of
these industries have begun to slow and are expected to have substantially
slower growth rates in 1998; the goods producing sector will be a consistent
rather than spectacular performer. Metal mining employment had increases of
31.5% and 16.0% in 1995 and 1996, respectively, but dropped to 2.8% in 1997,
with metal prices determining demand. Overall, this sector's employment gains
are expected to decline from the 3.1% level for 1996 and 2.7% for 1997 to 1.1%
and 0.3% for 1998 and 1999, respectively. The causes of the dramatic shifts are
some restructuring in microelectronics, the economic hardships suffered in
resource based industries and a slowing in residential construction. Even with
offsetting job creation at some electronic firms in other goods producing
industries, this sector will have to wait until after 2000 for employment to
recover a 2% growth rate.
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Budgetary Process. In the fall of each year, all agencies of the
State submit requests for appropriations to the Governor's Office, Division of
Financial Management, so a budget may be prepared for the upcoming legislative
session. The budget is generally prepared by agency, fund, program, and object.
The budget presentation includes information on the past year, current year
estimates, and requested appropriations for the next fiscal year.
The Governor's proposed budget is presented to the legislature for
review, change, and preparation of the annual appropriation acts for the various
agencies. The legislature enacts annual appropriations for the majority of funds
held in the state treasury. These budgets are adopted in accordance with State
statutes. Both houses of the legislature must pass the appropriation acts by a
simple majority vote. The appropriation acts become law upon the Governor's
signature, or 10 days after the end of the session if not signed by the
Governor.
For funds that are annually appropriated, the State's central
accounting and reporting system controls expenditures by appropriation
line-item. At no time can expenditures exceed appropriations, and financially
related legal compliance is assured. At fiscal year end, unexpended
appropriation balances may: (1) revert to unreserved fund equity balances and be
available for future appropriations; (2) be reappropriated as part of the
spending authority for the future year; or, (3) may be carried forward to
subsequent years as outstanding encumbrances with the approval of the Division
of Financial Management.
Revenues and Expenditures. Fiscal Year 1997. General Fund revenue
in fiscal year 1997 was $1,391.9 million. There was an additional $11.698
million due to carryover from the prior fiscal year. Fund transfers reduced
funds available by $2.747 million, however, in Fiscal Year 1997, a transfer of
$4.038 million was received from the Cooperative Welfare Fund. Net General Funds
available in fiscal year 1997 totaled $1,404.9 million. Total General Fund
revenue growth was $40.6 million, or 3% in fiscal year 1997.
Expenditures in fiscal year 1997 consisted of $1,412.6 million in
original appropriations, plus $2.25 million in reappropriations, less $20.75
million in supplementals, less $2.768 million in reversions and holdbacks. Net
expenditures in fiscal year 1997 were $1,391.6 million. An ending balance of
$13.3 million was carried over into fiscal year 1998.
In response to the major flood in northern Idaho in 1996, the
Governor issued Executive Order 96-04 that authorized transfers from the Budget
Reserve Fund and the Water Pollution Control Fund to meet the state and local
match requirement of federal grants. Transfers have also been authorized from
the General Fund. A total of $7.5 million from each fund has been transferred.
In addition, the Legislature authorized up to $12 million from the State Highway
Fund to be used as match on infrastructure reconstruction and repair. As of
November 30, 1997, state revenue for this fund was $11.31 million and the total
expended was $9.97 million.
Fiscal Year 1998. Total funds available to the General Fund in
fiscal year 1998 are estimated to be $1,463.9 million. This consists of a $13.3
million carryover from fiscal year 1997, plus $1,463.6 million in base revenues,
less $13.04 million in transfers to other funds. General Fund expenditures for
fiscal year 1998 are $1,449.8 million. This leaves a General Fund carryover in
fiscal year 1999 of $14.18 million.
The revised fiscal year 1998 Executive revenue forecast of $1,463.6
million reflects 5.2% growth over fiscal year 1997. The revised base General
Fund revenue forecast for fiscal year 1998 consists primarily of sales and
income tax receipts. Product taxes account for a little over 1% of General Fund
revenues, and miscellaneous receipts account for approximately 5% of General
Fund revenues.
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General Fund expenditures in fiscal year 1998 consist of $1,438.9
million in original appropriations, plus $2.05 million in reappropriations, less
$2.88 million in reversions, plus $11.69 million in net supplementals. The
General Fund supplemental amount includes $8.5 million to restore the Budget
Reserve Fund to it highest level since the spring of 1990. Other supplementals
go toward additional inmate housing costs, and juvenile offender private
placement costs.
Fiscal Year 1999. The amount of total funds available to the
General Fund in fiscal year 1999 is estimated to be $1,563.3 million. This
consists of General Fund revenue from individual income tax, sales tax,
corporate income tax, and miscellaneous revenue and a FY 1998 carryover of $14.2
million. General Fund expenditures authorized for fiscal year 1999 are $1,561.0
million. This leaves an estimated free-fund balance of $2.28 million in the
General Fund at the end of fiscal year 1999.
The original Executive revenue forecast of $1,536.7 million for
fiscal year 1999 reflects 5.0% growth over the fiscal year 1998 estimate.
General Fund revenues consist primarily of sales tax generating 34.0% or $531.2
million of total revenue and income tax representing 51.2% or $800.0 million.
The net growth rate for total General Fund revenue in fiscal year 1999 is 6.8%.
Expenditures in fiscal year 1999 consist of $1,424.7 million in
base spending plus $136.2 million in salary increases, inflation adjustments and
non-standard adjustments, replacement capital outlays, annualizations,
enhancements, personnel benefit roll-up costs, and public schools. Above base
increases in public school expenditures are the largest item of increase, with
$44.81 million provided as a lump sum. A state worker salary increase accounts
for $20.6 million of increase above the base. Replacement capital outlay and
related operating expenditures with inflationary adjustments are $17.8 million
and enhancements are $25.5 million. Annualizations and other nonstandard
adjustments total $21.7 million.
Debt Administration and Limitation. The State has no outstanding
general obligation bond debt. By law, if the General Fund cash flow shortages
exist for more than 30 days, the State Treasurer must issue a tax anticipation
note to correct the shortfall. The State Treasurer has issued internal tax
anticipation notes which are notes issued by the General Fund to borrow monies
from other available State funds or accounts. Internal tax anticipation notes
were not issued in fiscal years 1988 through 1994. In the past ten fiscal years
the State Treasurer has issued "External" tax anticipation notes which were sold
in the open market. All Notes issued by the State must mature not later than the
end of the then current fiscal year. Each Note when duly issued and paid for
will constitute a valid and binding obligation of the State of Idaho. The faith
and credit of the State of Idaho are solemnly pledged for the payment of the
Notes.
Series 1997 Notes. The State issued $300 million in Tax
Anticipation Notes ("TANs") on July 1 1997, which mature on June 30, 1998. The
1997 Notes were issued in anticipation of the income and revenues and taxes to
be received by the General Fund during the fourth quarter of the 1998 fiscal
year. As required by law, all income and revenues from the taxes collected
during the fourth quarter of the 1998 fiscal year shall be deposited into the
Note Payment Account as received until the monies therein together with
investment earnings shall be sufficient to pay principal and interest on the
Notes at maturity.
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Factors Affecting Iowa Fund
General Economic Conditions. In 1996, Iowa had the fourth lowest
average annual unemployment rate in the nation; by 1997, Iowa tied North Dakota
for the second lowest rate. The percentage of growth in Iowa's employed
workforce began in 1992 when the State's economy was more resilient to the
1990-92 recession than was the rest of the nation. Beginning in mid-1992, Iowa's
unemployment rate has consistently remained about two percentage points below
the national average - even as the national average has been falling during this
time. By the end of 1997, Iowa's seasonally adjusted unemployment rate was in
the 2.6% to 2.7% range. The U.S. unemployment rate had just dropped to a 25 year
low of 4.7% in October, 1997. All of Iowa's counties and cities had unemployment
rates below the U.S. average.
Iowa's resident employment continued to grow during this period. In
1990, just under 1.4 million people were working in Iowa, with 1.2 million in
payroll jobs. By 1997, more than 1.5 million people were employed, with 1.4
million in payroll jobs. The Iowa Economic Forecasting Council, at its November
1997 meeting, forecast slower growth in payroll jobs for the next two years. The
reasons are a slowing national economy and the tight labor markets in Iowa and
other Midwest States. Iowa's challenges in the years ahead will be to make an
existing work force more productive and to find ways to increase the size of the
pool from which the work force is drawn. Currently, 87% of all Iowans between
the ages of 18 and 69 are employed. That represents a higher rate than occurs
elsewhere in the country (75% average) and means that only 13% of the
working-age population can be included in the potential pool.
During the late-1980's and early 1990's Iowa became a major
exporting state. Despite its inland location, Iowa has been a major supplier to
the world's markets for industrial machinery, instruments and measurement
devices, electronics, specialized transportation equipment, chemicals and
pharmaceuticals, processed food products, farm commodities and livestock. During
the years 1991-1993, the value of Iowa's factory exports increased at a
compounded rate of 9% per year. In 1994, factory exports increased 17%. In 1995
and 1996, Iowa factory exports had increased by another 21% and 10%,
respectively. In 1996, the export of factory goods accounted for $4.5 billion,
or about 50% of the $9.2 billion total exports from Iowa. Iowa farm exports
increased 27% in 1996 with increases of 50% and 28% in feed grains and soybeans,
respectively. However, vegetable exports decreased 116%.
Iowa has been successful in reducing its reliance on both property
and income taxes. In 1992, 40.5% of total taxes were property taxes, and by
1999, the share will have dropped to 36.1%. Similarly, despite robust growth in
Iowa incomes during the 1990s, the share of total taxes collected from the
income tax rose less than 1%. Tax changes enacted since 1992 consist of the
following: (1) a one-cent sales tax increase in 1993 for (an increase of $203
million), (2) in 1996, relief for a mental health and machinery and equipment
property tax was enacted along with increasing pension exemption and child
credit (decrease of $121 million), (3) in 1997, the property tax relief for
mental health and machinery and equipment was continued along with an increase
in state share of school aid (decrease of $131 million), (4) beginning in 1998,
there is a 10% across-the-board reduction in income taxes and elimination of
inheritance taxes for lineal descendants (decrease of $208 million), (5) the 10%
income tax reduction will continue in 1999 along with additional property tax
relief (decrease of $144 million). For fiscal year 1999, the Governor proposed
eliminated capital gains for family-owned businesses, an elimination of Iowa
Pension taxes and an exemption of internet service from the sales tax which
equals a decrease in taxes of $63 million.
Budgetary Process. The current statewide accounting system was
implemented in 1983 and has been periodically upgraded and modified. As part of
that implementation, and on an ongoing basis, emphasis has been placed on the
adequacy of internal and budgetary controls. Internal controls are in place to
provide reasonable, but not absolute, assurance that assets are safeguarded
against unauthorized use or disposition, and that financial
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records from all appropriate sources are reliable for preparing financial
statements and maintaining accountability. All claims presented for payment must
be certified by the appropriate department that the expenditure is for a purpose
intended by law and a sufficient unexpended appropriation balance is available.
The automated statewide accounting system also performs various edits to assure
appropriation authorizations are not exceeded. For programs supported totally or
in part with federal or other funds, expenditures can not exceed the sum of
appropriations and additional dedicated revenue that is received. If dedicated
revenue is not received as expected, expenditures must be reduced in a like
manner.
Revenues and Expenditures. Most State operations are accounted for
through the following Governmental fund types: General, Special Revenue, and
Capital Projects. Total General Fund receipts for fiscal year 1997 were $4,647.8
million, a 5.5% increase from the prior year. Of this amount, $4,267.2 million
came from special taxes, with 49.8% from personal income tax and 29% from sales
tax. The Cash Reserve increased 6.7% from the previous fiscal year to $215
million. Total net refunds of taxes paid for fiscal year 1997 were $391.9
million.
Total General Fund appropriations for fiscal year 1997 were
$4.138.9 million. Approximately 43% or $1.78 billion was for education, and 20%
or $825.6 million was for human services.
Total General Fund receipts for fiscal year 1998 are estimated at
$4,785.0 million, a 3% increase. Of this amount, $4,436.9 is predicted to come
from special taxes, with 50.3% from personal income tax and 29.3% from sales
tax. The cash reserve for fiscal year 1998 is estimated to increase 2.1% to
$219.6 million. Total net refunds of taxes paid for fiscal year 1998 are
estimated at $418.8 million.
Total General Fund appropriations for fiscal year 1997 are
estimated at $4,364.7 million, a 5.5% increase from fiscal year 1997.
Approximately 43% is dedicated to education and 18.1% to human services. Ongoing
spending is about 8.4% less than total available revenue, leaving a $367.3
million unspent general fund balance in fiscal year 1998, the largest in the
nation.
Debt Administration and Limitation. The Constitution of the State of
Iowa prohibits the State from exceeding a maximum of $250 thousand in general
obligation debt without voter approval. However, State law authorizes the
issuance of Tax and Revenue Anticipation Notes (TRANS), provided that the total
issuance does not exceed anticipated revenue receipts for the fiscal year and
that the total issuance matures during the fiscal year.
State and local governments reported $4.89 billion in outstanding
obligations as of June 30, 1997. This is compared to $4.75 billion on June 30,
1996, which is an increase of $136.3 million or 2.9%. The largest portion of
outstanding debt on June 30, 1997, is made of general obligation bonds totaling
$2.1 billion (43%) and revenue obligations totaling $1.57 billion (32%). The
most commonly reported purpose for issuing obligations is "public
buildings/schools" with $1.37 billion (28%). The purpose category
"utilities/sewers" ranks second, totaling $1.19 billion (24%).
Bonds and certificates of participation in lease purchase agreements
(COPs) of $110.2 million have been issued and remain outstanding for the
Department of Corrections and several of the judicial districts for the purpose
of constructing correctional facilities. COPs in the amount of $100.2 million
remain outstanding for the Department of General Services for the purpose of
constructing the Iowa Communications Network. Bonds in the amount of $96. 3
million remain outstanding for the Iowa Underground Storage Tank Fund for the
purpose of cleaning up leaking underground petroleum storage tanks.
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The Pooled Money Investment Fund had an average-weighted maturity of
416 days and an annualized average-weighted yield to maturity of 5.92% on
September 30, 1997. The effective duration for the Pooled Money portfolio
(excluding certificates of deposit) on September 30, 1997 was 1.14 years.
Since the State of Iowa does not have G.O. debt, it does not have
S&P, Moody's or Fitch ratings.
Factors Affecting Kansas Fund
General Economic Conditions. Kansas is the 14th largest state in
terms of size with an area in excess of 82,000 square miles. It is rectangular
in shape and is 411 miles long from east to west and 208 miles wide. The
geographic center of the 48 contiguous states lies within its borders. Kansas
became the 34th state in 1861 and Topeka was chosen to be the capitol later that
year. The population of the State of Kansas has grown from 2,477,588 in 1990 to
2,594,840 in 1997. This represents a percentage increase of 4.7%. In comparison,
the growth in population of the United States was 7.3%.
In 1997, jobs across Kansas were up 4%, for a net increase of 53,847
new jobs. Total non-farm employment as of November 1997 was 1,286,400. This was
25,000 higher than the previous year. Manufacturing led growth with the addition
of 8,400 new jobs. Trade employment rose by 5,900 over the year, primarily in
retail. Construction added 4,400 construction jobs during the year. Services
employment rose by 7,200, with substantial increases in social, management, and
business services. Transportation-utilities added 2,700 jobs, primarily from
growth in communications, air transportation and trucking. Gains in banking and
real estate provided most of the 1,900 new jobs in the finance division. Mining
edged up only 100 over the year. Government had the only decrease, down 5,600
from November 1996.
Between December 1996 and December 1997, the Kansas unemployment
rate decreased from 4.2% to an estimated 3.4%, respectively, the lowest rate in
Kansas since December 1979. This compares favorably with a national unemployment
rate as of November 1997 of 4.3%.
Budgetary Process. The Governor is statutorily mandated to present
spending recommendations to the Legislature. "The Governor's Budget Report"
reflects expenditures for both the current and upcoming fiscal years and
identifies the sources of financing for those expenditures. The Legislature uses
"The Governor's Budget Report" as a guide as it appropriates the money necessary
for state agencies to operate. Only the Legislature can authorize expenditures
by the State of Kansas. The Governor recommends spending levels, while the
Legislature chooses whether to accept or modify those recommendations. The
Governor may veto legislative appropriations, although the Legislature may
override any veto by two-thirds majority vote.
The state "fiscal year" runs from July 1 to the following June 30
and is numbered for the calendar year in which it ends. The "current fiscal
year" is the one which ends the coming June. The "actual fiscal year" is the
year which concluded the previous June. The "budget year" refers to the next
fiscal year, which begins the July following the Legislature's adjournment. In
"The FY 1999 Governor's Budget Report," the actual fiscal year is fiscal year
1997, the current fiscal year is fiscal year 1998, and the budget year is fiscal
year 1999. By law, "The Governor's Budget Report" must reflect actual year
spending, the Governor's revised spending recommendations for the current fiscal
year, state agency spending requests for the budget year, and the Governor's
spending recommendations for the budget year. The budget recommendations cannot
include the expenditure of anticipated income attributable to proposed
legislation.
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Revenues and Expenditures. The State General Fund is the largest of
the "uncommitted" revenue sources available to the state. It is also the fund to
which most general tax receipts are credited. The Legislature may spend State
General Fund dollars for any purpose. All revenues coming into the state
treasury not specifically authorized by statute or the constitution to be placed
in a separate fund are deposited in the State General Fund.
Fiscal Year 1997. Fiscal year 1997 began with a balance in the
General Fund of $379.2 million. Actual revenue for fiscal year 1997 was $3,683.8
million, an increase of 6.8% from the prior fiscal year. Total expenditures were
$3,538.1 million, with an increase in property tax relief of 0.3% and for all
other expenditures, an increase of 2.5%. The ending balance in the General Fund
at the end of fiscal year 1997 was $527.8 million.
Fiscal Year 1998. The fiscal year 1998 budget included all funding
sources of $7.99 billion. The Governor's revised recommendations for fiscal year
1998 total $8.15 billion from all funding sources, mainly due to increased
federal funds. The largest single source of fiscal year 1998 receipts is the
State General Fund, with 48.1% of the total receipts. Estimated receipts to the
State General Fund for fiscal year 1998 are $3,940.3 million as developed by the
Consensus Revenue Estimating Group. Individual income taxes account for the
largest source of State General Fund revenue, totaling $1.645 billion (41.8%) in
fiscal year 1998. The next largest category, sales and use taxes, is projected
to generate $1.5 billion (38.1%) for the State General Fund during fiscal year
1998. State General Fund expenditure recommendations for fiscal year 1998 are
$3.84 billion, an increase of 8.5%. The Governor recommends that $2.159 billion,
or 56.0% of State General Fund expenditures be used for aid to local units of
government.
The Governor's recommendations for receipts and expenditures will
provide an ending balance of $595.3 million or 15.5% of expenditures and demand
transfers in fiscal year 1998. The large balance at the end of fiscal year 1998
contains $30.9 million of the one-time $66.6 million corporate tax payment to
pay, in fiscal year 1999, for acceleration of the income tax rate equality
provisions previously approved by the 1997 Legislature.
For fiscal year 1998, the budget recommendations produce receipts in
excess of expenditures of $67.1 million after the transfer out of $35.7 million
to the Budget Stabilization Fund for one-time expenditures to be made in fiscal
year 1999.
Fiscal Year 1999. For fiscal year 1999, the Governor recommends a
budget from all funding sources of $8.55 billion, with a State General Fund
recommendation of expenditures of $4.08 billion. Of this total, 27.4% is for the
operation of state agencies; 57.6% will be distributed to local governments;
12.6% will go toward provision of assistance, grants, and benefits to Kansas
citizens; and 2.4% will be used for capital improvements. The budget provides
$148.3 million from the State General Fund to offset property tax cuts. All
funding sources increases also include over $50.0 million from federal funds, a
$34.5 million increase in KPERS contributions, and $27.5 million for the
Comprehensive Highway Program.
Total receipts of $4,017.5 million are estimated for fiscal year
1999. This represents an increase of $143.8 million, or 3.7%, when compared to
fiscal year 1998 adjusted estimates. Continued growth in the income tax, retail
sales tax, and compensating use tax account for the majority of the increase.
Revenues are expected to decrease by 0.6% for fiscal year 1999 and expenditures
will increase by 6.4%. Expenditures exceed receipts by $202.7 million due
largely to the Governor's $178.5 million tax reduction package and increased
spending for education.
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The recommendations for fiscal year 1999 result in an ending balance
of $392.5 million and 9.6% of total budgeted expenditures. Budgeting a larger
than 7.5% ending balance for fiscal year 1999 is necessary to provide adequate
resources to maintain an approximate 7.5% ending balance in fiscal year 2000.
Debt Administration and Limitation. The State of Kansas finances a
portion of its capital expenditures with various debt instruments. Of capital
expenditures that are debt-financed, revenue bonds and loans from the Pooled
Money Investment Board finance most capital improvements for buildings, and
"master lease" and "third-party" financing pay for most capital equipment. The
Kansas Constitution makes provision for the issuance of general obligation bonds
subject to certain restrictions; however, no bonds have been issued under this
provision for many years. No other provision of the Constitution or state
statute limits the amount of debt that can be issued. As of June 30, 1997, the
state had authorized but unissued debt of $155,015,000.
Although the state has no General Obligation debt rating, it seeks
an underlying rating on specific issues of at least "AA-" from S&P and "A1" from
Moody's. In October 1997, S&P assigned an issuer credit rating of AA+ to Kansas.
S&P credit rating reflects the state's credit quality in the absence of general
obligation debt. The underlying ratings for the most recently issued revenue
bonds were A1 and AA- from Moody's and Fitch, respectively. The ratings for the
most recently issued fixed rate bonds issued by the Kansas Department of
Transportation were "Aa" and "AA" from Moody's and S&P, respectively.
The Kansas Department of Transportation issues debt to finance
highway projects. The Comprehensive Highway Program began during fiscal year
1989. The 20-year bonds will be retired with motor fuel taxes, motor vehicle
registration fees, retail sales and compensating use taxes, and accrued
interest. During fiscal years 1995 and 1996, the state sold bonds totaling
approximately $167.1 million and $61.1 million, respectively. Of the fiscal year
1995 amount, $140.0 million was issued for the Comprehensive Highway Program.
Other State of Kansas debt is issued by the Kansas Development
Finance Authority (KDFA), an independent instrumentality of the state which was
created in 1987 for this purpose. Proceeds from debt financing by KDFA for
capital improvements are used for prison construction, acquisition and
renovation of office space, energy conservation improvements, university
facility construction and renovation, and projects for local governments.
Consistent with the Governor's recommendation that revenue bonds be
issued to address the capital needs of the universities, the 1996 Legislature
approved the Crumbling Classroom initiative. Based on concerns for the aging
buildings on the state's campuses, bonds have been issued to address a wide
variety of rehabilitation and repair projects at the universities. With
estimated interest earnings, the total project costs would be approximately
$171.9 million, $8.35 million higher than originally anticipated. Debt service
over the 15-year period will total $228.4 million, with each year's debt service
payment over the next 15 years totaling $15 million. No project paid with bond
proceeds will have a life-expectancy of less than 20 years, so as to "keep
ahead" of the bonded indebtedness. Revenues from the Educational Building Fund
have been appropriated through fiscal year 2000 to pay debt service. In November
1996, the first series of bonds totaling $50.0 million were issued to provide an
initial flow of cash to start the projects. In October 1997, a second series of
$110.3 million were issued.
Bonds totaling $4.4 million were issued by KDFA in November 1990 to
begin Energy Conservation Improvements Program authorized by the 1990
Legislature. The bonds are retired by utility cost savings from the energy
conservation improvements undertaken. Projects financed with the bond proceeds
consist of improvements at many of the state universities, the Department of
Administration, the Department of Social and Rehabilitation
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Services, the Highway Patrol, and the Department of Corrections. Besides the
initial $4.4 million of bonds issued, further bond series issued were $3.6
million in 1992, $4.37 million in 1994 and $7.839 million in 1996. To date,
$25.8 million in bonds have been issued by the Kansas Development Finance
Authority for these projects.
In fiscal year 1998, KDFA issued $5.6 million in bonds to finance
the replacement of site utilities at the El Dorado Correctional Facility Site
Utilities Project. The original installation of heat insulation around the
steamlines has failed, allowing heat to escape and damage other utilities. The
Office of the Attorney General has filed litigation against the contractor,
manufacturer, and project architect to recover the costs of the replacement. All
cost recoveries will be used to finance the debt service payments. The first
payment begins in fiscal year 1999, and the Governor recommends $78,000 from the
State General Fund for this purpose.
Factors Affecting Minnesota Funds
General Economic Conditions. Diversity and a significant natural
resource base are two important characteristics of the Minnesota economy.
Generally, the structure of the State's economy parallels the structure of the
United States economy as a whole.
In November 1997, the state's unemployment rate, on a seasonally
adjusted basis, was 2.8%, down 1.2 percentage points from the 4.0% observed one
year earlier. That unemployment rate was well below the national rate of 4.6%.
Payroll employment in Minnesota grew by 53,000 jobs during the 1997 fiscal year.
Employment in fiscal year 1997 grew by 2.2%, the same rate as the U.S. average.
At present, the state's most serious economic challenge is ensuring there will
be sufficient workers to fill the jobs currently being generated.
Personal income in Minnesota is now estimated to have grown at a
6.6% annual rate during fiscal year 1997, well above the national average of
5.3%. Wage growth was strong, but as in neighboring Midwestern states, all of
whom also had strong growth in personal income, the agricultural sector was a
major contributor. Prices were higher than average, yields were strong, and
federal farm program payments under the 1996 farm bill were much larger than
they would have been under the previous program.
Personal income in Minnesota is forecast to grow by 5.0% during the
1998 fiscal year, slightly below the average rate forecast for the nation.
Payroll employment is expected to grow at a 2.1% annual rate, consistent with
the national average. Wage and salary income growth, however, is projected to
lag the national average rate as states outside the Midwest also begin to feel
labor market pressures and part-time workers elsewhere increase their hours to,
or beyond, the levels they desire. Farm income in the 1998 fiscal year is also
forecast to be down from the high levels reported during fiscal year 1997 since
commodity prices have returned to more normal levels.
Revenue and Expenditures. The State relies heavily on a progressive
individual income tax and a retail sales tax for revenue, which results in a
fiscal system that is sensitive to economic conditions. Frequently in recent
years, legislation has been required to eliminate projected budget deficits by
raising additional revenue, reducing expenditures, including aids to political
subdivisions and higher education, reducing the State's budget reserve, imposing
a sales tax on purchases by local governmental units, and making other budgetary
adjustments.
During fiscal year 1997, the total fund balance, on a GAAP basis,
for the General Fund increased by $66.9 million to $1.486 billion. At June 30,
1997, the unreserved, undesignated portion of the fund balance reflected a
positive balance of $642.3 million, after providing for a $583.5 million
budgetary reserve. This compares with a $491.9 million unreserved, undesignated
fund balance at the end of fiscal year 1996 with a $570
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million budgetary reserve. On a budgetary basis, the June 30, 1997, unrestricted
(undesignated) fund balance for the General Fund was $812.7 million, compared
with a balance of $506 million at the end of 1996.
General Fund revenues and transfers-in totaled $10.412 billion for
fiscal year 1997, up 8% from those for fiscal year 1996. General Fund
expenditures and transfers-out for the year totaled $9.926 billion, an increase
of 3% from the previous year. Of this amount, $6.917 billion (70%) is in the
form of grants and subsidies to local governments, individuals and non-profit
organizations.
The Minnesota Department of Finance November 1997 Forecast has
projected that, under current laws, the State will complete its current biennium
June 30, 1999 with a $453 million surplus, plus a $350 million cash flow account
balance, a $522 million budget reserve and $93 million in other dedicated
accounts. Revenues for the 1998-99 biennium are forecast at $21.045 billion.
Total General Fund expenditures and transfers for the biennium are projected to
be $20.7 billion. The forecast balance for the General Fund is $1.36 billion for
the 1998-99 biennium.
The State is party to a variety of civil actions that could
adversely affect the State's General Fund. In addition, substantial portions of
State and local revenues are derived from federal expenditures, and reductions
in federal aid to the State and its political subdivisions and other federal
spending cuts may have substantial adverse effects on the economic and fiscal
condition of the State and its local governmental units. Risks are inherent in
making revenue and expenditure forecasts. Economic or fiscal conditions less
favorable than those reflected in State budget forecasts and planning estimates
may create additional budgetary pressures.
State grants and aids represent a large percentage of the total
revenues of cities, towns, counties and school districts in Minnesota, but
generally the State has no obligation to make payments on local obligations in
the event of a default. Even with respect to revenue obligations, no assurance
can be given that economic or other fiscal difficulties and the resultant impact
on State and local government finances will not adversely affect the ability of
the respective obligors to make timely payment of the principal and interest on
Minnesota Tax Exempt Obligations that are held by a Fund or the value or
marketability of such obligations.
Recent Minnesota tax legislation and possible future changes in
federal and State income tax laws, including rate reductions, could adversely
affect the value and marketability of Minnesota Municipal Tax Exempt Obligations
that are held by a Fund. See "Distributions to Shareholders and Taxes; Minnesota
State Taxation" in the Prospectus.
The state issued $170.0 million of new general obligation bonds,
and $172.1 million of general obligation bonds were redeemed during 1997,
leaving an outstanding balance of $2.2 billion.
The most recent ratings applicable to General Obligation bonds
issued by the State of Minnesota are as follows: "Aaa" by Moody's, "AAA" by S&P
and "AAA" by Fitch.
Factors Affecting Missouri Fund
General Economic Conditions. Missouri was organized as a territory
in 1812 and was admitted to the Union as the 24th state on August 10, 1821. The
State ranks 19th in size with a total area of approximately 69,697 square miles.
Missouri is a central mid-western state located near the geographic center of
the United States. Bordered by Iowa on the north, Arkansas on the south,
Illinois, Kentucky and Tennessee across the Mississippi
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River on the east, and Nebraska, Kansas and Oklahoma on the west, Missouri is
one of only two states which shares it boundaries with as many as eight states.
As a major manufacturing, financial, and agricultural state,
Missouri's economic health is tied closely to that of the nation. The economic
outlook is for continued improvement in fiscal year 1998. Missouri's personal
income, which directly impacts individual income tax and sales tax, rose at a
5.9% rate during fiscal year 1997. The Missouri economy has produced exceptional
job growth over the past three years. Missouri's employment stood at 2.8 million
as of November 1997, an increase of over 317,000 since January of 1993. At the
end of November 1997, the state unemployment rate was 3.5% which compares
favorably to the national unemployment rate of 4.3%.
Budgetary Process. Annually, all State agencies submit budget
requests for the following appropriation year to the Division of Budget and
Planning of the Office of Administration. The Division Budget and Planning
prepares the Executive Budget and an estimate of general revenues. The Executive
Budget contains the budget amount which is recommended and submitted to the
General Assembly by the Governor within thirty days after the General Assembly
convenes in each regular session.
The General Assembly appropriates money after consideration of both
the Executive Budget and the revenue estimate. The legislative appropriations
are subject to the Governor's approval or veto, except for the funding of public
debt and public education which the Governor is prohibited by the Constitution
of Missouri from vetoing. The Governor may control the rate at which an
appropriation is expended by allotment or other means and may limit the
expenditures for any State agencies below their appropriations, whenever actual
revenues are less than the revenue estimated upon which the appropriations were
based. The Governor has line-item veto power, except for appropriations for
public debt and public education.
Revenues and Expenditures. Balancing Missouri's budget in fiscal
year 1997 was achieved through sound financial management. The growing economy
produced general revenues that were better than projected. The Governor and
General Assembly adopted a conservative State budget meeting mandated
expenditure increases and providing limited funding for new and expanded
program. In future years, Missouri will focus on controlling the growth of
mandatory programs though welfare reform, managed care, and cost-effective
alternatives. Major funding priorities include education, corrections, economic
development, mental health, children's services, and repairs and upgrades to
existing state facilities.
The State of Missouri completed fiscal year 1997 in sound financial
condition due to strong revenue collections and efficient management of State
programs. Net general revenue collections increased over fiscal year 1996 due to
a strong national and state economy. Expenditures were lower than anticipated in
fiscal year 1997 as prudent state agency managers did not use all available
spending authority. General revenue collections in fiscal year 1997 were
$5,843.4 million, 7.4% above fiscal year 1996 collections. General Revenue
expenditures in fiscal year 1997 for the operating budget were $5,926.1 million.
The fiscal year 1998 budget is conservatively based upon general revenue
collections of $6,029.6 million.
Final calculations made pursuant to Article X of the Missouri
Constitution show that total state revenues for Fiscal Year 1997 exceeded the
total state revenue limit by $318.8 million. Therefore, in accordance with
Article X, the entire amount of excess revenues will be refunded to Missouri
income taxpayers in calendar year 1998. The Office of Administration projects
that total state revenues will exceed the total state revenue limit by
approximately $125 million in Fiscal Year 1998.
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The State ended fiscal year 1997 with an ending balance (surplus)
of $49.5 million for the General Revenue Fund. An appropriation of $86.55
million was transferred to the Budget Stabilization Fund to bring that Fund to
2.5% of net general revenue collections. The ending General Fund balance for
fiscal year 1998 is projected at $172.4 million.
Federal court-ordered payments for the St. Louis and Kansas City
desegregation plans were $254.9 million in fiscal year 1997 which is about 3.9%
of the State's general revenue budget. The estimate for fiscal year 1998 is
$255.9 million. Desegregation expenditures, court orders, and other developments
are continually monitored to provide the best possible anticipation and forecast
of future costs.
Debt Administration and Limitation. Pursuant to the Missouri State
Constitution, the General Assembly may issue general obligation bonds solely for
the purpose of (1) refunding outstanding bonds; or, (2) upon the recommendation
of the Governor, for a temporary liability by reason of unforeseen emergency or
of deficiency in revenue in an amount not to exceed $1 million for any one year
and to be paid in not more than five years or as otherwise specifically
provided. When the liability exceeds $1 million, the General Assembly, or the
people by initiative, may submit the proposition to incur indebtedness to the
voters of the State, and the bonds may be issued if approved by a majority of
those voting. Before any bonds so authorized are issued, the General Assembly
shall make adequate provisions for the payment of the principal and interest and
shall provide for an annual tax on all taxable property in an amount sufficient
for that purpose.
Missouri voters have approved constitutional amendments providing
for the issuance of general obligation bonds used for a number of purposes. The
amount of general obligation debt that can be issued by the State is limited to
the amount approved by popular vote plus the amount of $1 million. Total general
obligation bonds issued as of November 30, 1997, was $1,147.4 million of which
$979.4 was outstanding. As of November 30, 1997, total revenue bonds issued was
$148.5 million with $114.68 million outstanding. Total state indebtedness as of
November 30, 1997, was $1,624,746,207 with $1,289,911,009 outstanding.
As of January 1, 1998, $194,465,000 principal remains outstanding
of the $200,000,000 issued fourth state building bonds (approved in August
1994); and $128,590,000 principal remains outstanding of the $439,494,240 issued
water pollution control bonds (both amounts excluding refunding issuances). With
the final $75 million issuance on December 1, 1987, all $600 million in third
state building bonds authorized by Missouri voters in 1982 were issued. With the
final issuance in fiscal year 1998, Missouri will have issued all $250 million
in fourth state building bonds authorized by Missouri voters.
In fiscal year 1997, Missouri invested a total of $276.5 million in
its capital assets with appropriations for maintenance and construction projects
throughout the State. Appropriations for fiscal year 1998 are estimated at
$237.6 million. Capital improvements of $192.5 million are recommended for
fiscal years 1998-99 biennial budget. Of this amount, $20.8 million is for vital
maintenance and repairs to state-owned facilities to initiate the voter-approved
maintenance funding mechanism. Also included is $171.8 million for planning,
major renovation, new construction, land acquisition, and other improvements.
Amounts are designated to prison construction, projects at elementary and
secondary education institutions, and facilities for veterans.
The State's general obligation bond issues received triple "A"
ratings from Moody's, S&P, and Fitch.
Factors Affecting New Mexico Fund
General Economic Conditions. The State of New Mexico, admitted as
the forty-seventh state on January 6, 1912, is the fifth largest state,
containing approximately 121,593 square miles. The State's climate is
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characterized by sunshine and warm bright skies in both winter and summer. New
Mexico has a semiarid subtropical climate with light precipitation. At the time
of the official 1990 United States Census, the State's population was 1,515,069.
As of July 1, 1997, the population had increased to 1,729,751, or 13.8% since
1990.
Major industries in the State are energy resources, tourism,
services, construction, trade, agriculture-agribusiness, government,
manufacturing, and mining. In 1995, the value of energy resources production
(crude petroleum, natural gas, uranium, and coal) was approximately $4.9 billion
with an increase showing for 1996. From 1995-96, the value of construction
contracts increased 4.9% to $2.2 billion. Natural gas prices are expected to
decline to $1.48 per mcf in fiscal year 1999 as significant new sources of
supply are bought on line in Canada and the deep water Gulf of Mexico. Gas sale
prices were $1.68 per mcf in fiscal year 1997 and are estimated to have remained
unchanged as of December 1997. Crude oil prices will decline in fiscal year 1998
to $17.60 per barrel compared to $21.04 in fiscal year 1997. Oil prices are
expected to continue downward. Major federally funded scientific research
facilities at Los Alamos, Albuquerque and White Sands are also a notable part of
the State's economy.
The State has a thriving tourist industry which has slowed since
1995. In 1996, there were approximately 2.18 million visits to national parks
and about 5.0 million visits to State parks, in the State. According to the New
Mexico Department of Labor, the State's tourist industry generated about $2.1
billion in revenue and more than 66,000 jobs. Total gross receipts for hotels
and other lodging places increased 3.4% in 1996, compared with a 1.4% decrease
in 1995. Yet, visits to New Mexico's national parks and monuments, affected
partly by federal government shutdowns in the fall and winter, dropped 3.1% in
1996. One of the State's most famous attractions is Carlsbad Cavern, which was
made a national monument in 1923 and designated a national park in 1930.
Agriculture is a major part of the State's economy, producing
$1.468 billion in 1996. This was a 3.8% increase from 1995. As a high,
relatively dry region with extensive grasslands, the State is ideal for raising
cattle, sheep, and other livestock. Because of irrigation and a variety of
climatic conditions, the State's farmers are able to produce a diverse
assortment of quality products. The State's farmers are major producers of
alfalfa hay, wheat, chile peppers, cotton, fruits and pecans. Agricultural
businesses include chile canneries, wineries, alfalfa pellets, chemical and
fertilizer plants, farm machinery, feed lots, and commercial slaughter plants.
Budgetary Process. The State's government consists of the three
branches characteristic of the American political system: executive, legislative
and judicial. The executive branch is headed by the Governor who is elected for
a four-year term and may succeed him(her)self in office once. Following a
reorganization plan implemented in 1978 to reduce and consolidate some 390
agencies, boards and commissions, the primary functions of the executive branch
are now carried out by sixteen cabinet departments, each headed by a cabinet
secretary appointed by the Governor.
The Board, in addition to other powers and duties provided by law,
has general supervisory authority over the fiscal affairs of the State and over
the safekeeping and depositing of all money and securities belonging to, or in
the custody of, the State. The Board has seven members consisting of the
Governor, the Lieutenant Governor, the Treasurer and four members appointed by
the Governor with the advice and consent of the Senate; no more than two such
appointed members may be from the same political party.
The Department of Finance and Administration, created in 1957 as
part of governmental reorganization measures of that year, is the principal
financial organization of State government and performs through its
divisions the duties and functions relating to State and local government
financing and general administration. On
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July 1, 1983, the Department of Finance and Administration was reorganized into
the DFA, which retained the prior name and handles the State's financial
functions, and the General Services Department, which now handles the
administrative functions. The executive and administrative head of the DFA is
the Secretary, who is appointed by the Governor with the advice and consent of
the Senate, and who also serves as Executive Officer of the Board. In 1983, a
Board of Finance Division was created in the DFA, to staff and coordinate the
functions of the Board.
The Legislature convenes in regular session annually on the third
Tuesday in January. Regular sessions are constitutionally limited in length to
sixty calendar days in odd-numbered years and thirty calendar days in
even-numbered years. In addition, special sessions of the Legislature may be
convened by the Governor under certain limited circumstances.
All State agencies are required to submit their budget requests to
the Budget Division of the DFA by September 1 of each year. Budget hearings are
scheduled for the purpose of examining the merits of budget requests through the
fall and are usually completed by the middle of December. Statutes require the
Budget Division to present comprehensive budget recommendations to the Governor
annually by January 2.
By statute, the Governor is required to submit a budget for the
upcoming fiscal year to the Legislature by the 25th legislative day. The State
budget is contained in a General Appropriation Bill which is first referred to
the House Appropriations and Finance Committee for consideration. The General
Appropriation Act may also contain proposals for supplemental and deficiency
appropriations for the current fiscal year. The Senate and the Senate Finance
Committee consider the General Appropriation Act after its approval by the House
of Representatives. Upon Senate passage, the Governor may sign the General
Appropriation Act, veto it, veto line items or veto parts of it. After the
Governor has signed the General Appropriation Act, the Budget Division of the
DFA approves the agency budgets and monitors the expenditure of the funds
beginning on July 1, the fist day of the fiscal year.
Revenues and Expenditures. The State derives the bulk of its
recurring General Fund revenues from five major sources: general and selective
sales taxes, income taxes, the emergency school tax on oil and gas production,
rents and royalties from State and federal land, and interest earnings from its
two Permanent Funds. Effective July 1, 1981, the Legislature abolished all
property taxes for State operating purposes.
Fiscal Year 1996-1997. For the Fiscal Year ending June 30, 1997,
recurring revenue totaled $2.964 billion, an increase of 5.5% over the previous
fiscal year. Total General Fund Revenue was $3.033 billion, up 10% from fiscal
year 1996. In general, weakness in broad-based taxes was offset by strength in
revenue related to the production of natural gas and crude oil.
Preliminary results for fiscal year 1998 show recurring
appropriations at $2.999 billion, up 4.7% from the previous fiscal year.
Nonrecurring appropriations for fiscal year 1997 were $85.2 million, and are
estimated at $4.4 million for fiscal year 1998. The net transfer necessary from
the operating reserve was $15.2 million and is within the $30 million transfer
authority authorized by the 1996 legislature.
The 1996 legislature also established the risk reserve fund within
the general fund. General fund balances including the risk reserve fund are
projected to total $231.6 million. Without the risk reserve, balances would be
$95.4 million. The fiscal year 1997 balance in the operating reserve was $80.8
million, or only 2.7% of fiscal year 1997 total revenue.
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Disaster allotments from the appropriation contingency fund totaled
$5.1 million, and the ending balance in the appropriation contingency fund is
$9.4 million.
Fiscal Year 1997-1998. General Fund recurring revenue is projected
to reach $3.08 billion in fiscal year 1998, a 4.0% increase over fiscal year
1997. When nonrecurring revenue is included, total General Fund receipts will
reach $3.13 billion of recurring revenue and $3.14 billion total revenue,
increases of 1.5% and 0.3%, respectively. Current and projected growth in
recurring revenue is slow when compared to the 1993 and 1995 period. Slow growth
is largely attributable to declines in severance-related taxes and declines in
revenue from rents and royalties. Lower natural gas and oil prices are
responsible for stagnation in severance-related taxes which are expected to grow
only 0.9% in fiscal year 1998 and decline by 13.7% in fiscal year 1999. Gross
receipts taxes will grow in fiscal year 1998 by 5.0% and income taxes will
increase by 7.4%. The growth in income taxes is augmented by increased capital
gains realizations due to new federal legislation. Nonrecurring revenue will
decline 37.5% in fiscal year 1998 and an additional 79.1% in fiscal year 1999.
Fiscal year 1997 nonrecurring revenue was attributable to new estimated payments
required for personal income tax purposes. Fiscal year 1998 nonrecurring revenue
includes higher than usual reversions in the Medicaid program thanks to
significant cost savings.
Debt Administration. The principal sources of funding for capital
projects by the State are surplus general fund balances, general obligation
bonds, and Severance Tax Bonds. The 1994 Legislature authorized the largest
capital program in the State's history, $383 million. The Executive Capital
outlay recommendation for the 1998 session totals $265.9 million. These
authorizations fund a broad range of State and local capital needs for various
public school and higher education acquisitions as well as correction
facilities, museum and cultural facilities, health facilities, State building
repairs, water rights, wastewater and water systems, State parks, local roads,
and senior citizens facilities projects.
General Obligation Bonds. General obligation bonds of the State are
issued and the proceeds thereof appropriated to various purposes pursuant to an
act of the Legislature of the State. The State Constitution requires that any
law which authorizes general obligation debt of the State shall provide for an
annual tax levy sufficient to pay the interest and to provide a sinking fund to
pay the principal of the debts. General obligation bonds are general obligations
of the State for the payment of which the full faith and credit of the State are
pledged. The general obligation bonds are payable from "ad valorem" taxes levied
without limit as to rate or amount on all property in the State subject to
taxation for State purposes. For the fiscal year ended June<0- 32>30, 1997, the
total amount outstanding on General Obligation Bonds was $247,313,874. Of this
amount, $42,018,874 is in interest.
The State of New Mexico General Obligation Capital Projects
Improvements Bonds Series 1997 in the principal amount of $64,825,000 are
authorized by the 1996 Capital Projects General Obligation Bond Act (the "Act")
passed by the State Legislature in 1996, have been approved by the voters in a
statewide election in November 1996 and will be issued pursuant to a resolution
of the State Board of Finance. General obligation bond recommendations for
fiscal year 1998-99 total $83.3 million. Of this amount, $72.1 million is for
public and higher education facilities, and $11.2 million is for statewide
projects.
Severance Tax Bonds. Severance Tax Bonds are not general
obligations of the State and the State is prohibited by law from using the
proceeds of property taxes as a source of payment of revenue bonds, including
Severance Tax Bonds. The State Treasurer keeps separate accounts for all money
collected as Severance Taxes, and is directed by State statute to pay Severance
Tax Bonds from monies on deposit in the Bonding Fund. For the fiscal year ended
June 30, 1997, the total amount outstanding on Severance Tax Bonds was
$444,723,257. Of this amount, $58,953,257 is in interest.
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The Severance Tax Bonds, Series 1995A funds 55 projects for
schools, local governments, universities, and State agencies. Total amount of
principal and interest due on Series 1995-B and Series 1996-A as of June 30,
1997 is $66,176,318 and $47,067,458, respectively. Total amount of principal and
interest outstanding as of June 30, 1997 for the Series 1997-A Refunding Bonds
is $68,515,621. The Severance Tax Bond recommendation for the 1998 session
totals $140 million. Of this amount, $68.6 million is for public and higher
education facilities, $12.7 million is for adult corrections projects and
facility purchase and $58.7 million is for other statewide projects.
Severance taxes have been collected by the State since the adoption
of the Severance Tax Act in 1937. Since 1959, certain severance tax receipts and
certain other monies determined by the Legislature have been deposited into the
Bonding Fund and used, in part, to retire bond issues which have funded a
variety of capital improvements in the State. The main minerals extracted from
the State which contribute the largest portion of Severance Tax revenues are
natural gas, oil and coal. Severance tax collections totaled $181.6 million in
fiscal year 1997 and are projected at $183.3 million for 1998.
Moody's and S&P have assigned the bond ratings of "Aa1" and "AA+,"
respectively to General Obligation Bonds and "Aa" and "AA," respectively, to the
Severance Tax Bonds, Series 1995A.
Factors Affecting New York Fund
The following information is a brief summary of New York State and
New York City factors affecting the Fund and does not purport to be a complete
description of such factors. As described above, except during temporary
defensive periods, the Fund will invest at least 80% of the value of its net
assets in Tax Exempt Obligations, the interest on which is exempt from federal
income, New York State and New York City personal income tax (except for New
York State and New York City franchise tax on corporations and financial
institutions, which is measured by income). Therefore, the financial condition
of New York State, its public authorities and local governments could affect the
market values and marketability of, and therefore the net asset value per share
and the interest income of the Fund, or result in the default of existing
obligations, including obligations which may be held by the Fund. Further, New
York State and New York City face numerous forms of litigation seeking
significant damages which, if awarded, could adversely affect the financial
situation of New York State or New York City or issuers located in New York
State. It should be noted that the creditworthiness of obligations issued by
local issuers (including New York City) may be unrelated to the creditworthiness
of New York State, and that there is no obligation on the part of New York State
to make payment on such local obligations in the event of default in the absence
of a specific guarantee or pledge provided by New York State.
Bond ratings received on New York State's and New York City's
general obligation bonds are discussed below. Moody's, S&P and/or Fitch provide
an assessment/rating of the creditworthiness of an obligor. The debt rating is
not a recommendation to purchase, sell, or hold a security, inasmuch as it does
not comment as to market price or suitability for a particular investor. The
ratings are based on current information furnished by the issuer or obtained by
the rating service from other sources it considers reliable. Each rating service
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstance. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised or
withdrawn entirely by any such rating agencies, if in their respective
judgments, circumstances so warrant. The ratings are based, in varying degrees,
on the following considerations:
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(1) Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
(2) Nature of, and provisions of, the obligation.
(3) Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or other arrangement(s)
under the laws of bankruptcy and other laws affecting creditors rights.
A revision or withdrawal of any such credit rating could have an
effect on the market price of the related debt obligations. An explanation of
the significance and status of such credit ratings may be obtained from the
rating agencies furnishing the same. In addition, a description of Moody's and
S&P's bond ratings is set forth in Appendix A to the Prospectus.
The following information provides only a brief summary of the
complex factors affecting the financial situation in New York State and New York
City, is derived from sources that are generally available to investors and is
believed to be accurate. It is based on information drawn from the Annual
Information Statement of the State of New York dated August 15, 1997 and an
update thereto issued on January 30, 1998, and from other official statements
and prospectuses issued by, and other information reported by, the State of New
York (the "State"), by its various public bodies (the "Agencies"), and other
entities located within the State, including the City of New York (the "City"),
in connection with the issuance of their respective securities.
THE FUND MAKES NO REPRESENTATION OR WARRANTY REGARDING THE
COMPLETENESS OR ACCURACY OF SUCH INFORMATION. THE MARKET VALUE OF SHARES OF THE
FUND MAY FLUCTUATE DUE TO FACTORS SUCH AS CHANGES IN INTEREST RATES, MATTERS
AFFECTING NEW YORK STATE OR NEW YORK CITY, OR FOR OTHER REASONS.
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. Travel and tourism constitute an important part of
New York's economy. Relative to the nation, the State has a smaller share of
manufacturing and construction and a larger share of service-related industries.
The State is likely to be less affected than the nation as a whole during an
economic recession that is concentrated in manufacturing and construction, but
likely to be more affected during a recession that is concentrated more in the
service-producing sector.
The State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
During the calendar years 1984 through 1991, the State's rate of
economic expansion was somewhat slower than that of the nation. In the 1990-91
recession, the economy of the State, and that of the rest of the Northeast, was
more heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in
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the State dipped below the national rate in the second half of 1981 and
remained lower until 1991; since then, it has been higher.
The State has had the second highest combined state and local tax
burden in the United States which has contributed to the decisions of some
businesses and individuals to relocate outside, or not locate within, the State.
However, the State's 1995-96 budget reflected significant actions to reduce the
burden of State taxation, including adoption of a 3-year, 20 percent reduction
in the State's personal income tax. Since 1995, New York has led the nation in
tax cuts, and in 1997, New Yorkers saved $6 billion in tax cuts. Annual savings
are intended to grow to $12 billion by 2001-02. When measured as a percentage of
personal income, state-imposed taxes in New York should be below the national
median in 1998. The budget for fiscal year 1998-99 proposes an additional $700
million in tax reductions.
The State Financial Plan is based on a projection by State's
Division of the Budget ("DOB") of national and State economic activity. The
national economy began the current expansion in 1991, however, the recession
lasted longer in the State and the State's economic recovery has lagged behind
the nation's. In the last few years, New York has shown signs of economic
resurgence. New York has gone from last in the nation in percentage of private
sector employment growth to a level that is on par with the national average,
gaining 250,000 private sector jobs since December 1994. Overall employment
growth was close to 1.4% for 1997. National employment growth in 1997 was
estimated at 2.3%. The New York economy in 1998 is expected to grow at about the
same rate as in 1997. Personal income is expected to increase 5.4% in 1997, 4.7%
in 1998 and 4.4% in 1999.
1997-98 Fiscal Year. The State's current fiscal year commenced on
April 1, 1997, and ends on March 31, 1998 (the "1997-98 fiscal year"). Prior to
adoption of the budget, the Legislature enacted appropriations for disbursements
considered to be necessary for State operations and other purposes, including
all necessary appropriations for debt service. The State Financial Plan for the
1997-98 fiscal year is based on the State's budget as enacted by the legislature
and signed into law by the Governor.
The 1997-98 General Fund Financial Plan continues to be balanced,
with a projected surplus of $1.83 billion. This will be the third consecutive
budget surplus generated by the Governor's administration. Of this amount, $700
million is being used to finance one-time costs related to an extra 27th payroll
and 53rd Medicaid cycle ($282 million) due to the cyclical timing of these
payments and to provide "hard-dollar" financing for capital projects of the
Community Enhancement Facilities Assistance Program which were previously
anticipated to be supported with bond proceeds Proposed tax cut accelerations
account for the use of another $685 million of the surplus. Of the remainder,
$365 million is being used to finance 1998-99 Executive Budget recommendations,
and $68 million is being deposited into the Tax Stabilization Reserve Fund (the
State's "rainy day" fund) as provided by the Constitution. This is the third
consecutive extraordinary deposit in the rainy day fund and increases the size
of that fund to $400 million by the end of 1997-98, the highest balance ever
achieved.
The surplus results primarily from growth in projected receipts. As
compared to the enacted budget, revenues increased by $1.28 billion, while
disbursements increased by only $565 million. These changes from Mid-Year
Financial Plan projections reflect actual results through December 1997 as well
as modified economic and caseload projections for the balance of the fiscal
year.
The General Fund is projected to be balanced on a cash basis for
the 1997-98 fiscal year. Total receipts and transfers from other funds are
projected to be $35.197 billion, an increase of $216 billion from total receipts
in the prior fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $35.165 billion, an increase of $2.26 billion
from the total amount disbursed in the prior fiscal year.
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The General Fund closing balance is expected to be $465 million at
the end of 1997-98. Of this amount, $400 million will be on deposit in the Tax
Stabilization Reserve Fund (TSRF), while another $65 million will be on deposit
in the Contingency Reserve Fund (CRF) after a $24 million deposit in 1997-98.
The TSRF had an opening balance of $317 million to be supplemented by a required
payment of $15 million and an extraordinary maximum deposit of $68 million from
surplus 1997-98 monies.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. As noted, the 1997-98 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
One major uncertainty to the 1997-98 State Financial Plan continues
to be risks related to the economy and tax collections, which could produce
either favorable or unfavorable variances during the balance of the year. It is
possible that recent changes could produce slower economic growth and a
deterioration in State receipts. An additional risk to the 1997-98 State
Financial Plan arises from the potential impact of certain litigation now
pending against the State, which could produce adverse effects on the State's
projections of receipts and disbursements.
General Fund receipts in 1998-99 will reflect the initial phases of
the STAR property tax reduction program as well as the continuing impact of
other 1997 and earlier tax reduction accomplishments. In addition, the 1998-99
budget reflects several tax reduction proposals that will reduce receipts
available to the General Fund by about $700 million during the fiscal year.
Recurring growth in the State General Fund tax base is projected to be nearly 6%
during 1998-99. That growth rate is lower than that achieved in 1996-97 or
currently estimated for 1997-98 and roughly equivalent to the rate experienced
in 1995-96. Total General Fund receipts for 1998-99 are projected at $36.22
billion, an increase of more than $1 billion from the revised 1997-98 estimate.
The largest source of receipts is the sales and use tax which accounts for
nearly 80% of projected receipts.
Total General Fund spending in the 1998-99 Executive Budget is
projected to increase $1.02 billion or 2.89% from the current year. The average
annual increase since 1994-95 is 1.85%. This rate is below the rate of inflation
and much lower than the average annual increase of 5.4% prior to 1994-95.
Education's recommended share of General Fund spending is 30% in 1998-99 and
criminal justice spending is 6.5%. Medicaid and welfare spending growth has been
reduced, reflecting Medicaid and welfare reforms implemented since 1995.
The 1998-99 Financial Plan includes approximately $62 million in
non-recurring resources, the lowest projected level ever recorded. In fiscal
years 1986-87 through 1994-95, the average annual level of one-timers was
approximately $819 million.
The projected 1998-99 closing fund balance of $500 million in the
General Fund is composed of monies available in the TSRF and the CRF. An
additional deposit of $35 million will supplement the $65 million balance in the
CRF, increasing that amount available for possible litigation risks to $100
million in 1998-99.
To address a potential imbalance in any given fiscal year, the
State would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and under the State
Constitution,
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the Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursement in future fiscal years. There can
be no assurance, however that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and disbursements
in future fiscal years.
The economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the state. Changes, depending upon their precise
character and timing, and upon taxpayer response, could produce either revenue
gains or losses during the balance of the State's fiscal year. Uncertainties
with respect to both the economy and potential decisions at the Federal level
add further pressure on future budget balance in New York State. Specific budget
proposals being discussed at the Federal level but not included in the State's
current economic forecast would (if enacted) have a disproportionately negative
impact on the longer-term outlook for the State's economy as compared to other
states. Because of the uncertainty and unpredictability of these potential
changes, their impact is not included in the assumptions underlying the State's
projections.
The 1997-98 and 1998-99 State Financial Plans are based upon
forecasts by the DOB of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Many uncertainties exist in forecasts
of both the national and State economies, including consumer attitudes toward
spending, the extent of corporate and governmental restructuring, Federal fiscal
and monetary policies, the level of interest rates, and the condition of the
world economy, which could have an adverse effect on the State. There can be no
assurances that the State economy will not experience results in the current
fiscal year that are worse than predicted, with corresponding material and
adverse effects on the State's projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are
based on the State tax structure in effect during the fiscal year and on
assumptions relating to basic economic factors and their historical
relationships to State tax receipts. Projections of total State disbursements
are based on assumptions relating to economic and demographic factors, levels of
disbursements for various services provided by local governments (where the cost
is partially reimbursed by the State), and the results of various administrative
and statutory mechanisms in controlling disbursements for State operations.
Factors that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the Federal government, and changes in the demand for and use of State
services. There can be no assurance that the State's projections for tax and
other receipts for the 1997-98 fiscal year and 1998-99 fiscal year are not
overstated and will not be revised downward, or that disbursements will not be
in excess of the amounts projected. Such variances could adversely affect the
State's cash flow during the 1997-98 fiscal year or subsequent fiscal years, as
well as the State's ability to achieve a balanced budget on a cash basis for
such fiscal year or subsequent fiscal years.
The DOB believes that its projections of receipts and disbursements
relating to the current State Financial Plan, and the assumptions on which they
are based, are reasonable. Projections and estimates of receipts from taxes have
been subject to variance in recent fiscal years. The personal income tax, the
sales tax, and the corporation franchise tax have been particularly subject to
overestimation as a result of several factors, most recently the significant
slowdown in the national and regional economies and uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax laws. As a
result of the foregoing uncertainties and other
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factors, actual results could differ materially and adversely from the
projections discussed herein, and those projections may be changed materially
and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address cash flow needs and State Financial Plan shortfall,
and DOB believes it could take similar action should variances from its
projections occur in the current and/or subsequent fiscal years. Those variances
could, however, affect the State's ability to achieve a balanced budget on a
cash basis for the current and/or subsequent fiscal years.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future years, nor can there be any assurance that budgetary
difficulties will not lead to further adverse consequences for the State and its
obligations.
As a result of changing economic conditions and information, public
statements or reports may be released by the Governor, members of the State
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, as reflected in the 1997-98 State Financial Plan, that may
vary materially and adversely from the information provided herein.
Indebtedness. As of March 31, 1997, the total amount of long-term
State general obligation debt authorized but unissued stood at $2.767 billion.
As of the same date, the State had approximately $5.03 billion in outstanding
general obligation debt, including $294 million in bond anticipation notes
outstanding.
As of March 31, 1997, $22.499 billion of bonds, issued in
connection with lease-purchase and contractual-obligation financings of State
capital programs, were outstanding. The total amount of outstanding
State-supported debt as of March 31, 1997 was $32.766 billion. As of March 31,
1997, total State-related debt (which includes the State-supported debt, moral
obligation and certain other financings and State-guaranteed debt) was $37.114
billion.
The State anticipates that its capital programs will be financed,
in part, through borrowings by the State and public authorities in the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding BANs) and $140
million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State's
1997-98 fiscal year for equipment purchases. The projection of the State
regarding its borrowings for the 1997-98 fiscal year may change if circumstances
require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7
billion, and has been authorized to issue its bonds to provide net proceeds of
up to $529 million during the State's 1995-96 fiscal year to redeem notes sold
in June 1995. The LGAC program was completed in 1995-96 with the issuance of the
last installment of authorized bond sales. As of March 31, 1997, $5.239 billion
in bonds remained outstanding of the LGAC.
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Ratings. Moody's rating of the State's general obligation bonds is
Aa2 and S&P's rating is A. Fitch does not rate the State's general obligation
debt. Moody's previous rating was A on June 6, 1990, with its rating having been
A1 since May 27, 1986. S&P's previous rating was A- on January 13, 1992. S&P's
ratings were A from March 1990 to January 1992, AA- from August 1987 to March
1990 and A+ from November 1982 to August 1987.
The City and the Municipal Assistance Corporation ("MAC")
The City accounts for approximately 41% of the State's population
and 45% of the State's revenues, and the City's financial health affects the
State in numerous ways.
In February 1975, the New York State Urban Development Corporation
("UDC"), which had approximately $1 billion of outstanding debt, defaulted on
certain of its short-term notes. Shortly after the UDC default, the City entered
a period of financial crisis. Both the State Legislature and the United States
Congress enacted legislation in response to this crisis. During 1975, the State
Legislature (i) created MAC to assist with long-term financing for the City's
short-term debt and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the City's budgets and
four-year financial plans (the financial plans also apply to certain
City-related public agencies).
The national economic downturn which began in July 1990 adversely
affected the City economy, which had been declining since late 1989. As a
result, the City experienced job losses from 1989-1992 and the City's economy
declined. Beginning in 1993, the improvement in the national economy helped
stabilize conditions in the City. Private employment grew 1.3% per year from
1993 to 1996 compared to the nation's 2.9% rate, and the City's economy
improved, boosted by strong wage gains. The City's economic improvement
significantly accelerated in fiscal year 1997, resulting in an unusually high,
across-the-board increase in tax receipts. Much of the increase can be traced to
the performance of the securities industry, but the City's economy has produced
gains in retail trade, tourism, and in business services. In 1997, the City
experienced the largest private sector job growth in the last 13 years.
For each of the fiscal years since 1981, the City has achieved
balanced operating results as reported in accordance with generally accepted
accounting principles ("GAAP"). The City was required to close substantial
budget gaps in its recent fiscal years in order to maintain balanced operating
results. There can be no assurance that the City will continue to maintain a
balanced budget, or that it can maintain a balanced budget without additional
tax or other revenue increases or reductions in City services, which could
adversely affect the City economic base.
Pursuant to State law the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The current
financial plan extends through the 1999 fiscal year. The City is required to
submit its financial plans to review bodies, including the Control Board. If the
City were to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood of the occurrence of an annual
operating deficit of more than $100 million or the loss of access to the public
credit markets to satisfy the City's capital and seasonal financial
requirements, the Control Board would be required by State law to exercise
certain powers, including prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City
to balance its budget and to meet its cash requirements. The State's 1997-98
Financial Plan projects a balanced General Fund. If the State experiences
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revenue shortfalls or spending increases during its 1997-98 fiscal year or
subsequent years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance that State budgets
in future fiscal years will be adopted by the April 1 statutory deadline and
that there will not be adverse effects on the City's cash flow and additional
City expenditures as a result of such delays.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1998 through
2002 fiscal years. The City projections set forth in its financial plan are
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in such financial plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability to complete revenue generating transactions,
provision of State and Federal aid and mandate relief, State legislative
approval of future State budgets, levels of education expenditures as may be
required by State law, adoption of future City budgets by the New York City
Council, approval by the Governor or the State Legislature and the cooperation
of MAC with respect to various other actions proposed in such financial plan,
and the impact on City revenues of proposals for Federal and State welfare
reform.
Implementation of its financial plan is also dependent upon the
City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1998 through 2002
contemplates the issuance of $10.54 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and physical
assets and to make capital investments. In addition, the City issues revenue and
tax anticipation notes to finance its seasonal working capital requirements. The
terms and success of projected public sales of City general obligation bonds and
notes will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from meeting its
planned capital and operating expenditures. In order to help the City to avoid
exceeding its State Constitutional general debt limit, the State created the New
York City Transitional Finance Authority in 1997 to finance a portion of the
City's capital program. The New York City Transitional Finance Authority is
expected to issue $7.5 billion in bonds to support the current four year
Financial Plan. Despite this additional financing mechanism, the City currently
projects that, if no further action is taken, it will reach its debt limit in
City fiscal year 1999-2000. On June 2, 1997, an action was commenced seeking a
declaratory judgment declaring the legislation establishing the Transitional
Finance Authority to be unconstitutional. If such legislation were voided,
projected contracts for City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City and public
discussion of such developments, the City's future financial needs and other
issues may affect the market for outstanding City general obligation bonds or
notes.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than those
forecast in the financial plan. In addition, the Control Board staff and others
have questioned whether the City has the capacity to generate sufficient
revenues in the future to provide the level of services included in the
financial plan. It is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.
1996-99 Financial Plan. On July 11, 1995, the City submitted to the
Control Board the 1996-99 Financial Plan, which relates to the City, the Board
of Education and the City University of New York. The
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1996-99 Financial Plan is based on the City's expense and capital budgets for
the City's 1996 fiscal year, which were adopted on June 14, 1995, and sets forth
proposed actions by the City for the 1996 fiscal year to close substantial
projected budget gaps resulting from lower than projected tax receipts and other
revenues and greater than projected expenditures. In addition to substantial
proposed agency expenditure reductions and productivity, efficiency and labor
initiatives negotiated with the City's labor unions, the 1996-99 Financial Plan
reflects a strategy to substantially reduce spending for entitlements for the
1996 and subsequent fiscal years.
1998-2002 Financial Plan. In January, 1998, the New York City mayor
announced the City's Financial Plan for Fiscal Years 1998-2002. For the second
year in a row, the New York City four-year financial plan contains a record
surplus of more than $1 billion. Since the adoption of the fiscal year 1998
budget, the City is now forecasting additional resources of $3.1 billion.
Approximately 73% will be used to reduce the out-year gaps, 19% will fund
targeted educational, public safety and other initiatives, and 8% will be used
to reduce taxes further.
To reduce the out-year gaps, the City has imposed fiscal discipline
on the rate of growth of City spending which has, over the last four years, been
held below the rate of inflation. For fiscal year 1999, the proposed City-funded
spending increase will be held to 0.6%. The budget stabilization account,
established for the first time in 1997, will be maintained in fiscal year 1999
at $210 million with an additional $210 million created for fiscal year 2000. As
a result of this fiscal planning, the out-year gaps have been cut in half
compared to six years ago: in fiscal year 1993 the total gap was $13.3 billion
and fiscal year 1998 is $5.7 billion.
According to recent staff reports, while economic recovery in New
York City has been slower than in other regions of the country, a surge in Wall
Street profitability resulted in increased tax revenues and generated a
substantial surplus for the City in fiscal year 1996-97. Although several
sectors of the City's economy have expanded recently, especially tourism and
business and professional services, City tax revenues remain heavily dependent
on the continued profitability of the securities industry and the course of the
national economy. These reports have also indicated that recent City budgets
have been balanced in part through the use of non-recurring resources; that the
City's Financial Plan tends to rely on actions outside its direct control; that
the City has not yet brought its long-term expenditure growth in line with
recurring revenue growth; and that the City is therefore likely to continue to
face substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues.
Litigation. The City is a defendant in a significant number of
lawsuits. Such litigation includes, but is not limited to, actions commenced and
claims asserted against the City arising out of alleged constitutional
violations, torts, breaches of contracts, and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if any,
of the proceedings and claims are not currently predictable, adverse
determinations in certain such proceedings and claims might have a material
adverse effect upon the City's ability to carry out its financial plan. The
fiscal years 1998-2002 Financial Plan includes provisions for judgments and
claims of $375 million, $348 million, $373 million, $405 million and $435
million for the 1998 through 2002 fiscal years, respectively.
Ratings. On March 6, 1998, Moody's upgraded the rating for the
general obligation bonds of New York City to A3 from Baa1. The rating action
affected about $28 billion in debt and reflects the first rating change since
Moody's downgraded the City in February 1991. In March 1998, S&P affirmed the
City's GO bond rating at BBB+. S&P placed the City's general obligation bonds on
CreditWatch with a positive outlook on February 3, 1998. Moody's rating upgrade
reflects improvement in the City's financial condition and economy and also is
based on the belief that the City is better positioned to weather future cycles
inherent in its economy. Other factors cited by the rating agency included
strong revenue growth, a vibrant but volatile financial services sector,
spending
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restraints and reduced out-year budget gaps. The rating is tempered by a high
debt burden, above average unemployment rate and a history of structural budget
imbalance.
S&P last took action on the City's general obligation ratings on
July 10, 1995 with a downgrade to BBB+ from A-. As noted, Moody's lowered the
City's rating to Baa1 from A on February 11, 1991. Previously, Moody's had
raised its rating to A in May 1988, to Baa1 in December 1986, to Baa in November
1983 and to Ba1 in November 1981. S&P had raised its rating to A- in November
1987, to BBB+ in July 1985 and to BBB in March 1981. Fitch rates New York City's
general obligation bonds A-.
Indebtedness. As of December 31, 1997, the City had, $31.4 billion
of outstanding long-term bonds of which $26.7 billion represented general
obligation debt, $4.2 billion in MAC debt and the balance in public benefit
corporation debt.
The State Agencies: Certain Agencies of the State, including the
State Housing Finance Agency ("HFA") and the UDC, have faced substantial
financial difficulties which could adversely affect the ability of such Agencies
to make payments of interest on, and principal amounts of, their respective
bonds. The difficulties have in certain instances caused the State (under
so-called "moral obligation" provisions, which are non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of the Agencies. Moreover, it is expected
that the problems faced by these Agencies will continue and will require
increasing amounts of State assistance in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those Agencies
having financial difficulties to meet their obligations (including HFA and UDC)
could result in a default by one or more of the Agencies. Such default, if it
were to occur, would be likely to have a significant adverse effect on investor
confidence in, and therefore the market price of, obligations of the defaulting
Agencies. In addition, any default in payment on any general obligation of any
Agency whose bonds contain a moral obligation provision could constitute a
failure of certain conditions that must be satisfied in connection with Federal
guarantees of City and MAC obligations and could thus jeopardize the City's
long-term financing plans.
State Litigation: The State is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance of routine
governmental operations. Such litigation includes, but is not limited to, claims
asserted against the State arising from alleged torts, alleged breaches of
contracts, condemnation proceedings and other alleged violations of State and
Federal laws. Included in the State's outstanding litigation are a number of
cases challenging the constitutionality or the adequacy and effectiveness of a
variety of significant social welfare programs primarily involving the State's
mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient care
which could require substantial increased financing of the litigated programs in
the future.
The State is also engaged in a variety of contract and tort claims
wherein significant monetary damages are sought. In 1997, a civil rights claim
alleging intentional school segregation in Yonkers has resulted in a $9 million
judgment for plaintiffs that the State must pay.
Adverse developments in the foregoing proceedings or new
proceedings could adversely affect the financial condition of the State in the
1997-98 fiscal year or thereafter.
Other Municipalities: Certain localities in addition to New York
City could have financial problems leading to requests for additional State
assistance and the need to reduce their spending or increase their revenues.
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The potential impact on the State of such actions by localities is not included
in projections of State revenues and expenditures in the State's 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is charged
with oversight of the Fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in increased
State expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during
the 1996 legislative session through $50 million in special appropriations
targeted for distressed cities, aid that was largely continued in 1997.
Twenty-eight municipalities are scheduled to share the more than $32 million in
targeted unrestricted aid allocated in the 1997-98 budget. An additional $21
million will be dispersed among all cities, towns and villages, a 3.97% increase
in General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in the State other than New York City was approximately $19.0
billion. Approximately $102.3 million of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1995.
From time to time, Federal expenditure reductions could reduce, or
in some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, New York City or any of the Agencies were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State, including notes or bonds in the Fund, could be adversely
affected. Localities also face anticipated and potential problems resulting from
certain pending litigation, judicial decisions, and long-range economic trends.
Long-range potential problems of declining urban population, increasing
expenditures, and other economic trends could adversely affect localities and
require increasing State assistance in the future.
Factors Affecting North Dakota Fund
General Economic Conditions. North Dakota lies in the central
portion of the Northern Plains with a land area of 70,665 square miles.
Elevation in the northeast corner of the State is 750 feet above sea level and
in the southwest corner of the State is 3,506 feet. The North Dakota economy
continues to grow at a slow and steady pace. The production-based economy, which
provides the basis for this stable, slow growth, while sensitive to change, is
not as susceptible to recessionary impacts as the rest of the nation. Despite
the blizzards, which closed most retail businesses for a few days in April 1997,
and the flooding, which closed most of Grand Fork's businesses for a good
portion of April and May, the state experienced some growth in taxable sales and
purchases for the second quarter of 1997. Overall, taxable sales and purchases
were up 3.6% over the second quarter of
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1996. The sector posting the largest gain was wholesale trade, up nearly 8%.
The services sector posted an increase of over 7%.
Agriculture is an important segment of the state's economy. This
industry suffered from the weather in 1997. Spring blizzards claimed over
100,000 head of cattle. Flooded fields reduced the total acres planted. Less
than ideal moisture conditions and disease negatively impacted yields, pushing
average statewide yields down to 25 bushels per acre for spring wheat, and 22
bushels per acre for durum wheat. Wheat production in 1997 and 1998 is expected
to be the lowest since 1989.
The energy industry in North Dakota continues its rebound reversing
nearly a decade of decline. Oil production in this state is currently averaging
approximately 99,000 barrels per day, up 10% from last years production level.
Oil production is expected to increase to a level of over 100,000 barrels of oil
per day during the next biennium while prices are expected to be in the $20 per
barrel range. Recent actions in the Middle East could exert additional upward
pressure on world oil prices.
Despite the possibility of a second year of flooding in the Red and
Missouri River valleys, most economists agree that North Dakota can expect to
continue on its path of moderate growth for the near future. The predicted El
Nino weather patterns may result in a milder, drier winter for North Dakota and
possibly some upward pressure on world wheat prices. Both would be good news for
North Dakota.
The labor force and employment situation for the state appears
healthy. Employment in the state has grown by 7,450 wage and salary jobs
reflecting an increase of 2.3% compared to one year earlier. Eight of the nine
major employment sectors showed growth. Manufacturing had the largest increase
of 8.2%, followed closely by construction, up 8.1%, and mining up nearly 6%. The
only sector reporting a decrease was government, down 0.8% from 1996 levels.
Unemployment is significantly below national levels. North Dakota's unemployment
rate as of November 1997 was 1.9%. This is significantly lower than the national
unemployment rate of 4.6% for the same period.
The 1995 Legislative Assembly funded the design, development and
implementation of a Welfare Reform Computer System. The demonstration project
knows as TEEM (Training, Education, Employment and Management) provides for
uniform treatment of income and assets, budget methodology, standard
certification periods, and employment and training with adequate child care. The
54th Legislative Assembly contained substantial workers compensation reform. The
55th Assembly focused on providing assistance to local government. They also
expanded the demonstration project TEEM and provided additional funding for
child care assistance and child support enforcement.
Budgetary Process. The State operates through a biennial
appropriation which represents departmental appropriations recommended by the
Governor and presented to the General Assembly at the beginning of each
legislative session. The General Assembly enacts the budgets of the various
State departments through passage of specific appropriation bills. The Governor
has line item veto powers over all legislation subject to legislative override.
Session laws that were passed by the Legislature in 1993 authorize directors of
various state agencies to transfer appropriation authority among the various
divisions of their specific agency, subject to the Budget Section of the North
Dakota Legislative Council's approval. Unexpended appropriations lapse at the
end of each biennium, except certain capital expenditures covered under the
North Dakota Code and except for all unexpended general funds appropriation
authority which must be deposited in special revenue funds of the institutions
in the University System according to law. The legislative appropriations passed
by the fifty-fifth assembly were $1,489 million, an increase of $147 million
over the 1995-97 appropriations.
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The beginning balance for the 1995-97 biennium was $31.1 million,
$4.2 million more than had been projected for an ending balance when the 1995
Legislative Assembly adjourned. No one-time transfers were utilized in the
1995-97 budget, although $31.9 million of the transfers from the Bank of North
Dakota were moved from the 1993-95 biennium to the 1995-97 biennium. The Bank of
North Dakota transferred $50.2 million in the 1995-97 biennium. The June 30,
1997 ending balance was $115 million.
North Dakota implemented a new accounting standard, GASB Statement
No 22 "Accounting for Taxpayer Assessed Tax Revenues in Governmental Funds."
This created a one time acceleration of revenue recognition for the State's
major tax types. The change resulted in a restatement of the general fund's 1994
balance, increasing it from $64.3 million to $94.4 million. In fiscal year 1995
an additional $75.6 million was recognized for taxes receivable in the general
fund. The increase in taxes receivable resulted in an additional $36 million
being recognized as revenue and $39.6 million as deferred revenue in fiscal year
1995 in the general fund. The general fund also had an $11 million increase in
accrued tax refunds payable which decreased revenues in the general fund for
fiscal year 1995.
Revenues and Expenditures. General governmental activities are
accounted for in four governmental fund types: general (GAAP) basis; special
revenue; capital projects; and, debt service funds. Revenues for general
governmental functions totaled approximately $1.6 billion for the fiscal year
ended June 30, 1997, an increase of approximately $66 million from fiscal
year 1996. Oil tax revenue collections accounted for nearly $6 million of the
excess due to the increased oil activity and prices in the state. Of the total
revenues, taxes accounted for $745 million, or 47.83%. The largest increase in
taxes on a budgetary basis comes from sales and use taxes with an increase of
$12 million because of economic growth in the State. The second largest source
of general fund revenue, the individual income tax, increased $11 million.
Total sales and use tax for the 1995-97 biennium was approximately
$605.5 million. Total individual income tax for the biennium was $315.5 million
and total corporate income tax was $99.3 million.
General government appropriations totaled $1.44 billion for the
fiscal year ended June 30, 1997, an increase of 7.6% from 1996. The three
leading expenditures are: education, $347.1 million, health and human services,
$586.4 million; and, highways, $236.7 million. Highway expenditures increased by
$24 million because of flood and snow emergency disasters in fiscal year 1997,
resulting in increased snow removal and road construction costs. The GAAP
General Fund undesignated balance increased from $85.4 million on June 30, 1996,
to $109.3 million as of June 30, 1997.
Projected general fund revenues for the 1997-99 biennium, based on
the executive recommendation, are $1.44 billion. This is a $70.3 million or 5%
increase over the 1995-97 biennium. The projected ending balance at June 30,
1999 is approximately $10 million.
Claims/Judgments Payable are primarily Workers Compensation Claims
Incurred But Not Yet Reported (IBNR) by the claimants as well as claims related
to various litigation matters. Claims and judgments for governmental funds are
reflected entirely in the general long-term debt account group and not in
individual funds as the liability is not expected to be liquidated with
expendable available financial resources.
Debt Administration. The Constitution of North Dakota provides that
the State may issue or guarantee the payment of bonds provided that all bonds in
excess of $2 million are: secured by first mortgage upon property and no further
indebtedness may be incurred by the State unless evidenced by a bond issue;
authorized by law, for a certain purpose; provisioned to pay the interest
semiannually, and pay the principal within 30 years. The law
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authorizing the bond issue must specifically appropriate the provisions to the
payment of the principal and interest of the bond. The State is currently in
compliance with the constitutional debt limitation. At June 30, 1997, the state
had a number of debt issues outstanding. These issues include:
General Obligation Bonds. General obligation bonds have been
authorized and issued to provide funds to the Bank of North Dakota. General
obligation bonds issued according to the constitution and enabling statutes are
backed by the full faith, credit and taxing power of the State of North Dakota.
Debt service requirements are provided by repayment of the real estate loans and
transfers from the Bank of North Dakota. General obligation bonds currently
outstanding are the 1984 and 1986 Real Estate Series. At June 30, 1997, the
balance was $33,084,000.
Revenue Bonds. Current State statutes empower certain State
agencies to issue bonds as part of their activities. This debt is not backed by
the full faith and credit of the State of North Dakota. The principal and
interest on such bonds shall be payable only from the applicable agencies'
program income. On June 30, 1997, total Revenue Bonds outstanding were
$938,442,000. The Bonds and balance were as follows: State Fair, $3,041,000;
Student Loan Trust, $232,119,000; Building Authority, $73,837,000; Housing
Finance, $466,868,000; University System, $57,228,000; and Municipal Bond Bank,
$97,144,000.
Long-Term Notes. The Bank of North Dakota has advances from the
Federal Home Loan Bank in the amount of $14.5 million. The advances have a fixed
rate of interest, ranging from 5.84% to 8.19%.
North Dakota continues to receive bond ratings from both Moody's
(Aa) and S&P (AA-) on general obligation bond issues. As of October 1997,
Moody's refined North Dakota's general obligation bond rating to Aa3.
Factors Affecting Oregon Fund
General Economic Conditions. Oregon's December 1997 forecast issued
by the Department of Administrative Services predicts that downside risks have
increased with volatility in worldwide financial markets and the likelihood of
slower growth in important Asian markets. Yet, there is most likely to be a
continuation of the modest deceleration that has taken place during 1997. Growth
is expected to be led by further expansion of the state's high technology
manufacturing industries and their suppliers, along with additional gains in
transportation equipment manufacturing. Expansion of these manufacturing sectors
will translate into job creation in the service-producing sectors. The
construction sector is expected to level off after four years of extremely rapid
growth, thereby slowing the state's overall growth rate.
A pattern of slowing growth is expected for both personal income
and employment. Total nonfarm wage and salary employment is projected to
increase 3.5% for 1997, down from 4.0% in 1996. Job growth is expected to slow
further to 2.6% in 1998. Personal income will grow a projected 6.7% for 1997 and
5.6% for 1998, down from 7.0% growth in 1996. The state's population is forecast
to increase 1.6% in 1998, up slightly from an estimated 1.5% in 1997.
Oregon's unemployment rate increased from 4.8% in 1995 to 5.2% in
1996. This compares favorably with the national unemployment rates of 5.6% in
1995 and 5.4% in 1996. However, as of November 1997, Oregon's unemployment rate
was 5.3% while the U.S. unemployment rate was 4.6%.
The statewide timber harvest is expected to be 4.0 billion board
feet for both 1997 and 1998, a slight increase from 3.932 billion board feet in
1996. The 1996 statewide timber harvest was a decrease of 8.9% from
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1995. In the agricultural industry, cash commodities include farm forest
products, cattle and calves, nursery crops, dairy, wheat, potatoes, alfalfa hay,
and perennial rye grass seed.
Budgetary Process. The Oregon budget is approved on a biennial
basis by separate appropriation measures. A biennium begins July 1 and ends June
30 of odd-numbered years. Measures are passed for the approaching biennium
during each regular Legislative session, held beginning in January of
odd-numbered years.
Because the Oregon Legislative Assembly meets in regular session
for approximately six months of each biennium, provision is made for interim
funding through the Legislative Emergency Board. The Emergency Board is
authorized to make allocations of General Fund monies to State agencies from the
State Emergency Fund. The Emergency Board may also authorize increases in
expenditure limitations from Other or Federal Funds (dedicated or continuously
appropriated funds), and may take other actions to meet emergency needs when the
Legislative Assembly is not in session. The most significant feature of the
budgeting process in Oregon is the constitutional requirement that the budget be
in balance at the end of each biennium. Because of this provision, Oregon may
not budget a deficit and is required to alleviate any revenue shortfalls within
each biennium.
Revenue and Expenditures. The Oregon Biennial budget is a two-year
fiscal plan balancing proposed spending against expected revenues. The total
budget consists of three segments distinguished by source of revenues: programs
supported by General Fund revenues; programs supported by Other Funds (dedicated
fund) revenues, including lottery funds; and, Federal Funds. General Fund
revenue totaled $7,731.58 million for the 1995-1997 biennium. Revenue exceeded
the May estimate by $187.7 million.
General Fund revenue is projected to be $8,477.4 million for the
1997-99 biennium. The beginning balance is estimated to be $794.2 million for a
total General Fund resource estimate of $9,271.6 million. The December 1997-99
General Fund revenue estimate is $42.9 million higher than the September 1997
forecast. It is $252.4 million higher than the Close of Session (COS) estimate.
The State is involved in certain legal proceedings that, if decided
against the State, may require the State to make significant future expenditures
or may impair future revenue sources. Because of the prospective nature of these
legal proceedings, no provision for these potential liabilities has been
recorded in the publicly disclosed financial statements. Additionally, 1,229
notices of tort claims have been filed against the State. Of those claims, 544
also have been filed as court actions, and are pending against the State. These
cases are pending in State courts and are subject to the liability limitations
stated in the Tort Claims Act of $500,000 per occurrence, $200,000 per
individual for physical injuries, and $50,000 per occurrence for property
damage. The likelihood of an unfavorable outcome in these cases ranges from
probable to remote, but it is certain that these cases do not involve real
exposure of $25 million in the aggregate.
In the November 1994 general election, Oregonians approved a ballot
measure, introduced through the initiative process, that will have, or may have,
a material financial impact on the State. "Measure 11" amends Oregon statutes to
require mandated minimum sentences for certain felonies, effective April 1,
1995. "Measure 11" creates a need for an estimated 6,085 new prison beds by the
year 2001 and calls for State correction facility construction costs of
approximately $462 million in the next five years. The State also estimates
increases in State expenditures for correctional operations, beginning with an
increase of $3.2 million in fiscal year 1996, with accelerating costs that
should peak at an annual increase of up to $101.6 million by fiscal year 2001.
Because these demands will be made by the State General Fund, they will reduce
amounts that otherwise would be available in the future for the Oregon
Legislative Assembly to appropriate for other purposes.
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In November of 1996, voters approved Ballot Measure 47, the
property tax cut and cap. It will reduce revenues to schools, cities and
counties by as much as $1 billion and put pressure on the General Fund to make
up some or all of the difference.
Ballot Measure 50, passed by Oregon voters in May of 1997, limits
the taxes a property owner must pay. It limits taxes on each property by rolling
back the 1997-98 assessed value of each property to 90% of its 1995-96 value.
The measure also limits future growth on taxable value to 3% a year, with
exceptions for items such as new construction, remodeling, subdivisions, and
rezoning. It establishes permanent tax rates for Oregon's local taxing
districts, yet allows voters to approve new, short-term option levies outside
the permanent rate limit if approved by a majority of a 50% voter turnout.
Debt Administration and Limitation. Oregon statutes give the State
Treasurer authority to review and approve the terms and conditions of sale for
State agency bonds. The Governor, by statute, seeks the advice of the State
Treasurer when recommending the total biennial bonding level for State programs.
Agencies may not request that the Treasurer issue bonds or certificates of
requirements for state agencies on proposed and outstanding debt. Statutes
contain management and reporting requirements for state agencies on proposed and
outstanding debt.
A variety of general obligation and revenue bond programs have been
approved in Oregon to finance public purpose programs and projects. General
obligation bond authority requires voter approval or a constitutional amendment,
while revenue bonds may be issued under statutory authority. However, under the
Oregon Constitution the state may issue up to $50,000 of general obligation debt
without specific voter approval. The State Legislative Assembly has the right to
place limits on general obligation bond programs which are more restrictive than
those approved by the voters. General obligation authorizations are normally
expressed as a percentage of statewide True Cash Value (TCV) of taxable
property. Revenue bonds usually are limited by the Legislative Assembly to a
specific dollar amount.
The State's constitution authorizes the issuance of general
obligation bonds for financing community colleges, highway construction, and
pollution control facilities. Higher education institutions and activities and
community colleges are financed through an appropriation from the General Fund.
Facilities acquired under the pollution control program are required to
conservatively appear to be at least 70% self-supporting and self-liquidating
from revenues, gifts, federal government grants, user charges, assessments, and
other fees.
Additionally, the State's constitution authorizes the issuance of
general obligation bonds to make farm and home loans to veterans, provide loans
for state residents to construct water development projects, provide credit for
multi-family housing for elderly and disabled persons, and for small scale local
energy projects. These bonds are self-supporting and are accounted for as
enterprise funds. Certain provisions of the Water Resources general obligation
bond indenture conflict with State statutes. Upon the advice of the Attorney
General, the method of handling investment interest is in compliance with the
statutes rather than the bond indenture. Currently there is litigation pending
against the State concerning this treatment of the investment interest.
The State's constitution further authorizes the issuance of general
obligation bonds for financing higher education building projects, facilities,
institutions, and activities. As of September 1, 1997, the total balance of
general obligation bonds was $3.26 billion. The debt service requirements for
general obligation bonds, including interest of approximately $2.39 billion, as
of September 1, 1997, was $5.66 billion.
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In addition to general obligation and direct revenue bonds, the
State of Oregon issues industrial development revenue bonds ("IDBs"), Oregon
Mass Transportation Financing Authority revenue bonds and Health, Housing,
Educational and Cultural Facilities Authority ("HHECFA") revenue bonds. The IDBs
are issued to finance the expansion, enhancement or relocation of private
industry in the State. Before such bonds are issued, the project application
must be reviewed and approved by both the Oregon State Treasury and the Oregon
Economic Development Commission. Strict guidelines for eligibility have been
developed to ensure that the program meets a clearly defined development
objective. IDBs issued by the State are secured solely by payments from the
private company and there is no obligation, either actual or implied, to provide
state funds to secure the bonds. The Oregon Mass Transportation Financing
Authority ("OMTFA") reviews financing requests from local mass transit districts
and may authorize issuance of revenue bonds to finance eligible projects. The
State has no financial obligation for these bonds, which are secured solely by
payments from local transit districts.
The State is statutorily authorized to enter into financing
agreements through the issuance of certificates of participation. Certificates
of participation have been used for the acquisition of computer systems by the
Department of Transportation, Department of Administrative Services, and the
Department of Higher Education. Also, certificates of participation have been
used for the acquisition or construction of buildings by the Department of
Administrative Services, Department of Fish and Wildlife, Department of
Corrections, State Police, and Department of Higher Education. Further,
certificates of participation were used in the acquisition of telecommunication
systems by the Department of Administrative Services and the Adult & Family
Services Division. As of September 1, 1997, the certificates of participation
debt totaled $634.9 million. The debt service requirements for certificates of
participation for 1995-1997 is estimated at $70.1 million.
HHECFA is a public corporation created in 1989, and modified in
1991, to assist with the assembling and financing of lands for health care,
housing, educational and cultural uses and for the construction and financing of
facilities for such uses. The Authority reviews proposed projects and makes
recommendations to the State Treasurer as to the issuance of bonds to finance
proposed projects. The State has no financial obligation for these bonds, which
are secured solely by payments from the entities for which the projects were
financed.
The Treasurer on behalf of the State may also issue federally
taxable bonds in those situations where securing a federal tax exemption is
unlikely or undesirable; regulate "current" as well as "advance" refunding
bonds; enter into financing agreements, including lease purchase agreements,
installment sales agreements and loan agreements to finance real or personal
property and approve certificates of participation with respect to the financing
agreements. Amounts payable by the State under a financing agreement are limited
to funds appropriated or otherwise made available by the Legislative Assembly
for such payment. The principal amount of such financing agreements are treated
as bonds subject to maximum annual bonding levels established by the Legislative
Assembly under Oregon statute.
Each of Fitch, Moody's and S&P has assigned their municipal bond
ratings of "AA," "Aa2" and "AA" respectively.
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Factors Affecting Puerto Rico
General Economic Conditions. Puerto Rico, the fourth largest of the
Caribbean islands, is located approximately 1,600 miles southeast of New City
and 1,000 miles east-southeast of Miami, Florida. It is approximately 100 miles
long and 35 miles wide. According to estimates of the Planning Board, the
population of Puerto Rico increased to 3,726,000 during fiscal 1996.
Puerto Rico came under United States sovereignty by the Treaty of
Paris, signed on December 10, 1898, terminating the Spanish-American War. Puerto
Ricans have been citizens of the United States since 1917. Puerto Rico's
constitutional status is that of a territory of the United States and the
ultimate source of power over Puerto Rico, pursuant to the Territories Clause of
the Federal Constitution, is the United States Congress. The Commonwealth
exercises virtually the same control over its internal affairs as do the fifty
states; however, it differs from the states in its relationship with the federal
government. The people of Puerto Rico are citizens of the United States but do
not vote in national elections. They are represented in Congress by a Resident
Commissioner who has a voice in the House of Representatives and limited voting
powers. Most federal taxes, except those such as social security taxes, are not
levied in Puerto Rico. No federal income tax is collected from Commonwealth
residents on ordinary income earned from sources in Puerto Rico, except for
certain federal employees who are subject to taxes on their salaries and for
income earned from sources outside Puerto Rico.
The Commonwealth has established policies and programs directed at
the development of manufacturing and the expansion and modernization of the
island's infrastructure. The investment of mainland United States, foreign and
local funds in new factories has been stimulated by selective tax exemption,
development loans, and other financial and tax incentives. Infrastructure
expansion and modernization have bee to a large extent financed by bonds and
notes issued by the Commonwealth, its public corporations and municipalities.
Economic progress has been aided by significant increases in the levels of
education and occupational skills of the island's population.
The economy of Puerto Rico is closely integrated with that of the
mainland United States. During fiscal 1996 approximately 88% of Puerto Rico's
exports went to the United States mainland, which was also the source of
approximately 62% of Puerto Rico's imports. In fiscal 1996, Puerto Rico
experienced a $3.2 billion positive adjusted merchandise trade balance. Gross
product in fiscal 1992 was $23.7 billion and gross product in fiscal 1996 was
$30.25 billion. This represents an increase in gross product of 27.6% from
fiscal 1991 to 1996.
Puerto Rico's more than decade-long economic expansion continued
throughout the five-year period from fiscal 1992 through fiscal 1996. Almost
every sector of the economy was affected and record levels of employment were
achieved. Average employment in creased from 987,000 in fiscal 1992 to 1,128,000
in fiscal 1996. Average unemployment decreased from 15.1% in fiscal 1992 to
13.1% in fiscal 1996.
Puerto Rico has a diversified economy. During the fiscal years
1992-1996, the manufacturing and service sectors generated the largest portion
of gross domestic product. Three sectors of the economy provide the most
employment: Manufacturing, services, and government.
Gross product in fiscal 1992 was $23.7 billion and gross product in
fiscal 1996 was $30.2 billion. This represents an increase in gross product of
27.6% from fiscal 1992 to 1996. Since fiscal 1985, personal income, both
aggregate and per capita, has increased consistently each fiscal year. In fiscal
1994, aggregate personal income was $25.7 billion and personal income per capita
was $7,047. Personal income includes transfer payments to individuals in Puerto
Rico under various social program. Transfer payments to individual in fiscal
1994 were
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$5.7 billion, of which $3.9 billion, or 68.9% represent entitlements to
individuals who had previously performed services or made contributions under
programs such as Social Security, Veterans' Benefits, and Medicare.
Budgetary Process. The fiscal year of the Commonwealth begins on
July 1. The Governor is constitutionally required to submit to the Legislature
an annual balanced budget of capital improvements and operating expenses of the
Commonwealth for the ensuing fiscal year. Section 7 of Article VI of the
Constitution provides that, "The appropriations made for any fiscal year shall
not exceed the total revenues, including available surplus, estimated for said
fiscal year unless the imposition of taxes sufficient to cover said
appropriations as provided by law."
Revenues and Expenditures. In the fiscal 1997 budget revenues and
other resources of all budgetary funds total $9,517,835,000, excluding balances
from the previous fiscal year and general obligation bonds authorized. Current
expenses and capital improvements, other than those financed by bonds, of all
budgetary funds total $8,795,900,000, an increase of $63,797,000 from fiscal
1996. The general obligation bond authorization for the fiscal 1997 budget is
$369,000,000.
In the fiscal 1998 budget proposal revenues and other resources of
all budgetary funds total $8,863,071,000 excluding balances from the previous
fiscal year and general obligation bonds authorized. Current expenses and
capital improvements other than those financed by bonds, of all budgetary funds
total $9,767,984,000, an increase of $528,330,000 from fiscal 1997. The general
obligation bond authorization for the fiscal 1996 budget is $500,000,000.
Tax Incentives. Much of the development of the manufacturing sector
in Puerto Rico can be attributed to various federal and Commonwealth tax
incentive, particularly Section 936 of the Code and the Commonwealth's
Industrial Incentives Program.
Section 936. Under Section 936 of the Code, United States
corporations that meet certain requirements and elect its application ("Section
936 Corporations") are entitled to credit against their United States corporate
income tax the portion of such tax attributable to (i) income derived from the
active conduct of a trade or business within Puerto Rico ("active business
income") or from the sale of exchange of substantially all assets used in the
active conduct of such trade or business; and, (ii) qualified possession source
investment income ("passive income"). To qualify under Section 936 in any given
taxable year a corporation must derive (i) for the three-year period immediately
preceding the end of such taxable year 80% or more of its gross income from
sources within Puerto Rico; and, (ii) for taxable years beginning after December
31, 1986, 75% or more of its gross income from the active conduct of a trade or
business in Puerto Rico. A Section 936 Corporation may elect to compute its
active business income eligible for the Section 936 credit under one of three
formulas.
On November 17, 1995 the United States Congress adopted, as part of
its larger federal income tax legislative package, a ten-year phase out of the
current 936 credit for companies that are existing credit claimants and the
elimination of the credit for companies establishing new operation in Puerto
Rico and for existing companies that add a substantial new lime of business. The
credit based on the economic limitation will continue as under current law
without change until tax years beginning in 2002, during which years the
possession business income will be subject to a cap based on the corporation's
possession income for an average adjusted base period. The credit based on the
percentage limitation will continue as under current law until tax years
beginning in 1998. In that year and thereafter, the credit based on the
percentage limitation will be 40%, but the possession business income will be
subject to a cap based on the corporation's possession income for an average
adjusted base period.
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The 936 credit is eliminated for taxable years beginning in 2006. However, the
credit granted to passive income (QPSII) is eliminated for taxable years
beginning after December 31, 1995.
The President vetoed the legislation submitted by the United States
Congress on December 7, 1995. The Administration has proposed a modification to
the 936 credit that would phase out the credit based upon the percentage
limitation over a five year period beginning in 1997, retain the credit based
upon the economic limitation under current law, allow a five year carry forward
of excess credit based upon the economic limitation and retain the credit
granted to passive income (QPSII) under current law.
It is not possible at this time to determine the final legislative
changes that may be made to Section 936, or the effect on the long-term outlook
on the economy of Puerto Rico. The government of Puerto Rico does not believe
there will be short-term or medium-term material adverse effects on Puerto
Rico's economy as a result of the changes to Section 936 currently proposed by
Congress or the Administration. The Government of Puerto Rico further believes
that even if the Congressional proposal became law, sufficient time exists to
put additional incentive programs in place to safeguard Puerto Rico's
competitive position.
Industrial Incentives Program. Since 1948 Puerto Rico has had
various industrial incentives laws designed to stimulate industrial investment
in the island. On December 2, 1997, the Governor of Puerto Rico signed into law
the most recent industrial incentives law, known as the 1998 Tax Incentives Law
Act (the "1998 Act"). The tax exemption benefits provided by the 1998 Act are
generally more favorable than those provided by its predecessor, the Industrial
Incentives Act of 1987 (the "1987 Act"). The activities eligible for exemption
under the 1998 Act include manufacturing, certain designated services for
markets outside Puerto Rico, the production of energy from local renewable
sources for consumption in Puerto Rico, and laboratories for scientific and
industrial research.
The benefits provided by the 1998 Act are available to new
companies as well as companies currently conducting tax exempt operations in
Puerto Rico which choose to renegotiate their existing tax exemption grant. The
activities eligible for tax exemption include manufacturing, certain designated
services performed for markets outside Puerto Rico, the production of energy
from local renewable sources for consumption in Puerto Rico and laboratories for
scientific and industrial research. For companies qualifying thereunder, the
1998 Act would impose income tax rates ranging from 2% to 7%. In addition, it
would grant 90% exemption from property taxes, 100% exemption from municipal
license taxes during the first eighteen months of operation and between 80% and
60% thereafter, and 100% exemption from municipal excise taxes. The 1998 Act
also provides various special deductions designed to simulate employment and
productivity, research and development and capital investment in Puerto Rico.
Under the 1998 Act, companies can repatriate and distribute their
profits free of tollgate taxes. In addition, passive income derived from the
investment of eligible funds in Puerto Rico financial institutions, obligations
of the government of Puerto Rico and other designated investments are fully
exempt from income and municipal license taxes. Individual shareholders of an
exempted business are allowed a credit against their Puerto Rico income taxes
equal to 30% of their proportionate share in the exempted business' income tax
liability. Gain from the sale or exchange of shares of an exempted business by
its shareholders during the exemption period is subject to a 4% income tax rate.
Since 1983 hotel operations have been covered by a special
incentives law, the Tourism Incentives Act of 1983, which provides exemptions
from income, property and municipal license taxes for a period of 10 years. In
1993, legislation was enacted providing for an additional set of tax incentives
for new hotel development projects.
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In addition to providing for exemptions from income, property and municipal
license taxes for a period of up to 10 years, it provides certain tax credits
for qualifying investments in such projects.
Caribbean Basin Initiative. In August, 1983, the President of the
United States signed into law the Caribbean Basin Economic Recovery Act. The Tax
Reform Act of 1986 amended Section 936 to allow Puerto Rico financial
institutions to invest funds representing earnings accumulated under Section
936, in active business assets or development projects in a qualified Caribbean
Basin country. As of December 1994, 167 projects under the Puerto Rico Caribbean
Development Program have been promoted in fourteen Caribbean Basin countries,
representing 36,115 jobs and over $1,989 million in loan commitments, of which
$1,217 million of Section 936 funds have been disbursed.
Debt Administration and Limitation. Public sector debt comprises
bonds and notes of the Commonwealth and its municipalities and public
corporations. Direct debt of the Commonwealth is supported by Commonwealth
taxes. Debt of municipalities, other than bond anticipation notes, is supported
by real and personal property taxes and municipal license taxes. Debt of public
corporations, other than bond anticipation notes is generally supported by the
revenues of such corporations from charges for services or products. However,
certain debt of public corporations is supported, in whole or in part, directly
or indirectly, by Commonwealth appropriations or taxes.
Commonwealth Guaranteed Debt. As of December 31, 1997, $46,080,000
of Commonwealth guaranteed bonds of Housing Bank and Finance Agency were
outstanding. These bonds were originally issued by Urban Renewal and Housing
Corporation and refinanced in fiscal 1992 by Housing Bank and Finance Agency.
Annual debt service on these bonds is $13,252,788 in fiscal 1999, which
constitutes their maximum annual debt service. Their final maturity is October
1, 2001.
As of December 31, 1997, $1,814,511,000 of Commonwealth guaranteed
bonds of Public Buildings Authority were outstanding. Annual debt service on
these bonds is $150,008,064 in fiscal year ending June 30, 1998, with their
final maturity being July 1, 2027.
No payments under the Commonwealth guaranty have been required to
date for bonds for Housing Bank and Finance Agency or Public Buildings
Authority.
As of December 31, 1997, $267,000,000 of Commonwealth guaranteed
obligations of GDB were outstanding. No payments under the Commonwealth guaranty
have been required for any obligations of GDB to date.
As of December 31, 1997, the Commonwealth had guaranteed certain
outstanding revenue bonds of the Aqueduct and Sewer Authority in the aggregate
principal amount of $400,340,000. On January 1, 1997, the Commonwealth began to
make debt service payments under the Commonwealth guaranty and expects to make
all debt service payments required on these revenue bonds.
Public Sector Debt. Historically, Puerto Rico has maintained a
fiscal policy which provides for a prudent relationship between the growth of
public sector debt and the growth of the economic base required to service that
debt. The government of Puerto Rico has also sought opportunities to realize
debt service savings by refunding outstanding debt with obligations bearing
lower interest rates.
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During fiscal 1992 to 1996, public sector debt and gross product
increased 27.5% and 27.7%, respectively. during fiscal 1993 to 1997, however,
public sector debt increased 37% while gross product increased 27.7%. This
higher level of growth of public sector debt over the growth of gross product is
due to the increase during fiscal 1996 and 1997 in the amount of debt incurred
to finance certain key infrastructure projects, which are important to the
development of the economy and are expected to produce long term economic
benefits. This trend of higher levels of public sector debt relative to the
growth in gross product is expected to continue during the next few fiscal years
as the level of public sector capital investment remains high.
As of December 31, 1997, outstanding short-term debt, relative to
total debt, was 10.1%, including $600 million tax and revenue anticipation notes
of the Commonwealth issued on December 3, 1997 and payable on July 30, 1998.
Government Development Bank. The principal functions of Government
Development Bank are to act as financial advisor to, and fiscal agent for, the
Commonwealth, its municipalities and public corporations in connection with the
issuance of bonds and notes, to make loans and advances to public corporations
and municipalities, and to make loans to private enterprises to aid in the
economic development of Puerto Rico.
As of September 30, 1995, $1,540,948,000 of bonds and notes of
Government Development Bank were outstanding. Government Development Bank has
loaned $1,901,578,894 to Commonwealth public corporations and municipalities.
Act No. 12, approved May 9, 1975, as amended, provides that the payment of
principal of and interest on specified notes and other obligations of Government
Development Bank, not exceeding $550,000,000, may be guaranteed by the
Commonwealth, of which $267,000,000 were outstanding as of September 30, 1995.
Government Development Bank has the following principal subsidiaries: Higher
Education Assistance Corporation, Housing Finance Corporation, Tourism
Development Fund, Development Fund, Capital Fund, and Public Finance
Corporation.
Factors Affecting Utah Fund
General Economic Conditions. On January 4, 1896, the State became
the forty-fifth state of the United States of America. Ranking eleventh among
the states in total area, the State contains approximately 82,168 square miles.
It ranges in elevation from a low of 2,500 feet above sea level in the south, to
a high of 13,500 feet above sea level in the north. The State is located in an
arid region (precipitation ranks as the forty-ninth lowest in the nation, ahead
of Nevada) and in the center of the Rocky Mountain region with excellent access
to major national and international markets. Home to deserts, plateaus, the
Great Basin and the Rocky Mountains, the State is known for its scenic beauty
and the diversity of its outdoor recreation areas. Approximately 20% of the
State is national park and forest land, 42% is Bureau of Land Management land
and 7% is State park land. Transportation infrastructure in the form of
interstate highways, railroad lines, and an international airport is in place to
provide efficient transportation for business and tourism.
The population forecast for 1997 is 2,049,000 indicating continued
growth. The 1996 estimate for Utah's population was approximately 2,002,000, a
2.3% increase. The U.S. Census Bureau estimates Utah was the third fastest
growing state in the country. Utah's rapid rate of population growth is
primarily attributable to natural increase rather than in-migration. Net
in-migrations were approximately 10,000 people in 1997. This is the seventh
consecutive year Utah experienced strong net in-migrations. The State's
population continues to be concentrated in the metropolitan area along the
Wasatch mountains, with Salt Lake City as the hub. The State continues to face
the challenge of bringing more economic development to the rural areas of the
State.
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Utah's economy continues to experience sustained growth rates
greater than that of the national economy. Employment growth, an important
economic indicator, continues to look strong. Utah consistently ranked near the
top of the nation in job growth. However, Utah's employment growth rate slowed
again in 1997 for the third consecutive year. In 1997, Utah's job growth rate
was 4.4%, or an additional 42,000 net new jobs, ranking second among all states.
Utah's job growth rate has now equaled or exceeded 3.0% for ten consecutive
years. Projected job growth for 1998 is about 3.6%. The primary causes for
slower growth in 1998 are: tight labor market; slower growth in exports; and
improvements in other state economies, particularly California. The state's 1997
unemployment rate is projected at 3.2%, compared to 4.9% nationally.
The strength of the State's economy over the past several years has
occurred at the same time that it has become more diversified. That is, the
distribution of the State's employment has become less specialized across
industries while the level of total employment has increased. The result of this
restructuring in the midst of economic growth is that sectors in which the
State's employment has been disproportionately concentrated in the past (such as
the federal government and extractive industries) have lost in employment share,
while sectors other than these (notably those affected by the expansion of
tourism, computer software, financial services, and biomedical technologies)
have increased in shares. The service industries continue to generate the
largest number of jobs in the State. During 1997, services created 16,100 new
jobs for a growth rate of 6.3%. Construction continues to be the fastest growing
industry in the economy. Non-residential housing construction reached a record
high in 1997 and will continue to be strong in 1998. However, the total value of
construction declined slightly in 1997 because residential construction started
to slow.
In light of Utah's economic growth and positive financial position,
the State continues to face many significant issues. The State must deal with
the increased demand for services associated with this growth. Education,
economic development, transportation, corrections, health, and human service
needs continue to be the major demands on state resources. The major economic
risk is the future of the 388th Fighter Wing at Hill Air Force Base. The
Secretary of Defense is currently considering whether to keep the 388th in Utah
or move it out-of-state.
Utah's export growth will slow in 1998. A recent report by S&P
showed Utah among the ten states that will be most affected by the recent Asian
economic crises. Utah ranks seventh in terms of per capita exports to Asia.
About 40% of Utah's exports (mostly coal, copper and equipment) go to Asia.
Japan is Utah's largest Asian customer. Utah's exports were $3.62 billion in
1996, down slightly from $3.65 billion in 1995.
Budgetary Process. The Governor is required to submit a balanced
budget to the Legislature for each fiscal year. The budget is required to
describe, among other things, (i) a complete plan of proposed expenditures and
estimated revenues for the ensuing year, (ii) the revenues and expenditures for
the next preceding fiscal year, and (iii) current assets, liabilities and
reserves, any surplus or deficit and the debts and funds of the State. The
budget is required to include an itemized estimate of appropriations for payment
and discharge of the principal and interest of the indebtedness of the State,
among other things. Deficits or anticipated deficits must be included in the
budget.
The State Constitution requires that budgeted expenditures should
not exceed estimated revenues and other sources of funding, including beginning
fund balances. The Legislature authorizes expenditures in annual state
"Appropriations Acts." The Acts also identify the sources of funding for
budgeted expenditures. In the event actual revenues are insufficient to cover
budgeted expenditures, the Governor must order budget reductions. Adjustments to
the budget may be made throughout the year for changes in department revenues or
fund revenues so that departments and funds will not end the fiscal year in a
deficit positions.
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The State also has an appropriation limitation statute which limits
the growth in state appropriations. The law provides three basic limitations.
First, as population, personal income, and inflation increase, appropriations
are allowed to increase only at the same relative rate. Second, it limits
outstanding state general obligation debt to 20% of the appropriations limit.
Third, it freezes the state-mandated property tax rate, which funds a portion of
public education at the local level. These statutory limitations can be exceeded
only if a fiscal emergency is declared and approved by more than two-thirds of
both houses of the Legislature, or if approved by a vote of the people. However,
the spending limit statute may be amended by a majority in both houses of the
Legislature.
The State was below the appropriation limitation for the fiscal
year ended June 30, 1997. The budget recommendations for fiscal year 1998 and
fiscal year 1999 are within the appropriation limit. Also, the State is
currently $712 million below the debt limit established in the Constitution.
Revenues and Expenditures. The General Fund is the principal fund
from which appropriations are made for State operations. It is specifically
maintained to account for all financial resources and transactions not accounted
for in another fund. The General Fund receives all State sales taxes, which
comprise the largest source of this Fund's revenues. Other principal sources of
revenues include Federal contracts, grants and mineral lease payments, State
department collections and miscellaneous licenses, fees and taxes.
Each fund of the State maintains an equity position which is either
restricted by state law, restricted by contract, or is unreserved and available
for future appropriation. The equity position of the State's General Fund
Uniform School Fund, and Transportation Fund are:
The state ended fiscal year 1997 with a surplus in both the General
and Uniform School Funds totaling $35.8 million. In addition, fiscal year 1998
revenue is expected to exceed original estimates by $7.5 million with the total
General and Uniform School Fund at $3.0 billion. Other changes to available
dollars amount to $1.6 million. With mineral lease transfers in fiscal year 1998
and 1999 of $6.6 million and fiscal year 1999 revenue growth of $207.4 million,
altogether, there are $265.7 million revenue available. This allows the governor
to recommend supplemental funding in fiscal year 1998 for needs that arose after
the legislature met in 1997. The Governor is recommending $8.6 million in
General and Uniform School Fund supplementals.
The General Fund ending balance for fiscal year 1997 was $1.9
million, which is an increase of $1.5 million from the previous fiscal year.
Approximately $23.9 million in the Uniform School Fund was reserved from fiscal
year 1997 for fiscal year 1998, leaving a $33.9 ending balance in this fund at
June 30, 1997. The balance in the Rainy Day Fund was $79.5 million.
Actual revenue collections for the General Fund in fiscal year 1997
were $1.44 billion. Of this amount, 86.9% or $1.252 billion came from the sales
and use tax. Sales and use tax revenue increased 8% from the previous fiscal
year.
Actual revenue collections in the Uniform School Fund was $1.44
billion for fiscal year 1997. Of this amount, approximately $1.24 billion or
85.8% was generated from the individual income tax, an increase of 16% from
fiscal year 1996. Revenue in the Transportation Fund for fiscal year 1997
totaled $267 million, with 63% or $168 million represented by the motor fuel tax
which showed a 3.1% increase.
Expenditures in the General and Uniform School Funds for fiscal
year 1997 totaled $3.009 billion. Prior to the lapsing of $4.6 million into
these Funds, the total appropriations were $3.014 billion. The majority of
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the spending is toward public education, which consisted of 52.2% or $1.42
billion of total expenditures. Higher education received $457 million or 16.8%.
Corrections appropriations amounted to 6.4% or $173 million, and health was 6%
or $162 million of total appropriations.
Debt service appropriations from General and Uniform School Funds
totaled $83 million in fiscal year 1997 and are expected to increase to $84
million for fiscal year 1998. Appropriations for the Capital Budget in these
Funds were $209 million in fiscal year 1997 but are estimated to decrease to
$160 million in fiscal year 1998. Total capital budget for all funds for fiscal
year 1997 was $628.2 million and total debt service was $100.6 million.
Debt Administration and Limitation. Utah's Constitution limits the
State to a total general obligation debt not to exceed, in the aggregate any one
time, an amount equal to 1.5% of the value of the taxable property of the State,
as shown by the last assessment for state purposes. Utah statutes further limit
outstanding general obligation debt to no more than 20% of the maximum allowable
limit on appropriations from the General Fund, school funds, and Transportation
Fund, less debt service. As of January 1, 1998, the constitutional debt limit
was $1,674 million and the statutory debt limit was $652 million. Utah was $712
million under the constitutional debt limit and $290 million under the statutory
debt limit as of January 1, 1998. Revenue bonds and certificates of
participation issued by the State are legally excluded from the debt
limitations.
In 1996, Utah voters approved a plan, effective January 1, 1997,
whereby the State guarantees payment of interest and principal on bonds issued
by qualifying local school boards. This measure reduces interest costs to build
schools. As of January 1, 1998, the State has guaranteed approximately $370
million of local school board bonds.
Since 1990, the State has used bonded debt for the following:
highway construction 46%, state buildings 31%, college university buildings 16%,
correctional facilities 4% and water loan programs 3%.
The total capital budget in fiscal year 1997 was $628,214,100. The
capital budget recommended for fiscal year 1998 was $644,111,600. The Governor
recommends a total fiscal year 1999 capital budget of $656,999,100. The
statewide capital improvement recommendation is split between a $20,246,500
appropriation and a $16,647,000 general obligation bond.
Total debt service in fiscal year 1997 was $100,651,400. Of this
amount, $66,025,000 were general obligation bonds (principal) and $4,165,000
were revenue bonds (principal). Fiscal year 1998 debt service is estimated at
$131,307,700 with approximately $69.85 million in general obligation bonds and
$4.905 million in revenue bonds.
Funding for debt service on the State's general obligation bonds is
usually appropriated from the General Fund and transferred to the various bond
sinking funds within the Debt Service Fund. All State general obligation bond
and certain revenue bond principal and interest payments are made from
individual sinking funds within the Debt Service Fund. Investment earnings on
moneys held in the sinking funds (except as may be required by the proceedings
authorizing the issuance of particular series of bonds), transfers from the
General Fund or Special Revenue Funds and certain pledged revenues are the only
sources of funding for this fund.
The outstanding general obligation bonds of the State were rated
"Aaa" by Moody's, "AAA" by S&P, and "AAA" by Fitch as of July 1, 1995.
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Factors Affecting Washington Fund
General Economic Conditions. The state of Washington was created by
an enabling act of Congress in 1889. The state is located on the Pacific Coast
in the northwestern corner of the continental United States. Washington
comprises 68,139 square miles. On the west side of the state, high mountains
rise above coastal waters. The mild moist climate in western Washington makes
this region excellent for dairy farming and the production of flower bulbs. The
forests of the Olympic Peninsula are among the rainiest places in the world.
Washington's location makes it a gateway for land, sea, and air travel to Alaska
and the Pacific Rim countries. Its coastline has hundreds of bays and inlets
that make excellent harbors. East of the Cascade Mountain Range, farmers raise
livestock and wheat on large ranches. Washington leads the nation in apple
production and the state produces large amounts of lumber, pulp, paper, and
other wood products.
The State's population reached an estimated 5.6 million in 1997,
with an annual growth rate of approximately 2% despite slower economic growth
since 1990. In fiscal year 1995, Net migration between 1996 and 1997 is forecast
at 55,800. Washington's population is expected to reach 5.9 million by the year
2000. This new population boom is already putting heavy pressure on the state's
education system, its prisons, and its natural resources.
The City of Seattle, located in northwestern Washington, is the
largest city in the Pacific Northwest and serves as the King County seat. King
County and the adjacent counties to the north, Snohomish and Island Counties,
comprise the Seattle Primary Metropolitan Statistical Area ("PMSA"), which is
the fourth largest metropolitan center on the Pacific Coast and biggest single
component of the State's economy.
The economic base of the State includes manufacturing and service
industries as well as agricultural and timber production. Washington's wage and
salary employment rebounded in Fiscal Year 1997 after growing at rates less than
2% in four of the last five fiscal years. By contrast, state employment
increased by 4% in Fiscal Year 1997, nearly twice the national average of 2.2%.
This accelerated rate of growth translated into more than 94,000 new jobs in
Washington State during the past fiscal year.
Reflecting this trend in employment gains, personal income in
Washington grew by 7.6% compared to the national average of 5.9% in Fiscal Year
1997. Real per capita income rose by 3.9% over the same period as compared to
2.4% for the nation as a whole.
Aerospace employment growth was a major factor in the year's strong
employment growth. As the State's largest employer, the Boeing Company, is
preeminent in aircraft manufacture and is headquartered in Seattle. Boeing
exerts a significant impact on overall State production, employment and labor
earnings. After six years of downsizing, the aerospace industry added more than
18,000 employees in 1997. Led by aerospace employment, manufacturing employment
in Washington increased by more than 24,000 jobs in Fiscal Year 1997, an
increase of 7.2%. Non-manufacturing employment grew at a steady pace of 3.4%,
contributing another 70,000 jobs to the state's economy.
While not projected to continue at quite the same pace as in Fiscal
Year 1997, Washington's economic outlook is bright according to the November
1997 forecast by the state Economic and Revenue Forecasting Council (ERFC). Wage
and salary employment is expect to remain strong over the next two years,
increasing 3.7% in Fiscal Year 1998 and 2.6% in Fiscal Year 1999. Personal
income is expected to grow 7.4% and 5.2% for Fiscal Years 1998 and 1999,
respectively. As of December 1997, Washington will have marked 14 consecutive
years of economic growth - the longest period of economic expansion since World
War II. With unemployment rates at the lowest level in 29 years, economists warn
that this trend cannot be sustained indefinitely.
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Natural forests cover more than 40% of the State's land area.
Forest products rank second behind aerospace in value of total production.
Approximately 2.6% of non-farm employment is in the forest products industry,
with The Weyerhaeuser Company being the largest employer. Productivity in the
State's forest products industry increased steadily from 1980 to 1990; however,
since 1991 recessionary influences have resulted in a production decline. Yet,
in 1994, the industry employed more than 58,000 people and produced
approximately $11.0 billion worth of products. A continued decline in overall
production during the next few years is expected due to federally imposed
limitations on the harvest of old-growth timber and the inability to maintain
the recent record levels of production increases. Although continued decline in
unemployment may be anticipated in certain regions, the impact is not expected
to significantly affect the State's overall economic performance.
Agriculture, combined with food processing, is the State's most
important industry. The State's major products, wheat, milk, apples and cattle,
comprise 55% of total production. Washington's food processing industries
employed approximately 40,000 workers at more than 750 plants in 1994,
generating products worth nearly $8 billion annually. Growth in agricultural
production, including potatoes and hay, was an integral factor in the State's
economic growth in the late 1980's and early 1990's.
On a combined basis, employment in the government sector represents
approximately 19% of all wage and salary employment in the State. Seattle is the
regional headquarters of a number of federal government agencies, and the State
receives an above-average share of defense expenditures. Major federal
installations include Navy bases at Bremerton, Whidbey Island and Bangor;
Everett is the site of a new Naval home port; an Air Force base (McChord) and an
Army base (Fort Lewis) are located in the Tacoma area. Recent declines of naval
and civilian personnel in Kitsap County have been offset by increases in army
personnel in Pierce County. At present no major additions or reductions to troop
strength at Fort Lewis have been made. The long term outlook is for relative
stability.
Budgetary Process. The Governor is required to submit a budget to
the state Legislature no later than December 20 of the year preceding
odd-numbered year sessions of the Legislature. The budget is a proposal for
expenditures in the ensuing biennial period based upon anticipated revenues from
the sources and rates existing by law at the time of submission of the budget.
The appropriated budget and any necessary supplemental budgets are legally
required to be adopted through the passage of biennial appropriation bills by
the Legislature and approved by the Governor. Biennial operating appropriations
are generally made at the fund/account and agency level, however, in a few
cases, biennial appropriations are made at the fund/account and agency/program
level. Biennial capital appropriations are generally made at the fund/account,
agency, and project level.
Biennial legislative appropriations are strict legal limits on
expenditures/expenses, and over expenditures are prohibited. All appropriated
and non-appropriated/allotted funds are further controlled by the executive
branch through the allotment process. This process allocates the
expenditure/expense plan into monthly allotments by program, source of funds,
and object of expenditures. According to statutes, except under limited
circumstances, the original biennial allotments are approved by the Governor and
may be revised only at the beginning of the second year of the biennium and must
be initiated by the Governor.
Proprietary funds earn revenues and incur expenses not covered by
the allotment process. Budget estimates are generally made outside the allotment
process according to prepared business plans. These proprietary fund business
plan estimates are adjusted only at the beginning of each fiscal year.
Additional fiscal control is exercised through various means. OFM
is authorized to make expenditure/expenses allotments based on availability of
unanticipated receipts, mainly federal government grant
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increases made during a fiscal year. State law does not preclude the over
expenditure of allotments although, the statute requires that the Legislature be
provided an explanation of major variances.
Revenues and Expenditures. The General Fund accounts for all
general government financial resources and expenditures not required to be
accounted for in other funds. For Fiscal Year 1997, revenues in the General Fund
increased by $763 million or 6.1%. Retail sales and use taxes in the General
Fund increased by $303 million or 6.8% and federal grants-in-aid increased $158
million or 4.6%. Retail sales and use taxes continue to be the largest source,
amounting to 35.8% of General Fund revenues. Total General Fund revenues for
Fiscal Years 1996 and 1997 were $12.56 billion and $13.3 billion, respectively.
Expenditures for General Fund activities totaled $12.7 billion for Fiscal Year
1997, an increase of 4.5% from the $12.13 billion spend in Fiscal Year 1996. Of
these expenditures, 43.8% went to support local school districts and higher
education, and 47.3% was expended for human services. The General Fund balance,
including all reserves and designations, totaled $2.02 billion as of June 30,
1997, representing an increase of $131.7 million, or 7%, from Fiscal Year 1996.
This increase resulted primarily from improving economic conditions coupled with
a concerted effort to slow state spending.
In the November 1993 general election, Washington voters passed
Initiative 601. This initiative eliminated the Budget Stabilization Account at
the beginning of Fiscal Year 1996 and created a new Emergency Reserve Fund. It
also limited annual increases in State General Fund (GF-S) expenditures to the
average rate of inflation plus population growth for the previous three years.
Any GF-S revenues in excess of the spending limit for any given year will be
deposited in the Emergency Reserve Fund on a quarterly basis. If the balance in
the Emergency Reserve Fund exceeds 5% of biennial GF-S revenues, the excess will
be deposited in a new Education Construction Fund. During Fiscal Year 1997, the
state maintained GF-S spending levels within Initiative 601 expenditure limits.
However, in October 1997, the State Treasurer made the first quarterly transfer
to the Emergency Reserve Fund in the amount of $56.45 million, based on the
September revenue forecast for Fiscal Year 1998.
Governmental activities are accounted for in four governmental fund
types: the general, special revenue, debt service, and capital projects funds.
Revenues for all governmental funds totaled $17.3 billion for Fiscal Year 1997.
This represents an increase of 5.9% over revenue for Fiscal Year 1996 of $16.3
billion. Taxes, the largest source of governmental revenue, produced 60% of
revenues. Although this percentage is similar to Fiscal Year 1996, actual tax
revenue increased by $589 million. This increase was attributable to growth in
the state's population and personal income during Fiscal Year 1997 which
increased retail sales and use tax collections by $296 million or 6.6%. Also,
during Fiscal Year 1997, the federal government grants-in-aid increased by $195
million or 4.5%. All expenditures for governmental activities totaled $17.9
billion for Fiscal Year 1997. This was an increase of 6.8% over Fiscal Year 1996
which had total expenditures of $16.8 billion.
The State's General Fund revenues for the 1997-99 Biennium are
forecast to be $19.4 billion, an increase of 10% in nominal terms over the
previous biennium. Despite the effect of tax reductions in recent years, this
rate is typical of revenue growth in the 1990s and stronger than in the previous
biennium. Barring further legislative action, the accelerating pace of state
revenue collections will leave the state with a total estimated reserve of
$860.8 million by the end of the 1997-99 biennium, according to the November
forecast by the ERFC. State General Fund expenditure limits, established by
Initiative 601, will hold supplemental expenditures in the 1998 Legislative
Session to a maximum of $185 million.
The State's enterprise operations are comprised of seven separate
and distinct activities ranging from operation of the Convention and Trade
Center to operation of the State Lottery to management of the State Workers'
Compensation program and the State Ferry System. Combined operating and
nonoperating revenues for
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the state's enterprise funds increased slightly from $2.73 billion in Fiscal
Year 1996 to $2.77 billion in Fiscal Year 1997. Combined enterprise activities'
operating and nonoperating expenses also increased from $2.69 billion in Fiscal
Year 1996 to $3.17 billion during Fiscal Year 1997. This increase is due mainly
to an increase in workers' compensation claims. Outstanding enterprise fund
bonds at June 30, 1997 totaled $413 million.
Debt Administration. The State Constitution and enabling statutes
authorize the incurrence of state general obligation debt, to which the state's
full faith, credit, and taxing power are pledged, either by the Legislature or
by a body designated by statute (presently the State Finance Committee). During
Fiscal Year 1997, the state of Washington maintained its "AA" rating from Fitch
and S&P, and its "Aa2" rating from Moody's. At the end of Fiscal Year 1997,
Moody's upgraded the rating on Washington's general obligation bonded
indebtedness from Aa2 to Aa1. In July 1997, S&P raised its rating on the general
obligation from AA to AA+.
General Obligation Bonds. General obligation bonds have been
authorized and issued primarily to provide funds for acquisition and
construction of capital facilities for public and common schools, higher
education, public and mental health, corrections, conservation, and maintenance
and construction of highways, roads, and bridges. The state also issued bonds
for assistance to municipalities for construction of water and sewage treatment
facilities and corrections facilities. Additionally, bonds are authorized and
issued to provide for the advance refunding of general obligation bonds
outstanding. As of June 30, 1997, the maximum debt authorization subject to
limitation was $4.7 billion. This limit does not include motor vehicle fuel tax
debt, limited obligation debt, or reimbursable debt exempt from the statutory
debt limit.
Zero Interest Rate General Obligation Bonds. Zero interest rate
general obligation bonds have been authorized and issued primarily to provide
funds for acquisition and construction of public administrative buildings and
facilities, and capital facilities for public and common schools and higher
education. Total debt service (principal and interest) requirements for zero
interest rate general obligation bonds to maturity as of June 30, 1995 was
approximately $492 million. As of June 30, 1995, zero interest rate general
obligation bonds outstanding totaled $208 million while bonds authorized but
unissued equaled zero. Approximately $25 million of general obligation refunding
zero coupon bonds were sold in Fiscal Year 1997. Approximately $33.67 million
zero coupon bonds were issued in Fiscal Year 1997.
Limited Obligation Bond. Limited obligation bonds have been
authorized and issued to provide funds for public school plant facilities;
state, county, and city arterials; and state capital buildings and facilities.
These bonds are payable primarily from dedicated revenue of the state's motor
vehicle fuel excise tax and other miscellaneous dedicated revenue generated from
assets such as harbors and tidelands, park, and land grants. Outstanding general
and limited obligation bonded debt as of June 30, 1997 totaled $6.192 billion,
an increase of 6.2% over June 30, 1996. Bonds were issued primarily to provide
for capital projects and grants to local governments.
Revenue Bonds. Current state statutes empower certain state
agencies to issue bonds that are not supported, or are not intended to be
supported, by the full faith and credit of the state. These bonds pledge income
derived from acquired or constructed assets for retirement of the debt and
payment of the related interest. Revenue bonds issued by individual agencies are
supported by fees, rentals, and tolls assessed to users. Primary issuing
agencies are the State's Public Universities and various Community Colleges.
Total debt service (principal and interest) for revenue bonds to maturity at
June 30, 1995 was approximately $310 million. As of June 30, 1995, revenue bonds
outstanding totaled $162 million while bonds authorized but unissued equaled
zero.
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Certificates of Participation. The office of the State Treasurer
continued its administration of the state certificates of participation program
("COPs")which has been in existence since Fiscal Year 1990. This program enables
state agencies to finance the acquisition of real and personal property at tax
exempt interest rates realizing substantial savings over vendor financing. The
state's publicly-offered equipment certificates of participation received a
credit rating upgrade from Moody's from "A" to "A1." In the real estate
component of the financing program, most projects received a rating upgrade from
A1 to "Aa3" as a reflection of their essentialness to state government
operations. A corresponding rating upgrade for outstanding certificates of
participation was also received from S&P. Representatives of the rating agencies
cited their reliance on centralized oversight of the program by Office of the
State Treasurer and the Office of Financial Management as s significant factor
in their evaluation process. As of June 30, 1997, there were outstanding $236.4
million in certificates of participation in all funds. Underlying this amount
were agency certificates originating from 60 agencies amounting to $233.2
million with the balance on deposit with the trustee either for use in the
program (unissued proceeds) or to satisfy reserve requirements. These programs
are currently funded from public offering of certificates of participation
through a competitive bid process.
Factors Affecting Wisconsin Fund
General Economic Conditions. Wisconsin provides a full range of
services which include education, health and social services, transportation,
law, justice, public safety, recreation and resource development, public
improvements and general administrative services. The State's economy remains
strong. Unemployment fell to 3.4% as of November 1997, the lowest rate since
1969. This is well below the national rate of 4.6% as of November 1997 and is
estimated to be in the top ten of the lowest unemployment rates in the country.
Manufacturing jobs in 1996 reached 601,200, eclipsing the old mark of 591,000
set in 1979. The strongest growth occurred in the service sector, increasing by
14,900 jobs to a total 645,600. Total non-farm employment increased to 2,668,100
as of October 1997. However, from October 1996 to October 1997, Wisconsin's jobs
increased 1.8% which is much lower than the 2.6% growth in 1995 and the 2.3%
growth nationally for the same period. Looking ahead, strong gains in employment
will be more difficult. Employment growth is expected at 1.6% in 1998.
Manufacturing employment growth is expected to be near 1% for 1998 and 1999.
That will again place manufacturing employment growth in Wisconsin nearly 1%
above the national average. The strongest gains in employment will be trade and
services.
Wisconsin's personal income growth will be affected by the slowdown
in employment growth. Personal income increased 5.0% in 1996. In 1997 and 1998,
income gains should match the pace of national income growth, about 4.8%.
In 1997, the State continued its efforts to expand existing State
business and attract new businesses to Wisconsin. In addition, the State
operates a variety of programs that target minority business development,
development zones and community-based economic development. As of June 30, 1997,
approximately $70.4 million of 112 series of revenue bonds had been issued for
economic projects in Wisconsin. For the 1997-99 biennium, the Governor
recommended $4 million be provided to the Wisconsin Development Reserve Fund to
support guarantees for private bank loans of up to $500,000 for land
redevelopment. For the 1997-99 biennium, the Governor recommended maintaining
tourism promotion funding at $7.7 million annually.
Wisconsin's Clean Water Fund program provides financial assistance
to municipalities for the planning, design and construction of pollution
abatement facilities - primarily for wastewater treatment. Funding is provided
from the federal state revolving fund grant authorized through the Water Quality
Act, and through four State programs backed by State revenue and general
obligation bonds. At June 30, 1997, there were five issues of Clean Water
Revenue Bonds outstanding totaling $437.4 million. The Fund is authorized to
issue up to $1,298.0 million
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in Clean Water Revenue Bonds. Since the program's inception in 1991,
approximately $551.3 million bonds have been issued. For fiscal years 1997-99,
the Governor recommended $20 million be authorized in the Clean Water Fund for
subsidized loans to municipalities along with $43,800 to support loan-processing
activities.
Welfare reform initiatives moved forward in Wisconsin in fiscal
year 1995 with the implementation of the Parental and Family Responsibility
program and the Two-Tier Demonstration project, each in four counties on July 1,
1994. In addition, the Work Not Welfare initiative, one of the first programs in
the nation to test time-limited benefits, began in January 1995 in two counties.
On April 25, 1996, "Wisconsin Works" was enacted into law as an effort to make
people more self-sufficient by making beneficial changes for child care, AFDC
families, and increasing grant amounts for subsidized employment. As a result of
ongoing welfare reform efforts and a strong economy the AFDC caseload dropped
from approximately 68,000 in October 1995 to approximately 48,000 in October
1996, a reduction of almost 30% and the lowest level since the early 1980's.
Wisconsin provided $215.3 million in AFDC benefits during fiscal year 1997.
Total expenditures for AFDC in fiscal year 1997 decreased by 32% from the prior
year, with state expenditures decreasing by 12.6%.
In fiscal year 1995, the legislature and Governor acted to fulfill
their commitment to increase the State's share of school costs to 66.7% in
fiscal year 1997. State assistance to Wisconsin's school districts and public
library systems increased by 31.5% or $844.2 million in fiscal year 1997. Total
state aids to schools plus property tax credits enabled the state to reimburse
an estimated 66.2% of school costs in fiscal year 1997. Statewide gross school
property tax levy was reduced by 16.4% in fiscal year 1997. Full implementation
of the two-thirds State funding commitment in Fiscal Year 1997 will result in
the largest reduction in the school property tax levy in the State's history.
The Governor recommended increases in direct school aids of $204.3 million in
fiscal year 1998 and $94.2 million in fiscal year 1999.
Budgetary Process. The State Constitution requires the Legislature
to enact a balanced budget. The State's fiscal year runs from July 1 through
June 30 of the following year. State law establishes procedures for the budget's
enactment. The Secretary of Administration, under the direction of the Governor,
compiles all budget information and prepares an executive budget consisting of
the planned operating expenditures and revenues of all State agencies. The
Department of Revenue furnishes forecasts of tax revenues to the Department of
Administration. The budget is submitted to the Legislature on or about February
15 of each odd-numbered year. Upon concurrence by both houses of the Legislature
in the appropriations and revenue measures embodied in the budget bill, the
entire bill is submitted to the Governor. The Governor is empowered to sign the
bill into law or to veto all or part of the bill. If the Governor vetoes any
portions, those items may be reconsidered in accordance with the rules of each
house and, if approved by two-thirds of the members of each house, will become
law notwithstanding the Governor's veto. In the event that a budget is not in
effect at the start of a fiscal year, the prior year's budget serves as the
budget until such time a new one is enacted.
State law prohibits the enactment of legislation which would cause
the estimated General Fund balance to be less than 1% of the general purpose
revenue appropriations for that fiscal year. For the 1997-1998 fiscal year and
1998-1999 fiscal year, the statutorily required reserves are $98 million and
$99.4 million respectively. The effect of the State law provision is to divide
the year-ending General Fund balance into two components: the statutorily
required reserve and the amount above such reserve.
The Statutes provide that if, following the enactment of the
budget, the Secretary of Administration determines that budgeted expenditures
will exceed revenues by more than one-half of one percent of general purpose
revenues, no action can be taken regarding approval of expenditure estimates.
Further, the Secretary of Administration must notify the Governor, the
Legislature and its Joint Committee on Finance, and the Governor
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must submit a bill correcting the imbalance. If the Legislature is not in
session, the Governor must call a special session to take up the matter.
The Secretary of Administration also has statutory power to order
reductions in the appropriations of state agencies (which represent less than
one-third of the General Fund budget). The Secretary of Administration may also
temporarily reallocate free balances of certain funds to other funds which have
insufficient balances and, further, may prorate or defer certain payments in the
event current or projected balances are insufficient to meet current
obligations. In such an event, the Department of Administration may also request
the issuance of operating notes by the Building Commission.
Revenues and Expenditures. The State has an extremely diverse
revenue-raising structure. Approximately forty-four percent of the total revenue
is derived from the various taxes levied by the State. The remainder comes from
the federal government and from various kinds of fees, licenses, permits and
service charges paid by users of specific services, privileges or facilities.
State expenditures are categorized under eight functional
categories and three distinct types of expenditures within each. The eight
functional categories are: Commerce, Education, Environmental Resources, Human
Relations and Resources, General Executive, Judicial, Legislative, and General
Appropriations.
As of June 30, 1997, the State ended the fiscal year on a statutory
and unaudited basis with an unreserved, undesignated balance of $7.7 billion. On
an all-funds basis, the total amount available was $27.411 billion consisting of
(i) a beginning balance of $71.3 million, (ii) tax revenues of $9.628 billion
and (iii) nontax revenues of $17.783 billion. Total disbursements and reserves
were $20.076 billion, resulting in the balance stated previously. On a
general-fund basis the total amount available was $14.67 billion consisting of
(i) the same beginning balance, (ii) tax revenues of $8.814 billion and (iii)
nontax revenues of $5.855 billion. Total disbursements and reserves were
approximately $14.93 billion, resulting in the same balance as described on an
all-fund basis.
For fiscal year 1998, total tax revenue is estimated at $9.355.2
million and total revenue in the general fund is estimated at $10,100.4 million.
After expenditures of $9,737.6 million, the general fund is expected to have an
ending balance of $264.8 million.
Due to the strength of Wisconsin's economy, revenue estimates have
been revised upward by $134 million in fiscal year 1998 and by $136 million in
fiscal year 1999, and overall, the ending balance for fiscal year 1999 is now
projected to be $320 million above the required 1% balance. The Governor has
recommended that the first $131 million of this unanticipated revenue be used as
directed in 1997 Act 27 -- $20 million to fund programmed but unfunded increases
in state employee compensation, and $111 million to accelerate school aid
payments to honor the two-thirds funding commitment.
Since 1984 the State has issued operating notes each year in
anticipation of cash-flow imbalances, primarily experienced in November and
December. These operating notes eliminated the need to prorate or defer large
local assistance payments or to reallocate balances in other State funds. An
operating note of $150 million was issued in fiscal year 1997 to prevent a
negative General Fund cash balance. The full amount of the note plus interest
was repaid on June 16, 1997. The 1997-99 budget assumes issuing operating notes
of approximately $500 million in fiscal year 1998 and $750 million in fiscal
year 1999. As a percent of total appropriations, the size of the operating notes
will be within the range of notes issued in past years. Operating notes are not
general obligations of the State and are not on a parity with State general
obligations.
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<PAGE>
Debt Administration and Limitation. At the inception of statehood,
constitutional limitations severely restricted the issuance of direct State
debt. Prior to 1969, independent nonstock, nonprofit corporations were
established to issue debt on behalf of the State. In April 1969, the voters of
the State, by referendum, adopted an amendment to the Constitution that
authorized the State to borrow money directly and simultaneously terminated the
use of the corporations for financing State construction. Legislation that
established specific implementation powers was subsequently passed in December
1969, whereupon the State first issued general obligation bonds. To date, the
Legislature has authorized the issuance of general obligations for 59 distinct
purposes and has limited the amount of general obligations which may be issued
for each purpose. The purposes for which State general obligations may be issued
are set forth in the Wisconsin Constitution, which provides the basis for the
State's general obligation borrowing program. It permits three types of
borrowing: (1) to acquire, construct, develop, extend, enlarge or improve land,
waters, property, highways, railways, buildings, equipment or facilities for
public purposes; (2) make funds available for veterans housing loans; and, (3)
fund or refund any outstanding State general obligations. There is no
constitutional requirement that the issuance of general obligations receive the
direct approval of the electorate.
The Wisconsin Constitution and State Statutes limits the amount of
debt the State can contract in total and in any calendar year. In total, debt
cannot exceed five percent of the value of all taxable property in the State.
The amount of debt contracted in any calendar year is limited to the lesser of
three-quarters of one percent of aggregate value of taxable property or 5
percent of aggregate value of taxable property less net indebtedness at January
1. Currently, the annual limit is $1,748,057,000 and the cumulative debt limits
is $12,899,302,000 (of which the amount available is $9,616,807,000). A
refunding bond issue is not taken into account for purposes of the annual debt
limit, and a refunded bond issue is not taken into account for purposes of the
cumulative debt limits. Interest scheduled to accrue on any obligation that is
not payable during the current fiscal year is treated as debt and taken into
account for purposes of the debt limitations.
Currently authorized by unissued general obligation bonding
authority for general purpose revenue supported programs amounts to $1,286.3
million. General obligation bonds issued and outstanding as of June 30, 1997
were $5.05 billion and $3.08 billion, respectively. The principal balance of
general obligation bonds as of December 15, 1997 is $3.428 billion. Of this
amount, $2.447 billion are for general purpose revenue, $665.02 million is for
veterans -- self-amortizing and $326.1 million is for other self-amortizing.
Although all general obligation bonds and notes issued by the State
are supported by its full faith, credit and taxing power, a substantial amount
of the indebtedness of the State is issued with the expectation that debt
service payments will not impose a direct burden on the State's taxpayers and
its general revenue sources. Similarly, a portion of the indebtedness issued by
nonstock, nonprofit corporations on behalf of the State prior to 1970 and backed
by lease-rental obligations of various State agencies was issued with the
expectation that the rental obligations of the State would not be discharged
from General Fund revenues. At June 30, 1997, State of Wisconsin general
obligation bonds had a rating of Aa2 from Moody's and a rating of AA from S&P.
The State's Transportation revenue bonds had a rating of A1 from Moody's and AA-
from S&P.
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<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Accountant's Report
* The financial statements and Accountant's Report listed
above relating to Voyageur Mutual Funds, Inc. are
incorporated into this filing by reference into the Fund's
Part B from the Registrant's Annual Report for the fiscal
year ended August 31, 1998.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Articles of Incorporation (April 14,
1993) incorporated into this filing by
reference to Post-Effective Amendments
Nos. 8 and 9 filed April 30, 1996.
(b) Certification of Designation (February
27, 1995) incorporated into this
filing by reference to Post-Effective
Amendment No. 16 filed December 5,
1996.
(c) Certification of Designation (November
30, 1994) incorporated into this
filing by reference to Post-Effective
Amendment No. 16 filed December 5,
1996.
(d) Certification of Designation (November
30, 1994) incorporated into this
filing by reference to Post-Effective
Amendment No. 16 filed December 5,
1996.
(e) Certification of Designation
incorporated into this filing by
reference to Post-Effective Amendment
No. 10 filed May 31, 1996.
(f) Certification of Designation
incorporated into this filing by
reference to Post-Effective Amendment
No. 14 filed November 12, 1996.
(g) Certification of Designation
incorporated into this filing by
reference to Post-Effective Amendment
No. 15 filed November 20, 1996.
<PAGE>
PART C - Other Information
(Continued)
(2) By-Laws. By-Laws, as amended (May 14,
1996) incorporated into this filing by
reference to Post-Effective Amendment No.
10 filed May 31, 1996.
(3) Voting Trust Agreement. Inapplicable.
(4) Copies of All Instruments Defining the
Rights of Holders.
(a) Articles of Incorporation and Articles
Supplementary.
(i) Article VI of Articles of
Incorporation (April 14, 1993)
incorporated into this filing by
reference to Post-Effective
Amendments Nos. 8 and 9 filed
April 30, 1996.
(ii) Certificate of Designation
(February 27, 1995) incorporated
into this filing by reference to
Post-Effective Amendment No. 16
filed December 5, 1996.
(iii) Certificate of Designation
(November 30, 1994) incorporated
into this filing by reference to
Post-Effective Amendment No. 16
filed December 5, 1996.
(iv) Certificate of Designation
(November 30, 1994) incorporated
into this filing by reference to
Post-Effective Amendment No. 16
filed December 5, 1996.
(v) Certificate of Designation
incorporated into this filing by
reference to Post-Effective
Amendment No. 10 filed May 31,
1996.
(vi) Certificate of Designation
incorporated into this filing by
reference to Post-Effective
Amendment No. 14 filed November
12, 1996.
(vii) Certificate of Designation
incorporated into this filing by
reference to Post-Effective
Amendment No. 15 filed November
20, 1996.
(viii) Certificate of Designation
(November 30, 1994) incorporated
into this filing by reference to
Post-Effective Amendment No. 16
filed December 5, 1996.
(b) By-Laws.
(i) Article II incorporated into this
filing by reference to
Post-Effective Amendment No. 10
filed May 31, 1996.
<PAGE>
PART C - Other Information
(Continued)
(5) Investment Management Agreement.
(a) Investment Management Agreement (April
30, 1997) between Voyageur Fund
Managers, Inc. and the Registrant on
behalf of Delaware-Voyageur Tax-Free
New York Fund and National High Yield
Municipal Bond Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 18 filed
August 28, 1997.
(b) Investment Management Agreement (April
30, 1997) between Voyageur Fund
Managers, Inc. and the Registrant on
behalf of Delaware-Voyageur Minnesota
High Yield Municipal Bond Fund,
Delaware-Voyageur Tax-Free Iowa Fund,
Delaware-Voyageur Tax-Free Wisconsin
Fund, Delaware-Voyageur Tax-Free Idaho
Fund, Delaware-Voyageur Tax-Free
Arizona Fund and Delaware-Voyageur
Tax-Free California Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 18 filed
August 28, 1997.
(6) (a) Distribution Agreement.
(i) Proposed Distribution Agreement
(1997) between Delaware
Distributors, L.P. and the
Registrant on behalf of each Fund
incorporated into this filing by
reference to Post-Effective
Amendment No. 18 filed August 28,
1997.
(b) Administration and Service Agreement.
Form of Administration and Service
Agreement (as amended November 1995)
(Module) incorporated into this filing
by reference to Post-Effective
Amendment No. 18 filed August 28,
1997.
(c) Dealer's Agreement. Dealer's Agreement
(as amended November, 1995) (Module)
incorporated into this filing by
reference to Post-Effective Amendment
No. 18 filed August 28, 1997.
(d) 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. 18 filed August 28,
1997.
(7) Bonus, Profit Sharing, Pension Contracts.
Inapplicable.
(8) Custodian Agreement.
(a) Custodian Contract with Norwest Bank
Minnesota N.A. (August 27, 1993)
incorporated into this filing by
reference to Post-Effective Amendment
No. 14 filed November 12, 1996.
(9) Other Material Contracts.
(a) Shareholder Services Agreement (1997)
between Delaware Service Company, Inc.
and the Registrant on behalf of each
Fund (Module) incorporated into this
filing by reference to Post-Effective
Amendment No. 18 filed August 28,
1997.
<PAGE>
PART C - Other Information
(Continued)
(b) Executed Fund Accounting Agreement
(August 19, 1996) between Delaware
Service Company, Inc. and the
Registrant on behalf of each Fund
(Module) incorporated into this filing
by reference to Post-Effective
Amendment No. 18 filed August 28,
1997.
(i) Form of Amendment No. 10 (1998)
to Schedule A to Delaware Group
of Funds Fund Accounting
Agreement attached as Exhibit.
(ii) Form of Amendment No. 11 (1998)
to Schedule A to Delaware Group
of Funds Fund Accounting
Agreement attached as Exhibit.
(iii) Form of Amendment No. 12 (1998)
to Schedule A to Delaware Group
of Funds Fund Accounting
Agreement attached as Exhibit.
(10) Opinion of Counsel. Incorporated into this
filing by reference to Post-Effective
Amendment No. 19 filed April 29, 1998.
(11) Consent of Auditors. Attached as Exhibit.
(12) Inapplicable.
(13) Letter of Investment Intent incorporated
into this filing by reference to
Pre-Effective Amendment No. 1 filed on
August 27, 1993.
(14) Inapplicable
(15) Plan under Rule 12b-1.
(a) Plan under Rule 12b-1 for Class A, B
and C Shares (1997) of Voyageur Mutual
Funds, Inc. on behalf of the Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 8 filed April 30, 1996.
(16) Schedules of Computation for each
Performance Quotation.
(a) Schedules of Computation of Fund
performance for each Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 8 filed
April 30, 1996 and Post-Effective
Amendment No. 19 filed April 29, 1998.
(17) Financial Data Schedules. Attached as
Exhibit.
<PAGE>
PART C - Other Information
(Continued)
(18) Plan under Rule 18f-3.
(a) Plan under Rule 18f-3 (June 19, 1997)
incorporated into this filing by
reference to Post-Effective Amendment
No. 19 filed April 29, 1998.
(19) Other: Directors' Power of Attorney.
Incorporated into this filing by reference
to Post-Effective Amendment No. 19 filed
April 29, 1998.
<TABLE>
<CAPTION>
<S> <C>
Item 25. Persons Controlled by or under Common Control with Registrant. None.
Item 26. Number of Holders of Securities.
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
Voyageur Mutual Funds, Inc.
Tax-Free Iowa Fund's:
Tax-Free Iowa Fund A Shares:
Common Stock Par Value 1,505 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Iowa Fund Class B Shares:
Common Stock Par Value 95 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Iowa Fund Class C Shares:
Common Stock Par Value 40 Accounts
$.01 Per Share as of September 30, 1998
Voyageur Mutual Funds, Inc.
Tax-Free Wisconsin Fund's:
Tax-Free Wisconsin Fund Class A Shares:
Common Stock Par Value 782 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Wisconsin Fund Class B Shares:
Common Stock Par Value 82 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Wisconsin Fund Class C Shares:
Common Stock Par Value 27 Accounts
$.01 Per Share as of September 30, 1998
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Voyageur Mutual Funds, Inc.
Tax-Free Idaho Fund's:
Tax-Free Idaho Fund Class A Shares:
Common Stock Par Value 657 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Idaho Fund Class B Shares:
Common Stock Par Value 177 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Idaho Fund Class C Shares:
Common Stock Par Value 68 Accounts
$.01 Per Share as of September 30, 1998
Voyageur Mutual Funds, Inc.
Tax-Free Arizona Fund's:
Tax-Free Arizona Fund Class A Shares:
Common Stock Par Value 185 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Arizona Fund Class B Shares:
Common Stock Par Value 90 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free Arizona Fund Class C Shares:
Common Stock Par Value 14 Accounts
$.01 Per Share as of September 30, 1998
Voyageur Mutual Funds, Inc.
Tax-Free California Fund's:
Tax-Free California Fund Class A Shares:
Common Stock Par Value 128 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free California Fund Class B Shares:
Common Stock Par Value 165 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free California Fund Class C Shares:
Common Stock Par Value 20 Accounts
$.01 Per Share as of September 30, 1998
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Voyageur Mutual Funds, Inc.
Tax-Free New York Fund's:
Tax-Free New York Fund Class A Shares:
Common Stock Par Value 440 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free New York Fund Class B Shares:
Common Stock Par Value 23 Accounts
$.01 Per Share as of September 30, 1998
Tax-Free New York Fund Class C Shares:
Common Stock Par Value 5 Accounts
$.01 Per Share as of September 30, 1998
Voyageur Mutual Funds, Inc.
Minnesota High Yield Municipal Bond Fund's:
Minnesota High Yield Municipal Bond
Fund Class A Shares:
Common Stock Par Value 579 Accounts
$.01 Per Share as of September 30, 1998
Minnesota High Yield Municipal Bond
Fund Class B Shares:
Common Stock Par Value 271 Accounts
$.01 Per Share as of September 30, 1998
Minnesota High Yield Municipal Bond
Fund Class C Shares:
Common Stock Par Value 136 Accounts
$.01 Per Share as of September 30, 1998
</TABLE>
Item 27. Indemnification. Incorporated into this filing by
reference to Post-Effective Amendment No. 10 filed May 31,
1996.
<PAGE>
PART C - Other Information
(Continued)
Item 28. 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, Inc., Delaware Group
Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc., Delaware Group
Government Fund, Inc., Delaware Group Income Funds, Inc., Delaware Group
Limited-Term Government Funds, Inc., Delaware Group Cash Reserve, Inc., Delaware
Group Tax-Free Fund, Inc., Delaware Group State Tax-Free Income Trust, Delaware
Group Tax-Free Money Fund, Inc., Delaware Group Premium Fund, Inc., Delaware
Group Global & International Funds, Inc., Delaware Pooled Trust, Inc., Delaware
Group Adviser Funds, Inc., Delaware Group Dividend and Income Fund, Inc.,
Delaware Group Global Dividend and Income Fund, Inc., Delaware Group Foundation
Funds, Inc., Voyageur Tax Free Funds, Inc., Voyageur Intermediate Tax Free
Funds, Inc., Voyageur Insured Funds, Inc., Voyageur Funds, Inc., Voyageur
Investment Trust, Voyageur Investment Trust II, Voyageur Mutual Funds II, Inc.,
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.
The following persons serving as officers of the Manager have held the
following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc. and Delaware
Management Business Trust; Chairman of the Board, President, Chief Executive
Officer, Chief Investment Officer of Delaware Management Company (a series of
Delaware Management Business Trust); Chairman of the Board, President, Chief
Executive Officer and Director of DMH Corp., Delaware Distributors, Inc. and
Founders Holdings, Inc.; Chairman, Chief Executive Officer and Chief Investment
Officer of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Chairman, Chief Executive Officer and Director of Delaware
International Holdings Ltd. and Delaware International Advisers Ltd.; Chairman of
the Board and Director of the Registrant, each of the other funds in the Delaware
Investments family, Delaware Management Holdings, Inc., and Delaware Capital
Management, Inc.; Chairman of Delaware Distributors, L.P.; President and Chief
Executive Officer of Delvoy, Inc.; and Director and/or Trustee of Delaware Service
Company, Inc. and Retirement Financial Services, Inc.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Richard G. Unruh, Jr. Executive Vice President of the Registrant, each of the other funds in the Delaware
Investments family, Delaware Management Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and Director/Trustee of
Delaware Management Company, Inc. and Delaware Management Business Trust;
President of Delaware Investment Advisers (a series of Delaware Management
Business Trust); and Director of Delaware International Advisers Ltd.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Chairman of Finance
Committee, AAA Mid Atlantic, Inc. since 1989, 2040 Market Street, Philadelphia, PA;
Board of Directors, Metron, Inc. since 1995, 11911 Freedom Drive, Reston, VA
Paul E. Suckow Executive Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, each of the other funds in the Delaware
Investments family and Delaware Management Holdings, Inc.; Executive Vice President
and Director of Founders Holdings, Inc.; Executive Vice President of Delaware
Capital Management, Inc. and Delaware Management Business Trust; and Director of
Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
David K. Downes Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware Management Company, Inc., DMH Corp, Delaware
Distributors, Inc., Founders Holdings, Inc. and Delvoy, Inc.; Executive Vice
President, Chief Financial Officer, Chief Administrative Officer and Trustee of
Delaware Management Business Trust; Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the Registrant and each of the other funds in
the Delaware Investments family, Delaware Management Holdings, Inc., Founders
CBO Corporation, Delaware Capital Management, Inc., Delaware Management
Company (a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and Delaware
Distributors, L.P.; President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.; President, Chief Operating Officer,
Chief Financial Officer and Director of Delaware International Holdings Ltd.;
Chairman, Chief Executive Officer and Director of Retirement Financial Services,
Inc.; Chairman and Director of Delaware Management Trust Company; and Director
of Delaware International Advisers Ltd.
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 Holdings,
Inc., DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
Inc., Delaware Distributors, L.P., Delaware Management Trust Company, Delaware
Capital Management, Inc., Delaware Service Company, Inc., Delaware Management
Company (a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust), Founders CBO
Corporation and Retirement Financial Services, Inc.; Executive Vice
President/General Counsel and Director of Delaware International Holdings Ltd.,
Founders Holdings, Inc. and Delvoy, Inc.; Senior Vice President of the Registrant
and each of the other funds in the Delaware Investments family; Director of
Delaware International Advisers Ltd.
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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
George M. Senior Vice President, Secretary and Director/Trustee of Delaware Management
Chamberlain, Jr. Company, Inc., DMH Corp., Delaware Distributors, Inc., Delaware Service
Company, Inc., Founders Holdings, Inc., Delaware Capital Management,
Inc., Retirement Financial Services, Inc., Delvoy, Inc. and Delaware
Management Business Trust; Senior Vice President, Secretary and General
Counsel of the Registrant and each of the other funds in the Delaware
Investments family; Senior Vice President and Secretary of Delaware
Distributors, L.P., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Management Holdings,
Inc.; Senior Vice President and Director of Delaware International
Holdings Ltd.; Executive Vice President, Secretary and Director of
Delaware Management Trust Company; and Director of Delaware
International Advisers Ltd.
Michael P. Bishof Senior Vice President and Treasurer of the Registrant, each of the other funds in the
Delaware Investments family and Founders Holdings, Inc.; Senior Vice
President/Investment Accounting of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust)
and Delaware Service Company, Inc.; Senior Vice President and Treasurer/
Manager, Investment Accounting of Delaware Distributors, L.P. and Delaware
Investment Advisers (a series of Delaware Management Business Trust); Senior
Vice President and Assistant Treasurer of Founders CBO Corporation; and Senior
Vice President and Manager of Investment Accounting of Delaware International
Holdings Ltd.
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer of Delaware Management
Holdings, Inc., DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc., Delaware Distributors, L.P.,
Delaware Service Company, Inc., Delaware International Holdings Ltd., Delaware
Management Company (a series of Delaware Management Business Trust), Delvoy,
Inc. and Delaware Management Business Trust; Senior Vice President/Corporate
Controller of the Registrant, each of the other funds in the Delaware Investments
family and Founders Holdings, Inc.; Executive Vice President, Chief Financial
Officer and Treasurer of Delaware Management Trust Company; Chief Financial
Officer and Treasurer of Retirement Financial Services, Inc.; and Senior Vice
President/Assistant Treasurer of Founders CBO Corporation
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Michael T. Taggart Vice President/Facilities Management and Administrative Services of Delaware
Management Company, Inc. and Delaware Management Company (a series of
Delaware Management Business Trust)
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Retirement Financial Services, Inc. and Delaware Service
Company, Inc.; Senior Vice President/ Operations and Director of
Delaware Management Trust Company
James L. Shields Senior Vice President/Chief Information Officer of Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Service Company, Inc. and Retirement Financial
Services, Inc.
Eric E. Miller Vice President, Assistant Secretary and Deputy General Counsel of the
Registrant and each of the other funds in the Delaware Investments
family, Delaware Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust), Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Delaware Capital
Management, Inc. and Retirement Financial Services, Inc.; Assistant
Secretary of Delaware Management Business Trust; and Vice President and
Assistant Secretary of Delvoy, Inc.
Richelle S. Maestro Vice President and Assistant Secretary of the Registrant, each of the other funds in
the Delaware Investments family, Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware Management Business Trust),
Delaware Management Holdings, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., DMH Corp., Delaware
Management Trust Company, Delaware Capital Management, Inc., Retirement
Financial Services, Inc., Founders Holdings, Inc. and Delvoy, Inc.; Vice President
and Secretary of Delaware International Holdings Ltd.; and Secretary of Founders
CBO Corporation
Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA
Richard Salus(1) Vice President/Assistant Controller of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust)
and Delaware Management Trust Company
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Bruce A. Ulmer Vice President/Director of LNC Internal Audit of the Registrant, each of the other
funds in the Delaware Investments family, Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware Management
Trust Company and Retirement Financial Services, Inc.; Vice President/Director of
Internal Audit of Delvoy, Inc.
Joel A. Ettinger(2) Vice President/Director of Taxation of the Registrant, each of the other funds in the
Delaware Investments family, Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Management Holdings, Inc., Founders Holdings, Inc. and Founders CBO
Corporation
Christopher Adams Vice President/Business Manager, Equity Department of Delaware
Management Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service Company, Inc.
Susan L. Hanson Vice President/Strategic Planning of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust)
and Delaware Service Company, Inc.
Dennis J. Mara(3) Vice President/Acquisitions of Delaware Management Company, Inc. and Delaware
Management Company (a series of Delaware Management Business Trust)
Scott Metzger Vice President/Business Development of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust)
and Delaware Service Company, Inc.
Lisa O. Brinkley Vice President/Compliance of the Registrant, Delaware Management Company, Inc.,
each of the other funds in the Delaware Investments family, Delaware Management
Company (a series of Delaware Management Business Trust), DMH Corp.,
Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Management Trust Company, Delaware Capital
Management, Inc. and Retirement Financial Services, Inc.; Vice
President/Compliance Officer of Delaware Management Business Trust; and Vice
President of Delvoy, Inc.
Mary Ellen Carrozza Vice President/Client Services of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Pooled Trust, Inc.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management Business
Trust), the Registrant, the other fixed-income investment companies in the Delaware
Investments family; Vice President of Founders Holdings, Inc.; and Treasurer,
Assistant Secretary and Director of Founders CBO Corporation
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management Business
Trust), the Registrant, the other fixed-income investment companies in the Delaware
Investments family; Vice President of Founders Holdings, Inc.; and President and
Director of Founders CBO Corporation
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, the other fixed-income
investment companies in the Delaware Investments family and Delaware
Capital Management, Inc.
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, the other fixed-income
investment companies in the Delaware Investments family and Delaware
Capital Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, the other fixed-income
investment companies in the Delaware Investments family
Mitchell L. Conery(4) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, the other fixed-income
investment companies in the Delaware Investments family and Delaware
Capital Management, Inc.
George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust)
and the equity investment companies in the Delaware Investments family
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
John B. Fields Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), and the equity investment companies in the
Delaware Investments family, Delaware Capital Management, Inc. and
Trustee of Delaware Management Business Trust
Gerald S. Frey Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust) and the equity investment companies in the
Delaware Investments family
Christopher Beck(5) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust) and the equity investment companies in the
Delaware Investments family
Elizabeth H. Howell(6) Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), the Registrant and the other fixed-income investment companies in the
Delaware Investments family
Andrew M. McCullagh, Jr.(7) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust) the Registrant and the other fixed-income investment
companies in the Delaware Investments family
Babak Zenouzi Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust)
and the equity investment companies in the Delaware Investments family
J. Paul Dokas(8) Vice President/Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), and the equity investment companies in the Delaware Investments
family
Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), the Registrant and the other fixed-income investment companies
in the Delaware Investments family
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Paul Grillo Vice President/Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust), the Registrant and the other fixed-income investment
companies in the Delaware Investments family
Marshall T. Bassett(9) Vice President/Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust), and the equity investment companies in the Delaware
Investments family
John A. Heffern(10) Vice President/Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), the Registrant and the equity investment companies in the Delaware
Investments family
Lori P. Wachs Vice President/Portfolio Manager of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), the Registrant and the equity investment companies in the Delaware
Investments family
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
1 SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
2 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
3 CORPORATE CONTROLLER, IIS prior to July 1997.
4 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
5 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
6 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
7 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset Management
LLC prior to May 1997.
8 DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to February
1997.
9 VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997.
10 SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation prior
to March 1997.
<PAGE>
PART C - Other Information
(Continued)
Item 29. 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 Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Investment
Advisers Limited Partner None
Delaware Capital
Management, Inc. Limited Partner None
Wayne A. Stork Chairman Chairman
Bruce D. Barton President and Chief Executive None
Officer
David K. Downes Executive Vice President, Executive Vice President, Chief
Chief Operating Officer Operating Officer and Chief
and Chief Financial Officer Financial Officer
Richard J. Flannery Executive Vice President/ Senior Vice President
General Counsel
George M. Chamberlain, Jr. Senior Vice President/Secretary Senior Vice President/
Secretary/General Counsel
Joseph H. Hastings Senior Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
Terrence P. Cunningham Senior Vice President/Financial None
Institutions
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
J. Chris Meyer Senior Vice President/ None
Director Product Management
William M. Kimbrough Senior Vice President/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager
Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice
Manager, Investment Accounting President/Treasurer
Eric E. Miller Vice President/Assistant Secretary/ Vice President/Assistant Secretary/
Deputy General Counsel Deputy General Counsel
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Lisa O. Brinkley Vice President/Compliance Vice President/Compliance
Daniel H. Carlson Vice President/Strategic Marketing None
Diane M. Anderson Vice President/Plan Record Keeping None
and Administration
Anthony J. Scalia Vice President/Defined Contribution None
Sales, SW Territory
Courtney S. West Vice President/Defined Contribution None
Sales, NE Territory
Denise F. Guerriere Vice President/Client Services None
Gordon E. Searles Vice President/Client Services None
Lori M. Burgess Vice President/Client Services None
Julia R. Vander Els Vice President/Participant Services None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Jerome J. Alrutz Vice President/Retail Sales None
Scott Metzger Vice President/Business Vice President/Business
Development Development
Larry Carr Vice President/Sales Manager None
Stephen C. Hall Vice President/Institutional Sales None
Gregory J. McMillan Vice President/National Accounts None
Holly W. Reimel Senior Vice President/Manager, None
National Accounts
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Senior Vice President, National None
Director/Manager Account Services
Andrew W. Whitaker Vice President/Financial Institutions None
Jessie Emery Vice President/Marketing None
Communications
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
Michael J. Woods Vice President/UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
Dale L. Kurtz Vice President/Marketing Support None
David P. Anderson Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Lee D. Beck Vice President/Wholesaler None
Gabriella Bercze Vice President/Wholesaler None
Larry D. Birdwell Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Joseph Gallagher Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Ronald A. Haimowitz Vice President/Wholesaler None
Edward J. Hecker Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett Vice President/Wholesaler None
Theodore T. Malone Vice President/Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
Roger J. Miller Vice President/Wholesaler None
Andrew Morris Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Scott Naughton Vice President/Wholesaler None
Stephen C. Nell Vice President/Wholesaler None
Julia A. Nye Vice President/Wholesaler None
Joseph T. Owczarek 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
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Julia A. Stanton Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Edward J. Wagner Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
John A. Wells Vice President/Marketing None
Technology
Scott Whitehouse Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Inapplicable.
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at
1818 Market Street, Philadelphia, PA 19103 or One Commerce
Square, Philadelphia, PA 19103 or 90 South Seventh Street,
Suite 4400, Minneapolis, Minnesota 55402.
<PAGE>
PART C - Other Information
(Continued)
Item 31. Management Services. None.
Item 32. Undertakings.
(a) Inapplicable.
(b) Inapplicable.
(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting
of shareholders for the purpose of voting upon the question
of removal of any director when requested in writing to do
so by the record holders of not less than 10% of the
outstanding shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
this City of Philadelphia and Commonwealth of Pennsylvania on this 27th day of
October, 1998.
VOYAGEUR MUTUAL FUNDS, INC.
By /s/ Wayne A. Stork
----------------------
Wayne A. Stork
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ---------------------------------- -----------------
<S> <C> <C>
/s/ Wayne A. Stork Chairman of the Board and Director October 27, 1998
- ----------------------------
Wayne A. Stork
Executive Vice President/Chief Operating
Officer/Chief Financial Officer
(Principal Financial Officer and
/s/ David K. Downes Principal Accounting Officer) October 27, 1998
- ----------------------------
David K. Downes
/s/Walter P. Babich * Director October 27, 1998
- ----------------------------
Walter P. Babich
/s/Anthony D. Knerr * Director October 27, 1998
- ----------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director October 27, 1998
- ----------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director October 27, 1998
- ----------------------------
W. Thacher Longstreth
/s/Thomas F. Madison * Director October 27, 1998
- ----------------------------
Thomas F. Madison
/s/Jeffrey J. Nick * Director October 27, 1998
- ----------------------------
Jeffrey J. Nick
/s/Charles E. Peck * Director October 27, 1998
- ----------------------------
Charles E. Peck
*By /s/ Wayne A. Stork
--------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
EX-99.B9BI Form of Amendment No. 10 (1998) to Schedule A to Delaware Group of Funds
Fund Accounting Agreement
EX-99.B9BII Form of Amendment No. 11 (1998) to Schedule A to Delaware Group of Funds
Fund Accounting Agreement
EX-99.B9BIII Form of Amendment No. 12 (1998) to Schedule A to Delaware Group of Funds
Fund Accounting Agreement
EX-99.B11 Consent of Auditors
EX-27 Financial Data Schedules
</TABLE>
<PAGE>
EX-99.B9BI
Exhibit 24(b)(9)(b)(i)
AMENDMENT NO. 10
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund (formerly World Growth Fund)
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Social Awareness Fund (formerly Quantum Fund) (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Small Cap Value Fund (formerly Value Fund)
Retirement Income Fund (New)
- ------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and
the Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
<PAGE>
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income Portfolio (New)
The Asset Allocation Portfolio (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Large-Cap Value Equity Portfolio
(formerly The Defensive Equity Portfolio)
The Small/Mid-Cap Value Equity Portfolio (New)
(formerly The Defensive Equity Small/Mid-Cap Portfolio)
The Defensive Equity Utility Portfolio (deregistered January 14, 1997)
The Emerging Markets Portfolio (New)
The Intermediate Fixed Income Portfolio
(formerly The Fixed Income Portfolio)
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
The Diversified Core Fixed Income Portfolio (New)
The Aggregate Fixed Income Portfolio (New)
The Small-Cap Growth Equity Portfolio (New)
The Growth and Income Portfolio (New)
2
<PAGE>
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Social Awareness Series (formerly Quantum Series) (New)
REIT Series (New)
Strategic Income Series (New)
Trend Series
Small Cap Value Series (formerly Value Series)
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT Tax-Free Income
Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur US Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
3
<PAGE>
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
4
<PAGE>
Dated as of August __, 1998
DELAWARE SERVICE COMPANY, INC.
By:
-------------------------------
David K. Downes
President, Chief Executive Officer
and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP FOUNDATION FUNDS
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By:
-------------------------------
Wayne A. Stork
Chairman
5
<PAGE>
EX-99.B9BII
Exhibit 24(b)(9)(b)(ii)
AMENDMENT NO. 11
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund (formerly World Growth Fund)
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Social Awareness Fund (formerly Quantum Fund) (New)
Diversified Value Fund (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Small Cap Value Fund (formerly Value Fund)
Retirement Income Fund (New)
- ------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
<PAGE>
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income Portfolio (New)
The Asset Allocation Portfolio (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Large-Cap Value Equity Portfolio
(formerly The Defensive Equity Portfolio)
The Small/Mid-Cap Value Equity Portfolio (New)
(formerly The Defensive Equity Small/Mid-Cap Portfolio)
The Defensive Equity Utility Portfolio (deregistered January 14, 1997)
The Emerging Markets Portfolio (New)
The Intermediate Fixed Income Portfolio
(formerly The Fixed Income Portfolio)
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
The Diversified Core Fixed Income Portfolio (New)
The Aggregate Fixed Income Portfolio (New)
The Small-Cap Growth Equity Portfolio (New)
The Growth and Income Portfolio (New)
2
<PAGE>
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series(New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Social Awareness Series (formerly Quantum Series) (New)
REIT Series (New)
Strategic Income Series (New)
Trend Series
Small Cap Value Series (formerly Value Series)
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT Tax-Free Income
Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur US Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
3
<PAGE>
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
4
<PAGE>
Dated as of August , 1998
DELAWARE SERVICE COMPANY, INC.
By:______________________________________________________________
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP FOUNDATION FUNDS
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By:______________________________________________________________
Wayne A. Stork
Chairman
5
<PAGE>
EX-99.B9BIII
Exhibit 24(b)(9)(b)(iii)
AMENDMENT NO. 12
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund (formerly World Growth Fund)
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Social Awareness Fund (formerly Quantum Fund) (New)
Diversified Value Fund (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Small Cap Value Fund (formerly Value Fund)
Retirement Income Fund (New)
__________________
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on
Schedule B to that Fund Accounting Agreement between Delaware Service
Company, Inc. and the Delaware Group of Funds dated as of August 19, 1996
("Agreement"). All portfolios added to this Schedule A by amendment
executed by a Company on behalf of such Portfolio hereof shall be a New
Portfolio for purposes of Schedule B to the Agreement.
<PAGE>
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income Portfolio (New)
The Asset Allocation Portfolio (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Corporate Bond Fund (New)
Extended Duration Bond Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Large-Cap Value Equity Portfolio
(formerly The Defensive Equity Portfolio)
The Small/Mid-Cap Value Equity Portfolio (New)
(formerly The Defensive Equity Small/Mid-Cap Portfolio)
The Defensive Equity Utility Portfolio (deregistered January 14, 1997)
The Emerging Markets Portfolio (New)
The Intermediate Fixed Income Portfolio
(formerly The Fixed Income Portfolio)
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
The Diversified Core Fixed Income Portfolio (New)
The Aggregate Fixed Income Portfolio (New)
The Small-Cap Growth Equity Portfolio (New)
The Growth and Income Portfolio (New)
2
<PAGE>
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series(New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Social Awareness Series (formerly Quantum Series) (New)
REIT Series (New)
Strategic Income Series (New)
Trend Series
Small Cap Value Series (formerly Value Series)
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT Tax-Free Income
Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur US Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
3
<PAGE>
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
4
<PAGE>
Dated as of September , 1998
DELAWARE SERVICE COMPANY, INC.
By:______________________________________________________________
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP FOUNDATION FUNDS
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By:_____________________________________________________________
Wayne A. Stork
Chairman
5
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus of Delaware-Voyageur Tax-Free Mutual Funds and
"Financial Statements" in the Statement of Additional Information of Voyageur
Mutual Funds, Inc. and to the incorporation by reference in this Post-Effective
Amendment No. 21 to the Registration Statement (Form N-1A) (No. 33-63238) of
Voyageur Mutual Funds, Inc. of our reports dated October 5, 1998, included in
the 1998 Annual Reports to shareholders of Delaware-Voyageur Tax-Free Arizona
Fund, Delaware-Voyageur Tax-Free California Fund, Delaware-Voyageur Tax-Free
Idaho Fund, Delaware-Voyageur Tax-Free Iowa Fund, Delaware-Voyageur Minnesota
High Yield Municipal Bond Fund, Delaware-Voyageur Tax-Free New York Fund, and
Delaware-Voyageur Tax-Free Wisconsin Fund.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
October 27, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Arizona Fund
Voyageur Insured Funds, Inc. - Delaware-Voyageur Tax-Free Arizona Insured Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free California Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free California Insured Fund
Voyageur Mutual Funds II, Inc. - Delaware-Voyageur Tax-Free Colorado Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free New Mexico Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Utah Fund
We have audited the accompanying statements of net assets of Tax-Free Arizona
Fund, Tax-Free Arizona Insured Fund, Tax-Free California Fund, Tax-Free
California Insured Fund, Tax-Free Colorado Fund, Tax-Free New Mexico Fund and
Tax-Free Utah Fund (the "Funds") as of August 31, 1998, and the related
statements of operations, statements of changes in net assets and financial
highlights for the period January 1, 1998 through August 31, 1998 and for the
year ended December 31, 1997. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The statements of changes in net assets for the year ended
December 31, 1996 and the financial highlights for the periods presented through
December 31, 1996 were audited by other auditors whose reports thereon dated
February 14, 1997 expressed unqualified opinions on those statements and
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at August 31, 1998, and the results of their operations,
the changes in their net assets and their financial highlights for the period
January 1, 1998 through August 31, 1998 and for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
October 5, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Florida Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Florida Insured Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free New York Fund
We have audited the accompanying statements of net assets of Tax-Free Florida
Fund, Tax-Free Florida Insured Fund, and Tax-Free New York Fund (the "Funds") as
of August 31, 1998, and the related statements of operations, statements of
changes in net assets and financial highlights for the period January 1, 1998
through August 31, 1998 and for the year ended December 31, 1997. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
statements of changes in net assets and the financial highlights for the periods
presented through December 31, 1996 were audited by other auditors whose reports
thereon dated February 14, 1997 expressed unqualified opinions on those
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at August 31, 1998, and the results of their operations,
the changes in their net assets and their financial highlights for the period
January 1, 1998 through August 31, 1998 and for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
October 5, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Idaho Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Iowa Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Kansas Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Missouri Insured Fund
Voyageur Tax-Free Funds, Inc. - Delaware-Voyageur Tax-Free North Dakota Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Oregon Insured Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Washington Insured Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Wisconsin Fund
We have audited the accompanying statements of net assets of Tax-Free Idaho
Fund, Tax-Free Iowa Fund, Tax-Free Kansas Fund, Tax-Free Missouri Insured Fund,
Tax-Free North Dakota Fund, Tax-Free Oregon Insured Fund, Tax-Free Washington
Insured Fund and Tax-Free Wisconsin Fund (the "Funds") as of August 31, 1998,
and the related statements of operations, statements of changes in net assets
and financial highlights for the period January 1, 1998 through August 31, 1998
and for the year ended December 31, 1997. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets for the year ended December 31, 1996 and the financial highlights for the
periods presented through December 31, 1996 were audited by other auditors whose
reports thereon dated February 14, 1997 expressed unqualified opinions on those
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at August 31, 1998, and the results of their operations,
the changes in their net assets and their financial highlights for the period
January 1, 1998 through August 31, 1998 and for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
October 5, 1998
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Voyageur Tax-Free Funds, Inc. - Delaware-Voyageur Tax-Free Minnesota Fund
Voyageur Insured Funds, Inc. - Delaware-Voyageur Minnesota Insured Fund
Voyageur Intermediate Tax-Free Funds, Inc. - Delaware-Voyageur Tax-Free
Minnesota Intermediate Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Minnesota High Yield Municipal
Bond Fund
We have audited the accompanying statements of net assets of Tax-Free Minnesota
Fund, Minnesota Insured Fund, Tax-Free Minnesota Intermediate Fund and Minnesota
High Yield Municipal Bond Fund (the "Funds") and the statement of assets and
liabilities of Minnesota High Yield Municipal Bond Fund as of August 31, 1998,
and the related statements of operations, statements of changes in net assets
and financial highlights for the period January 1, 1998 through August 31, 1998
and for the year ended December 31, 1997. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets for the year ended December 31, 1996 and the financial highlights for the
periods presented through December 31, 1996 were audited by other auditors whose
report thereon dated February 14, 1997 expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at August 31, 1998, and the results of their operations,
the changes in their net assets and their financial highlights for the period
January 1, 1998 through August 31, 1998 and for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
October 5, 1998
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Voyageur Tax-Free Funds, Inc.
Voyageur Intermediate Tax-Free Funds, Inc.
Voyageur Insured Funds, Inc.
Voyageur Investment Trust
Voyageur Mutual Funds, Inc.
Voyageur Mutual Funds II, Inc.:
We consent to the use of our reports dated February 14, 1997 incorporated herein
by reference and to the reference of our Firm under the heading "FINANCIAL
STATEMENTS" in the Statement of Additional Information.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 28, 1998
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Voyageur Tax-Free Funds, Inc.
Voyageur Intermediate Tax-Free Funds, Inc.
Voyageur Insured Funds, Inc.
Voyageur Investment Trust
Voyageur Mutual Funds, Inc.
Voyageur Mutual Funds II, Inc.:
We have audited the accompanying statements of changes in net assets of Voyageur
Tax-Free Arizona Fund, Voyageur Tax-Free California Fund, Voyageur Tax-Free
Idaho Fund, Voyageur Tax-Free Iowa Fund, Voyageur Minnesota High Yield Municipal
Bond Fund, Voyageur National High Yield Municipal Bond Fund, Voyageur Tax-Free
New York Fund, Voyageur Tax-Free Wisconsin Fund (portfolios within Voyageur
Mutual Funds, Inc.); Voyageur Tax-Free California Insured Fund, Voyageur
Tax-Free Florida Fund, Voyageur Tax-Free Florida Insured Fund, Voyageur Tax-Free
Kansas Fund, Voyageur Tax-Free Missouri Fund, Voyageur Tax-Free New Mexico Fund,
Voyageur Tax-Free Oregon Insured Fund, Voyageur Tax-Free Utah Fund, Voyageur
Tax-Free Washington Insured Fund (portfolios within Voyageur Investment Trust);
Voyageur Tax-Free Arizona Insured Fund, Voyageur Minnesota Insured Fund,
(portfolios within Voyageur Insured Funds, Inc.); Voyageur Tax-Free Minnesota
Fund, Voyageur Tax-Free North Dakota Fund, (portfolios within Voyageur Tax-Free
Funds, Inc.); Voyageur Tax-Free Minnesota Intermediate Fund, (a portfolio within
Voyageur Tax-Free Funds, Inc.); and Voyageur Tax-Free Colorado Fund (a portfolio
within Voyageur Mutual Funds II, Inc.) for the year ended December 31, 1996, and
the financial highlights for the periods ended prior to or on December 31, 1996.
The statements of changes in net assets and the financial highlights are the
responsibility of Fund management. Our responsibility is to express an opinion
on the statements of changes in net assets and the financial highlights based on
our audits.
<PAGE>
KPMG Peat Marwick LLP
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the changes in net assets of
and financial highlights of the aforementioned funds for the periods ended prior
to or on December 31, 1996, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 14, 1997
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<NET-CHANGE-FROM-OPS> 756,023
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<DISTRIBUTIONS-OF-INCOME> 170
<DISTRIBUTIONS-OF-GAINS> 42,698
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 142,024
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<SERIES>
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<PERIOD-END> AUG-31-1998
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<INVESTMENTS-AT-VALUE> 17,409,949
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<SERIES>
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<NAME> DELAWARE VOYGEUR TAX FREE CALIFORNIA FUND A CLASS
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<PERIOD-END> AUG-31-1998
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 397,034
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 469,232
<OTHER-INCOME> 0
<EXPENSES-NET> 58,842
<NET-INVESTMENT-INCOME> 410,390
<REALIZED-GAINS-CURRENT> 29,399
<APPREC-INCREASE-CURRENT> 252,698
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<SERIES>
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 58,842
<NET-INVESTMENT-INCOME> 410,390
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<APPREC-INCREASE-CURRENT> 252,698
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<DISTRIBUTIONS-OF-INCOME> 216,553
<DISTRIBUTIONS-OF-GAINS> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> VOYAGEUR MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 043
<NAME> DELAWARE VOYAGEUR TAX FREE CALIFORNIA FUND C CLASS
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 24,073,845
<INVESTMENTS-AT-VALUE> 24,746,960
<RECEIVABLES> 436,869
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,109
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<PAYABLE-FOR-SECURITIES> 3,740,542
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 111,343
<TOTAL-LIABILITIES> 3,851,885
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,636,509
<SHARES-COMMON-STOCK> 68,952
<SHARES-COMMON-PRIOR> 9,839
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,429
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 673,115
<NET-ASSETS> 774,044
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 469,232
<OTHER-INCOME> 0
<EXPENSES-NET> 58,842
<NET-INVESTMENT-INCOME> 410,390
<REALIZED-GAINS-CURRENT> 29,399
<APPREC-INCREASE-CURRENT> 252,698
<NET-CHANGE-FROM-OPS> 692,487
<EQUALIZATION> 0
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